Item 1A. Risk Factors
We operate in a dynamic and rapidly changing business environment that involves multiple
risks and substantial uncertainty. The following discussion addresses risks and uncertainties that could cause, or contribute to
causing, actual results to differ from expectations in material ways. In evaluating our business, investors should pay particular
attention to the risks and uncertainties described below and in other sections of this Quarterly Report on Form 10-Q and in our
subsequent filings with the SEC. These risks and uncertainties, or other events that we do not currently anticipate or that we
currently deem immaterial also may affect our results of operations, cash flows and financial condition. The trading price of our
common stock could also decline due to any of these risks, and you could lose all or part of your investment.
Risks Related to the Development and Regulatory Approval of Our
Product Candidates
We have depended heavily on the success of
our two lead Arcelis-based
product candidates, rocapuldencel-T and AGS-004. Clinical trials of our product candidates may not be successful. If we are unable
to commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.
We currently have no products approved for sale. We have invested a significant portion of our efforts and
financial resources in the development of our two lead Arcelis-based product candidates, rocapuldencel-T for the treatment of metastatic
renal cell carcinoma, or mRCC, and other cancers and AGS-004 for the treatment of HIV. However, after reviewing the data from an
interim analysis of our pivotal Phase 3 ADAPT clinical trial of rocapuldencel-T in combination with sunitinib / standard-of-care
for the treatment of mRCC, we terminated the development of rocapuldencel-T in April 2018.
Our ability to generate product revenues, which we do not expect will occur for at least
the next several years, if ever, will depend heavily on the successful development and commercialization of AGS-004 and any other
product candidates we develop, if we determine to proceed with such development. The success of our product candidates will depend
on several factors, including the following:
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successful completion of clinical trials, including clinical results that are statistically significant as well as clinically meaningful in the context of the indications for which we are developing our product candidates;
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receipt of marketing approvals from the FDA and similar regulatory authorities outside the United States;
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establishing a facility for the commercial manufacture of products based on our Arcelis precision immunotherapy technology platform;
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maintaining patent and trade secret protection and regulatory exclusivity for our product candidates, both in the United States and internationally;
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launching commercial sales of the products, if and when approved, whether alone or in collaboration with others;
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commercial acceptance of our products, if and when approved, by patients, the medical community and third party payors;
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obtaining and maintaining healthcare coverage and adequate reimbursement;
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effectively competing with other therapies; and
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a continued acceptable safety profile of the products following any marketing approval.
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If we do not achieve one or more of these factors in a timely manner or at all, we could
experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm
our business.
In February 2017, we announced that the Independent Data Monitoring Committee, or IDMC,
for our pivotal Phase 3 ADAPT clinical trial of rocapuldencel-T in combination with sunitinib / standard-of-care for the treatment
of mRCC recommended that the trial be discontinued for futility based on its planned interim data analysis. The IDMC concluded
that the trial was unlikely to demonstrate a statistically significant improvement in overall survival in the combination treatment
arm, utilizing the intent-to-treat population at the pre-specified number of 290 events (deaths), the original primary endpoint
of the study. Notwithstanding the IDMC’s recommendation, we determined to continue to conduct the trial while we analyzed
interim data from the trial. Following a meeting with the U.S. Food and Drug Administration, or FDA, we determined to continue
the ADAPT trial until at least the pre-specified number of 290 events occurred and to submit to the FDA a protocol amendment to
increase the pre-specified number of events for the primary analysis of overall survival in the trial beyond 290 events. In April
2018, we submitted a protocol amendment to the FDA that included an amended primary endpoint analysis with four co-primary endpoints.
Subsequently in April 2018 we conducted another interim analysis of the data from the ADAPT trial, at which time 51 new events
(deaths) had occurred subsequent to the February 2017 interim analysis. Based upon review of the interim data from this analysis,
we determined that we were unlikely to achieve the endpoints if the trial were to be continued and decided to discontinue the
ADAPT clinical trial. We do not expect to resume clinical development of rocapuldencel-T.
If clinical trials of our product candidates fail to demonstrate safety and efficacy
to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive
results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development
and commercialization of our product candidates.
Before obtaining regulatory approval for the sale of our product candidates, we must
conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing
is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of
one or more of our clinical trials
, such as the failure of our Phase 3 ADAPT trial, can occur at
any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later
clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical
data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates
performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their
products.
As a general matter, if we are required to conduct additional
clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully
complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or
are only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use restrictions or safety warnings, including boxed warnings;
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be subject to additional post-marketing testing requirements;
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be subject to restrictions on how the product is distributed or used; or
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have the product removed from the market after obtaining marketing approval.
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If we experience any of a number of possible unforeseen events
in connection with our clinical trials, potential marketing or commercialization of our product candidates could be delayed or
prevented.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay
or prevent our ability to receive regulatory approval or commercialize our product candidates. For example,
based
upon review of interim data from our ADAPT trial, in April 2018, we determined that we were unlikely to achieve the endpoints of
the ADAPT clinical trial and terminated the development of rocapuldencel-T. Unforeseen events that could delay or prevent our ability
to receive regulatory approval or commercialize our product candidates include:
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regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
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we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
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clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate; for example, in our Phase 2b clinical trial of AGS-004, we experienced a higher dropout rate than we anticipated due to the higher than expected number of patients who did not complete the full 12 week antiretroviral treatment interruption required by the protocol for the trial;
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our third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
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we may decide, or regulators or institutional review boards may require us or our investigators to, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
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the cost of clinical trials of our product candidates may be greater than we anticipate; and
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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate.
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In addition, the patients recruited for clinical trials of our product candidates may
have a disease profile or other characteristics that are different than we expect and different than the clinical trials were
designed for, which could adversely impact the results of the clinical trials. For instance, our Phase 2 combination therapy clinical
trial of rocapuldencel-T in combination with sunitinib was originally designed to enroll patients with favorable disease risk
profiles and intermediate disease risk profiles and with a primary endpoint of complete response rate. However, the actual trial
population consisted entirely of patients with intermediate disease risk profiles and poor disease risk profiles.
Our product development costs will also increase if we experience delays in testing
or obtaining marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured
or will be completed on schedule, or at all. For example, in response to our submission of an investigational new drug application,
or IND, for AGS-004, the FDA raised safety concerns regarding the analytical treatment interruption contemplated by our protocol
for our Phase 2 clinical trial of AGS-004, and required a one-year safety follow-up after the final dose for each patient. This
resulted in the need for an amendment to the trial protocol and a four-month delay prior to initiating the Phase 2 clinical trial
in the United States.
In addition to additional costs, significant clinical trial delays also could shorten
any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring
products to market before we do and impair our ability to commercialize our product candidates and may harm our business and results
of operations.
If we experience delays or difficulties in the enrollment of patients in our clinical
trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates
if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the
FDA or similar regulatory authorities outside the United States.
Our competitors may have ongoing clinical trials for product candidates that could be competitive with our
product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials
of our competitors’ product candidates. For example, during the Phase 1/2 monotherapy clinical trial of rocapuldencel-T that
we conducted, our ability to enroll patients in the trial was adversely affected by the FDA’s approval of sorafenib and sunitinib,
because patients did not want to receive, and physicians were reluctant to administer, rocapuldencel-T as an experimental monotherapy
once new therapies that showed efficacy in clinical trials were introduced to the market and became widely available.
In
addition, patient enrollment in our trials may be adversely impacted by uncertainties regarding our Arcelis-based products linked
to the termination of the ADAPT trial and the rocapuldencel-T development program.
Patient enrollment is affected by other factors including:
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severity of the disease under investigation;
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eligibility criteria for the trial in question;
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perceived risks and benefits of the product candidate under study;
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efforts to facilitate timely enrollment in clinical trials;
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patient referral practices of physicians;
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the ability to monitor patients adequately during and after treatment; and
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proximity and availability of clinical trial sites for prospective patients.
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The actual amount of time for full enrollment of our clinical trials could be longer
than planned. Enrollment delays in any of our clinical trials may result in increased development costs for our product candidates,
which would cause the value of the company to decline and limit our ability to obtain additional financing. Our inability to enroll
a sufficient number of patients for any of our other clinical trials would result in significant delays or may require us to abandon
one or more clinical trials altogether.
We are developing AGS-004 for use in combination with latency reversing drugs to
eradicate HIV. If latency reversing drugs are not successfully developed for HIV on a timely basis or at all, we will be unable
to develop AGS-004 for this use or will be delayed in doing so. In addition, because there are currently no products approved for
HIV eradication, we cannot be certain of the clinical trials that we will need to conduct or the regulatory requirements that we
will need to satisfy in order to obtain marketing approval of AGS-004 for this purpose.
We are focusing our development program for AGS-004 on the use of AGS-004 in combination
with latency reversing drugs, including vorinostat, to eradicate HIV. We plan to rely on these latency reversing drugs because
we recognize that the ultimate objective of virus eradication is unlikely to be achieved with immunotherapy alone because the immune
system is not able to recognize the HIV virus in latently infected cells with a low level or lack of expression of HIV antigens.
Several companies and academic groups are evaluating latency reversing drugs that can
potentially activate latently infected cells to increase viral antigen expression and make the cells vulnerable to elimination
by the immune system. We are not a party to any arrangements with these companies or academic groups. If these companies or academic
groups determine not to develop latency reversing drugs for this purpose because the drugs do not sufficiently increase viral antigen
expression or have unacceptable toxicities, or these companies or academic groups otherwise determine to collaborate with other
developers of immunotherapies on a combination therapy for complete virus eradication, we will not be able to complete our AGS-004
development program. In addition, if these companies or academic groups do not proceed with such development on a timely basis,
our AGS-004 program correspondingly would be delayed.
A number of the latency reversing drugs being evaluated for use in HIV patients are
currently approved in the United States and elsewhere for use in the treatment of specified cancer indications. For instance,
vorinostat is approved for cutaneous T-cell lymphoma. If these drugs are not approved by the FDA or equivalent foreign regulatory
authorities for use in HIV, the FDA and these other regulatory authorities may not approve AGS-004 without the latency reversing
drug having received marketing approval for HIV. If the FDA and these other regulatory authorities approve AGS-004 without the
approval of the latency reversing drug for HIV, the use of AGS-004 in combination with the latency reversing drug for virus eradication
would require sales of the latency reversing drug for off-label use. In such event, the success of the combination of AGS-004
and the latency reversing drug would be subject to the willingness of physicians, patients, healthcare payors and others in the
medical community to use the latency reversing drug for off-label use and of government authorities and third party payors to
pay for the combination therapy. In addition, we would be limited in our ability to market the combination for its intended use
if the latency reversing drug were to be used off-label. Furthermore, we are not currently conducting a clinical trial for AGS-004
as a monotherapy for HIV that could serve as a basis for approval of AGS-004 without the combination of a latency reversing drug.
Currently, there are no products approved for the eradication of HIV. As a result, we
cannot be certain as to the clinical trials we will need to conduct or the regulatory requirements that we will need to satisfy
in order to obtain marketing approval of AGS-004 for the eradication of HIV.
If serious adverse or inappropriate side effects are identified during the development
of our product candidates, we may need to abandon or limit our development of some of our product candidates.
Our only product candidate, AGS-004, is still in clinical development and its risk of
failure is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or
will receive regulatory approval. If our product candidates are associated with undesirable side effects or have characteristics
that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the
undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective.
In addition, such effects or characteristics could cause an institutional review board or regulatory authorities to interrupt,
delay or halt clinical trials of one or more of our product candidates, require us to conduct additional clinical trials or other
tests or studies, and could result in a more restrictive label, or the delay or denial of marketing approval by the FDA or comparable
foreign regulatory authorities.
Our Arcelis-based product candidates are immunotherapies that are based on a novel
technology utilizing a patient’s own tissue. This may raise development issues that we may not have anticipated or be able
to resolve, regulatory issues that could delay or prevent approval or personnel issues that may prevent us from further developing
and commercializing our product candidates.
Rocapuldencel-T and AGS-004 are based on our novel Arcelis precision immunotherapy technology platform. In the course
of developing this platform and these product candidates, we have encountered difficulties in the development process. For example,
we terminated the development of MB-002, the predecessor to rocapuldencel-T, when the results from the initial clinical trial of
MB-002 indicated that the product candidate only corrected defects in the production of one of two critical cytokines required
for effective immune response. In addition
, based upon review of interim data, in April 2018, we
determined that we were unlikely to achieve the endpoints of the ADAPT clinical trial and terminated the development of rocapuldencel-T.
There can be no assurance that additional development problems will not arise in the future which we may not have anticipated or
be able to resolve or which may cause significant delays in development.
In addition, regulatory approval of novel product candidates such as our Arcelis-based
product candidates manufactured using novel manufacturing processes such as ours can be more expensive and take longer than for
other, more well-known or extensively studied pharmaceutical or biopharmaceutical products, due to our and regulatory agencies’
lack of experience with them. The FDA has only approved a few individualized immunotherapy products to date. This lack of experience
may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase our development
costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these product
candidates or lead to significant post-approval limitations or restrictions.
The novel nature of our product candidates also means that fewer people are trained in
or experienced with product candidates of this type, which may make it difficult to find, hire and retain capable personnel for
research, development and manufacturing positions.
Development of our individualized Arcelis-based product candidates is subject to
significant uncertainty because each product candidate is derived from source material that is inherently variable. This variability
could reduce the effectiveness of our Arcelis-based product candidates, delay any FDA approval of any of our Arcelis-based product
candidates, cause us to change our manufacturing methods and adversely affect the commercial success of any approved Arcelis-based
products.
The disease samples from the patients to be treated with our Arcelis-based products vary
from patient to patient. This inherent variability may adversely affect our ability to manufacture our products because each tumor
or virus sample that we receive and process will yield a different product. As a result, we may not be able to consistently produce
a product for every patient and we may not be able to treat all patients effectively. Such inconsistency could delay FDA or other
regulatory approval of our Arcelis-based product candidates or, if approved, adversely affect market acceptance and use of our
Arcelis-based products. If we have to change our manufacturing methods to address any inconsistency, we may have to perform additional
clinical trials, which would delay FDA or other regulatory approval of our Arcelis-based product candidates and increase the costs
of development of our Arcelis-based product candidates.
The inherent variability of the disease samples from the patients to be treated with
our Arcelis-based products may further adversely affect our ability to manufacture our products because variability in the source
material for our product candidates, such as tumor cells or viruses, may cause variability in the composition of other cells in
our product candidates. Such variability in composition or purity could adversely affect our ability to establish acceptable release
specifications and the development and regulatory approval processes for our product candidates may be delayed, which would increase
the costs of development of our Arcelis-based product candidates.
If we are not able to obtain, or if there are delays in obtaining, required regulatory
approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially
impaired.
Failure to obtain regulatory approval for any of our product candidates will prevent
us from commercializing the product candidate. We have not received regulatory approval to market any of our product candidates
in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain regulatory approvals
and expect to rely on third party contract research organizations to assist us in this process. Securing FDA approval requires
the submission of extensive preclinical and clinical data and supporting information to the FDA for each therapeutic indication
to establish the product candidate’s safety and efficacy. Securing FDA approval also requires the submission of information
about the product manufacturing process to, and inspection of manufacturing facilities by, the FDA. Our product candidates may
not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other
characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.
The process of obtaining regulatory approvals, both in the United States and abroad,
is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially
based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. To date, the FDA
has only approved a few individualized immunotherapy products. Changes in clinical guidelines or regulatory approval policies during
the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for
each submitted product application, may cause delays in the approval or rejection of an application. The FDA has substantial discretion
in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and
require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical
and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any regulatory approval we ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially
viable.
If we experience delays in obtaining approval or if we fail to obtain approval of our
product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will
be materially impaired.
Failure to obtain regulatory approval in international jurisdictions would prevent
our product candidates from being marketed abroad.
We are a party to arrangements with third parties, and intend to enter into additional
arrangements with third parties, under which they would market our products outside the United States. In order to market and sell
our products in the European Union and many other jurisdictions, we or such third parties must obtain separate regulatory approvals
and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional
testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory
approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition,
in many countries outside the United States, it is required that the product be approved for reimbursement before the product can
be approved for sale in that country. We or these third parties may not obtain approvals from regulatory authorities outside the
United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries
or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities
in other countries or jurisdictions or by the FDA. We may not be able to file for regulatory approvals and may not receive necessary
approvals to commercialize our products in any market.
Additionally, on June 23, 2016, the electorate in the United Kingdom voted in favor of
leaving the European Union, commonly referred to as Brexit. On March 29, 2017, the country formally notified the European Union
of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Since a significant proportion of the regulatory framework
in the United Kingdom is derived from European Union directives and regulations, the referendum could materially impact the regulatory
regime with respect to the approval of our product candidates in the United Kingdom or the European Union. Any delay in obtaining,
or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our
product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and
sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval
in the United Kingdom and/or European Union for our product candidates, which could significantly and materially harm our business.
The efforts of the Trump Administration to pursue regulatory reform may limit the
FDA’s ability to engage in oversight and implementation activities in the normal course, and that could negatively impact
our business.
The Trump Administration has taken several executive actions, including the issuance
of a number of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability
to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance,
and review and approval of marketing applications. On January 30, 2017, President Trump issued an executive order, applicable to
all executive agencies, including the FDA, that requires that for each notice of proposed rulemaking or final regulation to be
issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law.
These requirements are referred to as the “two-for-one” provisions. This executive order includes a budget neutrality
provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations,
to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the executive order requires agencies
to identify regulations to offset any incremental cost of a new regulation. In interim guidance issued by the Office of Information
and Regulatory Affairs within the Office of Management and on February 2, 2017, the administration indicates that the “two-for-one”
provisions may apply not only to agency regulations, but also to significant agency guidance documents. It is difficult to predict
how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory
authority. If these executive actions impose constraints on FDA’s ability to engage 0in oversight and implementation activities
in the normal course, our business may be negatively impacted.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception. We expect to incur losses
for at least the next several years and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net loss was $53.0 million for the
year ended December 31, 2016, $40.6 million for the year ended December 31, 2017 and $2.1 million for the three months ended March
31, 2018. As of March 31, 2018, we had an accumulated deficit of $374.7 million.
As a result
of our historical operating losses and expected future negative cash flows from operations, we have concluded that there is substantial
doubt about our ability to continue as a going concern.
To date, we have financed our operations primarily through public
offerings of common stock, private placements of common stock, preferred stock and warrants, convertible debt financings, debt
from financial institutions, government contracts, government and other third party grants and license and collaboration agreements.
We have devoted substantially all of our efforts to research and development, including clinical trials.
Specifically,
we have devoted a significant portion of our financial resources to the development of rocapuldencel-T. We have not completed development
of any product candidates, and do not expect to resume clinical development of rocapuldencel-T.
As we proceed with the development of our product candidates, provided we are able to raise the capital necessary
to fund such development, we anticipate that our expenses will increase substantially if and as we:
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continue to support the ongoing investigator-initiated clinical trial of AGS-004 and initiate and support or conduct any additional trials of AGS-004 for the treatment of HIV;
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seek regulatory approvals for our product candidates that successfully complete clinical trials;
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establish a facility for the commercial manufacture of products based on our Arcelis precision immunotherapy technology platform;
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establish a sales, marketing and distribution infrastructure to commercialize products for which we may obtain regulatory approval;
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maintain, expand and protect our intellectual property portfolio;
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continue our other research and development efforts;
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hire additional clinical, quality control, scientific and management personnel; and
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add operational, financial and management information systems and personnel, including personnel to support our product development and planned commercialization efforts.
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To become and remain profitable, we must develop and eventually commercialize a product
or products with significant market potential. This development and commercialization will require us to be successful in a range
of challenging activities, including successfully completing preclinical testing and clinical trials of our product candidates,
obtaining regulatory approval for these product candidates, building out and equipping a commercial manufacturing facility and
manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the preliminary
stages of some of these activities. We may never succeed in these activities and may never generate revenues that are significant
or large enough to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of the company and could impair
our ability to raise capital, expand our business, maintain our research and development efforts or continue our operations. A
decline in the value of our company could also cause you to lose all or part of your investment.
We have recently terminated the rocapuldencel-T clinical program and are evaluating potential strategic alternatives
that could significantly impact our future operations and financial position.
Based on a review of the status of our internal programs, resources and capabilities, we plan to explore a wide
range of strategic alternatives that may include a potential merger or sale of the Company, among other potential alternatives
that could maximize both near and long-term value for our shareholders. We have retained Stifel, Nicolaus & Company, Incorporated
to serve as our financial advisor in the process.
We
do not have a defined timeline for the exploration of strategic alternatives and are not confirming that the process will result
in any strategic alternative being announced or consummated. We do not intend to discuss or disclose further developments during
this process unless and until our Board of Directors has approved a specific action or otherwise determined that further disclosure
is appropriate.
We will need substantial additional funding. If we are unable to raise capital
when needed, we would be forced to delay, reduce, terminate or eliminate our product development programs, including establishing
a commercial manufacturing facility or our commercialization efforts and to take other actions to reduce our operating expenses.
We have no external sources of funds other than our contract with the NIH and NIAID for the development of
AGS-004, and we expect our expenses may increase in connection with our ongoing activities, particularly if we continue the clinical
development of AGS-004 or if we undertake development of the group of PD1 monoclonal antibodies which we secured an exclusive option
to in-license, if we decide to exercise that option; seek regulatory approval for our product candidates; and establish a commercial
manufacturing facility or otherwise arrange for commercial manufacturing. In addition, if we obtain regulatory approval of any
of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing
and distribution. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly,
we will need to obtain substantial additional funding if we wish to continue our operations. If we are unable to raise capital
when needed or on attractive terms, we would be forced to delay, reduce, terminate or eliminate our product development programs
or our commercialization efforts and to take other actions to reduce our operating expenses.
We have outstanding debt payable to Pharmstandard International S.A., or Pharmstandard, a collaborator and
our largest stockholder, in the aggregate principal plus accrued interest amount of $6.4 million; Invetech Pty Ltd, or Invetech,
in the aggregate principal plus accrued interest amount of $5.0 million; Saint-Gobain Performance Plastics Corporation, or Saint-Gobain,
in the aggregate principal plus accrued interest amount of $1.9 million; and Medinet Co. Ltd., or Medinet, in the aggregate principal
plus accrued interest amount of $5.0 million.
We do not currently have sufficient cash resources to pay all of our accrued obligations
in full or to continue our business operations beyond the end of 2018. Therefore, we will need to raise additional capital prior
to such time in order to continue to operate our business beyond that time. Alternatively, we may seek to engage in one or more
potential transactions, such as the sale of our company, a strategic partnership with one or more parties or the licensing, sale
or divestiture of some of our assets or proprietary technologies, but there can be no assurance that we will be able to enter into
such a transaction or transactions on a timely basis or on terms that are favorable to us, or at all. Under these circumstances,
we may instead determine to dissolve and liquidate our assets or seek protection under the bankruptcy laws. If we decide to dissolve
and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what extent we will be able to pay our
obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions
to stockholders.
On April 23, 2018, we received a notification from The Nasdaq Stock Market LLC indicating
that, because we had indicated that we would be unable to meet the stockholders’ equity requirement for continued listing
as of the April 24, 2018 deadline that had been set by the Nasdaq Hearing Panel, the Nasdaq Hearing Panel determined to delist
our common stock from The Nasdaq Capital Market and to suspend trading in our common stock effective at the open of business on
April 25, 2018. Following such delisting, we transferred our common stock to the OTCQB® Venture Market, operated by OTC Markets
Group Inc. Because our common stock is not listed for trading on a national securities exchange,
our
ability to raise capital to continue to fund our operations by selling shares and our ability to acquire other companies or technologies
by using our shares as consideration has been impaired.
Our future capital requirements will depend on many factors, including:
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our ability to enter into a strategic transaction and the timing and the terms of such transaction;
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the progress and results of the ongoing investigator-initiated clinical trial of AGS-004 in combination with
vorinostat for HIV eradication, the planned investigator-initiated clinical trial of AGS-004 that we may support, any additional
clinical trial of AGS-004 that we initiate and support, and our ability to obtain additional funding under our NIH and NIAID contract
for our AGS-004 program;
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the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other product candidates or for the PD1 monoclonal antibodies which we have an option to in-license, should we decide to exercise our option;
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the costs and timing of establishing a commercial manufacturing facility or of alternative arrangements for commercial manufacturing and any costs and liabilities associated with financing arrangements entered into to fund the costs of these activities;
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the costs, timing and outcome of regulatory submissions and review of our product candidates;
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the costs of commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive regulatory approval;
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the potential need to repay the $4.0 million in principal currently remaining outstanding under the loan under our license agreement with Medinet Co. Ltd. and its wholly-owned subsidiary, MEDcell Co., LTD, which we refer to together as Medinet;
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payments due under our agreement with Medpace for the close-out of the ADAPT clinical trial;
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revenue, if any, received from commercial sales of our product candidates, should any of our product candidates be approved by the FDA or a similar regulatory authority outside the United States;
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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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the extent to which we acquire or invest in other businesses, products and technologies;
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our ability to obtain government or other third party funding for the development of our product candidates; and
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our ability to establish collaborations on favorable terms, if at all, particularly arrangements to develop, market and distribute any product candidates that we may develop, including AGS-004.
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Conducting preclinical testing and clinical trials is a time-consuming, expensive and
uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory
approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial
revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years,
if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Additional
financing may not be available to us on acceptable terms, or at all.
Our independent registered public accounting firm included an explanatory paragraph
relating to our ability to continue as a going concern in its report on our audited financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2017.
Our report from our independent registered public accounting firm for the year ended
December 31, 2017 includes an explanatory paragraph stating that our losses from operations and required additional funding to
finance our operations raise substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient
funding, our business, prospects, financial condition and results of operations will be materially and adversely affected, and
we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our
assets and may receive less than the value at which those assets are carried on our audited financial statements, and it is likely
that investors will lose all or a part of their investment. If we seek additional financing to fund our business activities in
the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources
may be unwilling to provide additional funding to us on commercially reasonable terms or at all.
Raising additional capital may cause dilution to our existing stockholders, restrict
our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product
revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, government contracts,
government and other third party grants or other third party funding, marketing and distribution arrangements and other collaborations,
strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible
debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation
or other preferences that adversely affect your rights as a stockholder. For example, since 2016 we have issued and sold securities
in several PIPE financings, under a sales agreement with Cowen, and in a public follow-on offering, each of which have resulted
in dilution to our existing stockholders. Additionally, during 2017 we issued both secured and unsecured convertible debt and raised
equity capital under our sales agreement with Cowen, which have resulted in further dilution to our stockholders.
Debt financing, if available, 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.
We also may seek government or other third party funding for the continued development
of AGS-004 and to collaborate with third parties for the development and commercialization of AGS-004. If we raise additional funds
through government or other third party funding, marketing and distribution arrangements or other collaborations, strategic alliances
or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams,
research programs or product candidates or to grant licenses on terms that may not be favorable to us. If the loan from Medinet
becomes due and we do not repay it, we have agreed to grant Medinet a non-exclusive, royalty-bearing license to make and sell Arcelis
products in Japan for the treatment of cancer.
Our ability to use our net operating loss carry-forwards and tax credit carryforwards
may be limited.
The utilization of the net operating loss and tax credit carryforwards may be subject
to limitation under the rules regarding a change in stock ownership as determined by the Internal Revenue Code, and state and foreign
tax laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization of net
operating loss carryforwards, other tax carryforwards, and certain built-in losses upon an ownership change as defined under that
section. In general terms, an ownership change may result from transactions that increase the aggregate ownership of certain of
our stockholders by more than 50 percentage points over a three-year testing period. If we have undergone a Section 382 ownership
change, an annual limitation would be imposed on certain of our tax attributes, including net operating loss and capital loss carryforwards,
and certain other losses, credits, deductions or tax basis. We believe that we experienced an ownership change during 2014 under
Section 382. Due to the Section 382 limitation resulting from the ownership change, $28.2 million of our U.S. federal net operating
losses are expected to expire unused. Additionally, our U.S. federal tax credits and state net operating losses may be limited.
The amount of U.S. federal net operating losses expected to expire due to the Section 382 limitation has not been recognized in
our consolidated financial statements as of December 31, 2017. We may also experience ownership changes in the future as a result
of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net
operating loss carry-forwards and other tax credit carryforwards to offset U.S. federal taxable income may be subject to limitations,
which potentially could result in increased future tax liability to us. Under the newly enacted federal income tax law, federal
net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal
net operating losses is limited. It is uncertain how various states will respond to the newly enacted federal tax law.
Risks Related to the Commercialization of our Product Candidates
We have no history of commercializing pharmaceutical products, which may make it
difficult to evaluate the prospects for our future viability.
Our operations to date have been limited to financing and staffing our company, developing
our technology and product candidates and establishing collaborations. We have not yet demonstrated an ability to successfully
complete a pivotal clinical trial, compile an acceptable regulatory submission, obtain marketing approvals, manufacture a commercial
scale product or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions
about our future success or viability may not be as accurate as they could be if we had a history of successfully developing and
commercializing pharmaceutical products.
In addition, we may encounter unforeseen expenses, difficulties, complications, delays
and other known and unknown factors. We will need to transition at some point from a company with research and development focus
to a company capable of supporting commercial activities. We may not be successful in such a transition.
Even if AGS-004
or any future product candidate receives regulatory approval,
it may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community
necessary for commercial success.
We have never commercialized a product candidate. Even if AGS-004 or any future product candidate receives
marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and
others in the medical community. Gaining market acceptance for our Arcelis-based products may be particularly difficult as, to
date, the FDA has only approved a few individualized immunotherapies and our Arcelis-based products are based on a novel technology.
If these products do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not
become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a
number of factors, including:
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efficacy and potential advantages compared to alternative treatments;
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the ability to offer our product candidates for sale at competitive prices;
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convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the strength of sales, marketing and distribution support;
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the approval of other new products for the same indications;
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the ability of our product to be combined with emerging standards of care;
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availability and amount of reimbursement from government payors, managed care plans and other third party payors;
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adverse publicity about the product or favorable publicity about competitive products;
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clinical indications for which the product is approved; and
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the prevalence and severity of any side effects.
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If any of our product candidates receives marketing approval and we, or others,
later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously
identified, our ability to market the product could be compromised.
Clinical trials of our product candidates are conducted in carefully defined subsets
of patients who have agreed to enter into clinical trials. Consequently, it is possible that our clinical trials may indicate an
apparent positive effect of a product candidate that is greater than the actual positive effect, if any, in a broader patient population
or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, we, or others, discover
that the product is less effective than previously believed or causes undesirable side effects that were not previously identified,
any of the following adverse events could occur:
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regulatory authorities may withdraw their approval of the product or seize the product;
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we may be required to recall the product or change the way the product is administered;
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additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
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regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
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we may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;
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additional restrictions may be imposed on the distribution or use of the product via a risk evaluation and mitigation strategy, or REMS;
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we could be sued and held liable for harm caused to patients;
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the product may become less competitive; and
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our reputation may suffer.
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Any of these events could have a material and adverse effect on our operations and business
and could adversely impact our stock price.
If we are unable to establish sales and marketing capabilities or enter into agreements
with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates
if and when they are approved.
We have only limited commercial capabilities and have no experience in the sale, marketing
or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales
and marketing organization, outsource these functions to third parties or enter into collaborations or other arrangements with
third parties for the distribution or marketing of our product candidates should such candidates receive marketing approval.
There are risks involved with both establishing our own sales and marketing capabilities
and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force
is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we
recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely
or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain
or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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unforeseen costs and expenses associated with creating an independent sales and marketing organization; and
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inability to establish customer service and access services, including potential supply chain and specialty pharmacy arrangements.
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If we enter into arrangements with third parties to perform sales, marketing and distribution
services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market
and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third
parties to sell and market our product candidates or doing so on terms that are favorable to us. We likely will have little control
over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products
effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third
parties, we will not be successful in commercializing our product candidates.
We face substantial competition, which may result in others discovering, developing
or commercializing products before or more successfully than we do.
The development and commercialization of new drug products is highly competitive. We
face competition with respect to our current product candidate, and will face competition with respect to any products that we
may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and
biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market
and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing
our product candidates. Potential competitors also include academic institutions, government agencies and other public and private
research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development,
manufacturing and commercialization.
Some of these competitive products and therapies are based on scientific
approaches that are the same as or similar to our approach, and others are based on entirely different approaches. Many marketed
therapies for the indication that we are currently pursuing, or indications that we may in the future seek to address using our
Arcelis precision immunotherapy technology platform, are widely accepted by physicians, patients and payors, which may make it
difficult for us to replace them with any products that we successfully develop and are permitted to market.
There are numerous FDA-approved treatments for HIV, primarily antiretroviral therapies marketed by large pharmaceutical
companies. Generic competition has developed in this market as patent exclusivity periods for older drugs have expired, with more
than 15 generic drugs currently on the market. The presence of these generic drugs is resulting in price pressure in the HIV therapeutics
market and could affect the pricing of AGS-004. Currently, there are no approved therapies for the eradication of HIV. We expect
that major pharmaceutical companies that currently market antiretroviral therapy products or other companies that are developing
HIV product candidates may seek to develop products for the eradication of HIV.
Our competitors may develop products that are more effective, safer, more convenient
or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. Our competitors
may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.
Many of our competitors have significantly greater financial resources and expertise
in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and
marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and device industries may
result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for,
our programs.
Even if we are able to commercialize any product candidates, the products may become
subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives, which would harm
our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drug
products vary widely from country to country. In the United States, recently passed legislation may significantly change the approval
requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval
of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product
licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental
control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular
country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods,
and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations
may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain regulatory
approval.
Our ability to commercialize any products successfully also will depend in part on the
extent to which reimbursement for these products and related treatments will be available from government health administration
authorities, private health insurers and other organizations. 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. A
primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third party payors
have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly,
third party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging
the prices charged for medical products. We cannot be sure that reimbursement will be available for any product that we commercialize
and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product
candidate for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult because
of the higher prices often associated with drugs administered under the supervision of a physician. If reimbursement is not available
or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain
marketing approval.
There may be significant delays in obtaining reimbursement for newly approved drugs,
and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities
outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or
at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels
for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates
may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already
set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced
by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of
laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Third party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies.
Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved
products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to
commercialize products and our overall financial condition.
Product liability lawsuits against us could cause us to incur substantial liabilities
and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our
product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may
develop. These risks may be even greater with respect to our Arcelis-based products which are manufactured using a novel technology.
None of our product candidates has been widely used over an extended period of time, and therefore our safety data are limited.
We derive the raw materials for manufacturing of our Arcelis-based product candidates from human cell sources, and therefore the
manufacturing process and handling requirements are extensive and stringent, which increases the risk of quality failures and subsequent
product liability claims.
If we cannot successfully defend ourselves against claims that our product candidates
or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may
result in:
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize any products that we may develop.
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We currently hold $10.0 million in product liability insurance coverage, which may
not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage when we begin commercializing
our product candidates, if ever. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage
at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
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.
Because we have limited financial and managerial resources, we focus on research programs
and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other product
candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may
cause us to fail to capitalize on viable commercial products 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 products.
We have based our research and development efforts on our Arcelis precision immunotherapy
technology platform. Notwithstanding our large investment to date and potential future expenditures in our Arcelis precision immunotherapy
technology platform, we have not yet developed, and may never successfully develop, any marketed drugs using this approach. As
a result of pursuing the development of product candidates using our Arcelis precision immunotherapy technology platform, we may
fail to develop product candidates or address indications based on other scientific approaches that may offer greater commercial
potential or for which there is a greater likelihood of success.
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 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.
Risks Related to Our Dependence on Third Parties
Our reliance on government funding adds uncertainty to our research and commercialization
efforts and may impose requirements that increase the costs of commercialization and production of our government-funded product
candidates.
Our current development of AGS-004 for HIV is primarily funded by the NIH.
This
funding is currently expected to expire in July 2018. We will be dependent upon additional government funding for continued development
of AGS-004. However, increased pressure on governmental budgets may reduce the availability of government funding for programs
such as AGS-004. In addition, contracts and grants from the U.S. government and its agencies include provisions that give the government
substantial rights and remedies, many of which are not typically found in commercial contracts, including provisions that allow
the government to:
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terminate agreements, in whole or in part, for any reason or no reason;
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reduce or modify the government’s obligations under such agreements without the consent of the other party;
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claim rights, including intellectual property rights, in products and data developed under such agreements;
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impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;
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suspend or debar the contractor or grantee from doing future business with the government or a specific government agency;
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pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to government agreements; and
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limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal-year basis, thereby leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period.
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Government agreements normally contain additional terms and conditions that may increase
our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions.
These include, for example:
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specialized accounting systems unique to government contracts and grants;
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mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;
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public disclosures of certain contract and grant information, which may enable competitors to gain insights into our research program; and
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mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.
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We expect to depend on collaborations with third parties for the development and
commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the
market potential of these product candidates.
We have entered into an exclusive license agreement with Pharmstandard for the development and commercialization
of rocapuldencel-T in Russia and the other states comprising the Commonwealth of Independent States and an exclusive license agreement
with Green Cross Corp., or Green Cross, for the development and commercialization of rocapuldencel-T for the treatment of mRCC
in South Korea and an exclusive license agreement with Lummy (Hong Kong) Co. Ltd., or Lummy HK, for the development, manufacture
and commercialization of rocapuldencel-T in China, Hong Kong, Taiwan and Macau. We have also entered into a license agreement with
Medinet under which we granted Medinet an exclusive license to manufacture in Japan rocapuldencel-T for the purpose of development
and commercialization for the treatment of mRCC.
As a result, we are dependent on our third party
collaborators for any further development of rocapuldencel-T. However, we do not expect that any of our collaborators will continue
the development of rocapuldencel-T.
We also plan to seek government or other third party funding for continued development
of AGS-004 and to collaborate with third parties to develop and commercialize AGS-004. Our likely collaborators for any development,
distribution, marketing, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional
and national pharmaceutical companies and biotechnology companies.
Under our existing arrangements we have limited control, and under any additional arrangements
we may enter into with third parties we will likely have limited control, over the amount and timing of resources that our collaborators
dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements
will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations involving our product candidates would pose the following risks to us:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or, require a new formulation of a product candidate for clinical testing;
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
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a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;
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collaborators may have the right to conduct clinical trials of our product candidates without our consent and could conduct trials with flawed designs that result in data that adversely affect our clinical trials, our ability to obtain marketing approval for our product candidates or market acceptance of our product candidates;
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collaborators may hold rights that could preclude us from commercializing our products in certain territories;
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;
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disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources; and
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates. For example, in 2009, our collaboration with Kyowa Hakko Kirin Co., Ltd. with respect to rocapuldencel-T and AGS-004 was terminated by our collaborator.
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Collaboration agreements may not lead to development or commercialization of product
candidates in the most efficient manner, or at all. 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. If a present or
future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development
or commercialization program could be delayed, diminished or terminated.
If we are not able to establish additional collaborations, we may have to alter
any development and commercialization plans.
Our drug development programs and any potential commercialization of our product candidates will require substantial
additional cash to fund expenses. For some of our product candidates, we may collaborate with pharmaceutical and biotechnology
companies for the development and commercialization of those product candidates. For example, we have entered into license agreements
with third parties to develop, manufacture and/or commercialize rocapuldencel-T in Russia and the other states comprising the Commonwealth
of Independent States, South Korea, Japan, China, Hong Kong, Taiwan and Macau. In light of our decision to terminate the ADAPT
trial, we do not expect that any of these collaborators will continue the development of rocapuldencel-T. We also intend to collaborate
with third parties to develop and commercialize AGS-004.
We face significant competition in seeking appropriate collaborators. Whether we reach
a definitive agreement for a 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 market 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 a collaboration could be more
attractive than the one with us for our product candidate. We may also be restricted under existing license agreements from entering
into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all.
If we are not able to obtain such funding or enter into collaborations for our product
candidates, we may have to curtail the development of such product candidates, reduce or delay a candidate’s 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 these product candidates or bring these product candidates to market and generate product revenue.
We rely on third parties to conduct our clinical trials, and those third parties
may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We do not independently conduct clinical trials of our product candidates. We rely on
third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical
investigators, to perform this function. Our reliance on these third parties for clinical development activities reduces our control
over these activities but does not relieve us of our oversight responsibilities as sponsor of the trial. We remain responsible
for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for
the trial. Moreover, the FDA and other regulatory authorities require us to comply with standards, commonly referred to as Good
Clinical Practice, for conducting, recording and reporting the results of clinical trials to assure that data and reported results
are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are required
to register ongoing clinical trials and post the results of certain completed clinical trials on a government-sponsored database,
ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these
third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in
accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining,
regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize
our product candidates.
For instance, in December 2015 we received a notice from Health Canada that one of the
sites at which we were conducting our Phase 3 ADAPT trial in Canada had been found to be non-compliant with Good Clinical Practice
in Canada and that if the issues raised in the notice were not corrected, Health Canada could suspend our authorization to conduct
the ADAPT trial at all sites in Canada. We submitted a response to Health Canada and subsequently received a Completion of Response
notice from Health Canada stating that our corrective actions were satisfactory and that the matter was officially closed.
We also rely on other third parties to store and distribute product supplies for our
clinical trials. Any performance failure on the part of our existing or future distributors could delay clinical development or
regulatory approval of our product candidates or commercialization of our products, producing additional losses and depriving us
of potential product revenue.
Risks Related to the Manufacturing of Our Product Candidates
We will need to establish a facility to manufacture our Arcelis-based products
on a commercial scale. We do not have experience in manufacturing Arcelis-based products on a commercial scale. If, due to
our lack of manufacturing experience, we cannot manufacture our Arcelis-based products on a commercial scale successfully or manufacture
sufficient product to meet our expected commercial requirements, our business may be materially harmed.
We currently have manufacturing suites in our Technology Drive and Patriot Center leased facilities in Durham,
North Carolina. We manufacture Arcelis-based product candidates for research and development purposes and for clinical trials at
these facilities.
We believe these facilities are sufficient for the manufacture of AGS-004 to support
our ongoing clinical trial and any likely near-term clinical trials that we may initiate.
We expect that we would establish both manual and automated manufacturing processes
in any commercial manufacturing facility if we determine to establish such facility. Prior to implementing commercial manufacturing
of any Arcelis-based product, we would be required to demonstrate that our commercial manufacturing facility is constructed and
operated in accordance with current good manufacturing practice. We would also be required to show the comparability between any
Arcelis-based product that we produce using the manual processes in our current facility and the same product produced using the
manual process in the commercial manufacturing facility.
If we transition to automated manufacturing processes, we expect our automated manufacturing
processes will be based on existing functioning prototypes of automated devices for the production of commercial quantities of
our Arcelis-based product candidates. These devices can be used to perform substantially all steps required for the manufacture
of our Arcelis-based product candidates.
We do not have experience in manufacturing products on a commercial scale. In addition,
because we are aware of only a few companies that have manufactured an individualized immunotherapy product for commercial sale,
there are limited precedents from which we can learn. We may encounter difficulties in the manufacture of our Arcelis-based products
due to our limited manufacturing experience. These difficulties could delay the build-out and equipping of a commercial manufacturing
facility and regulatory approval of the manufacture of our Arcelis-based products using the facility, increase our costs or cause
production delays or result in us not manufacturing sufficient product to meet our expected commercial requirements, any of which
could damage our reputation and hurt our profitability. If we are unable to successfully increase our manufacturing capacity to
commercial scale, our business may be materially adversely affected.
If we fail to establish commercial manufacturing operations in compliance with
regulatory requirements, or augment our manufacturing personnel, we may not be able to initiate commercial operations or produce
sufficient product to meet our expected commercial requirements. We have delayed the implementation of our automated manufacturing
process and may not be able to use such process on a timely basis or at all.
In order to meet our business plan, which contemplated manufacturing our product first
using manual processes and later using automated processes for the commercial requirements of any Arcelis-based product candidates
that might be approved, we planned to build out and equip a leased commercial manufacturing facility and add manufacturing personnel
in advance of any regulatory submission for approval. If we determine to continue our plan to establish a commercial manufacturing
facility, we will require substantial capital expenditures and additional regulatory approvals. In addition, it will be costly
and time consuming to recruit necessary additional personnel.
If we are unable to successfully build out and equip a commercial manufacturing facility
in compliance with regulatory requirements or hire and train additional necessary manufacturing personnel appropriately, our filing
for regulatory approval of our product candidates may be delayed or denied.
We plan to delay the implementation of our automated manufacturing process until we complete
the clinical development of an Arcelis-based product and secure additional funding. Thus, if we are able to successfully complete
the clinical development of an Arcelis-based product and obtain marketing approval, we plan to initially commercially supply such
product using manual manufacturing processes. Prior to implementing commercial manufacturing of an Arcelis-based product, we will
be required to demonstrate that the commercial manufacturing facility is constructed and operated in accordance with current Good
Manufacturing Practice, or cGMP. If we continue the development of any Arcelis-based product, we will also be required to show
the comparability between such product that we produce using the manual processes in our current facility and that product produced
using the manual process in the new facility.
Our implementation of automated processes could take longer, particularly if we are unable
to achieve any of the required tasks on a timely basis, or at all. Work under our collaboration with Invetech and Saint-Gobain
to develop the equipment and disposables necessary to implement the automated manufacturing processes for Arcelis-based products
is not expected to resume until we are able to successfully complete the clinical development of an Arcelis-based product and obtain
marketing approval. If Invetech or Saint-Gobain are delayed in resumption of the projects or do not perform as expected under the
agreements or the projects with Invetech or Saint-Gobain are unsuccessful for any other reason, our timelines for the implementation
of our automated manufacturing processes could be further delayed and our business could be adversely affected.
Prior to implementing the automated manufacturing processes for Arcelis-based products,
we will be required to:
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demonstrate that the disposable components and sterilization and packaging methods used in the manufacturing process are suitable for use in manufacturing in accordance with current good manufacturing practice, or cGMP, and current Good Tissue Practices, or cGTP;
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build and validate processing equipment that complies with cGMP and cGTP;
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equip a commercial manufacturing facility to accommodate the automated manufacturing process;
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perform process testing with final equipment, disposable components and reagents to demonstrate that the methods are suitable for use in cGMP and cGTP manufacturing;
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demonstrate consistency and repeatability of the automated manufacturing processes in the production of any Arcelis-based product in our new facility to fully validate the manufacturing and control process using the actual automated cGMP processing equipment; and
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demonstrate comparability between any Arcelis-based product that we produce using our manual processes and such product produced using the automated processes.
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We will need regulatory approval to use the automated manufacturing processes for commercial
purposes. If the FDA requires us to conduct a bridging study to demonstrate comparability between an Arcelis-based product that
we produce manually and such product produced using the automated processes, the implementation of the automated manufacturing
processes and the filing for such approval will likely be delayed.
If we are unable to successfully implement the automated processes required and demonstrate
comparability between the Arcelis-based product that we produce manually and such product produced using the automated processes,
our filing for regulatory approval of the commercial use of our automated manufacturing processes may be delayed or denied and
we may not be able to initiate commercial manufacturing using our automated manufacturing processes. In such event, our commercial
manufacturing costs will be higher than anticipated and we may not be able to manufacture sufficient product to meet our expected
commercial requirements.
Lack of coordination internally among our employees and externally with physicians,
hospitals and third- party suppliers and carriers, could cause manufacturing difficulties, disruptions or delays and cause us to
not have sufficient product to meet our clinical trial requirements or potential commercial requirements.
Manufacturing our Arcelis-based product candidates requires coordination internally among
our employees and externally with physicians, hospitals and third party suppliers and carriers. For example, a patient’s
physician or clinical site will need to coordinate with us for the shipping of a patient’s disease sample and leukapheresis
product to our manufacturing facility in a timely manner, and we will need to coordinate with them for the shipping of the manufactured
product to them. Such coordination involves a number of risks that may lead to failures or delays in manufacturing our Arcelis-based
product candidates, including:
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failure to obtain a sufficient supply of key raw materials of suitable quality;
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difficulties in manufacturing our product candidates for multiple patients simultaneously;
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difficulties in obtaining adequate patient-specific material, such as tumor samples, virus samples or leukapheresis product, from physicians;
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difficulties in completing the development and validation of the specialized assays required to ensure the consistency of our product candidates;
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failure to ensure adequate quality control and assurances in the manufacturing process as we increase production quantities;
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difficulties in the timely shipping of patient-specific materials to us or in the shipping of our product candidates to the treating physicians due to errors by third party carriers, transportation restrictions or other reasons;
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destruction of, or damage to, patient-specific materials or our product candidates during the shipping process due to improper handling by third party carriers, hospitals, physicians or us;
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destruction of, or damage to, patient-specific materials or our product candidates during storage at our facilities; and
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destruction of, or damage to, patient-specific materials or our product candidates stored at clinical and future commercial sites due to improper handling or holding by clinicians, hospitals or physicians.
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If we are unable to coordinate appropriately, we may encounter delays or additional costs
in achieving our clinical and commercialization objectives, including in obtaining regulatory approvals of our product candidates
and supplying product, which could materially damage our business and financial position.
If our existing manufacturing facilities or any commercial manufacturing facility
that we use are damaged or destroyed, or production at one of these facilities is otherwise interrupted, our business and prospects
would be negatively affected.
We currently lease two manufacturing facilities. If we establish a commercial manufacturing
facility, it will be our only commercial manufacturing facility in North America. If our existing manufacturing facilities or a
commercial manufacturing facility that we decide to build out and equip, or the equipment in either of these facilities, is damaged
or destroyed, we likely would not be able to quickly or inexpensively replace our manufacturing capacity and possibly would not
be able to replace it at all. Any new facility needed to replace either of our existing manufacturing facilities or a new commercial
manufacturing facility would need to comply with the necessary regulatory requirements, need to be tailored to our specialized
automated manufacturing requirements and require specialized equipment. We would need FDA approval before selling any products
manufactured at a new facility. Such an event could delay our clinical trials or, if any of our product candidates are approved
by the FDA, reduce or eliminate our product sales.
We maintain insurance coverage to cover damage to our property and equipment and to cover
business interruption and research and development restoration expenses. If we have underestimated our insurance needs with respect
to an interruption in our clinical manufacturing of our product candidates, we may not be able to adequately cover our losses.
Risks Related to Our Intellectual Property
If we fail to comply with our obligations under our intellectual property licenses
with third parties, we could lose license rights that are important to our business.
We are a party to a number of intellectual property license agreements with third parties,
including with respect to each of rocapuldencel-T and AGS-004, and we may enter into additional license agreements in the future.
Our existing license agreements impose, and we expect that future license agreements will impose, various diligence, milestone
payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations under these licenses, our licensors
may have the right to terminate these license agreements, in which event we might not be able to market any product that is covered
by these agreements, or to convert the license to a non-exclusive license, which could materially adversely affect the value of
the product candidate being developed under the license agreement. Termination of these license agreements or reduction or elimination
of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms.
If we are unable to obtain and maintain patent protection for our technology and
products, or if our licensors are unable to obtain and maintain patent protection for the technology or products that we license
from them, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize
technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products
may be adversely affected.
Our success depends in large part on our and our licensors’ ability to obtain and
maintain patent protection in the United States and other countries with respect to our proprietary technology and products. We
and our licensors have sought to protect our proprietary position by filing patent applications in the United States and abroad
related to our novel technologies and products that are important to our business. This process is expensive and time-consuming,
and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely
manner. It is also possible that we will fail to identify patentable aspects of our research and development efforts before it
is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation,
filing and prosecution of patent applications, or to maintain the patents, covering technology or products that we license from
third parties and are reliant on our licensors. Therefore, we cannot be certain that these patents and applications will be prosecuted
and enforced in a manner consistent with the best interests of our business. If such licensors fail to maintain such patents, or
lose rights to those patents, the rights we have licensed may be reduced or eliminated.
The patent position of biotechnology and pharmaceutical companies generally is highly
uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result,
the issuance, scope, validity, enforceability and commercial value of our and our licensors’ patent rights are highly uncertain.
Our and our licensors’ pending and future patent applications may not result in patents being issued which protect our technology
or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either the
patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents
or narrow the scope of our patent protection.
Third parties could practice our inventions in territories where we do not have patent
protection. Furthermore, the laws of foreign countries may not protect our rights to the same extent as the laws of the United
States. For example, we own or exclusively license patents relating to our process of manufacturing an individualized drug product.
A U.S. patent may be infringed by anyone who, without authorization, practices the patented process in the United States or imports
a product made by a process covered by the U.S. patent. In foreign countries, however, importation of a product made by a process
patented in that country may not constitute an infringing activity, which would limit our ability to enforce our process patents
against importers in that country. Furthermore, the legal systems of certain countries, particularly certain developing countries,
do not favor the enforcement of patents and other intellectual property protection. This could make it difficult for us to stop
the infringement of our patents or the misappropriation of our other intellectual property rights. If competitors are able to use
our technologies, our ability to compete effectively could be harmed.
Furthermore, publications of discoveries in the scientific literature often lag behind
the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until
18 months after filing, or in some cases not at all. Therefore we cannot be certain that we or our licensors were the first to
make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the
first to file for patent protection of such inventions.
Assuming the other requirements for patentability are met, in the United States, the
first to invent the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application
is generally entitled to the patent. Under the America Invents Act, or AIA, enacted in September 2011, the United States moved
to a first inventor to file system in March 2013. The United States Patent and Trademark Office only recently finalized the rules
relating to these changes and courts have yet to address the new provisions. These changes could increase the costs and uncertainties
surrounding the prosecution of our patent applications and the enforcement or defense of our patent rights. Furthermore, we may
become involved in interference proceedings, opposition proceedings, or other post-grant proceedings, such as reissue, reexamination
or inter partes review proceedings, which may challenge our patent rights or the patent rights of others. An adverse determination
in any such proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize
our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize
products without infringing third party patent rights.
Even if our owned and licensed patent applications issue as patents, they may not issue
in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide
us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar
or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope,
validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United
States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, which could limit
our ability to or stop or prevent us from stopping others from using or commercializing similar or identical technology and products,
or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development,
testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after
such candidates are commercialized. For example, certain of the U.S. patents we exclusively licensed from Duke University expired
in 2016 and the European and Japanese patents exclusively licensed from Duke University expired in April 2017. As a result, our
owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar
or identical to ours.
We may become involved in lawsuits to protect or enforce our patents, which could
be expensive, time consuming and unsuccessful.
Competitors may infringe our patents. To counter such infringement or unauthorized use,
we may be required to file infringement claims against third parties, which can be expensive and time consuming. In addition, during
an infringement proceeding, a court may decide that the patent rights we are asserting are invalid or unenforceable, 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 proceeding could put one or more of our patents at risk of being invalidated or interpreted
narrowly. 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. In
addition, our licensors may have rights to file and prosecute such claims and we are reliant on them.
Third parties may initiate legal proceedings alleging that we are infringing their
intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of
our business.
Our commercial success depends upon our ability and the ability of our collaborators
to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary
rights of third parties. We cannot ensure that third parties do not have, or will not in the future obtain, intellectual property
rights such as granted patents that could block our ability to operate as we would like. There may be patents in the United States
or abroad owned by third parties that, if valid, may block our ability to make, use or sell our products in the United States or
certain countries outside the United States, or block our ability to import our products into the United States or into certain
countries outside the United States.
We may become party to, or threatened with, future adversarial proceedings or litigation
regarding intellectual property rights with respect to our products and technology. For example, third parties may assert infringement
claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s
intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing
our products and technology. However, we may be unable to obtain any required license on commercially reasonable terms or even
obtain a license at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access
to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing
technology or product. In addition, we could be found liable for monetary damages. A finding of infringement could prevent us from
commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business.
Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative
impact on our business.
We have research licenses to certain reagents and their use in the development of our
product candidates. We would need commercial licenses to these reagents for any of our product candidates that receive approval
for sale in the United States. We believe that commercial licenses to these reagents will be available. However, if we are unable
to obtain any such commercial licenses, we may be unable to commercialize our product candidates without infringing the patent
rights of third parties. If we did seek to commercialize our product candidates without a license, these third parties could initiate
legal proceedings against us.
We may be subject to claims that our employees have wrongfully used or disclosed
alleged trade secrets of their former employers.
Many of our employees were previously employed at universities or other biotechnology
or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do
not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees
have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s
former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition
to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending
against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend substantial resources
and distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual
property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their
normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial
adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses
and reduce the resources available for development activities. We may not have sufficient financial or other resources to adequately
conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
If we are unable to protect the confidentiality of our trade secrets, our business
and competitive position would be harmed.
In addition to seeking patents for some of our technology and products, we also rely
on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position.
The types of protections available for trade secrets are particularly important with respect to our Arcelis precision immunotherapy
technology platform’s manufacturing capabilities, which involve significant unpatented know-how. We seek to protect these
trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such
as our employees, corporate collaborators, outside scientific collaborators, sponsored researchers, contract manufacturers, consultants,
advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees
and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information,
including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable.
In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of
our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them
from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently
developed by a competitor, our competitive position would be harmed.
Risks Related to Legal Compliance Matters
Any product candidate for which we obtain marketing approval could be subject to
restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements
or if we experience unanticipated problems with our products, when and if any of them are approved.
Any product candidate for which we obtain marketing approval, along with the manufacturing
processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual
requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other
post-marketing information and reports, registration and listing requirements, cGMP requirements relating to quality control, quality
assurance and corresponding maintenance of records and documents, cGTP requirements, requirements regarding the distribution of
samples to physicians and recordkeeping. Even if regulatory approval of a product candidate is granted, the approval may be subject
to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements
for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates
the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance
with the provisions of the approved label. The FDA imposes stringent restrictions on manufacturers’ communications regarding
off-label use and if we do not market our products for their approved indications, we may be subject to enforcement action for
off-label marketing. In addition, later discovery of previously unknown problems with our products, manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on such products, manufacturers or manufacturing processes;
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restrictions on the marketing of a product;
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restrictions on product distribution;
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requirements to conduct post-marketing clinical trials;
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warning or untitled letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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fines, restitution or disgorgement of profits or revenue;
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suspension or withdrawal of regulatory approvals;
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refusal to permit the import or export of our products;
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injunctions or the imposition of civil or criminal penalties.
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Our relationships with customers and third party payors will be subject to applicable
anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties,
program exclusion, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third party payors play a primary role in the recommendation
and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third party payors
and customers may 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 products for which we
obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
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the federal healthcare 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 and state healthcare programs such as Medicare and Medicaid;
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the federal False Claims Act imposes civil penalties, including 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;
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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;
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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;
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the federal transparency requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, the PPACA, or the Health Care Reform Law will require manufacturers of drugs, devices, biologics and medical supplies 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; and
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analogous state laws and regulations, such as state anti-kickback and false claims 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 health care providers or marketing expenditures.
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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 and may require drug
manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers
or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances,
many of which differ from each other in significant ways and often are not preempted by the federal Health Insurance Portability
and Accountability Act of 1996, or HIPAA, thus complicating compliance efforts.
Efforts to ensure that our business arrangements with third parties will comply with
applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude
that our business practices may 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 are 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, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring
of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not
in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from
government funded healthcare programs.
Numerous statements made by President Trump and members of the U.S. Congress indicate
that it is likely that legislation will be passed by Congress and signed into law by President Trump that repeals the PPACA, in
whole or in part, and/or introduces a new form of health care reform. It is unclear at this point what the scope of such legislation
will be and when it will become effective. Because of the uncertainty surrounding this replacement health care reform legislation,
we cannot predict with any certainty the likely impact of the PPACA’s repeal or the adoption of any other health care reform
legislation on our financial condition or operating results. Whether or not there is alternative health care legislation enacted
in the United States, there is likely to be significant disruption to the health care market in the coming months and years.
Recently enacted and future legislation may increase the difficulty and cost for
us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative
and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our
product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates
for which we obtain marketing approval.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation
expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales
prices for physician administered drugs. In addition, this legislation provided authority for limiting the number of drugs that
will be covered in any therapeutic class in certain cases. Cost reduction initiatives and other provisions of this and other more
recent legislation could decrease the coverage and reimbursement that is provided for any approved products. While the Medicare
Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy
and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the
Medicare Modernization Act or other more recent legislation may result in a similar reduction in payments from private payors.
In March 2010, former President Obama signed into law the Health Care Reform Law, a sweeping
law intended 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. Effective October 1, 2010, the Health Care Reform Law revises
the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid
drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription
drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices
with health care practitioners. We will not know the full effects of the Health Care Reform Law until applicable federal and state
agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform
Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and
may also increase our regulatory burdens and operating costs. In addition, with the new Administration and Congress, there will
likely be additional administrative or legislative changes, including modification, repeal, or replacement of all, or certain provisions
of, the ACA. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that
authorizes the implementation of legislation that would repeal portions of the ACA. The Budget Resolution is not a law; however,
it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the ACA. Further,
on January 20, 2017, President Trump 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.
At the same time, Congress has focused on additional legislative changes, including in
particular repeal and replacement of certain provisions of the ACA. For example, with enactment of the Tax Cuts and Jobs Act of
2017, in December 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most
Americans to carry a minimal level of health insurance, will become effective in 2019. According to the Congressional Budget Office,
the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets
may rise. Further, each chamber of the Congress has put forth multiple bills designed to repeal or repeal and replace portions
of the ACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal
and replace elements of the ACA. The Congress will likely consider other legislation to replace elements of the ACA, during the
next Congressional session.
The Trump Administration has also taken executive actions to undermine or delay implementation
of the ACA. In January 2017, President Trump 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 October 2017, the President signed a second Executive Order allowing for the use of association health plans
and short-term health insurance, which may provide fewer health benefits than the plans sold through the ACA exchanges. At the
same time, the Administration announced that it will discontinue the payment of cost-sharing reduction (CSR) payments to insurance
companies until Congress approves the appropriation of funds for such CSR payments. The loss of the CSR payments is expected to
increase premiums on certain policies issued by qualified health plans under the ACA. A bipartisan bill to appropriate funds for
CSR payments was introduced in the Senate, but the future of that bill is uncertain.
The costs of prescription pharmaceuticals in the United States has also been the subject
of considerable discussion in the United States, and members of Congress and the Administration have stated that they will address
such costs through new legislative and administrative measures. The pricing of prescription pharmaceuticals is also subject to
governmental control outside the United States. In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries,
we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available
therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory
levels, our ability to generate revenues and become profitable could be impaired.
Legislative and regulatory proposals have been made to expand post-approval requirements
and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes
will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes
on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. 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.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or
BPCIA, as part of the Health Care Reform Law, an abbreviated pathway for the approval of biosimilar and interchangeable biological
products was created. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar
biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing
brand product. Under the BPCIA, an application for a biosimilar product cannot be submitted to the FDA until four years, or approved
by the FDA until 12 years, after the original brand product identified as the reference product was approved under a BLA. The new
law is complex and is only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation
and meaning is subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such
processes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that if any of our product candidates were to be approved as biological products
under a BLA, such approved products should qualify for the four-year and 12-year periods of exclusivity. However, there is a risk
that the U.S. Congress could amend the BPCIA to significantly shorten these exclusivity periods as proposed by President Obama,
or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating
the opportunity for generic competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will
be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
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 radioactive 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.
Risks Related to Organizational Employee Matters
Our future success depends on our ability to retain our chief executive officer
and other key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Jeffrey Abbey, our president and chief executive officer,
Charles Nicolette, our vice president of research and development and chief scientific officer, and Richard Katz, our vice president
and chief financial officer, as well as the other principal members of our management and scientific teams. Although we have formal
employment agreements with each of our executive officers, these agreements do not prevent our executives from terminating their
employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.
The loss of the services of any of these persons could impede the achievement of our research, development and commercialization
objectives.
Recruiting and retaining qualified personnel is critical to our success. We may not
be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology
companies for similar personnel, our decision to terminate development of rocapuldencel-T, the workforce reduction plans that
we have conducted, the delisting of our common stock by the Nasdaq Capital Market and our limited cash resources. We also experience
competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely
on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development
and commercialization strategy. 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.
Risks Related to Our Common Stock
Our executive officers, directors, affiliates of all officers and directors and
other of our affiliates who own our outstanding common stock have the ability to significantly influence matters submitted to stockholders
for approval.
Our executive officers, directors, affiliates of our executive officers and directors
and other of our affiliates beneficially own, in the aggregate, shares representing approximately 20.03% of our outstanding common
stock as of May 8, 2018. As a result, if these stockholders were to choose to act together, they would be able to significantly
influence matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons,
if they choose to act together, could significantly influence the election of directors and approval of any merger, consolidation
or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of
our company on terms that other stockholders may desire.
Our largest stockholder, Pharmstandard, could exert significant influence over
us and could limit your ability to influence the outcome of key transactions, including any change of control.
Our largest stockholder, Pharmstandard, beneficially owns, in the aggregate, shares representing
approximately 14.23% of our outstanding common stock as of May 8, 2018. Pharmstandard is also the holder of the $6.0 million principal
amount of a secured convertible note that we issued in June 2017, although the ability of Pharmstandard to exercise its conversion
option is limited to the extent such exercise would cause Pharmstandard’s ownership in our Company to exceed 39.9%. In addition,
two members of our board of directors are closely associated with Pharmstandard. As a result, we expect that Pharmstandard will
be able to exert significant influence over our business. Pharmstandard may have interests that differ from your interests, and
it may vote in a way with which you disagree and that may be adverse to your interests. The concentration of ownership of our capital
stock may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders
of an opportunity to receive a premium for their common stock as part of a sale of our company and may adversely affect the market
price of our common stock.
Provisions in our corporate charter documents and under Delaware law could make
an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders
to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a
merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which
you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing
to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because
our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent
any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace
members of our board of directors. Among other things, these provisions:
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establish a classified board of directors such that not all members of the board are elected at one time;
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allow the authorized number of our directors to be changed only by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from the board;
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establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
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limit who may call stockholder meetings;
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authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
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require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
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Moreover, because we are incorporated in Delaware, we are governed by the provisions
of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting
stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired
in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
An active trading market for our common stock may not be sustained, and investors may not be able to resell
their shares at or above the price they paid. In addition, our common stock has been delisted from The Nasdaq Capital Market
and now trades on the OTCQB
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Venture Market,
which could decrease the liquidity of our common stock and our ability to raise additional capital.
On April 23, 2018, we received a notification from The Nasdaq Stock Market LLC indicating that, because we
indicated that we would be unable to meet the stockholders’ equity requirement for continued listing as of the April 24,
2018 deadline that had been set by the Nasdaq Hearing Panel, the Nasdaq Hearing Panel had determined to delist our common stock
from The Nasdaq Capital Market and to suspend trading in our common stock effective at the open of business on April 25, 2018.
Following such delisting, we transferred our common stock to the OTCQB® Venture Market (the “OTC Market”). Trading
on the OTC Market
is likely to make it more difficult
for us to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or
obtain accurate quotations as to the market value of, the common stock and could result in a decrease in the trading price of our
common stock. We may also face other material adverse consequences as a result of our common stock being listed on the OTC Market,
such as negative publicity, a decreased ability to obtain additional financing, delays in the timing of transactions, reduction
in security analysts' and the new media's coverage of us, diminished investor and/or employee confidence, and the loss of business
development opportunities, some or all of which may contribute to a further decline in our stock price. In addition, there can
be no assurance that our common stock will remain eligible for trading on the OTC Market.
If our stock price continues to be volatile, purchasers of our common stock could
incur substantial losses.
Our stock price has been volatile. For example, our stock has traded in a range from a low price per share
of $0.17 and a high price per share of $113.66 during the period of from January 1, 2017 through May 8, 2018 on a post-split adjusted
basis. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility
that has often been unrelated to the operating performance of particular companies.
In addition,
the market prices for securities listed on the OTC Market have been volatile and such securities have experienced sharp share price
and trading volume changes. The market price for our common stock may be influenced by many factors, including:
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results of clinical trials of AGS-004 or any product candidate we may develop, or those of our competitors;
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the success of competitive products or technologies;
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potential approvals of any product candidate we may develop for marketing by the FDA or equivalent foreign regulatory authorities or our failure to obtain such approvals;
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regulatory or legal developments in the United States and other countries;
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the results of our efforts to commercialize any product candidate we may develop;
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developments or disputes concerning patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to any of our product candidates or clinical development programs;
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the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts’ reports or recommendations;
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general economic, industry and market conditions; and
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the other factors described in this “Risk Factors” section.
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In addition, pharmaceutical companies have experienced significant share price volatility
in recent years, and securities class action litigation, shareholder derivative litigation, or other proceedings often follow a
decline in the market price of a company’s securities. For instance, in March 2017, a purported stockholder of our company
filed a putative class action lawsuit against us, our chief executive officer, our chief financial officer, and our vice president
of finance generally alleging that the defendants violated the federal securities laws by, among other things, making material
misstatements or omissions concerning the progress of the ADAPT Phase 3 clinical trial of rocapuldencel-T, the planned biologics
licensing application for rocapuldencel-T and the prospects for approval. This matter was dismissed in September 2017. If we face
such litigation or proceedings, it could result in substantial costs and a diversion of management’s attention and resources.
We will continue to incur increased costs as a result of operating as a public
company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance
practices.
As a public company, and particularly after we are no longer an emerging growth
company, we will continue to incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002, the
Dodd-Frank Wall Street Reform and Consumer Protection Act, and other applicable securities rules and regulations impose
various requirements on public companies, including establishment and maintenance of effective disclosure and financial
controls and corporate governance practices. Our management and other personnel will need to continue to devote a substantial
amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial
compliance costs and make some activities more time-consuming and costly.
We cannot predict or estimate the amount of additional costs we may incur to continue
to operate as a public company, nor can we predict the timing of such costs. These rules and regulations are often 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 which could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish
a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company,
we will not be required to include an attestation report on internal control over financial reporting issued by our independent
registered public accounting firm. To achieve compliance with Section 404 of the Sarbanes-Oxley Act of 2002 within the prescribed
period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly
and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants
and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps
to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement
a continuous reporting and improvement process for internal control over financial reporting. If we identify one or more material
weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our
financial statements.
We are an “emerging growth company,” and the reduced disclosure requirements
applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and may
remain an emerging growth company for up to five years following our initial public offering in February 2014. For so long as we
remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are
applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, not being required to comply with any
requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement
to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure
obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. In our Annual Report on Form 10-K
for the year ended December 31, 2017, we did not include all of the executive compensation related information that would be required
if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we
rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading
market for our common stock and our stock price may be more volatile.
In addition, the JOBS Act provides that an emerging growth company can take advantage
of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company
to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have
irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be
subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Because we do not anticipate paying any cash dividends on our capital stock in
the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend
to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of
future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will
be your sole source of gain for the foreseeable future.
If securities or industry analysts do not publish research or publish inaccurate
or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock will depend on the research and reports that securities or industry
analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts
will cover us,
particularly given that our common stock is listed in the OTC Market. Even if we obtain
coverage, there can be no assurance the coverage will be favorable. If one or more analysts downgrade our stock or change their
opinion of our stock to be less favorable, our share price would likely decline. In addition, if one or more analysts cease coverage
of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause
our share price or trading volume to decline.