Company Overview
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
central nervous system (
CNS
) disorders.
AV-101 is our oral CNS product candidate in Phase 2 clinical
development in the United States, initially as a new generation
adjunctive treatment for Major Depressive Disorder
(
MDD
) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (
FDA
). AV-101’s mechanism of action
(
MOA
) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally differentiated from all FDA-approved antidepressants,
as well as all atypical antipsychotics often used adjunctively to
augment them. We believe AV-101 also has potential as a new
treatment alternative for several additional indications involving
the CNS, including epilepsy, Huntington’s disease,
L-DOPA-induced dyskinesia associated with Parkinson’s
disease, and neuropathic pain.
Clinical studies conducted at the U.S. National Institute of Mental
Health (
NIMH
), part of the U.S. National Institutes of Health
(
NIH
), by Dr. Carlos Zarate, Jr., Chief of the
NIMH’s Experimental Therapeutics & Pathophysiology Branch
and its Section on Neurobiology and Treatment of Mood and Anxiety
Disorders, have focused on the antidepressant effects of low dose
ketamine hydrochloride injection (
ketamine
), an NMDA receptor antagonist, in MDD patients
with inadequate responses to multiple standard antidepressants.
These NIMH studies, as well as clinical research at Yale University
and other academic institutions, have demonstrated robust
antidepressant effects in these MDD patients within twenty-four
hours of a single sub-anesthetic dose of ketamine administered by
intravenous (
IV
) injection.
We believe orally-administered AV-101 may have potential to deliver
ketamine-like antidepressant effects without ketamine’s
psychological and other negative side effects. As published in the
October 2015 issue of the peer-reviewed,
Journal of Pharmacology and
Experimental Therapeutics,
in an article titled,
The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition,
using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant antidepressant-like
responses following a single treatment. These responses were
equivalent to those seen with a single sub-anesthetic control dose
of ketamine. In addition, these studies confirmed that the
fast-acting antidepressant effects of AV-101 were mediated through
both inhibiting the GlyB site of the NMDA receptor and activating
the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and Development Agreement
(
CRADA
) with the NIMH, the NIMH is funding, and Dr.
Zarate, as Principal Investigator, and his team are conducting, a
small Phase 2 clinical study of AV-101 monotherapy in subjects with
treatment-resistant MDD (the
NIMH AV-101 MDD Phase 2
Monotherapy Study
). We are
preparing to launch our 180-patient Phase 2 multi-center,
multi-dose, double blind, placebo-controlled efficacy and safety
study of AV-101 as a new generation adjunctive treatment of MDD in
adult patients with an inadequate response to standard,
FDA-approved antidepressants (the
AV-101 MDD Phase 2 Adjunctive
Treatment Study
). Dr. Maurizio Fava, Professor of
Psychiatry at Harvard Medical School and Director, Division of
Clinical Research, Massachusetts General Hospital
(
MGH
) Research Institute, will be the Principal
Investigator of our AV-101 MDD Phase 2 Adjunctive Treatment
Study. Dr. Fava was the co-Principal Investigator with
Dr. A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the New England Journal of Medicine
(
NEJM
) and the Journal of the American Medical
Association (
JAMA
). We currently anticipate completing our AV-101
MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top
line results available in the first quarter of
2019.
VistaStem Therapeutics (
VistaStem
) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (
hPSC
) technology, internally and with collaborators,
to discover, rescue, develop and commercialize (i) proprietary new
chemical entities (
NCEs
) for CNS and other diseases and (ii) regenerative
medicine (
RM
) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are
designed to utilize
CardioSafe
3D
, our customized cardiac
bioassay system, to develop small molecule NCEs for our
pipeline. In December 2016, we exclusively sublicensed to
BlueRock Therapeutics LP, a next generation RM company established
by Bayer AG and Versant Ventures, rights to certain proprietary
technologies relating to the production of cardiac stem cells for
the treatment of heart disease (the
BlueRock
Agreement
). In a manner
similar to our exclusive sublicense agreement with BlueRock
Therapeutics, VistaStem may pursue additional RM collaborations or
licensing transactions involving blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy, (B) cell
repair therapy, and/or (C) tissue
engineering.
AV-101 and Major Depressive Disorder
Background
The World Health Organization (
WHO
) estimates that 300 million people worldwide are
affected by depression. According to the NIH, major depression is
one of the most common mental disorders in the U.S. The NIMH
reports that, in 2014, approximately 16 million adults in the U.S.
had at least one major depressive episode in the past year.
According to the U.S. Centers for Disease Control and Prevention
(
CDC
) one in 10 Americans over the age of 12 takes a
standard, FDA-approved antidepressant.
Most standard antidepressants target neurotransmitter reuptake
inhibition – either serotonin (antidepressants known
as
SSRIs
) or serotonin/norepinephrine (antidepressants
known as
SNRIs
). Even when effective, these standard depression
medications take many weeks to achieve adequate antidepressant
effects. Nearly two out of every three drug-treated depression
patients do not obtain adequate therapeutic benefit from initial
treatment with a standard antidepressant. Even after treatment with
many different standard antidepressants, nearly one out of every
three drug-treated depression patients still do not achieve
adequate therapeutic benefits from their antidepressant
medication. Such patients with an inadequate response to
standard antidepressants often seek to augment their treatment
regimen by adding an atypical antipsychotic (drugs such as
aripiprazole), despite only modest potential therapeutic benefit
and the risk of additional side effects.
All standard antidepressants have risks of side effects, including,
among others, anxiety, metabolic syndrome, sleep disturbance and
sexual dysfunction. Adjunctive use of atypical antipsychotics to
augment inadequately performing standard antidepressants may
increase the risk of side effects, including, tardive dyskinesia,
weight gain, diabetes and heart disease, while offering only a
modest potential increase in therapeutic benefit.
AV-101
AV-101 is our oral CNS drug candidate in Phase 2 development in the
United States, initially focused as a new generation antidepressant
for the adjunctive treatment of MDD patients with an inadequate
response to standard, FDA-approved antidepressants. As published in
the October 2015 issue of the
peer-reviewed,
Journal of Pharmacology and
Experimental Therapeutics,
in an article titled,
The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition,
using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant ketamine-like
antidepressant effects following a single treatment, responses
equivalent to those seen with a single sub-anesthetic control dose
of ketamine, without the negative side effects seen with ketamine.
In addition, these studies confirmed that the antidepressant
effects of AV-101 were mediated through both inhibition of the GlyB
site of NMDA receptors and activation of the AMPA receptor pathway
in the brain, a key final common pathway feature of certain new
generation antidepressants such as ketamine and AV-101, each with a
MOA that is fundamentally different from all standard
antidepressants and atypical antipsychotics used adjunctively to
augment them.
We have completed two NIH-funded, randomized, double blind,
placebo-controlled AV-101 Phase 1 safety studies. Currently,
pursuant to our CRADA
with Dr.
Carlos Zarate, Jr., the NIMH is funding, and Dr. Zarate, as
Principal Investigator, and his team are conducting, the 20 patient
NIMH AV-101 MDD Phase 2 Monotherapy Study. We currently anticipate
that the NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy
Study in 2017, with top line results during the first half of
2018.
We are currently preparing to launch our 180-patient AV-101 MDD
Phase 2 Adjunctive Treatment Study as an adjunctive treatment of
MDD in patients with an inadequate response to standard,
FDA-approved antidepressants. We currently anticipate the launch of
the AV-101 MDD Phase 2 Adjunctive Treatment Study, with Dr.
Maurizio Fava of Harvard Medical School serving as Principal
Investigator, in the first quarter of 2018. Subject to securing
adequate financing, we currently anticipate completing our AV-101
MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top
line results available in the first quarter of
2019.
We believe preclinical studies and Phase 1 safety studies support
our hypothesis that AV-101 may also have potential to treat
multiple CNS disorders and diseases beyond MDD, including epilepsy,
neuropathic pain, Huntington’s disease, L-DOPA-induced
dyskinesia associated with Parkinson’s disease, and several
other CNS indications where modulation of the NMDA receptor,
activation of AMPA pathways and/or key active metabolites of AV-101
may achieve therapeutic benefit. We are beginning to plan
additional Phase 2 clinical studies of AV-101 to further evaluate
its therapeutic potential beyond MDD.
CardioSafe 3D™; NCE Drug Rescue and Regenerative
Medicine
VistaStem Therapeutics is our wholly owned subsidiary focused on
applying hPSC technology to discover, rescue, develop and
commercialize proprietary small molecule NCEs for CNS and other
diseases, as well as potential cellular therapies involving stem
cell-derived blood, cartilage, heart and liver cells.
CardioSafe
3D™ is our
customized
in vitro
cardiac bioassay system capable of
predicting potential human heart toxicity of small molecule
NCEs
in vitro
, long before they are ever tested in animal and
human studies. Potential commercial applications of our stem cell
technology platform involve (i) using
CardioSafe
3D internally for NCE drug discovery and
drug rescue to expand our proprietary drug candidate pipeline. Drug
rescue involves leveraging substantial prior research and
development investments by pharmaceutical companies and others
related to public domain NCE programs terminated before FDA
approval due to heart toxicity risks and (ii) RM
and cellular therapies. In December
2016, we exclusively sublicensed to BlueRock Therapeutics LP, a
next generation regenerative medicine company established by Bayer
AG and Versant Ventures, rights to certain proprietary technologies
relating to the production of cardiac stem cells for the treatment
of heart disease
. We may also
pursue additional potential RM applications using blood, cartilage,
and/or liver cells derived from hPSCs for (A) cell-based therapy
(injection of stem cell-derived mature organ-specific cells
obtained through directed differentiation), (B) cell repair therapy
(induction of regeneration by biologically active molecules
administered alone or produced by infused genetically engineered
cells), or (C) tissue engineering (transplantation
of
in
vitro
grown complex
tissues) using hPSC-derived blood, bone, cartilage, and/or liver
cells. In a manner similar to the BlueRock Agreement, we may
pursue these additional RM and cellular therapy applications in
collaboration with third-parties.
Subsidiaries
VistaGen Therapeutics, Inc., a California corporation dba VistaStem
Therapeutics (
VistaStem
), is our wholly-owned subsidiary. Our
Consolidated Financial Statements in this Report also include the
accounts of VistaStem’s two wholly-owned inactive
subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation,
and VistaStem Canada, Inc., a corporation organized under the laws
of Ontario, Canada.
Our Strategy
Our
core strategy is to develop and commercialize innovative small
molecule drugs that address significant unmet medical needs related
to CNS diseases and disorders. We have assembled a management team
and a team of scientific, clinical, and regulatory advisors,
including recognized experts in the fields of depression and other
CNS disorders, with significant industry and regulatory experience
to lead and execute the development and commercialization of our
CNS product candidate opportunities. Key elements of our strategy
are to:
●
Develop and commercialize our lead CNS product candidate, AV-101,
initially as a new generation adjunctive treatment for MDD patients
with an inadequate response to standard, FDA-approved
antidepressants.
We are
currently pursuing adjunctive treatment of MDD as our lead
indication for AV-101. We are preparing to launch our approximately
180-patient AV-101 MDD Phase 2 Adjunctive Treatment Study of AV-101
for the adjunctive treatment of MDD in patients with an inadequate
response to standard antidepressants. We intend to develop AV-101
internally, through a pivotal Phase 3 clinical program focused on
adjunctive treatment of MDD, accompanied by submission of our New
Drug Application (
NDA
)
for AV-101 to the FDA. If our NDA is approved by the FDA, we plan
to commercialize AV-101 for this indication in the U.S. either by
(A) collaborating with a large pharmaceutical company with a strong
commercial presence in global depression and other CNS markets
and/or (B) contracting for specialty sales force support focused
primarily on psychiatrists and long-term care physicians who
prescribe standard antidepressants and atypical antipsychotics for
treatment of their MDD patients.
●
Leverage the commercial potential of AV-101 by
expanding Phase 2 development to include additional CNS-related
disorders and diseases.
We intend to pursue broad clinical
development and commercialization of AV-101 across a range of
CNS-related indications that are underserved by currently available
medicines and represent significant unmet medical needs. Based on
AV-101 preclinical studies, our successful NIH-funded AV-101 Phase
1a and 1b clinical safety studies, and regulatory submissions
related to the
AV-101 MDD Phase
2 Adjunctive Treatment Study
, we expect to have
opportunities to expand Phase 2 development of AV-101 beyond MDD to
include other CNS indications, such as neuropathic pain, epilepsy,
Huntington’s disease and
L-DOPA-induced dyskinesia associated with
Parkinson’s disease
,
where modulation of the NMDA receptors, the
AMPA receptor pathway and/or key active metabolites of AV-101 may
achieve therapeutic benefit
.
●
Capitalize on our drug rescue and RM
opportunities using our stem cell technology platform.
We
are focused on using our cardiac stem cell technology to screen and
develop proprietary NCEs through drug rescue programs intended to
produce proprietary NCEs for our internal drug development
pipeline, without incurring many of the substantial costs and risks
typically inherent in new drug discovery and non-clinical drug
development. In order to capitalize on our existing stem cell
technology, we may establish additional strategic collaborations
similar to the BlueRock Agreement, as well as investigating
potential spin-off opportunities. As most of our resources are
currently focused on the non-clinical and clinical development
activities we believe are necessary to advance AV-101 through Phase
2 and into pivotal Phase 3 development, a strategic collaboration
or spin-off involving our stem cell technology could allow us to
capitalize on our existing stem cell technology and shift our focus
exclusively to developing our CNS pipeline.
●
Pursue in-licensing and acquisition of
additional CNS product candidates.
While our resources are
currently focused primarily on development of AV-101 for MDD and
additional CNS indications, we anticipate pursuing acquisition of
additional CNS-related product candidates in the future. We believe
that a diversified CNS product candidate portfolio will mitigate
risks inherent in drug development and increase the likelihood of
our success.
●
Grow our internal development pipeline through
drug rescue using our cardiac stem cell technology platform.
We have developed our cardiac bioassay system,
CardioSafe
3D, for drug rescue
applications intended to produce proprietary small molecule NCEs
for our internal drug development pipeline, without incurring many
of the substantial costs and risks typically inherent in new drug
discovery and non-clinical drug development.
AV-101 (L-4-cholorkyurenine or 4-Cl-KYN)
Overview and Mechanism of Action
AV-101
is an orally available, clinical-stage prodrug candidate that
readily gains access to the CNS after systemic administration and
is rapidly converted
in
vivo
into its active metabolite, 7-chlorokynurenic acid
(
7-Cl-KYNA
), a
well-characterized, potent and highly selective antagonist of
the NMDA receptor at its GlyB co-agonist
site.
Current
evidence suggests that AV-101’s antagonism of NMDA receptor
signaling may provide faster-acting antidepressant effects in the
treatment of MDD than standard antidepressants. In addition, as
confirmed in our AV-101 Phase 1 clinical studies, targeting the
GlyB site of the NMDA receptor does not have the negative side
effects typically associated with standard antidepressants and
channel-blocking NMDA receptor antagonists, such as
ketamine.
Major Depressive Disorder
Depression
is a serious medical illness and a global public health concern.
The WHO estimates that depression is the leading cause of
disability worldwide, and is a major contributor to the global
burden of disease, affecting 300 million people globally. According
to the CDC, approximately one in every 10 Americans aged 12 and
over takes antidepressant medication.
While
most people will experience depressed mood at some point during
their lifetime, MDD is different. MDD is the chronic, pervasive
feeling of utter unhappiness and suffering, which impairs daily
functioning. Symptoms of MDD include diminished pleasure in
activities, changes in appetite that result in weight changes,
insomnia or oversleeping, psychomotor agitation, loss of energy or
increased fatigue, feelings of worthlessness or
inappropriate guilt, difficulty thinking, concentrating or
making decisions, and thoughts of death or suicide and attempts at
suicide. Suicide is estimated to be the cause of death in up to 15%
individuals with MDD.
Standard Antidepressants
For
many people, depression cannot be controlled for any length of time
without treatment. Standard antidepressant medications
available in the multi-billion dollar global depression market,
including commonly-prescribed SSRIs and SNRIs, have limited
effectiveness, and, because of their mechanism of action, must be
taken for several weeks or months before patients experience any
significant therapeutic benefit. About two out of every three
depression sufferers, including over an estimated 6.0 million
drug-treated MDD patients in the U.S., do not receive adequate
therapeutic benefits from their initial treatment with a
standard antidepressant, and the likelihood of achieving remission
of depressive symptoms declines with each successive treatment
attempt. Even after multiple treatment attempts, approximately one
out of every three depression sufferers still fails to find an
adequately effective standard antidepressant. In addition, this
trial and error process and the systemic effects of the various
antidepressants involved may increase the risk of patient
tolerability issues and serious side effects, including suicidal
thoughts and behaviors in certain groups.
Ketamine and NIH Clinical Studies in Major Depressive
Disorder
Ketamine
hydrochloride (
ketamine
) is
an FDA-approved, rapid-acting general anesthetic currently
administered only by intravenous (
IV
) or intramuscular (
IM
) injection. The use of ketamine (an
NMDA receptor antagonist which acts as an NMDA channel blocker) to
treat MDD has been studied in several clinical trials conducted by
depression experts at Yale University and other academic
institutions and at the NIMH, including Dr. Carlos Zarate, Jr., the
NIMH’s Chief of Experimental Therapeutics &
Pathophysiology Branch and of the Section on Neurobiology and
Treatment of Mood and Anxiety Disorders. In randomized,
placebo-controlled, double blind clinical trials reported by Dr.
Zarate and others at the NIMH, a single low dose of ketamine (0.5
mg/kg over 40 minutes) produced robust and rapid antidepressant
effects in MDD patients who had not responded to standard
antidepressants. These results were in contrast to the
very slow onset of SSRIs and SNRIs that usually require many
weeks or months of chronic usage to achieve similar antidepressant
effects. The potential for widespread therapeutic use of
current FDA-approved ketamine, a Schedule III drug, for MDD is
limited by its potential for abuse, dissociative and psychosis-like
side effects and by practical challenges associated with the
necessity of I.V. administration in a medical center.
Notwithstanding these limitations, however, the discovery of
ketamine’s fast-acting antidepressant effects revolutionized
thinking about the current MDD treatment paradigm and catalyzed
development of a new generation of antidepressants with
faster-acting mechanisms of action similar to
ketamine’s. Our orally available AV-101 is among
the next generation of antidepressants with potential to deliver
faster-onset antidepressant effects than standard antidepressants,
without the side effects typically associated with standard
antidepressants or ketamine.
AV-101 and Major Depressive Disorder
AV-101
is an orally available prodrug candidate that produces, in the
brain, 7-Cl-KYNA, one of the most potent and selective antagonists
of the GlyB site of the NMDA receptor, resulting in the
down-regulation of NMDA receptor signaling. Growing evidence
suggests that glutamatergic activation involving AMPA receptors is
central to the neurobiology and treatment of MDD and other mood
disorders.
AV-101’s
mechanism of action is fundamentally differentiated from all
standard, FDA-approved antidepressants and all atypical
antipsychotics often used adjunctively to augment inadequate
response to standard antidepressants, placing AV-101 among a new
generation of antidepressants with potential to treat millions of
MDD sufferers worldwide who are poorly served by SSRIs, SNRIs and
other current depression therapies. AV-101 is functionally similar
to ketamine in that both induce final common pathway antidepressant
activity via glutamatergic activation involving AMPA receptors.
However, AV-101 inhibits NMDA receptor channel activity, whereas
ketamine blocks the ion channel of the NMDA receptor. AV-101, as a
prodrug, produces in the brain an antagonist that inhibits the NMDA
receptor by selectively binding to its functionally required GlyB
site. Experimental evidence confirms that inhibiting the NMDA
receptor by targeting the GlyB site can produce potent
antidepressive effects and bypass adverse effects that result when
ketamine blocks the NMDA receptor ion channel. Experimental
evidence also supports the conclusion that this NMDA receptor
inhibition by AV-101 may then result in a glutamatergic activation
that depends on the AMPA receptor pathway, resulting in an increase
in neuronal connections that has been associated with the
faster-acting antidepressant effects than those achieved by
standard antidepressants, similar to those seen with
ketamine.
In
peer-reviewed published preclinical studies, AV-101 caused
ketamine-like antidepressant effects, including rapid onset and
long duration of effect following a single treatment, without
causing ketamine’s negative side effects. In two NIH-funded
randomized, double blind, placebo-controlled Phase 1 safety
studies, AV-101 was safe, well-tolerated and not associated with
any severe adverse events. There were no signs of sedation,
hallucinations or psychological side effects often associated with
ketamine and other channel-blocking NMDA receptor
antagonists.
Building
on over $8.8 million of prior grant award funding from the NIH for
preclinical and Phase 1 clinical development of AV-101, under our
CRADA, we are collaborating with Dr. Carlos Zarate, Jr. and his
team at the NIMH on the small NIMH AV-101 MDD Phase 2 Monotherapy
Study. Pursuant to the CRADA, this ongoing study is being conducted
at the NIMH by Dr. Zarate as Principal Investigator, and is being
fully-funded by the NIMH. The primary objective of the
NIMH AV-101 MDD Phase 2 Monotherapy Study will be to evaluate the
ability of AV-101 to improve overall depressive symptomatology in
subjects with MDD, specifically whether subjects with MDD have a
greater and more rapid decrease in depressive symptoms when treated
with AV-101 than with placebo. We currently anticipate that the
NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study in
2017, with top line results available during the first half of
2018.
We are
currently preparing to launch our AV-101 MDD Phase 2 Adjunctive
Treatment Study in patients with an inadequate response to
standard, FDA-approved antidepressants.
We currently
anticipate completing this proposed 180-patient multi-center,
multi-dose, double blind, placebo-controlled Phase 2 efficacy and
safety study by the end of 2018 with top line results available in
the first quarter of 2019.
The Principal
Investigator of the AV-101 MDD Phase 2 Adjunctive Treatment Study
will be Dr. Maurizio Fava of Harvard Medical School. Dr. Fava was
the co-Principal Investigator with Dr. A. John Rush of the largest
clinical trial ever conducted in depression, STAR*D, whose findings
were published in journals such the New England Journal of Medicine
and the Journal of the American Medical Association.
AV-101 and Neuropathic Pain
Neuropathic
pain is a complex, chronic pain state that results from
problems with signals from nerves. There are various causes of
neuropathic pain, including tissue injury, nerve damage or disease,
diabetes, infection, toxins, certain types of drugs, such as
antivirals and chemotherapeutic agents, certain cancers, and even
chronic alcohol intake. With neuropathic pain, damaged,
dysfunctional or injured nerve fibers send incorrect signals to
other pain centers and impact nerve function both at the site of
injury and areas around the injury. Many neuropathic pain
treatments on the market today, including gabapentin, have side
effects such as anxiety, depression, mild cognitive impairment
and/or sedation.
The
effects of AV-101 were assessed in published peer-reviewed studies
involving four well-established non-clinical models of pain, both
hyperalgesia and allodynia, to examine its analgesic and behavioral
profile. The publication, titled: “
Characterization of the effects of
L-4-chlorokynurenine on nociception in rodents
,” by
lead author, Tony L. Yaksh, Ph.D., Professor in Anesthesiology at
the University of California, San Diego, was published in
The Journal of Pain
in April
2017 (DOI: 10.1016/j.jpain.2017.03.014). In these studies, systemic
delivery of AV-101 yielded brain concentrations of AV-101's active
metabolite, 7-Cl-KYNA. The high CNS levels of 7-Cl-KYNA were
calculated to exceed its IC50 at the NMDA receptor GlyB site and
resulted in robust, dose-dependent anti-nociceptive effects,
similar to gabapentin, but with no discernable negative side
effects. Gabapentin, a commonly used drug for neuropathic pain,
causes sedation and mild cognitive impairment. Therefore, a drug
that is equally effective on pain, but is better tolerated than
gabapentin, could be quite important for the millions of patients
battling chronic neuropathic pain. Taken together with our
successful AV-101 Phase 1a and 1b clinical safety studies, we
believe the published results of these non-clinical studies support
further clinical development of AV-101 in a Phase 2 clinical study
to assess its potential as a new generation treatment alternative
to gabapentin to reduce debilitating neuropathic pain effectively,
without causing gabapentin-like side effects.
AV-101 and Epilepsy
AV-101
has been shown to protect against seizures and neuronal damage in
animal models of epilepsy, providing preclinical support for its
potential as a novel treatment alternative for epilepsy. Epilepsy
is one of the most prevalent neurological disorders, affecting
almost 1% of the worldwide population. According to the Epilepsy
Foundation, as many as three million Americans have epilepsy, and
one-third of those suffering from epilepsy are not effectively
treated with currently available medications. In addition, standard
anticonvulsants can cause significant side effects, which
frequently interfere with compliance.
Glutamate
is a neurotransmitter that is critically involved in the
pathophysiology of epilepsy. Through its stimulation of the NMDA
receptor subtype, glutamate has been implicated in the
neuropathology and clinical symptoms of the disease. In support of
this, NMDA receptor antagonists are potent anticonvulsants.
However, classic NMDA receptor antagonists are limited by adverse
effects, such as neurotoxicity, declining mental status, and the
onset of psychotic symptoms following administration of the drug.
The endogenous amino acid glycine modulates glutamatergic
neurotransmission by stimulating the GlyB co-agonist site of the
NMDA receptor. GlyB site antagonists inhibit NMDA receptor function
and are therefore anticonvulsant and neuroprotective. Importantly,
GlyB site antagonists have fewer and less severe side effects than
classic channel-blocking NMDA receptor antagonists and other
antiepileptic agents, making them a safer potential alternative to,
and one expected to be associated with greater patient compliance
than, available anticonvulsant medications.
AV-101
has two additional therapeutically important properties as a drug
candidate for treatment of epilepsy:
1.
|
AV-101
is preferentially converted to 7-Cl-KYNA in brain areas related to
neuronal injury. This is because astrocytes, which are responsible
for the enzymatic transamination of 4-Cl-KYN prodrug to active
7-Cl-KYNA, are focally activated at sites of neuronal injury. Due
to AV-101’s highly focused site of conversion, local
concentrations of newly formed 7-Cl-KYNA are greatest at the site
of therapeutic need. In addition to delivering the drug where it is
needed, this reduces the chance of systemic and dangerous side
effects with long-term use of the drug; and
|
2.
|
An
active metabolite of AV-101, 4-Cl-3-hydroxyanthranilic acid,
inhibits the synthesis of quinolinic acid, an endogenous NMDAR
agonist that causes convulsions and excitotoxic neuronal
damage.
|
AV-101’s
ability to activate astrocytes for focal delivery of an
anti-epileptic principle, and its dual action as a NMDAR GlyB
antagonist and quinolinic acid synthesis inhibitor, make AV-101 a
potential Phase 2 development candidate for treatment of
epilepsy.
AV-101 and Parkinson’s Disease and L-DOPA-Induced
Dyskinesia
Parkinson's disease
(
PD
) is a
chronic and progressive movement disorder, meaning that symptoms
continue and worsen over time. According to the Parkinson's Disease
Foundation, as many as one million Americans live with PD and more
than 10 million people worldwide are living with PD. The cause of
PD is unknown, and there is presently no cure.
PD
involves the malfunction and death of certain nerve cells in the
brain that produce dopamine, a key chemical that sends messages to
the part of the brain that controls movement and coordination. As
PD progresses, the amount of dopamine produced in the brain
decreases, leaving a person unable to control movement
normally.
Levadopa
(L-DOPA
) therapy increases brain levels of dopamine and
is the gold standard for treating symptoms of PD in nearly all
phases of the disease. Currently, it is considered the most
effective drug for controlling the symptoms of PD. However,
L-DOPA-induced dyskinesia
(LID
) is a common, and generally disabling,
complication of long-term L-DOPA treatment in PD patients. Studies
published in the
New England
Journal of Medicine
and
Movement Disorders
have shown that LID
develops in approximately 45% of L-DOPA-treated PD patients after
five years and 80% after 10 years of L-DOPA treatment. This
dyskinesia, or uncontrollable muscle movement, induced by L-DOPA
therapy, is not part of PD, but instead a complication of L-DOPA
therapy. LID interferes not only with L-DOPA treatment of PD,
but also negatively impacts the quality of life of PD patients and
is a major contributor to disability later in the ordinary course
of the disease. While amantadine, a low-affinity NMDA
receptor antagonist, has been shown to offer some relief for
certain PD patients suffering from LID, more effective and better
tolerated pharmacologic management of LID remains a significant
unmet medical need.
In a monkey model of PD, AV-101 (250 mg/kg and 450 mg/kg) reduced
by 30% the mean dyskinesia score associated with L-DOPA treatment
of PD. Maximum dyskinesia scores were also reduced by 17%.
Importantly, AV-101 did not reduce the anti-parkinsonian
therapeutic benefit of L-DOPA. Moreover, the duration of L-DOPA
response and delay to L-DOPA effect were not affected by treatment
with AV-101. We believe these monkey data warrant the Phase 2
clinical testing of AV-101 in L-DOPA-treated PD patients suffering
from LID.
AV-101 and Huntington’s Disease
Working
together with metabotropic glutamate receptors, the NMDA receptor
ensures the establishment of long-term potentiation (
LTP
), a process believed to be
responsible for the acquisition of information. These functions are
mediated by calcium entry through the NMDA receptor-associated
channel, which in turn influences a wide variety of cellular
components, like cytoskeletal proteins or second-messenger
synthases. However, over activation at the NMDA receptor triggers
an excessive entry of calcium ions, initiating a series of
cytoplasmic and nuclear processes that promote neuronal cell death
through necrosis as well as apoptosis, and these mechanisms have
been implicated in several neurodegenerative diseases.
Huntington's
disease (
HD
) is an
inherited disorder that causes degeneration of brain cells, called
neurons, in motor control regions of the brain, as well as other
areas. Symptoms of the disease, which gets progressively worse,
include uncontrolled movements (called chorea), abnormal body
postures, and changes in behavior, emotion, judgment, and
cognition. HD is caused by an expansion in the number of
glutamine repeats beyond 35 at the amino terminal end of a protein
termed “huntingtin.” Such a mutation in huntingtin
leads to a sequence of progressive cellular changes in the brain
that result in neuronal loss and other characteristic
neuropathological features of HD. These are most prominent in the
neostriatum and in the cerebral cortex, but also observed in other
brain areas.
The
tissue levels of two neurotoxic metabolites of the kynurenine
pathway of tryptophan degradation, quinolinic acid (
QUIN
) and 3-hydroxykynurenine
(
3-HK
) are increased in the
striatum and neocortex, but not in the cerebellum, in early stage
HD. QUIN and 3-HK and especially the joint action of these two
metabolites, have long been associated with the neurodegenerative
and other features of the pathophysiology of HD. The neuronal death
caused by QUIN and 3-HK is due to both free radical formation and
NMDA receptor overstimulation (excitotoxicity).
Based
on the hypothesis that 3-HK and QUIN are involved in the
progression of HD, early intervention aimed at affecting the
kynurenine pathway in the brain may present a promising treatment
strategy. We believe the ability of AV-101 to reduce the brain
levels of neurotoxic QUIN and to potentially produce significant
local concentrations of 7-Cl-KYNA on chronic administration,
presents an exciting opportunity for Phase 2 clinical investigation
of AV-101 as a potential chronic treatment alternative for certain
symptoms of HD.
AV-101 Phase 1 Clinical Safety Studies
The
safety data from two NIH-funded AV-101 Phase 1 clinical safety
studies indicate that AV-101 was safe and well tolerated in
healthy subjects at all doses tested. There were no Adverse Effects
(
AEs
) reported by subjects
that received AV-101 that were graded as probably related to study
drug. The type and distribution of AEs reported by subjects in the
studies were considered to be typical for studies in healthy
volunteers. All AEs were completely resolved. Further, no Serious
Adverse Events (
SAEs
) were
reported.
The
Pharmacokinetics (
PK
) of
AV-101 were fully characterized across the range of doses in these
Phase 1a and 1b studies. Plasma concentration-time profiles
obtained for 4-Cl-KYN (AV-101) and 7-Cl-KYNA after administration
of a single escalating dose (Phase 1a) and multiple, once daily
oral doses of 360, 1,080, or 1,440 mg for 14 days (Phase 1b) were
consistent with rapid absorption of the oral dose and first-order
elimination of both analytes, with evidence of multi-compartment
kinetics, particularly for the AV-101’s active metabolite,
7-Cl-KYNA.
Although
the Phase 1 safety and PK studies were not designed to measure or
evaluate the potential antidepressant effects of AV-101,
approximately 9% (5/54) of the subjects receiving AV-101 and 0% of
the 30 subjects receiving placebo reported “feelings of
well-being” (coded as euphoric mood), similar to the
fast-acting antidepressant effects reported in the literature with
ketamine.
Phase 1a Study
A phase
1a, randomized, double blind, placebo-controlled study to evaluate
the safety and PK of single doses of AV-101 in healthy volunteers
was conducted. Seven cohorts (30, 120, 360, 720, 1,080, 1,440, and
1,800 mg) with six subjects per cohort (1:1, AV-101: placebo) were
to be enrolled in the study. Nine subjects experienced 10 AEs, with
four of the AEs occurring in subjects in the placebo group and two
of the AEs occurring for one subject receiving 30 mg AV-101. For
the AEs occurring in the AV-101–treated subjects, there were
no meaningful differences in the number of AEs observed at the
30-mg dose (two AEs) when compared with that at the 120-mg dose
(one AE), 360-mg dose (one AE), 720-mg dose (zero AEs), 1,080-mg
dose (zero AEs), or 1,440-mg dose (two AEs). Eight of 10 AEs (80%)
were considered mild, and two (20%, headache and gastroenteritis)
were considered moderate. Four subjects on AV-101, one each in
Cohorts 1 through 4 and two subjects on placebo in Cohort 5
reported AEs of headaches. Five headaches were mild with no
concomitant treatment, and one was moderate with concomitant drug
therapy administered. Most completely resolved the same day as
onset and were considered not serious. One headache started the day
after dosing and resolved approximately one week later on the same
day as the concomitant drug therapy was administered. One case of
contact dermatitis bilateral lower extremities was reported in
Cohort 2 on placebo that was ongoing. One of the subjects with the
headache also reported an AE of gastroenteritis that was unrelated
to AV-101. This AE was considered moderate but did not require any
drug therapy and was completely resolved within two days of onset.
This AE was also considered not serious.
The PK
of AV-101 was fully characterized across the range of doses in this
Phase 1a study following a single oral administration. Plasma
concentration-time profiles obtained for 4-Cl-KYN (AV-101) and
7-Cl-KYNA were consistent with rapid absorption of the oral dose
and first-order elimination of both analytes, with evidence of
multi-compartment kinetics, particularly for the metabolite
7-Cl-KYNA.
Even
though this Phase 1a safety study was not designed to
quantitatively assess effects on mood, during the interviews, two
out of three subjects who received the highest dose (1440 mg) of
AV-101 voluntarily acknowledged positive effects on their mood.
Similar comments were not made by any of the 18 placebo group
subjects.
Phase 1b Study
A Phase
1b clinical study was conducted as a single-site, dose-escalating
study to evaluate the safety, tolerability, and PK of multiple
doses of AV-101 administered daily in healthy volunteers. The
antihyperalgesic effect of AV-101 on capsaicin-induced hyperalgesia
was also assessed. Subjects were sequentially enrolled into one of
three cohorts (360 mg, 1,080 mg, and 1,440 mg) and were randomized
to AV-101 or placebo at a 12:4 (AV-101 to placebo) ratio. Subjects
were dosed for 14 consecutive days. Each subject was given a paper
diary and instructed to record daily dose administration,
concomitant medications, and AEs during the 14-day treatment
period.
For
this study, the minimum toxic dose was to be (i) the dose at which
a drug-related SAE occurred in an AV-101–treated subject, or
(ii) the dose at which a severe AE that warranted stopping the
study, as determined by the investigator and medical monitor,
occurred in an AV-101–treated subject within a cohort. The
minimum toxic dose was not reached in this study.
A total
of 40 AEs were reported by 24 of 37 (64.9%) subjects receiving
AV-101, and 17 AEs were reported by 10 of 13 (76.9%) subject
receiving placebo. The frequency of AEs was similar
among the treatment groups. Thirty-four subjects
experienced a total of 57 AEs, with 16 (28.1% of the total AEs) in
the 360-mg group, 14 (24.6% of the total AEs) in the 1,040-mg
group, 10 (17.5% of the total AEs) in the 1,440-mg group, and 17
(29.8% of the total AEs) in the placebo group. All of
the AEs were completely resolved, and no SAEs were
reported.
The
majority of the reported AEs were nervous system disorders (23
subjects, 46% of subjects) and gastrointestinal disorders (seven
subjects, 14.0%). The remaining AEs were classified as eye
disorders (three subjects, 6.0%); psychiatric disorders (three
subjects, 6.0%); respiratory, thoracic, and mediastinal disorders
(three subjects, 6.0%); skin and subcutaneous tissue disorders
(three subjects, 6.0%); general disorders and administration site
conditions (two subjects, 4.0%); cardiac disorders one subject,
2.0%); infections and infestations (one subject, 2.0%);
musculoskeletal and connective tissue disorders (one subject,
2.0%); and renal disorders (one subject, 2.0%).
The
distribution of AEs by System Organ Class was similar among the
cohorts with the exception of headaches and gastrointestinal
disorders. Eight of the 18 (44.4%) reported headaches were in the
placebo group, 6 (33.3%) were in the 1,080-mg group, three (16.7%)
were in the 1,440-mg group, and one (5.6%) was in the 360-mg group.
Three (42.9%) of the seven reported gastrointestinal disorders were
in the 360-mg group, two (28.6%) were in the placebo group, one
(14.3%) was in the 1,080-mg group, and one (14.3%) was in the
1,440-mg group.
The
determination of the relationship of the AE to the study drug was
made when the data were unblinded. Ten of the 15 AEs (66.7%) that
occurred in the 360-mg AV-101 group, 10 of the 14 AEs (71.4%) that
occurred in the 1,040-mg AV-101 group, seven of the 10 AEs (70.0%)
that occurred in the 1,440-mg AV-101 group, and 13 of the 17 AEs
(76.5%) that occurred in the placebo group were determined to be
possibly related to study drug. One (5.9%) AE in the placebo group
was probably related to study drug (rash around neck). Of the 57
reported AEs, 49 (85.9%) were of mild intensity and eight (14.0%)
were of moderate intensity. There were two moderate intensity AEs
in the 360-mg AV-101 group; one was unrelated pain in the right
foot, and one was a possibly related headache. All other moderate
AEs occurred in the placebo group and included nausea or vomiting
(two AEs), headache (two AEs), and rash around the neck (one AE).
No SAEs were reported.
Even
though this Phase 1b safety study was not designed to
quantitatively assess effects on mood, during the interviews
certain subjects who received 360, 1080, and 1440 mg of AV-101,
voluntarily acknowledged positive effects on mood. Similar comments
were not made by any of the placebo-group subjects.
The PK
of AV-101 was fully characterized across the range of doses in this
Phase 1b study. Plasma concentration-time profiles obtained for
4-Cl-KYN (AV-101) and 7-Cl-KYNA following 14 daily oral
administrations of 360, 1,080, or 1,440 mg were consistent with
rapid absorption of the oral dose and first-order elimination of
both analytes, with evidence of multi-compartment kinetics,
particularly for the metabolite 7-Cl-KYNA.
VistaStem Therapeutics
VistaStem Therapeutics (
VistaStem
) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (
hPSC
) technology, internally and with collaborators,
to discover, rescue, develop and commercialize (i) proprietary new
chemical entities (
NCEs
) for CNS and other diseases and (ii) regenerative
medicine (
RM
) involving hPSC-derived blood, cartilage, heart
and liver cells.
We used our hPSC-derived cardiomyocytes
(human heart cells) to develop
CardioSafe
3D™, our customized
in vitro
bioassay system
for predicting heart toxicity of drug rescue NCEs. We
believe
CardioSafe
3D is
more comprehensive and clinically predictive than the hERG assay,
which currently is the only
in
vitro
cardiac safety assay required by FDA guidelines, and
provides us with new generation human cell-based technology to
identify and evaluate drug rescue candidates and develop drug
rescue NCEs.
Scientific Background
Stem
cells are the building blocks of all cells of the human
body. They have the potential to develop into many
different mature cell types. Stem cells are defined by a
minimum of two key characteristics: (i) their capacity to
self-renew, or divide in a way that results in more stem cells; and
(ii) their capacity to differentiate, or turn into mature,
specialized cells that make up tissues and organs. There
are many different types of stem cells that come from different
places in the body or are formed at different times throughout our
lives, including pluripotent stem cells and adult or
tissue-specific stem cells, which are limited to differentiating
into the specific cell types of the tissues in which they reside.
We focus exclusively on human pluripotent stem cells.
Human
pluripotent stem cells can be differentiated into all of the more
than 200 types of cells in the human body, can be expanded readily,
and have diverse medical research, drug discovery, drug rescue,
drug development and therapeutic applications. We believe hPSCs can
be used to develop numerous cell types, tissues and customized
assays that can mimic complex human biology, including heart and
liver biology for drug rescue.
Human
pluripotent stem cells are either embryonic stem cells
(
hESCs
) or induced
pluripotent stem cells (
iPSCs
). Both hESCs and iPSCs
have the capacity to be maintained and expanded in an
undifferentiated state indefinitely. We believe these features make
them highly useful research and development tools and as a source
of normal, functionally mature cell populations. We use multiple
types of these mature cells as the foundation to design and develop
novel, customized bioassay systems to test the safety and efficacy
of NCEs
in vitro
.
These cells also have potential for diverse regenerative medicine
applications.
Human Embryonic Stem Cells
According
to the NIH, hESCs are derived from excess embryos that develop from
eggs that have been fertilized in an
in vitro
fertilization (
IVF
) clinic and then donated for
research purposes with the informed consent of the parental donors
after a successful IVF procedure. Human embryonic stem cells are
not derived from eggs fertilized in a woman’s body. Human
ESCs are isolated when the embryo is approximately 100 cells, well
before organs, tissues or nerves have developed.
Human
ESCs have the potential to both self-renew and differentiate. They
undergo increasingly tissue-restrictive developmental decisions
during their differentiation. These “fate decisions”
commit the hESCs to becoming only a certain type of mature,
functional cells and ultimately tissues. At one of the first fate
decision points, hESCs differentiate into epiblasts. Although
epiblasts cannot self-renew, they can differentiate into the major
tissues of the body. This epiblast stage can be used, for example,
as the starting population of cells that develop into millions of
blood, heart, muscle, liver and insulin-producing pancreatic
beta-islet cells, as well as neurons. In the next step, the
presence or absence of certain growth factors, together with the
differentiation signals resulting from the physical attributes of
the cell culture techniques, induce the epiblasts to differentiate
into neuroectoderm or mesendoderm cells. Neuroectoderm cells are
committed to developing into cells of the skin and nervous systems.
Mesendoderm cells are precursor cells that differentiate into
mesoderm and endoderm. Mesoderm cells develop into muscle, bone and
blood, among other cell types. Endoderm cells develop into the
internal organs such as the heart, liver, pancreas and intestines,
among other cell types.
Induced Pluripotent Stem Cells
It is
also possible to obtain hPSC lines from individuals without the use
of embryos. Induced PSCs are adult cells, typically human skin or
fat cells that have been genetically reprogrammed to behave like
hESCs by being forced to express genes necessary for maintaining
the pluripotential properties of hESCs. Although researchers are
exploring non-viral methods, most early iPSCs were produced by
using various viruses to express three or four genes required for
the immature pluripotential property similar to hESCs. It is not
yet precisely known, however, how each gene actually functions to
induce cellular pluripotency, nor whether each of the three or four
genes is essential for this reprogramming. Although hESCs and iPSCs
are believed to be similar in many respects, including their
pluripotential ability to form all cells in the body and to
self-renew, scientists do not yet know whether they differ in
clinically significant ways or have the same ability to
self-renew.
We
believe the biology and differentiation capabilities of hESCs and
iPSCs are likely to be comparable for most if not all purposes.
There are, however, specific situations in which we may prefer to
use one or the other type of hPSC. For example, we may
prefer to use iPSCs for potential drug discovery applications based
on the relative ease of generating iPSCs from:
●
individuals with
specific inheritable diseases and conditions that predispose the
individual to respond differently to drugs; or
●
individuals with
specific variations in genes that directly affect drug levels in
the body or alter the manner or efficiency of their metabolism,
breakdown and/or elimination of drugs.
Because
they can significantly affect the therapeutic and/or toxic effects
of drugs, these genetic variations have an impact on drug discovery
and development. We believe iPSC technologies may allow the rapid
and efficient generation of hPSCs from individuals with specific
genetic variations. These hPSCs might then be used to produce cells
to model specific diseases and genetic conditions for drug
discovery and drug rescue purposes.
CardioSafe
3D
The
limitations of current preclinical drug testing systems used by
pharmaceutical companies and others contribute to the high failure
rate of NCEs. Incorporating novel
in vitro
assays using hPSC-derived
cardiomyocytes (
hPSC-CMs
)
early in preclinical development offers the potential to improve
clinical predictability, decrease development costs, and avoid
adverse patient effects, late-stage clinical termination, and
product recall from the market.
We
produce fully functional, non-transformed hPSC-CMs at a high level
of purity and with normal ratios of all important cardiac cell
types. Importantly, our hPSC-CM differentiation
protocols do not involve either genetic modification or antibiotic
selection. This is important because genetic modification and
antibiotic selection can distort the ratio of cardiac cell types
and have a direct impact on the ultimate results and clinical
predictivity of assays that incorporate hPSC-CMs produced in such a
manner. In addition to normal expression all of the key ion
channels of the human heart (calcium, potassium and sodium) and
various cardiomyocytic markers of the human heart, our
CardioSafe
3D cardiac toxicity assays
screening for both direct cardiomyocyte cytotoxicity and
arrhythmogenesis (or development of irregular beating patterns). We
believe
CardioSafe
3D is
sensitive, stable, reproducible and capable of generating data
enabling a more accurate prediction of the
in vivo
cardiac effects of NCEs than is
possible with existing preclinical testing systems, particularly
the hERG assay.
Limited Clinical Predictivity of the FDA-Required hERG Assay vs.
Broad Clinical Predictivity of CardioSafe 3D
The
hERG assay, which uses either transformed hamster ovary cells or
human kidney cells, is currently the only
in vitro
cardiac safety assay required
by FDA Guidelines (
ICH57B
).
We believe the clinical predictivity of the hERG assay is limited
because it assesses only a single cardiac ion channel - the hERG
potassium ion channel. It does not assess any other clinically
relevant cardiac ion channels, including calcium, non-hERG
potassium and sodium ion channels. Also, importantly, the hERG
assay does not assess the normal interaction between these ion
channels and their regulators. In addition, the hERG assay does not
assess clinically relevant cardiac biological effects associated
with cardiomyocyte viability, including apoptosis and other forms
of cytotoxicity, as well as energy, mitochondria and oxidative
stress. As a result of its limitations, results of the hERG assay
can lead to false negative and false positive predictions regarding
the cardiac safety of new drug candidates.
We have
developed and validated two clinically relevant functional
components of our
CardioSafe
3D screening system to
assess multiple categories of cardiac toxicities, including both
direct cardiomyocyte cytotoxicity and arrhythmogenesis (or
development of irregular beating patterns). The first functional
component of
CardioSafe
3D
consists of a suite of five fluorescence or luminescence based
high-throughput hPSC-CM assays. These five
CardioSafe
3D assays measure the
following important drug-induced cardiac biological
effects:
|
1. cell
viability;
|
|
2. apoptosis;
|
|
3. mitochondrial
membrane depolarization;
|
|
4. oxidative
stress; and
|
|
5. energy
metabolism disruption.
|
These
five
CardioSafe
3D
biological assays were correlated to reported clinical results
using reference compounds known to be cardiotoxic in humans versus
compounds known to be safe in humans. These reference compounds
were representative of eight different drug classes,
including:
|
1. ion
channel blockers: amiodarone, nifedipine;
|
|
2. hERG
trafficking blockers: pentamidine, amoxapine;
|
|
3.
α
-1 adrenoreceptors: doxazosin;
|
|
4. protein
and DNA synthesis inhibitors: emetine;
|
|
5. DNA
intercalating agents: doxorubicin;
|
|
6. antibiotics:
ampicillin, cefazolin;
|
|
7. NSAID:
aspirin; and
|
|
8. kinase
inhibitors: staurosporine.
|
This
suite of five
CardioSafe
3D
cytotoxicity assays provided measurement of cardiac drug effects
with high sensitivity that are consistent with the expected cardiac
responses to each of these compounds. Based on our results, we
believe
CardioSafe
3D
provides valuable and more comprehensive bioanalytical tools for
both assessing the effects of pharmaceutical compounds on cardiac
cytotoxicity than the hERG assay and can elucidate for us and our
strategic partners specific mechanisms of cardiac toxicity, thereby
laying what we believe is a novel and advantageous foundation for
our
CardioSafe
3D drug
rescue NCE programs.
The
other component of our
CardioSafe
3D assay system is a
sensitive and reliable medium throughput multi-electrode array
(
MEA
) assay developed to
predict drug-induced alterations of electrophysiological function
of the human heart, representing an integrated assessment of not
only hERG potassium ion channel activity analogous to the
FDA-mandated hERG assay but, in addition, non-hERG potassium
channels, and calcium channels and sodium channels, which are well
beyond the scope of the hERG assay. Functional
electrophysiological assessment is a key component of
CardioSafe
3D, and has been validated
with reported clinical results involving drugs with known toxic or
non-toxic cardiac effects in humans.
We have
validated that
CardioSafe
3D is capable of assessing important electrophysiological activity
of drug rescue NCEs, including spike amplitude, beat period and
field potential duration. Our
CardioSafe
3D MEA assay, which we refer
to as
ECG in a test
tube
™, was reproducible and consistent with the known
human cardiac effects of all compounds studied, based on the
mechanisms of action and dosage of the compounds. For instance, by
using
CardioSafe
3D,
we were able to distinguish between the arrhythmogenic cardiac
effects of terfenadine (Seldane™), withdrawn by the FDA due
to cardiotoxicity, and the cardiac effects of the closely
structurally-related compound, fexofenadine (Allegra™), a
safe variant of terfenadine, which remains on the market. We
believe our correlation data demonstrate that
CardioSafe
3D provides valuable and
more comprehensive bioanalytical tools for
in vitro
cardiac safety screening than
the hERG assay. We believe
CardioSafe
3D will contribute to
our efficient and rapid identification of novel, potentially safer
proprietary NCEs in our drug rescue
programs.
Using CardioSafe 3D to Develop Drug Rescue NCEs
Our
drug rescue activities are focused on producing for our internal
pipeline proprietary, safer variants of still-promising NCEs
previously discovered, optimized and tested for efficacy by
pharmaceutical companies and others but terminated before FDA
approval due to unexpected heart toxicity or liver toxicity. Our
current drug rescue strategy involves using
CardioSafe
3D to assess the toxicity
that caused certain NCEs available in the public to be terminated,
and use that biological insight to produce and develop a new,
potentially safer, and proprietary NCEs for our pipeline. We
believe the pre-existing public domain knowledge base supporting
the therapeutic and commercial potential of NCEs we target for our
drug rescue programs will provide us with a valuable head start as
we launch each of our drug rescue programs. Leveraging the
substantial prior investments by global pharmaceutical companies
and others in discovery, optimization and efficacy validation of
the NCEs we identify in the public domain is an essential component
of our drug rescue strategy.
By
using
CardioSafe
3D to
enhance our understanding of the cardiac liability profile
of NCEs, biological insight not previously available
when the NCEs were originally discovered, optimized for efficacy
and developed, we believe we can demonstrate preclinical
proof-of-concept (
POC
) as
to the efficacy and safety of new, safer drug rescue NCEs in
standard
in vitro
and
in vivo
models, as well as
in
CardioSafe
3D, earlier
in development and with substantially less investment in discovery
and preclinical development than was required of pharmaceutical
companies and others prior to their decision to terminate the
original NCE.
Our
goal in each drug rescue program will be to produce a proprietary
drug rescue NCE and establish its preclinical POC, using standard
preclinical
in vitro
and
in vivo
efficacy and safety
models, as well as
CardioSafe
3D.
In this context, POC means that
the lead drug rescue NCE, as compared to the original,
previously-terminated NCE
,
demonstrates both (i) equal or superior efficacy in the same, or a
similar,
in vitro
and
in vivo
preclinical
efficacy models used by the initial developer of the
previously-terminated NCE
before it was terminated for
safety reasons, and (ii) significant reduction of concentration
dependent cardiotoxicity in
CardioSafe
3D.
Regenerative Medicine (RM)
Although
we believe the best and most valuable near term commercial
application of our stem cell technology platform is for small
molecule drug rescue, we also believe stem cell technology-based RM
has the potential to transform healthcare in the U.S. over the next
decade by providing new approaches for treating the fundamental
mechanisms of disease. We currently intend to establish strategic
collaborations to leverage our stem cell technology platform, our
expertise in human biology, differentiation of human pluripotent
stem cells to develop functional adult human cells and tissues
involved in human disease, including blood, bone, cartilage, heart
and liver cells, and our expertise in designing and developing
novel, customized biological assay systems with the cells we
produce, for RM purposes.
In December
2016, we exclusively sublicensed to BlueRock Therapeutics LP, a
next generation RM company established by Bayer AG and Versant
Ventures, rights to certain proprietary technologies relating to
the production of cardiac stem cells for the treatment of heart
disease
. In a manner
similar to our exclusive sublicense agreement with BlueRock
Therapeutics, VistaStem may pursue additional RM collaborations or
licensing transactions involving blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy, (B) cell
repair therapy, and/or (C) tissue
engineering.
Strategic Transactions and Relationships
Strategic
collaborations are an important cornerstone of our corporate
development strategy. We believe that our highly selective
outsourcing of certain research and development activities gives us
flexible access to chemistry broad range of research and
development capabilities, manufacturing, clinical development and
regulatory expertise at a lower overall cost than developing and
maintaining such expertise internally on a full-time basis. In
particular, we contract with third parties for certain
manufacturing, non-clinical development, clinical development and
regulatory affairs support. The following are among our current
third-party collaborators:
Cato Research Ltd.
Cato
Research Ltd. is a CRO with international resources dedicated to
helping biotechnology and pharmaceutical companies navigate the
regulatory approval process in order to bring new biologics, drugs
and medical devices to markets throughout the world. Cato Research
is one of our CROs for development of AV-101, currently focused on
all chemistry, manufacturing and controls (
CMC
) aspects of our Phase 2 development
program in MDD. Cato Research’s senior management
team, including co-founders Allen Cato, M.D., Ph.D. and Lynda
Sutton, have over 30 years of experience interacting with the FDA
and international regulatory agencies and a successful track record
of product approvals.
Cardiac Safety Research Consortium
We have
joined the Cardiac Safety Research Consortium (
CSRC
) as an Associate
Member. The CSRC, which is sponsored in part by the FDA,
was launched in 2006 through an FDA Critical Path Initiative
Memorandum of Understanding with Duke University to support
research into the evaluation of cardiac safety of medical products.
CSRC supports research by engaging stakeholders from industry,
academia, and government to share data and expertise regarding
several areas of cardiac safety evaluation, including novel stem
cell-based approaches, from preclinical through post-market
periods.
Cardiac Safety Technical Committee of the Health and Environmental
Sciences Institute – FDA’s CIPA Initiative
We have
also joined the Cardiac Safety Technical Committee, Cardiac Stem
Cell Working Group, and Proarrhythmia Working Group of the Health
and Environmental Sciences Institute (
HESI
) to help advance, among other
goals, the FDA’s Comprehensive In Vitro Proarrhythmia Assay
(
CIPA
) initiative, which is
focused on developing innovative preclinical systems for cardiac
safety assessment during drug development. HESI is a
global branch of the International Life Sciences Institute
(
ILSI
), whose members
include most of the world’s largest pharmaceutical and
biotechnology companies.
The
goal of the FDA’s CIPA initiative is to develop a new
paradigm for cardiac safety evaluation of new drugs that provides a
more comprehensive assessment of proarrhythmic potential by (i)
evaluating effects of multiple cardiac ionic currents beyond hERG
and ICH S7B Guidelines (inward and outward currents), (ii)
providing more complete, accurate assessment of proarrhythmic
effects on human cardiac electrophysiology, and (iii) focusing on
Torsades de Pointes proarrhythmia rather than surrogate QT
prolongation alone.
Centre for Commercialization of Regenerative Medicine
The
Toronto-based Centre for Commercialization of Regenerative Medicine
(
CCRM
) is a not-for-profit,
public-private consortium funded by the Government of Canada, six
Ontario-based institutional partners and more than 20 companies
representing the key sectors of the regenerative medicine
industry. CCRM supports the development of foundational
technologies that accelerate the commercialization of stem cell-
and biomaterials-based products and therapies.
We are
a member of the CCRM’s Industry Consortium. Other members of
CCRM’s Industry Consortium include Pfizer and GE Healthcare.
The industry leaders that comprise the CCRM consortium benefit from
proprietary access to certain licensing opportunities, academic
rates on fee-for-service contracts at CCRM and opportunities to
participate in large collaborative projects, among other
advantages. Our CCRM membership reflects our strong association
with CCRM and its core programs and objectives, both directly and
through our strategic relationships with Dr. Gordon Keller and UHN.
We believe our long-term sponsored research agreement with Dr.
Keller, UHN and UHN’s McEwen Centre offers unique
opportunities for expanding the commercial applications of our stem
cell technology platform by building multi-party collaborations
with CCRM and members of its Industry Consortium. We
believe these collaborations have the potential to transform
medicine and accelerate significant advances in human health and
wellness that stem cell technologies and regenerative medicine
promise.
Massachusetts General Hospital Clinical Trials Network and
Institute
Massachusetts
General Hospital Clinical Trials Network and Institute
(
CTNI
) is an academic CRO,
part of the Department of Psychiatry of the Massachusetts General
Hospital (
MGH
), a leader in
academic scientific and clinical research in psychiatry. By
exploring the brain science, genetics, and neurobiology of
psychiatric disorders, the MGH CTNI has been instrumental in the
development of novel treatments and surrogate markers of illness
and therapeutic response. Its scientific and clinical research has
been instrumental in defining the standards for the
state-of-the-art practice of psychiatry. We are working with MGH
CTNI, including its principals, Dr. Maurizio Fava and Dr. Thomas
Laughren, in connection with the planning and execution of our
AV-101 MDD Adjunctive Treatment Study. Dr. Fava is acknowledged as
a world-renowned expert in depressive disorders and
psychopharmacology. He is Director of the Division of Clinical
Research of the MGH Research Institute, Executive Vice Chair,
Department of Psychiatry, at MGH, and Executive Director of MGH
CTNI. He will serve as Principal Investigator of the AV-101 MDD
Phase 2 Adjunctive Treatment Study. Dr. Laughren is the
former FDA Division Director, Division of Psychiatry Products,
Center for Drug Evaluation and Research (
CDER
).
United States National Institutes of Health
Since
our inception in 1998, the NIH has awarded us $11.3 million in
non-dilutive research and development grants, including $2.3
million to support research and development of our stem cell
technology and $8.8 million for non-clinical and Phase 1a and 1b
clinical development of AV-101.
United States National Institute of Mental Health
The
NIMH, part of the NIH, is the largest scientific organization in
the world dedicated to mental health research. NIMH is one of 27
Institutes and Centers of the NIH, the world’s leading
biomedical research organization. The mission of NIMH is to
transform the understanding and treatment of mental illnesses
through basic and clinical research, paving the way for prevention,
recovery and cure. Our CRADA with the NIH provides for NIMH
sponsorship of the ongoing NIMH AV-101 MDD Phase 2 Monotherapy
Study, a study being fully funded by the NIH and is being conducted
at the NIMH by Dr. Carlos Zarate, the NIMH’s Chief of
Experimental Therapeutics & Pathophysiology Branch and Section
on Neurobiology and Treatment of Mood and Anxiety
Disorders.
Intellectual Property
We rely
upon patents as a major component of our intellectual property
portfolio, as is typical for development-stage, biopharmaceutical
companies. In addition, from time to time, we enter into patent
license agreements to acquire rights to intellectual property. We
also rely, in part, on trade secrets for protection of some of our
discoveries. We attempt to protect our trade secrets by entering
into confidentiality agreements with employees, consultants,
collaborators and third parties. We also own several registered and
common-law trademarks.
To help
protect our intellectual property rights, our employees and
consultants also sign agreements in which they assign to us, for
example, their interests in patents, trade secrets and copyrights
arising from their work for us.
From
time to time, we sponsor research with key scientists in academic
institutions to advance or supplement our internal research and
development activities and objectives. These sponsored research
agreements generally provide us with an opportunity to negotiate a
new license, or acquire a substantially prescribed license, to
acquire intellectual property rights in the results of the
sponsored research.
AV-101
As
discussed elsewhere in this Annual Report, AV-101 (
4-Cl-KYN
) is our oral CNS product
candidate presently being investigated in the NIMH AV-101 MDD Phase
2 Monotherapy Study. Further, w
e are
preparing to launch our AV-101 MDD Phase 2 Adjunctive Treatment
Study to assess the safety and efficacy of AV-101 as a new
generation adjunctive treatment of MDD in adult patients with an
inadequate response to standard, FDA-approved
antidepressants.
We have developed a portfolio of
intellectual property assets around AV-101, which involves both
patent applications and trade secrets. In addition, we will
seek regulatory exclusivity to supplement our intellectual property
rights.
AV-101
itself is no longer patented. We obtained a patent license from the
University of Maryland to certain pharmaceutical formulations and
associated methods of using AV-101 when we acquired the original
licensee, Artemis Neuroscience, Inc. However, patent rights
included in that license that were relevant to AV-101 have expired.
Although the license agreement contains royalty obligations that
nominally remain in force until 10 years after the first
commercial sale of the first product even after relevant patent
rights have expired, the U.S. Supreme Court’s decision in
Kimble v. Marvel Entertainment,
LLC
(2015) determined that patent license royalties that
extend beyond a patent’s expiration are not
enforceable.
Even
though the compound 4-Cl-KYN per se, and certain of its
formulations are in the public domain and thus are no longer
protectable, we have filed several of our own patent applications
on certain other formulations and novel therapeutic methods of use
of AV-101 as part of our strategy to seek and secure broad
commercial exclusivity for AV-101.
Presently,
we are prosecuting one family of patent applications in the USPTO,
European Patent Office (
EPO
) and selected major markets related
to specific dosage formulations of AV-101, as well as to methods of
treating depression, hyperalgesia pain and several other
neurological conditions. For reference, these are based on PCT
patent application WO2014/116739. Our claims to the treatment of
depression have been granted by the EPO. We are prosecuting
formulation claims in one application, and we filed a continuation
application in this family in the U.S., focused on the treatment of
depression. There is no guarantee, however, that the USPTO will
allow or grant any of the pending claims.
We are
also prosecuting another patent family related to novel methods of
synthesizing AV-101, based on extensive research involving a range
of synthetic routes that was conducted on our behalf by a contract
research organization. For reference, this is based on PCT
patent application WO2014/152835, which is presently being pursued
at the national phase in the U.S. and selected other countries.
This patent application also includes pharmaceutical composition
claims to certain precursors and variants of AV-101, which may be
useful and patentable as synthesis
intermediates.
Another
patent application related to additional and expanded clinical uses
of AV-101 to treat depression and other medical conditions is
pending as PCT patent application WO 2016/191351.We plan to seek
patent protection at the national phase in appropriate global
markets in due course.
Additionally,
we are presently developing potentially improved synthesis routes
through another contract research organization. If we determine
that these routes may be patentable, then we intend to file patent
applications relating to this developmental activity in the second
half of 2017.
As
noted, we are currently involved with the NIMH AV-101 MDD Phase 2
Monotherapy Study being conducted by the NIMH. As part of our
analysis of the study results, we will be evaluating the
possibility of seeking additional patent protection based on the
clinical data and on clinical observations.
As
another major component of our plans to obtain market exclusivity
for approved therapeutic indications for AV-101, we intend to
utilize New Drug Product Exclusivity provided by the FDA under
section 505(c)(3)(E) and 505(j)(5)(F) of the Federal Food, Drug,
and Cosmetic Act (
FDCA
). The FDA’s New Drug
Product Exclusivity is available for NCEs such as AV-101, which are
innovative and have not been previously approved by the FDA, either
alone or in combination with other drugs. The FDA’s New
Drug Product Exclusivity protection provides the holder of an
FDA-approved NDA with up to five years of protection from
competition in the U.S. marketplace for the innovation represented
by its approved new drug product. This protection precludes
FDA approval of certain generic drug applications under section
505(b)(2) of the FDCA, as well as certain abbreviated new drug
applications (
ANDAs
),
during the up to five-year exclusivity period, except that such
applications may be submitted after four years if they contain a
certification of patent invalidity or non-infringement. As and if
applicable, we will pursue similar types of regulatory exclusivity
in other regions, such as Europe, and in certain other
countries.
There
is no guarantee that we will be successful in obtaining patents
related to AV-101 in the U.S. or other countries, or that if we are
successful in obtaining such patents that we would also be
successful in protecting those patents against challengers or in
enforcing them to stop infringement. We are pursuing patent rights
in a limited number of countries that we believe are the few major
markets where having patent rights will substantially facilitate
commercialization of AV-101. There are many other countries in
which we are not pursuing such patent rights. There is no guarantee
that we will successfully obtain patents in the countries in which
we are pursuing patent rights.
Stem Cell Technology
We have
obtained and are pursuing intellectual property rights to several
stem cell technologies through a combination of our own patent
properties, exclusive and non-exclusive patent and technology
licenses, and participation in sponsored research relationships.
Generally, our stem cell intellectual property portfolio relates to
drug rescue, toxicity testing and drug discovery. It also relates
to novel production systems and the use of various cell types that
have been differentiated from pluripotent stem cells for those and
other purposes. Additionally, our intellectual property includes
enriched populations of certain cell types, such as cardiomyocytes
and hepatocytes, and some related aspects of cell-based therapy. We
also maintain certain trade secrets regarding stem cell technology,
several of which are discussed below.
Overall,
our stem cell patent portfolio includes nine patent families, which
collectively include several issued U.S. patents as well as several
foreign counterpart patents in countries of commercial interest to
VistaGen. The portfolio also includes several patent applications
pending in the U.S. and in various foreign
countries.
The
patent properties in these families are based on discoveries from
our internal research and development activities, research that it
has sponsored at various academic institutions, as well as from
patent license agreements signed with the University Health Network
(Toronto) and the Mount Sinai School of Medicine.
These
license agreements generally require us to pay annual license fees,
patent prosecution and maintenance fees, and royalty payments that
vary based on product sales and services that are covered by the
licensed patent rights, as well fees for sublicensing. As noted
above in the context of AV-101 intellectual property, there is no
guarantee that we will successfully obtain patents in the countries
in which we are pursuing patent rights or that we would be
successful in enforcing granted patent rights against
infringers.
In
December 2016, we exclusively sublicensed to BlueRock Therapeutics,
a stem cell research company recently established by Bayer AG and
Versant Ventures, rights to certain proprietary technologies
relating to the production of cardiac stem cells for the treatment
of heart disease.
Trademarks
We have
a federal trademark registration for the trademark
“VISTAGEN”. Corresponding trademarks have been
registered in the European Union and in Switzerland. We also use
certain other trademarks in connection with our customized in vitro
bioassay systems, such as CardioSafe 3D™ and LiverSafe
3D™ .
U.S. Government Rights
We have
received federal funding from both the NIH and the NIMH to support
research and development of inventions disclosed in our patent
applications relating to AV-101 and certain of our stem cell
technology. Under the Bayh-Dole Act of 1980, if we do
not take adequate steps to commercialize certain intellectual
property rights, or certain other exigent circumstances relating to
public health and safety prescribed under federal law become
applicable, the U.S. government may acquire certain rights with
respect to inventions made during programs funded by NIH or other
federal grants.
Competition
The
biopharmaceutical industry is highly competitive. There are many
public and private biopharmaceutical companies, universities,
governmental agencies, including the NIH and NIMH, and other
research organizations actively engaged in the research and
development of products that may be similar to our product
candidates or address similar markets. It is probable that the
number of companies seeking to develop products and therapies
similar to our products will increase.
Currently,
there are no FDA-approved therapies for MDD with the mechanism of
action of AV-101. However, products approved for other indications,
for example, the anesthetic ketamine, are being or may be used
off-label for treatment of MDD, as well as other CNS indications
for which AV-101 may have therapeutic potential. Additionally,
other treatment options, such psychotherapy and electroconvulsive
therapy, are sometimes used instead of and before standard
antidepressant medications to treat patients with MDD.
In the field of new generation, orally available, adjunctive
treatments of adult MDD patients with an inadequate response to
standard antidepressants, we believe our principal competitor is
Alkermes’ orally available drug candidate in Phase 3
development, ALKS-5461, an opioid modulator.
Many of
our potential competitors, alone or with their strategic partners,
have substantially greater financial, technical and human resources
than we do and significantly greater experience in the discovery
and development of product candidates, obtaining FDA and other
regulatory approvals of treatments and the commercialization of
those treatments. We believe that a range of
pharmaceutical and biotechnology companies have programs to develop
small molecule drug candidates for the treatment of depression,
including MDD, epilepsy, neuropathic pain, Parkinson’s
disease and other neurological conditions and diseases, including,
but not limited to, Abbott Laboratories, Acadia, Alkermes,
Allergan, AstraZeneca, Eli Lilly, GlaxoSmithKline,
Johnson & Johnson, Lundbeck, Merck, Novartis, Minerva,
Otsuka, Pfizer, Roche, Sage, Sanofi, Shire, Sumitomo Dainippon, and
Takeda. Mergers and acquisitions in the biotechnology
and pharmaceutical industries may result in even more resources
being concentrated among a smaller number of our competitors. Our
commercial opportunity could be reduced or eliminated if our
competitors develop and commercialize products that are safer, more
effective, have fewer or less severe side effects, are more
convenient or are less expensive than any products that we may
develop. Our competitors also may obtain FDA or other regulatory
approval for their products more rapidly than we may obtain
approval for ours, which could result in our competitors
establishing a strong market position before we are able to enter
the market. We expect that AV-101 will have to compete with a
variety of therapeutic products and
procedures.
We
believe that VistaStem’s human pluripotent stem cell
(
hPSC
) technology platform,
the hPSC-derived human cells we produce, and the customized human
cell-based assay systems we have formulated and developed are
capable of being competitive in the diverse and growing global stem
cell and regenerative medicine markets, including markets involving
the sale of hPSC-derived cells to third-parties for their
in vitro
drug discovery and
safety testing, contract predictive toxicology drug screening
services for third parties, internal drug discovery, drug
development and drug rescue of new NCEs, and regenerative medicine,
including
in vivo
cell
therapy research and development. A representative list of such
biopharmaceutical companies pursuing one or more of these potential
applications of adult and/or hPSC technology includes the
following: Acea Biosciences, Astellas, Athersys, BioCardia,
BioTime, Caladrius Biosciences, Cellectis Bioresearch, Cellerant
Therapeutics, Cytori Therapeutics, Fujifilm Holdings, HemoGenix,
International Stem Cell, Neuralstem, Organovo Holdings, PluriStem
Therapeutics, and Stemina BioMarker Discovery. Pharmaceutical
companies and other established corporations such as Bristol-Myers
Squibb, Charles River, GE Healthcare Life Sciences,
GlaxoSmithKline, Novartis, Pfizer, Roche Holdings, Thermo Fisher
Scientific and others have been and are expected to continue
pursuing internally various stem cell-related research and
development programs. Many of the foregoing companies have greater
resources and capital availability and as a result, may be more
successful in their research and development programs than
us. We anticipate that acceptance and use of hPSC
technology for drug development and regenerative medicine will
continue to occur and increase at pharmaceutical and biotechnology
companies in the future.
Government Regulation
Our
business activities, including the manufacturing, research,
development and marketing of our product candidates, are subject to
extensive regulation by numerous governmental authorities in the
United States and other countries. Before marketing in the United
States, any new drug developed by us or our collaborators must
undergo rigorous preclinical testing, clinical trials and an
extensive regulatory clearance process implemented by the United
States Food and Drug Administration (
FDA
) under the Federal Food, Drug, and
Cosmetic Act, as amended. The FDA regulates, among other things,
the development, testing, manufacture, safety, efficacy, record
keeping, labeling, storage, approval, advertising, promotion,
import, export, sale and distribution of biopharmaceutical
products. The regulatory review and approval process, which
includes preclinical testing and clinical trials of each product
candidate, is lengthy, expensive and uncertain. Moreover,
government coverage and reimbursement policies will both directly
and indirectly impact our ability to successfully commercialize any
future approved products, and such coverage and reimbursement
policies will be impacted by enacted and any applicable future
healthcare reform and drug pricing measures. In addition, we are
subject to state and federal laws, including, among others,
anti-kickback laws, false claims laws, data privacy and security
laws, and transparency laws that restrict certain business
practices in the pharmaceutical industry.
In the
United States, drug product candidates intended for human use
undergo laboratory and animal testing until adequate proof of
safety is established. Clinical trials for new product candidates
are then typically conducted in humans in three sequential phases
that may overlap. Phase 1 trials involve the initial introduction
of the product candidate into healthy human volunteers. The
emphasis of Phase 1 trials is on testing for safety or adverse
effects, dosage, tolerance, metabolism, distribution, excretion and
clinical pharmacology. Phase 2 involves studies in a limited
patient population to determine the initial efficacy of the
compound for specific targeted indications, to determine dosage
tolerance and optimal dosage, and to identify possible adverse side
effects and safety risks. Once a compound shows evidence of
effectiveness and is found to have an acceptable safety profile in
Phase 2 evaluations, Phase 3 trials are undertaken to more fully
evaluate clinical outcomes. Before commencing clinical
investigations in humans, we or our collaborators must submit an
Investigational New Drug Application (
IND
) to the FDA.
Regulatory
authorities, Institutional Review Boards and Data Monitoring
Committees may require additional data before allowing clinical
studies to commence, continue or proceed from one phase to another,
and could demand that studies be discontinued or suspended at any
time if there are significant safety issues. We have in the past
and may in the future rely on assistance from our third-party
collaborators and contract service providers to file our INDs and
generally support our development and regulatory activities
approval process for our potential products. Clinical testing must
also meet requirements for clinical trial registration,
institutional review board oversight, informed consent, health
information privacy, and good clinical practices, or GCPs.
Additionally, the manufacture of our drug product, must be done in
accordance with current good manufacturing practices (
GMPs
).
To
establish a new product candidate’s safety and efficacy, the
FDA requires companies seeking approval to market a drug product to
submit extensive preclinical and clinical data, along with other
information, for each indication for which the product will be
labeled. The data and information are submitted to the FDA in the
form of a New Drug Application (
NDA
), which must be accompanied by
payment of a significant user fee unless a waiver or exemption
applies. Generating the required data and information for an NDA
takes many years and requires the expenditure of substantial
resources. Information generated in this process is susceptible to
varying interpretations that could delay, limit or prevent
regulatory approval at any stage of the process. The failure to
demonstrate adequately the quality, safety and efficacy of a
product candidate under development would delay or prevent
regulatory approval of the product candidate. Under applicable laws
and FDA regulations, each NDA submitted for FDA approval is given
an internal administrative review within 60 days following
submission of the NDA. If deemed sufficiently complete to permit a
substantive review, the FDA will “file” the NDA. The
FDA can refuse to file any NDA that it deems incomplete or not
properly reviewable. The FDA has established internal goals of
eight months from submission for priority review of NDAs that cover
product candidates that offer major advances in treatment or
provide a treatment where no adequate therapy exists, and 12 months
from submission for the standard review of NDAs. However, the FDA
is not legally required to complete its review within these
periods, these performance goals may change over time and the
review is often extended by FDA requests for additional information
or clarification. Moreover, the outcome of the review, even if
generally favorable, may not be an actual approval but a
“complete response letter” that describes additional
work that must be done before the NDA can be approved. Before
approving an NDA, the FDA can choose to inspect the facilities at
which the product is manufactured and will not approve the product
unless the manufacturing facility complies with GMPs. The FDA may
also audit sites at which clinical trials have been conducted to
determine compliance with GCPs and data integrity. The FDA’s
review of an NDA may also involve review and recommendations by an
independent FDA advisory committee, particularly for novel
indications. The FDA is not bound by the recommendation of an
advisory committee.
In
addition, delays or rejections may be encountered based upon
changes in regulatory policy, regulations or statutes governing
product approval during the period of product development and
regulatory agency review.
Before
receiving FDA approval to market a potential product, we or our
collaborators must demonstrate through adequate and well-controlled
clinical studies that the potential product is safe and effective
in the patient population that will be treated. In addition, under
the Pediatric Research Equity Act, or PREA, an NDA or supplement to
an NDA must contain data to assess the safety and effectiveness of
the drug for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and
effective, unless a waiver applies. If regulatory approval of a
potential product is granted, this approval will be limited to
those disease states and conditions for which the product is
approved. Marketing or promoting a drug for an unapproved
indication is generally prohibited. Furthermore, FDA approval may
entail ongoing requirements for risk management, including
post-marketing, or Phase 4, studies. Even if approval is obtained,
a marketed product, its manufacturer and its manufacturing
facilities are subject to payment of significant annual fees and
continuing review and periodic inspections by the FDA. Discovery of
previously unknown problems with a product, manufacturer or
facility may result in restrictions on the product or manufacturer,
including labeling changes, warning letters, costly recalls or
withdrawal of the product from the market.
Any
drug is likely to produce some toxicities or undesirable side
effects in animals and in humans when administered at sufficiently
high doses and/or for sufficiently long periods of time.
Unacceptable toxicities or side effects may occur at any dose level
at any time in the course of studies in animals designed to
identify unacceptable effects of a product candidate, known as
toxicological studies, or during clinical trials of our potential
products. The appearance of any unacceptable toxicity or side
effect could cause us or regulatory authorities to interrupt,
limit, delay or abort the development of any of our product
candidates. Further, such unacceptable toxicity or side effects
could ultimately prevent a potential product’s approval by
the FDA or foreign regulatory authorities for any or all targeted
indications or limit any labeling claims and market acceptance,
even if the product is approved.
In
addition, as a condition of approval, the FDA may require an
applicant to develop a Risk Evaluation and Mitigation Strategy, or
REMS
. A REMS uses risk
minimization strategies beyond the professional labeling to ensure
that the benefits of the product outweigh the potential risks. To
determine whether a REMS is needed, the FDA will consider the size
of the population likely to use the product, seriousness of the
disease, expected benefit of the product, expected duration of
treatment, seriousness of known or potential adverse events, and
whether the product is a new molecular entity. REMS can include
medication guides, physician communication plans for healthcare
professionals, and elements to assure safe use (
ETASU
). ETASU may include, but are not
limited to, special training or certification for prescribing or
dispensing, dispensing only under certain circumstances, special
monitoring, and the use of patient registries. The FDA may require
a REMS before approval or post-approval if it becomes aware of a
serious risk associated with use of the product. The requirement
for a REMS can materially affect the potential market and
profitability of a product.
Any
trade name that we intend to use for a potential product must be
approved by the FDA irrespective of whether we have secured a
formal trademark registration from the U.S. Patent and Trademark
Office. The FDA conducts a rigorous review of proposed product
names, and may reject a product name if it believes that the name
inappropriately implies medical claims or if it poses the potential
for confusion with other product names. The FDA will not approve a
trade name until the NDA for a product is approved. If the FDA
determines that the trade names of other products that are approved
prior to the approval of our potential products may present a risk
of confusion with our proposed trade name, the FDA may elect to not
approve our proposed trade name. If our trade name is rejected, we
will lose the benefit of any brand equity that may already have
been developed for this trade name, as well as the benefit of our
existing trademark applications for this trade name.
We and
our collaborators and contract manufacturers also are required to
comply with the applicable FDA GMP regulations. GMP regulations
include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection
by the FDA. These facilities must be approved before we can use
them in commercial manufacturing of our potential products and must
maintain ongoing compliance for commercial product manufacture. The
FDA may conclude that we or our collaborators or contract
manufacturers are not in compliance with applicable GMP
requirements and other FDA regulatory requirements, which may
result in delay or failure to approve applications, warning
letters, product recalls and/or imposition of fines or
penalties.
If a
product is approved, we must also comply with post-marketing
requirements, including, but not limited to, compliance with
advertising and promotion laws enforced by various government
agencies, including the FDA’s Office of Prescription Drug
Promotion, through such laws as the Prescription Drug Marketing
Act, federal and state anti-fraud and abuse laws, including
anti-kickback and false claims laws, healthcare information privacy
and security laws, post-marketing safety surveillance, and
disclosure of payments or other transfers of value to healthcare
professionals and entities. In addition, we are subject to other
federal and state regulation including, for example, the
implementation of corporate compliance programs.
If we
elect to distribute our products commercially, we must comply with
state laws that require the registration of manufacturers and
wholesale distributors of pharmaceutical products in a state,
including, in certain states, manufacturers and distributors who
ship products into the state even if such manufacturers or
distributors have no place of business within the state. Some
states also impose requirements on manufacturers and distributors
to establish the pedigree of product in the chain of distribution,
including some states that require manufacturers and others to
adopt new technology capable of tracking and tracing product as it
moves through the distribution chain.
Outside
of the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of
clinical trials, marketing authorization, pricing and reimbursement
vary widely from country to country. At present, foreign marketing
authorizations are applied for at a national level, although within
the European Community (
EC
), centralized registration
procedures are available to companies wishing to market a product
in more than one EC member state. If the regulatory authority is
satisfied that adequate evidence of safety, quality and efficacy
has been presented, marketing authorization will be granted. This
foreign regulatory development and approval process involves all of
the risks associated with achieving FDA marketing approval in the
U.S. as discussed above. In addition, foreign regulations may
include applicable post-marketing requirements, including safety
surveillance, anti-fraud and abuse laws, and implementation of
corporate compliance programs and reporting of payments or other
transfers of value to healthcare professionals and
entities.
Reimbursement
Potential
sales of AV-101 or any other future product candidate, if approved,
will depend, at least in part, on the extent to which such products
will be covered by third-party payors, such as government health
care programs, commercial insurance and managed healthcare
organizations. These third-party payors are increasingly limiting
coverage and/or reducing reimbursements for medical products and
services. A third-party payor’s decision to provide coverage
for a drug product does not imply that an adequate reimbursement
rate will be approved. Further, one payor’s determination to
provide coverage for a drug product does not assure that other
payors will also provide coverage for the drug product. In
addition, the U.S. government, state legislatures and foreign
governments have continued implementing cost-containment programs,
including price controls, restrictions on reimbursement and
requirements for substitution of generic products. Adoption of
price controls and cost-containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and
measures, could further limit our future revenues and results of
operations. Decreases in third-party reimbursement or a decision by
a third-party payor to not cover AV-101, if approved, or any future
approved products could reduce physician usage of our products, and
have a material adverse effect on our sales, results of operations
and financial condition.
In the
United States, the Medicare Part D program provides a voluntary
outpatient drug benefit to Medicare beneficiaries for certain
products. We do not know whether AV-101, if approved, or any other
future product candidate will be eligible for coverage under
Medicare Part D, but individual Medicare Part D plans offer
coverage subject to various factors such as those described above.
In addition, while Medicare Part D plans have historically included
“all or substantially all” drugs in the following
designated classes of “clinical concern” on their
formularies: anticonvulsants, antidepressants, antineoplastics,
antipsychotics, antiretrovirals, and immunosuppressants, the
Centers for Medicare and Medicaid Services (
CMS
) has in the past proposed, but not
adopted, changes to this policy. If this policy is changed in the
future and if CMS no longer considers the antidepressant class to
be of “clinical concern”, Medicare Part D plans would
have significantly more discretion to reduce the number of products
covered in that class. Furthermore, private payors often follow
Medicare coverage policies and payment limitations in setting their
own coverage policies.
Healthcare Laws and Regulations
Sales
of AV-101, if approved, or any other future product candidate will
be subject to healthcare regulation and enforcement by the federal
government and the states and foreign governments in which we might
conduct our business. The healthcare laws and regulations that may
affect our ability to operate include the following:
●
The federal
Anti-Kickback Statute makes it illegal for any person or entity to
knowingly and willfully, directly or indirectly, solicit, receive,
offer, or pay any remuneration that is in exchange for or to induce
the referral of business, including the purchase, order, lease of
any good, facility, item or service for which payment may be made
under a federal healthcare program, such as Medicare or Medicaid.
The term “remuneration” has been broadly interpreted to
include anything of value.
●
Federal false
claims and false statement laws, including the federal civil False
Claims Act, prohibits, among other things, any person or entity
from knowingly presenting, or causing to be presented, for payment
to, or approval by, federal programs, including Medicare and
Medicaid, claims for items or services, including drugs, that are
false or fraudulent.
●
The U.S. federal
Health Insurance Portability and Accountability Act of 1996
(
HIPAA
) created additional
federal criminal statutes that prohibit among other actions,
knowingly and willfully executing, or attempting to execute, a
scheme to defraud any healthcare benefit program, including private
third-party payors or making any false, fictitious or fraudulent
statement in connection with the delivery of or payment for
healthcare benefits, items or services.
●
HIPAA, as amended
by the Health Information Technology for Economic and Clinical
Health Act of 2009 (
HITECH
)
and their implementing regulations, impose obligations on certain
types of individuals and entities regarding the electronic exchange
of information in common healthcare transactions, as well as
standards relating to the privacy and security of individually
identifiable health information.
●
The federal
Physician Payments Sunshine Act requires certain manufacturers of
drugs, devices, biologics and medical supplies for which payment is
available under Medicare, Medicaid or the Children’s Health
Insurance Program, with specific exceptions, to report annually to
CMS information related to payments or other transfers of value
made to physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family
members.
Also,
many states have similar laws and regulations, such as
anti-kickback and false claims laws that may be broader in scope
and may apply regardless of payor, in addition to items and
services reimbursed under Medicaid and other state programs.
Additionally, we may be subject to state laws that require
pharmaceutical companies to comply with the federal
government’s and/or pharmaceutical industry’s voluntary
compliance guidelines, state laws that require drug manufacturers
to report information related to payments and other transfers of
value to physicians and other healthcare providers or marketing
expenditures, as well as state and foreign laws governing the
privacy and security of health information, many of which differ
from each other in significant ways and often are not preempted by
HIPAA.
Additionally,
to the extent that our product is sold in a foreign country, we may
be subject to similar foreign laws.
Healthcare Reform
The
United States and some foreign jurisdictions are considering or
have enacted a number of legislative and regulatory proposals to
change the healthcare system in ways that could affect our ability
to sell our products profitably. By way of example, in March 2010,
the Patient Protection and Affordable Care Act (
ACA
) was signed into law, which
intended to broaden access to health insurance, reduce or constrain
the growth of healthcare spending, enhance remedies against fraud
and abuse, add transparency requirements for the healthcare and
health insurance industries, impose taxes and fees on the health
industry and impose additional health policy reforms. There have
been judicial and Congressional challenges to certain aspects of
the ACA, and we expect there will be additional challenges and
amendments to the ACA in the future. In early 2017, the U.S. House
of Representatives and Senate passed legislation which, if signed
into law by President Trump, would repeal certain aspects of the
ACA. Congress also could consider subsequent legislation to replace
elements of the ACA that are repealed. At this time, the full
effect that the ACA will have on our business in the future remains
unclear.
Among
the provisions of the ACA that may be of importance to AV-101, if
approved, and any of our future product candidates
are:
●
an annual,
nondeductible fee on any entity that manufactures or imports
specified branded prescription drugs and biologic agents,
apportioned among these entities based on their market share in
certain government healthcare programs;
●
an increase in the
statutory minimum rebates a manufacturer must pay under the
Medicaid Drug Rebate Program to 23.1% and 13.0% of the average
manufacturer price for branded and generic drugs,
respectively;
●
extension of a
manufacturer’s Medicaid rebate liability to covered drugs
dispensed to individuals who are enrolled in Medicaid managed care
organizations;
●
expansion of
eligibility criteria for Medicaid programs by, among other things,
allowing states to offer Medicaid coverage to certain individuals
with income at or below 133% of the federal poverty level, thereby
potentially increasing a manufacturer’s Medicaid rebate
liability;
●
a Medicare Part D
coverage gap discount program, in which manufacturers must agree to
offer 50% point-of-sale discounts to negotiated prices of
applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for a manufacturer’s
outpatient drugs to be covered under Medicare Part D;
●
expansion of the
entities eligible for discounts under the Public Health Service
pharmaceutical pricing program;
●
a requirement to
annually report drug samples that manufacturers and distributors
provide to physicians; and
●
a Patient-Centered
Outcomes Research Institute to oversee, identify priorities in, and
conduct comparative clinical effectiveness research, along with
funding for such research.
Other
legislative changes have been proposed and adopted in the United
States since the ACA. Through the process created by the Budget
Control Act of 2011, there are automatic reductions of Medicare
payments to providers up to 2% per fiscal year, which went into
effect in April 2013 and, following passage of the Bipartisan
Budget Act of 2015, will remain in effect through 2025 unless
additional Congressional action is taken. In January 2013,
President Obama signed into law the American Taxpayer Relief Act of
2012, which, among other things, further reduced Medicare payments
to certain providers. Moreover, recently there has been heightened
governmental scrutiny over the manner in which manufacturers set
prices for their commercial products. We expect that healthcare
reform measures that may be adopted in the future may result in
more rigorous coverage criteria and potentially lower reimbursement
levels. We cannot predict what healthcare reform initiatives may be
adopted in the future.
Stem Cell Technology - United States
With
respect to our stem cell research and development in the U.S., the
U.S. government has established requirements and procedures
relating to the isolation and derivation of certain stem cell lines
and the availability of federal funds for research and development
programs involving those lines. All of the stem cell lines that we
are using were either isolated under procedures that meet U.S.
government requirements and are approved for funding from the U.S.
government, or were isolated under procedures that meet U.S.
government requirements.
All
procedures we use to obtain clinical samples, and the procedures we
use to isolate hESCs, are consistent with the informed consent and
ethical guidelines promulgated by the U.S. National Academy of
Science, the International Society of Stem Cell Research
(
ISSCR
), or the NIH. These
procedures and documentation have been reviewed by an external Stem
Cell Research Oversight Committee, and all cell lines we use have
been approved under one or more of these guidelines.
The
U.S. government and its agencies on July 7, 2009 published
guidelines for the ethical derivation of hESCs required for
receiving federal funding for hESC research. Should we seek further
NIH funding for our stem cell research and development, our request
would involve the use of hESC lines that meet the NIH guidelines
for NIH funding. In the U.S., the President’s Council on
Bioethics monitors stem cell research, and may make recommendations
from time to time that could place restrictions on the scope of
research using human embryonic or fetal tissue. Although numerous
states in the U.S. are considering, or have in place, legislation
relating to stem cell research, including California whose voters
approved Proposition 71 to provide up to $3 billion of state
funding for stem cell research in California, it is not yet clear
what affect, if any, state actions may have on our ability to
commercialize stem cell technologies.
Stem Cell Technology - Canada
In
Canada, stem cell research and development is governed by two
policy documents and by one legislative statute: the Guidelines for
Human Pluripotent Stem Cell Research (the
Guidelines
) issued by the Canadian
Institutes of Health Research; the Tri-Council Statement: Ethical
Conduct for Research Involving Humans (
TCPS
); and the Assisted Human
Reproduction Act (
Act
). The
Guidelines and the TCPS govern stem cell research conducted by, or
under the auspices of, institutions funded by the federal
government. Should we seek funding from Canadian government
agencies or should we conduct research under the auspices of an
institution so funded, we may have to ensure the compliance of such
research with the ethical rules prescribed by the Guidelines and
the TCPS.
The Act
subjects all research conducted in Canada involving the human
embryo, including hESC derivation (but not the stem cells once
derived), to a licensing process overseen by a federal licensing
agency. However, as of the date of this Annual Report,
the provisions of the Act regarding the licensing of hESC
derivation were not in force.
We are
not currently conducting stem cell research in
Canada. We have, however, sponsored pluripotent stem
cell research in Canada by Dr. Gordon Keller at UHN’s McEwen
Centre. Should the provisions of the Act come into force, we may
have to apply for a license for all hESC research we may sponsor or
conduct in Canada and ensure compliance of such research with the
provisions of the Act.
Subsidiaries and Inter-Corporate Relationships
VistaGen Therapeutics. Inc., a California corporation, dba
VistaStem (
VistaStem
) , is our wholly-owned subsidiary and has two
wholly-owned subsidiaries: VistaStem Canada Inc., a corporation
incorporated pursuant to the laws of the Province of Ontario, and
Artemis Neuroscience, Inc., a corporation incorporated pursuant to
the laws of the State of Maryland. The operations of VistaStem, and
each of its wholly owned subsidiaries are managed by our senior
management team based in South San Francisco,
California.
Employees
As of June 27, 2017, we employed nine full-time employees,
four of whom have doctorate degrees. Five full-time employees work
in research and development and laboratory support services and
four full-time employees work in general and administrative roles.
Staffing for all other functional areas is achieved through
strategic relationships with service providers and consultants,
each of whom provides services on a real-time, as-needed basis,
including human resources and payroll, information technology,
facilities, legal, investor relations and website maintenance,
regulatory affairs, and FDA program management.
We have never had a work stoppage, and none of our employees is
represented by a labor organization or under any collective
bargaining agreement. We consider our employee relations to be
good.
Facilities
We lease our office and laboratory space, which consists of
approximately 10,900 square feet located in South San Francisco,
California, under a lease expiring on July 31,
2022.
Investing in our securities involves a high degree of risk. You
should consider carefully the risks and uncertainties described
below, together with all other information in this Annual Report
before investing in our securities. The risks described
below are not the only risks facing our
Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also materially adversely affect our business, financial
condition and/or operating results. If any of the following
risks are realized, our business, financial condition and/or
operating results could be materially and adversely
affected.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of AV-101. We cannot be certain
that we will be able to obtain regulatory approval for, or
successfully commercialize AV-101, or any product
candidate.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
depends heavily on the successful development, regulatory approval
and commercialization of AV-101 for depression, including for MDD,
and, potentially, various other diseases and disorders involving
the CNS, as well as, but to a more limited extent, our ability to
produce, develop and commercialize NCEs from our drug rescue
programs. AV-101 will require substantial additional non-clinical
and clinical development, testing and regulatory approval before it
may be commercialized. It is unlikely to achieve regulatory
approval, if at all, until at least 2021. Each drug rescue NCE will
require substantial non-clinical development, all phases of
clinical development, and regulatory approval before it may be
commercialized. The non-clinical and clinical development of our
product candidates are, and the manufacturing and marketing of our
product candidates will be, subject to extensive and rigorous
review and regulation by numerous government authorities in the
United States and in other countries where we intend to test and,
if approved, market any product candidate. Before obtaining
regulatory approvals for the commercial sale of any product
candidate, we must demonstrate through non-clinical studies and
clinical trials that the product candidate is safe and effective
for use in each target indication. Drug development is a long,
expensive and uncertain process, and delay or failure can occur at
any stage of any of our non-clinical or clinical studies. This
process can take many years and may also include post-marketing
studies and surveillance, which will require the expenditure of
substantial resources beyond the proceeds we have raised to date.
Of the large number of drugs in development in the United States,
only a small percentage will successfully complete the FDA
regulatory approval process and will be commercialized.
Accordingly, even if we are able to obtain the requisite financing
to continue to fund our non-clinical and clinical studies, we
cannot assure you that AV-101, any drug rescue NCE, or any other
future product candidate will be successfully developed or
commercialized.
We are not permitted to market our product candidates in the United
States until we receive approval of a New Drug Application
(
NDA
) from the FDA, or in any foreign countries until
we receive the requisite approval from such countries. We expect
the FDA to require us to complete the planned AV-101 MDD Phase 2
Adjunctive Treatment Study and at least two pivotal Phase 3
clinical trials in order to submit an NDA for AV-101 as an
adjunctive treatment for MDD patients with an inadequate response
to standard, FDA-approved antidepressants. Also, we anticipate that
the FDA will require that we conduct additional toxicity
studies, additional non-clinical and certain small clinical studies
before submitting an NDA for AV-101. The results of all of these
studies are not known until after the studies are
concluded.
Obtaining FDA approval of an NDA is a complex, lengthy, expensive
and uncertain process, and the FDA may delay, limit or deny
approval of AV-101 or any of our product candidates for many
reasons, including, among others:
●
if we submit an NDA and it is reviewed by an advisory committee,
the FDA may have difficulties scheduling an advisory committee
meeting in a timely manner or the advisory committee may recommend
against approval of our application or may recommend that the FDA
require, as a condition of approval, additional non-clinical or
clinical studies, limitations on approved labeling or distribution
and use restrictions;
●
the FDA may require development of a Risk
Evaluation and Mitigation Strategy (
REMS
) as a condition of approval or
post-approval;
●
the FDA or the applicable foreign regulatory
agency may determine that the manufacturing processes or facilities
of third-party contract manufacturers with which we contract do not
conform to applicable requirements, including current Good
Manufacturing Practices (
cGMPs
); or
●
the FDA or applicable foreign regulatory agency may change its
approval policies or adopt new regulations.
Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize AV-101 or any other product candidate we
may develop, including drug rescue NCEs. Any such setback in our
pursuit of regulatory approval for any product candidate would have
a material adverse effect on our business and
prospects.
We intend to seek a Fast Track designation from the FDA for AV-101,
initially for adjunctive treatment of MDD patients with an
inadequate response to standard antidepressants. Even if the FDA
approves Fast Track designation for AV-101 for this indication, it
may not actually lead to a faster development or regulatory review
or approval process.
The Fast Track designation is a program offered by the FDA pursuant
to certain mandates under the FDA Modernization Act of 1997,
designed to facilitate drug development and to expedite the review
of new drugs that are intended to treat serious or life threatening
conditions. Compounds selected must demonstrate the potential to
address unmet medical needs. The Fast Track designation allows for
close and frequent interaction with the FDA. A designated Fast
Track drug may also be considered for priority review with a
shortened review time, rolling submission, and accelerated approval
if applicable. The designation does not, however, guarantee
approval or expedited approval of any application for the
product.
We intend to seek FDA Fast Track designation for AV-101, initially
for adjunctive treatment of MDD patients with an inadequate
response to standard antidepressants, and we may do so for other
CNS indications, as well as for other product candidates. The FDA
has broad discretion whether or not to grant a Fast Track
designation, and even if we believe AV-101 and other product
candidates are eligible for this designation, we cannot be sure
that the review or approval will compare to conventional FDA
procedures. Even if granted, the FDA may withdraw Fast Track
designation if it believes that the designation is no longer
supported by data from our clinical development
programs.
The number of patients suffering from MDD has not been established
with precision. If the actual number of patients with MDD is
smaller than we anticipate, we or our collaborators may encounter
difficulties in enrolling patients in AV-101 clinical trials,
including the NIMH AV-101 MDD Phase 2 Monotherapy Study and our
planned AV-101 MDD Phase 2 Adjunctive Treatment Study, thereby
delaying completion such studies or preventing additional clinical
development. Further, if AV-101 is approved for
adjunctive treatment of MDD patients with an inadequate response to
standard antidepressants, and the market for this indication is
smaller than we anticipate, our ability to achieve profitability
could be limited.
Results of earlier clinical trials may not be predictive of the
results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of
AV-101 and other product candidates may not be predictive of the
results of later-stage clinical trials. AV-101 or other product
candidates in later stages of clinical trials may fail to show the
desired safety and efficacy results despite having progressed
through preclinical studies and initial clinical trials. Many
companies in the biopharmaceutical industry have suffered
significant setbacks in advanced clinical trials due to adverse
safety profiles or lack of efficacy, notwithstanding promising
results in earlier studies. Similarly, our future clinical trial
results may not be successful for these or other
reasons.
This drug candidate development risk is heightened by any changes
in planned timing or nature of clinical trials compared to
completed clinical trials. As product candidates are developed
through preclinical to early and late stage clinical trials towards
approval and commercialization, it is customary that various
aspects of the development program, such as manufacturing and
methods of administration, are altered along the way in an effort
to optimize processes and results. While these types of changes are
common and are intended to optimize the product candidates for
later stage clinical trials, approval and commercialization, such
changes do carry the risk that they will not achieve these intended
objectives.
For example, the results of planned clinical trials may be
adversely affected if we or our collaborator seek to optimize and
scale-up production of a product candidate. In such case, we will
need to demonstrate comparability between the newly manufactured
drug substance and/or drug product relative to the previously
manufactured drug substance and/or drug product. Demonstrating
comparability may cause us to incur additional costs or delay
initiation or completion of our clinical trials, including the need
to initiate a dose escalation study and, if unsuccessful, could
require us to complete additional non-clinical or clinical studies
of our product candidates.
If serious adverse events or other undesirable side effects are
identified during the use of AV-101 in clinical trials, it may
adversely affect our development of AV-101 for MDD and other CNS
indications.
AV-101 as a monotherapy is currently being tested by the NIMH in an
NIMH-investigator sponsored Phase 2 clinical trial for the
treatment of MDD and may be subjected to testing in the future for
other CNS indications in additional investigator sponsored clinical
trials. If serious adverse events or other undesirable side
effects, or unexpected characteristics of AV-101 are observed in
investigator sponsored clinical trials of AV-101 or our clinical
trials, it may adversely affect or delay our clinical development
of AV-101, and the occurrence of these events would have a material
adverse effect on our business.
Positive results from early preclinical studies and clinical trials
of AV-101 or other product candidates are not necessarily
predictive of the results of later preclinical studies and clinical
trials of such product candidates. If we cannot replicate the
positive results from our earlier preclinical studies and clinical
trials of AV-101 or other product candidates in our later
preclinical studies and clinical trials, we may be unable to
successfully develop, obtain regulatory approval for and
commercialize our product candidates.
Positive results from preclinical studies of our product
candidates, and any positive results we may obtain from early
clinical trials of our product candidates, may not necessarily be
predictive of the results from required later preclinical studies
and clinical trials. Similarly, even if we are able to complete our
planned preclinical studies or clinical trials of our product
candidates according to our current development timeline, the
positive results from our preclinical studies and clinical trials
of our product candidates may not be replicated in subsequent
preclinical studies or clinical trial results. Many companies in
the pharmaceutical and biotechnology industries have suffered
significant setbacks in late-stage clinical trials after achieving
positive results in early-stage development, and we cannot be
certain that we will not face similar setbacks. These setbacks have
been caused by, among other things, preclinical findings made while
clinical trials were underway or safety or efficacy observations
made in preclinical studies and clinical trials, including
previously unreported adverse events. Moreover, preclinical and
clinical data are often susceptible to varying interpretations and
analyses, and many companies that believed their product candidates
performed satisfactorily in preclinical studies and clinical trials
nonetheless failed to obtain FDA approval. We have not yet
completed a Phase 2 clinical trial for AV-101, and if the NIMH
fails to produce positive results in the NIMH AV-101 MDD Phase 2
Monotherapy Study, the development timeline and regulatory approval
and commercialization prospects for AV-101 and, correspondingly,
our business and financial prospects, could be materially adversely
affected.
Failures or delays in the commencement or completion of our planned
clinical trials and non-clinical studies of our product candidates
could result in increased costs to us and could delay, prevent or
limit our ability to generate revenue and continue our
business.
Under our CRADA, the NIMH is conducting and funding the NIMH AV-101
MDD Phase 2 Monotherapy Study. We will need to complete the planned
AV-101 MDD Phase 2 Adjunctive Treatment Study, at least two
additional large Phase 2b/3 clinical trials, additional toxicity
and non-clinical studies and certain smaller clinical studies prior
to the submission of an NDA for AV-101 as a new generation
adjunctive treatment for MDD. Successful completion of our clinical
trials is a prerequisite to submitting an NDA to the FDA and,
consequently, the ultimate approval and commercial marketing of
AV-101 for MDD and any other product candidates we may develop. We
do not know whether the NIMH AV-101 MDD Phase 2 Monotherapy Study,
the AV-101 MDD Phase 2 Adjunctive Treatment Study or any of our
future-planned non-clinical and clinical trials will be completed
on schedule, if at all, as the commencement and completion of
non-clinical and clinical trials can be delayed or prevented for a
number of reasons, including, among others:
●
the FDA may deny permission to proceed with our planned clinical
trials or any other clinical trials we may initiate, or may place a
planned or ongoing clinical trial on hold;
●
delays in filing or receiving approvals of additional INDs that may
be required;
●
negative results from our ongoing non-clinical
studies;
●
delays in reaching or failing to reach agreement on acceptable
terms with prospective CROs and clinical trial sites, the terms of
which can be subject to extensive negotiation and may vary
significantly among different CROs and trial sites;
●
inadequate quantity or quality of a product candidate or other
materials necessary to conduct non-clinical or clinical trials, for
example delays in the manufacturing of sufficient supply of
finished drug product;
●
difficulties obtaining Institutional Review
Board (
IRB
) approval to conduct a clinical trial at a
prospective site or sites;
●
challenges in recruiting and enrolling patients to participate in
clinical trials, including the proximity of patients to clinical
trial sites;
●
eligibility criteria for the clinical trial, the nature of the
clinical trial protocol, the availability of approved effective
treatments for the relevant disease and competition from other
clinical trial programs for similar indications;
●
severe or unexpected drug-related side effects experienced by
patients in a clinical trial;
●
delays in validating any endpoints utilized in a clinical
trial;
●
the FDA may disagree with our clinical trial design and our
interpretation of data from prior non-clinical studies or clinical
trials, or may change the requirements for approval even after it
has reviewed and commented on the design for our clinical
trials;
●
reports from non-clinical or clinical testing of other CNS
indications or therapies that raise safety or efficacy concerns;
and
●
difficulties retaining patients who have enrolled in a clinical
trial but may be prone to withdraw due to rigors of the clinical
trials, lack of efficacy, side effects, personal issues or loss of
interest.
Clinical trials may also be delayed or terminated prior to
completion as a result of ambiguous or negative interim results. In
addition, a clinical trial may be suspended or terminated by us,
the FDA, the IRBs at the sites where the IRBs are overseeing a
clinical trial, a data and safety monitoring board
(
DSMB
), overseeing the clinical trial at issue or other
regulatory authorities due to a number of factors, including, among
others:
●
failure to conduct the clinical trial in accordance with regulatory
requirements or our clinical protocols;
●
inspection of the clinical trial operations or trial sites by the
FDA or other regulatory authorities that reveals deficiencies or
violations that require us to undertake corrective action,
including the imposition of a clinical hold;
●
unforeseen safety issues, including any that could be identified in
our ongoing non-clinical carcinogenicity studies, adverse side
effects or lack of effectiveness;
●
changes in government regulations or administrative
actions;
●
problems with clinical supply materials; and
●
lack of adequate funding to continue clinical trials.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our non-clinical studies and clinical trials of our
product candidates may occur, which may result in changes to
non-clinical studies and clinical trial protocols or additional
non-clinical studies and clinical trial requirements, which could
result in increased costs to us and could delay our development
timeline.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our non-clinical studies and clinical trials may
force us to amend non-clinical studies and clinical trial protocols
or the FDA may impose additional non-clinical studies and clinical
trial requirements. Amendments or changes to our clinical trial
protocols would require resubmission to the FDA and IRBs for review
and approval, which may adversely impact the cost, timing or
successful completion of clinical trials. Similarly, amendments to
our non-clinical studies may adversely impact the cost, timing, or
successful completion of those non-clinical studies. If we
experience delays completing, or if we terminate, any of our
non-clinical studies or clinical trials, or if we are required to
conduct additional non-clinical studies or clinical trials, the
commercial prospects for our product candidates may be harmed and
our ability to generate product revenue will be
delayed.
We rely, and expect that we will continue to rely, on third parties
to conduct non-clinical and clinical trials of AV-101 and any other
product candidates. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines,
completion of non-clinical and clinical trials and development of
AV-101 and other product candidates may be delayed and we may not
be able to obtain regulatory approval for or commercialize AV-101
or other product candidates and our business could be substantially
harmed.
We do not have the internal staff resources to independently
conduct non-clinical and clinical trials completely on our own. We
rely on our strategic relationships with various medical
institutions, non-clinical and clinical investigators, contract
laboratories and other third parties, such as contract research and
development organizations (
CROs
), to conduct non-clinical and clinical trials of
our product candidates. We enter into agreements with third-party
CROs to provide monitors for and to manage data for our clinical
trials, as well as provide other services necessary to prepare for,
conduct and complete clinical trials. We rely heavily on these and
other third-parties for execution of non-clinical and clinical
trials for our product candidates and control only certain aspects
of their activities. As a result, we have less direct control over
the conduct, timing and completion of these non-clinical and
clinical trials and the management of data developed through
non-clinical and clinical trials than would be the case if we were
relying entirely upon our own staff. Communicating with outside
parties can also be challenging, potentially leading to mistakes as
well as difficulties in coordinating activities. Outside parties
may:
●
have staffing difficulties and/or undertake obligations beyond
their anticipated capabilities and resources;
●
fail to comply with contractual obligations;
●
experience regulatory compliance issues;
●
undergo changes in priorities or become financially distressed;
or
●
form relationships with other entities, some of which may be our
competitors.
These factors may materially adversely affect the willingness or
ability of third parties to conduct our non-clinical and clinical
trials and may subject us to unexpected cost increases that are
beyond our control. Nevertheless, we are responsible for ensuring
that each of our non-clinical studies and clinical trials is
conducted in accordance with the applicable protocol, legal,
regulatory and scientific requirements and standards, and our
reliance on CROs or the NIH does not relieve us of our regulatory
responsibilities. We and our CROs and the NIMH are required to
comply with regulations and guidelines, including current cGCPs for
conducting, monitoring, recording and reporting the results of
clinical trials to ensure that the data and results are
scientifically credible and accurate, and that the trial patients
are adequately informed of the potential risks of participating in
clinical trials. These regulations are enforced by the FDA, the
Competent Authorities of the Member States of the European Economic
Area and comparable foreign regulatory authorities for any products
in clinical development. The FDA enforces cGCP regulations through
periodic inspections of clinical trial sponsors, principal
investigators and trial sites. If we or any of our CROs fail to
comply with applicable cGCPs, the clinical data generated in our
clinical trials may be deemed unreliable and the FDA or comparable
foreign regulatory authorities may require us to perform additional
clinical trials before approving our marketing applications. We
cannot assure you that, upon inspection, the FDA will determine
that any of our clinical trials comply with cGCPs. In addition, our
clinical trials must be conducted with product candidates produced
under cGMPs regulations and will require a large number of test
patients. Our failure or the failure of our CROs to comply with
these regulations may require us to repeat clinical trials, which
would delay the regulatory approval process and could also subject
us to enforcement action up to and including civil and criminal
penalties.
Although we design our clinical trials for our product candidates,
we plan to have CROs, and in the case of the NIMH AV-101 MDD Phase
2 Monotherapy Study, the NIMH, conduct the AV-101 Phase 2 and Phase
3 clinical trials. As a result, many important aspects of our drug
development programs are outside of our direct control. In
addition, the CROs or the NIMH, as the case may be, may not perform
all of their obligations under arrangements with us or in
compliance with regulatory requirements, but we remain responsible
and are subject to enforcement action that may include civil
penalties up to and including criminal prosecution for any
violations of FDA laws and regulations during the conduct of our
clinical trials. If the NIMH or CROs do not perform clinical trials
in a satisfactory manner, breach their obligations to us or fail to
comply with regulatory requirements, the development and
commercialization of AV-101 and other product candidates may be
delayed or our development program materially and irreversibly
harmed. We cannot control the amount and timing of resources these
CROs or the NIMH devote to our program or our clinical products. If
we are unable to rely on non-clinical and clinical data collected
by our CROs or the NIMH, we could be required to repeat, extend the
duration of, or increase the size of our clinical trials and this
could significantly delay commercialization and require
significantly greater expenditures.
If any of our relationships with these third-party CROs or the NIMH
terminate, we may not be able to enter into arrangements with
alternative CROs or collaborators. If CROs or the NIMH
do not successfully carry out their contractual duties or
obligations or meet expected deadlines, if they need to be replaced
or if the quality or accuracy of the clinical data they obtain is
compromised due to the failure to adhere to our clinical protocols,
regulatory requirements or for other reasons, any clinical trials
that such CROs or the NIMH are associated with may be extended,
delayed or terminated, and we may not be able to obtain regulatory
approval for or successfully develop and commercialize our product
candidates. As a result, we believe that our financial results and
the commercial prospects for our product candidates in the subject
indication would be harmed, our costs would increase and our
ability to generate revenue would be delayed.
We rely completely on third-parties to manufacture and prepare our
clinical supplies of AV-101 and other product candidates, and we
intend to rely on third parties to produce non-clinical, clinical
and commercial supplies of AV-101 and any future product
candidate.
We do not currently have, nor do we plan to acquire, the
infrastructure or capability to internally manufacture our drug
supply of AV-101 or any other product candidates for use in the
conduct of our non-clinical studies and clinical trials, and we
lack the internal resources and the capability to manufacture any
product candidates on a research, development or commercial
scale. The facilities used by our contract manufacturers
to manufacture the active pharmaceutical ingredient and final drug
product must complete a pre-approval inspection by the FDA and
other comparable foreign regulatory agencies to assess compliance
with applicable requirements, including cGMPs, after we submit our
NDA or relevant foreign regulatory submission to the applicable
regulatory agency.
We do not directly control the manufacturing process of, and are
completely dependent on, our contract manufacturers to comply with
cGMPs for manufacture of both active drug substances and finished
drug products. If our contract manufacturers cannot successfully
manufacture material that conforms to our specifications and the
strict regulatory requirements of the FDA or applicable foreign
regulatory agencies, they will not be able to secure and/or
maintain regulatory approval for their manufacturing facilities. In
addition, we have no direct control over our contract
manufacturers’ ability to maintain adequate quality control,
quality assurance and qualified personnel. Furthermore, all of our
contract manufacturers are engaged with other companies to supply
and/or manufacture materials or products for such other companies,
which exposes our third-party contract manufacturers to regulatory
risks for the production of such materials and products. As a
result, failure to satisfy the regulatory requirements for the
production of those materials and products may affect the
regulatory clearance of our contract manufacturers’
facilities generally. If the FDA or an applicable foreign
regulatory agency determines now or in the future that these
facilities for the manufacture of our product candidates are
noncompliant, we may need to find alternative manufacturing
facilities, which would adversely impact our ability to develop,
obtain regulatory approval for or market our product candidates.
Our reliance on contract manufacturers also exposes us to the
possibility that they, or third parties with access to their
facilities, will have access to and may appropriate our trade
secrets or other proprietary information.
We do not yet have long-term supply agreements in place with our
contract manufacturers and each batch of our product candidates are
individually contracted under a quality and supply agreement. If we
engage new contract manufacturers, such contractors must complete
an inspection by the FDA and other applicable foreign regulatory
agencies. We plan to continue to rely upon contract manufacturers
and, potentially, collaboration partners, to manufacture research,
development and commercial quantities of AV-101 and other product
candidates, if approved. Our current scale of manufacturing for
AV-101 is adequate to support our currently planned needs for
additional non-clinical studies and clinical trials.
Recently enacted and future legislation may increase the difficulty
and cost for us to obtain marketing approval for and commercialize
AV-101 and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have
been, and we expect there will continue to be, a number of
legislative and regulatory changes and proposed changes regarding
the healthcare system, including the ACA, that could, among other
things, prevent or delay marketing approval of AV-101, restrict or
regulate post-approval activities, and affect our ability to
profitably sell any products for which we obtain marketing
approval.
In March 2010, the ACA was enacted to broaden access to health
insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against fraud and abuse, add new transparency
requirements for health care and health insurance industries,
impose new taxes and fees on the health industry, and impose
additional health policy reforms. The law has continued the
downward pressure on pharmaceutical pricing, especially under the
Medicare program, and increased the industry’s regulatory
burdens and operating costs. We cannot predict the full impact of
the ACA on pharmaceutical companies, as many of the reforms require
the promulgation of detailed regulations implementing the statutory
provisions, some of which have not yet fully occurred.
Further, there have been judicial and Congressional challenges to
certain aspects of the ACA, and we expect there will be additional
challenges and amendments to the ACA in the future. In January
2017, the President of the United States signed an Executive Order
directing federal agencies with authorities and responsibilities
under the ACA to waive, defer, grant exemptions from, or delay the
implementation of any provision of the ACA that would impose a
fiscal or regulatory burden on states, individuals, healthcare
providers, health insurers, or manufacturers of pharmaceuticals or
medical devices. In May 2017, the United States House of
Representatives passed legislation known as the American Health
Care Act, which, if enacted, would amend or repeal significant
portions of the ACA. The United States Senate could adopt the
American Health Care Act as passed by the United States House of
Representatives or other legislation to amend or replace elements
of the ACA. Thus, it is uncertain when or if the American Health
Care Act will become law. We continue to evaluate the effect that
the ACA and its possible repeal and replacement has on our
business.
Other legislative changes have been proposed and adopted since the
ACA was enacted. For example, in August 2011, the President of the
United States signed into law the Budget Control Act of 2011,
which, among other things, created the Joint Select Committee on
Deficit Reduction to recommend to Congress proposals in spending
reductions. The Joint Select Committee did not achieve a targeted
deficit reduction of at least $1.2 trillion for the years 2013
through 2021, triggering the legislation’s automatic
reduction to several government programs. This included further
reductions to Medicare payments to providers of 2% per fiscal year,
which went into effect in April 2013 and, due to subsequent
legislative amendments to the statute, will stay in effect through
2025 unless additional Congressional action is taken. Additionally,
in January 2013, the American Taxpayer Relief Act of 2012 was
signed into law, which, among other things, reduced Medicare
payments to several types of providers and increased the statute of
limitations period in which the government may recover overpayments
to providers from three to five years. Further, there have been
several recent United States Congressional inquiries and proposed
federal and state legislation designed to, among other things,
bring more transparency to drug pricing, review the relationship
between pricing and manufacturer patient programs, reduce the
out-of-pocket cost of prescription drugs, and reform government
program reimbursement methodologies for drugs.
Moreover, the Drug Supply Chain Security Act, which was enacted in
2012 as part of the Food and Drug Administration Safety and
Innovation Act, imposes new obligations on manufacturers of
pharmaceutical products related to product tracking and tracing.
Legislative and regulatory proposals have been made to expand
post-approval requirements and restrict sales and promotional
activities for pharmaceutical products. We are not sure whether
additional legislative changes will be enacted, or whether the
current regulations, guidance or interpretations will be changed,
or what the impact of such changes on our business, if any, may be.
In addition, increased scrutiny by the United States Congress of
the FDA’s approval process may significantly delay or prevent
marketing approval, as well as subject us to more stringent product
labeling and post-marketing testing and other
requirements.
We expect that additional state and federal healthcare reform
measures will be adopted in the future, any of which could limit
the amounts that federal and state governments will pay for
healthcare products and services, which could result in reduced
demand for our product candidates or additional pricing
pressures.
Even if we receive marketing approval for our product candidates in
the United States, we may never receive regulatory approval to
market our product candidates outside of the United
States.
We have not yet selected any markets outside of the United States
where we intend to seek regulatory approval to market our product
candidates. In order to market any product outside of the United
States, however, we must establish and comply with the numerous and
varying safety, efficacy and other regulatory requirements of other
countries. Approval procedures vary among countries and can involve
additional product candidate testing and additional administrative
review periods. The time required to obtain approvals in other
countries might differ from that required to obtain FDA approval.
The marketing approval processes in other countries may implicate
all of the risks detailed above regarding FDA approval in the
United States as well as other risks. In particular, in many
countries outside of the United States, products must receive
pricing and reimbursement approval before the product can be
commercialized. Obtaining this approval can result in substantial
delays in bringing products to market in such countries. Marketing
approval in one country does not ensure marketing approval in
another, but a failure or delay in obtaining marketing approval in
one country may have a negative effect on the regulatory process in
others. Failure to obtain marketing approval in other countries or
any delay or other setback in obtaining such approval would impair
our ability to market our product candidates in such foreign
markets. Any such impairment would reduce the size of our potential
market, which could have a material adverse impact on our business,
results of operations and prospects.
If we are unable to establish sales and marketing capabilities or
enter into agreements with third parties to market and sell our
product candidates, we may not be able to generate any
revenue.
We do not currently have an infrastructure for the sale, marketing
and distribution of pharmaceutical products, nor do we intend to
create such capabilities. Therefore, in order to market our product
candidates, if approved by the FDA or any other regulatory body, we
must make contractual arrangements with third parties to perform
services related to sales, marketing, managerial and other
non-technical capabilities relating to the commercialization of our
product candidates. If we are unable to establish adequate
contractual arrangements for such sales, marketing and distribution
capabilities, or if we are unable to do so on commercially
reasonable terms, our business, results of operations, financial
condition and prospects will be materially adversely
affected.
Even if we receive marketing approval for our product candidates,
our product candidates may not achieve broad market acceptance,
which would limit the revenue that we generate from their
sales.
The commercial success of our product candidates, if approved by
the FDA or other applicable regulatory authorities, will depend
upon the awareness and acceptance of our product candidates among
the medical community, including physicians, patients and
healthcare payors. Market acceptance of our product candidates, if
approved, will depend on a number of factors, including, among
others:
●
the efficacy and safety of our product candidates as demonstrated
in clinical trials, and, if required by any applicable regulatory
authority in connection with the approval for the applicable
indications, to provide patients with incremental health benefits,
as compared with other available therapies;
●
limitations or warnings contained in the labeling approved for our
product candidates by the FDA or other applicable regulatory
authorities;
●
the clinical indications for which our product candidates are
approved;
●
availability of alternative treatments already approved or expected
to be commercially launched in the near future;
●
the potential and perceived advantages of our product candidates
over current treatment options or alternative treatments, including
future alternative treatments;
●
the willingness of the target patient population to try new
therapies and of physicians to prescribe these
therapies;
●
the strength of marketing and distribution support and timing of
market introduction of competitive products;
●
publicity concerning our products or competing products and
treatments;
●
pricing and cost effectiveness;
●
the effectiveness of our sales and marketing
strategies;
●
our ability to increase awareness of our product candidates through
marketing efforts;
●
our ability to obtain sufficient third-party coverage or
reimbursement; or
●
the willingness of patients to pay out-of-pocket in the absence of
third-party coverage.
If our product candidates are approved but do not achieve an
adequate level of acceptance by patients, physicians and payors, we
may not generate sufficient revenue from our product candidates to
become or remain profitable. Before granting reimbursement
approval, healthcare payors may require us to demonstrate that our
product candidates, in addition to treating these target
indications, also provide incremental health benefits to patients.
Our efforts to educate the medical community and third-party payors
about the benefits of our product candidates may require
significant resources and may never be successful.
Our product candidates may cause undesirable safety concerns and
side effects that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable safety concerns and side effects caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt non-clinical studies and clinical trials and could
result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other regulatory
authorities.
Further, clinical trials by their nature utilize a sample of
potential patient populations. With a limited number of patients
and limited duration of exposure, rare and severe side effects of
our product candidates may only be uncovered with a significantly
larger number of patients exposed to the product candidate. If our
product candidates receive marketing approval and we or others
identify undesirable safety concerns or side effects caused by such
product candidates (or any other similar products) after such
approval, a number of potentially significant negative consequences
could result, including:
●
regulatory authorities may withdraw or limit their approval of such
product candidates;
●
regulatory authorities may require the addition of labeling
statements, such as a “black box” warning or a
contraindication;
●
we may be required to change the way such product candidates are
distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
●
we may be subject to regulatory investigations and government
enforcement actions;
●
we may decide to remove such product candidates from the
marketplace;
●
we could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
●
our reputation may suffer.
We believe that any of these events could prevent us from achieving
or maintaining market acceptance of the affected product candidates
and would substantially increase the costs of commercializing our
product candidates and significantly impact our ability to
successfully commercialize our product candidates and generate
revenues.
Even if we receive marketing approval for our product candidates,
we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for our product candidates,
regulatory authorities may still impose significant restrictions on
our product candidates, indicated uses or marketing or impose
ongoing requirements for potentially costly post-approval studies.
Our product candidates will also be subject to ongoing regulatory
requirements governing the labeling, packaging, storage and
promotion of the product and record keeping and submission of
safety and other post-market information. The FDA has significant
post-marketing authority, including, for example, the authority to
require labeling changes based on new safety information and to
require post-marketing studies or clinical trials to evaluate
serious safety risks related to the use of a drug. The FDA also has
the authority to require, as part of an NDA or post-approval, the
submission of a REMS. Any REMS required by the FDA may lead to
increased costs to assure compliance with new post-approval
regulatory requirements and potential requirements or restrictions
on the sale of approved products, all of which could lead to lower
sales volume and revenue.
Manufacturers of drug products and their facilities are subject to
continual review and periodic inspections by the FDA and other
regulatory authorities for compliance with cGMPs and other
regulations. If we or a regulatory agency discover problems with
our product candidates, such as adverse events of unanticipated
severity or frequency, or problems with the facility where our
product candidates are manufactured, a regulatory agency may impose
restrictions on our product candidates, the manufacturer or us,
including requiring withdrawal of our product candidates from the
market or suspension of manufacturing. If we, our product
candidates or the manufacturing facilities for our product
candidates fail to comply with applicable regulatory requirements,
a regulatory agency may, among other things:
●
issue warning letters or untitled letters;
●
seek an injunction or impose civil or criminal penalties or
monetary fines;
●
suspend or withdraw marketing approval;
●
suspend any ongoing clinical trials;
●
refuse to approve pending applications or supplements to
applications submitted by us;
●
suspend or impose restrictions on operations, including costly new
manufacturing requirements; or
●
seize or detain products, refuse to permit the import or export of
products, or require that we initiate a product
recall.
Competing therapies could emerge adversely affecting our
opportunity to generate revenue from the sale of our product
candidates.
The pharmaceuticals industry is highly competitive. There are many
public and private pharmaceutical companies, universities,
governmental agencies and other research organizations actively
engaged in the research and development of product candidates that
may be similar to our product candidates or address similar
markets. It is probable that the number of companies seeking to
develop product candidates similar to our product candidates will
increase.
Currently, management is unaware of any FDA-approved oral
adjunctive therapy for MDD patients with an inadequate response to
standard antidepressants having the same mechanism of action and
safety profile as AV-101. However, new antidepressant products with
other mechanisms of action or products approved for other
indications, including the anesthetic ketamine hydrochloride, are
being or may be used off-label for treatment of MDD, as well as
other CNS indications for which AV-101 may have therapeutic
potential. Additionally, other non-pharmaceutical treatment
options, such psychotherapy and electroconvulsive therapy
(
ECT
) are sometimes used before or instead of standard
antidepressant medications to treat patients with
MDD.
In the field of new generation, orally available, adjunctive
treatments of adult MDD patients with an inadequate response to
standard antidepressants, we believe our principal competitor is
Alkermes’ orally available drug candidate in Phase 3
development, ALKS-5461.
Many of our potential competitors, alone or with their strategic
partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the
discovery and development of product candidates, obtaining FDA and
other regulatory approvals of treatments and the commercialization
of those treatments. We believe that a range of
pharmaceutical and biotechnology companies have programs to develop
small molecule drug candidates for the treatment of depression,
including MDD, epilepsy, neuropathic pain, dyskinesia associated
with L-DOPA therapy for Parkinson’s disease and other
neurological conditions and diseases, including, but not limited
to, Abbott Laboratories, Acadia, Allergan, Alkermes, Astra Zeneca,
Eli Lilly, GlaxoSmithKline, IntraCellular, Johnson &
Johnson/Janssen, Lundbeck, Merck, Novartis, Ono, Otsuka, Pfizer,
Roche, Sage, Sumitomo Dainippon, and Takeda, as well as any
affiliates of the foregoing companies. Mergers and
acquisitions in the biotechnology and pharmaceutical industries may
result in even more resources being concentrated among a smaller
number of our competitors. Our commercial opportunity could be
reduced or eliminated if our competitors develop and commercialize
products that are safer, more effective, have fewer or less severe
side effects, are more convenient or are less expensive than any
products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are
able to enter the market.
We may seek to establish collaborations, and, if we are not able to
establish them on commercially reasonable terms, we may have to
alter our development and commercialization plans.
Our drug development programs and the potential commercialization
of our product candidates will require substantial additional cash
to fund expenses. For some of our product candidates, we may decide
to collaborate with pharmaceutical and biotechnology companies for
the development and potential commercialization of those product
candidates.
We face significant competition in seeking appropriate
collaborators. Whether we reach a definitive agreement for
collaboration will depend, among other things, upon our assessment
of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of clinical trials, the
likelihood of approval by the FDA or similar regulatory authorities
outside the United States, the potential markets for the subject
product candidate, the costs and complexities of manufacturing and
delivering such product candidate to patients, the potential of
competing products, the existence of uncertainty with respect to
our ownership of technology, which can exist if there is a
challenge to such ownership without regard to the merits of the
challenge and industry and market conditions generally. The
collaborator may also consider alternative product candidates or
technologies for similar indications that may be available to
collaborate on and whether such collaboration could be more
attractive than the one with us for our product candidate. The
terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing collaboration agreements
from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and
time-consuming to negotiate and document. In addition, there have
been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis,
on acceptable terms, or at all. If we are unable to do so, we may
have to curtail the development of the product candidate for which
we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we may not be
able to further develop our product candidates or bring them to
market and generate product revenue.
In addition, any future collaboration that we enter into may not be
successful. The success of our collaboration arrangements will
depend heavily on the efforts and activities of our collaborators.
Collaborators generally have significant discretion in determining
the efforts and resources that they will apply to these
collaborations. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some
cases, termination of the collaboration arrangement. These
disagreements can be difficult to resolve if neither of the parties
has final decision-making authority. Collaborations with
pharmaceutical or biotechnology companies and other third parties
often are terminated or allowed to expire by the other party. Any
such termination or expiration would adversely affect us
financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover
additional product candidates or we may expend our limited
resources to pursue a particular product candidate or indication
and fail to capitalize on product candidates or indications that
may be more profitable or for which there is a greater likelihood
of success.
The success of our business depends primarily upon our ability to
identify, develop and commercialize product candidates with
commercial and therapeutic potential. Although AV-101 is in Phase 2
clinical development for treatment of depression, we may fail to
pursue additional CNS-related Phase 2 development opportunities for
AV-101, or identify additional product candidates for clinical
development for a number of reasons. Our research methodology may
be unsuccessful in identifying new product candidates or our
product candidates may be shown to have harmful side effects or may
have other characteristics that may make the products unmarketable
or unlikely to receive marketing approval.
Because we currently have limited financial and management
resources, we necessarily focus on a limited number of research and
development programs and product candidates and are currently
focused primarily on development of AV-101, with additional limited
focus on NCE drug rescue and RM. As a result, we may forego or
delay pursuit of opportunities with other product candidates or for
other potential CNS-related indications for AV-101 that later prove
to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial
drugs or profitable market opportunities. Our spending on current
and future research and development programs and product candidates
for specific indications may not yield any commercially viable
drugs. If we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through future
collaboration, licensing or other royalty arrangements in cases in
which it would have been more advantageous for us to retain sole
development and commercialization rights to such product
candidate.
If any of these events occur, we may be forced to abandon our
development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause
us to cease operations. Research and development programs to
identify and advance new product candidates require substantial
technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future
earnings.
Although we do not currently have any products on the market, once
we begin commercializing our products, we may be subject to
additional healthcare statutory and regulatory requirements and
enforcement by the federal government and the states and foreign
governments in which we conduct our business. Healthcare providers,
physicians and others will play a primary role in the
recommendation and prescription of our product candidates, if
approved. Our future arrangements with third-party payors will
expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market,
sell and distribute our product candidates, if we obtain marketing
approval. Restrictions under applicable federal and state
healthcare laws and regulations include the following:
●
The federal anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made under federal
healthcare programs such as Medicare and Medicaid.
●
The federal False Claims Act imposes criminal and civil penalties,
including those from civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or
causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to
avoid, decrease, or conceal an obligation to pay money to the
federal government.
●
The federal Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and
also imposes obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission
of individually identifiable health information.
●
The federal false statements statute prohibits knowingly and
willfully falsifying, concealing or covering up a material fact or
making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or
services.
●
The federal transparency requirements, sometimes referred to as the
“Sunshine Act,” under the Patient Protection and
Affordable Care Act, require manufacturers of drugs, devices,
biologics and medical supplies that are reimbursable under
Medicare, Medicaid, or the Children’s Health Insurance
Program to report to the Department of Health and Human Services
information related to physician payments and other transfers of
value and physician ownership and investment
interests.
●
Analogous state laws and regulations, such as state anti-kickback
and false claims laws and transparency laws, may apply to sales or
marketing arrangements and claims involving healthcare items or
services reimbursed by non-governmental third-party payors,
including private insurers, and some state laws require
pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant
compliance.
●
Guidance promulgated by the federal government in addition to
requiring drug manufacturers to report information related to
payments to physicians and other healthcare providers or marketing
expenditures and drug pricing.
Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could be
costly. It is possible that governmental authorities will conclude
that our business practices do not comply with current or future
statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations,
including anticipated activities to be conducted by our sales team,
were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages,
fines and exclusion from government funded healthcare programs,
such as Medicare and Medicaid, any of which could substantially
disrupt our operations. If any of the physicians or other providers
or entities with whom we expect to do business is found not to be
in compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses. If we are
found to have improperly promoted off-label uses, we may become
subject to significant liability.
The FDA and other regulatory agencies strictly regulate the
promotional claims that may be made about prescription products,
such as AV-101, if approved. In particular, a product may not be
promoted for uses that are not approved by the FDA or such other
regulatory agencies as reflected in the product’s approved
labeling. For example, if we receive marketing approval for AV-101
as an adjunctive treatment of MDD, physicians may nevertheless
prescribe AV-101 to their patients in a manner that is inconsistent
with the approved label. If we are found to have promoted such
off-label uses, we may become subject to significant liability. The
federal government has levied large civil and criminal fines
against companies for alleged improper promotion and has enjoined
several companies from engaging in off-label promotion. The FDA has
also requested that companies enter into consent decrees or
permanent injunctions under which specified promotional conduct is
changed or curtailed. If we cannot successfully manage the
promotion of our product candidates, if approved, we could become
subject to significant liability, which would materially adversely
affect our business and financial condition.
Even if approved, reimbursement policies could limit our ability to
sell our product candidates.
Market acceptance and sales of our product candidates will depend
heavily on reimbursement policies and may be affected by healthcare
reform measures. Government authorities and third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels for those medications. Cost
containment is a primary concern in the U.S. healthcare industry
and elsewhere. Government authorities and these third-party payors
have attempted to control costs by limiting coverage and the amount
of reimbursement for particular medications. We cannot be sure that
reimbursement will be available for our product candidates and, if
reimbursement is available, the level of such reimbursement.
Reimbursement may impact the demand for, or the price of, our
product candidates. If reimbursement is not available or is
available only at limited levels, we may not be able to
successfully commercialize our product candidates.
In some foreign countries, particularly in Canada and European
countries, the pricing of prescription pharmaceuticals is subject
to strict governmental control. In these countries, pricing
negotiations with governmental authorities can take six months or
longer after the receipt of regulatory approval and product launch.
To obtain favorable reimbursement for the indications sought or
pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product
candidates with other available therapies. If reimbursement for our
product candidates is unavailable in any country in which we seek
reimbursement, if it is limited in scope or amount, if it is
conditioned upon our completion of additional clinical trials, or
if pricing is set at unsatisfactory levels, our operating results
could be materially adversely affected.
We may seek FDA Orphan Drug designation for one or more of our
product candidates, including AV-101. Even if we have obtained FDA
Orphan Drug designation for AV-101 of other product candidates,
there may be limits to the regulatory exclusivity afforded by such
designation.
We may, in the future, choose to seek FDA Orphan Drug designation
for one or more of our product candidates, including AV-101. Even
if we obtain Orphan Drug designation from the FDA for AV-101 or any
other product candidates, there are limitations to the exclusivity
afforded by such designation. In the United States, the company
that first obtains FDA approval for a designated orphan drug for
the specified rare disease or condition receives orphan drug
marketing exclusivity for that drug for a period of seven years.
This orphan drug exclusivity prevents the FDA from approving
another application, including a full NDA to market the same drug
for the same orphan indication, except in very limited
circumstances, including when the FDA concludes that the later drug
is safer, more effective or makes a major contribution to patient
care. For purposes of small molecule drugs, the FDA defines
“same drug” as a drug that contains the same active
moiety and is intended for the same use as the drug in question. To
obtain Orphan Drug status for a drug that shares the same active
moiety as an already approved drug, it must be demonstrated to the
FDA that the drug is safer or more effective than the approved
orphan designated drug, or that it makes a major contribution to
patient care. In addition, a designated orphan drug may not receive
orphan drug exclusivity if it is approved for a use that is broader
than the indication for which it received orphan designation. In
addition, orphan drug exclusive marketing rights in the United
States may be lost if the FDA later determines that the request for
designation was materially defective or if the manufacturer is
unable to assure sufficient quantity of the drug to meet the needs
of patients with the rare disease or condition or if another drug
with the same active moiety is determined to be safer, more
effective, or represents a major contribution to patient
care.
Our future growth may depend, in part, on our ability to penetrate
foreign markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to
commercialize our product candidates in foreign markets for which
we may rely on collaboration with third parties. If we
commercialize our product candidates in foreign markets, we would
be subject to additional risks and uncertainties,
including:
●
our customers’ ability to obtain reimbursement for our
product candidates in foreign markets;
●
our inability to directly control commercial activities because we
are relying on third parties;
●
the burden of complying with complex and changing foreign
regulatory, tax, accounting and legal requirements;
●
different medical practices and customs in foreign countries
affecting acceptance in the marketplace;
●
import or export licensing requirements;
●
longer accounts receivable collection times;
●
longer lead times for shipping;
●
language barriers for technical training;
●
reduced protection of intellectual property rights in some foreign
countries;
●
the existence of additional potentially relevant third party
intellectual property rights;
●
foreign currency exchange rate fluctuations; and
●
the interpretation of contractual provisions governed by foreign
laws in the event of a contract dispute.
Foreign sales of our product candidates could also be adversely
affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in
tariffs.
We are a development stage biopharmaceutical company with no
current revenues or approved products, and limited experience
developing new drug, biological and/or regenerative medicine
candidates, including conducting clinical trials and other areas
required for the successful development and commercialization of
therapeutic products, which makes it difficult to assess our future
viability.
We are a development stage biopharmaceutical company. Although our
lead drug candidate is in Phase 2 development, we currently have no
approved products and currently generate no revenues, and we have
not yet fully demonstrated an ability to overcome many of the
fundamental risks and uncertainties frequently encountered by
development stage companies in new and rapidly evolving fields of
technology, particularly biotechnology. To execute our business
plan successfully, we will need to accomplish the following
fundamental objectives, either on our own or with strategic
collaborators:
●
produce product candidates;
●
develop and obtain required regulatory approvals for
commercialization of product candidates we produce;
●
maintain, leverage and expand our intellectual property
portfolio;
●
establish and maintain sales, distribution and marketing
capabilities, and/or enter into strategic partnering arrangements
to access such capabilities;
●
gain market acceptance for our products; and
●
obtain adequate capital resources and manage our spending as costs
and expenses increase due to research, production, development,
regulatory approval and commercialization of product
candidates.
Our future success is highly dependent upon our ability to
successfully develop and commercialize AV-101 and discover, as well
as produce, develop and commercialize proprietary drug rescue NCEs
using our stem cell technology, and we cannot provide any assurance
that we will successfully develop and commercialize AV-101 or drug
rescue NCEs, or that, if produced, AV-101 or any drug rescue NCE
will be successfully commercialized.
Research programs designed to identify and produce drug rescue NCEs
require substantial technical, financial and human resources,
whether or not any NCEs are ultimately identified and produced. In
particular, our drug rescue programs may initially show promise in
identifying potential NCEs, yet fail to yield a lead NCE suitable
for preclinical, clinical development or commercialization for many
reasons, including the following:
●
our drug rescue research and development methodology may not be
successful in identifying and developing potential drug rescue
NCEs;
●
competitors may develop alternatives that render our drug rescue
NCEs obsolete;
●
a drug rescue NCE may, on further study, be shown to have harmful
side effects or other characteristics that indicate it is unlikely
to be effective or otherwise does not meet applicable regulatory
criteria;
●
a drug rescue NCE may not be capable of being produced in
commercial quantities at an acceptable cost, or at all;
or
●
a drug rescue NCE may not be accepted as safe and effective by
regulatory authorities, patients, the medical community or
third-party payors.
In addition, we do not have a sales or marketing infrastructure,
and we, including our executive officers, do not have any
significant pharmaceutical sales, marketing or distribution
experience. We may seek to collaborate with others to develop and
commercialize AV-101, drug rescue NCEs and/or other product
candidates if and when they are developed. If we enter
into arrangements with third parties to perform sales, marketing
and distribution services for our products, the resulting revenues
or the profitability from these revenues to us are likely to be
lower than if we had sold, marketed and distributed our products
ourselves. In addition, we may not be successful in entering into
arrangements with third parties to sell, market and distribute
AV-101, any drug rescue NCEs or other product candidates or may be
unable to do so on terms that are favorable to us. We
likely will have little control over such third parties, and any of
these third parties may fail to devote the necessary resources and
attention to sell, market and distribute our products
effectively. If we do not establish sales, marketing and
distribution capabilities successfully, in collaboration with third
parties, we will not be successful in commercializing our product
candidates.
We have limited operating history with respect to drug development,
including our anticipated focus on the identification and
assessment of potential drug rescue NCEs and no operating history
with respect to the production of drug rescue NCEs, and we may
never be able to produce a drug rescue NCE.
If we are unable to develop and commercialize AV-101 or
produce suitable drug rescue NCEs, we may not be able to generate
sufficient revenues to execute our business plan, which likely
would result in significant harm to our financial position and
results of operations, which could adversely impact our stock
price.
There are a number of factors, in addition to the utility of
CardioSafe
3D, that may impact our ability to
identify and produce, develop or out-license and commercialize drug
rescue NCEs, independently or with strategic partners,
including:
●
our ability to identify potential drug rescue candidates in the
public domain, obtain sufficient quantities of them, and assess
them using our bioassay systems;
●
if we seek to rescue drug rescue candidates that are not available
to us in the public domain, the extent to which third parties may
be willing to out-license or sell certain drug rescue candidates to
us on commercially reasonable terms;
●
our medicinal chemistry collaborator’s
ability to design and produce proprietary drug rescue NCEs based on
the novel biology and structure-function insight we provide
using
CardioSafe
3D; and
●
financial resources available to us to develop and commercialize
lead drug rescue NCEs internally, or, if we out-license them to
strategic partners, the resources such partners choose to dedicate
to development and commercialization of any drug rescue NCEs they
license from us.
Even if we do produce proprietary drug rescue NCEs, we can give no
assurance that we will be able to develop and commercialize them as
a marketable drug, on our own or in collaboration with others.
Before we generate any revenues from AV-101 and/or additional drug
rescue NCEs we or our potential collaborators must complete
preclinical and clinical developments, submit clinical and
manufacturing data to the FDA, qualify a third party contract
manufacturer, receive regulatory approval in one or more
jurisdictions, satisfy the FDA that our contract manufacturer is
capable of manufacturing the product in compliance with cGMP, build
a commercial organization, make substantial investments and
undertake significant marketing efforts ourselves or in partnership
with others. We are not permitted to market or promote any of our
product candidates before we receive regulatory approval from the
FDA or comparable foreign regulatory authorities, and we may never
receive such regulatory approval for any of our product
candidates.
If
CardioSafe
3D
fails to predict
accurately and efficiently the cardiac effects, both toxic and
nontoxic, of drug rescue candidates and drug rescue NCEs, then our
drug rescue programs will be adversely
affected.
Our success is partly dependent on our ability to use
CardioSafe
3D to identify and predict, accurately
and efficiently, the potential toxic and nontoxic cardiac effects
of drug rescue candidates
and drug rescue NCEs. If
CardioSafe
3D is not capable of providing physiologically
relevant and clinically predictive information regarding human
cardiac biology, our drug rescue business will be adversely
affected.
CardioSafe
3D
may not be meaningfully more
predictive of the behavior of human cells than existing
methods.
The success of our drug rescue programs is highly dependent
upon
CardioSafe
3D being more accurate, efficient and clinically
predictive than long-established surrogate safety models, including
animal cells and live animals, and immortalized, primary and
transformed cells, currently used by pharmaceutical companies and
others. We cannot give assurance that
CardioSafe
3D will be more efficient or accurate at
predicting the heart safety of new drug candidates than the testing
models currently used. If
CardioSafe
3D fails to provide a meaningful difference
compared to existing or new models in predicting the behavior of
human heart, respectively, their utility for drug rescue will be
limited and our drug rescue business will be adversely
affected.
We may invest in producing drug rescue NCEs for which there proves
to be no demand.
To generate revenue from our drug rescue activities, we must
produce proprietary drug rescue NCEs for which there proves to be
demand within the healthcare marketplace, and, if we intend to
out-license a particular drug rescue NCE for development and
commercialization prior to market approval, then also among
pharmaceutical companies and other potential collaborators.
However, we may produce drug rescue NCEs for which there proves to
be no or limited demand in the healthcare market and/or among
pharmaceutical companies and others. If we misinterpret market
conditions, underestimate development costs and/or seek to rescue
the wrong drug rescue candidates, we may fail to generate
sufficient revenue or other value, on our own or in collaboration
with others, to justify our investments, and our drug rescue
business may be adversely affected.
We may experience difficulty in producing human cells and our
future stem cell technology research and development efforts may
not be successful within the timeline anticipated, if at
all.
Our human pluripotent stem cell technology is technically complex,
and the time and resources necessary to develop various human cell
types and customized bioassay systems are difficult to predict in
advance. We might decide to devote significant personnel and
financial resources to research and development activities designed
to expand, in the case of drug rescue, and explore, in the case of
drug discovery and regenerative medicine, potential applications of
our stem cell technology platform. In particular, we may conduct
exploratory non-clinical RM programs involving blood, bone,
cartilage, and/or liver cells. Although we and our collaborators
have developed proprietary protocols for the production of multiple
differentiated cell types, we could encounter difficulties in
differentiating and producing sufficient quantities of particular
cell types, even when following these proprietary protocols. These
difficulties could result in delays in production of certain cells,
assessment of certain drug rescue candidates and drug rescue NCEs,
design and development of certain human cellular assays and
performance of certain exploratory non-clinical regenerative
medicine studies. In the past, our stem cell research and
development projects have been significantly delayed when we
encountered unanticipated difficulties in differentiating human
pluripotent stem cells into heart and liver cells. Although we have
overcome such difficulties in the past, we may have similar delays
in the future, and we may not be able to overcome them or obtain
any benefits from our future stem cell technology research and
development activities. Any delay or failure by us, for example, to
produce functional, mature blood, bone, cartilage, and liver cells
could have a substantial and material adverse effect on our
potential drug discovery, drug rescue and regenerative medicine
business opportunities and results of operations.
Restrictions on research and development involving human embryonic
stem cells and religious and political pressure regarding such stem
cell research and development could impair our ability to conduct
or sponsor certain potential collaborative research and development
programs and adversely affect our prospects, the market price of
our common stock and our business model.
Some of our research and development programs may involve the use
of human cells derived from our controlled differentiation of human
embryonic stem cells (
hESC
s). Some believe the use of hESCs gives rise to
ethical and social issues regarding the appropriate use of these
cells. Our research related to differentiation of hESCs may become
the subject of adverse commentary or publicity, which could
significantly harm the market price of our common stock. Although
now substantially less than in years past, certain political and
religious groups in the United States and elsewhere voice
opposition to hESC technology and practices. We may use hESCs
derived from excess fertilized eggs that have been created for
clinical use in
in vitro
fertilization (
IVF
) procedures and have been donated for research
purposes with the informed consent of the donors after a successful
IVF procedure because they are no longer desired or suitable for
IVF. Certain academic research institutions have adopted policies
regarding the ethical use of human embryonic tissue. These policies
may have the effect of limiting the scope of future collaborative
research opportunities with such institutions, thereby potentially
impairing our ability to conduct certain research and development
in this field that we believe is necessary to expand the drug
rescue capabilities of our technology, which would have a material
adverse effect on our business.
The use of embryonic or fetal tissue in research (including the
derivation of hESCs) in other countries is regulated by the
government, and varies widely from country to country.
Government-imposed restrictions with respect to use of hESCs in
research and development could have a material adverse effect on us
by harming our ability to establish critical collaborations,
delaying or preventing progress in our research and development,
and causing a decrease in the market interest in our
stock.
The foregoing potential ethical concerns do not apply to our use of
induced pluripotent stem cells
(iPSC
s) because their derivation does not involve the
use of embryonic tissues.
We have assumed that the biological capabilities of iPSCs and hESCs
are likely to be comparable. If it is discovered that this
assumption is incorrect, our exploratory research and development
activities focused on potential regenerative medicine applications
of our stem cell technology platform could be harmed.
We may use both hESCs and iPSCs to produce human cells for our
customized
in vitro
assays for drug discovery and drug rescue
purposes. However, we anticipate that our future exploratory
research and development, if any, focused on potential regenerative
medicine applications of our stem cell technology platform
primarily will involve iPSCs. With respect to iPSCs, we believe
scientists are still somewhat uncertain about the clinical utility,
life span, and safety of such cells, and whether such cells differ
in any clinically significant ways from hESCs. If we discover that
iPSCs will not be useful for whatever reason for potential
regenerative medicine programs, this would negatively affect our
ability to explore expansion of our platform in that manner,
including, in particular, where it would be preferable to use iPSCs
to reproduce rather than approximate the effects of certain
specific genetic variations.
If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur
costs that could have a material adverse effect on the success of
our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous
materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological
materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or
injury resulting from our use of hazardous materials, we could be
held liable for any resulting damages, and any liability could
exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although we maintain workers' compensation insurance to cover us
for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in
connection with our storage or disposal of biological, hazardous or
radioactive materials.
In addition, we may incur substantial costs in order to comply with
current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may
impair our research, development or production efforts. Failure to
comply with these laws and regulations also may result in
substantial fines, penalties or other sanctions, which could have a
material adverse effect on our operations.
To the extent our research and development activities involve using
iPSCs, we will be subject to complex and evolving laws and
regulations regarding privacy and informed consent. Many of these
laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our research
and development programs and objectives, increased cost of
operations or otherwise harm the Company.
To the extent that we pursue research and development activities
involving iPSCs, we will be subject to a variety of laws and
regulations in the United States and abroad that involve matters
central to such research and development activities, including
obligations to seek informed consent from donors for the use of
their blood and other tissue to produce, or have produced for us,
iPSCs, as well as state and federal laws that protect the privacy
of such donors. United States federal and state and foreign laws
and regulations are constantly evolving and can be subject to
significant change. If we engage in iPSC-related research and
development activities in countries other than the United States,
we may become subject to foreign laws and regulations relating to
human subjects research and other laws and regulations that are
often more restrictive than those in the United States. In
addition, both the application and interpretation of these laws and
regulations are often uncertain, particularly in the rapidly
evolving stem cell technology sector in which we operate. These
laws and regulations can be costly to comply with and can delay or
impede our research and development activities, result in negative
publicity, increase our operating costs, require significant
management time and attention and subject us to claims or other
remedies, including fines or demands that we modify or cease
existing business practices.
Legal, social and ethical concerns surrounding the use of iPSCs,
biological materials and genetic information could impair our
operations.
To the extent that our future stem cell research and development
activities involve the use of iPSCs and the manipulation of human
tissue and genetic information, the information we derive from such
iPSC-related research and development activities could be used in a
variety of applications, which may have underlying legal, social
and ethical concerns, including the genetic engineering or
modification of human cells, testing for genetic predisposition for
certain medical conditions and stem cell banking. Governmental
authorities could, for safety, social or other purposes, call for
limits on or impose regulations on the use of iPSCs and genetic
testing or the manufacture or use of certain biological materials
involved in our iPSC-related research and development programs.
Such concerns or governmental restrictions could limit our future
research and development activities, which could have a material
adverse effect on our business, financial condition and results of
operations.
Our human cellular bioassay systems and human cells we derive from
human pluripotent stem cells, although not currently subject to
regulation by the FDA or other regulatory agencies as biological
products or drugs, could become subject to regulation in the
future.
The human cells we produce from hPSCs and our customized bioassay
systems using such cells, including
CardioSafe
3D, are not currently sold, for research purposes
or any other purpose, to biotechnology or pharmaceutical companies,
government research institutions, academic and nonprofit research
institutions, medical research organizations or stem cell banks,
and they are not therapeutic procedures. As a result, they are not
subject to regulation as biological products or drugs by the FDA or
comparable agencies in other countries. However, if, in the future,
we seek to include human cells we derive from hPSCs in therapeutic
applications or product candidates, such applications and/or
product candidates would be subject to the FDA’s pre- and
post-market regulations. For example, if we seek to develop and
market human cells we produce for use in performing regenerative
medicine applications, such as tissue engineering or organ
replacement, we would first need to obtain FDA pre-market clearance
or approval. Obtaining such clearance or approval from the FDA is
expensive, time-consuming and uncertain, generally requiring many
years to obtain, and requiring detailed and comprehensive
scientific and clinical data. Notwithstanding the time and expense,
these efforts may not result in FDA approval or clearance. Even if
we were to obtain regulatory approval or clearance, it may not be
for the uses that we believe are important or commercially
attractive.
Risks Related to Our Financial Position
We have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future. We may never achieve or sustain profitability, which would
depress the market price of our common stock, and could cause you
to lose all or a part of your investment.
We have incurred significant net losses in each fiscal year since
our inception in 1998, including net losses of $10.3 million and
$47.2 million, which includes $26.7 million of non-cash expense
related to the extinguishment of essentially all of our outstanding
promissory notes and certain other indebtedness, during the fiscal
years ended March 31, 2017 and 2016, respectively. As of March 31,
2017, we had an accumulated deficit of approximately $142.0
million. We do not know whether or when we will become profitable.
Substantially all of our operating losses have resulted from costs
incurred in connection with our research and development programs
and from general and administrative costs associated with our
operations. We expect to incur increasing levels of operating
losses over the next several years and for the foreseeable future.
Our prior losses, combined with expected future losses, have had
and will continue to have an adverse effect on our
stockholders’ equity (deficit) and working capital. We expect
our research and development expenses to significantly increase in
connection with non-clinical studies and clinical trials of our
product candidates. In addition, if we obtain marketing approval
for our product candidates, we may incur significant sales,
marketing and outsourced-manufacturing expenses should we elect not
to collaborate with one or more third parties for such services and
capabilities. As a public company, we incur additional costs
associated with operating as a public company. As a result, we
expect to continue to incur significant and increasing operating
losses for the foreseeable future. Because of the numerous risks
and uncertainties associated with developing pharmaceutical
products, we are unable to predict the extent of any future losses
or when we will become profitable, if at all. Even if we do become
profitable, we may not be able to sustain or increase our
profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to
generate revenues. To date, we have generated approximately $17.7
million in revenues, including receipt of non-dilutive cash
payments from collaborators, sublicense revenue, and research and
development grant awards from the NIH, not including the fair
market value of the ongoing NIMH AV-101 MDD Phase 2 Monotherapy
Study under our NIMH CRADA. We have not yet commercialized any
product or generated any revenues from product sales, and we do not
know when, or if, we will generate any revenue from product sales.
We do not expect to generate significant revenue unless and until
we obtain marketing approval of, and begin to experience sales of,
AV-101, or we enter into one or more development and
commercialization agreements with respect to AV-101 or one or more
other product candidates. Our ability to generate revenue depends
on a number of factors, including, but not limited to, our ability
to:
●
initiate and successfully complete non-clinical and clinical trials
that meet their prescribed endpoints;
●
initiate and successfully complete all safety studies required to
obtain U.S. and foreign marketing approval for our product
candidates;
●
commercialize our product candidates, if approved, by developing a
sales force or entering into collaborations with third parties;
and
●
achieve market acceptance of our product candidates in the medical
community and with third-party payors.
Unless we enter into a development and commercialization
collaboration or partnership agreement, we expect to incur
significant sales and marketing costs as we prepare to
commercialize AV-101 or other product candidates. Even if we
initiate and successfully complete pivotal clinical trials of
AV-101 or other product candidates, and AV-101 or other product
candidates are approved for commercial sale, and despite expending
these costs, AV-101 or other product candidates may not be
commercially successful. We may not achieve profitability soon
after generating product sales, if ever. If we are unable to
generate product revenue, we will not become profitable and may be
unable to continue operations without continued
funding.
We require additional financing to execute our business plan and
continue to operate as a going concern.
Our audited consolidated financial statements for the year ended
March 31, 2017 have been prepared assuming we will continue to
operate as a going concern, although our auditors have indicated
that our continuing losses and negative cash flows from operations
raise substantial doubt about our ability to continue as such.
Because we continue to experience net operating losses, our ability
to continue as a going concern is subject to our ability to obtain
necessary funding from outside sources, including obtaining
additional funding from the sale of our securities or obtaining
loans and grant awards from financial institutions and/or
government agencies where possible. Our continued net operating
losses increase the difficulty in completing such sales or securing
alternative sources of funding, and there can be no assurances that
we will be able to obtain such funding on favorable terms or at
all. If we are unable to obtain sufficient financing from the sale
of our securities or from alternative sources, we may be required
to reduce, defer, or discontinue certain or all of our research and
development activities or we may not be able to continue as a going
concern.
Since our inception, most of our resources have been dedicated to
research and development of AV-101 and the drug rescue capabilities
of our stem cell technology platform. In particular, we have
expended substantial resources advancing AV-101 through preclinical
development and Phase 1 clinical safety studies, and
developing
CardioSafe
3D and our cardiac stem cell technology for drug
rescue and potential regenerative medicine applications, and we
will continue to expend substantial resources for the foreseeable
future developing and commercializing AV-101 for multiple CNS
indications, and, potentially, developing drug rescue NCEs and RM
therapies, on our own or in collaborations similar to the BlueRock
Agreement. These expenditures will include costs associated with
general and administrative costs, facilities costs, research and
development, acquiring new technologies, manufacturing product
candidates, conducting preclinical experiments and clinical trials
and obtaining regulatory approvals, as well as commercializing any
products approved for sale.
At March 31, 2017, our existing cash and cash equivalents were not
sufficient to fund our current operations for the next 12 months or
to complete our proposed AV-101 MDD Phase 2 Adjunctive Treatment
Study of AV-101. However, as described in Note 16,
Subsequent
Events,
to the accompanying
Consolidated Financial Statements for the fiscal year ended March
31, 2017, included in Item 8 of this Annual Report, between April
1, and June 27, 2017,
in self-placed private placement
transactions, we sold to accredited investors units consisting of
(i) an aggregate of 437,751 shares of our unregistered common stock
and (ii) warrants to purchase an aggregate of 218,875 shares of our
common stock, pursuant to which we received cash proceeds of
$837,300, bringing proceeds for the Spring 2017 Private Placement
to approximately $1.0 million.
During
the quarter ended December 31, 2016, we received aggregate cash
proceeds of $247,900 from the sale of our common stock and warrants
to two accredited investors private placement transactions.
Further, as described in greater detail in Note
5
,
Sublicense Fee Receivable and Sublicense Revenue,
to the accompanying Consolidated
Financial Statements for the fiscal year ended March 31, 2017, we
received a cash payment of $1.25 million under the BlueRock
Agreement in January 2017. Additionally, in February 2015, we
entered into the CRADA with the NIH, under which the NIMH is fully
funding and conducting the NIMH AV-101 MDD Phase 2 Monotherapy
Study. However, we have no current source of revenue to sustain our
present activities, and we do not expect to generate revenue until,
and unless, we (i) out-license or sell AV-101, a drug rescue NCE,
and/or another drug candidate unrelated to AV-101 to third-parties,
(ii) enter into license arrangements involving our stem cell
technology, or (iii) obtain approval from the FDA or other
regulatory authorities and successfully commercialize, on our own
or through a future collaboration, one or more of our
compounds.
As the outcome of our AV-101 and NCE drug rescue activities and
future anticipated clinical trials is highly uncertain, we cannot
reasonably estimate the actual amounts necessary to successfully
complete the development and commercialization of our product
candidates, on our own or in collaboration with others. In
addition, other unanticipated costs may arise. As a result of these
and other factors, we will need to seek additional capital in the
near term to meet our future operating requirements, including
capital necessary to develop, obtain regulatory approval for, and
to commercialize our product candidates, and may seek additional
capital in the event there exists favorable market conditions or
strategic considerations even if we believe we have sufficient
funds for our current or future operating plans. We are considering
a range of potential sources of funding, including public or
private equity or debt financings, government or other third-party
funding, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements or a
combination of these approaches, and we may complete additional
financing arrangements in 2017 and beyond. Raising funds in the
current economic environment may present additional challenges.
Even if we believe we have sufficient funds for our current or
future operating plans, we may seek additional capital if market
conditions are favorable or if we have specific strategic
considerations.
Our future capital requirements depend on many factors,
including:
●
the number and characteristics of the product candidates we pursue,
including AV-101 and drug rescue NCEs;
●
the scope, progress, results and costs of researching and
developing our product candidates, and conducting preclinical and
clinical studies;
●
the timing of, and the costs involved in, obtaining regulatory
approvals for our product candidates;
●
the cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and
distribution costs;
●
the cost of manufacturing our product candidates and any products
we successfully commercialize;
●
our ability to establish and maintain strategic partnerships,
licensing or other arrangements and the financial terms of such
agreements;
●
market acceptance of our products;
●
the effect of competing technological and market
developments;
●
our ability to obtain government funding for our
programs;
●
the costs involved in obtaining and enforcing patents to preserve
our intellectual property;
●
the costs involved in defending against such claims that we
infringe third-party patents or violate other intellectual property
rights and the outcome of such litigation;
●
the timing, receipt and amount of potential future licensee fees,
milestone payments, and sales of, or royalties on, our future
products, if any; and
●
the extent to which we acquire or invest in businesses, products
and technologies, although we currently have no commitments or
agreements relating to any of these types of
transactions.
Any additional fundraising efforts will divert certain members of
our management team from their day-to-day activities, which may
adversely affect our ability to develop and commercialize our
product candidates. In addition, we cannot guarantee that future
financing will be available in sufficient amounts, in a timely
manner, or on terms acceptable to us, if at all, and the terms of
any financing may adversely affect the holdings or the rights of
our stockholders and the issuance of additional securities, whether
equity or debt, by us, or the possibility of such issuance, may
cause the market price of our shares to decline. The sale of
additional equity securities and the conversion or exchange of
certain of our outstanding securities will dilute all of our
stockholders. The incurrence of debt could result in increased
fixed payment obligations and we could be required to agree to
certain restrictive covenants, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire,
sell or license intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our
business. We could also be required to seek funds through
arrangements with collaborative partners or otherwise at an earlier
stage than otherwise would be desirable and we may be required to
relinquish rights to some of our technologies or product candidate
or otherwise agree to terms unfavorable to us, any of which may
have a material adverse effect on our business, operating results
and prospects.
If we are unable to obtain additional funding on a timely basis and
on acceptable terms, we may be required to significantly curtail,
delay or discontinue one or more of our research or product
development programs or the commercialization of any product
candidate or be unable to continue or expand our operations or
otherwise capitalize on our business opportunities, as desired,
which could materially affect our business, financial condition and
results of operations.
We have identified material
weaknesses in our internal control over financial reporting, and
our business and stock price may be adversely affected if we do not
adequately address those weaknesses or if we have other material
weaknesses or significant deficiencies in our internal control over
financial reporting
.
We have identified
material weaknesses in our internal control over financial
reporting. In particular, we concluded that (i) the size and
capabilities of our staff does not permit appropriate segregation
of duties to prevent one individual from overriding the internal
control system by initiating, authorizing and completing all
transactions, and (ii) we utilize accounting software that does not
prevent erroneous or unauthorized changes to previous reporting
periods and/or can be adjusted so as to not provide an adequate
auditing trail of entries made in the accounting software
(See Item 9A.
Controls
and Procedures
contained in this Annual
Report).
T
he existence of
one or more material weaknesses or significant deficiencies could
result in errors in our financial statements, and substantial costs
and resources may be required to rectify any internal control
deficiencies. If we cannot produce reliable financial reports,
investors could lose confidence in our reported financial
information, we may be unable to obtain additional financing to
operate and expand our business and our business and financial
condition could be harmed.
Raising additional capital will cause dilution to our existing
stockholders, may restrict our operations or require us to
relinquish rights, and may require us to seek stockholder approval
to authorize additional shares of our common stock.
We intend to pursue private and public equity offerings, debt
financings, strategic collaborations and licensing arrangements
during 2017 and beyond. To the extent that we raise additional
capital through the sale of common stock or securities convertible
or exchangeable into common stock, or to the extent, for strategic
purposes, we convert or exchange certain of our outstanding
securities into common stock, our current stockholders’
ownership interest in our company will be diluted. In addition, the
terms of any such securities may include liquidation or other
preferences that materially adversely affect rights of our
stockholders. Debt financing, if available, would increase our
fixed payment obligations and may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through collaboration, strategic partnerships and licensing
arrangements with third parties, we may have to relinquish valuable
rights to our product candidates, our intellectual property, future
revenue streams or grant licenses on terms that are not favorable
to us.
We currently have 30.0 million shares of common stock authorized
for issuance. Based on the current number of shares of our common
stock: (i) outstanding, (ii) reserved for conversion or exchange of
our various series of outstanding preferred stock, including for
payment of accrued dividends on our outstanding Series B Preferred,
(iii) reserved for the exercise of outstanding warrants, and (iv)
reserved for the exercise of options granted or available for grant
pursuant to our equity incentive plans, at March 31, 2017, we have
approximately 8.9 million shares of common stock available for
future financing or other activities. We anticipate seeking
stockholder approval to amend our Articles of Incorporation to
increase the number of shares of common stock we are authorized to
issue in order to achieve our near-term or longer-term financing
objectives.
Some of our programs have been partially supported by government
grant awards, which may not be available to us in the
future.
Since inception, we have received substantial funds under grant
award programs funded by state and federal governmental agencies,
such as the NIH, the NIH’s National Institute of Neurological
Disease and Stroke (
NINDS
) and the
NIMH, and the California Institute for
Regenerative Medicine (
CIRM
). To fund a portion of our future research and
development programs, we may apply for additional grant funding
from such or similar governmental
organizations. However, funding by these governmental
organizations may be significantly reduced or eliminated in the
future for a number of reasons. For example, some programs are
subject to a yearly appropriations process in Congress. In
addition, we may not receive funds under future grants because of
budgeting constraints of the agency administering the program.
Therefore, we cannot assure you that we will receive any future
grant funding from any government organization or
otherwise. A restriction on the government funding
available to us could reduce the resources that we would be able to
devote to future research and development efforts. Such a reduction
could delay the introduction of new products and hurt our
competitive position.
Our ability to use net operating losses to offset future taxable
income is subject to certain limitations.
As of March 31, 2017, we had federal and state net operating
loss carryforwards of $77.1 million and $67.6 million,
respectively, which begin to expire in fiscal
2018. Under Section 382 of the Internal Revenue
Code of 1986, as amended (the
Code
) changes in our ownership may limit the amount of
our net operating loss carryforwards that could be utilized
annually to offset our future taxable income, if any. This
limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a
three-year period. Any such limitation may significantly reduce our
ability to utilize our net operating loss carryforwards and tax
credit carryforwards before they expire. Any such limitation,
whether as the result of future offerings, prior private
placements, sales of our common stock by our existing stockholders
or additional sales of our common stock by us in the future, could
have a material adverse effect on our results of operations in
future years. We have not completed a study to assess whether an
ownership change for purposes of Section 382 has occurred, or
whether there have been multiple ownership changes since our
inception, due to the significant costs and complexities associated
with such study.
General Company-Related Risks
If we fail to attract and retain senior management and key
scientific personnel, we may be unable to successfully produce,
develop and commercialize AV-101, drug rescue NCEs, other potential
product candidates and other commercial applications of our stem
cell technology.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management and scientific and
technical personnel. We are highly dependent upon our Chief
Executive Officer, President and Chief Scientific Officer, Chief
Medical Officer and Chief Financial Officer, as well as other
employees, consultants and scientific collaborators. As of the date
of this Annual Report, we have nine full-time employees, which may
make us more reliant on our individual employees than companies
with a greater number of employees. The loss of services of any of
these individuals could delay or prevent the successful development
of AV-101, drug rescue NCEs, other product candidates, and other
applications of our stem cell technology, including our production
and assessment of potential drug recuse NCEs or disrupt our
administrative functions.
Although we have not historically experienced unique difficulties
attracting and retaining qualified employees, we could experience
such problems in the future. For example, competition for qualified
personnel in the biotechnology and pharmaceuticals field is
intense. We will need to hire additional personnel as we expand our
research and development and administrative activities. We may not
be able to attract and retain quality personnel on acceptable
terms.
In addition, we rely on a diverse range of strategic consultants
and advisors, including manufacturing, scientific and clinical
development, and regulatory advisors, to assist us in designing and
implementing our research and development and regulatory strategies
and plans, including our AV-101 development and drug rescue
strategies and plans. Our consultants and advisors may be employed
by employers other than us and may have commitments under
consulting or advisory contracts with other entities that may limit
their availability to us.
As we seek to advance development of AV-101 for MDD and other
CNS-related conditions, as well as stem cell technology-related
drug rescue and RM programs, we will need to expand our research
and development capabilities and/or contract with third parties to
provide these capabilities for us. As our operations expand, we
expect that we will need to manage additional relationships with
various strategic partners and other third parties. Future growth
will impose significant added responsibilities on members of
management. Our future financial performance and our ability to
develop and commercialize our product candidates and to compete
effectively will depend, in part, on our ability to manage any
future growth effectively. To that end, we must be able to manage
our research and development efforts effectively and hire, train
and integrate additional management, administrative and technical
personnel. The hiring, training and integration of new employees
may be more difficult, costly and/or time-consuming for us because
we have fewer resources than a larger organization. We may not be
able to accomplish these tasks, and our failure to accomplish any
of them could prevent us from successfully growing the
company.
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
If we develop AV-101, drug rescue NCEs, other product candidates,
or regenerative medicine product candidates, either on our own
or in collaboration with others, we will face inherent risks of
product liability as a result of the required clinical testing of
such product candidates, and will face an even greater risk if we
or our collaborators commercialize any such product candidates. For
example, we may be sued if AV-101, any drug rescue NCE, other
product candidate, or regenerative medicine product candidate we
develop allegedly causes injury or is found to be otherwise
unsuitable during product testing, manufacturing, marketing or
sale. Any such product liability claims may include allegations of
defects in manufacturing, defects in design, a failure to warn of
dangers inherent in the product, negligence, strict liability, and
a breach of warranties. Claims could also be asserted under state
consumer protection acts. If we cannot successfully defend
ourselves against product liability claims, we may incur
substantial liabilities or be required to limit commercialization
of our product candidates. Even successful defense would require
significant financial and management resources. Regardless of the
merits or eventual outcome, liability claims may result
in:
●
decreased demand for products that we may develop;
●
injury to our reputation;
●
withdrawal of clinical trial participants;
●
costs to defend the related litigation;
●
a diversion of management's time and our resources;
●
substantial monetary awards to trial participants or
patients;
●
product recalls, withdrawals or labeling, marketing or promotional
restrictions;
Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of products we develop. Although we maintain
liability insurance, any claim that may be brought against us could
result in a court judgment or settlement in an amount that is not
covered, in whole or in part, by our insurance or that is in excess
of the limits of our insurance coverage. Our insurance policies
also have various exclusions, and we may be subject to a product
liability claim for which we have no coverage. We will have to pay
any amounts awarded by a court or negotiated in a settlement that
exceed our coverage limitations or that are not covered by our
insurance, and we may not have, or be able to obtain, sufficient
capital to pay such amounts.
As a public company, we incur significant administrative workload
and expenses to comply with U.S. regulations and requirements
imposed by The NASDAQ Stock Market concerning corporate governance
and public disclosure.
As a public company with common stock listed on The NASDAQ Capital
Market, we must comply with various laws, regulations and
requirements, including certain provisions of the Sarbanes-Oxley
Act of 2002, as well as rules implemented by the SEC and The NASDAQ
Stock Market. Complying with these statutes, regulations and
requirements, including our public company reporting requirements,
continues to occupy a significant amount of the time of management
and involves significant accounting, legal and other expenses.
Furthermore, these laws, regulations and requirements require us to
observe greater corporate governance practices than we have
employed in the past, including, but not limited to maintaining a
sufficient number of independent directors, increased frequency of
board meetings, and holding annual stockholder meetings. Our
efforts to comply with these regulations are likely to result in
increased general and administrative expenses and management time
and attention directed to compliance activities.
Unfavorable global economic or political conditions could adversely
affect our business, financial condition or results of
operations.
Our results of operations could be adversely affected by global
political conditions, as well as general conditions in the global
economy and in the global financial and stock markets. Global
financial and political crises cause extreme volatility and
disruptions in the capital and credit markets. A severe or
prolonged economic downturn, such as the recent global financial
crisis, could result in a variety of risks to our business,
including, weakened demand for our product candidates and our
ability to raise additional capital when needed on acceptable
terms, if at all. A weak or declining economy could also strain our
suppliers, possibly resulting in supply disruption, or cause our
customers to delay making payments for our services. Any of the
foregoing could harm our business and we cannot anticipate all of
the ways in which the current economic climate and financial market
conditions could adversely impact our business.
We or the third parties upon whom we depend may be adversely
affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a
serious disaster.
Natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations,
financial condition and prospects. If a natural disaster, power
outage or other event occurred that prevented us from using all or
a significant portion of our headquarters, that damaged critical
infrastructure, such as the manufacturing facilities of our
third-party CMOs, or that otherwise disrupted operations, it may be
difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate
in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which could have a
material adverse effect on our business.
Our internal computer systems, or those of our third-party CROs or
other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our
product candidates’ development programs.
Despite the implementation of security measures, our internal
computer systems and those of our third-party CROs and other
contractors and consultants are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. While we have not
experienced any such system failure, accident, or security breach
to date, if such an event were to occur and cause interruptions in
our operations, it could result in a material disruption of our
programs. For example, the loss of clinical trial data for AV-101
or other product candidates could result in delays in our
regulatory approval efforts and significantly increase our costs to
recover or reproduce the data. To the extent that any disruption or
security breach results in a loss of or damage to our data or
applications or other data or applications relating to our
technology or product candidates, or inappropriate disclosure of
confidential or proprietary information, we could incur liabilities
and the further development of our product candidates could be
delayed.
We may acquire businesses or products, or form strategic alliances,
in the future, and we may not realize the benefits of such
acquisitions.
We may acquire additional businesses or products, form strategic
alliances or create joint ventures with third parties that we
believe will complement or augment our existing business. If we
acquire businesses with promising markets or technologies, we may
not be able to realize the benefit of acquiring such businesses if
we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous
difficulties in developing, manufacturing and marketing any new
products resulting from a strategic alliance or acquisition that
delay or prevent us from realizing their expected benefits or
enhancing our business. We cannot assure you that, following any
such acquisition, we will achieve the expected synergies to justify
the transaction.
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology,
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects.
We strive to protect and enhance the proprietary technologies that
we believe are important to our business, including seeking patents
intended to cover our products and compositions, their methods of
use and any other inventions we consider are important to the
development of our business. We also rely on trade secrets to
protect aspects of our business that are not amenable to, or that
we do not consider appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and
maintain patent and other proprietary protection for commercially
important technology, inventions and know-how related to our
business, to defend and enforce our patents, should they issue, to
preserve the confidentiality of our trade secrets and to operate
without infringing the valid and enforceable patents and
proprietary rights of third parties. We also rely on know-how,
continuing technological innovation and in-licensing opportunities
to develop, strengthen and maintain the proprietary position of our
product candidates. We own patent applications related to AV-101
and we own and have licensed patents and patent applications
related to human pluripotent stem cell technology.
Although we have an issued patent relating to AV-101 in the
European Union, we cannot yet provide any assurances that any of
our numerous pending U.S. and additional foreign patent
applications relating to AV-101 will mature into issued patents
and, if they do, that such patents will include claims with a scope
sufficient to protect AV-101 or otherwise provide any competitive
advantage. Moreover, other parties may have developed technologies
that may be related or competitive to our approach, and may have
filed or may file patent applications and may have received or may
receive patents that may overlap or conflict with our patent
applications, either by claiming the same methods or formulations
or by claiming subject matter that could dominate our patent
position. Such third-party patent positions may limit or even
eliminate our ability to obtain patent protection.
The patent positions of biotechnology and pharmaceutical companies,
including our patent position, involve complex legal and factual
questions, and, therefore, the issuance, scope, validity and
enforceability of any additional patent claims that we may obtain
cannot be predicted with certainty. Patents, if issued, may be
challenged, deemed unenforceable, invalidated, or circumvented.
U.S. patents and patent applications may also be subject to
interference proceedings,
ex parte
reexamination, or
inter partes
review proceedings, supplemental
examination and challenges in district court. Patents may be
subjected to opposition, post-grant review, or comparable
proceedings lodged in various foreign, both national and regional,
patent offices. These proceedings could result in either loss of
the patent or denial of the patent application or loss or reduction
in the scope of one or more of the claims of the patent or patent
application. In addition, such proceedings may be costly. Thus, any
patents that we may own or exclusively license may not provide any
protection against competitors. Furthermore, an adverse decision in
an interference proceeding can result in a third party receiving
the patent right sought by us, which in turn could affect our
ability to develop, market or otherwise commercialize our product
candidates.
Furthermore, though a patent is presumed valid and enforceable, its
issuance is not conclusive as to its validity or its enforceability
and it may not provide us with adequate proprietary protection or
competitive advantages against competitors with similar products.
Even if a patent issues and is held to be valid and enforceable,
competitors may be able to design around our patents, such as using
pre-existing or newly developed technology. Other parties may
develop and obtain patent protection for more effective
technologies, designs or methods. We may not be able to prevent the
unauthorized disclosure or use of our technical knowledge or trade
secrets by consultants, vendors, former employees and current
employees. The laws of some foreign countries do not protect our
proprietary rights to the same extent as the laws of the United
States, and we may encounter significant problems in protecting our
proprietary rights in these countries. If these developments were
to occur, they could have a material adverse effect on our
sales.
Our ability to enforce our patent rights depends on our ability to
detect infringement. It is difficult to detect infringers who do
not advertise the components that are used in their products.
Moreover, it may be difficult or impossible to obtain evidence of
infringement in a competitor’s or potential
competitor’s product. Any litigation to enforce or defend our
patent rights, even if we were to prevail, could be costly and
time-consuming and would divert the attention of our management and
key personnel from our business operations. We may not prevail in
any lawsuits that we initiate and the damages or other remedies
awarded if we were to prevail may not be commercially
meaningful.
In addition, proceedings to enforce or defend our patents could put
our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly. Such proceedings could also provoke third
parties to assert claims against us, including that some or all of
the claims in one or more of our patents are invalid or otherwise
unenforceable. If any patents covering our product candidates are
invalidated or found unenforceable, our financial position and
results of operations would be materially and adversely impacted.
In addition, if a court found that valid, enforceable patents held
by third parties covered our product candidates, our financial
position and results of operations would also be materially and
adversely impacted.
The degree of future protection for our proprietary rights is
uncertain, and we cannot ensure that:
●
any of our AV-101 or other pending patent applications, if issued,
will include claims having a scope sufficient to protect AV-101 or
any other products or product candidates, particularly considering
that the compound patent to AV-101 has expired;
●
any of our pending patent applications will issue as patents at
all;
●
we will be able to successfully commercialize our product
candidates, if approved, before our relevant patents
expire;
●
we were the first to make the inventions covered by each of our
patents and pending patent applications;
●
we were the first to file patent applications for these
inventions;
●
others will not develop similar or alternative technologies that do
not infringe our patents;
●
others will not use pre-existing technology to effectively compete
against us;
●
any of our patents, if issued, will be found to ultimately be valid
and enforceable;
●
any patents issued to us will provide a basis for an exclusive
market for our commercially viable products, will provide us with
any competitive advantages or will not be challenged by third
parties;
●
we will develop additional proprietary technologies or product
candidates that are separately patentable; or
●
that our commercial activities or products will not infringe upon
the patents or proprietary rights of others.
We also rely upon unpatented trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain our
competitive position, which we seek to protect, in part, by
confidentiality agreements with our employees and our collaborators
and consultants. It is possible that technology relevant to our
business will be independently developed by a person that is not a
party to such an agreement. Furthermore, if the
employees and consultants who are parties to these agreements
breach or violate the terms of these agreements, we may not have
adequate remedies for any such breach or violation, and we could
lose our trade secrets through such breaches or violations.
Further, our trade secrets could otherwise become known or be
independently discovered by our competitors.
We may infringe the intellectual property rights of others, which
may prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing our
product candidates, if approved.
Our success will depend in part on our ability to operate without
infringing the intellectual property and proprietary rights of
third parties. We cannot assure you that our business, products and
methods do not or will not infringe the patents or other
intellectual property rights of third parties.
The pharmaceutical industry is characterized by extensive
litigation regarding patents and other intellectual property
rights. Other parties may allege that our product candidates or the
use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing
their proprietary technology without authorization. As we continue
to develop and, if approved, commercialize our current product
candidates and future product candidates, competitors may claim
that our technology infringes their intellectual property rights as
part of business strategies designed to impede our successful
commercialization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of
manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications
can take many years to issue, third parties may have currently
pending patent applications that may later result in issued patents
that our product candidates may infringe, or which such third
parties claim are infringed by our technologies. The outcome of
intellectual property litigation is subject to uncertainties that
cannot be adequately quantified in advance. The coverage of patents
is subject to interpretation by the courts, and the interpretation
is not always uniform. If we are sued for patent infringement, we
would need to demonstrate that our product candidates, products or
methods either do not infringe the patent claims of the relevant
patent or that the patent claims are invalid, and we may not be
able to do this. Even if we are successful in these proceedings, we
may incur substantial costs and the time and attention of our
management and scientific personnel could be diverted in pursuing
these proceedings, which could have a material adverse effect on
us. In addition, we may not have sufficient resources to bring
these actions to a successful conclusion.
Patent and other types of intellectual property litigation can
involve complex factual and legal questions, and their outcome is
uncertain. Any claim relating to intellectual property infringement
that is successfully asserted against us may require us to pay
substantial damages, including treble damages and attorney’s
fees if we are found to be willfully infringing another
party’s patents, for past use of the asserted intellectual
property and royalties and other consideration going forward if we
are forced to take a license. In addition, if any such claim was
successfully asserted against us and we could not obtain such a
license, we may be forced to stop or delay developing,
manufacturing, selling or otherwise commercializing our product
candidates.
Even if we are successful in these proceedings, we may incur
substantial costs and divert management time and attention in
pursuing these proceedings, which could have a material adverse
effect on us. If we are unable to avoid infringing the patent
rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in
court, or redesign our products. Patent litigation is costly and
time-consuming. We may not have sufficient resources to bring these
actions to a successful conclusion. In addition, intellectual
property litigation or claims could force us to do one or more of
the following:
●
cease developing, selling or otherwise commercializing our product
candidates;
●
pay substantial damages for past use of the asserted intellectual
property;
●
obtain a license from the holder of the asserted intellectual
property, which license may not be available on reasonable terms,
if at all; and
●
in the case of trademark claims, redesign, or rename, some or all
of our product candidates to avoid infringing the intellectual
property rights of third parties, which may not be possible and,
even if possible, could be costly and time-consuming.
Any of these risks coming to fruition could have a material adverse
effect on our business, results of operations, financial condition
and prospects.
We may be subject to claims challenging the inventorship or
ownership of our patents and other intellectual
property.
We enter into confidentiality and intellectual property assignment
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. These
agreements generally provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us. For example,
even if we have a consulting agreement in place with an academic
advisor pursuant to which such academic advisor is required to
assign any inventions developed in connection with providing
services to us, such academic advisor may not have the right to
assign such inventions to us, as it may conflict with his or her
obligations to assign all such intellectual property to his or her
employing institution.
Litigation may be necessary to defend against these and other
claims challenging inventorship or ownership. If we fail in
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as
exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on
our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a
distraction to management and other employees.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
The U.S. Patent and Trademark Office (
USPTO
), European Patent Office (
EPO
) and various other foreign governmental patent
agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the
case.
We may be involved in lawsuits to protect or enforce our patents or
the patents of our licensors, which could be expensive,
time-consuming and unsuccessful.
Even if the patent applications we own or license are issued,
competitors may infringe these patents. To counter infringement or
unauthorized use, we may be required to file infringement claims,
which can be expensive and time-consuming. In addition, in an
infringement proceeding, a court may decide that a patent of ours
or our licensors is not valid, is unenforceable and/or is not
infringed, or may refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover
the technology in question. An adverse result in any litigation or
defense proceedings could put one or more of our patents at risk of
being invalidated or interpreted narrowly and could put our patent
applications at risk of not issuing.
Interference proceedings provoked by third parties or brought by us
may be necessary to determine the priority of inventions with
respect to our patents or patent applications or those of our
licensors. An unfavorable outcome could require us to cease using
the related technology or to attempt to license rights to it from
the prevailing party. Our business could be harmed if the
prevailing party does not offer us a license on commercially
reasonable terms. Our defense of litigation or interference
proceedings may fail and, even if successful, may result in
substantial costs and distract our management and other employees.
We may not be able to prevent, alone or with our licensors,
misappropriation of our intellectual property rights, particularly
in countries where the laws may not protect those rights as fully
as in the United States or European Union.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Issued patents covering our product candidates could be found
invalid or unenforceable if challenged in court.
If we or one of our licensing partners initiated legal proceedings
against a third party to enforce a patent, if and when issued,
covering one of our product candidates, the defendant could
counterclaim that the patent covering our product candidate is
invalid and/or unenforceable. In patent litigation in the United
States, defendant counterclaims alleging invalidity and/or
unenforceability are commonplace. Grounds for a validity challenge
include alleged failures to meet any of several statutory
requirements, including lack of novelty, obviousness or
non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent
withheld relevant information from the USPTO or EPO, or made a
misleading statement, during prosecution. Third parties may also
raise similar claims before administrative bodies in the United
States or abroad, even outside the context of litigation. Such
mechanisms include re-examination, post grant review and equivalent
proceedings in foreign jurisdictions, e.g., opposition proceedings.
Such proceedings could result in revocation or amendment of our
patents in such a way that they no longer cover our product
candidates or competitive products. The outcome following legal
assertions of invalidity and unenforceability is unpredictable.
With respect to validity, for example, we cannot be certain that
there is no invalidating prior art, of which we and the patent
examiner were unaware during prosecution. If a defendant were to
prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such a loss of patent
protection would have a material adverse impact on our
business.
We will not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in
all countries and jurisdictions throughout the world is
prohibitively expensive, and our intellectual property rights in
some countries outside the United States could be less extensive
than those in the United States, assuming that rights are obtained
in the United States. In addition, the laws of some foreign
countries do not protect intellectual property rights to the same
extent as federal and state laws in the United States.
Consequently, we may not be able to prevent third parties from
practicing our inventions in all countries outside the United
States, or from selling or importing products made using our
inventions in and into the United States or other jurisdictions.
The statutory deadlines for pursuing patent protection in
individual foreign jurisdictions are based on the priority date of
each of our patent applications. For the patent applications
relating to AV-101, as well as for many of the patent families that
we own or license, the relevant statutory deadlines have not yet
expired. Thus, for each of the patent families that we believe
provide coverage for our lead product candidates or technologies,
we will need to decide whether and where to pursue protection
outside the United States.
Competitors may use our technologies in jurisdictions where we do
not pursue and obtain patent protection to develop their own
products and further, may export otherwise infringing products to
territories where we have patent protection, but enforcement is not
as strong as that in the United States. These products may compete
with our products and our patents or other intellectual property
rights may not be effective or sufficient to prevent them from
competing. Even if we pursue and obtain issued patents in
particular jurisdictions, our patent claims or other intellectual
property rights may not be effective or sufficient to prevent third
parties from so competing.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United
States. Many companies have encountered significant problems in
protecting and defending intellectual property rights in certain
foreign jurisdictions. The legal systems of some countries,
particularly developing countries, do not favor the enforcement of
patents and other intellectual property protection, especially
those relating to biotechnology. This could make it difficult for
us to stop the infringement of our patents, if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties. In
addition, many countries limit the enforceability of patents
against third parties, including government agencies or government
contractors. In these countries, patents may provide limited or no
benefit. Patent protection must ultimately be sought on a
country-by-country basis, which is an expensive and time-consuming
process with uncertain outcomes. Accordingly, we may choose not to
seek patent protection in certain countries, and we will not have
the benefit of patent protection in such countries.
Furthermore, proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly,
could put our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop
or license.
We are dependent, in part, on licensed intellectual property. If we
were to lose our rights to licensed intellectual property, we may
not be able to continue developing or commercializing our product
candidates, if approved. If we breach any of the agreements under
which we license the use, development and commercialization rights
to our product candidates or technology from third parties or, in
certain cases, we fail to meet certain development or payment
deadlines, we could lose license rights that are important to our
business.
We are a party to a number of license agreements under which we are
granted rights to intellectual property that are or could become
important to our business, and we expect that we may need to enter
into additional license agreements in the future. Our existing
license agreements impose, and we expect that future license
agreements will impose on us, various development, regulatory
and/or commercial diligence obligations, payment of fees,
milestones and/or royalties and other obligations. If we fail to
comply with our obligations under these agreements, or we are
subject to a bankruptcy, the licensor may have the right to
terminate the license, in which event we would not be able to
develop or market products, which could be covered by the license.
Our business could suffer, for example, if any current or future
licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms. See
“
Business—Intellectual
Property
” herein for a
description of our license agreements, which includes a description
of the termination provisions of these
agreements.
As we have done previously, we may need to obtain licenses from
third parties to advance our research or allow commercialization of
our product candidates, and we cannot provide any assurances that
third-party patents do not exist that might be enforced against our
current product candidates or future products in the absence of
such a license. We may fail to obtain any of these licenses on
commercially reasonable terms, if at all. Even if we are able to
obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that
event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates, which could materially harm our business and
the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or
other forms of compensation.
Licensing of intellectual property is of critical importance to our
business and involves complex legal, business and scientific
issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement,
including:
●
the scope of rights granted under the license agreement and other
interpretation-related issues;
●
whether and the extent to which our technology and processes
infringe on intellectual property of the licensor that is not
subject to the licensing agreement;
●
our right to sublicense patent and other rights to third parties
under collaborative development relationships;
●
our diligence obligations with respect to the use of the licensed
technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence
obligations; and
●
the ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors and us
and our partners.
If disputes over intellectual property that we have licensed
prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms, we may be unable to successfully
develop and commercialize the affected product
candidates.
We have entered into several licenses to support our various stem
cell technology-related programs. We may enter into additional
license(s) to third-party intellectual property that are necessary
or useful to our business. Our current licenses and any future
licenses that we may enter into impose various royalty payments,
milestone, and other obligations on us. For example, the licensor
may retain control over patent prosecution and maintenance under a
license agreement, in which case, we may not be able to adequately
influence patent prosecution or prevent inadvertent lapses of
coverage due to failure to pay maintenance fees. If we fail to
comply with any of our obligations under a current or future
license agreement, our licensor(s) may allege that we have breached
our license agreement and may accordingly seek to terminate our
license with them. In addition, future licensor(s) may decide to
terminate our license at will. Termination of any of our current or
future licenses could result in our loss of the right to use the
licensed intellectual property, which could materially adversely
affect our ability to develop and commercialize a product candidate
or product, if approved, as well as harm our competitive business
position and our business prospects.
In addition, if our licensors fail to abide by the terms of the
license, if the licensors fail to prevent infringement by third
parties, if the licensed patents or other rights are found to be
invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms our business could
suffer.
Some intellectual property which we have licensed may have been
discovered through government funded programs and thus may be
subject to federal regulations such as “march-in”
rights, certain reporting requirements, and a preference for U.S.
industry. Compliance with such regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to
reporting requirements, and limit our ability to contract with
non-U.S. manufacturers.
Some of the intellectual property rights we have licensed or
license in the future may have been generated through the use of
U.S. government funding and may therefore be subject to certain
federal regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or
future product candidates pursuant to the Bayh-Dole Act of 1980
(
Bayh-Dole
Act
). These U.S. government
rights in certain inventions developed under a government-funded
program include a non-exclusive, non-transferable, irrevocable
worldwide license to use inventions for any governmental purpose.
In addition, the U.S. government has the right to require us to
grant exclusive, partially exclusive, or non-exclusive licenses to
any of these inventions to a third party if it determines that:
(i) adequate steps have not been taken to commercialize the
invention; (ii) government action is necessary to meet public
health or safety needs; or (iii) government action is
necessary to meet requirements for public use under federal
regulations (also referred to as “march-in rights”).
The U.S. government also has the right to take title to these
inventions if we fail, or the applicable licensor fails, to
disclose the invention to the government and fail to file an
application to register the intellectual property within specified
time limits. In addition, the U.S. government may acquire title to
these inventions in any country in which a patent application is
not filed within specified time limits. Intellectual property
generated under a government funded program is also subject to
certain reporting requirements, compliance with which may require
us, or the applicable licensor, to expend substantial resources. In
addition, the U.S. government requires that any products embodying
the subject invention or produced through the use of the subject
invention be manufactured substantially in the U.S. The
manufacturing preference requirement can be waived if the owner of
the intellectual property can show that reasonable but unsuccessful
efforts have been made to grant licenses on similar terms to
potential licensees that would be likely to manufacture
substantially in the U.S. or that under the circumstances domestic
manufacture is not commercially feasible. This preference for U.S.
manufacturers may limit our ability to contract with non-U.S.
product manufacturers for products covered by such intellectual
property.
In the event we apply for additional U.S. government funding, and
we discover compounds or drug candidates as a result of such
funding, intellectual property rights to such discoveries may be
subject to the applicable provisions of the Bayh-Dole
Act.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation by extending the patent
terms and obtaining data exclusivity for our product candidates,
our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA marketing
approval of our product candidates, one or more of the U.S. patents
we own or license may be eligible for limited patent term
restoration under the Drug Price Competition and Patent Term
Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration
term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process.
However, we may not be granted an extension because of, for
example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing
to satisfy applicable requirements. For example, we may not be
granted an extension if the active ingredient of AV-101 is used in
another drug company’s product candidate and that product
candidate is the first to obtain FDA approval. Moreover, the
applicable time period or the scope of patent protection afforded
could be less than we request. If we are unable to obtain patent
term extension or restoration or the term of any such extension is
less than we request, our competitors may obtain approval of
competing products following our patent expiration, and our ability
to generate revenues could be materially adversely
affected.
Changes in U.S. patent law could diminish the value of patents in
general, thereby impairing our ability to protect our
products.
As is the case with other biotechnology companies, our success is
heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biotechnology industry
involve both technological and legal complexity, and is therefore
costly, time-consuming and inherently uncertain. In addition, the
United States has recently enacted and is currently implementing
wide-ranging patent reform legislation: the Leahy-Smith America
Invents Act, referred to as the America Invents Act. The America
Invents Act includes a number of significant changes to U.S. patent
law. These include provisions that affect the way patent
applications will be prosecuted and may also affect patent
litigation. It is not yet clear what, if any, impact the America
Invents Act will have on the operation of our business. However,
the America Invents Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of any patents that may
issue from our patent applications, all of which could have a
material adverse effect on our business and financial
condition.
In addition, recent U.S. Supreme Court rulings have narrowed the
scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. The
full impact of these decisions is not yet known. For example, on
March 20, 2012 in Mayo Collaborative Services, DBA Mayo
Medical Laboratories, et al. v. Prometheus Laboratories, Inc., the
Court held that several claims drawn to measuring drug metabolite
levels from patient samples and correlating them to drug doses were
not patentable subject matter. The decision appears to impact
diagnostics patents that merely apply a law of nature via a series
of routine steps and it has created uncertainty around the ability
to obtain patent protection for certain inventions. Additionally,
on June 13, 2013 in Association for Molecular Pathology v.
Myriad Genetics, Inc., the Court held that claims to isolated
genomic DNA are not patentable, but claims to complementary DNA
molecules are patent eligible because they are not a natural
product. The effect of the decision on patents for other isolated
natural products is uncertain. Additionally, on March 4, 2014,
the USPTO issued a memorandum to patent examiners providing
guidance for examining claims that recite laws of nature, natural
phenomena or natural products under the Myriad and Prometheus
decisions. This guidance did not limit the application of Myriad to
DNA but, rather, applied the decision to other natural products.
Further, in 2015, in Ariosa Diagnostics, Inc. v. Sequenom, Inc.,
the Court of Appeals for the Federal Circuit held that methods for
detecting fetal genetic defects were not patent eligible subject
matter.
In addition to increasing uncertainty with regard to our ability to
obtain future patents, this combination of events has created
uncertainty with respect to the value of patents, once obtained.
Depending on these and other decisions by the U.S. Congress, the
federal courts and the USPTO, the laws and regulations governing
patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce any patents that may
issue in the future.
We may be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade secrets
of their former employers.
Certain of our current employees have been, and certain of our
future employees may have been, previously employed at other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We also engage advisors and
consultants who are concurrently employed at universities or who
perform services for other entities.
Although we are not aware of any claims currently pending or
threatened against us, we may be subject to claims that we or our
employees, advisors or consultants have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or
other proprietary information, of a former employer or other third
party. We have and may in the future also be subject to claims that
an employee, advisor or consultant performed work for us that
conflicts with that person’s obligations to a third party,
such as an employer, and thus, that the third party has an
ownership interest in the intellectual property arising out of work
performed for us. 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 be a
distraction to management. If we fail in defending such claims, in
addition to paying monetary claims, we may lose valuable
intellectual property rights or personnel. A loss of key personnel
or their work product could hamper or prevent our ability to
commercialize our product candidates, which would materially
adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage
provided by our intellectual property rights.
The degree of future protection afforded by our intellectual
property rights is uncertain because intellectual property rights
have limitations, and may not adequately protect our business,
provide a barrier to entry against our competitors or potential
competitors, or permit us to maintain our competitive advantage.
Moreover, if a third party has intellectual property rights that
cover the practice of our technology, we may not be able to fully
exercise or extract value from our intellectual property rights.
The following examples are illustrative:
●
others may be able to develop and/or practice technology that is
similar to our technology or aspects of our technology but that is
not covered by the claims of patents, should such patents issue
from our patent applications;
●
we might not have been the first to make the inventions covered by
a pending patent application that we own;
●
we might not have been the first to file patent applications
covering an invention;
●
others may independently develop similar or alternative
technologies without infringing our intellectual property
rights;
●
pending patent applications that we own or license may not lead to
issued patents;
●
patents, if issued, that we own or license may not provide us with
any competitive advantages, or may be held invalid or
unenforceable, as a result of legal challenges by our
competitors;
●
third parties may compete with us in jurisdictions where we do not
pursue and obtain patent protection;
●
we may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
●
the patents of others may have an adverse effect on our
business.
Should any of these events occur, they could significantly harm our
business and results of operations.
If, instead of identifying drug rescue candidates based on
information available to us in the public domain, we seek to
in-license drug rescue candidates from biotechnology, medicinal
chemistry and pharmaceutical companies, academic, governmental and
nonprofit research institutions, including the NIH, or other
third-parties, there can be no assurances that we will obtain
material ownership or economic participation rights over
intellectual property we may derive from such licenses or similar
rights to the drug rescue NCEs we may produce and develop. If we
are unable to obtain ownership or substantial economic
participation rights over intellectual property related to drug
rescue NCEs we produce and develop, our business may be adversely
affected.
Risks Related to our Securities
The limited public market for our securities may adversely affect
an investor’s ability to liquidate an investment in the
Company.
Our common stock is currently quoted on The NASDAQ Capital Market,
however, there is presently limited trading activity. We
can give no assurance that an active market will develop, or if
developed, that it will be sustained. If an investor
acquires shares of our common stock, the investor may not be able
to liquidate the shares should there be a need or desire to do
so.
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to other
biopharmaceutical companies, is likely to be volatile. The market
price of our common stock may fluctuate significantly in response
to a number of factors, most of which we cannot control, including,
among others:
●
plans for, progress of or results from non-clinical and clinical
development activities related to our product
candidates;
●
the failure of the FDA to approve our product
candidates;
●
announcements of new products, technologies, commercial
relationships, acquisitions or other events by us or our
competitors;
●
the success or failure of other CNS therapies;
●
regulatory or legal developments in the United States and other
countries;
●
failure of our product candidates, if approved, to achieve
commercial success;
●
fluctuations in stock market prices and trading volumes of similar
companies;
●
general market conditions and overall fluctuations in U.S. equity
markets;
●
variations in our quarterly operating results;
●
changes in our financial guidance or securities analysts’
estimates of our financial performance;
●
changes in accounting principles;
●
our ability to raise additional capital and the terms on which we
can raise it;
●
sales of large blocks of our common stock, including sales by our
executive officers, directors and significant
stockholders;
●
additions or departures of key personnel;
●
discussion of us or our stock price by the press and by online
investor communities; and
●
other risks and uncertainties described in these risk
factors.
Future sales and issuances of our common stock may cause our stock
price to decline.
Sales or issuances of a substantial number of shares of our common
stock in the public market, or the perception that these sales or
issuances are occurring or might occur, could significantly reduce
the market price of our common stock and impair our ability to
raise adequate capital through the sale of additional equity
securities.
The stock market in general, and small biopharmaceutical companies
like ours in particular, have frequently experienced volatility in
the market prices for securities that often has been unrelated to
the operating performance of the underlying companies. These broad
market and industry fluctuations may adversely affect the market
price of our common stock, regardless of our operating performance.
In certain recent situations in which the market price of a stock
has been volatile, holders of that stock have instituted securities
class action litigation against such company that issued the stock.
If any of our stockholders were to bring a lawsuit against us, the
defense and disposition of the lawsuit could be costly and divert
the time and attention of our management and harm our operating
results. Additionally, if the trading volume of our common stock
remains low and limited there will be an increased level of
volatility and you may not be able to generate a return on your
investment.
A significant portion of our total outstanding shares are
restricted from immediate resale but may be sold into the market in
the near future. Future sales of shares by existing stockholders
could cause our stock price to decline, even if our business is
doing well.
Sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our
common stock. Historically, there has been a limited public market
for shares of our common stock. Future sales and issuances of a
substantial number of shares of our common stock in the public
market, including shares issued upon the conversion of our Series A
Preferred, Series B Preferred or Series C Preferred, and the
exercise of outstanding options and warrants for common stock which
are issuable upon exercise, in the public market, or the perception
that these sales and issuances are occurring or might occur, could
significantly reduce the market price for our common stock and
impair our ability to raise adequate capital through the sale of
equity securities.
Our principal institutional stockholders may continue to have
substantial control over us and could limit your ability to
influence the outcome of key transactions, including changes in
control.
Certain of our current institutional stockholders own a substantial
portion of our outstanding capital stock, including our common
stock, Series A Preferred, Series B Preferred, and Series C
Preferred, all of which preferred stock is convertible into a
substantial number of shares of common
stock. Accordingly, institutional stockholders may exert
significant influence over us and over the outcome of any corporate
actions requiring approval of holders of our common stock,
including the election of directors and amendments to our
organizational documents, such as increases in our authorized
shares of common stock, any merger, consolidation or sale of all or
substantially all of our assets or any other significant corporate
transactions. These stockholders may also delay or prevent a change
of control of us, even if such a change of control would benefit
our other stockholders. The significant concentration of stock
ownership may adversely affect the trading price of our common
stock due to investors’ perception that conflicts of interest
may exist or arise. Furthermore, the interests of our principal
institutional stockholders may not always coincide with your
interests or the interests of other stockholders may act in a
manner that advances its best interests and not necessarily those
of other stockholders, including seeking a premium value for its
common stock, which might affect the prevailing market price for
our common stock.
If equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock relies in part on the
research and reports that equity research analysts publish about us
and our business. We do not control these analysts. The price of
our common stock could decline if one or more equity research
analysts downgrade our common stock or if analysts issue other
unfavorable commentary or cease publishing reports about us or our
business.
There may be additional issuances of shares of preferred stock in
the future.
Our Restated Articles of Incorporation (the
Articles
) permit us to issue up to 10.0 million shares of
preferred stock. Our Board of Directors has authorized
the issuance of (i) 500,000 shares of Series A Preferred, all of
which shares are issued and outstanding at March 31, 2017; (ii) 4.0
million shares of Series B 10% Convertible Preferred stock, of
which approximately 1.2 million shares remain issued and
outstanding at March 31, 2017; and (iii) 3.0 million shares of
Series C Convertible Preferred Stock, of which approximately 2.3
million shares are issued and outstanding at March 31, 2017. Our
Board of Directors could authorize the issuance of additional
series of preferred stock in the future and such preferred stock
could grant holders preferred rights to our assets upon
liquidation, the right to receive dividends before dividends would
be declared to holders of our common stock, and the right to the
redemption of such shares, possibly together with a premium, prior
to the redemption of the common stock. In the event and to the
extent that we do issue additional preferred stock in the future,
the rights of holders of our common stock could be impaired
thereby, including without limitation, with respect to
liquidation.
We do not intend to pay dividends on our common stock and,
consequently, our stockholders’ ability to achieve a return
on their investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividend on our common
stock and do not currently intend to do so in the foreseeable
future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do
not anticipate declaring or paying any cash dividends in the
foreseeable future. Therefore, the success of an investment in
shares of our common stock will depend upon any future appreciation
in their value. There is no guarantee that shares of our common
stock will appreciate in value or even maintain the price at which
our stockholders purchased them.
We incur significant costs to ensure compliance with corporate
governance, federal securities law and accounting
requirements.
Since becoming a public company by means of a reverse merger in
2011, we have been subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (
Exchange
Act
), which requires that we
file annual, quarterly and current reports with respect to our
business and financial condition, and the rules and regulations
implemented by the SEC, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Act, and the Public Company Accounting Oversight Board,
each of which imposes additional reporting and other obligations on
public companies. We have incurred and will continue to
incur significant costs to comply with these public company
reporting requirements, including accounting and related audit
costs, legal costs to comply with corporate governance requirements
and other costs of operating as a public company. These legal and
financial compliance costs will continue to require us to divert a
significant amount of money that we could otherwise use to achieve
our research and development and other strategic
objectives.
The filing and internal control reporting requirements imposed by
federal securities laws, rules and regulations on companies that
are not “smaller reporting companies” under federal
securities laws are rigorous and, once we are no longer a smaller
reporting company, we may not be able to meet them, resulting in a
possible decline in the price of our common stock and our inability
to obtain future financing. Certain of these requirements may
require us to carry out activities we have not done previously and
complying with such requirements may divert management’s
attention from other business concerns, which could have a material
adverse effect on our business, results of operations, financial
condition and cash flows. Any failure to adequately comply with
applicable federal securities laws, rules or regulations could
subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial
condition.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We will continue to invest resources to
comply with evolving laws, regulations and standards, however this
investment may result in increased general and administrative
expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice,
regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected.