Item
1.
Business
Overview
of Business
We
are a biotechnology company focused on the development and commercialization of novel therapeutics targeting human aging. Our
mission is to apply our comprehensive experience in fundamental biological processes of human aging to a broad range of age-associated
medical conditions. We believe that demand for therapeutics addressing such conditions is on the rise, commensurate with the demographic
shift of aging in the United States and many other industrialized countries.
Our
proprietary technology, based on telomerase-mediated cellular immortality and regenerative biology, allows us to utilize telomerase-expressing
regenerative pluripotent stem cell (“PSCs”) for the manufacture of cell-based therapies to regenerate tissues afflicted
with age-related chronic degenerative disease. We own or have licenses to a number of patents and patent applications used in
the generation of these product candidates including intellectual property related to PSC-derived clonal embryonic progenitor
cell lines (
PureStem
®
technology) and
HyStem
®
delivery matrices.
Our product candidates
are in discovery stage: They include two cell-based therapies derived from telomerase-positive PSCs and one product
candidate derived from our proprietary induced Tissue Regeneration (iTR
TM
) technology. We will need to conduct
research and development work as part of our plan to develop these cell- and drug-based therapies, each targeting large
unmet needs in age-related medicine.
Additional
Information
AgeX
is incorporated in the State of Delaware. Our common shares trade on the NYSE American Stock Exchange under the symbol “AGE.”
Our principal executive offices are located at 1010 Atlantic Avenue, Suite 102, Alameda, CA 94501, and our phone number at that
address is (510) 871-4190. Our website address is www.AgeXinc.com. The information on, or that can be accessed through
our website is not part of this Report. We also make available, free of charge through our website, our most recent annual report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably
practicable after the reports are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).
Renelon
TM
,
iTR
TM
, and UniverCyte
TM
,
are trademarks of AgeX Therapeutics, Inc.
HyStem
®
and
PureStem
®
are registered trademarks of BioTime, Inc.
GeneCards
®
is a registered
trademark of Yeda Research and Development Co. Ltd.
Emerging
Growth Company
We
are an “emerging growth company” under the
Jumpstart our Business Startups Act
of 2012 or the
JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other
requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions
include:
|
|
●
|
reduced
disclosure about our executive compensation arrangements;
|
|
|
|
|
|
|
●
|
no
non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; and
|
|
|
|
|
|
|
●
|
exemption
from the auditor attestation requirement in the assessment of our internal control over financial reporting.
|
We
will remain an “emerging growth company” until the earliest of: (i) the last day of the fiscal year in which we have
total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of
the
date of the first sale of our common equity
securities pursuant to an effective registration statement under the Securities Act of 1933,
as
amended; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the previous three
years; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act
of 1934, as amended.
The
JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting
standards applicable to public companies. However, we have elected to comply with newly adopted or revised accounting standards
when they become applicable to public companies because our financial statements were previously consolidated with those of our
former parent company BioTime, Inc. which is not an emerging growth company under the JOBS Act and is therefore not permitted
to delay the adoption of new or revised accounting standards that become applicable to public companies. This election under the
JOBS Act to not delay the adoption of new or revised accounting standards is irrevocable.
Overview
of Our Opportunity in Age-Related Diseases
Aging
is one of the most significant demographic trends of our time. As shown in Figure 1, the U.S. Census Bureau projects a sharp rise
in the number of Americans over 80 years of age, with a marked inflection point occurring between the years 2020 and 2030.
Figure
1. Projected increase in the numbers of the U.S. population over 80 years of age (U.S. Census Bureau)
This
demographic shift associated with 76 million aging baby boomers poses a significant challenge to our healthcare system and
our economy as a whole. The unsolved problem relates to the fact that chronic conditions account for some 80% of total health
care expenditures in the United States and the elderly have a higher prevalence of chronic degenerative disease than the young.
Approximately 80% of older adults have one chronic disease, and 68% have two or more.
Our
technology platforms reflect over 25 years of research and development in cell immortality and regenerative medicine. It
is designed to address some of the largest unmet needs of an aging population by translating state-of-the-art laboratory science
relating to aging into therapeutic biologicals, drugs, and devices.
Overview
of Our Product Candidates
Our
Pipeline
Our
product pipeline includes two cell-based and one drug-based therapeutic product candidates in development. It also includes
currently-marketed online database products and research products outlined in Figure 2.
Figure
2. The AgeX product pipeline. IHD (Ischemic Heart Disease), T2D (Type II Diabetes), CHF (Congestive Heart Failure).
Our
lead cell-based therapeutic candidates in development are AGEX-BAT1 and AGEX-VASC1:
|
|
●
|
AGEX-BAT1
is our lead cell therapy product candidate in the discovery stage of development
utilizing PSC-derived brown adipocytes for the treatment of certain age-related metabolic
disorders such as Type II (adult-onset) diabetes.
|
|
|
|
|
|
|
●
|
AGEX-VASC1
is a cell-based therapy in the discovery stage of development comprised of young regenerative vascular-forming cells.
AGEX-VASC1 may restore vascular support in aged ischemic tissues such as the ischemic heart.
|
Our lead drug-based
therapeutic candidate in discovery is AGEX-iTR1547
:
|
|
●
|
AGEX-iTR1547 is a drug-based
formulation in the discovery stage of development intended to potentially restore
regenerative potential in a wide array of aged tissues afflicted with degenerative disease
using our proprietary iTR technology.
|
Our
currently marketed research and database products include cGMP ES Cells (human embryonic stem or “hES”) cells produced
under current good manufacturing practices (or “cGMP”), PSC-derived cells for research, and our
GeneCards
Database Suite:
|
|
●
|
cGMP
PSC lines and PSC-derived cells for research: Through our ESI BIO division, we market cGMP PSC lines as well as PSC-derived
cells.
|
|
|
|
|
|
|
●
|
GeneCards
Database Suite: Through our subsidiary
LifeMap Sciences, Inc. (“LifeMap Sciences”), we currently market genomic interpretation algorithms
and
analysis tools for use by researchers at pharmaceutical and biotechnology companies and other institutions through paid subscriptions
or on a fee-per-use basis
.
|
Technology
Platforms
The
technology underlying our product development programs is based on telomerase-mediated cellular immortality and regenerative biology.
By “telomerase-mediated cellular immortality” we refer to the fact that cells that express sufficient levels of a
protein called telomerase are capable of replicating without limit. By “regenerative biology,” we refer to novel methods
to regenerate tissues afflicted with age-related chronic degenerative disease such as coronary disease, heart failure, and age-related
metabolic disorders such as those associated with Type II diabetes, osteoarthritis, or Parkinson’s disease, as well as others.
We utilize telomerase-expressing regenerative Pluripotent Stem Cells, or PSCs, for the manufacture of cell-based therapies. We
own or have licensed numerous patents and patent applications covering methods and compositions relating to this technology platform.
Background
of Human Aging
Cell
Immortality
There
is a growing consensus in the scientific community that human aging is due in large part to the aging of individual cells in the
various tissues of the body (somatic cells). In contrast, the reproductive lineage of cells (germ-line) perpetuate the human species
from generation-to-generation without limit and continue to generate new people over the millennia.
In
1961, Dr. Leonard Hayflick first reported that normal human cells in the body (unlike the germ-line) can proliferate for only
a finite number of times (typically fewer than 100 times). This phenomenon, known as the “Hayflick Limit”, “cell
mortality”, or “cellular aging”, is a normal property of somatic cells. In the 1990s, our CEO Dr. Michael D.
West founded a biotechnology company called Geron Corporation where his team isolated for the first time the human gene called
“Telomerase Reverse Transcriptase” or “telomerase.” In 1998, Geron scientists in collaboration with scientists
at the University of Texas Southwestern Medical Center at Dallas, published the result that telomerase could stop the aging of
human cells, or could “immortalize” them.
Figure
3. The Germ-line/soma dichotomy wherein germ-line cells express telomerase, maintain telomere length, and exhibit replicative
immortality, while body (somatic) cells lack telomerase, showing progressive telomere shortening until they reach the Hayflick
limit.
In
1994, Dr. West’s group demonstrated through an assay for measuring telomerase activity that nearly 90% of cancer
cell types cultured in the laboratory or tumors surgically removed from patients abnormally express telomerase. This broke the
then dogma that there was no common mechanism at work in cancer. Scientists have concluded that cell mortality, while being detrimental
in old age, benefits us early in life by helping to repress cancer cell growth. Figure 3 illustrates this dichotomy wherein immortal
cells such as the germ-line cells that perpetuate the species are immortal through telomerase activity while body (somatic) cells
lack telomerase expression, and as a result show progressive telomere shortening and a finite lifespan (are mortal).
The
Weismann Barrier
Early
in the evolution of life, primitive unicellular and even multicellular organisms may have lacked programmed aging as a result
of the potential of their cells having the potential for both replicative immortality and regeneration. However, in more complex
animals such as mammals, somatic cells lose not only replicative immortality, but after most organ systems are formed during embryonic
development, they also lose full regenerative potential. This repression of both telomerase-mediated cell immortality and regeneration
potential is called the “Weismann Barrier” (see Figure 4).
Figure
4. The Weismann Barrier coincides with the loss of both replicative immortality and regeneration. Levels of expression of the
gene
COX7A1
provide a useful marker of the loss of regenerative potential.
PSCs
represent the earliest stages of human development and are the first normal human cells cultured in the laboratory that display
both telomerase-mediated replicative immortality and regenerative potential. Therefore, our scientists utilized these cells as
well as the primitive regenerative cells derived from them, called “
PureStem
®
” cell lines, in
research where they were compared to diverse adult cells on the mortal side of the Weismann barrier to uncover the mechanisms
regulating the loss of regenerative potential. Artificial intelligence algorithms were used to parse millions of gene expression
data points and the results were published in late 2017
.
Figure 4 shows the Weismann
Barrier and the associated rise of a gene expression marker of the non-regenerative state designated
COX7A1
. This proprietary
marker, along with other insights obtained from the research, provides us with a window into this biology and a means of screening
for agents capable of restoring a regenerative state to old nonregenerative cells. It is anticipated that such agents may not
only reset the pattern of gene expression in adult cells back to that their regenerative counterparts but may also induce tissue
regeneration when applied
in vivo
in the context of age-related degenerative disease. Since the previously mentioned 2017
publication described the re-emergence of the regenerative phenotype in the majority of cancer cell lines, the discoveries may
open the door to potentially important diagnostic and therapeutic implications as well.
Pluripotent
Stem Cells (PSCs)
Figure
5. Pluripotent Stem Cells (PSCs) possess both telomerase-mediated replicative immortality and regenerative potential, capable
of producing all human cell types.
In
an effort to utilize telomerase-mediated immortality and regenerative biology in the development of novel therapeutics, in the
mid-1990s, Dr. West, organized a collaboration with Drs. James Thomson, John Gearhart, and Roger Pedersen that led to the first
isolation of PSCs. In contrast to other types of cells, PSCs are unique by at least two important criteria. The first criterion
relates to the ability of pluripotent cells to proliferate, or make more copies of themselves, indefinitely, that is to say, they
are “immortal”. The second relates to the ability of PSCs to differentiate into any of the hundreds of specialized
cell types in the body. This replicative immortality of PSCs facilitates the industrial scalability of product. We believe that
many of these cell types have potential for regenerating function in tissues damaged by degenerative diseases when transplanted.
A small sampling of these cell types is shown in Figure 5. Unlike PSCs, adult stem cells typically have severely-reduced scale-up
potential (are mortal unlike immortal PSCs), and have passed the Weismann Barrier, and are therefore limited in their ability
to regenerate normal tissue when transplanted
in vivo
. Therefore, we believe that PSC
-
based cellular therapeutics
have significant competitive advantages over cell-based therapeutics being developed by many adult stem cell companies.
Our
Technology Platforms
PureStem
®
Technology
Regulatory
approval of cell- and tissue-based products require high standards of quality control. In the case of stem cell-derived products,
there is a high standard for insuring the known identity, purity, and reproducibility of the cells to be administered. PSCs provide
certain advantages over adult stem cell products when used in the manufacture of cell-based therapeutics for the treatment of
age-related disease. These advantages include:
|
|
●
|
The
replicative immortality of the PSCs which facilitates the indefinite scale-up of PSC master cell banks for the manufacture
of uniform product, as well as an immortal substrate for targeted genetic modifications.
|
|
|
|
|
|
|
●
|
Since
most PSCs maintain long and stable telomere lengths, the replicative capacity of derived differentiated cell types is typically
longer (younger) than adult or even fetal-derived cells.
|
|
|
|
|
|
|
●
|
Using
PureStem
®
technology, it is possible to clonally expand hundreds of purified, identified, and reproducibly
scalable cell types that retain regenerative potential (have not passed the regeneration limit).
|
PureStem
®
technology is based on the observation that embryonic anlagen of many tissues in the human body are naturally comprised
of highly proliferative cells with relatively long telomere length. Therefore, it is possible to generate clonal lineages of these
cells
in vitro.
Cells derived from adult tissues commonly permanently cease to divide after a certain number of doublings,
a condition known as senescence. In addition, adult and even fetal tissues largely contain differentiated cells often with
limited or no capacity of replication
in vitro
. As a result, the clonal expansion of human embryonic progenitor cell types
allows not only a novel and more facile point of scalability but also generates populations of cells that are multipotent instead
of pluripotent, and therefore markedly easier to define identity, purity, and potency.
We
have studied the fate of over 200 diverse
PureStem
cell lines in thousands of differentiation conditions. This was accomplished
by thawing individual cryopreserved
PureStem
cell lines, culturing them in the laboratory, and then exposing the cells
to factors that differentiate cells such as protein growth and differentiation factors, hormones, and small molecules implicated
in causing cells to change from one type of cell into another (differentiation). Using individual cells from the over 200 diverse
PureStem
cell lines previously isolated and cryopreserved, we treated the diverse cells with thousands of differentiation
conditions, prepared RNA, and determined the gene expression pattern of the cells using gene expression microarrays. These experiments
have shown that the
PureStem
cell lines display site-specific markers that identify not only the type of cells, but also
where in the body the cells would normally reside. Therefore, in the example of cartilage cells, it was possible to produce diverse
types of cartilage in this manner. We have licensed from BioTime
PureStem
applications outside of orthopedics, medical
aesthetics, and certain ophthalmological applications.
We
have chosen two
PureStem
applications for our initial product development based on unmet medical need along with other
factors. The first product candidates are Brown Adipose Tissue (BAT) cells for the treatment of metabolic disorders such as obesity
or Type II diabetes, and vascular endothelial progenitors for the treatment of age-related ischemic disease such as that leading
to myocardial ischemia and infarction. These cells will be formulated in a delivery matrix designated
HyStem
®
to promote viability of the graft as well as to localize the cells to the intended site in the body. See “—Overview”
and “—Our Target Market.”
HyStem
®
Delivery Technology
HyStem
®
is a patented biomaterial that mimics the extracellular matrix that is the structural network of macromolecules surrounding
cells in the body. The extracellular matrix is essential for normal cellular function and survival of transplanted cells. Many
tissue engineering and regenerative cell-based therapies are expected to benefit from the delivery of therapeutic cells in a matrix
for precise localized delivery and survival.
HyStem
is a unique hydrogel that has been shown to support cellular attachment
in vivo.
Current research at medical institutions has shown that
HyStem
is compatible with a wide variety
of cells and tissue types including those of the brain, bone, skin, cartilage, vascular system and heart. The technology underlying
HyStem
hydrogels was developed at the University of Utah and was been exclusively licensed to BioTime for human therapeutic
applications and sublicensed to AgeX for certain fields. The
HyStem
technology is based on a unique thiol cross-linking
chemistry to prepare hyaluronan-based matrices as hydrogels. Since the first published report in 2002, there have been numerous
academic scientific publications supporting the biocompatibility of thiol cross-linked hyaluronan-based matrices and their applications
as medical devices and in cell culture, tissue engineering, and animal models of cell-based therapies.
Figure
6. AgeX plans to utilize the
HyStem
technology for the delivery of cell-based therapeutics.
Due to the unique cross-linking
chemistry,
HyStem
matrices have the ability to be safely combined with living cells and subsequently injected or applied
locally as a hydrogel which allows the gel to conform to the three-dimensional contour of a tissue. Building upon this platform,
we initially plan to use
HyStem
for cell-based therapy.
The
building blocks for
HyStem
hydrogels may vary with the application but typically include combinations of hyaluronan, gelatin,
or heparin, each of which has been thiol-modified. Hydrogels are formed by cross-linking mixtures of these thiolated macromolecules
with polyethylene glycol diacrylate (PEGDA). The rate of gelation and the hydrogel stiffness can be controlled by varying the
amount of cross-linker. An important attribute of
HyStem
hydrogels is their large water content, over 98%. As a result,
these hydrogels have a high permeability for oxygen, nutrients, and other water-soluble metabolites.
Products
and Product Candidates
Our
Therapeutic Product Candidates
AGEX-BAT1
- Brown Adipose Tissue (BAT) Progenitors
Brown
Adipose Tissue (BAT) is abundant early in life but lost precipitously with age. This tissue is believed to generate heat through
expression of a gene called
UCP1.
In addition, the high levels of glucose and lipid uptake by the tissue is believed to
balance metabolism in young people. In contrast, central obesity and Type II diabetes has been correlated with low levels of BAT.
Figure
7. Human tissue-derived BAT cells (left) stained red for the presence of UCP1 show a minority of cells being true BAT cells.
PureStem
-derived
AGEX-BAT1 cells are uniformly UCP1 positive.
The demonstration in
published literature in the public domain that the transplantation of BAT from young mice to obese diabetic mice resulted
in weight loss and increased insulin sensitivity has led to a search for a source of industrially-scalable clinical grade BAT
cells as well as an appropriate matrix for lipotransfer. There currently is no FDA-approved matrix for cell transplantation. However,
BioTime has completed a pivotal clinical trial of
HyStem
being developed as a replacement for whole adipose tissue in cell-assisted
lipotransfer procedures. Therefore, we believe
HyStem
can be used for the delivery of BAT cells produced
using
PureStem
technology. As shown in Figure 7, the
AGEX-BAT1
progenitors strongly express the BAT marker UCP1
when induced to differentiate and show a relatively high degree of purity compared to human tissue-derived BAT.
AgeX is currently optimizing
process development for the initiation of preclinical development of the use of AGEX-BAT1.
AGEX-VASC1
- Vascular Progenitors
PureStem
technology can also yield highly purified embryonic vascular components. As shown below, select clonal lines express markers
such as VE-Cadherin (CDH5) and PECAM1, as well as VWF and other markers of venous, arterial, and lymphatic endothelium. Flow cytometry
shows purity indistinguishable from 100%.
In
addition to vascular endothelial cells, we have characterized vascular smooth muscle cell progenitors. This makes it possible
for us to construct two of the key cellular components of arterial vessels, such as those compromised in coronary artery disease.
Figure
8.
PureStem
-derived vascular endothelial cell lines are capable of regenerating young vasculature (bottom left) and appear
to have essentially 100% purity by FACs analysis.
HyStem
hydrogels have been successfully used as a cell delivery matrix for endothelial progenitor cells to re-establish vasculature
in hind limb ischemia models. Therefore, AgeX is currently optimizing process development for planned animal preclinical testing
of AgeX-VASC1 formulated in
HyStem
for delivery into ischemic heart tissue to regenerate collateral circulation.
AGEX-iTR1547
— Induced Tissue Regeneration (iTR
TM
)
Leveraging
our assets in pluripotency and bioinformatics, we have performed research manipulating cellular immortality and regenerative biology
in human cells. In 2010, BioTime demonstrated the reversal of the developmental aging of human cells using transcriptional reprogramming
technology. In 2017, we published certain markers of the Weismann barrier, and the high prevalence of a reversion back before
the Weismann barrier in diverse cancer cell types cultured
in vitro
.
We
extended this research to determine whether reprogramming can be modified to only reverse the aging of cells back before the Weismann
Barrier, not back to pluripotency or transforming the cells into malignant counterparts. We have utilized for example the gene
COX7A1
as a marker of cells that have lost regenerative potential (crossed the Weismann Barrier).
As shown in Figure 9, our proprietary
formulation AGEX-iTR1547 has demonstrated initial capability of reducing the expression of the marker gene
COX7A1
back
to before the Weismann Barrier without reverting the cells to pluripotency. When implemented
in vivo
, this partial reprogramming,
or iTR, would be expected to induce tissue regeneration, and when combined with telomerase, could modulate both cellular immortality
and regenerative biology for therapeutic effect. We are performing research to optimize AGEX-iTR1547 in order to initiate preclinical
studies of the agent on the scarless regeneration of the heart during congestive heart failure.
Figure
9. PSCs such as ES Cells and
PureStem
EP Cells display a regenerative capacity like cells that have not cross the Weismann
Barrier. During pre- and post-natal development, skin cells become increasingly incapable of scarless regeneration as reflected
in increasing
COX7A1
expression. iPS cell reprograming reverts cells back to pluripotency, while AgeX-iTR1547 reverts cells
back only to a point prior to the Weismann Barrier (regenerative state).
Status
and Development Plan
The
product candidates we are developing are in the discovery stage of development. Prior to filing an Investigational New Drug (IND)
application for the initiation of clinical trials of our initial product candidates, AGEX-BAT1, AGEX-VASC1, and AGEX-ITR1547,
we will need to complete discovery-level research for the qualification of reagents used in the manufacture of the product, complete
the standard operating procedures to be used (SOPs), complete the methods and documentation for characterization of the product,
produce and test the genetic modifications in the master cell banks of the pluripotent stem cells under current Good Manufacturing
Practices (cGMP) in order to produce product that will not illicit immune rejection following transplantation. In addition, we
will be required to expand the numbers of the pluripotent stem cell master cell banks for future use, as well as produce working
cell banks from which the product will be manufactured for clinical trials, produce the relevant product under cGMP conditions,
expand the number of relevant cells and cryopreserve them under cGMP conditions. In addition, we will be required to design the
pre-clinical studies including the study endpoints, perform biosafety testing and release the first clinical batch based on preliminary
characterization results, and complete full product characterization. Biosafety testing will necessarily include pilot testing
in animals such as (NOD/SCID) mice, dosing spiking studies at early and later endpoints, tumorgenicity and biodistribution studies
to determine whether the cells form undesired tumors or migrate to inappropriate sites respectively in the animal. Lastly, we
will need to define the clinical trial and regulatory strategy and hold Pre-Pre-IND and Pre-IND meetings with the Food and Drug
Administration (FDA), as well as successfully submit an IND to the FDA and receive clearance to begin trials. Thereafter, we will
need to demonstrate safety and efficacy of the product in human clinical trials in Phase I and II trials, and continued safety
and efficacy for achieving the desired endpoint in Phase III trials, potentially then leading to product registration. See “Risk
Factors — Risks Related to Our Business Operations” for discussion of risks relating to our preclinical development
and clinical trials. These include, but are not limited to, failure to successfully complete the aforementioned studies due to
the failure of the product, processes, or skills of our employees, unforeseen delays in the development process, failure to raise
requisite financing, or failure to receive permission from the FDA to advance product development.
Because
our product candidates are still in the discovery stage, our choice of product candidates and development plans are subject
to change based on a variety of factors. We may determine to abandon the development of one or more of our product
candidates, or we may prioritize the development of one or more product candidates, or we may select or acquire and
prioritize the development of new product candidates. Our choice and prioritization of product candidates for development
will be influenced by a variety of factors, including but not limited to:
|
|
●
|
Results
of our laboratory research and any animal and clinical trials that we may conduct;
|
|
|
|
|
|
|
●
|
Our
analysis of third party competitive and alternative technology that may lead us to conclude that our product candidates or
technologies may be non-competitive or obsolete;
|
|
|
|
|
|
|
●
|
Our
analysis of market demand and market prices for the products we plan to develop could lead us to conclude that market conditions
are not favorable for receiving an adequate return on our investment in product development and commercialization;
|
|
|
|
|
|
|
●
|
The
amount of capital that we will have for our development programs and our projected costs for those programs;
|
|
|
|
|
|
|
●
|
The
issuance of patents to third parties that might block our use of the same or similar technology to develop a product candidate; and
|
|
|
|
|
|
|
●
|
The
views of the FDA and comparable foreign regulatory agencies on the pre-clinical product characterization studies required
to file an IND in order to initiate human clinical testing of a therapeutic product candidate or to attain marketing approval
for that product candidate, or to obtain an investigational device exemption for clinical trials, or clearance for a 510(k)
application to market a medical device.
|
Other
Products
Other
Potential iTR Applications
An
additional first generation iTR product candidate that we may develop is
Renelon
TM
, which utilizes a repurposed
drug, valproic acid, formatted in a hyaluronic acid based medium.
Renelon
would not be capable of fully transporting cells
back to a regenerative state. However, our gene expression analysis of valproic acid on adult-derived human skin cells and published
reports in the scientific literature on the anti-fibrotic effects of valproic acid provide scientific support of the potential
use of
Renelon
to impart scarless tissue repair in the treatment of wounds or in surgical uses. Although valproic acid
has been approved for medical use and is available as a generic drug for certain uses, it has not been approved for the uses we
may explore and
Renelon
has not been used in clinical trials for the treatment of wounds or in surgical or other tissue
repair applications. It is possible that
Renelon
, if developed, could be regulated as a medical device rather than as a
drug for the use we contemplate, but there is no certainty that the FDA will consider
Renelon
to be a device.
We
believe that iTR may also have applications in the diagnosis and treatment of cancer. We have filed patents on methods of both
inducing iTR in cells and maturing them and some of these methods may provide novel diagnostic and therapeutic strategies for
cancer.
Online
Database Products
We,
through our subsidiaries LifeMap Sciences and LifeMap Sciences Ltd, which are collectively referred to as LifeMap Sciences, conduct
operations in the U.S. and Israel to commercialize the
GeneCards
Database Suite, which includes the relational databases
GeneCards
®
and
MalaCards
TM
licensed from the Yeda
Research
and Development Company Ltd., the technology transfer company of the
Weizmann
Institute
of Science in Rehovot, Israel. The
GeneCards
Database Suite had approximately 3.5 million unique users in 2017 from diverse
academic and commercial institutions. LifeMap Sciences obtains revenues from advertising as well as subscriptions from commercial
entities. LifeMap Sciences also is building a product designated
TGex
TM
, which provides reports generated by
the
GeneCards
knowledgebase intended for use by health care institutions and containing condensed information on particular
genomic profiles of patients.
ESI
BIO Research Products
We,
through our ESI BIO research product division, market a number of products related to pluripotent stem cells including, research-grade
as well as cGMP-grade human PSC lines. We plan to contract with third parties where the third parties to allow them to utilize
cGMP PSCl lines in defined fields of application in exchange for certain compensation including the payment of royalties to us
if they are successful in developing and commercializing a product.
Subsidiaries
As
of, and for the year ended December 31, 2018, AgeX consolidated the following subsidiaries:
|
Subsidiary
|
|
|
Field
of Business
|
|
AgeX
Ownership
|
|
|
Country
|
|
|
ReCyte
Therapeutics
|
|
|
Early stage pre-clinical
research and development involved in stem cell-derived endothelial and cardiovascular related progenitor cells for the treatment
of vascular disorders, ischemic conditions and brown adipocytes for type-2 diabetes and obesity
|
|
|
94.8
|
%
|
|
|
USA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LifeMap
Sciences
(1)
|
|
|
Biomedical, gene and disease databases
and tools
|
|
|
81.7
|
%
|
|
|
USA
|
|
|
|
(1)
|
LifeMap Sciences includes LifeMap Sciences, Inc.
and its wholly-owned subsidiary LifeMap Sciences, Ltd. an Israeli company.
|
|
|
|
|
|
|
|
All
material intercompany accounts and transactions between AgeX and its subsidiaries have been eliminated in consolidation.
|
Manufacturing
Our
success will depend in part on our ability to manufacture high quality cells, matrices, and small molecules. Unlike drug manufacturing,
this quality needs to be performed at the beginning of the process of using PSCs. Therefore, we have acquired from BioTime cGMP-compatible
stem cell lines. We currently
operate under a shared facilities agreement with BioTime, but we plan to sublease a facility at which we can establish a cGMP
laboratory suitable for manufacturing cell lines and our cell based product candidates. We also will require additional personnel
and contracted services to comply with quality manufacturing processes and controls.
Facilities
On
March 21, 2019, we entered into a sublease of an office and research facility (the “New Facility”) comprising
approximately 23,911 square feet of space in a building in an office and research park at 965 Atlantic Avenue, Alameda,
California. We plan to operate our principal offices and research laboratory at the New Facility. The commencement of
the sublease and our obligation to pay rent is subject to the conditions that the master landlord approves the sublease, our
plans for constructing certain laboratory improvements, and our use of certain reagents in our laboratory in the New Facility
(the “Preconditions”).
If
the Preconditions to the effectiveness of our sublease are satisfied, the New Facility will replace our use of the laboratory
and office facilities that have been provided by BioTime. BioTime has a lease of approximately
30,795
square feet of rentable space in two buildings located in an office park setting in Alameda, California. Under a Shared
Facilities and Services Agreement (the “Shared Facilities Agreement”) with BioTime, we have had use of approximately
2,239 square feet of allocated laboratory and office space at BioTime’s Alameda facility and use of approximately 18,000
square feet of common areas which we share with BioTime and its subsidiaries and affiliates in the same facility. BioTime’s
facilities do not provide us with laboratory space for the manufacture of cell lines or our cell based product candidates under
cGMP conditions.
If
the Preconditions to the sublease of the New Facility are not satisfied and our sublease does not go into effect, we will need
to find an alternative facility to lease for the manufacture of cell lines and our cell based product candidates under cGMP conditions
and there can be no assurance that we will be able to lease suitable facilities on acceptable terms. In the alternative, we may
seek to enter into manufacturing agreements with third parties that have suitable facilities and know-how to manufacture cell
lines and product candidate lots for us under cGMP conditions. However, there is no assurance that we will be able to enter into
contract manufacturing agreements on acceptable terms.
Commercialization
Plan
With
the exception of our research product sales which generate a trivial amount of revenues, we currently have no commercialized or
marketed products such as FDA-approved drugs in our portfolio. As a result, we have not yet assembled an infrastructure for sales
and marketing. At the point in time, if ever, that our product candidates approach clearance or approval, we plan to develop a
commercial plan that may initially include strategic marketing partnerships.
Intellectual
Property
Patents
and Trade Secrets
We
rely primarily on patents and contractual obligations with employees and third parties to protect our proprietary rights. We have
sought, and intend to continue to seek, appropriate patent protection for important and strategic components of our proprietary
technologies by filing patent applications in the U.S. and certain foreign countries. There are no assurances that any of our
intellectual property rights will guarantee protection or market exclusivity for our products and product candidates. We also
use license agreements both to access technologies developed by other companies and universities and to convey certain intellectual
property rights to others. Our financial success will be dependent, in part, on our ability to obtain commercially valuable patent
claims, to protect and enforce our intellectual property rights, and to operate without infringing upon the proprietary rights
of others if we are unable to obtain enabling licenses.
The
patents for our core programs are summarized below.
AGEX-BAT1
Brown
Adipose Tissue (BAT) Progenitor Cells
: The pending patent applications related to BAT progenitor cells, which are owned by
AgeX, include U.S. and international patent applications. The applications are directed to the differentiation of pluripotent
stem cells (including hES cells) into progenitor cell types capable of making the cellular components of brown fat. The patents
also describe culture and purification methods. The approximate expiration dates of the BAT patents, if issued, will range from
2034 to 2036. The AGEX-BAT1 product may also rely on the
HyStem
patents, which are described in detail below under the
heading “
HyStem
®
Technology
”.
AGEX-VASC1
Vascular
Progenitors:
The pending patent application pertaining to purified vascular progenitor cells and embryonic vascular components
are owned by AgeX or an AgeX subsidiary or licensed from BioTime. The patents include U.S. patent applications and are directed
to methods to enhance vascular tube networks, compositions of pericyte progenitor cells, compositions of exosomes containing angiogenic
molecules, compositions of vascular and lymphatic cells, and methods to culture and purify the cells or components thereof. The
approximate expiration dates of the vascular progenitor patents, if issued, range from 2032 to 2038. We plan to file an international
patent application claiming priority from a pending US provisional application by the filing deadline, which could lead to a patent
that if issued would expire in 2039. The AGEX-VASC1 product may also rely on the
HyStem
patents, which are described in
detail below, under the heading “
HyStem
®
Technology
”.
AGEX-iTR1547
Induced
Tissue Regeneration (iTR
TM
)
: The pending patent applications related to the iTR programs, which are owned by AgeX,
include applications pending, for example, in the United States, Australia, Canada, China, Europe, Japan and a pending international
patent application. These patent applications are directed to compositions and methods for healing damaged tissue using the iTR
treatment methods. The patent applications are also directed to treatment methods by regenerating aging tissue by modulating genes
involved in tissue regeneration, including reprogramming cells and tissues back to a regenerative state. The approximate expiration
dates of the iTR patents, if issued, will range from 2034 to 2039.
Other
AGEX Licensed and Sublicensed Patents
PureStem
®
Progenitor Cells:
The patents and pending applications related to our
PureStem
®
technology include
patents and applications in the United States, Canada, Europe and Australia. These patents are directed to methods for generating
diverse isolated progenitor cell lines which generally do not express
COX7A1
and combinations of other methods
for employing pluripotent stem cell lines suitable for clinical use. The pending applications are directed to clonally purified
human embryonic progenitor cell lines and methods for reproducible, large scale production of clonally purified human embryonic
progenitor cells, compositions and methods for generating diverse cell types, and assays useful in identifying hES cell
lines and pluripotent cells resulting from the transcriptional reprogramming of somatic cells that have embryonic telomere length.
The approximate expiration date of the
PureStem
®
issued patents is 2031 and the approximate date of expiration
of the pending patents, if issued, will range from 2029 to 2032.
The
PureStem
®
patent portfolio includes patents and pending applications licensed from Advanced Cell Technology,
Inc., which later became Ocata Therapeutics, Inc. (“Ocata”). The Ocata issued patents cover methods for reprogramming
animal differentiated somatic cells to undifferentiated cells and methods for producing differentiated progenitor cells using
morula-derived or inner cell mass cells from a blastocyst and expire from approximately 2020 to 2026. The Ocata pending applications
relate to methods for the derivation of cells that have a reduced differentiation potential using PSCs, methods for reprogramming
animal differentiated somatic cells to undifferentiated cells and methods for producing differentiated progenitor cells using
morula-derived or inner cell mass cells from a blastocyst. The Ocata pending patents, if issued, will expire between 2020 and
2026.
HyStem
®
Technology
: AgeX has a sublicense to the
HyStem
technology from BioTime and the technology was originally developed
by the University of Utah Research Foundation with patents issued in the United States, Canada, Switzerland, Germany, Spain, France,
UK, Ireland, Italy, Luxembourg, Monaco, Japan, Australia, and South Africa. The patents have claims covering compositions, pharmaceutical
compositions with living cells methods of crosslinking, methods of making, methods of administering the compositions, and the
use of the synthetic extracellular matrix in both research and clinical applications. The expiration dates of the
HyStem
®
patents range from 2023 to 2027.
ESI
Human Embryonic Stem Cell
(
hES
) Cell Lines: AgeX licenses rights to the ES Cell International Pte. Ltd. patent portfolio
with patents issued in the United States, Australia, Israel, UK, Singapore, Japan, and applications pending in the US and Europe.
The patents are directed to methods for the differentiation of or enhancing the differentiation of stem cells into cardiomyocytes,
neural cells, and pancreatic endoderm cells, compositions of pancreatic progenitor cells, methods of promoting the attachment,
survival and/or proliferation of substantially undifferentiated stem cells in culture, methods for identifying and selecting cardiomyocytes,
methods of freezing stem cells or progenitor cells, methods for identifying cardiogenic factors, compositions and methods for
modulating spontaneous differentiation of a stem cell, methods of modulating the differentiation of undifferentiated, pluripotent
human embryonic stem cells in culture, isolated endodermal progenitor cells, methods for transducing human embryonic stem cells,
cell culture systems. The pending applications are directed to methods for the differentiation of hES cells into the three cell
lineages, including for example cardiomyocytes, skeletal muscle cells, vascular endothelial cells, and pancreatic endoderm cells,
as well as, various culture and purification methods and compositions and methods of treatment. The ESI issued patents will expire
from 2019 to 2027, and the approximate date of expiration of the pending patents, if issued, will range from 2022 to 2027.
UniverCyte
(HLA-G) Technology:
In August 2018, we acquired from Escape Therapeutics patents and patent applications related to HLA-G-modified
cells and methods of generating allogeneic cells with reduced risk of being rejected by patients regardless of the HLA
class I haplotype. The patents and pending application related to our HLA-G modified cells technology include patents issued in
the United States, Australia and Japan and applications are pending in the United States, Australia, Canada, China, Europe, Japan,
Korea, and Singapore. The patents are directed to cells which are genetically modified to express a Human Leukocyte Antigen-G
(HLA-G) and have reduced immunogenicity and improved immunosuppression, and nucleic acid compositions useful for generating the
genetically modified cells. The pending applications are directed to compositions and methods for generating cells which are genetically
modified to express HLA-G having reduced immunogenicity and improved immunosuppression, nucleic acid compositions useful for generating
the genetically modified cells, and methods of producing artificial tissues using the genetically modified cells. The approximate
expiration date of the UniverCyte™ (HLA-G) issued patents is 2033 and the approximate date of expiration of the pending
patents, if issued, will also be 2033. We intend to use the UniverCyte™ technology in the development of our two
lead product candidates, AGEX-BAT1 and AGEX-VASC1 for the treatment of Type II diabetes and cardiovascular aging, respectively.
In addition, we may seek to license out or form collaborations for the use of our UniverCyte™ technology.
General
Risks Related to Obtaining and Enforcing Patent Protection
There
is a risk that any patent applications that we file and any patents that we hold or later obtain could be challenged by third
parties and be declared invalid or infringing on third party claims. Litigation, interferences, oppositions, inter partes reviews
or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of
certain of our proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent
rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. We may also face challenges to
our patent and regulatory protections covering our products by third parties, including manufacturers of generics and biosimilars
that may choose to launch or attempt to launch their products before the expiration of our patent or regulatory exclusivity. Litigation,
interference, oppositions, inter partes reviews, administrative challenges or other similar types of proceedings are unpredictable
and may be protracted, expensive and distracting to management. The outcome of such proceedings could adversely affect the validity
and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, require us to
seek a license for the infringed product or technology or result in the assessment of significant monetary damages against us
that may exceed any amounts that we may accrue on our financial statements as a reserve for contingent liabilities. An adverse
determination in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent us from manufacturing
or selling our products. Furthermore, payments under any licenses that we are able to obtain would reduce our profits derived
from the covered products and services.
The
enforcement of patent rights often requires litigation against third-party infringers, and such litigation can be costly to pursue.
Even if we succeed in having new patents issued or in defending any challenge to issued patents, there is no assurance that our
patents will be comprehensive enough to provide us with meaningful patent protection against our competitors.
In
addition to relying on patents, we rely on trade secrets, know-how, and continuing technological advancement to maintain our competitive
position. We have entered into intellectual property, invention, and non-disclosure agreements with our employees, and it is our
practice to enter into confidentiality agreements with our consultants. There can be no assurance, however, that these measures
will prevent the unauthorized disclosure or use of our trade secrets and know-how, or that others may not independently develop
similar trade secrets and know-how or obtain access to our trade secrets, know-how, or proprietary technology.
Our
Licensing Arrangements
License
Agreement with BioTime: iTR, PureStem
®
and Telomere Length
Concurrently
with the contribution of assets to us by BioTime under an Asset Contribution and Separation Agreement, we entered into a License
Agreement with BioTime pursuant to which BioTime has licensed to us, with rights to sublicense, certain intellectual property,
including patents and patent applications and know-how for use in the development, manufacture and commercialization of products
or services for the prevention, treatment, amelioration, diagnosis or monitoring of all human and non-human animal diseases and
conditions except for the field of medical products, devices and services for the reserved BioTime fields of orthopedic, ophthalmic,
and medical aesthetic uses (the “BioTime Exclusive Field”). In addition, BioTime retains an option right, on terms
to be negotiated, to license iTR patents in research, development, manufacturing and commercialization of treatments based on
iTR in the BioTime Exclusive Field. The licensed patents and know-how relate generally to (a) BioTime’s
PureStem
®
human embryonic progenitor cell lines, and (b) telomere length and DNA quality control analysis in pluripotent stem
cells.
The
BioTime patent rights licensed to us are exclusive and worldwide except for existing third party licenses, and for medical products,
devices, and services related to tendon. We additionally received an option to license certain BioTime retained rights outside
of orthopedic indications unless a license grant would compete with a BioTime program or products in the BioTime Exclusive Field.
The
License Agreement contains customary provisions pertaining to patent maintenance, enforcement, and defense and related cost allocations,
insurance, indemnification, and termination of the license in the event of a breach or default by a party, or the bankruptcy or
other insolvency event with respect to a party.
Additional
License and Sublicense Agreements
BioTime
and certain BioTime subsidiaries also entered into agreements pursuant to which they have licensed or sublicense to us, on a non-exclusive,
world-wide, royalty bearing basis, certain additional patents and patent rights and know-how relating to BioTime
HyStem
®
hydrogel technology, human embryonic progenitor cell technology, and human pluripotent stem cell lines and technology
for use outside the BioTime Exclusive Fields, or in the case of certain sublicense rights, fields previously licensed to third
parties.
Hydrogel
Patent License and Sublicense
BioTime
has granted to us a sublicense of certain patents licensed to BioTime by the University of Utah Research Foundation (the “Utah
Sublicense”), and has granted to us a direct license of certain patents held by BioTime (the “HyStem License”),
related to
HyStem
®
hydrogel technology for use outside of the BioTime Exclusive Field for products that
include cells and that are covered by certain other patents contributed, licensed, or sublicensed to us by BioTime. We may only
develop, sell, and otherwise commercialize a product under the Utah Sublicense and HyStem License if we spend at least a low seven
figure amount on research with respect to the product. BioTime will agree to provide us with a reasonable amount of the hydrogel
product for the purpose of our research for we will pay BioTime’s cost of manufacturing and supplying the hydrogel.
The
Utah Sublicense and the HyStem License will not permit sublicensing and will be non-exclusive for medical products, devices, and
services related to human tendon, and will be exclusive for all other licensed fields. The Utah Sublicense and HyStem License
will expire upon the latest expiration date of a sublicensed or licensed patent, unless terminated earlier pursuant to the respective
agreements. We will pay BioTime a royalty, in an amount not exceeding 10 percent, on “net sales” as defined in the
Utah Sublicense and HyStem License. Commencing June 30, 2019, and for each 12-month period thereafter, we will pay BioTime a minimum
royalty in the low five figures regardless of the actual amount of net sales for the applicable period.
The
foregoing description of the HyStem License and the Utah Sublicense is qualified in its entirety by reference to the HyStem License
Agreement and the Utah Sublicense Agreement, copies of which are filed as Exhibits to our Registration Statement on Form 10 and
are incorporated herein by reference.
Sublicense
of Certain Progenitor Patents
BioTime
has granted to us a sublicense of certain patents licensed to BioTime that pertain to the derivation of human embryonic progenitor
cell lines. The sublicense will permit us to use the sublicensed patents for the treatment, palliation, diagnosis, or prevention
of any disease, disorder or health condition outside of the BioTime Exclusive Field. The sublicense expires the later of July
10, 2028 or the latest expiration date of a sublicensed patent, unless terminated earlier pursuant to the terms of the sublicense.
We
will pay BioTime a royalty on “net sales,” as defined in the sublicense agreement, until the royalty payments to BioTime’s
licensor by BioTime total $1.2 million and thereafter will pay to BioTime a low single digit royalty on its own net sales
and a low double digit royalty on sublicensing consideration.
If
we grant a sublicense to use the patents, we will pay BioTime a portion of any consideration received for a sublicense, including
but not limited to, upfront payments and milestones, and non-cash exchanges or considerations, but not payments for developing
a product, service or process. If we become obligated to pay royalties to one or more affiliates of BioTime for the use of patent
rights related to this sublicense and as a result, the royalties payable to BioTime with respect to royalties under the sublicense
plus the royalties payable to the affiliates would exceed a designated amount of net sales, the royalties due to BioTime may be
reduced but not less than the designated amount. In addition, we will pay to BioTime a royalty on “net sales,” as
defined in the sublicense agreement, by the sublicensee. If we become obligated to pay royalties to one or more affiliates of
BioTime for the use of patent rights related to this sublicense and as a result, the royalties payable to BioTime with respect
to sales by a sublicensee plus the royalties payable to the affiliates would exceed a designated amount of net sales, the royalty
due on net sales by the sublicensee may be reduced but not less than the designated amount.
The
sublicense agreement includes reciprocal cross-licenses between BioTime and us with respect to any new patents that may be issued
based on the use of the sublicensed patents. Any such license to BioTime will be exclusive in the BioTime Exclusive Field and
nonexclusive in all other licensed fields. Any such license from BioTime to us will be for use outside the BioTime Exclusive Field
and for medical products or services involving tendon. Each license will be for a term of 10 years.
The
foregoing description of the sublicense agreement is qualified in its entirety by reference to the sublicense agreement, a copy
of which is filed as an exhibit to our Registration Statement on Form 10 and is incorporated herein by reference.
ESI
License
BioTime’s
subsidiary ES Cell International Pte, or ESI, has granted to us non-exclusive rights to certain ESI patents and human pluripotent
stem cell lines, or ESI Cell Lines, for use outside of the BioTime Exclusive Field and outside certain other fields for which
ESI has previously granted licenses. We will pay ESI a royalty, in an amount not exceeding 10 percent, on “net sales,”
as defined in the license agreement. If we become obligated to pay royalties to one or more third party or to BioTime for the
use of patent rights related to this license and as a result the royalties payable to ESI with respect to this license agreement
plus the royalties payable to such third party or BioTime would exceed a designated amount of net sales, the royalty due on net
sales by the sublicensee may be reduced. The patent license expires upon the latest expiration date of a licensed patent, unless
terminated earlier pursuant to the terms of the license. All other rights under the license are terminable by either party under
the conditions specified in the license.
If
we grant rights to any third party to use ESI Cell Lines derived under cGMP, we will pay ESI a share of all consideration that
we receive as consideration for the grant of those rights, including all cash and non-cash consideration but not royalties. We
are not permitted to grant sublicenses to the licensed ESI patents but may sublicense the use of ESI Cell Lines.
The
foregoing description of the ESI License Agreement is qualified in its entirety by reference to the ESI License Agreement, a copy
of which is filed as an exhibit to our Registration Statement on Form 10 and is incorporated herein by reference.
Competition
The
biotechnology industry is highly competitive and characterized by rapid change (even disruptive advances) that challenge the ability
of any one company to maintain leadership. Therefore, we face competition on multiple fronts, including from other biotechnology
companies, large pharmaceutical companies, academic institutions and government research entities. We believe the competitive
advantages of our technology platform and resulting product candidates arise from the large market opportunities addressed by
our product candidates, their anticipated safety profile, the expected cost of manufacture of off-the-shelf products, our intellectual
property, as well the fundamental and widespread role of cell aging and regeneration in human age-related degenerative disease.
There
are numerous biotechnology companies developing therapeutics for human aging, with each company often focusing on a specific molecular
pathway within cells. For example, ResTORbio, Inc. is developing modulators of the
mechanistic
target of rapamycin (mTOR) pathway to treat immunological and cardiovascular disorders. Calico Life Sciences LLC is a Google-founded
research and development company aimed at identifying molecular pathways that control animal lifespan and translating these insights
into novel therapeutics designed to increase human healthspan.
Calico has not disclosed its lead product development plans.
Unity Biotechnology, Inc. focuses on cellular senescence, in particular, the use of agents that can target senescent cells for
selective ablation (senolysis). Unity’s stated targeted age-related diseases include osteoarthritis as well as other ophthalmological
and pulmonary diseases.
Our
therapeutic product candidates in development are likely to face competition from a large number of companies and technological
strategies including therapeutics intended to address our lead indications, including:
|
|
●
|
Type
II diabetes: current standard of care treatments (though not necessarily focused on the root cause of the disease) include
dieting and exercise programs to reduce weight, or pharmacological interventions with a wide array of medications, including:
Metformin (Glucophage, Glumetza, or others);
(DiaBeta, Glynase), glipizide (Glucotrol)
and glimepiride (Amaryl); Meglitinides
(repaglinide (Prandin) and nateglinide (Starlix)); Thiazolidinediones (rosiglitazone
(Avandia) and pioglitazone (Actos)); DPP-4 (sitagliptin (Januvia), saxagliptin (Onglyza) and linagliptin (Tradjenta)); GLP-1
receptor agonists (exenatide (Byetta) and liraglutide (Victoza)); SGLT2 inhibitors (canagliflozin (Invokana) and dapagliflozin
(Farxiga)); and insulin therapy (Insulin glulisine (Apidra), Insulin lispro (Humalog), Insulin asgpart (Novolog), Insulin
glargine (Lantus), Insulin detemir (Levemir), Insulin isophane (Humulin N, Novolin N)).
|
|
|
|
|
|
|
●
|
Vascular
ischemiam, including myocardial ischemia: current standard of care treatments including dieting, lowered intake of cholesterol,
daily aspirin as a blood thinner; pharmacological agents including but not limited to nitrates as vasodilators (nitroglycerin
sublingual tablet (Nitrostat), nitroglycerin transdermal ointment (Nitro-Bid), and isosorbide mononitrate and dinitrate (Isordil,
Isordil Titradose, Dilatrate-SR)); beta blockers (atenolol (Tenormin), metoprolol (Lopressor, Toprol XL), and nadolol (Corgard));
calcium channel blockers (amlodipine (Norvasc), amlodipine and atorvastatin (Caduet), amlodipine and benazepril (Lotrel),
diltiazem (Cardizem), felodipine (Cardene, Cardene SR), and verapamil (Calan); cholesterol-lowering medications such as statins
atorvastatin (Lipitor), rosuvastatin (Crestor), and simvastatin (Zocor); Angiotensin-converting enzyme (ACE) inhibitors (Ranolazine
(Ranexa), benazepril (Lotensin), and lisinopril (Prinivil, Zestril, Qbrelis); and surgical procedures to increase circulation
including but not limited to angioplasty and stenting, coronary artery bypass surgery, and enhanced external counterpulsation.
|
|
|
|
|
|
|
●
|
Scarless
tissue regeneration, including scarless dermal wound repair: current standard of care including but not limited to sterile
dressings, over-the-counter agents such as Astragaloside IV and curcumin; biomaterials including hyaluronic acid (Seprafilm,
Durolane, Euflexxa, Gel-One, GelSyn-3, GenVisc 850, Hyalgan, Hyalgan L/L, Hymovis, Monovisc, Orthovisc, Supartz FX, and Visco-3);
and
bioengineered skin substitutes such as Apligraf.
|
Many
of our competitors have greater financial, collaborative, technical, regulatory, and human resources as well as products more
advanced in development than our product pipeline, including products already marketed for our target indications. As a result,
these competitors may have great success in obtaining regulatory approvals, reimbursement, or market acceptance. Our competitors,
may have greater success in attracting qualified personnel, recruiting clinical trial sites, or in establishing strategic partnerships
with larger pharmaceutical companies to fund large late-stage clinical trials or product marketing. In addition, our future business
could be limited should our competitors commercialize products demonstrated to be more effective, safer, or less expensive than
our comparable products.
Government
Regulation and Product Approval
Government
authorities at the federal, state, and local level, and in other countries, extensively regulate among other things, the development,
testing, manufacture, quality, approval, safety, efficacy, distribution, labeling, packaging, storage, record keeping, marketing,
import/export, and promotion of drugs, biologics, and medical devices. Authorities also heavily regulate many of these activities
for human cells, tissues, and cellular and tissue-based products (“HCT/Ps”).
FDA
and Foreign Regulation of Therapeutic Products
The
FDA and foreign regulatory authorities will regulate our proposed products as drugs, biologicals, or medical devices, depending
upon such factors as: the use to which the product will be put, the chemical composition of the product, and the interaction of
the product with the human body. In the United States, the FDA regulates drugs and biologicals under the Federal Food, Drug and
Cosmetic Act (“FDCA”), the Public Health Service Act (“PHSA”), and implementing regulations. In addition,
establishments that manufacture human cells, tissues, and cellular and tissue-based products are subject to additional registration
and listing requirements, including current good tissue practice regulations. To the extent AgeX develops cellular and tissue-based
products or therapies, its products will be subject to review by the FDA staff in its Center for Biologics Evaluation and Research
(“CBER”) Office of Cellular, Tissue, and Gene Therapies. In some instances, AgeX’s clinical study protocol for
a cell therapy product must be reviewed by the National Institute of Health through its Recombinant DNA Advisory Committee.
Any
human drug and biological products that we may develop for testing, marketing, or use in the United States will be subject to
rigorous FDA review and approval procedures. After testing in animals to evaluate the potential efficacy and safety of the product
candidate, an investigational new drug (“IND”) submission must be made to the FDA to obtain authorization for human
testing. Extensive clinical testing, which is generally done in three phases, must then be undertaken at a hospital or medical
center to demonstrate optimal use, safety, and efficacy of each product in humans. Each clinical study is conducted under the
auspices of an independent Institutional Review Board (“IRB”). The IRB will consider, among other things, ethical
factors, the safety of human subjects, and the possible liability of the institution.
Clinical
trials are generally conducted in three “phases.” Phase I clinical trials are conducted in a small number of healthy
volunteers or volunteers with the target disease or condition to assess safety. Phase II clinical trials are conducted with groups
of patients afflicted with the target disease or condition in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In some cases, an initial trial is conducted in diseased patients to assess both preliminary efficacy and
preliminary safety, in which case it is referred to as a Phase I/II trial. Phase III trials are large-scale, multi-center, comparative
trials and are conducted with patients afflicted with the target disease or condition in order to provide enough data to demonstrate
the efficacy and safety required by the FDA. The FDA closely monitors the progress of each of the three phases of clinical testing
and may, at its discretion, re-evaluate, alter, suspend, or terminate the clinical trial based upon the data which have been accumulated
to that point and its assessment of the risk/benefit ratio to the intended patient population. All adverse events must be reported
to the FDA. Monitoring of all aspects of the study to minimize risks is a continuing process. The time and expense required to
perform this clinical testing can far exceed the time and expense of the research and development initially required to create
the product.
No
action can be taken to market any therapeutic product in the U.S. until an appropriate New Drug Application (“NDA”)
or Biologics License Application (“BLA”) has been approved by the FDA. Submission of the application is no guarantee
that the FDA will find it complete and accept it for filing. If an application is accepted for filing, following the FDA’s
review, the FDA may grant marketing approval, request additional information, or deny the application if it determines that the
application does not provide an adequate basis for approval. FDA regulations also restrict the export of therapeutic products
for clinical use prior to FDA approval. To date, the FDA has not granted marketing approval to any pluripotent stem-based therapeutic
products and it is possible that the FDA or foreign regulatory agencies may subject our product candidates to additional or more
stringent review than drugs or biologicals derived from other technologies.
The
FDA offers several programs to expedite development of products that treat serious or life-threatening illnesses and that provide
meaningful therapeutic benefits to patients over existing treatments. A product may be eligible for breakthrough therapy designation
if it treats a serious or life-threatening disease or condition and preliminary clinical evidence indicates it may demonstrate
substantial improvement over existing therapies on one or more clinically significant endpoints. In 2017, FDA established a new
regenerative medicine advanced therapy (“RMAT”) designation as part of its implementation of the 21st Century Cures
Act. An RMAT is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination
product using such therapies or products, with limited exceptions that is intended to treat, modify, reverse, or cure a serious
or life-threatening disease or condition; and preliminary clinical evidence indicates that it has the potential to address unmet
medical needs for such a disease or condition. RMAT designation provides potential benefits that include more frequent meetings
with FDA to discuss the development plan for the product candidate and eligibility for rolling review and priority review. Products
granted RMAT designation may also be eligible for accelerated approval on the basis of a surrogate or intermediate endpoint reasonably
likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through
expansion to additional sites. Once approved, when appropriate, the FDA can permit fulfillment of post-approval requirements under
accelerated approval through the submission of clinical evidence, clinical studies, patient registries, or other sources of real
world evidence such as electronic health records; through the collection of larger confirmatory datasets; or through post-approval
monitoring of all patients treated with the therapy prior to approval.
Some
of our future products may be eligible for RMAT designation. There is no assurance that the FDA will grant breakthrough therapy,
accelerated approval or RMAT status to any of our product candidates.
In
addition to regulations in the United States, we are subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of our products. Whether or not we obtain FDA approval for a drug candidate, we must obtain
approval by the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before we
can commence clinical trials or market products in those countries or areas. The approval process and requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be
longer or shorter than that required for FDA approval.
Combination
Products
If
we develop any products that are used with medical devices, they may be considered combination products, which are defined by
the FDA to include products comprised of two or more regulated components or parts such as a biologic and a device. For example,
we may use
HyStem
®
hydrogels to administer one or more pluripotent stem cell-based therapy products. When
regulated independently, biologics and devices each have their own regulatory requirements. However, regulatory requirements for
a combination product comprised of a biologic administered with a delivery device can be more complex, because in addition to
the individual regulatory requirements for each component, additional combination product regulatory requirements may apply.
510(k)
Medical Devices & Notification
Product
marketing in the U.S. for most Class II and limited Class I devices typically follows a 510(k) pathway. To obtain 510(k) clearance,
a manufacturer must submit a premarket notification demonstrating that the proposed device is substantially equivalent to a legally
marketed device, referred to as the predicate device. A predicate device may be a previously 510(k) cleared device or a device
that was in commercial distribution before May 28, 1976 for which the FDA has not yet called for submission of PMA applications,
or a product classification created by FDA when it granted de novo authorization. The manufacturer must show that the proposed
device has the same intended use as the predicate device, and it either has the same technological characteristics, or it is shown
to be equally safe and effective and does not raise different questions of safety and effectiveness as compared to the predicate
device.
There
are three types of 510(k)s: traditional; special, for devices that are modified and the modification needs a new 510(k) but the
modification does not affect the intended use or alter the fundamental scientific technology of the device; and abbreviated, for
devices that conform to a recognized standard. The special and abbreviated 510(k)s are intended to streamline review. The FDA
intends to process special 510(k)s within 30 days of receipt and abbreviated 510(k)s within 90 days of receipt. Though statutorily
required to clear a traditional 510(k) within 90 days of receipt, the clearance pathway for traditional 510(k)s can take substantially
longer.
After
a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use, requires a new 510(k) clearance or could require a PMA approval. The FDA requires
each manufacturer to make this determination in the first instance, but the FDA can review any such decision. If the FDA disagrees
with a manufacturer’s decision not to seek a new 510(k) clearance, the agency may retroactively require the manufacturer
to seek 510(k) clearance or PMA approval. The FDA also can require the manufacturer to cease marketing and/or recall the modified
device until 510(k) clearance or PMA approval is obtained.
Post-Approval
Matters
Even
after initial FDA approval has been obtained, further studies may be required to provide additional data on safety or to gain
approval for the use of a product as a treatment for clinical indications other than those initially targeted. Data resulting
from these clinical trials may result in expansions or restrictions to the labeled indications for which a product has already
been approved.
FDA
Regulation of Manufacturing
The
FDA regulates the manufacturing process of pharmaceutical products, human tissue and cell products, and medical devices, requiring
that they be produced in compliance with cGMP. The FDA regulates and inspects equipment, facilities, laboratories, and processes
used in the manufacturing and testing of products prior to providing approval to market products. If after receiving approval
from the FDA, a material change is made to manufacturing equipment or to the location or manufacturing process, additional regulatory
review may be required. The FDA also conducts regular, periodic visits to re-inspect the equipment, facilities, laboratories and
processes of manufacturers following an initial approval. If, as a result of those inspections, the FDA determines that that equipment,
facilities, laboratories or processes do not comply with applicable FDA regulations and conditions of product approval, the FDA
may seek civil, criminal or administrative sanctions and/or remedies against the manufacturer, including suspension of manufacturing
operations. Issues pertaining to manufacturing equipment, facilities or processes may also delay the approval of new products
undergoing FDA review.
Federal
Funding of Research
Effective
July 7, 2009, the National Institutes of Health (“NIH”) adopted guidelines on the use of hES cells in federally funded
research, consistent with President Obama’s Executive Order which rescinded President Bush’s Executive Orders that
permitted federal funding of research on hES cells using only the limited number of hES cell lines. The central focus of the guidelines
is to assure that hES cells used in federally funded research are derived from human embryos that were created for reproductive
purposes, are no longer needed for this purpose, and are voluntarily donated for research purposes with the informed written consent
of the donors. Those hES cells that were derived from embryos created for research purposes rather than reproductive purposes,
and other hES cells that were not derived in compliance with the guidelines, are not eligible for use in federally funded research.
California
State Regulations
The
state of California has adopted legislation and regulations that require institutions that conduct stem cell research to notify,
and in certain cases obtain approval from, a Stem Cell Research Oversight Committee (“SCRO Committee”) before conducting
the research. Under certain California regulations, all hES cell lines that will be used in our research must be acceptably derived.
California regulations further require certain records to be maintained with respect to stem cell research and the materials used.
AgeX programs that involve the use of stem cells will be reviewed by a SCRO Committee to confirm compliance with federal and state
guidelines. The hES cell lines that we use are all on the NIH registry of lines that have been reviewed and meet standards for
federal funding grants.
Health
Insurance Portability and Accountability Act
Under
the Health Insurance Portability and Accountability Act (“HIPAA”), the Department of Health and Human Services (“HHS”)
has issued regulations to protect the privacy and security of protected health information used or disclosed by health care providers.
HIPAA also regulates standardization of data content, codes, and formats used in health care transactions and standardization
of identifiers for health plans and providers. Penalties for violations of HIPAA regulations include civil and criminal penalties.
The
requirements under these regulations may periodically change and could have an effect on our business operations if compliance
becomes substantially more costly than under current requirements. New laws governing privacy may also be adopted in the future.
We can provide no assurance that we will remain in compliance with diverse privacy requirements in all of the jurisdictions in
which we do business. Failure to comply with privacy requirements could result in civil or criminal penalties, which could have
a materially adverse effect on our business.
Federal
and State Fraud and Abuse Laws
We
are also subject to various laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false
claims laws. Anti-kickback laws make it illegal to solicit, offer, receive or pay any remuneration in exchange for or to induce
the referral of business, including the purchase or prescription of a particular drug that is reimbursed by a state or federal
program. False claims laws prohibit knowingly and willingly presenting or causing to be presented for payment to third-party payers
(including Medicare and Medicaid) any claims for reimbursed drugs or services that are false or fraudulent, claims for items or
services not provided as claimed or claims for medically unnecessary items or services. Violations of fraud and abuse laws may
be punishable by criminal and/or civil sanctions, including fines and civil monetary penalties, as well as by the possibility
of exclusion from federal healthcare programs (including Medicare and Medicaid). Liability under the false claims laws may also
arise when a violation of certain laws or regulations related to the underlying products (e.g., violations regarding improper
promotional activity or unlawful payments) contributes to the submission of a false claim.
Additionally,
the U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits U.S. corporations and their representatives from offering,
promising, authorizing or making payments to any foreign government official, government staff member, political party or political
candidate in an attempt to obtain or retain business abroad. The scope of the FCPA includes interactions with certain healthcare
professionals in many countries. Other countries have enacted similar anti-corruption laws and/or regulations.
Healthcare
Reform
In
the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare
system that could affect our future results of operations. There have been and continue to be a number of initiatives at the United
States federal and state levels that seek to reduce healthcare costs.
In
particular, the Affordable Care Act (“ACA”) has had, and is expected to continue to have, a significant impact
on the healthcare industry. The ACA was designed to expand coverage for the uninsured while at the same time containing overall
healthcare costs. Substantial new provisions affecting compliance have also been enacted, which may require us to modify our business
practices with healthcare providers and entities, and a significant number of provisions are not yet, or have only recently become,
effective.
Since
its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, as well as efforts by the
current administration to repeal or replace certain aspects of the ACA. For example, since January 2017, the President has signed
two Executive Orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the ACA. Concurrently,
Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed
comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA were signed into law.
The Tax Cuts and Jobs Act of 2017, or the Tax Act, includes a provision repealing, effective January 1, 2019, the tax-based shared
responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part
of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, the President
signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated
fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee
imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices.
Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to close
the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole,” and increase from 50% to 70%
the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in the Medicare Part D program. There
may be additional challenges and amendments to the ACA in the future. The ACA is likely to continue the downward pressure on pharmaceutical
pricing and may also increase our regulatory burdens and operating costs.
Further,
there has been heightened government scrutiny over the manner in which manufacturers set prices for their marketed pharmaceutical
products. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation
designed to, among other things, bring more transparency to pharmaceutical product pricing, review the relationship between pricing
and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level,
the current administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could
be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare
Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under
Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, on May 11, 2018, President Trump
laid out his administration’s “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” to reduce the
cost of prescription drugs while preserving innovation and cures. The Department of Health and Human Services has already started
the process of soliciting feedback on some of these measures and, at the same, is immediately implementing others under its existing
authority. Although some of these and other proposals will require authorization through additional legislation to become effective,
Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative
measures to control drug costs. At the state level, legislatures have become increasingly aggressive in passing legislation and
implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing.
It
is uncertain whether and how future legislation, whether domestic or foreign, could affect prospects for our product candidates
or what actions foreign, federal, state, or private payors for health care treatment and services may take in response to any
such health care reform proposals or legislation. Adoption of price controls and other cost-containment measures, and adoption
of more restrictive policies in jurisdictions with existing controls and measures reforms may prevent or limit our ability to
generate revenue, attain profitability or commercialize our product candidates.
Moreover,
the Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical products, among others, related
to product tracking and tracing, which is being phased in over several years beginning in 2015. Among the requirements of this
new legislation, manufacturers will be required to provide certain information regarding the drug product to individuals and entities
to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding the
drug product. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done
electronically. Manufacturers will also be required to verify that purchasers of the manufacturers’ products are appropriately
licensed. Further, under this new legislation, manufacturers will have drug product investigation, quarantine, disposition, and
notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products
that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably
likely to result in serious health consequences or death.
Reimbursement
Medicare,
Medicaid, and Third-Party Reimbursement Programs
Sales
of the therapeutic products and medical devices that we and our subsidiaries may develop will depend, in part, on the extent to
which the costs of those products will be covered by third-party payors, such as government health programs, commercial insurance,
and managed healthcare organizations.
The
containment of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus
in this effort. In the United States, the federal and many state governments have adopted or proposed initiatives relating to
Medicaid and other health programs that may limit reimbursement or increase rebates that providers are required to pay to the
state. In addition to government regulation, managed care organizations in the United States, which include medical insurance
companies, medical plan administrators, health-maintenance organizations, hospital and physician alliances and pharmacy benefit
managers, continue to put pressure on the price and usage of healthcare products. Managed care organizations and third-party payers
seek to contain healthcare expenditures, and their purchasing strength has been increasing due to their consolidation into fewer,
larger organizations and a growing number of enrolled patients. Adoption of price controls, cost-containment measures, and more
restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If
third-party payors do not consider the products we develop to be cost-effective compared to other therapies, they may not cover
our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our
products on a profitable basis.
Efforts
by government agencies and state legislatures in the United States could affect us and our industry. The ACA increased many of
the mandatory discounts and rebates and imposed a new Branded Prescription Pharmaceutical Manufacturers and Importers fee payable
by manufacturers. The new U.S. presidential administration has identified repealing and replacing the ACA as a priority. The timing
and method of the full or partial repeal or amendment of the ACA or the adoption of new healthcare legislation remains uncertain,
but impending changes will likely impact the number of patient lives covered, the quality of the insurance, Medicaid eligibility
and the level of patient protections provided.
Other
legislative and regulatory actions that would have a significant impact include: changes to how the Medicare program covers and
reimburses current and future drugs, changes in the Federal payment rate or new rebate requirements for covered drugs and policies
for payment in Medicare or Medicaid; and changes to coverage and payment for biosimilars, including the current Medicare biosimilar
coverage and payment policies intended to encourage biosimilar adoption, or other policies that provide easier substitution or
reimbursement advantages.
We
face similar issues outside of the United States. In some non-U.S. jurisdictions, the proposed pricing for a drug must be approved
before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example,
the EU provides options for its member states to restrict the range of medicinal products for which their national health insurance
systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific
price for aa medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of placing
a medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations
for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically,
products launched in the EU do not follow price structures of the United States and generally tend to be significantly lower.
Employees
As
of December 31, 2018, we employed 12 persons on a full-time basis, of which seven employees hold Ph.D.’s in one or more
fields of science.
Item
1A.
Risk Factors
Our
business is subject to various risks, including those described below. You should consider the following risk factors, together
with all of the other information included in this Report, which could materially adversely affect our proposed operations, our
business prospects, and financial condition, and the value of an investment in our business. There may be other factors that are
not mentioned here or of which we are not presently aware that could also affect our business operations and prospects.
Risks
Related to Our Business Operations
We
are a discovery-stage development company and have incurred operating losses since our inception. We anticipate that we will incur
continued losses for the foreseeable future, and we do not know if we will ever attain profitability.
We
are a discovery-stage therapeutics company with a limited operating history. Since our inception in August 2017, we have incurred
operating losses and negative cash flows and we expect to continue to incur losses and negative cash flow in the future. Our operating
losses were $11.2 million and $6.7 million for the years ended December 31, 2018 and 2017, respectively, and we had an accumulated
deficit of approximately $74.1 million as of December 31, 2018. We have devoted most of our financial resources to research and
development, including our preclinical development activities.
Since
inception, we have financed our operations through contributions and advances from our former parent company, BioTime, and the
sale of our common stock and warrants to our current stockholders. Although BioTime may continue to provide administrative support
to us on a reimbursable basis, BioTime currently owns less than 5% of our outstanding common stock and we do not expect
BioTime to provide future financing. Additionally, although Juvenescence is now our largest stockholder, it has no obligation
to provide us with financing. There is no assurance that we will be able to obtain any additional financing that we may need,
or that any such financing that may become available will be on terms that are favorable to us and our stockholders. Ultimately,
our ability to generate sufficient operating revenue to earn a profit depends upon our success in developing and marketing or
licensing our products and technology.
We
expect to continue to incur significant additional operating losses for the foreseeable future as we seek to advance product candidates
through preclinical and clinical development, expand our research and development activities, develop new product candidates,
complete clinical trials, seek regulatory approval and, if we receive FDA approval, commercialize our products. Furthermore, the
costs of advancing product candidates into each succeeding clinical phase tend to increase substantially over time. The total
costs to advance any of our product candidates to marketing approval in even a single jurisdiction would be substantial. Because
of the numerous risks and uncertainties associated with development of cell-based and drug-based therapeutics, we are unable to
accurately predict the timing or amount of increased expenses or when, or if, we will be able to begin generating revenue from
the commercialization of products (other than through our LifeMap Sciences subsidiary) or achieve or maintain profitability. Our
expenses will also increase substantially if and as we:
|
|
●
|
continue
our current research programs and our preclinical development of product candidates from our current research programs;
|
|
|
|
|
|
|
●
|
seek
to identify, assess, acquire and/or develop additional research programs and additional product candidates;
|
|
|
|
|
|
|
●
|
initiate
preclinical testing and clinical trials for any product candidates we identify and develop;
|
|
|
|
|
|
|
●
|
establish
a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing
approval;
|
|
|
|
|
|
|
●
|
maintain,
expand and protect our intellectual property portfolio;
|
|
|
|
|
|
|
●
|
further
develop our product development platform based on telomerase-mediated cellular immortality and regenerative biology;
|
|
|
|
|
|
|
●
|
make
payments under the Shared Facilities Agreement to BioTime for use of BioTime’s scientific personnel, administrative
services (including patent prosecution, certain legal services and accounting and financial services) and research facilities;
|
|
|
|
|
|
|
●
|
hire
additional clinical, scientific and commercial and administrative personnel to support our product development, planned future
commercialization efforts and transition to a public reporting company;
|
|
|
|
|
|
|
●
|
hire
our own executive management personnel;
|
|
|
●
|
add
operational, financial and management information systems;
|
|
|
|
|
|
|
●
|
acquire
or lease our own administrative, research and clinical facilities; and
|
|
|
|
|
|
|
●
|
acquire
or in-license other commercial products, product candidates and technologies;
|
|
|
|
|
|
|
●
|
make
royalty, milestone or other payments under current and any future in-license agreements;
|
|
|
|
|
|
|
●
|
validate
and build-out a commercial-scale cGMP manufacturing facility, or contract with third-party manufacturers;
|
|
|
|
|
|
|
●
|
contract
with third-party suppliers; and
|
|
|
|
|
|
|
●
|
operate
as a public company.
|
Furthermore,
our ability to successfully develop, commercialize and license our products and generate product revenue is subject to substantial
additional risks and uncertainties. Each of our programs and product candidates will require additional preclinical and clinical
development, potential regulatory approval in multiple jurisdictions, securing manufacturing supply, capacity and expertise, building
of a commercial organization, substantial investment and significant marketing efforts before we generate any operating income
from product sales. As a result, we expect to continue to incur net losses and negative cash flows for the foreseeable future.
These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity
and working capital. The amount of our future net losses will depend, in part, on the rate of future growth of our expenses and
our ability to generate revenues. If we are unable to develop and commercialize one or more of our product candidates either alone
or with collaborators, or if revenues from any product candidate that receives marketing approval are insufficient, we will not
achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. If we are
unable to achieve and then maintain profitability, the value of our equity securities will be materially and adversely affected.
We
will spend a substantial amount of our capital on discovery and preclinical research and development, but we might not succeed
in developing products and technologies that are useful in medicine. If we fail to obtain necessary financing, we may not be able
to complete the development and commercialization of our product candidates.
We
expect to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize our product
candidates. We will require additional capital beyond the proceeds of this offering, which we may raise through equity offerings,
debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements
or other sources to enable us to complete the development and potential commercialization of our product candidates. In addition,
we may not be able to enter into any collaborations that will generate significant cash. Adequate additional financing may not
be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect
on our financial condition and our ability to pursue our business strategy. In addition, attempting to secure additional financing
may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts.
Because
the length of time and activities associated with successful development of our product candidates is highly uncertain, we are
unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities.
Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
|
|
●
|
the
initiation, progress, timing, costs and results of our planned clinical trials for our product candidates;
|
|
|
|
|
|
|
●
|
the
outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory
authorities;
|
|
|
|
|
|
|
●
|
the
cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
|
|
|
|
|
|
|
●
|
the
cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties
against us or any of our product candidates;
|
|
|
|
|
|
|
●
|
the
effect of competing technological and market developments;
|
|
|
|
|
|
|
●
|
the
cost and timing of completion of commercial-scale manufacturing activities;
|
|
|
|
|
|
|
●
|
the
costs of operating as a public company;
|
|
|
●
|
the
costs of hiring additional clinical, research and operational personnel, and developing our own administrative systems and
obtaining research and clinical facilities, in the event we shift away from or cease using services provided under the Shared
Facilities Agreement;
|
|
|
|
|
|
|
●
|
make
royalty, milestone or other payments under current and any future in-license agreements in the event we begin generating sales
from products derived from intellectual property under such in-license arrangements, including our Hydrogel patent license
and sublicense, our license arrangement with ES Cell International Pte, a subsidiary of BioTime, and our sublicense of certain
progenitor patents;
|
|
|
|
|
|
|
●
|
the
extent to which we in-license or acquire other products and technologies;
|
|
|
|
|
|
|
●
|
the
cost of establishing sales, marketing and distribution capabilities in regions where we choose to commercialize our products,
if approved; and
|
|
|
|
|
|
|
●
|
the
initiation, progress, timing and results of our commercialization of our product candidates, if any are approved for commercial
sale.
|
We
cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional
capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the
development or commercialization of our product candidates or potentially discontinue operations.
Raising
additional capital may cause dilution to our 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 revenue, we may finance our cash needs through a combination of equity offerings,
debt financings, strategic alliances and licensing arrangements.
We do not currently have any committed external source of funds. In addition, we may seek additional capital due to favorable
market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating
plans.
To
the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest
will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights
as a common stockholder. Debt financing and preferred equity 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. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing
arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams
or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through
equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future
commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and
market ourselves.
We
have not tested any of our product candidates in clinical trials. Success in early development and preclinical studies or clinical
trials may not be indicative of results obtained in later preclinical studies and clinical trials.
Our
product
candidates have never been evaluated in human clinical trials, and we may experience unexpected or adverse results in the future.
We will be required to demonstrate through adequate and well-controlled clinical trials that our product candidates are safe and
effective, with a favorable benefit-risk profile, for use in their target indications before we can seek regulatory approvals
for their commercial sale. Any positive results that have been observed for product candidates similar to ours in preclinical
animal models may not be predictive of future clinical trials in humans. Our product candidates may also fail to show the desired
safety and efficacy in later stages of clinical development even if they successfully advance through initial clinical trials.
Further, some or all of our cell-based therapies under development may require the genetic modification of the pluripotent master
cell banks such that the resulting cells can escape immune rejection by the intended patient. There is no certainty that said
genetic modification will provide a long-term solution to transplant rejection, or that said modified cells will not cause unanticipated
health risks to the patient that could delay or even halt the development of the products.
Many
companies in the biotechnology industry have suffered significant setbacks in late-stage clinical trials after achieving positive
results in early-stage development and there is a high failure rate for product candidates proceeding through clinical trials.
Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent
regulatory approval. Even if we demonstrate statistical significance, regulatory agencies may not accept the use of the historical
control. Regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy
during the period of product development. We cannot be certain that we will not face similar setbacks.
We
do not currently have any products on the market and have not yet generated any substantial revenues from operations.
We
were established and began operations in 2017. Our operations to date have been limited to the preliminary financing and
staffing of our company, developing our technology and identifying and developing our product candidates. We have not yet
demonstrated an ability to successfully commence or complete any clinical trials, including large-scale, pivotal clinical trials,
obtain marketing approval, manufacture a research or commercial scale product, or arrange for a third party to do so on
our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Typically, it takes
about six to ten years to develop a new drug from the time it enters Phase 1 clinical trials to when it is approved for treating
patients, but in many cases it may take longer. Consequently, predictions about our future success or viability may not be as
accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing genetic
medicine products. In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties,
complications, delays and other known and unknown factors. We will eventually need to transition from a company with a research
focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
We
need to successfully develop and market or license therapeutic products or technologies in order to earn revenues in sufficient
amounts to meet our operating expenses. Without significant product sales or licensing fee revenues, we will not be able to operate
at a profit, and we will not be able to cover our operating expenses without raising additional capital. Should we be able to
successfully develop and market any therapeutic products we may not be able to receive reimbursement for them from payers, such
as health insurance companies, health maintenance organizations and Medicare, or any reimbursement that we receive may be lower
than we anticipate.
As
we continue to attempt to build our business, we expect our financial condition and operating results may fluctuate significantly
from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should
not rely upon the results of any particular quarterly or annual period as indications of future operating performance.
Our
choice of product candidates and our development plans for our product candidates are subject to change based on a variety of
factors, and if we abandon development of a product candidate we may not be able to develop or acquire a replacement product candidate.
We
may determine to abandon the development of one or more of our product candidates, or we may change the prioritization
of the development of certain product candidates, or we may select or acquire and prioritize the development of new product candidates.
Our choice and prioritization of product candidates for development will be influenced by a variety of factors, including but
not limited to:
|
|
●
|
the amount of capital that
we will have for our development programs and our projected costs for those programs;
|
|
|
|
|
|
|
●
|
competitors
may develop alternatives that render our potential product candidates obsolete or less attractive;
|
|
|
|
|
|
|
●
|
potential
product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;
|
|
|
|
|
|
|
●
|
potential
product candidates may, on further study, be shown to have harmful side effects, toxicities or other characteristics that
indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance;
|
|
|
|
|
|
|
●
|
potential
product candidates may not be effective in treating their targeted diseases;
|
|
|
|
|
|
|
●
|
our analysis of market demand
and market prices for the products we plan to develop could lead us to conclude that
market conditions are not favorable for receiving an adequate return on our investment
in product development and commercialization;
|
|
|
|
|
|
|
●
|
a
potential product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;
or
|
|
|
|
|
|
|
●
|
the
regulatory pathway for a potential product candidate is too complex and difficult to navigate successfully or economically.
|
In
addition, we may choose to focus our efforts and resources on a potential product candidate that ultimately proves to be unsuccessful. As a result, we may fail to capitalize on viable commercial products or profitable
market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases
that may later prove to have greater commercial potential, or relinquish valuable rights to such product candidates through collaboration,
licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and
commercialization rights. If we are unable to identify additional suitable product candidates for clinical development, this would
adversely impact our business strategy and our financial position and share price and could potentially cause us to cease operations.
We
will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As
of December 31, 2018, we had 12 employees. We will need to significantly expand our organization and we may have difficulty
identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on our
management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and
contractors. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day
activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively
manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational
mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected
growth could require significant capital expenditures and may divert financial resources from other projects, such as the
development of product candidates. If our management is unable to effectively manage our growth, our expenses may
increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to
implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and
compete effectively will depend, in part, on our ability to effectively manage any future growth.
Many
of the biotechnology companies that we compete against for qualified personnel and consultants have greater financial and other
resources, different risk profiles and a longer history in the industry than we do. If we are unable to continue to attract and
retain high-quality personnel and consultants, the rate and success at which we can discover and develop product candidates and
operate our business will be limited.
The
commercial success of any of our current or future product candidates will depend upon the degree of market acceptance by physicians,
patients, third-party payors, and others in the medical community.
Even
with the approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our products will depend
in part on the health care providers, patients, and third-party payors accepting our product candidates as medically useful, cost-effective,
and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and
other health care providers. The clinical development, commercialization and marketing of cell therapies are at an early-stage,
substantially research-oriented, and financially speculative. To date, very few companies have been successful in their efforts
to develop and commercialize cell therapies. In general, cell therapies may be susceptible to various risks, including undesirable
and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy, potentially prohibitive costs
or other characteristics that may prevent or limit their approval or commercial use. Furthermore, the number of people who may
use cell- or tissue-based therapies is difficult to forecast with accuracy. Our future success is dependent on the establishment
of a large global market for cell therapies and our ability to capture a share of this market with our product candidates.
Even
if we successfully develop and obtain regulatory approval for our product candidates, the market may not understand or accept
them. Our product candidates represent novel treatments and are expected to compete with a number of more conventional products
and therapies manufactured and marketed by others, including major pharmaceutical and biotechnology companies. The degree of market
acceptance of any of our products will depend on a number of factors, including without limitation:
|
|
●
|
the
efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;
|
|
|
|
|
|
|
●
|
the
prevalence and severity of the disease and any side effects;
|
|
|
|
|
|
|
●
|
the
clinical indications for which approval is granted, including any limitations or warnings contained in a product’s approved
labeling;
|
|
|
|
|
|
|
●
|
the
convenience and ease of administration;
|
|
|
|
|
|
|
●
|
the
cost of treatment, particular as additive to existing treatments;
|
|
|
|
|
|
|
●
|
the
willingness of the patients and physicians to accept and use these therapies and the perception of efficacy and safety of
our approved products by such parties;
|
|
|
|
|
|
|
●
|
the
marketing, sales and distribution support for the products;
|
|
|
●
|
the
publicity and ethical, social and legal concerns regarding the use of embryonic stem cells for our products or competing products
and treatments; and
|
|
|
|
|
|
|
●
|
government
regulations restricting or prohibiting our research or manufacturing processes for stem cells due to ethical, social and legal
concerns regarding their use in medical research and treatment; and
|
|
|
|
|
|
|
●
|
the
pricing and availability of third-party insurance coverage and reimbursement.
|
Even
if a product displays a favorable efficacy and safety profile upon approval, market acceptance of the product will initially remain
uncertain. Efforts to educate the medical community and third-party payors on the benefits of the products may require significant
investment and resources and may never be successful. If our products fail to achieve an adequate level of acceptance by physicians,
patients, third-party payors, and other health care providers, we will not be able to generate sufficient revenue to become or
remain profitable.
If
the market opportunities for our product candidates are smaller than we believe they are, we may not meet our revenue expectations
and, even assuming approval of a product candidate, our business may suffer.
Our
projections of the number of potential users of our product candidates in the markets we are attempting to address are based on
our beliefs and estimates and include several key assumptions based on our industry knowledge, industry publications, third-party
research reports and other surveys. You should bear in mind the following:
|
|
●
|
Our
estimates have been derived from a variety of sources, including publications and scientific literature or market research
estimating the total number of patients and currently approved or used therapies, as well as certain assumptions regarding
the potential size of the market assuming broad regulatory approval or potential usage by physicians beyond the approved label,
any of which may prove to be incorrect.
|
|
|
|
|
|
|
●
|
The
scope of approval and potential use may be significantly narrower, and the number of patients may turn out to be lower than
expected.
|
|
|
|
|
|
|
●
|
Competitive
products or approaches may be approved or come into use by medical providers and the potentially addressable patient population
for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new
patients may become increasingly difficult to identify or gain access to, any which could adversely affect our results of
operations and our business.
|
If
the actual market for any of our product candidates is smaller than we expect, our revenue may be limited and it may be more difficult
for us to achieve or maintain profitability.
We
will face risks related to the manufacture of medical products for any product candidates that we develop
.
The
manufacture of medical products, and in particular biologics, is complex and requires significant expertise and capital investment,
including the development of advanced manufacturing techniques and process controls, none of which we presently have. Unless we
are able to raise the capital required to construct our own manufacturing facilities and are able to develop the expertise to
manage and operate a manufacturing facility of our own, we may need to rely on third-party manufacturers to manufacture any products
that we develop. There is no assurance that we will be able to identify manufacturers on acceptable terms or at all. Regardless
of whether we do our own manufacturing or rely on third parties to manufacture products for us, we will face all risks related
to the manufacture of therapeutic products for use in medicine including the following risks:
|
|
●
|
We
or any third-party manufacturers might be unable to timely formulate and manufacture our products or produce the quantity
and quality required to meet our clinical and commercial needs, if any.
|
|
|
|
|
|
|
●
|
We
or any third-party manufacturers may not be able to execute our manufacturing procedures appropriately.
|
|
|
|
|
|
|
●
|
Any
third-party manufacturers we engage may not perform as agreed or may not remain in the contract manufacturing business for
the time required to supply our clinical trials or to successfully produce, store and distribute our products on a commercial
scale.
|
|
|
|
|
|
|
●
|
We
or any third-party manufacturers will be subject to ongoing periodic unannounced inspection by the United States Food and
Drug Administration, or FDA, and corresponding state agencies to ensure strict compliance with cGMP and other government regulations
and corresponding foreign standards. We will not have control over third-party manufacturers’ compliance with applicable
regulations and standards.
|
|
|
●
|
We
may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers
in the manufacturing process for our product candidates.
|
|
|
|
|
|
|
●
|
Third-party
manufacturers could breach or terminate their agreements with us.
|
|
|
|
|
|
|
●
|
We
or third-party manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor
disputes or unstable political environments.
|
In
addition, we may rely on third parties to perform release testing on our product candidates prior to delivery to patients. If
these tests are not appropriately conducted and test data are not reliable, patients could be put at risk of serious harm which
could result in product liability suits.
If
we or any third-party manufacturers that we may engage were to encounter any of these difficulties, our ability to provide our
product candidates to patients in clinical trials or to the medical market place would be jeopardized. Any delay or interruption
in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining
clinical trial programs and, depending upon the period of delay, could require us to either commence new clinical trials at additional
expense or terminate clinical trials completely.
The
regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those
of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or
if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or
the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party
to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary
or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially
harm our business.
Additionally,
if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. The regulatory
agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers
may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
Further,
our product candidates are manufactured by starting with established master cell banks of human embryonic cells and other cells
that are cryopreserved. We will be required to expand the numbers of the pluripotent stem cell master cell banks for future use,
as well as produce working cell banks from which the product will be manufactured for clinical trials, produce the relevant product
under cGMP conditions, expand the number of relevant cells and cryopreserve them under cGMP conditions. We may not be able to
expand the numbers of the pluripotent stem cell master cell banks to provide sufficient cells for clinical trial or for commercial
scale production. We may not be able to manufacture product that meets release criteria due to sterility, identity or potency
issues. We may not have access or be able to make the reagents necessary to manufacture the cells and we may not have access to
an adequate supply channels to transport and distribute the products. There are also risks that the cells may be destroyed by
interruption in their cryopreservation by means of natural disasters such as earthquakes, power outages, or other unexpected events,
or the cells may be determined to be unacceptable as a source of human cellular therapies for reasons we cannot envision. We cannot
assure you that any stability or other issues relating to the manufacture of any of our product candidates or products will not
occur in the future. If any of our master cell banks are lost or destroyed, including due to systems failure in the cryopreservation
processes, our planned clinical trials would be severely delayed, and we would incur significant costs associated with obtaining
new supply of cell banks. Accordingly, failures or difficulties faced at any level of our supply chain could adversely affect
our business and delay or impede the development and commercialization of any of our product candidates or products and could
have an adverse effect on our business, prospects, financial condition and results of operations.
Any
therapies that we may develop may compete with other product candidates and products for access to manufacturing facilities. There
are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing cell-based
products for us. Any performance failure on the part of our existing or future manufacturers could delay clinical development
or marketing approval.
Each
of these risks could delay our clinical trials, any approval of our product candidates by the FDA, or the commercialization of
our product candidates, and could result in higher costs or deprive us of potential product revenue.
Any
cell-based products that receive regulatory approval may be difficult and expensive to manufacture on a commercial scale.
Pluripotent
stem cell and progenitor cell derived therapeutic cells have only been produced on a small scale and not in quantities and at
levels of purity and viability that will be needed for wide scale commercialization. If we are successful in developing products
that consist of cells or compounds derived from pluripotent stem cells or progenitor cells, we will need to develop processes
and technology for the commercial production of those products. Pluripotent stem cell or progenitor cell based products are likely
to be more expensive to manufacture on a commercial scale than most other drugs on the market today. The high cost of manufacturing
a product will require that we charge our customers a high price for the product in order to cover our costs and earn a profit.
If the price of our products is too high, hospitals and physicians may be reluctant to purchase our products and we may not be
able to sell our products in sufficient volumes to recover our costs or to earn a profit.
If
we fail to meet our obligations under license agreements, we may lose our rights to key technologies on which our business depends.
Our
business will depend on several critical technologies that we have licensed or sublicensed from BioTime or certain BioTime subsidiaries.
The license and sublicense agreements impose obligations on us, including payment obligations and obligations to pursue development
and commercialization of products and technologies under the licensed patents or technology. If the licensor or sublicensor believes
that we have failed to meet our obligations under a license or sublicense agreement, they could seek to limit or terminate our
license rights, which could lead to costly and time-consuming litigation and, potentially, our loss of the licensed rights. In
addition, certain of our licensing counterparties may terminate without cause, including Yeda Research in connection with the
relational databases that we in-license from Yeda for LifeMap Sciences. During the period of any such litigation our ability to
carry out the development and commercialization of potential new products or technologies, and our ability to raise any capital
that we might then need, could be significantly and negatively affected. If our license rights were restricted or ultimately lost,
we would not be able to continue to use the licensed or sublicensed technology in our business.
Our
future success depends on our ability to retain our key personnel and to attract, retain and motivate qualified personnel.
Our
industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development,
regulatory, commercialization and business development expertise of Michael West, Ph.D., our Chief Executive Officer, as well
as the other principal members of our management, scientific and clinical teams. Although we have employment agreements
with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. In addition,
because we will rely on BioTime and Juvenescence Limited (“Juvenescence”) to provide the services of certain administrative
and management personnel, we will not have the benefit of the full time and effort of those BioTime and Juvenescence employees
in the management and development of our business.
If
we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could
be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period
of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop,
gain regulatory approval of and commercialize product candidates successfully. Competition to hire from this limited pool is intense,
and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms given the competition
among numerous pharmaceutical and biotechnology companies for similar personnel. 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 engaged by entities other than us and may have commitments under consulting or advisory contracts
with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel,
our ability to develop and commercialize product candidates will be limited.
Our
business and operations could suffer in the event of system failures.
Despite
the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable
to damage from computer viruses, unauthorized access, natural disasters including earthquakes and tsunamis, terrorism, war, and
telecommunication and electrical failures. Some of our data related to the development of our product candidates resides on BioTime’s
computer servers and will be subject to the same risks described above. Further, while we are working to transfer our data from
BioTime’s servers to our own servers, there is a risk that data could be lost or corrupted while in the process of being
transferred, or could otherwise not be transferred to us. A loss of or damage to our data, a disruption in access to our data,
or inappropriate disclosure of confidential or proprietary information, could disrupt our operations, delay or otherwise adversely
affect the development of our product candidates, significantly increase our costs, or result in delays in any future regulatory
filings we may make .
In
addition, our product candidates are manufactured by starting with cells that are stored in a cryopreserved master cell bank.
While we believe we have adequate backup should any cell bank be lost in a catastrophic event, it is possible that we or our third-party
suppliers and manufacturers could lose multiple cell banks and have our manufacturing severely impacted by the need to replace
the cell banks. See “—We will face risks related to the manufacture of medical products for any product candidates
that we develop.” We cannot assure you that any stability or other issues relating to the manufacture of any of our product
candidates or products will not occur in the future. Any delay or interruption in the supply of clinical trial supplies could
delay the completion of planned clinical trials, increase the costs associated with maintaining clinical trial programs and, depending
upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely.
Any adverse developments affecting clinical or commercial manufacturing of our product candidates or products may result in shipment
delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the supply of our product
candidates or products. Accordingly, failures or difficulties faced at any level of our supply chain could adversely affect our
business and delay or impede the development and commercialization of any of our product candidates or products and could have
an adverse effect on our business, prospects, financial condition and results of operations.
Security
breaches and other disruptions could compromise our information and expose us to liability, and could cause our business and reputation
to suffer
.
In
the ordinary course of business, we collect and store sensitive data, including intellectual property, our proprietary business
information and that of the licensors and licensees of the patents and other intellectual property we use, and personally identifiable
information of employees and consultants. The secure processing, maintenance, and transmission of this information is critical
to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable
to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such breach could compromise our
networks and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure,
theft, or other loss of information could result in legal claims or proceedings or liability under laws that protect the privacy
of personal information, and could disrupt our operations and damage our reputation. Even if we do not incur an interruption of
or our operations, fines, penalties, or financial liability to third parties from a security breach, we could suffer a loss of
confidence in our services, which could adversely affect our business and competitive position.
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 that we identify 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 timely
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. 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.
Failure
of our internal control over financial reporting could harm our business and financial results.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S. Internal
control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our
transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial
statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with
management authorization; and providing reasonable assurance that unauthorized acquisition, use, or disposition of our assets
that could have a material effect on the financial statements would be prevented or detected on a timely basis. Because of
its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a
misstatement of our financial statements would be prevented or detected. Because we are an emerging growth company and a
smaller reporting issuer, we are exempt from the requirement of having our internal controls over financial reporting audited
by our independent registered public accountants, which means that material weaknesses or significant deficiencies in our
internal controls that might be detected by an audit may not be detected and remedied. If we are successful in developing
new medical products and technologies, the commercialization of those products and technologies will place significant
additional pressure on our system of internal control over financial reporting. Any failure to maintain an effective system
of internal control over financial reporting could limit our ability to report our financial results accurately and timely or
to detect and prevent fraud. See “—Risks Pertaining to Our Common Stock—Our accounting and other management
systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will
be subject, and failure to achieve and maintain effective internal controls could have a material adverse effect on our
business and the price of our common stock.”
We
will initially rely in part on financial systems maintained by BioTime and upon services provided by BioTime personnel. BioTime
will allocate certain expenses among itself, us, and BioTime’s other subsidiaries and affiliates, which creates a risk that
the allocations may not accurately reflect the benefit of an expenditure or use of financial or other resources by us, BioTime,
and the BioTime subsidiaries and affiliates among which the allocations are made.
Recent
changes in U.S. federal income tax law may have an adverse effect on our cash flows, results of operations or financial condition.
On
December 22, 2017, the United States enacted major federal tax reform legislation, Public Law No. 115-97, commonly referred to
as the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”), which enacted a broad range of changes to the Internal Revenue
Code. Changes to taxes on corporations impacted by the 2017 Tax Act include, but not limited to, changing the U.S. federal tax
rate on corporations to a 21 percent flat tax rate, eliminating the corporate alternative minimum tax (“AMT”), imposing
additional limitations on the deductibility of interest and net operating losses, allowing any net operating loss (“NOLs”)
generated in tax years ending after December 31, 2017 to be carried forward indefinitely and generally repealing NOL carrybacks,
reducing the maximum deduction for NOL carryforwards arising in tax years beginning after 2017 to a percentage of the taxpayer’s
taxable income, and allowing for additional expensing of certain capital expenditures. The 2017 Tax Act also puts into effect
a number of changes impacting operations outside of the United States including, but not limited to, the imposition of a one-time
tax “deemed repatriation” on accumulated offshore earnings not previously subject to U.S. tax, and shifts the U.S
taxation of multinational corporations from a worldwide system of taxation to a territorial system. Notwithstanding the reduction
in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition
could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted
federal tax law.
Risks
Related to Our Industry
We
face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve
regulatory approval before us or develop therapies that are more advanced or effective than ours, which may harm our business
and financial condition, and our ability to successfully market or commercialize our product candidates.
The
biotechnology and pharmaceutical industries are characterized by rapidly changing technologies, competition and a strong emphasis
on intellectual property. We may face competition from other companies focused on therapeutics for age-related disease, which
is a highly competitive environment. There are numerous biotechnology companies developing therapeutics for human aging, with
each company often focusing on a specific molecular pathway within cells. For example, ResTORbio, Inc. is developing modulators
of the mechanistic target of rapamycin (mTOR) pathway to treat immunological and cardiovascular disorders. Calico Life Sciences
LLC is a Google-founded research and development company aimed at identifying molecular pathways that control animal lifespan
and translating these insights into novel therapeutics designed to increase human healthspan. Unity Biotechnology, Inc. focuses
on cellular senescence, in particular, the use of agents that can target senescent cells for selective ablation (senolysis). Unity’s
stated targeted age-related diseases include osteoarthritis as well as other ophthalmological and pulmonary diseases. Our therapeutic
products in development are likely to face competition from a large number of companies and technological strategies including
therapeutics intended to address our lead indications. See “Business – Competition.”
We
may also face competition from large and specialty pharmaceutical and biotechnology companies, academic research institutions,
government agencies and public and private research institutions. Many of our current or potential competitors, either alone or
with their collaboration partners, 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 gene therapy industries may result in even more resources being concentrated
among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting
and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for
clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity
could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer
or less severe side effects, are more convenient, or are less expensive than any products that we may develop or that would render
any products that we may develop obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval
for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong
market position before we are able to enter the market. In particular, the Ministry of Labor Health and Welfare in Japan may grant
SAKIGAKE designation to a competing product candidate, which is designed to provide for faster review and approval for any such
product candidate as compared to the conventional process. If any competing product candidate receives SAKIGAKE designation in
Japan, it may be commercialized more quickly in Japan than any of our product candidates. Additionally, technologies developed
by our competitors may render our potential product candidates uneconomic or obsolete, and we may not be successful in marketing
any product candidates we may develop against competitors.
Any
product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
The
Patient Protection and Affordable Care Act, signed into law on March 23, 2010 (“ACA”), includes a subtitle called
the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological
products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application
for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first
licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from
the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still
market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s
own pre-clinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency
of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact,
implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA
may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for
our biological products.
There
is a risk that any of our product candidates approved as a biological product under a BLA would not qualify for the 12-year period
of exclusivity or that this exclusivity could be shortened due to congressional action or otherwise, 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. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have
also been the subject of recent litigation. 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.
The
regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable,
and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The
time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years
following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory
authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may
change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained
regulatory approval for any product candidate and it is possible that any other product candidates we may seek to develop in the
future will ever obtain regulatory approval. Neither we nor any future collaborator is permitted to market any of our product
candidates in the United States until we receive regulatory approval of a biologic license application, or BLA, from the FDA.
It is possible that the FDA may refuse to accept for substantive review any BLAs that we submit for our product candidates or
may conclude after review of our data that our application is insufficient to obtain marketing approval of our product candidates.
Prior
to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate
with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies,
that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials
can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising,
such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to
conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may
object to elements of our clinical development program. Depending on the extent of these or any other FDA-required studies, approval
of any BLA or application that we submit may be delayed by several years or may require us to expend significantly more resources
than we have available.
Any
therapeutic products that we and our subsidiaries may develop cannot be sold until the FDA and corresponding foreign regulatory
authorities approve the products for medical use. The need to obtain regulatory approval to market a new product means that:
|
|
●
|
We
will have to conduct expensive and time-consuming clinical trials of new products. The full cost of conducting and completing
clinical trials necessary to obtain FDA and foreign regulatory approval of a new product cannot be presently determined but
could exceed our financial resources.
|
|
|
|
|
|
|
●
|
Clinical
trials and the regulatory approval process for a pharmaceutical or cell-based product can take several years to complete.
As a result, we will incur the expense and delay inherent in seeking FDA and foreign regulatory approval of new products,
even if the results of clinical trials are favorable.
|
|
|
|
|
|
|
●
|
Data
obtained from preclinical and clinical studies is susceptible to varying interpretations and regulatory changes that could
delay, limit, or prevent regulatory agency approvals.
|
|
|
●
|
Because
the therapeutic products we plan to develop with pluripotent stem cell technology or progenitor cell technology involve the
application of new technologies and approaches to medicine, the FDA or foreign regulatory agencies may subject those products
to additional or more stringent review than drugs or biologicals derived from other technologies.
|
|
|
|
|
|
|
●
|
A
product that is approved may be subject to restrictions on use.
|
|
|
|
|
|
|
●
|
The
FDA can recall or withdraw approval of a product, if it deems necessary.
|
|
|
|
|
|
|
●
|
We
will face similar regulatory issues in foreign countries.
|
Approval
of our product candidates may be delayed or refused for many reasons, including the following:
|
|
●
|
the
FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
|
|
|
|
|
|
|
●
|
we
may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product
candidates are safe and effective for any of their proposed indications;
|
|
|
|
|
|
|
●
|
the
results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory
authorities for approval;
|
|
|
|
|
|
|
●
|
we
may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks;
|
|
|
|
|
|
|
●
|
the
FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical programs or
clinical trials;
|
|
|
|
|
|
|
●
|
the
data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA or
other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
|
|
|
|
|
|
|
●
|
the
facilities of the third-party manufacturers with which we contract may not be adequate to support approval of our product
candidates (for example, regulatory approval of cell- and tissue-based products require high standards of quality control);
and
|
|
|
|
|
|
|
●
|
the
approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner
rendering our clinical data insufficient for approval.
|
Of
the large number of potential products in development, only a small percentage successfully complete the FDA or foreign regulatory
approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial
results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm
our business, results of operations and prospects.
Ethical,
social and legal concerns about research regarding stem cells, could result in regulations restricting or prohibiting the processes
we may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further regulating
biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing
any products. New government requirements may be established that could delay or prevent regulatory approval of our product candidates
under development. It is impossible to predict whether legislative changes will be enacted, regulations, policies or guidance
changed, or interpretations by agencies or courts changed, or what the impact of such changes, if any, may be.
Regulatory
requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. The FDA
has established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER,
to consolidate the review of gene therapy and related products, and has established the Cellular, Tissue and Gene Therapies Advisory
Committee to advise the CBER in its review. Gene therapy clinical trials conducted at institutions that receive funding for recombinant
DNA research from the NIH, also are potentially subject to review by the NIH Office of Science Policy’s Recombinant DNA
Advisory Committee, or the RAC, in limited circumstances. Although the FDA decides whether individual gene therapy protocols may
proceed, the RAC public review process, if undertaken, can delay the initiation of a clinical trial, even if the FDA has reviewed
the trial design and details and authorized its initiation. Conversely, the FDA can put an investigational new drug application,
or IND, on clinical hold even if the RAC has provided a favorable review or an exemption from in-depth, public review. If we were
to engage an NIH-funded institution, to conduct a clinical trial, that institution’s institutional biosafety committee,
or IBC, as well as its institutional review board, or IRB, would need to review the proposed clinical trial to assess the safety
of the trial and may determine that RAC review is needed. In addition, adverse developments in clinical trials of gene therapy
products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our
product candidates. Similarly, foreign regulatory authorities may issue new guidelines concerning the development and marketing
authorization for gene therapy medicinal products and require that we comply with these new guidelines.
Some
of our future products may be viewed by the FDA as combination products and the review of combination products is often more complex
and more time consuming than the review of other types of products.
Our
future products may be regulated by the FDA as combination products. For a combination product, the FDA must determine which center
or centers within the FDA will review the product candidate and under what legal authority the product candidate will be reviewed.
The process of obtaining FDA marketing clearance or approval is lengthy, expensive, and uncertain, and we cannot be sure that
any of our combination products, or any other products, will be cleared or approved in a timely fashion, or at all. In addition,
the review of combination products is often more complex and more time consuming than the review of a product candidate under
the jurisdiction of only one center within the FDA. We cannot be sure that the FDA will not select to have our combination products
reviewed and regulated by only one FDA center and/or different legal authority, in which case the path to regulatory approval
would be different and could be more lengthy and costly. If the FDA does not approve or clear our products in a timely fashion,
or at all, our business and financial condition will be adversely affected.
If
we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise
adversely affected.
The
timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll
a sufficient number of patients who remain in the study until its conclusion. We may encounter delays in enrolling, or be unable
to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled we may be unable to
retain a sufficient number of patients to complete any of our trials. The enrollment of patients depends on many factors, including:
|
|
●
|
the
patient eligibility criteria defined in the protocol;
|
|
|
|
|
|
|
●
|
the
size of the patient population required for analysis of the trial’s primary endpoints;
|
|
|
|
|
|
|
●
|
the
proximity of patients to study sites;
|
|
|
|
|
|
|
●
|
the
design of the trial;
|
|
|
|
|
|
|
●
|
our
ability to recruit clinical trial investigators with the appropriate competencies and experience;
|
|
|
|
|
|
|
●
|
clinicians’
and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other
available therapies, including any new products that may be approved for the indications we are investigating;
|
|
|
|
|
|
|
●
|
our
ability to obtain and maintain patient consents; and
|
|
|
|
|
|
|
●
|
the
risk that patients enrolled in clinical trials will drop out of the trials before completion.
|
In
addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic
areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some
patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors.
Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same
clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical
trials in such clinical trial site.
Delays
or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have
a harmful effect on our ability to develop our product candidates or could render further development impossible.
Even
if we obtain FDA approval for any of our product candidates in the United States, we may never obtain approval for or commercialize
it in any other jurisdiction, which would limit our ability to realize its full market potential.
In
order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory
requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure
approval by regulatory authorities in other countries or jurisdictions. However, the failure to obtain approval in one jurisdiction
may negatively impact our ability to obtain approval elsewhere. In addition, clinical trials conducted in one country may not
be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory
approval in any other country.
Approval
processes vary among countries and can involve additional product testing and validation and additional administrative review
periods. Seeking foreign regulatory approval could result in difficulties and increased costs for us and require additional preclinical
studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country
and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved
for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval
in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain
required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our
ability to realize the full market potential of any product we develop will be unrealized.
Clinical
studies are costly, time consuming and inherently risky, and we may fail to demonstrate safety and efficacy to the satisfaction
of applicable regulatory authorities
Clinical
development is expensive, time consuming and involves significant risk. We cannot guarantee that any clinical studies will be
conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of
development. Events that may prevent successful or timely completion of clinical development include but are not limited to:
|
|
●
|
inability
to generate satisfactory preclinical, toxicology, or other
in vivo
or
in vitro
data to support the initiation
or continuation of clinical studies necessary for product approval;
|
|
|
|
|
|
|
●
|
delays
in reaching agreement on acceptable terms with clinical research organizations or CROs and clinical study sites, the terms
of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;
|
|
|
|
|
|
|
●
|
delays
in obtaining required Institutional Review Board, or IRB, approval at each clinical study site;
|
|
|
|
|
|
|
●
|
failure
to permit the conduct of a study by regulatory authorities, after review of an investigational new drug, or IND, or equivalent
foreign application or amendment;
|
|
|
|
|
|
|
●
|
delays
in recruiting qualified patients in our clinical studies;
|
|
|
|
|
|
|
●
|
failure
by clinical sites or our CROs or other third parties to adhere to clinical study requirements or report complete findings;
|
|
|
|
|
|
|
●
|
failure
to perform the clinical studies in accordance with the FDA’s good clinical practices requirements, or applicable foreign
regulatory guidelines;
|
|
|
|
|
|
|
●
|
patients
dropping out of our clinical studies;
|
|
|
|
|
|
|
●
|
occurrence
of adverse events associated with our product candidates;
|
|
|
|
|
|
|
●
|
inability
to use clinical trial results from foreign jurisdictions in support of U.S. regulatory approval;
|
|
|
|
|
|
|
●
|
changes
in regulatory requirements and guidance that require amending or submitting new clinical protocols;
|
|
|
|
|
|
|
●
|
the
cost of clinical studies of our product candidates;
|
|
|
|
|
|
|
●
|
negative
or inconclusive results from our clinical trials which may result in our deciding, or regulators requiring us, to conduct
additional clinical studies or abandon development programs for a product candidate; and
|
|
|
|
|
|
|
●
|
delays
in reaching agreement on acceptable terms with third-party manufacturers, or delays in the manufacture of sufficient quantities
of our product candidates for use in clinical studies.
|
Any
inability to successfully complete clinical development and obtain regulatory approval could result in additional costs to us
or impair our ability to generate revenue. Clinical study delays could also shorten any periods during which our products have
patent protection and may allow competitors to develop and bring products to market before we do and may harm our business and
results of operations.
Even
if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued
regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply
with regulatory requirements or experience unanticipated problems with our product candidates.
Any
product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data,
labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional
activities for such product, among other things, will be subject to extensive and ongoing requirements of and review by the FDA
and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports,
establishment registration and drug listing requirements, continued compliance with cGMP requirements relating to manufacturing,
quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution
of samples to physicians and recordkeeping and Good Clinical Practice, or GCP, requirements for any clinical trials that we conduct
post-approval.
The
FDA closely regulates the post-approval marketing and promotion of genetic medicines to ensure they are marketed only for the
approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on
manufacturers’ communications regarding off-label use and if we market our products for uses beyond their approved indications,
we may be subject to enforcement action for off-label marketing. Violations of the U.S. federal Food, Drug, and Cosmetic Act,
or FDCA, relating to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging violations
of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In
addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing
processes, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may yield various results, including:
|
|
●
|
restrictions
on manufacturing such products;
|
|
|
|
|
|
|
●
|
restrictions
on the labeling or marketing of a product;
|
|
|
|
|
|
|
●
|
restrictions
on product distribution or use;
|
|
|
|
|
|
|
●
|
requirements
to conduct post-marketing studies or clinical trials;
|
|
|
|
|
|
|
●
|
warning
letters or holds on clinical trials;
|
|
|
|
|
|
|
●
|
withdrawal
of the products from the market;
|
|
|
|
|
|
|
●
|
refusal
to approve pending applications or supplements to approved applications that we submit;
|
|
|
|
|
|
|
●
|
recall
of products;
|
|
|
|
|
|
|
●
|
fines,
restitution or disgorgement of profits or revenues;
|
|
|
|
|
|
|
●
|
suspension
or withdrawal of marketing approvals;
|
|
|
|
|
|
|
●
|
refusal
to permit the import or export of our products;
|
|
|
|
|
|
|
●
|
product
seizure or detention; or
|
|
|
|
|
|
|
●
|
injunctions
or the imposition of civil or criminal penalties.
|
The
FDA’s policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory
approval of any of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed
into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and biologics and spur innovation,
but its ultimate implementation is unclear. If we are slow or unable to adapt to changes in existing requirements or the adoption
of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that
we may have obtained which would adversely affect our business, prospects and ability to achieve or sustain profitability.
We
also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact
our business and industry. Namely, 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, 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. Notably, 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 and approximate the total costs or savings associated
with each new regulation or repealed regulation. In interim guidance issued by the Office of Information and Regulatory Affairs
within the Office of Management and Budget on February 2, 2017, the Trump administration indicates that the “two-for-one”
provisions may apply not only to agency regulations, but also to significant agency guidance documents. Further, on February 24,
2017, President Trump issued an Executive Order requiring each agency to designate a regulatory reform officer and create a regulatory
reform task force to evaluate existing regulations and make recommendations regarding their repeal, replacement or modification.
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 in
oversight and implementation activities in the normal course, our business may be negatively impacted.
Our
product candidates may cause serious adverse events or undesirable side effects or have other properties which may delay or prevent
their regulatory approval, limit the commercial profile of an approved label, or, result in significant negative consequences
following marketing approval, if any.
Serious
adverse events or undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt,
delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the
FDA or other comparable foreign authorities. Results of our clinical trials could reveal a high and unacceptable severity and
prevalence of side effects, toxicities or unexpected characteristics, including death.
For
example, there have been significant adverse side effects in cell therapy treatments in the past, including reported cases of
certain cancers. In addition to side effects that may be caused by our product candidates, the conditioning, administration process
or related procedures also can cause adverse side effects, including compromise of a patient’s immune system. If unacceptable
side effects arise in the development of our product candidates, we, the FDA, the IRBs at the institutions in which our studies
are conducted or Data Safety Monitoring Board, or DSMB, could suspend or terminate our clinical trials or the FDA or comparable
foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all
targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients
to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately
recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates
to understand the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates.
Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient injury
or death. Any of these occurrences may harm our business, financial condition and prospects significantly.
If
any of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by
any such product, including during any long-term follow-up observation period recommended or required for patients who receive
treatment using our products, a number of potentially significant negative consequences could result, including:
|
|
●
|
regulatory
authorities may withdraw approvals of such product;
|
|
|
|
|
|
|
●
|
we
may be required to recall a product or change the way such product is administered to patients;
|
|
|
|
|
|
|
●
|
additional
restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product;
|
|
|
●
|
regulatory
authorities may require additional warnings on the label, such as a “black box” warning or contraindication;
|
|
|
|
|
|
|
●
|
we
may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a medication guide outlining the
risks of such side effects for distribution to patients;
|
|
|
|
|
|
|
●
|
the
product could become less competitive;
|
|
|
|
|
|
|
●
|
we
could be sued and held liable for harm caused to patients; and
|
|
|
|
|
|
|
●
|
our
reputation may suffer.
|
Any
of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved,
and could significantly harm our business, results of operations and prospects.
We
face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs.
If the use or misuse of our product candidates harm patients or is perceived to harm patients even when such harm is unrelated
to our product candidates, our regulatory approvals could be revoked or could otherwise be negatively impacted, and we could be
subject to costly and damaging product liability claims.
The
use or misuse of any product candidates in clinical trials and the sale of any products for which we obtain marketing approval
exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare
providers, pharmaceutical companies, or others selling or otherwise coming into contact with our products. There is a risk that
our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could
incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result
in:
|
|
●
|
impairment
of our business reputation;
|
|
|
|
|
|
|
●
|
initiation
of investigations by regulators;
|
|
|
|
|
|
|
●
|
withdrawal
of clinical trial participants;
|
|
|
|
|
|
|
●
|
costs
due to related litigation;
|
|
|
|
|
|
|
●
|
distraction
of management’s attention from our primary business;
|
|
|
|
|
|
|
●
|
substantial
monetary awards to patients or other claimants;
|
|
|
|
|
|
|
●
|
the
inability to commercialize our product candidates;
|
|
|
|
|
|
|
●
|
product
recalls, withdrawals or labeling, and marketing or promotional restrictions;
|
|
|
|
|
|
|
●
|
loss
of revenue; and
|
|
|
|
|
|
|
●
|
decreased
demand for our product candidates, if approved for commercial sale.
|
We
may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due
to liability. If and when we commence clinical trials or obtain marketing approval for any product candidates, we intend to increase
our insurance coverage to include clinical use or the sale of commercial products, as applicable; however, we may be unable to
obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have
been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful
product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed
our insurance coverage, could adversely affect our results of operations and business.
Our
insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured
liabilities.
We
do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain
include general liability, employment practices liability, property, auto, workers’ compensation, umbrella, and directors’
and officers’ insurance.
Any
additional product liability insurance coverage we acquire in the future, may not be sufficient to reimburse us for any expenses
or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able
to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If
we obtain marketing approval for any of our product candidates, we intend to acquire insurance coverage to include the sale of
commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate
amounts. A successful product liability claim or series of claims brought against us could cause our share price to decline and,
if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing
or limiting the commercialization of any product candidates we develop.
As
a public company, it can be difficult and
expensive for us to
obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and
retain qualified people to serve on our Board of Directors, our board committees or as executive officers. We do not know, however,
if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require
us to pay substantial amounts, which would adversely affect our cash position and results of operations.
Our
employees and independent contractors, including principal investigators, CROs, consultants, vendors, and any third parties we
may engage in connection with development and commercialization may engage in misconduct or other improper activities, including
noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
Misconduct
by our employees and independent contractors, including principal investigators, contract research organizations, or CROs, consultants,
vendors, and any third parties we may engage in connection with development and commercialization, could include intentional,
reckless or negligent conduct or unauthorized activities that violate: (i) the laws and regulations of the FDA, EMA rules and
regulations and other similar regulatory requirements, including those laws that require the reporting of true, complete and accurate
information to such authorities; (ii) manufacturing standards; (iii) data privacy, security, fraud and abuse and other healthcare
laws and regulations; or (iv) laws that require the reporting of true, complete and accurate financial information and data. Specifically,
sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to
prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit
a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained
in the course of clinical trials, creation of fraudulent data in pre-clinical studies or clinical trials or illegal misappropriation
of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible
to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations
or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, we are subject to
the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are
instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business and results of operations, including the imposition of significant civil, criminal and administrative penalties,
damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, other U.S. federal healthcare
programs or healthcare programs in other jurisdictions, individual imprisonment, other sanctions, contractual damages, reputational
harm, diminished profits and future earnings, and curtailment of our operations.
Government-imposed
bans or restrictions and religious, moral, and ethical concerns about the use of human embryonic stem cells could prevent us from
developing and successfully marketing stem cell products.
Government-imposed
bans or restrictions on the use of embryos or human embryonic stem cells (“hES cells”), in research and development
in the United States and abroad could generally constrain stem cell research, thereby limiting the market and demand for our products.
California
law requires that stem cell research be conducted under the oversight of a SCRO Committee. Many kinds of stem cell research,
including the derivation of new hES cell lines, may only be conducted in California with the prior written approval of the SCRO
Committee. A SCRO Committee could prohibit or impose restrictions on the research that we plan to do. An adverse
decision by a SCRO Committee, or their imposition of restrictions on a research program could adversely affect our ability to
enter into co-development or licensing arrangements for the development of a product candidate.
The
use of hES cells may give rise to religious, moral, and ethical issues. These considerations could lead to more restrictive government
regulations or could generally constrain stem cell research, thereby limiting the market and demand for our products.
Adverse
publicity regarding cell-based therapies could impact our business.
Adverse
publicity due to the ethical and social controversies surrounding the use of embryonic stem cells or any adverse reported side
effects from any stem cell or other cell therapy clinical trials or to the failure of such trials to demonstrate that these therapies
are efficacious could materially and adversely affect our ability to raise capital, conduct and complete clinical trials and achieve
market acceptance of such products, if approved. For example, research institutions, including those who may be our collaborators,
may from time to time publish findings or studies regarding the human genome (such as the Human Genome Project) that adversely
implicate our product candidates, including findings of cancer dependencies in cell lines used in our cell-based therapies.
The
price and sale of any products that we may develop may be limited by health insurance coverage and government regulation.
Success
in selling our pharmaceutical and cell-based products and medical devices may depend in part on the extent to which health insurance
companies, HMOs, and government health administration authorities such as Medicare and Medicaid will pay for the cost of the products
and related treatment. Until we introduce a new product into the medical marketplace, we will not know with certainty whether
adequate health insurance, HMO, and government coverage will be available to permit the product to be sold at a price high enough
for us to generate a profit. In some foreign countries, pricing or profitability of health care products is subject to government
control, which may result in low prices for our products. In the United States, there have been a number of federal and state
proposals to implement similar government controls, and new proposals are likely to be made in the future. We cannot be sure that
coverage and reimbursement in the United States, the EU or elsewhere will be available for our product candidates or any product
that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.
Third-party
payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse
to provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar or a less
expensive therapy is available. It is possible that a third-party payor may consider our product candidates as substitutable and
only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of
administration with our product candidates, pricing of existing third-party therapeutics may limit the amount we will be able
to charge for our product candidates. These payors may deny or revoke the reimbursement status of a given product or establish
prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment
in our product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to successfully
commercialize our product candidates and may not be able to obtain a satisfactory financial return on our product candidates.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly-approved products. In the United States,
third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role
in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are
used as models in the United States for how private payors and other governmental payors develop their coverage and reimbursement
policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or
drug therapies before they will reimburse healthcare providers who use such therapies. We cannot predict at this time what third-party
payors will decide with respect to the coverage and reimbursement for our product candidates.
No
uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage
and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is
often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product
candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or
obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases on
short notice, and we believe that changes in these rules and regulations are likely.
Outside
the United States, international operations are generally subject to extensive governmental price controls and other market regulations,
and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries have and will continue to
put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject
to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices
for medical products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation
could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States,
the reimbursement for our product candidates may be reduced compared with the United States and may be insufficient to generate
commercially-reasonable revenue and profits.
Moreover,
increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may
cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they
may not cover or provide adequate payment for our product candidates. While it is not possible to predict or model the insurance
landscape at the time any of our product candidates may receive regulatory approval, we expect to experience pricing
pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence
of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general,
particularly prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly
high barriers are being erected to the entry of new products.
Enacted
and future healthcare legislation, including the ACA, may increase the difficulty and cost for us to obtain marketing approval
of and commercialize our product candidates and may affect the prices we may set.
In
the United States, the EU and other jurisdictions, there have been, and we expect there will continue to be, a number of legislative
and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. As a
result of the adoption of the ACA in the United States, substantial changes have been made to the system for paying for healthcare
in the United States. Certain provisions related to cost-savings and reimbursement measures could adversely affect our future
financial performance. For example, among the provisions of the ACA, those of greatest importance to the biopharmaceutical industry
includes the following:
|
|
●
|
an
annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription drugs and biologic
agents (other than those designated as orphan drugs), which is apportioned among these entities according to their market
share in certain government healthcare programs;
|
|
|
|
|
|
|
●
|
new
requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting “transfers
of value” made or distributed to prescribers and other healthcare providers and reporting investment interests held
by physicians and their immediate family members;
|
|
|
|
|
|
|
●
|
a
new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that
are inhaled, infused, instilled, implanted or injected;
|
|
|
|
|
|
|
●
|
expansion
of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain
individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s
Medicaid rebate liability;
|
|
|
|
|
|
|
●
|
a
licensure framework for follow on biologic products;
|
|
|
|
|
|
|
●
|
a
new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness
research, along with funding for such research; and
|
|
|
|
|
|
|
●
|
establishment
of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment
and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
|
Since
its enactment, some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject
to judicial, congressional, and executive challenges. As a result, there have been delays in the implementation of, and action
taken to repeal or replace, certain aspects of the ACA. The U.S. Supreme Court has upheld certain key aspects of the legislation,
including a tax-based shared responsibility payment imposed on certain individuals who fail to maintain qualifying health coverage
for all or part of a year, which is commonly known as the requirement that all individuals maintain health insurance coverage
or pay a penalty, referred to as the “individual mandate.” However, as a result of tax reform legislation passed in
December 2017, the individual mandate has been eliminated effective January 1, 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.
Since
January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the
ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directs 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. The Order requires that for each notice of proposed rulemaking
or final regulation to be issued in fiscal year 2017, the applicable 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 and approximate
the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued by the Office
of Information and Regulatory Affairs within the Office of Management and Budget on February 2, 2017, the Trump administration
indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency
guidance documents.
The
second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General
filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by
a federal judge in California on October 25, 2017. The loss of the cost share reduction payments is expected to increase premiums
on certain policies issued by qualified health plans under the ACA. In addition, the Centers for Medicare & Medicaid Services,
or CMS, has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the
individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the
ACA for plans sold through such marketplaces. Litigation and legislation over the ACA are likely to continue, with unpredictable
and uncertain results. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.
Further,
on February 24, 2017, President Trump issued an Executive Order requiring each agency to designate a regulatory reform officer
and create a regulatory reform task force to evaluate existing regulations and make recommendations regarding their repeal, replacement
or modification. 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.
In
addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011,
the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee
on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through
2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into
effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional
action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other
things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment
centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to
five years. These new laws or any other similar laws introduced in the future may result in additional reductions in Medicare
and other health care funding, which could negatively affect our customers and accordingly, our financial operations.
The
costs of prescription pharmaceuticals in the United States has also been the subject of considerable debate, and members of Congress
and the Trump Administration have indicated that each will address such costs through new legislative and administrative measures.
To date, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among
other things, improve transparency in drug pricing, review the relationship between pricing and manufacturer patient programs,
reduce the costs of drugs under Medicare, and reform government program reimbursement methodologies for drug products. The pricing
of prescription pharmaceuticals is also subject to governmental control outside the United States. In these other 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
approved products. In addition, there have been several recent Congressional inquiries and proposed bills designed to, among other
things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce
the cost of drugs under Medicare and reform government program reimbursement methodologies for drugs. 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 labeling and post-marketing testing and other requirements.
Moreover,
payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop
new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental
scrutiny over the manner in which manufacturers set prices for their marketed products. We expect that additional U.S. federal
healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government
will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing
pressures.
Individual
states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed
to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions
on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation
from other countries and bulk purchasing. Legally-mandated price controls on payment amounts by third-party payors or other restrictions
could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities
and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers
will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our product
candidates or put pressure on our product pricing.
In
the EU, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product
candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments
at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating
costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and
reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments
and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement
of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted
in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing
EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval
of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize our product candidates,
if approved.
In
markets outside of the United States and EU, reimbursement and healthcare payment systems vary significantly by country, and many
countries have instituted price ceilings on specific products and therapies.
We
cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
action in the United States, the EU or any other jurisdiction. If we or any third parties we may engage are slow or unable to
adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third parties are
not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained
and we may not achieve or sustain profitability.
If
we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased
costs, penalties and a loss of business.
Our
activities, and the activities of any collaborators, distributors and other third-party providers that we may engage in the future,
will be subject to extensive government regulation and oversight both in the U.S. and in foreign jurisdictions. The FDA and comparable
agencies in other jurisdictions will directly regulate many of our most critical business activities, including the conduct of
preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting,
and product risk management. Our interactions in the U.S. or abroad with physicians and other health care providers that prescribe
or purchase our products will also be subject to government regulation designed to prevent fraud and abuse in the sale and use
of the products and place greater restrictions on the marketing practices of health care companies. Health care companies such
as ours are facing heightened scrutiny of their relationships with health care providers from anti-corruption enforcement officials.
In addition, health care companies such as ours have been the target of lawsuits and investigations alleging violations of government
regulation, including claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical
products, payments intended to influence the referral of health care business, submission of false claims for government reimbursement,
antitrust violations, and violations related to environmental matters. Risks relating to compliance with laws and regulations
may be heightened if we operate globally.
Regulations
governing the health care industry are subject to change, with possibly retroactive effect, including:
|
|
●
|
new
laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health
care availability, pricing or marketing practices, compliance with wage and hour laws and other employment practices, method
of delivery, payment for health care products and services, compliance with health information and data privacy and security
laws and regulations, tracking and reporting payments and other transfers of value made to physicians and teaching hospitals,
extensive anti-bribery and anti-corruption prohibitions, product serialization and labeling requirements and used product
take-back requirements;
|
|
|
|
|
|
|
●
|
changes
in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new products and result in
lost market opportunity;
|
|
|
|
|
|
|
●
|
requirements
that provide for increased transparency of clinical trial results and quality data, such as the EMA’s clinical transparency
policy, which could impact our ability to protect trade secrets and competitively-sensitive information contained in approval
applications or could be misinterpreted leading to reputational damage, misperception, or legal action which could harm our
business; and
|
|
|
|
|
|
|
●
|
changes
in FDA and foreign regulations that may require additional safety monitoring, labeling changes, restrictions on product distribution
or use, or other measures after the introduction of our products to market, which could increase our costs of doing business,
adversely affect the future permitted uses of approved products, or otherwise adversely affect the market for our products.
|
Violations
of governmental regulation may be punishable by criminal and civil sanctions against us, including fines and civil monetary penalties
and exclusion from participation in government programs, including Medicare and Medicaid, as well as sanctions against executives
overseeing our business. In addition to penalties for violation of laws and regulations, we could be required to repay amounts
we received from government payors or pay additional rebates and interest if we are found to have miscalculated the pricing information
we have submitted to the government. We cannot ensure that our compliance controls, policies and procedures will in every instance
protect us from acts committed by our employees, collaborators, partners or third-party providers that would violate the laws
or regulations of the jurisdictions in which we operate. Whether or not we have complied with the law, an investigation into alleged
unlawful conduct could increase our expenses, damage our reputation, divert management time and attention, and adversely affect
our business.
We
may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information
privacy and security laws, and if we are unable to comply with such laws, we could face substantial penalties.
If
we obtain FDA approval for any of our product candidates or technologies and begin commercializing those products or technologies
in the United States, our operations may be subject to various federal and state fraud and abuse laws, including, without limitation,
the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact,
among other things, our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation
by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate
include:
|
|
●
|
the
federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an
item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
|
|
|
|
|
|
|
●
|
federal
civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities
from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors
that are false or fraudulent;
|
|
|
|
|
|
|
●
|
the
federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes
that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare
matters;
|
|
|
|
|
|
|
●
|
HIPAA,
as amended by the Health Information Technology and Clinical Health Act, or HITECH, and implementing regulations, which impose
certain requirements relating to the privacy, security, and transmission of individually identifiable health information;
|
|
|
|
|
|
|
●
|
the
Physician Payments Sunshine Act which requires manufacturers of drugs, devices, biologics, and medical supplies to report
annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value
to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians
and other healthcare providers and their immediate family members and applicable group purchasing organizations;
|
|
|
|
|
|
|
●
|
the
FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;
|
|
|
|
|
|
|
●
|
the
U.S. Public Health Service Act, which prohibits, among other things, the introduction into interstate commerce of a biological
product unless a biologics license is in effect for that product; and
|
|
|
|
|
|
|
●
|
state
law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or
services reimbursed by any third-party payors, including commercial insurers; state laws that require pharmaceutical companies
to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government, or that otherwise restrict payments that may be made to healthcare providers and other potential
referral sources; state laws that require drug manufacturers to report information related to payments and other transfers
of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and
security of health information in certain circumstances.
|
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some
of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform
legislation has strengthened these laws. Further, state laws differ from each other and from federal law in significant ways,
thus complicating compliance efforts.
If
our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply,
we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government
health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any
of which could adversely affect our ability to operate our business and our results of operations.
Risks
Related to our Dependence on Third Parties
We
may become dependent on future collaborations to develop and commercialize our product candidates and to provide the regulatory
compliance, sales, marketing, and distribution capabilities required for the success of our business.
We
may enter into various kinds of collaborative research and development and product marketing agreements to develop and commercialize
our products. The expected future milestone payments and cost reimbursements from collaboration agreements could provide an important
source of financing for our research and development programs, thereby facilitating the application of our technology to the development
and commercialization of our products, but there are risks associated with entering into collaboration arrangements.
The
process of establishing and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty,
such as:
|
|
●
|
a
collaboration partner may shift its priorities and resources away from our product candidates due to a change in business
strategies, or a merger, acquisition, sale or downsizing;
|
|
|
|
|
|
|
●
|
a
collaboration partner may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results,
manufacturing issues, a change in business strategy, a change of control or other reasons;
|
|
|
|
|
|
|
●
|
a
collaboration partner may cease development in therapeutic areas which are the subject of our strategic collaboration;
|
|
|
|
|
|
|
●
|
a
collaboration partner may not devote sufficient capital or resources towards our product candidates;
|
|
|
|
|
|
|
●
|
a
collaboration partner may change the success criteria for a product candidate thereby delaying or ceasing development of such
candidate;
|
|
|
|
|
|
|
●
|
a
significant delay in initiation of certain development activities by a collaboration partner will also delay payment of milestones
tied to such activities, thereby impacting our ability to fund our own activities;
|
|
|
|
|
|
|
●
|
a
collaboration partner could develop a product that competes, either directly or indirectly, with our product candidate;
|
|
|
|
|
|
|
●
|
a
collaboration partner with commercialization obligations may not commit sufficient financial or human resources to the marketing,
distribution or sale of a product;
|
|
|
|
|
|
|
●
|
a
collaboration partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable
to meet demand requirements;
|
|
|
|
|
|
|
●
|
a
collaboration partner may terminate a strategic alliance;
|
|
|
|
|
|
|
●
|
a
dispute may arise between us and a partner concerning the research, development or commercialization of a product candidate
resulting in a delay in milestones, royalty payments or termination of an alliance and possibly resulting in costly litigation
or arbitration which may divert management attention and resources; and
|
|
|
|
|
|
|
●
|
a
partner may use our products or technology in such a way as to invite litigation from a third party.
|
There
is a risk that a collaboration partner might fail to perform its obligations under the collaborative arrangements or may be slow
in performing its obligations. In addition, a collaboration partner may experience financial difficulties at any time that could
prevent it from having available funds to contribute to the collaboration. If a collaboration partner fails to conduct its product
development, commercialization, regulatory compliance, sales and marketing or distribution activities successfully and in a timely
manner, or if it terminates or materially modifies its agreements with us, the development and commercialization of one or more
product candidates could be delayed, curtailed, or terminated because we may not have sufficient financial resources or capabilities
to continue such development and commercialization on our own.
We
have no marketing, sales, or distribution resources for the commercialization of any products or technologies that we might successfully
develop.
We
do not have any infrastructure for the sales, marketing or distribution of our products, and the cost of establishing and maintaining
such an organization may exceed the cost-effectiveness of doing so. There are significant expenses and risks involved with establishing
our own sales, marketing and distribution capabilities, including our ability to hire, retain and appropriately incentivize qualified
individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage
a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing
and distribution capabilities could delay any product launch, which would adversely impact the commercialization of any approved
product candidate.
If
we market products through arrangements with third parties, we may pay sales commissions to sales representatives or we may sell
or consign products to distributors at wholesale prices. As a result, our gross profit from product sales may be lower than it
would be if we were to sell our products directly to end users at retail prices through our own sales force. There can be no assurance
we will able to negotiate distribution or sales agreements with third parties on favorable terms to justify our investment in
our products or achieve sufficient revenues to support our operations.
If
we are unable to build our own sales force or negotiate a collaborative relationship for the commercialization of our product
candidates, we may be forced to delay the potential commercialization of such candidates or reduce the scope of our sales or marketing
activities for them. If we elect to increase our expenditures to fund commercialization activities ourselves, we will need to
obtain additional capital, which may not be available to us on acceptable terms, or at all. We could enter into arrangements with
collaborative partners at an earlier stage than otherwise would be ideal and we may be required to relinquish rights to our product
candidates or otherwise agree to terms unfavorable to us, any of which may have an adverse effect on our business, operating results
and prospects.
If
we are unable to establish adequate sales, marketing and distribution capabilities, either on our own or in collaboration with
third parties, we will not be successful in commercializing our product candidates and may not become profitable and may incur
significant additional losses. We will be competing with many companies that currently have extensive and well-funded marketing
and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may
be unable to compete successfully against these more established companies.
We
do not have the ability to independently conduct clinical trials required to obtain regulatory approvals for our product candidates
and intend to rely on third parties to conduct, supervise and monitor our clinical trials.
We
will need to rely on third parties, such as contract research organizations, data management companies, contract clinical research
associates, medical institutions, clinical investigators and contract laboratories to conduct any clinical trials that we may
undertake for our product candidates. We may also rely on third parties to assist with our preclinical development of product
candidates.
If
we outsource clinical trials, we may be unable to directly control the timing, conduct and expense of our clinical trials. However,
we will remain responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal,
regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We
and our third party contractors will be required to comply with the GLPs and GCPs, which are regulations and guidelines enforced
by the FDA and are also required by the Competent Authorities of the Member States of the European Economic Area and comparable
foreign regulatory authorities in the form of International Conference on Harmonization guidelines for any of our product candidates
that are in preclinical and clinical development. The Regulatory authorities enforce GCPs through periodic inspections of trial
sponsors, principal investigators and clinical trial sites. If we or our third party contractors fail to comply with GCPs, the
clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities
may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon
inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with
GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Accordingly,
if our third party contractors fail to comply with these regulations or fail to recruit a sufficient number of subjects, we may
be required to repeat clinical trials, which would delay the regulatory approval process.
Our
third party contractors will not be our employees, and we will not control whether or not they devote sufficient time and resources
to our future clinical and nonclinical programs. These third party contractors may also have relationships with other commercial
entities, including our competitors, for whom they may also be conducting clinical trials, or other product development activities
which could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual
property by third party contractors, which may reduce our trade secret protection and allow our potential competitors to access
and exploit our proprietary technology. If our third party contractors do not successfully carry out their contractual duties
or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised
due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reasons, our clinical trials
may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize
any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate
that we develop would be harmed, our costs could increase, and our ability to generate revenues could be delayed.
If
our relationship with any third party contractors terminate, we may not be able to enter into arrangements with alternative third
party contractors or do so on commercially reasonable terms. Switching or adding additional third party contractors involves substantial
cost and requires management time and focus. In addition, there is a natural transition period when a new third party commences
work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though
we intend to carefully manage our relationships with our third party contractors, there can be no assurance that we will not encounter
challenges or delays in the future or that these delays or challenges will not have an adverse impact on our business, financial
condition and prospects.
Risks
Related to Intellectual Property
If
we are unable to obtain and enforce patents and to protect our trade secrets, others could use our technology to compete with
us, which could limit opportunities for us to generate revenues by licensing our technology and selling our products.
|
|
●
|
Our
success will depend in part on our ability to obtain and enforce patents and maintain trade secrets in the United States and
in other countries. If we are unsuccessful in obtaining and enforcing patents, our competitors could use our technology and
create products or technologies that compete with our products and technologies, without paying license fees or royalties
to us.
|
|
|
|
|
|
|
●
|
The
preparation, filing, and prosecution of patent applications can be costly and time consuming. Our limited financial resources
may not permit us to pursue patent protection of all of our technology and products throughout the world.
|
|
|
|
|
|
|
●
|
Even
if we are able to obtain issued patents covering our technology or products, we may have to incur substantial legal fees and
other expenses to enforce our patent rights in order to protect our technology and products from infringing uses. We may not
have the financial resources to finance the litigation required to preserve our patent and trade secret rights.
|
There
is no certainty that our pending or future patent applications will result in the issuance of patents.
We
acquired rights to patent applications for technology that BioTime has developed, and we may file additional new patent applications
in the future seeking patent protection for new technology or products that we develop ourselves or jointly with others. However,
there is no assurance that any of our licensed patent applications, or any patent applications that we may file in the future
in the United States or abroad, will result in the issuance of patents.
The
process of applying for and obtaining patents can be expensive and slow.
|
|
●
|
The
preparation and filing of patent applications, and the maintenance of patents that are issued, may require substantial time
and money.
|
|
|
|
|
|
|
●
|
A
patent interference proceeding may be instituted with the U.S. Patent and Trademark Office (the “USPTO”) when
more than one person files a patent application covering the same technology, or if someone wishes to challenge the validity
of an issued patent. At the completion of the interference proceeding, the USPTO will determine which competing applicant
is entitled to the patent, or whether an issued patent is valid. Patent interference proceedings are complex, highly contested
legal proceedings, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises
with respect to any of our patent applications, we may experience significant expenses and delay in obtaining a patent, and
if the outcome of the proceeding is unfavorable to us, the patent could be issued to a competitor rather than to us.
|
|
|
|
|
|
|
●
|
A
derivation proceeding may be instituted by the USPTO or an inventor alleging that a patent or application was derived from
the work of another inventor.
|
|
|
●
|
Post
Grant Review under the new America Invents Act will make available opposition-like proceedings in the United States. As with
the USPTO interference proceedings, Post Grant Review proceedings will be very expensive to contest and can result in significant
delays in obtaining patent protection or can result in a denial of a patent application.
|
|
|
|
|
|
|
●
|
Oppositions
to the issuance of patents may be filed under European patent law and the patent laws of certain other countries. As with
USPTO interference proceedings, these foreign proceedings can be very expensive to contest and can result in significant delays
in obtaining a patent or can result in a denial of a patent application.
|
Intellectual
property we may develop using grants received from the federal government are subject to rights maintained by the government.
Research
and development we perform that is funded by grants from the federal government, and any intellectual property that we create
using those grants, is subject to the rights maintained by the federal government.
Our
patents may not protect our technologies or products from competition.
|
|
●
|
We
might not be able to obtain any patents beyond those we already own or have licensed or sublicensed, and any patents that
we do obtain might not be comprehensive enough to provide us with meaningful patent protection.
|
|
|
|
|
|
|
●
|
There
will always be a risk that our competitors might be able to successfully challenge the validity or enforceability of any patent
issued to us.
|
|
|
|
|
|
|
●
|
In
addition to interference proceedings, the USPTO can reexamine issued patents at the request of a third party. Our patents
may be subject to inter partes review (replacing the reexamination proceeding), a proceeding in which a third party can challenge
the validity of one of our patents to have the patent invalidated. This means that patents owned or licensed by us may be
subject to reexamination and may be lost if the outcome of the reexamination is unfavorable to us.
|
|
|
|
|
|
|
●
|
The
patents to which we have licenses to, including the licenses to
HyStem
are broadly licensed to other companies and
in some instances, in overlapping fields of use. Asterias Biotherapeutics, Inc. (“Asterias”), a wholly-owned
subsidiary of BioTime, has a non-exclusive license to
HyStem
patents in certain fields of use that overlap with
the AgeX sublicensed fields of use. Asterias and AgeX may create competing products. In addition, AgeX, through our subsidiary
ReCyte Therapeutics, is a sublicensee under the BioTime Asterias Cross-license, which creates another potential risk of Asterias
and AgeX creating competing products.
|
We
may be subject to patent infringement claims that could be costly to defend, which may limit our ability to use disputed technologies,
and which could prevent us from pursuing research and development or commercialization of some of our technologies or products,
require us to pay licensing fees to have freedom to operate and/or result in monetary damages or other liability for us.
The
success of our business depends significantly on our ability to operate without infringing patents and other proprietary rights
of others. If the technology that we use infringes a patent held by others, we could be sued for monetary damages by the patent
holder or its licensee, or we could be prevented from continuing research, development, and commercialization of technologies
and products that rely on that technology, unless we are able to obtain a license to use the patent. The cost and availability
of a license to a patent cannot be predicted, and the likelihood of obtaining a license at an acceptable cost would be lower if
the patent holder or any of its licensees is using the patent to develop or market a technology or product with which our technologies
or products would compete. If we could not obtain a necessary license, we would need to develop or obtain rights to alternative
technologies, which could prove costly and could cause delays in developing our technologies or products, or we could be forced
to discontinue the development or marketing of any technologies and products that were developed using the technology covered
by the patent.
Risks
Related to Our Relationship with BioTime and Juvenescence
We
will initially rely upon BioTime for certain services and resources
Although
we have signed a sublease that will allow us to have our own research facilities in the near future if the Preconditions to the
sublease are met, we will continue to rely on the use of a portion of BioTime’s office and laboratory facilities until the
New Facility under the sublease becomes available to us or we locate and lease an alternative facility. We also are relying on
BioTime to provide certain management and administrative services, including patent prosecution, certain legal services, human
resources management, accounting, financial management, and controls over financial accounting and reporting, although we plan
to have our own management and administrative personnel in the future. We have entered into the Shared Facilities Agreement with
BioTime under which we have agreed to bear costs allocated to us by BioTime for our use of BioTime’s office and laboratory
facilities and human resources, and for services and materials provided for our benefit by BioTime. We will pay BioTime 105% of
its costs of providing personnel and services to us, and for our use of its facilities, including an allocation of general overhead
based on that use. We may also share the services of some research personnel with BioTime. Either party to the Shared Facilities
Agreement may terminate the agreement for any reason with six months written notice to the other party, except that BioTime may
not give us a notice of termination prior to September 1, 2020.
If
BioTime’s human resources are not sufficient to serve both BioTime’s needs and ours, or if the Shared Facilities Agreement
is terminated, we will have to hire additional personnel of our own, either on a full-time or part-time basis, as employees or
as consultants, and the cost of doing so could be greater than the costs that would be allocated to us by BioTime. Also, any new
personnel that we may need to hire may not be as familiar with our business or operations as BioTime’s personnel, which
means that we would incur the expense and inefficiencies related to training new employees or consultants.
Our
Chief Financial Officer and Chief Operating Officer are not fulltime AgeX employees.
Our
Chief Financial Officer is the former Chief Financial Officer of BioTime and is providing services to us on a part-time basis
as a consultant. Because he is not a full-time employee, we may compete for his time and attention with other companies for whom
he may provide services. Our Chief Operating Officer is an employee of Juvenescence and is expected to devote 85% of his time
to our affairs and the balance of his time to the affairs of Juvenescence and accordingly we may compete with Juvenescence for
his time and attention.
Conflicts
of interest may arise from our relationship with BioTime.
As
of March 18, 2019, BioTime beneficially owned approximately 4.6% of the voting power of our outstanding common stock, and we have
also entered into a Shared Services Agreement with BioTime.
Our relationship with BioTime could give rise to certain conflicts of interest that could have an impact on our research and development
programs, business opportunities, and operations generally.
|
|
●
|
Even
if we utilize different technologies than BioTime or its subsidiaries, we could find ourselves in competition with them for
research scientists, financing and other resources, licensing, manufacturing, and distribution arrangements, and for customers
if we and BioTime or a BioTime subsidiary both bring competing products or technologies to market.
|
|
|
|
|
|
|
●
|
BioTime
and its subsidiaries will engage for their own accounts in research and product development programs, investments, and business
ventures, and we will not be entitled to participate or to receive an interest in those programs, investments, or business
ventures. BioTime and its other subsidiaries will not be obligated to present any particular research and development, investment,
or business opportunity to us, even if the opportunity would be within the scope of our research and development plans or
programs, business objectives, or investment policies. These opportunities may include, for example, opportunities to acquire
businesses or assets, including but not limited to patents and other intellectual property that could be used by us or by
BioTime or by any of BioTime’s subsidiaries.
|
|
|
|
|
|
|
●
|
We
have entered into certain patent and technology licenses and sublicenses, and other agreements with BioTime and certain BioTime
subsidiaries. The BioTime companies that are parties to those agreements will have interests that conflict with our interests
in determining how and when they should enforce their rights under the agreements if we were to default or otherwise fail
to perform any of our obligations under the agreements. In addition, our agreements with BioTime related to the Distribution,
including the Tax Matters Agreement and Employee Matters Agreement, have been negotiated with BioTime in the context of our
separation from BioTime. Accordingly, these agreements may not reflect terms that would have resulted from negotiations among
unaffiliated third parties.
|
|
|
|
|
|
|
●
|
Each
conflict of interest will be resolved by our respective boards of directors in keeping with their fiduciary duties and such
policies as they may implement from time to time. However, the terms and conditions of our current patent and technology licenses
and other agreements with BioTime or BioTime subsidiaries may not reflect terms and conditions that would have resulted from
negotiations among unaffiliated third parties due to BioTime’s ownership of a controlling interest in us at the time
we entered into those licenses, sublicenses and other agreements.
|
Conflicts
of interest may arise from our relationship with Juvenescence, which owns a significant percentage of our common stock and will
be able to substantially influence us and exert control over matters subject to stockholder approval and the election of directors.
As
of March 18, 2019, Juvenescence beneficially owned approximately 43.6% of the voting power of our outstanding common stock, which
will be enable them to substantially influence us and exert control through this ownership position. For example, Juvenescence
will be able to exert control over or substantially influence elections of directors, approval of our equity incentive plans,
amendments to our organizational documents, or approval of any merger, amalgamation, sale of assets or other major corporate transaction.
Juvenescence has controlling stakes and minority investments in several other companies engaged in various aspects of the aging
industry, which companies may propose collaborations with AgeX. Juvenescence’s interests may not always coincide with
our corporate interests or the interests of other stockholders, and it may exercise its voting and other rights in a manner with
which you may not agree or that may not be in the best interests of our other stockholders. So long as Juvenescence continues
to own a significant amount of our equity, it will continue to be able to strongly influence and effectively control our decisions.
While the directors elected by Juvenescence will be obligated to act in accordance with their fiduciary duty, they may have equity
or other interests in Juvenescence and, accordingly, their interests may be aligned with Juvenescence’s interests, which
may not always coincide with our corporate interests or the interests of our other stockholders.
Our
ability to meet our capital needs may be harmed by the loss of financial support from BioTime.
The
loss of financial support from BioTime could harm our ability to meet our capital needs. BioTime historically has provided financing
to us at rates that we believe are not representative of the cost of financing that we will incur as a stand-alone company. As
a public company, we expect to obtain any funds needed in excess of the amounts generated by our operating activities through
the capital markets or bank financing, and not from BioTime. As public company, the cost of our financing also will depend on
other factors such as our performance and financial market conditions generally. Further, we cannot guarantee that we will be
able to obtain capital market financing or credit on favorable terms, or at all, in the future. We cannot be certain that our
ability to meet our capital needs, including servicing our own debt, will not be harmed by the loss of financial support from
BioTime.
Our
accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other
requirements to which we will be subject as a public company, and failure to achieve and maintain effective internal controls
could have a material adverse effect on our business and the price of our common stock.
Our
financial results previously were included within the consolidated results of BioTime, and we believe that our financial reporting
and internal controls were appropriate for a subsidiary of a public company. However, we were not directly subject to the reporting
and other requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of the
Distribution, we are now directly subject to reporting and other obligations under the Exchange Act. We will be required to comply
with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) which will require annual management
assessments of the effectiveness of our internal controls over financial reporting and after our status as an emerging growth
company expires, we will be required to obtain a report by our independent registered public accounting firm as to whether we
maintained, in all material respects, effective internal controls over financial reporting as of the last day of the year. These
reporting and other obligations may place significant demands on our management, administrative and operational resources, including
accounting systems and resources.
The
Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition.
Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over
financial reporting. To comply with these requirements, we may need to establish our own systems; implement additional financial
and management controls, reporting systems and procedures; and hire additional accounting and finance staff to replace or supplement
the systems and services provided to us by BioTime under the Shared Facilities Agreement. We expect to incur additional annual
expenses for the purpose of addressing these requirements, and those expenses may be significant. If we are unable to establish
our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective
fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under
the Exchange Act could be impaired.
If,
during periods we are required to assess the effectiveness of our internal controls, we are unable to conclude that we have effective
internal controls over financial reporting, we may be unable to report our financial information on a timely basis, investors
may lose confidence in our operating results, the price of our common stock could decline and we may be subject to litigation
or regulatory enforcement actions, which would require additional financial and management resources. This could have a material
adverse effect on our business and lead to a decline in the price of our common stock.
Risks
Pertaining to Our Common Stock
There
is a limited history to the public trading of our common stock and there is no assurance that a market for our common stock will
be sustained.
Public
trading of our common stock on the NYSE American began on November 29, 2018. Accordingly, there is only a limited history of the
public trading of our common stock and there can be no assurance that an active market for our common stock will be sustained.
We
cannot predict the prices at which our common stock may trade. The market price of our common stock may fluctuate significantly,
depending upon many factors, some of which may be beyond our control, including, but not limited to:
|
|
●
|
a
shift in our investor base;
|
|
|
|
|
|
|
●
|
our
quarterly or annual earnings, or those of comparable companies;
|
|
|
|
|
|
|
●
|
actual
or anticipated fluctuations in our operating results;
|
|
|
|
|
|
|
●
|
our
ability to obtain financing as needed;
|
|
|
|
|
|
|
●
|
changes
in laws and regulations affecting our business;
|
|
|
|
|
|
|
●
|
changes
in accounting standards, policies, guidance, interpretations or principles;
|
|
|
|
|
|
|
●
|
announcements
by us or our competitors of significant investments, acquisitions or dispositions;
|
|
|
|
|
|
|
●
|
the
failure of securities analysts to cover our common stock;
|
|
|
|
|
|
|
●
|
changes
in earnings estimates by securities analysts or our ability to meet those estimates;
|
|
|
|
|
|
|
●
|
the
operating performance and stock price of comparable companies;
|
|
|
|
|
|
|
●
|
overall
market fluctuations; and
|
|
|
|
|
|
|
●
|
general
economic conditions and other external factors.
|
Additional
shares of our common stock will become eligible for public sale, and sales of those shares could create downward pressure on the
trading price of our common stock.
Shares
of our common stock issued before the Distribution, including shares held by Juvenescence, and shares issued upon the
exercise of common stock purchase warrants during March 2019, are or will become eligible to be publicly sold without
registration in compliance with the provisions of Rule 144 under the Securities Act of 1933, as amended (the
“Securities Act”) after the shares have been beneficially owned for at least six months if we have filed all
reports required under the Exchange Act, other than any Current Report on Form 8-K. Even if we fail to file those Exchange
Act reports, shares that a stockholder has beneficially owned for more than one year may be sold by the stockholder under
Rule 144 if at the stockholder has not been an “affiliate” of AgeX within the meaning of Rule 144 at any time
during the 90 days immediately before the sale. Certain holders of shares that we issued before the Distribution or through
the exercise of warrants also have certain contractual rights to have their shares registered for sale under the Securities
Act. Sales of AgeX common stock under Rule 144 or through a Securities Act registration statement could create downward
pressure on the trading price of our common stock.
Because
we are engaged in the development of pharmaceutical and cell therapy products, the price of shares of our common stock may rise
and fall rapidly.
The
price of our common stock may rise rapidly in response to certain events, such as the commencement of clinical trials of an experimental
new therapy, even though the outcome of those trials and the likelihood of ultimate FDA approval of a therapeutic product remain
uncertain. Similarly, prices of our common stock may fall rapidly in response to certain events such as unfavorable results of
clinical trials or a delay or failure to obtain FDA approval. Further, the failure of our earnings to meet analysts’ expectations
could result in a significant rapid decline in the market price of our common stock
Because
we do not pay dividends, our stock may not be a suitable investment for anyone who needs to earn dividend income.
We
do not have current plans to pay any cash dividends on our common stock. The declaration, amount and payment of any future dividends
on shares of common stock will be at the sole discretion of our Board of Directors. Our Board of Directors may take into account
general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated
cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends
by us to our stockholders or by our subsidiaries to us and such other factors as our Board of Directors may deem relevant. For
the foreseeable future we anticipate that any earnings generated in our business will be used to finance the growth of our business
and will not be paid out as dividends to our stockholders. This means that our stock may not be a suitable investment for anyone
who needs to earn income from their investments.
Securities
analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on the market price
of our shares.
The
market price and liquidity of our common stock will depend, in part, on the research and reports that securities analysts publish
about our business and our common stock. We do not have any control over these analysts. There is no guarantee that securities
analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may
adversely affect the market price of those shares. If securities analysts do cover our shares, they could issue reports or recommendations
that are unfavorable to the price of our shares, and they could downgrade a previously favorable report or recommendation, and
in either case our share price could decline as a result of the report. If one or more of these analysts ceases to cover our shares
or fails to publish regular reports on our business, we could lose visibility in the financial markets, which could cause our
share price or trading volume to decline.
You
may experience dilution of your ownership interests if we issue additional shares of common stock or preferred stock.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership
interests of our present stockholders. We are currently authorized to issue an aggregate of 105,000,000 shares of capital stock
consisting of 100,000,000 shares of common stock and 5,000,000 “blank check” shares of preferred stock. As of March
19, 2019 there were 37,630,000 shares of common stock issued and outstanding, and 2,268,500 shares of common
stock reserved for issuance upon the exercise of outstanding stock options or other stock-based awards under our 2017 Equity Incentive
Plan. No shares of preferred stock are presently outstanding.
We
may issue additional common stock or other securities that are convertible into or exercisable for common stock in order to raise
additional capital, or in connection with hiring or retaining employees or consultants, or in connection with future acquisitions
of licenses to technology or medical products or for other business purposes. The future issuance of any additional shares of
common stock or other securities may create downward pressure on the trading price of our common stock.
We
may also issue preferred stock having rights, preferences, and privileges senior to the rights of our common stock with respect
to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights. Any preferred stock
may also be convertible into common stock on terms that would be dilutive to holders of common stock.
Unless
our common stock continues to be listed on a national securities exchange it will become subject to the so-called “penny
stock” rules that impose restrictive sales practice requirements.
If
we are unable to maintain the listing of our common stock on the NYSE American or another national securities exchange, our common
stock could become subject to the so-called “penny stock” rules if the shares have a market value of less than $5.00
per share. The SEC has adopted regulations that define a penny stock to include any stock that has a market price of less than
$5.00 per share, subject to certain exceptions, including an exception for stock traded on a national securities exchange. The
SEC regulations impose restrictive sales practice requirements on broker-dealers who sell penny stocks to persons other than established
customers and accredited investors. An accredited investor generally is a person whose individual annual income exceeded $200,000,
or whose joint annual income with a spouse exceeded $300,000 during the past two years and who expects their annual income to
exceed the applicable level during the current year, or a person with net worth in excess of $1.0 million, not including the value
of the investor’s principal residence and excluding mortgage debt secured by the investor’s principal residence up
to the estimated fair market value of the home, except that any mortgage debt incurred by the investor within 60 days prior to
the date of the transaction shall not be excluded from the determination of the investor’s net worth unless the mortgage
debt was incurred to acquire the residence. For transactions covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale.
This means that if we are unable maintain the listing of our common stock on a national securities exchange, the ability of stockholders
to sell their AgeX common stock in the secondary market could be adversely affected.
If
a transaction involving a penny stock is not exempt from the SEC’s rule, a broker-dealer must deliver a disclosure schedule
relating to the penny stock market to each investor prior to a transaction. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and its registered representative, current quotations for the penny stock, and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market.
Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the customer’s
account and information on the limited market in penny stocks.
We
are an “emerging growth company,” and may elect to comply with reduced public company reporting requirements applicable
to emerging growth companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may 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. We may take advantage of these reporting exemptions until we are
no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest
of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day
of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an
effective registration statement under the Securities Act; (iii) the date on which we have issued more than $1.0 billion in nonconvertible
debt during the previous three years; or (iv) the date on which we are deemed to be a “large accelerated filer” under
the Exchange Act.
We
could be subject to securities class action litigation.
In
the past, securities class action litigation has often been brought against a company following a decline in the market price
of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock
price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s
attention and resources, which could harm our business.
The
implementation of a new FASB accounting standard could increase the risk that our future consolidated financial statements could
be qualified by going concern uncertainty.
We
are subject to ASU No. 2014-15, “
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern,
” which defines management’s responsibility
to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures. In connection
with preparing consolidated financial statements for each annual and interim reporting period, ASU No. 2014-15 requires that an
entity’s management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial
doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial
statements are issued (or within one year after the date that the consolidated financial statements are available to be issued
when applicable). As a result of the implementation of ASU No. 2014-15, we will be required to have more cash, cash equivalents,
and liquid investments on hand on the date we issue or file our consolidated financial statements than had been the case during
prior years in order to avoid a going concern qualification in our auditor’s report and in the footnotes to our consolidated
financial statements. If our consolidated financial statements were to become subject to a going concern qualification or uncertainty
or if we are unable to alleviate substantial doubt as part of our going concern assessment, or both, the market price of our common
stock could decline.
Provisions
in our certificate of incorporation and bylaws and under Delaware law could make an acquisition of our company, 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 certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control
of our company 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 include those establishing:
|
|
●
|
no
cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
|
|
|
|
|
|
|
●
|
the
ability of our Board of Directors to authorize the issuance of shares of preferred stock and to determine the terms of those
shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute
the ownership of a hostile acquirer; and
|
|
|
|
|
|
|
●
|
the
ability of our Board of Directors to alter our bylaws without obtaining stockholder approval.
|
Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the
State of Delaware, 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.