Item
1. Business.
Corporate
History
Generex
Biotechnology Corporation (the “Company,” “Generex,” “we,” “us” or “our”)
is based in Miramar, Florida, with offices in Dallas, Texas, Toronto, Canada and Wellesley, Massachusetts. The Company was originally
incorporated in the state of Delaware on September 4, 1997, for the purpose of acquiring Generex Pharmaceuticals Inc., a Canadian
(Province of Ontario) corporation formed in November 1995 to engage in pharmaceutical and biotechnological research and development
and other activities. The Company’s acquisition of Generex Pharmaceuticals Inc. was completed in October 1997 in a transaction
in which the holders of all outstanding shares of Generex Pharmaceuticals Inc. exchanged their shares for shares of Generex common
stock.
In
January 1998, Generex participated in a “reverse acquisition” with Green Mt. P.S., Inc, (“Green Mt.”),
an inactive Idaho corporation formed in 1983. As a result of this transaction, the shareholders of Generex (the former shareholders
of Generex Pharmaceuticals Inc.) acquired a majority (approximately 90%) of the outstanding capital stock of Green Mt., and Generex
became a wholly-owned subsidiary of Green Mt.; Green Mt. changed its corporate name to Generex Biotechnology Corporation ("Generex
Idaho"), and Generex changed its corporate name to GBC - Delaware, Inc. Because the reverse acquisition resulted in GBC -
Delaware, Inc. shareholders (formally Generex shareholders) becoming the majority holders of Generex Idaho, GBC Delaware, Inc.
was treated as the acquiring corporation in the transaction for accounting purposes. Thus, our, GBC - Delaware, Inc. (formally
Generex), historical financial statements, which essentially represented the historical financial statements of Generex Pharmaceuticals
Inc., were deemed to be the historical financial statements of Generex Idaho.
In
April 1999, we completed a reorganization in which GBC - Delaware, Inc. merged with Generex Idaho. In this transaction, all outstanding
shares of Generex Idaho were converted into shares of GBC - Delaware, Inc.; Generex Idaho ceased to exist as a separate entity,
and we, GBC - Delaware, Inc., changed our corporate name back to "Generex Biotechnology Corporation." This reorganization
did not result in any material change in our historical financial statements or current financial reporting.
Following
our reorganization in 1999, Generex Pharmaceuticals Inc., which was incorporated in Ontario, Canada, remained as our wholly-owned
subsidiary. All of our Canadian operations are performed by Generex Pharmaceuticals Inc.; Generex Pharmaceuticals Inc. is the
100% owner of 1097346 Ontario Inc., which was also incorporated in Ontario, Canada. In August 2003, we acquired Antigen Express,
Inc. (“Antigen”), a Delaware incorporated company. Antigen is engaged in the research and development of technologies
and immunomedicines for the treatment of malignant, infectious, autoimmune and allergic diseases. Antigen also does business under
the name NuGenerex Immuno-Oncology. On February 28, 2019 Generex issued a dividend of Antigen to Generex shareholders in the amount
of 1 share of Antigen for every 4 shares of Generex common stock. Generex still maintains majority control of Antigen.
We
formed Generex (Bermuda), Inc., which is organized in Bermuda, in January 2001 in connection with a joint venture with Elan International
Services, Ltd., a wholly-owned subsidiary of Elan Corporation, plc, (“Elan”) to pursue the application of certain
of our and Elan's drug delivery technologies, including our platform technology for the buccal delivery of pharmaceutical products.
In December 2004, we and Elan agreed to terminate the joint venture. Under the termination agreement, we retained all of our intellectual
property rights and obtained full ownership of Generex (Bermuda), Inc.; Generex (Bermuda), Inc. does not currently conduct any
business activities. We have additional subsidiaries incorporated in the U.S. and Canada which are dormant and do not carry on
any business activities.
On
January 18, 2017, we acquired a majority of the equity interests in Hema Diagnostic Systems, LLC (“HDS”). In December
2018, we acquired the remaining interest in HDS. The company, now a wholly-owned subsidiary of Generex, has been renamed NuGenerex
Diagnostics, LLC (NGDx), and is managed by President Harold Haines, PhD.
On
October 3, 2018, our wholly owned subsidiary, NuGenerex Distribution Solutions, LLC (“NuGenerex”), entered into an
asset purchase agreement (the “Veneto Asset Purchase Agreement”) with Veneto Holdings, L.L.C. (“Veneto”),
pursuant to which NuGenerex purchased certain assets of Veneto and its subsidiaries (the “Assets”). The Veneto Asset
Purchase Agreement contains provisions regarding payment terms, confidentiality and indemnification, as well as other customary
provisions.
Effective
as at October 3, 2018, NuGenerex assigned the Veneto Asset Purchase Agreement to NuGenerex Distribution Solutions 2, LLC.
The sole member of NuGenerex Distribution Solutions 2, LLC is NuGenerex Management Services, Inc., a wholly-owned subsidiary of
Generex Biotechnology Corporation.
On
October 3, 2018, we acquired certain assets from Veneto (the “First Closing Assets”), primarily consisting of the
operating assets of (a) system dispensing pharmacies, (b) a central adjudicating pharmacy, (c) a wholesale pharmaceutical purchasing
company, and (d) an in-network laboratory.
On
November 1, 2018, we consummated the acquisition of Veneto assets (the “Second Closing Assets”), consisting primarily
of Veneto’s management services organization business and other assets. The aggregate price for the First Closing Assets
and the Second Closing Assets was $30,000,000. We issued a promissory note in the principal amount of $35,000,000 (the “New
Note”) consisting of the $30,000,000 purchase price and a $5,000,000 original issue discount, as the sole consideration
payable on the Second Closing Date. On January 15, 2019, the parties entered into an amendment to the Asset Purchase Agreement
(the “Amendment”) restructuring payment of the New Note.
On March 28,
2019, the Company entered into an amendment, a “Restructuring Agreement” with Veneto and the equity owners of Veneto
to restructure the payment of the New Note that provided, in lieu of any cash payments, the Company delivered on May 23, 2019 8,400,000
shares of our common stock; plus an aggregate 5,500,000 shares of the common stock of our subsidiary, Antigen. The Veneto assets
acquired by Generex included management services operations, systems, facilities, and other services.
On January 7,
2019, we acquired a majority interest in Regentys Corporation (“Regentys”) for an aggregate of $15,000,000, among which
$400,000 was paid in cash and the remainder was paid by the issuance of a promissory note with a fair value of $14,342,414 for
a total net purchase price of $14,742,414. The total fair value of the assets acquired totaled $907,883 and goodwill of $13,834,581.
Installments payable under the note were tied to specific business development objectives and dates. As of October 26, 2019, an
additional $850,000 was paid for a total of $1,250,000 against the note. Regentys is developing a non-surgical treatment for inflammatory
bowel diseases such as ulcerative colitis and Crohn’s disease.
On January
7, 2019, we acquired a majority interest in Olaregen Therapeutix Inc. (“Olaregen”) for an aggregate of $12,000,000,
among which $400,000 was paid in cash and the remainder was paid by the issuance of a promissory note with a fair value of $11,472,334
for a total net purchase price of $11,872,663. The total fair value of the assets acquired totaled $2,461,439 and goodwill of
$9,411,224. $1,291,500 principal was paid against the note as of July 31, 2019 and an additional $500,000 was paid subsequently
for a total aggregate of $1,791,500 of principal payments in addition to the $400,000 initial payment. Olaregen is launching an
FDA-510(k) cleared wound care product.
On
May 10, 2019, we acquired from a third party the outstanding Series A Preferred Stock in Olaregen in exchange for 4 million shares
of the Company’s common stock, plus the issuance of a $2 million promissory note increasing our interest in Olaregen to
approximately 62% of the Olaregen’s outstanding voting shares.
Business
Overview
Our
management team has embarked upon a complete strategic reorganization and transformation of the entire corporate structure, leveraging
our legacy assets which have applied over $400 million dollars in developmental activities over the years, providing the Company
with net operating loss (“NOL”) carryforwards from both United States and Canadian sources. As of July 31, 2019,
the Company has significant NOL carryforwards that are described in detail in the Notes to our Financial Statements included in
this 10-K. We have also formulated an acquisition strategy and identified targets to build a specialized healthcare platform with
both scalability and the ability to leverage across the organization in an effort to achieve higher profit margins.
Since
the new management team has taken over in January 2017, Generex has been reorganized as a strategic, diversified life science
holding company that is actively involved in building a modern organizational platform for the financing, development, commercialization,
and distribution of promising devices, biologics, therapeutic, and diagnostic products to improve human health and return
value to its investors. As the foundation for the reorganization, we are acquiring operating companies that provide multiple and
significant revenue streams through delivery of patient-focused healthcare products and services, including specialty pharmacy,
orthopedic implants, surgical supplies, biologics, medical devices, and regenerative medicines. These foundational acquisitions
service unique market channels that provide end-to-end healthcare solutions in partnerships with patients, physicians, health
systems, and payors. The synergistic business models of the combined organization offer cross channel sales opportunities for
rapid growth, with significant revenues and profits projected going forward.
Details
of the Generex business strategy are provided following the discussion of the Generex historical business and our legacy assets.
Historical
Business
Historically,
we have been a research and development company focused on the commercialization of Oral-lyn buccal insulin spray for diabetes.
Additionally, through our wholly-owned subsidiary Antigen Express, we have a deep intellectual property portfolio of immunotherapy
assets relating to the “Ii-Key” technology that activates the immune response for the treatment of cancer and infectious
diseases. We have completed a Phase IIb clinical trial of AE37 immunotherapeutic peptide vaccine with the Ii-Key technology in
over 300 women with breast cancer.
In
2017, we acquired HDS (now NuGenerex Diagnostics) and their diagnostic product portfolio of rapid point-of-care EXPRESS test kits
and cassettes for infectious disease testing.
We
believe that these legacy diagnostics, diabetes and cancer assets are may have significant value which is not being recognized
due to missteps in the clinical development process by previous management, resulting inability to raise capital necessary to
fund further development. We think the products and IP portfolio retain significant value. A recently signed co-development deal
with a major pharmaceutical company for AE37 in triple negative breast cancer, and a licensing deal in China for AE37 in prostate
cancer illustrate the potential for AE37 immunotherapeutic vaccine. Additionally, Oral-lyn has been reformulated to enter clinical
trials for Type II diabetes. The HDS EXPRESS diagnostic technology has been expanded with the new, patent-pending EXPRESS II technology
and a new product pipeline. We filled our first international commercial order for 40,000 units of its NGDx -Malaria PF/PV
Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution company, and was recently granted a CE Mark Certification
under the European Medical Devices Directive (MDD) for its The Express II Syphilis Treponemal Assay, a rapid point-of-care
diagnostic assay for the detection of syphilis antibodies in primary and secondary syphilis. As part of the reorganization plan,
we placed our legacy assets into separate subsidiaries under the NuGenerex family of companies, including NuGenerex Diagnostics,
Nugenerex Immuno-Oncology (Antigen Express), and NuGenerex Therapeutics (Oral-Lyn and RapidMist buccal delivery technology). Our
strategy is to spin out NuGenerex Immuno-Oncology as a separately traded public company, to reignite the Oral-Lyn development
program with a reformulated buccal insulin spray, and to build out the diagnostics business, as detailed in the following paragraphs,
however there are no assurances that we will be able to accomplish our strategic objectives.
Treatment
of Legacy Assets
Generex
and its subsidiary companies have extensive patent portfolios, with intellectual property for composition of matter, formulation,
design, and use in a number of therapeutic areas, across multiple indications. As described, we plan to build our legacy assets
with the ultimate goal to spin-out such assets at the appropriate time, which have been incorporated into NuGenerex subsidiary
companies in an effort to unlock the potential unrealized value of the intellectual property and commercial opportunities for
these development companies in major markets for immuno-oncology, diabetes, and infectious disease testing:
-
NuGenerex
Therapeutics: Oral-lyn (Buccal Insulin) and RaidMist Buccal delivery technology
-
NuGenerex
Immuno-Oncology: Phase II AE37 + Keytruda in TNBC; Antigen Express (Ii-Key), Licensing, Partnerships, investor dividend
paid (1:4) for spin-out
-
NuGenerex
Diagnostics: NGDx Express II rapid diagnostic tests for infectious disease
NuGenerex
Therapeutics
NuGenerex
Therapeutics houses the legacy diabetes assets, Oral-Lyn and RapidMist buccal delivery technology. We believe that our buccal
delivery technology is a platform technology that has application to many large molecule drugs and designed to provide a convenient,
non-invasive, accurate and cost-effective way to administer such drugs. We have identified several large molecule drugs as possible
candidates for development, including cannabinoid medicines. To that end we have entered into a licensing agreement with Scientus
Pharmaceuticals for the use of the RapidMist technology for the administration of cannabinoids.
Buccal
Delivery Technology and Products
Our
buccal delivery technology involves the preparation of proprietary formulations in which an active pharmaceutical agent is placed
in a solution with a combination of absorption enhancers and other excipients classified “generally recognized as safe”
("GRAS") by the U.S. Food and Drug Administration (“FDA”) when used in accordance with specified quantities
and other limitations. The resulting formulations are aerosolized with a pharmaceutical grade chemical propellant and are administered
to patients using our proprietary RapidMist™ brand metered dose inhaler. The device is a small, lightweight, hand-held,
easy-to-use aerosol applicator comprised of a container for the formulation, a metered dose valve, an actuator and dust cap. Using
the device, patients self-administer the formulations by spraying them into the mouth. The device contains multiple applications,
the number being dependent, among other things, on the concentration of the formulation. Absorption of the pharmaceutical agent
occurs in the buccal cavity, principally through the inner cheek walls. In clinical studies of our flagship oral insulin product
Generex Oral-lyn™, insulin absorption in the buccal cavity has been shown to be efficacious and safe.
Buccal
Insulin Product – Generex Oral-Lyn™
Insulin is a
hormone that is naturally secreted by the pancreas to regulate the level of glucose, a type of sugar, in the bloodstream. The term
“diabetes” refers to a group of disorders that are characterized by the inability of the body to properly regulate
blood glucose levels. When glucose is abundant, it is converted into fat and stored for use when food is not available. When glucose
is not available from food, these facts are broken down into free fatty acids that stimulate glucose production. Insulin acts by
stimulating the use of glucose as fuel and by inhibiting the production of glucose. In a healthy individual, a balance is maintained
between insulin secretion and glucose metabolism.
According
to the Centers for Disease Control (CDC), there are two major types of diabetes. Type 1 diabetes (juvenile onset diabetes or insulin
dependent diabetes) refers to the condition where the pancreas produces little or no insulin. Type 1 diabetes accounts for 5-10
percent of diabetes cases (CDC). It often occurs in children and young adults. Type 1 diabetics must take daily insulin injections,
typically three to five times per day, to regulate blood glucose levels. Generex Oral-lyn™ provides a needle-free means
of delivering insulin for these patients.
According
to the American Diabetes Association, in Type 2 diabetes (adult onset or non-insulin dependent diabetes mellitus), the body does
not produce enough insulin, or cannot properly use the insulin produced. Type 2 diabetes is the most common form of the disease
and accounts for 90-95 percent of diabetes cases, according to the American Diabetes Association. In addition to insulin therapy,
Type 2 diabetics may take oral drugs that stimulate the production of insulin by the pancreas or that help the body to more effectively
use insulin. Generex Oral-lyn™ provides a simple means of delivering needed insulin to this major cohort of individuals.
Studies
in diabetes have identified a condition closely related to and preceding diabetes, called impaired glucose tolerance (IGT). People
with IGT do not usually meet the criteria for the diagnosis of diabetes mellitus. They have normal fasting glucose levels but
two hours after a meal their blood glucose level is far above normal. With the increase use of glucose tolerance tests the number
of people diagnosed with this pre-diabetic condition is expanding exponentially. Per the 2017 Diabetes Atlas Update, published
by the International Diabetes Federation (IDF), approximately 40 million people in the United States and more than 425 million
people world-wide suffer from IGT. Generex Oral-lyn™ is an ideal solution to providing meal-time insulin to the millions
of IGT sufferers. This therapeutic area is currently being investigated.
There
is no known cure for diabetes. The IDF estimates that there are currently approximately 382 million diabetics worldwide per their
2017 Diabetes Atlas Update and is expected to affect over 592 million people by the year 2035. There are estimated to be over
37 million people suffering from diabetes in North America alone and diabetes is the second largest cause of death by disease
in North America.
A
substantial number of large molecule drugs (i.e., drugs composed of molecules with a high molecular weight and fairly complex
and large spatial orientation) have been approved for sale in the United States or are presently undergoing clinical trials as
part of the process to obtain such approval, including various proteins, peptides, monoclonal antibodies, hormones and vaccines.
Unlike small molecule drugs, which generally can be administered by various methods, large molecule drugs historically have been
administered predominately by injection. The principal reasons for this have been the vulnerability of large molecule drugs to
digestion and the relatively large size of the molecule itself, which makes absorption into the blood stream through the skin
inefficient or ineffective. The RapidMist technology provides a recognized and proven drug delivery system for the delivery of
large molecules directly into the blood stream with the attendant advantages.
Oral-lyn
History
In
May 2005, we received approval from the Ecuadorian Ministry of Public Health for the commercial marketing and sale of Generex
Oral-lyn™ for treatment of Type 1 and Type 2 diabetes. We have successfully completed the delivery and installation of a
turnkey Generex Oral-lyn™ production operation at the facilities of PharmaBrand in Quito, Ecuador. The first commercial
production run of Generex Oral-lyn™ in Ecuador was completed in May 2006. While Ecuador production capability may be sufficient
to meet the needs of South America, it is believed to be insufficient for worldwide production for future commercial sales and
clinical trials.
On
the basis of the test results in Ecuador and other pre-clinical data, we made an Investigational New Drug (“IND”)
submission to Health Canada (Canada's equivalent to the FDA) in July 1998, and received permission from the Canadian regulators
to proceed with clinical trials in September 1998. We filed an IND application with the FDA in October 1998, and received FDA
approval to proceed with human trials in November 1998.
We
began our clinical trial programs in Canada and the United States in January 1999. Between January 1999 and September 2000, we
conducted clinical trials of our insulin formulation involving approximately 200 subjects with Type 1 and Type 2 diabetes and
healthy volunteers. The study protocols in most trials involved administration of two different doses of our insulin formulation
following either a liquid Sustacal meal or a standard meal challenge. The objective of these studies was to evaluate our insulin
formulation's efficacy in controlling post-prandial (meal related) glucose levels. These trials demonstrated that our insulin
formulation controlled post-prandial hyperglycemia in a manner comparable to injected insulin. In April 2003, a Phase II-B clinical
trial protocol was approved in Canada. In September 2006, a Clinical Trial Application relating to our Generex Oral-lyn™
protocol for late-stage trials was approved by Health Canada. The FDA’s review period for the protocol lapsed without objection
in July 2007.
In
late April 2008, we initiated Phase III clinical trials in North America for Generex Oral-lyn™ with the first subject screening
in Texas. Other clinical sites participating in the study were located in the United States (Texas, Maryland, Minnesota and California),
Canada (Alberta), European Union (Romania, Poland and Bulgaria), Eastern Europe (Russia and Ukraine),) and Ecuador. Approximately
450 subjects were enrolled in the program at approximately 70 clinical sites around the world. The Phase III protocol called for
a six-month trial with a six-month follow-up with the primary objective to compare the efficacy of Generex Oral-lyn™ and
the RapidMist™ Diabetes Management System with that of standard regular injectable human insulin therapy as measured by
HbA1c, in patients with Type-1 diabetes mellitus. The final subjects completed the trial in August 2011. After appropriate validation,
the data from approximately 450 patients was tabulated, reviewed and analyzed. Those results from the Phase III trial along with
a comprehensive review and supplemental analyses of approximately 40 prior Oral-lyn clinical studies were compiled and submitted
to the FDA in late December 2011 in a comprehensive package including a composite metanalysis of all safety data. We do not currently
plan to expend significant resources on additional clinical trials of Oral-lyn™ until after such time that we secure additional
financing. However, we have undertaken a formulation enhancement project with the University Health Network at the University
of Toronto and the University of Guelph, Ontario to increase the amount of insulin reaching the blood stream. We believe that
the preliminary results from an animal study are encouraging,
In
the past, we engaged a global clinical research organization to provide many study related site services, including initiation,
communication with sites, project management and documentation; a global central lab service company to arrange for the logistics
of kits and blood samples shipment and testing; an Internet-based clinical electronic data management company to assist us with
global data entry, project management and data storage/processing of the Phase III clinical trial and regulatory processes. In
the past, we have contracted with third-party manufacturers to produce sufficient quantities of the RapidMist™ components,
the insulin, and the raw material excipients required for the production of clinical trial batches of Generex Oral-lyn™.
Future
Plans
We
have reformulated the original Oral-Lyn buccal insulin as a new patentable Oral-Lyn 2 that requires only 2 - 3 pre-prandial (before
meal) sprays for the treatment of Type II diabetes. The reformulated Oral-lyn 2 was made possible by new techniques in protein
chemistry and pharmaceutical formulation science, that with minimal changes in the production process and content of the components,
allow the development of a new and improved, concentrated insulin formulation for improved diabetes management.
NuGenerex
has engaged the University of Toronto’s Center for Molecular Design and Pre-formulations (CMDP) through the University Health
Network with the goal of enhancing the Oral-lyn™ 2 formulation to make it more attractive to patients and prospective commercialization
partners by increasing the bioavailability of insulin in the product and reducing the number of sprays required to achieve effective
prandial metabolic control for patients with diabetes. Under the supervision of NuGenerex consultant Dr. Lakshmi P. Kotra, B.Pharm.
(Hons), Ph.D., of CMDP, preliminary efforts succeeded in increasing the insulin concentration in the product by approximately
400 - 500% as confirmed by a variety of in vitro testing procedures, while preserving the solubility, stability, biologic
activity, and potency of the insulin in the formulation.
NuGenerex
subsequently entered into a Research Services Agreement with the University of Guelph pursuant to which Dr. Dana Allen, DVM, MSc.
and Dr. Ron Johnson, DVM, Ph.D. of the Ontario Veterinary College of the University of Guelph conducted a study of the relative
bioavailability of the enhanced formulation in dogs in the University’s Comparative Clinical Research Facility. The University
had previously conducted the studies of the original formulation of Generex Oral-lyn™ for proof of concept, safety, and
toxicity.
In
the new studies, the enhanced NuGenerex Oral-lyn™ 2 formulation was compared with the original formulation in a blinded,
parallel controlled study involving fasted, awake, healthy mature beagle dogs. Each dog received three sprays of either the enhanced
formulation or the original formulation. Each dog was observed with assessments of serum insulin and glucose measured over a two-hour
period. There were no adverse events observed in any of the animals.
In
the dogs given the enhanced Generex Oral-lyn™ formulation (5X), there was a greater than 20-fold increase in serum insulin
at 15 minutes (excluding one dog who had little response at any time point; (with dog included it was greater than 5-fold))
and almost 500% greater absorption of insulin over the two-hour test period compared to dogs given the original formulation
(1X). There was a 33% decrease in serum glucose at 30 minutes in dogs treated with the enhanced Generex Oral-lyn™ formulation,
compared to a 12% increase in serum glucose in dogs treated with the original formulation.
The
results of the dog studies coupled with the positive findings from the in vitro work provide support and confidence to
move forward with the remaining clinical and regulatory work necessary to achieve FDA approval of the enhanced NuGenerex Oral-lyn™
formulation through a 505(b)2 NDA.
The
combined results provide evidence that the enhanced NuGenerex Oral-lyn™ 2 will be able to be used by people with either
type 1 or type 2 diabetes mellitus as a safe, simple, fast, flexible, and effective alternative to pre-prandial insulin injections
with dosing of only two to four sprays required before meals.
The
Oral-lyn Safety Database contains information on 1,496 subjects. Eight hundred sixty-nine (869) subjects were exposed to Oral-lyn,
while 627 served as Control subjects and were exposed to commercially available oral antihyperglycemics, injected insulin, or
Oral-lyn placebo. There were 695 subjects in pK/pD studies (368, Oral-lyn; 327, Control) and 801 subjects in efficacy trials (501,
Oral-lyn; 300, Control).
Two
hundred seventy-two (272) Oral-lyn subjects reported at least one adverse event (132 in pK/pD studies; 140 in efficacy studies)
while 278 Control subjects reported at least one adverse event (111 in pK/pD studies; 167 in efficacy studies). With respect to
adverse events by Maximum Severity there appeared to be no significant differences between Oral-lyn and the Control groups in
either the Efficacy or the pK studies.
In
summary, there appear to be no indications of any significant unexpected adverse events. The expected events of hypoesthesia oral,
throat irritation, dry throat, and cough were for the most part mild and could be consistent with the Oral-lyn therapy especially
during the learning phase of administration. There was an indication of overlap of some of these events with multiple event terms
in the constellation of upper respiratory tract infection that appeared to be balanced across therapy groups.
Our strategy
is to revitalize our diabetes program by advancing the reformulated buccal spray Oral-lyn 2 for the treatment of Type II diabetes,
and to integrate Oral-Lyn 2 therapy into our end-to-end solution for disease management through our MSO model.
Beyond Oral-lyn
2 for Type II diabetes, NuGenerex Drug Delivery Solutions will advance the RapidMist buccal delivery technology with additional
small and large molecule drugs which will benefit from an alternative route of administration.
NuGenerex
Immuno-Oncology (NGIO, formerly Antigen Express)
NuGenerex
Immuno-Oncology is developing immunotherapeutic products and vaccines based on our proprietary, patented platform technology,
Ii-Key. The Ii-Key is a peptide derived from the major histocompatibility complex (MHC) Class II associated invariant chain (Ii)
that regulates the formation, trafficking, and antigen-presenting functions of MHC class II complexes, essential for the activation
of T cells in the immune response. T cells recognize antigenic epitopes when they are 'presented' to them by specific molecules,
termed (MHC) on the surface of infected or malignant cells. This interaction activates the T cells, stimulating a multicellular
cascade of actions that eliminates the diseased cell and protects against future disease recurrence.
When
the Ii-Key peptide is linked to an antigenic epitope, it can bind to MHC Class II molecules, displacing resident antigens from
the antigen binding groove, essentially 'hijacking' the MHC class II complex to present the Ii-Key epitope to selectively activate
T-Cell Th1 responses, thereby increasing the intensity and duration of the immune response.
NuGenerex
Immuno-Oncology has developed a number of Ii-Key Hybrid peptides for the immunotherapeutic targeting of tumor associated antigens
(TAAs) in cancer and for vaccines against infectious diseases.
Ii-Key
hybrid peptides can also be used to selectively activate Th2 responses and thereby induce tolerance to antigens involved in harmful
immune reactions, e.g. autoimmunity, allergy, and transplant rejection.
AE37
– Ii-Key/HER2/neu Hybrid Immunotherapeutic Vaccine
Our
most advanced immunotherapy vaccine is AE37, an Ii-Key-Hybrid molecule that contains the HER2/neu antigenic peptide linked
to the Ii-Key to enhance immune stimulation against HER2, which is expressed in numerous cancers, including breast, prostate,
and bladder cancers. We have completed a Phase I clinical trial of AE37 in breast cancer: A phase Ib safety and immunology study
of AE37 and GM-CSF in 16 breast cancer patients who had completed all first-line therapies and who were disease-free at the time
of enrollment to the study (Holmes et al. Results of the first phase I clinical trial of the novel Ii-Key hybrid preventive
HER-2/neu peptide (AE37) vaccine. J Clin Oncol 2008;26:3426-33). Furthermore, we completed a Phase IIb trial of AE37 in the
prevention of cancer recurrence in women who were at high risk of recurrence after undergoing successful primary standard of care
breast cancer therapies and were disease free at time of enrollment. Though the study enrolled 300 subjects, the results were
not statistically significant due to a complete lack of recurrence in the 160 women with HER2-3+ positive tumors who were treated
with Herceptin during primary therapy. Though the trial was not powered to evaluate the prevention of recurrence in subgroups,
the trial indicated efficacy in the subset of patients diagnosed with HER2 1+, 2+, and triple negative breast cancer.
Based
on the results from this trial, NuGenerex has entered into a collaborative agreement with Merck Sharpe & Dohme B.V. (Merck)
and the National Surgical Adjuvant Breast and Prostate Program (NSABP) to conduct a Phase II trial to evaluate the safety
and efficacy of AE37 in combination with the anti-PD-1 therapy, KEYTRUDA (pembrolizumab) in patients with metastatic triple-negative
breast cancer. The trial is scheduled to begin enrolling patients in the second quarter of 2019.
In
addition to the breast cancer program, NuGenerex has conducted a Phase I clinical trial in prostate cancer, enrolling thirty-two
HER-2/neu+, castrate-sensitive, and castrate-resistant prostate cancer patients to demonstrate safety and strong immunological
response to AE37. We are advancing AE37 for the treatment of prostate cancer through a licensing and research agreement
with Shenzhen BioScien Pharmaceuticals Co., Ltd., for which NuGenerex has received a $700,000 upfront payment, with additional
future milestone and royalty payments.
In
exchange for exclusive rights to AE37 for prostate cancer in China, Shenzen is financing and conducting the Phase II trials in
the European Union and Phase III trials globally under International Commission on Harmonisation (“ICH”) guidelines,
with NuGenerex retaining the rights to all clinical data for regulatory submissions and commercialization in the rest of the world
outside China.
Future
Plans
NuGenerex
Immuno-Oncology has been established to not only to advance the NuGenerex Immuno-Oncology core technology, but also to expand
our portfolio in the field of immunotherapy and personalized medicine through partnerships and acquisitions. As part of our strategy,
we are planning to spin-out NuGenerex Immuno-Oncology as a separate, publicly traded entity to unlock the true value of the Ii-Key
technology for our stockholders as it creates a pure play in immunotherapy, which will foster investment and collaboration.
As
an initial step in accomplishing the spin-out of NGIO, on February 25, 2019, we issued a stock dividend to our shareholders, whereby
our shareholders received 1 share of NGIO for every 4 shares of our stock held on the dividend date. The stock dividends will
enable our stockholders to directly participate in the potentially promising future of NGIO, while creating a large shareholder
base with the potential for substantial liquidity immediately upon spin-out to a national exchange, which will provide NGIO with
ready access to the capital markets to finance its on-going clinical and regulatory initiatives.
Additionally,
we are in discussions with multiple academic institutions and biotechnology development companies to acquire products and technologies
to augment the NGIO development pipeline and product portfolio.
We
plan to finalize our corporate acquisition strategy and to initiate the spin-out process for NGIO in the second quarter of 2020.
NuGenerex
Diagnostics (formerly Hema Diagnostic Systems LLC)
Our
wholly-owned subsidiary, NuGenerex Diagnostics (formerly Hema Diagnostic Systems LLC or HDS) is in the business of developing,
manufacturing, and distributing rapid point-of-care in-vitro medical diagnostics for infectious diseases. These are commonly referred
as rapid diagnostic tests (“RDTs”). We manufacture and sell RDTs based upon our own proprietary EXPRESS platforms
as well as standard “cassette” devices.
Since
its founding, NuGenerex Diagnostics has been developing and continues to develop an expanding line of RDTs for infectious disease
diagnosis. These include products for human immunodeficiency virus (HIV), tuberculosis, malaria, hepatitis B, hepatitis C, syphilis,
and others. These assays are all qualitative in nature and provide a simple positive or negative result directly at the clinical
site. They can be used for definitive diagnosis, triage or in combination with other assays depending on which disease is being
considered.
Each
device incorporates a test strip containing reagent lines (stripes) that have been impregnated with specific antigens or antibodies
that detect the target molecules specific to an infectious disease. The test strips are incorporated into our proprietary EXPRESS
platforms which are easy-to-use and user-friendly diagnostic devices. There are two EXPRESS platforms; the EXPRESS and the EXPRESS
II. The EXPRESS II is an upgraded version of the original EXPRESS and its use involves fewer operator steps, making it of higher
clinical utility value. The Express II platform is designed to be used in a broad range of clinical and laboratory medical settings
and for direct use by consumers in the home. It is simple to use, with fewer steps of operation than other rapid point-of-care
tests. A single drop of blood taken by a simple finger stick is added directly to the device and the assay is activated by placing
a pod of buffer solution onto the device. Results can be read in as early as 5 minutes, and no longer than 30 minutes. The accuracy
of the Express II Syphilis Treponemal Assay is equal to or better than standard laboratory assays for syphilis antibodies with
sensitivities and specificities of over 99%.
We
believe that each system delivers its own advantages which enhance the use, application and performance of each diagnostic. This
ease of use in the EXPRESS delivery systems is designed to ensure that our RDTs perform efficiently and effectively providing
the most accurate and repeatable test results available while, at the same time, minimizing the transference of a potentially
infected blood sample. The EXPRESS and cassette diagnostic kits for infectious disease testing are designed for use in resource-poor
countries throughout the world, especially in sub-Saharan Africa, where the World Health Organization coordinates population screening
for infectious diseases. We recently filled our first international commercial order for 40,000 units of its NGDx -Malaria
PF/PV Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution company.
NuGenerex
Diagnostics was recently granted a CE Mark Certification under the European Medical Devices Directive (MDD) for its The Express
II Syphilis Treponemal Assay, a rapid point-of-care diagnostic assay for the detection of syphilis antibodies in primary
and secondary syphilis. The assay is based upon NuGenerex Diagnostic’s innovative patent pending point-of-care diagnostic
platform, the Express II. The accuracy of the Express II Syphilis Treponemal Assay is equal to or better than standard laboratory
assays for syphilis antibodies with sensitivities and specificities of over 99%.
With
the receipt of the CE Mark Certification for its rapid point-of-care Express II Syphilis Treponemal Assay, we believe NuGenerex
Diagnostics is well situated to enter into this growing syphilis testing market and will now pursue marketing efforts in Europe
and, in parallel, begin plans for the filing of a 510k application with the United States FDA for marketing clearance in the United
States. To this end, NuGenerex Diagnostics is fully qualified as a diagnostic test developer and manufacturer under FDA Good Manufacturing
Procedures (GMP) and is certified by the International Standards Organization for the manufacture of medical devices under ISO
13485-2016 regulations.
NuGenerex
Diagnostics has just begun a new initiative which revolves around the development of quantitative rapid diagnostic assays. These
assays allow laboratory personnel and clinicians to assess the absolute amount of specific target molecules in blood or serum
samples as opposed to “yes” or “no” results of qualitative RDTs. The first assay to be developed is a
multiplex biomarker test for the diagnosis of sepsis and the potential differentiation of infectious sepsis from systemic immune
response syndrome (SIRS).
We
maintain an FDA registered facility in Miramar, Florida and are certified under both ISO9001 and ISO13485 for the Design, Development,
Production and Distribution of the in-vitro devices. Approval of our HIV rapid test has been issued by the United States Agency
for International Development (USAID). Additionally, some of our products qualified for and carry the European Union “CE”
Mark, which allows us to enter into CE Member countries subject to individual country requirements. Currently, we have two malaria
rapid tests approved under World Health Organization (WHO) guidelines. This process allows expedited approval of rapid tests,
reducing the current 24 -30-month process down to approximately 6-9 months. WHO approval is necessary for our products to be used
in those countries which rely upon the expertise of the WHO, as well as for non-governmental organizations (“NGO”)
funding for the purchase of diagnostic products.
We
maintain current U.S. Certificates of Exportability that are issued by two FDA divisions-CBER and CDRH. CBER (Center for Biologicals
Evaluation and Research) is the FDA regulatory division that oversees infectious disease diagnostic devices, including our HIV,
Hepatitis B and Hepatitis C EXPRESS and EXPRESS II kits. The other division, Center for Devices and Radiological Health (CDRH),
is responsible for the oversight of other HDS devices which include Tuberculosis, Syphilis, and the remaining product line. Our
HDS facility maintains FDA Establishment Registration status and is in accord with GMP (Good Manufacturing Practice) as confirmed
by the FDA.
We
do not currently have FDA clearance to sell our products in the United States. We intend to submit selected devices to the FDA
under a Pre-Market Approval Application (PMA) or through the 510K process. The 510K would require the appropriate regulatory administrative
submissions as well as a limited scientific review by the FDA to determine completeness (acceptance and filing reviews); in-depth
scientific, regulatory, and Quality System review by appropriate FDA personnel (substantive review); review and recommendation
by the appropriate advisory committee (panel review); and final deliberations, documentation, and notification of the FDA decision.
The PMA process is more extensive, requiring clinical trials to support the application. We expect to apply to the FDA for clearance
of our first RDT (Express II Syphilis Treponemal Assay) for FDA 510K approval in early 2020. We anticipate the FDA process will
be completed within 9 months after submission. During this timeline, we will be preparing documentation for additional rapid tests
to undergo either the FDA PMA or 510k process.
Future
Plans
Generex
plans to use the NuGenerex Diagnostics subsidiary to build a multi-faceted diagnostics business focused on personalized medicine.
To that end, we are exploring opportunities in multiplex assays for point-of-care infectious disease testing, pharmacogenomic
testing for medication management, and biomarker analysis for personalized cancer treatment, including immunotherapy.
The
“New” Generex & The NuGenerex Family of Subsidiary Companies
Through reorganization
and acquisition, we are building the family of NuGenerex subsidiary companies to provide end-to-end solutions for physicians and
patients. To that end, our subsidiary NuGenerex Distribution Solutions (NDS) has established a network of physicians, ancillary
service providers, and patients through a Management Services Organization (MSO). As the MSO network currently consists of orthopedic
surgeons and podiatrists, we have acquired and/or have agreements to acquire a number of revenue-generating companies that manufacture,
market and distribute surgical and wound healing products. The acquisitions include Olaregen Therapeutix, a regenerative medicine
company that has recently launched Excellagen wound conforming gel, which is FDA-cleared for the management of 17 wound healing
indications, and Regentys, a clinical-stage development company with regenerative medicine technology for the treatment of inflammatory
bowel diseases; Pantheon Medical, a manufacturer of patented, FDA-cleared foot & ankle kits with surgical plates, screws, and
tools; and MediSource Partners, a licensed distributor of surgical supplies, orthopedic implants, and biologics, including human
placental derived tissue products for regenerative medicine applications. Additionally, NDS will be launching a new software as
a service (SaaS) business called DME-IQ that enables orthopedic surgeons to manage in-house programs for orthopedic durable medical
equipment, including inventory controls, insurance adjudication, and patient billing. Together, under the banner of these subsidiary
companies offer a range of products and services to meet the needs of our proprietary distribution channels. Cross selling of products
and services will enhance the revenue opportunities for the entire family of NuGenerex subsidiaries.
Our
corporate mission is to provide end-to-end solutions for physicians and patients through geographic expansion of our MSO model,
diversification of management services offerings, the establishment of an HMO in partnership with Dr. Kiran Patel, and the proposed
acquisition of an Accountable Care Organization for complex care.
The
NuGenerex family of subsidiary companies offer a broad range of products and services to meet the needs of physicians and patients,
including:
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NuGenerex
Distribution Solutions: MSO, Ancillary Services, , DME-IQ, and Surgical Products.
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NuGenerex
Regenerative Medicine: Olaregen Therapeutix, Regentys.
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NuGenerex
Surgical Products: Pantheon Medical – Foot & Ankle, LLC and MediSource
Partners, LLC.
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NuGenerex
Health: MSO/HMO with Dr. Kiran Patel: Ancillary health management services for chronic
conditions – 65,000 + Patient population with Diabetes; Ophthalmology, Podiatry,
Chronic Care Management (CCM).
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Services
and Products
NuGenerex
Distribution Solutions
Generex
Biotechnology established NuGenerex Distribution Solutions (NDS) in 2018 as the foundational piece in the transformation of the
Company into an integrated healthcare holding company that provides end-to-end solutions for physicians and patients. Part of
the NDS model includes a physician-owned MSO which is positioned to procure our new products and services as made available. NDS
will also continue to provide inventory selection and management, as well as management services for legal and regulatory compliance,
accounting, HR, IT and customer support services through the MSO networks.
We
serve as the General Partner of the MSO which is 99% owned by over 50 entities. The entities included orthopedic and podiatric
surgery centers with over 100 Physicians in 5 states and this MSO structure creates the foundation of our future alternative distribution
channel with an open sales channel for products and services. The company plans to expand its geographic footprint nationally
where appropriate.
NuGenerex
Distribution Solutions Corporate Mission NDS benefits the medical community by providing cost effective ancillary services
that ultimately deliver better outcomes and enhance the doctor-patient relationship. NDS will make available numerous best of
class products and services using a patient centric approach that enables ancillary service providers, physicians, and
patients to better coordinate healthcare services from diagnosis through treatment and follow-up.
NDS
Expansion
The
NuGenerex MSO network has operated in five states and is configuring a roll out which will be compliant and take costs out of
healthcare through better outcomes. Those organizations which invest in our new MSO model will be aligned solely with our GNBT
shareholders and will receive discount codes to procure our products such as Excellagen.
DME-IQ
NuGenerex Distribution
Solutions is planning a launch DME-IQ, a novel software as a service (SaaS) solution for physicians to manage in-office distribution
of durable medical equipment (DME). DME-IQ supports the development and management of compliant and profitable in-office DME programs.
DME-IQ focuses on several key areas which include negotiating on behalf of the physicians with key vendors to decrease the COGS
(Cost of Goods Sold), increasing insurance collections by providing oversight of the coding during the billing process, providing
the necessary personnel to manage the appeals processes, and ensuring compliance with state and federal regulations.
DME-IQ
will automate and provide the orthopedic practices with a proprietary, tablet-based software package that immediately verifies
patient benefits and eligibility. This unique system manages DME inventory, collects patient copays and deductibles, and links
patient information with the DME products and necessary patient forms all in one easy to use platform.
The
DME Market
The US
market for DME is large and growing, a result of several factors including the rising prevalence of chronic diseases requiring
long-term care, the rapidly growing geriatric population, and the trend toward home healthcare services. Chronic disorders such
as diabetes, diabetic foot & pressure ulcers, chronic pain, and cancer that require long-term patient care and postoperative
recovery are driving demand for DME. According to a 2018 market report by Grand View Research, Inc., the US DME market is expected
to reach $70.8 billion by 2025, growing at a 6.0% CAGR during the forecast period.
DME-IQ
tracks and maintains DME inventory to ensure an adequate supply and product mix for orthopedic patient populations, and the system
facilitates insurance claim submissions and adjudication to help achieve optimal reimbursements. With the DME-IQ system, the practice
gains control of their DME program from an operations and financial perspective, while patients gain access to a wider variety
of DME products that are custom fitted for their needs.
The
explosion of high deductible insurance plans has resulted in a dramatic increase of patient out-of-pocket payments for care, and
the subsequent requirement that physicians spend more time as collection agents rather than doctors. DME-IQ provides practice
workflow solutions for DME with custom, tablet-based software that removes the administrative burden from the practice, facilitating
patient eligibility review, collection of patient co-pay and deductibles, centralized insurance adjudication, DME product procurement,
and other support services that allow physician practices to increase revenue and service quality. The launch of DME-IQ advances
the mission of NDS to provide physicians with end-to-end solutions for patient centric care.”
NuGenerex
Regenerative Medicine
Olaregen
Therapeutix, Inc.
Our
majority-owned subsidiary, Olaregen Therapeutix, Inc. is a regenerative medicine company focused on the development, manufacturing
and commercialization of products that fill unmet needs in the current wound care market. We aim to provide advanced healing solutions
that substantially improve medical outcomes while lowering the overall cost of care. Olaregen’s first product, Excellagen®
(wound conforming matrix) is a topically applied product for dermal wounds and other indications. Excellagen is a FDA 510(k) cleared
device for of a broad array of dermal wounds, including partial and full thickness wounds, pressure ulcers, venous ulcers, diabetic
ulcers, chronic vascular ulcers, tunneled/undermined wounds, surgical wounds (donor sites/ grafts, post-Mohs surgery, post-laser
surgery, podiatric, wound dehiscence), trauma wounds (abrasions, lacerations, second-degree burns and skin tears) and draining
wounds, enabling Olaregen to market Excellagen in multiple vertical markets.
The
Wound Care Market
Total
Global Wound Care Industry is expected to reach $22.01 billion by 2022, according to Markets and Markets; Bioactive Wound Care
Market (i.e. skin substitute) is valued at $7.8 billion; In the U.S. There are 6.5 million patients in the U.S. with chronic wounds
(NIH estimate).
Olaregen
Highlights
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Received
FDA 510(k) clearance on October 3, 2013, for 17 indications;
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Obtained
Intellectual properties and global rights of Excellagen® except China, Russia and
CIS.
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Received
Patent on October 10, 2017;
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Has
a unique Healthcare Common Procedure Coding System (HCPCS) Code - Q4149
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Clinical
data show significant tissue growth and positive wound closure (PDGF)
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Ease
of use – No grafting
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Low
cost provider with High profit margins;
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Low
execution risk (seasoned management team with product launch experience);
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No
development risk (over $20 million invested and completed);
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No
regulatory risk (FDA cleared).
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Excellagen
is an advanced, wound care management platform:
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Formulated
fibrillar Type I bovine collagen (2.6%)
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Viscosity
optimized for dripless wound coverage
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Flowable
with no staples or sutures required
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Pre-filled,
ready to use syringes
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One
syringe covers up to 5.0 cm2 wound
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Refrigerated
storage only with no thawing or mixing
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Treatment
at only one-week intervals
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Activates
human platelets
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Triggers
the release of Platelet-Derived Growth Factor (PDGF)
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Accelerates
granulation tissue growth in “non-healing wounds”
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Additionally,
Excellagen can serve as an Enabling Delivery Platform for pluripotent stem cells, antimicrobial agents, small molecule
drugs, DNA-Based Biologics, conditioned cell media and peptides. Olaregen's initial focus will be in advanced wound care including
diabetic foot ulcers (DFU), venous leg ulcers and pressure ulcers. Future products focusing on innovative therapies in bone and
joint regeneration comprise the current pipeline.
Excellagen®
History
Olaregen
Therapeutix Inc. acquired the intellectual properties and global rights of Excellagen® except in China, Russia and CIS, from
Taxus Cardium, Inc. (OTC: CRXM), and its wholly owned subsidiaries Activation Therapeutics, Inc. and Gene Biotherapeutics, Inc.
On
August 2018, Olaregen acquired the IP for a total consideration is $4,200,000 and is broken down as follows: 1) $650,000 upfront
payment, 2) $200,000 sales credit for collagen solution, and 3) $3,350,000 payable at 10% of net sales, which is defined as total
sales less allowances, including hub fees, sales concessions, co-promote fees, cost of goods sold and other charges.
Regentys
Corporation
Our
majority-owned subsidiary, Regentys Corporation (formerly Asana Medical, Inc.) is a regenerative medicine company developing a
tissue engineered therapy for the treatment of Ulcerative Colitis.
Overview
In
January 2019, we acquired a majority interest in Regentys Corporation, a Florida corporation, a development-stage regenerative
medicine company. Since its formation in May 2013 as Asana Medical Inc., Regentys has been developing a first-in-class tissue
engineered therapies for the treatment of Ulcerative Colitis (UC) and other inflammatory bowel diseases.
Ulcerative
Colitis
According
to an article that was published in The Lancet on December 23, 2018 named worldwide incidence and prevalence of inflammatory
bowel disease in the 21st century: a systematic review of population-based studies. (2018 Dec 23;390(10114):2769-2778),
Ulcerative Colitis affects an estimated 3.2 million patients in Europe, the United States and Japan. It is a chronic, inflammatory
disease that causes sores or ulcers in the lining of the large intestine (the colon). Immunological in nature, UC is thought to
be facilitated by a variety of hereditary, genetic and environmental factors and it is increasingly being diagnosed in more urbanized
areas. Symptoms, including urgency, bleeding, and diarrhea, that substantially affect quality of life.
Regentys™
Extracellular Matrix Hydrogel (“ECMH”)
Regentys’
initial product, ECMH™ Rectal Solution, is a first-in-class, non-pharmacologic, non-surgical treatment option for millions
of patients suffering from mild to moderate Ulcerative Colitis. Its product candidate is a powder that is reconstituted
with saline and delivered as a liquid via enema. As ECMH reaches body temperature, it gels and coats the mucosal lining of the
GI tract.
The
core technology is derived from ECM, a safe and effective FDA-approved base now extensively used for surgical applications
and wound treatment. ECMH acts as a bio-scaffold, separating the damaged tissue from waste flow, covering ulcerations to limit
the inflammatory response, and facilitating a healing environment using endogenous (the body’s own) stem cells.
Pre-Clinical
Results
Published
pre-clinical results in the Journal of Crohn’s and Colitis highlight the promise of Regentys technology. Animal data
show the ECMH therapy can both alleviate clinical symptoms and facilitate healing in UC patients. Previous pre-clinical ECM animal
data for approved products has been shown to have a high correlation with human data.
Competition
Currently
four biologics are FDA-approved, including top-selling antibody medicines Humira® (adalimumab), Simponi® (golimumab),
Remicade® (infliximab) and Entyvio® (vedolizumab), all of which act to suppress the pro-inflammatory protein, TNF-a (Tumor
Necrosis Factor Alpha), a leading cause of the proliferation of ulcerative colis and other forms of IDB. However, even with these
options, more than half of all UC patients do not achieve long-term remission. Moreover, 20-30% of non-responsive patients will
undergo colon removal surgery in an attempt to remediate the disease.
Regentys
Advantages
We
expect our product to offer a true alternative to patients non-responsive to first line therapies such as 5-ASA. Unresponsive
patients will then need to choose among therapies that alter the body’s immune system or pose long term health risks or
perhaps both. Regentys’ technology is expected to enable targeted tissue healing but pose none of the health risks of more
expensive market-leading biologics that generally suppress the immune system. We expect to provide our therapy at a cost less
than other therapies.
Market
In
2023, when we expect to receive approval, the projected drug costs for UC alone are expected to exceed $7.5B globally according
to a 2017 report by Allied Market Research; including other inflammatory bowel disease indications, the global market is expected
to be double the UC market. Based upon the nature of IBD, and the characteristics of Regentys’ technology, management believes
variations of Regentys’ core technology will also be effective in treating IBD diseases such as Crohn’s, rectal mucositis,
proctitis and anal fissures.
Intellectual
Property
Regentys
in-licensed patents and co-developed its technology platform with the University of Pittsburgh. It now holds patent rights in
US and foreign jurisdictions, and has other global filings pending; as well, it has patent applications pending for similar indications
predicated on its existing technology in other major global markets.
Regulatory
Path
The FDA has
affirmed our approach to file a 510(k) de novo application on its ECM hydrogel. We have developed a protocol
and has engaged a clinical research organization to manage the conduct of its first-in-human clinical trials expected to start
in Q2/Q3 2020 in Australia. Additionally, we have engaged consultants to assist in managing the trials and regulatory approval
process in Australia, the US and Europe, jurisdictions in which we initially expect to undertake clinical trials and, among other
markets, where it will first seek governmental approval to promote and sell medical devices.
Product
Development
Since
2013, we have maintained a research and development agreement with the University of Pittsburgh supplemented with personnel from
the affiliated McGowan Institute of Regenerative Medicine. In February 2018, Regentys entered into a development agreement with
(and has received a co-investment by) Cook Biotech, Inc., a global leader in ECM manufacturing technology (CookBio). Product batches
now on hand are expected to be sufficient for additional development and testing. A larger clinical batch with finalized specifications
will be generated in the coming months for use in clinical trials. There are alternate providers of development services who can
assist with product development activities. Notwithstanding these options, management believes that because of the nature of ongoing
development activities, and the reliance upon certain bench and manufacturing processes and ECM product expertise and technology,
any interruption in the development relationship with CookBio would subject the Company to substantial expenditures of time and
cost to duplicate the product.
Manufacturing
Regentys has
an exclusive manufacturing agreement with CookBio for the production of biomaterial and use of its proprietary technology conditioned
upon the completion of final product development work. Management has negotiated an agreement with a third-party manufacturer
for product components and kitting. We believe that there are alternate sources of these manufacturing and supply services. However,
because of the nature of regulation in the medical device industry, and the reliance upon the collection, reporting and management
of medical device manufacturing data, a change of manufacturer would substantially impact the time and cost required for clinical
product production and regulatory compliance.
Financing
In
January 2019, Regentys was acquired by Generex for an aggregate purchase price of $15,000,000, with $400,000 paid in upfront cash
up-front and a promissory note of $14,600,000. Installments payable under the note were tied to specific business development
objectives and dates. As October 3, 2019, an additional $850,000 was paid for a total of $1,250,000 against the note. Regentys
entered into an accommodation agreement dated March 14, 2019 with Generex to provide longer time to pay. While Generex has not
timely made the required payments as of the date this 10-K is filed, Management believes that payments now due will provide sufficient
and timely funding to undertake and finalize its first-in-human clinical trials and to acquire one or more regulatory approvals
to market and sell our products in Australia, the US and/or the EU.
Operations
Currently,
Regentys employs four full-time contract employee and several part-time consultants. We supplement our business operations by
engaging external legal (intellectual property, corporate and health care), accounting and tax professionals. We also have contracted
with information services, regulatory and clinical trial companies who make available professionals to manage the information
services, regulatory, clinical, and compliance aspects of the business. Upon payment of the interim note, Regentys will formally
add two contract employees, additional administrative staff and a third-party provider to assist with employee payroll and benefits
as well as undertake clinical trial activities suing external support.
NuGenerex
Surgical Products
Pantheon
Medical – Foot & Ankle, LLC and MediSource Partners, LLC
Pantheon
Medical is a manufacturer of orthopedic foot & ankle surgery kits that offer physician friendly “all-in-one,”
integrated surgical kits that include plates, screws, and tools required for orthopedic surgeons and podiatrists conducting foot
and ankle surgeries.
MediSource
Partners is a 10-year old private company that is an FDA registered distributor of surgical, medical, and biologic supplies, with
over 25 vendor contracts for nationwide distribution of implants and devices for spine, hips, knees, foot, ankle, hand, and wrist
surgeries. Additional product lines include biologics (blood, bone, tissue, stem cells), durable medical equipment, and soft goods.
We maintain partnerships and contracts with hospital systems for ordering, billing and inventory management.
The
acquisitions of Pantheon and MediSource were finalized on August 1, 2019, immediately subsequent to the end of our 2019 fiscal
year. MediSource Partners has contracts with over 25 vendors (including Pantheon Medical) for distribution of:
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Biologics
(blood, bone, tissue, and stem cells)
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Durable
medical equipment
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Kits
to process bone marrow aspirates and platelet rich plasma biologics
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Historical
Background
MediSource
Partners was founded in 2009 and designed to be unique amongst its competitors by operating as a service-focused, “one stop
shop” for the healthcare professionals it serves. With over 25,000 products in its catalogue, including thirteen (13) lines
dedicated to spine, MediSource prides itself on its ability to service everything from small private practices across several
disciplines, to entire hospital systems. The large and broad-based inventory allows our client physicians to “customize”
their operating environment by selecting and implementing the hardware, biologics, soft goods and ancillary tools they feel most
confident in and comfortable with. In addition, the “one stop shop” model reduces the burden placed on support staff
tasked with managing multiple reps from multiple vendors and shortens the distribution chain to reduce costs and potential redundancies.
The success of this model is demonstrated in MediSource’s ability to offer this client-focused, low-impact service at a
pricing matrix often below even standard GPO pricing, thus increasing client profitability and productivity.
Pantheon
Medical was founded in 2014 to build a manufacturing company with proprietary product lines that offer convenience and cost effectiveness
to physicians. Pantheon is contracted with MediSource Partners for nationwide distribution of its proprietary “All-in-One”
Foot & Ankle Surgery Kit.
Product
Development
Pantheon
Medical – Foot & Ankle, LLC is developing proprietary surgical systems to expand the product line. Over the next three
years Pantheon will be developing three new product lines for submission to the FDA for 510K clearance, including Cannulated Screws,
a Hammertoe System and Surgical Staples. Additionally, MediSource Partners will distribute a line of regenerative medicine products
under development by an affiliated organization licensed for the production of biologics, including umbilical cord blood and Wharton’s
Jelly (rich sources of stem cells), mesenchymal stem cells, and human placental derived tissue factors, primarily exosomes.
The
acquisitions of Pantheon and MediSource Partners expands the commercial product portfolio of Generex into the surgical field,
adding revenues and profits with their current product line and significant upside opportunities for new FDA-approved product
introductions over the next several years. The MSO partners in NuGenerex Distribution Solutions, many of whom are orthopedic surgeons
and podiatrists, will immediately benefit from Pantheon’s Foot & Ankle surgery kit.
NuGenerex
Health, LLC
In
addition to our efforts in orthopedic medicine, we are currently in the process of setting up NuGenerex Health MSO to provide
ancillary health services in partnership with Arizona Endocrinology Center and Paradise Valley Family Medicine, two major physician
practices that care for a population of ~65,000 patients, approximately 25,000 of whom are insulin dependent diabetics with chronic
care needs. With an initial focus on the management of complex diabetes patients, NuGenerex Health will offer ophthalmology, podiatry,
chronic care management (CCM) services to provide patients with integrated, concierge care to improve outcomes and reduce costs.
NuGenerex Health will employ ophthalmologists, podiatrists, and medical staff to provide ancillary health services for chronic
care diabetes patients in support of the endocrinology and family medicine practices. By bringing the specialty ancillary care
directly to the patients who regularly visit the clinic, NuGenerex Health provides an integrated, collaborative care model to
not only enhance patient wellbeing, but also to comply with CMS guidelines for diabetes and chronic care management that can lead
to 5-star ratings and increased reimbursements.
Ophthalmology
Regular
eye exams for persons diagnosed with diabetes mellitus are important for detecting potentially treatable vision loss. Monitoring,
surveillance, and evaluation of visual health are widely recognized as prerequisites for effective, accessible, and high-quality
individual and population-based health services.
Medicare
Part B (Medical Insurance) covers preventive and diagnostic eye exams as part of a comprehensive diabetes care plan, with
reimbursements averaging $215 per patient for standard eye exam with accompanying tests for glaucoma and macular degeneration.
Podiatry
According
to an article that was published in Therapeutics Advances Endocrinology & Metabolism, Financial burden of diabetic foot
ulcers to world: a progressive topic to discuss always(2018 Jan; 9(1): 29–31.), as diabetic foot ulcers (DFUs) are the
leading cause of non-traumatic lower extremity amputation costing an estimated $13 billion annually, CMS promotes preventive and
diagnostic foot exams by a podiatrist, with reimbursement rates averaging $175 for a new patient evaluation, and $150 for follow
up. Under the CMS guidelines, patients are eligible for diabetic foot exams every six months.
Chronic
Care Management (CCM)
According
to the CDC an estimated 117 million adults have one or more chronic health conditions, and 2/3 of Medicare patients have 2 or
more chronic conditions. The Centers for Medicare & Medicaid Services (CMS) made benefit payments of $583 billion in 2018,
with chronic care patients accounting for 99% of expenditures. Recognizing chronic care management (CCM) as a critical component
of health care, CMS has established reimbursement codes to promote adoption in the marketplace, including significant improvements
in 2017 that increased payment amounts and introduced new billing codes. NuGenerex Health is designed to provide comprehensive
ancillary services to fill the current gaps in care that lead to significant morbidity and astronomical costs of diabetes.
Once
the model is established for the diabetes population in Arizona, NuGenerex Health plans to expand to other states.
NuGenerex
Health HMO
Generex
is in the process of building the final link in our corporate mission to provide physicians, hospitals, and all healthcare providers
with an end-to-end solution for patient centric care from rapid diagnosis through delivery of personalized therapies, streamlining
care processes, minimizing expenses, and delivering transparency for payers.
Generex
intends to establish NuGenerex Health a multi-specialty Management Services Organization (MSO) that will serve as in-network providers
for a health maintenance organization (HMO) that provides healthcare services and disease management solutions for patients living
with chronic medical conditions. NuGenerex Health will serve patients with Chronic Special Needs Plans (C-SNP) and Dual-Eligible
Special Needs Plans under Medicare Advantage and Medicare Part B and Part D. In doing this, Generex intends to partner with an
experienced HMO developer. Following the roadmap established by this partner in building some of the most successful HMO companies
in recent history, NuGenerex plans to generate significant membership growth by developing patient centric engagement programs
and building on our strong provider relationships. The HMO infrastructure will be managed by Beacon Health Solutions, which has
provided back-end services for HMOs since 2009.
Contemplated
Product Positioning and Plan Design
Medicare
Advantage Prescription Drug Plan (MAPD) HMO for individuals who have both Medicare Part A and Part B. This plan caters
to individuals that prefer an all-inclusive product that covers Part C, Part D, and additional supplemental benefits at a low
plan premium amount.
Chronic
Special Needs Plan (CSNP) HMO for individuals in addition to having Medicare Part A and Part B are faced with the
burden of living with diabetes or a cardiovascular disorder. This plan is offered to individuals that prefer an all-inclusive
product that covers Part C, Part D, and additional supplemental benefits at a low plan premium amount.
Dual
Eligible Special Needs Plan (DSNP) HMO for individuals that have both Medicare Part A and Part B and medical assistance
through their state of residence. This plan is offered to individuals that prefer an all-inclusive product that covers Part C,
Part D, and additional supplemental benefits with no monthly plan premium.
NuGenerex
Health D-SNP HMO Full will cover all Medicare-covered benefits at zero cost-sharing. In addition to the base supplemental
products, the plan also offers routine foot care, and transportation.
GOVERNMENT
REGULATION
Regulatory
Considerations for Generex
Our
research and development activities and the manufacturing and marketing of our medical device, biologic, and pharmaceutical products
are subject to extensive regulation by the FDA in the United States, Health Canada in Canada, the EMEA in Europe, and comparable
designated regulatory authorities in other countries. Among other things, extensive regulations require us to satisfy numerous
conditions before we can bring products to market. While these regulations apply to all competitors in our industry, having a
technology that is unique and novel extends the requisite review period by the various divisions within the FDA and other regulators.
Also, other companies in our industry are not limited primarily to products which still need to be approved by government regulators,
as we are now.
If
requisite regulatory approvals are not obtained and maintained, our business will be substantially harmed. In many cases, we expect
that extant and prospective development partners will participate in the regulatory approval process. The following discussion
summarizes the principal features of food and drug regulation in the United States and other countries as they affect our business.
United
States
All
aspects of our research, development and foreseeable commercial activities relating to medical device, biologic, and pharmaceutical
products are subject to extensive regulation by the FDA and other regulatory authorities in the United States. United States federal
and state statutes and regulations govern, among other things, the testing, manufacturing, safety, efficacy, labeling, storage,
record keeping, approval, advertising and promotion of pharmaceutical products. The regulatory approval process, including clinical
trials, usually takes several years and requires the expenditure of substantial resources. If regulatory approval of a product
is granted, the approval may include significant limitations on the uses for which the product may be marketed.
The
steps required before a medical device, biologic or pharmaceutical product may be marketed in the United States include:
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Conducting
appropriate pre-clinical laboratory evaluations, including animal studies, in compliance
with the FDA’s Good Laboratory Practice (“GLP”) requirements, to assess
the potential safety and efficacy of the product, and to characterize and document the
product’s chemistry, manufacturing controls, formulation and stability;
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Submitting
the results of these evaluations and tests to the FDA, along with manufacturing information,
analytical data, and protocols for clinical studies, in an IND Application, and receiving
approval from the FDA that the clinical studies proposed under the IND are allowed to
proceed;
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Obtaining
approval of Institutional Review Boards (“IRBs”) to administer the product
to humans in clinical studies; conducting adequate and well-controlled human clinical
trials in compliance with the FDA’s Good Clinical Practice (“GCP”)
requirements that establish the safety and efficacy of the product candidate for the
intended use;
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Developing
manufacturing processes which conform to the FDA’s current Good Manufacturing Practices,
or cGMPs, as confirmed by FDA inspection;
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Submitting
to the FDA the results of pre-clinical studies, clinical studies, and adequate data on
chemistry, manufacturing and control information to ensure reproducible product quality
batch after batch, in an NDA, a 510(k), PMA or Biologics License Application (“BLA”);
and
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Obtaining
FDA approval of the NDA, BLA, PMA, or 510(k) including inspection and approval of the
product manufacturing facility as compliant with cGMP requirements, prior to any commercial
sale or shipment of the pharmaceutical agent.
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Quality
and pre-clinical tests and studies include: laboratory evaluation of Drug Substance and Drug Product chemistry, formulation/manufacturing,
and stability profiling, as well as a large number of animal studies to assess the potential safety and efficacy of each product.
The
results of the quality and pre-clinical tests/studies, in addition to any non-clinical pharmacology, are submitted to the FDA
along with the initial clinical study protocol (see descriptive of process below) as part of the initial IND and are reviewed
by the FDA before the commencement of human clinical trials. Unless the FDA objects to it, the IND becomes effective 30 days following
its receipt by the FDA. The FDA reviews all protocols, protocol amendments, adverse event reports, study reports, and annual reports
in connection with a new pharmacological product.
The
IND for our oral insulin formulation became effective in November 1998. Amendments are also subsequently filed as new Clinical
Studies and their corresponding Study Protocols are proposed. In July 2007, we received a no objection clearance to initiate our
Phase III study protocol for our oral insulin product.
The
Physician’s Investigational New Drug Application for the Phase I and Phase II trial of AE37, Antigen’s synthetic peptide
vaccine designed to stimulate a potent and specific immune response against tumors expressing the HER-2/neu oncogene, in patients
with stage II HER-2/neu positive breast cancer became effective in March 2006.
The
Investigational New Drug Application for the Phase II trial of AE37 in combination with pembrolizumab (Merck’s Keytruda)
for treatment of triple negative breast cancer became effective in December 2018, and the trial is expected to begin enrolling
patients in the second quarter of 2019.
Clinical
trials involve the administration of a new drug to humans under the supervision of qualified investigators. The protocols for
the trials must be submitted to the FDA as part of the IND. Also, each clinical trial must be approved and conducted under the
auspices of an IRB, which considers, among other things, ethical factors, the safety of human subjects, and the possible liability
of the institution conducting the clinical trials.
Clinical
trials are typically conducted in three sequential phases (Phase I, Phase II, and Phase III), but the phases may overlap. Phase
I clinical trials test the drug on healthy human subjects for safety and other aspects, but usually not effectiveness. Phase II
clinical trials are conducted in a limited patient population to gather evidence about the efficacy of the drug for specific purposes,
to determine dosage tolerance and optimal dosages, and to identify possible adverse effects and safety risks. When a compound
has shown evidence of efficacy and acceptable safety in Phase II evaluations, Phase III clinical trials are undertaken to evaluate
and confirm clinical efficacy and to test for safety in an expanded patient population at clinical trial sites in different geographical
locations. The FDA and other regulatory authorities require that the safety and efficacy of therapeutic product candidates
be supported through at least two adequate and well-controlled Phase III clinical trials (known as “Pivotal Trials”).
The successful completion of Phase III clinical trials is a mandatory step in the approval process for the manufacturing, marketing,
and sale of products.
In
the United States, the results of quality, pre-clinical studies and clinical trials, if successful, are submitted to the FDA in
an NDA to seek approval to market and commercialize the drug product for a specified use. The NDA is far more specific than the
IND and must also include proposed labeling and detailed technical sections based on the data collected. The FDA is governed by
the Prescription Drug User Fee Act (“PDUFA”) regarding response time to the application, which is generally 12 months
(and shorter for a priority application). It may deny a NDA if it believes that applicable regulatory criteria are not satisfied.
The FDA also may require additional clarifications on the existing application or even additional testing for safety and efficacy
of the drug. We cannot be sure that any of our proposed products will receive FDA approval. The multi-tiered approval process
means that our products could fail to advance to subsequent steps without the requisite data, studies, and FDA approval along
the way. Even if approved by the FDA, our products and the facilities used to manufacture our products will remain subject to
review and periodic inspection by the FDA.
To
supply drug products for use in the United States, foreign and domestic manufacturing facilities must be registered with, and
approved by, the FDA. Manufacturing facilities must also comply with the FDA's cGMPs, and such facilities are subject to periodic
inspection by the FDA. Products manufactured outside the United States are inspected by regulatory authorities in those countries
under agreements with the FDA. To comply with cGMPs, manufacturers must expend substantial funds, time and effort in the
area of production and quality control. The FDA stringently applies its regulatory standards for manufacturing. Discovery
of previously unknown problems with respect to a product, manufacturer or facility may result in consequences with commercial
significance. These include restrictions on the product, manufacturer or facility, suspensions of regulatory approvals, operating
restrictions, delays in obtaining new product approvals, withdrawals of the product from the market, product recalls, fines, injunctions
and criminal prosecution.
One
final hurdle that is closely associated with the cGMP inspections is the pre-approval inspection that the FDA carries out prior
to the issuance of a marketing license. FDA inspectors combine cGMP compliance with a review of research and development documents
that were used in the formal NDA. A close inspection of historic data is reviewed to confirm data and to demonstrate that a company
has carried out the activities as presented in the NDA. This is generally a long inspection and requires a team of individuals
from the Company to “host” the FDA inspector(s).
Foreign
Countries
Before we are
permitted to market any of our products outside of the United States, those products will be subject to regulatory approval by
foreign government agencies similar to the FDA. These requirements vary widely from country to country. Generally, however,
no action can be taken to market any drug product in a country until an appropriate application has been submitted by a sponsor
and approved by the regulatory authorities in that country. Again, similar to the FDA, each country will mandate a specific financial
consideration for the Marketing Application dossiers being submitted. Although an important consideration, FDA approval does not
assure approval by other regulatory authorities. The current approval process varies from country to country, and the time spent
in gaining approval varies from that required for FDA approval. We have received a number of foreign regulatory approval for the
first generation Oral-lyn buccal insulin and over-the-counter products in the past, however, Oral-Lyn was never launched, and
we are not manufacturing, marketing, nor distributing products in these regions based upon these approvals.
In May 2019,
NuGenerex Diagnostics (formerly HDS) filled an international order for 40,000 units of its malarial diagnostic product, The NGDx
-Malaria PF/PV Cassette Test Kit to Imres, BV, a Netherlands-based medical distribution company. The kits were part of a World
health Organization contract. That contract is fulfilled, and the contract has expired.
We have relocated
our headquarters from Canada to the United States, but we maintain our Canadian entity, Generex Pharmaceuticals, Inc. This entity
contains all the intellectual property (IP) for the entire history of our Oral-Lyn diabetic products and patents for buccal delivery.
There are no live operations in Canada, but we continue with an office. Also, temporarily, as we continue to transition GNBT into
a major company again, our Banking Operations are housed at the Royal Bank of Canada (RBC) and will be replaced by a USA based
public company treasury platform with JP Morgan Chase. This entity also holds a significant Canadian NOL of value to be used upon
the reactivation of operations once funded.
We have a few international initiatives that we continue to pursue
in regard to development of new drugs, however, no international clinical trials are currently being conducted. Moving forward,
we will pursue international development of promising drug candidates, with the goal of out-licensing those products to local companies
or to international pharmaceutical companies for marketing and distribution in those countries, particularly in the European Union
and Japan represent major markets for pharmaceutical and diagnostic products. To that end, we are in frequent contact with international
countries with interests in licensing agreements with us on some of our products. Currently we have a licensing agreement with
Shen Zhen BioScien for the rights to our cancer vaccine AE37 for the treatment of prostate cancer in China.
NuGenerex
Diagnostics Regulatory Considerations
The
manufacturing and marketing of our existing and proposed diagnostic products are regulated by the FDA and comparable regulatory
bodies in other countries. Our products are also regulated by, subject to approval by, or must meet standards set by, of
certain non-governmental organizations involved in the purchase and distribution of products like ours. These regulations
and standards govern almost all aspects of development, production and marketing, including product testing, authorizations to
market, labeling, promotion, manufacturing and record keeping.
Commercialization
of medical devices in the European Union requires meeting the regulatory guidelines of the European Medical Devices Directive
(MDD) and fulfillment of those requirements allows a device to carry the “CE-Mark” as verification of its diagnostic
authenticity.
FDA
regulated products require some form of action by that agency before they can be marketed in the United States, and, after approval
or clearance, we must continue to comply with other FDA requirements applicable to marketed products, e.g. Quality Systems (for
medical devices). Failure to comply with the FDA’s requirements can lead to significant penalties, both before and
after approval or clearance.
There
are two review procedures by which medical devices can receive FDA clearance or approval. Some products may qualify for
clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, in which the manufacturer provides a pre-market notification
that it intends to begin marketing the product, and shows that the product is substantially equivalent to another legally marketed
product (i.e., that it has the same intended use and is as safe and effective as a legally marketed device and does not raise
different questions of safety and effectiveness). In some cases, the submission must include data from human clinical studies.
Marketing may commence when the FDA issues a clearance letter finding such substantial equivalence.
If
the medical device does not qualify for the 510(k) procedure (either because it is not substantially equivalent to a legally marketed
device or because it is required by statute and the FDA’s implementing regulations have an approved application), the FDA
must approve a Pre-Marketing Application (“PMA") before marketing can begin. PMA’s must demonstrate,
among other matters, that the medical device provides a reasonable assurance of safety and effectiveness. A PMA application
is typically a complex submission, including the results of non-clinical and clinical studies. Preparing a PMA application
is a much more expensive, detailed and time-consuming process as compared with a 510(k) pre-market notification.
In
addition, the FDA regulates the export of medical devices that have not been cleared for marketing in the United States.
The Federal Food, Drug and Cosmetic Act contains general requirements for any medical device that may not be sold in the United
States and is intended for export. Specifically, a medical device intended for export is not deemed to be adulterated or
misbranded if the product: (1) complies with the specifications of the foreign purchaser; (2) is not in conflict with the laws
of the country to which it is intended for export; (3) is prominently labeled on the outside of the shipping package that it is
intended for export; and (4) is not sold or offered for sale in the United States. However, the Federal Food, Drug and Cosmetic
Act does permit the export of devices to any country in the world, if the device complies with the laws of the importing country
and has valid marketing authorization in one of several " listed " countries under the theory that these listed countries
have sophisticated mechanisms for the review of medical devices for safety and effectiveness.
We
are also subject to regulations in foreign countries governing products, human clinical trials and marketing, and may need to
obtain approval or evaluations by international public health agencies, such as the World Health Organization, in order to sell
diagnostic products in certain countries. Approval processes vary from country to country, and the length of time required
for approval or to obtain other clearances may in some cases be longer than that required for United States governmental approvals.
On the other hand, the fact that our HIV diagnostic tests are of value in the AIDS epidemic may lead to some government process
being expedited. The extent of potentially adverse governmental regulation affecting HDS that might arise from future legislative
or administrative action cannot be predicted.
Our
products may rely on international regulatory approvals for sale into markets outside of the USA, and, domestically, our devices
would require US FDA clearance and, in some cases, WHO Listings.
It
is our intent to focus on both the domestic and international regulatory approvals.
Domestically,
we intend on submitting our devices to the FDA under a Pre-Market Approval Application (PMA) or through the 510K process.
The 510K would require the appropriate regulatory administrative submissions as well as a limited scientific review
by the FDA to determine completeness (acceptance and filing reviews); in-depth scientific, regulatory, and Quality System review
by appropriate FDA personnel (substantive review); review and recommendation by the appropriate advisory committee (panel review);
and final deliberations, documentation, and notification of the FDA decision. The PMA process is more extensive, requiring
clinical trials to support the application. We expect to apply to FDA for approval of our first Rapid Diagnostic Test (RDT) to
be submitted to the FDA for 510K approval within the next 3 months. We anticipate the FDA process will be completed
within 12-18 months after submission.
Internationally,
we intend on submitting our EXPRESS devices and cassettes to the WHO procurement listing process which requires a full regulatory
and quality documentation dossier, produced and compiled by the Company. WHO process requires laboratory testing and evaluation
and then may require clinical trials for public deployment and documentation throughout the whole process.
Once
the WHO process is complete and documented, there is a submission into the Global Fund, which is a partnership between governments,
civil society, the private sector and people affected by infectious diseases specifically HIV/AIDs, tuberculosis, and malaria.
The
Global Fund raises and invests nearly $4 billion a year to support programs run by local experts in countries that are most in
need.
It
is our intent to submit selected cassettes and EXPRESS RTDs to the FDA, WHO and the Global Fund for regulatory review.
Currently,
both our cassette malaria pF and malaria pF/pV have been listed under the WHO procurement process.
Regulatory
considerations for the NuGenerex Family of Companies
Our
business is subject to highly complex United States federal and state regulations that may impact our ability to fully implement
our strategic plans and initiatives. We are required to obtain and hold licenses and permits and to comply with the regulatory
requirements of various governmental agencies. If we fail to comply with such regulatory requirements or if allegations are made
that we fail to comply with such regulations, the economic viability of our Company may be adversely affected.
FDA
Regulations
The
manufacturers and suppliers of the products we market are subject to extensive regulation by the FDA, other federal governmental
agencies, and state authorities. These laws and regulations govern the approval of, clearance of, or license to commercialize
medical devices (such as Orthopedic Implants), Biologics, and drugs. This includes compliance with the standards and requirements
related to the design, testing, manufacture, labeling, promotion, and sales of the products, record keeping requirements, tracking
of devices, reporting of potential product defects and adverse events, conduct of corrections, and recalls and other matters.
As a distributor, marketer, and now, an FDA-registered medical device specification developer and repackager/relabeler of such
FDA-regulated products, we are subject to independent requirements to register and list certain products. We may be required to
obtain state licensure or certifications and we may be subject to inspections, in addition to complying with requirements that
apply to the manufacturers of the products we market. Failure to comply with those applicable requirements could result in a wide
variety of enforcement actions, ranging from warning letters to more severe sanctions such as fines, civil penalties, operating
restrictions, injunctions, and criminal prosecutions. To support our Biologics product lines, we are a registered establishment
with the FDA for the storage and distribution of human cells, tissues, and cellular and tissue-based products (HCT/Ps).
Healthcare
Laws and Regulations
We
are required to comply with federal and state healthcare laws and regulations. Such healthcare fraud and abuse laws apply to the
relationships that we and our distributors have with healthcare professionals and entities, such as physicians and hospitals.
U.S. federal health care laws including laws related to false claims, health care fraud and abuse, physician self-referrals, and
anti-kickbacks apply when we or are customers submit claims for items or services that are reimbursed under federally-funded health
care programs (such as Medicare or Medicaid). In comparable fashion, state health care laws of a similar nature apply to state-funded
health care programs and may also apply with private third-party payors. The requirements of these laws are complex and subject
to varying interpretations. If we fail to comply with these laws, we could be subject to federal or state government investigations,
substantial fines, exclusion from future participation in government healthcare programs, and civil or criminal sanctions. Such
sanctions and damages could adversely affect the economic viability of our Company.
We
instituted a company-wide compliance program for all employees, vendors, and contractors. During 2018, we hired a compliance officer
who is responsible for developing compliance programs, reviewing our policies, overseeing adherence to those policies, and advising
management on possible risks. Our policies related to this realm include general ethical business practices as well as specific
operating policies and training to ensure compliance with relevant and applicable healthcare laws and regulations that include
the laws referenced above in addition to other applicable laws, such as Health Insurance Portability and Accountability Act of
1996, as amended (“HIPPA”) and the Physician Payments Sunshine Act.
NuGenerex
Distribution Solutions and MSO Regulatory Considerations
NuGenerex
Distribution Solutions has operated under strict federal and state guidelines across several of the product and service lines
offered by the Company. In particular, the NuGenerex MSO is regulated at the state level, where the physician-owned management
services organization (MSO) has been deemed by our healthcare attorneys to be legally compliant in 27 states. The NuGenerex MSO
operates in compliance with all laws and regulations as detailed below:
We
believe that the following statements support an assertion that the ownership structure of the Company and the proposed arrangement
as a whole is structured to comply with some of the recommendations set forth by the OIG in the Bulletin, the Special Fraud Alert
and other guidance:
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Each
investor will have made a financial investment in a bona fide business venture
organized for the primary purpose of performing certain contracted services for the benefit
of a Contracted Ancillary Provider;
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If
an investor receives any distributions, such distributions will be made solely on the
basis of such investor’s proportionate ownership of the Company, and not on the
basis of referrals by any individual or class of investors or the revenues generated
by referrals from such investor;
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Subscriptions
for ownership of the Company will not be accepted or rejected on the basis of expected
volume of referrals or amount of business otherwise generated for the Company or indirectly
a Contracted Ancillary Provider by the subscriber; and
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There
is no requirement that an investor make referrals to, or otherwise generate business
for, a Contracted Ancillary Provider, NuGenerex or the Company as a condition of participation
in the Company.
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Some
of the most applicable health care related laws, rules, and regulations to the company are, including but not limited to, the
following:
Stark
Laws
The
types of financial arrangements between a physician and an entity that trigger the self-referral prohibitions of the Stark Law
are broad and include direct and indirect ownership and investment interests and direct and indirect compensation arrangements.
We do not believe that the Stark Law will be applicable to the Company or any Physician Member because neither we nor any Physician
Member intends to make any referral to a Contracted Ancillary Provider (as hereinafter defined) for the furnishing of any ancillary
healthcare services for which payment may be made under the Medicare or Medicaid programs.
We
do not believe the Subcontracted Services Agreement creates a direct financial relationship between the Physician Members (or
their professional organizations) and a Contracted Ancillary Provider because (i) the Vendor Services Agreement is between NuGenerex
on the one hand, and a Contracted Ancillary Provider on the other and (ii) the Subcontracted Services Agreement is between the
Company on the one hand and NuGenerex on the other. Further, we believe that the Subcontracted Services Agreement, as structured,
complies with the Stark Law exception for personal services should any enforcement authorities or agencies take the position that
the Physician Members have a direct financial relationship with a Contracted Ancillary Provider. Further, we believe the arrangements
meet the Stark Law exception for personal services.
The
Anti-Kickback Statue
The
federal anti-kickback statute, (the “Anti-Kickback Statute”), makes it a felony to knowingly and willfully offer,
pay, solicit or receive any remuneration, directly or indirectly, to induce, or in exchange for, referrals of business reimbursed
under federal health care programs, including Medicare and Medicaid.
We
do not believe that the Anti-Kickback Statute will be applicable to the Company or any Physician Member because neither we nor
any Physician Member intends to make any referral of business to a Contracted Ancillary Provider reimbursed under any federal
healthcare programs, including Medicare and Medicaid.
False
Claims Act
The
False Claims Act is a civil statute used as a primary tool for recovering monies from health care entities who have committed
fraud against the federal government.
We
do not intend to receive any compensation that is related to the referral of patients covered by any federal healthcare program,
including Medicare and Medicaid. We also plan to take precautions to avoid any activity that could be considered civil or criminal
false claims.
Civil
Monetary Penalty Statute
The
Civil Monetary Penalty Statute prohibits a health care provider from knowingly making a payment, directly or indirectly,
to a physician as an inducement to reduce or limit services to Medicare or Medicaid patients under the physician’s direct
care. We do not believe that the Civil Monetary Penalty Statute will be applicable to the Company or any Physician Member because
neither we nor any Physician Member intends to make any referral of business to a Contracted Ancillary Provider reimbursed under
the Medicare or Medicaid programs.
NuGenerex
Distribution Solutions Other Regulatory Considerations
Each
state has its own statutes and regulation governing relationships among healthcare providers, including ant-kickback, limitations
on referral fees and similar issues. Other states may have more restrictive laws which would make pursuing our business plan more
difficult. Given that we stared in Texas the following are examples of the types of state by state regulations which will govern
us.
Texas
Patient Non-Solicitation Act
The
Texas Patient Non-Solicitation Act prohibits anyone from intentionally or knowingly offering to pay or agreeing to accept any
remuneration (directly or indirectly, overtly or covertly, or in cash or in kind) to or from anyone else for securing or soliciting
patients for or from a person licensed, certified or registered by a Texas healthcare regulatory agency. Unlike the Stark Law
and the Anti-Kickback Statute that only apply to payments by federal government programs, the Texas Patient Non-Solicitation Act
applies to all payers, including private insurance companies. As a means of balancing this broad application, however, the Texas
Patient Non-Solicitation Act provides that compliance with the Anti-Kickback Statute constitutes compliance with the Texas Patient
Non-Solicitation Act.
Because
the Texas statute provides that compliance with the Anti-Kickback Statute constitutes compliance with the Texas Patient Non-Solicitation
Act, the analysis of the Company under the Texas Patient Non-Solicitation Act is essentially the same as the analysis under the
Anti-Kickback Statute.
Texas
Fee Splitting
The
Texas Medical Practice Act prohibits fee-splitting and other unprofessional conduct. Any physician who is found to have violated
the Texas Medical Practice Act may be subject to criminal sanctions or loss of such physician’s license to practice medicine.
Prospective physician investors are advised to consult their personal counsel regarding the potential impact of this statute on
their individual circumstances.
Texas Commercial
Bribery Statute
The
Texas Commercial Bribery Statute makes it a criminal violation for anyone, including a physician, acting without the consent of
their patient, to accept any benefit from another person or entity to influence such physician’s conduct toward the patient.
A violation of the commercial bribery law could result in a physician’s loss of license to practice medicine in Texas.
The
risk of violation of both the commercial bribery and the non-solicitation of patient’s statutes will be significantly reduced
if the patient of a Physician Member, prior to receiving services from a Contracted Ancillary Provider, is informed of the Physician
Member’s ownership in the Company and its indirect financial relationship with a Contracted Ancillary Provider.
MARKETING
AND DISTRIBUTION
Generex
Historical Business Marketing & Distribution
Historically,
Generex had marketing agreements with international distribution companies for distribution of Oral-Lyn in approved territories.
Those agreements are no longer in effect.
Currently,
as clinical stage development companies, neither NuGenerex Immuno-Oncology (formerly Antigen Express) nor NuGenerex Therapeutics
(Oral-Lyn and RapidMist buccal delivery system) markets or distributes any products.
NuGenerex
Diagnostics Marketing & Distribution
Sales
of the NuGenerex Diagnostics EXPRESS line of diagnostic kits for infectious diseases is dependent on regulatory approvals issued
by such agencies as the WHO, FDA and registration with the Global Fund. These approvals are a key element
in the sales and marketing effort on an international basis. We will work with these organizations as well as governmental
agencies in target countries and commercial companies.
WHO-Listed
Following
the successful fulfillment of previous PFSCM (Partnership for Supply Chain Management) and WHO shipments, HDS continues to
participate in requests for proposals from PFSCM for our currently WHO-approved HDS Malaria test. All of the HDS
Malaria RDT’s are on the WHO procurement list.
We
will also participate in the newly designed and recently announced WHO Pre-Qualification Program for Malaria RDTs. It is
our intention to present the new Malaria EXPRESS II devices for Pf, Pf/Pv and Pf/Pan for this Pre-Qualification Program.
NGDx
EXPRESS II - Syphilis
In
January 2019, NuGenerex Diagnostics received CE Marking Certification for its rapid point-of-care Express II Syphilis Treponemal
Assay from the European Union. We are currently seeking a distribution partner to launch the test in Europe in the fourth quarter
of 2019.
Olaregen
Marketing & Distribution
Olaregen
has established a team of internal sales and marketing professionals who oversee the marketing, sales & distribution for Excellagen.
Currently the product is sold and marketed in the United States. Olaregen Therapeutix Inc. plans to focus its efforts on selling
to the Veterans Affairs (VA) system, surgeons, dermatologists, and in phase II to wound care centers and nursing homes. These
are important market segments since approximately ~80-90% of patients that qualify for using Excellagen are treated in these centers
and nursing homes. Excellagen can be used for nearly all wound indications but management plans to focus on difficult to manage
wounds including Diabetic, Venous and Arterial ulcers initially as well as Post Moth’s surgery, Operating Rooms (OR) and
Ambulatory Care Surgeries with all these indications being extremely prevalent, most significantly amongst the elderly.
Olaregen
is signing intra-company agreements with partner companies in the NuGenerex family of companies for distribution of Excellagen
through both our proprietary market channels, and through our national distribution footprint.
Manufacturing
Generex
Historical Business
NuGenerex
Immuno-Oncology (formerly Antigen Express) Manufacturing
NuGenerex
Immuno-Oncology manufactures AE37 immunotherapeutic vaccine, a nineteen amino-acid peptide referred to as AE37 (Ii-Key/HER2 776-790
hybrid) under contract with PolyPeptide Laboratories, San Diego, CA. The suspended substance (lypophilized peptide suspended in
sterile, normal saline) is formulated into 2 mL glass vials containing 500 micrograms of peptide in 0.5 mL of 0.45% saline. All
manufacturing of AE37 is conducted under FDA cGMP compliance.
We
have produced, packaged and shipped AE37 for the upcoming clinical trial of AE37 in combination with pembrolizumab (Merck’s
Keytruda) for the treatment of triple negative breast cancer.
The
Company will require additional manufacturing for future trials with AE37 or any other Ii-Key hybrid immunotherapeutic peptide
for the treatment of cancer, and plans to use PolyPeptide Laboratories for future production work. In the event that PolyPeptide
Laboratories is unable to meet the manufacturing requirements of NuGenerex Immuno-Oncology, there are multiple contract manufacturers
that can provide cGMP peptide synthesis, purification, and packaging services.
NGDx
Diagnostic Manufacturing
NGDx
manufactures it RTD devices in our Miramar, Florida facility. Based on order size, delivery requirements and current orders
in process, the Miramar facility can manufacture up to 1 million RTD devices, all of which are currently hand assembled.
We have long-standing relationships with subcontractors to handle additional production requirements.
Cassette
production is conducted through subcontractors in India and China. Each site operates under GMP (Good Manufacturing
Practice) as well as being compliant with ISO 9001 and ISO13485. All HDS cassettes are included in our U.S. Certificate
of Exportability and European Union CE Mark registrations. All of our cassette malaria tests are approved by the WHO.
We
have established Quality and Assembly Agreements as well as confidentiality agreements with our subcontractors. All are
subject to our inspection at a moment’s notice.
The
quality of final assembly of each of our products is maintained under the strict guidelines of our internal Quality System, which
forms the basis for our ISO13485 rating.
Full
quality oversight is mandatory and final batch release testing is conducted on each lot of products assembled prior to shipment
release.
With
full automation, we anticipate producing up to 10 million EXPRESS devices annually. Expanded production would allow for
additional expansion beyond this volume. Additionally, it is anticipated that subcontractors would provide approximately 60 million
cassette tests per year.
Olaregen
Manufacturing
Olaregen
contracts with a third-party specialty manufacturer in the United Kingdom to manufacture Excellagen. Excellagen is an aseptically
manufactured, flowable dermal matrix consisting of a stabilized formulation of renatured atelopeptide bovine fibrillar tropocollagen
supplied in prefilled, ready to use syringes. Excellagen is manufactured according to Current Good Manufacturing Practices (cGMP)
and requires controlled temperature storage (2-8°C) to maintain structural integrity and bioactivity.
During
manufacture, the collagen component of Excellagen is purified using a specialized, validated aseptic process that effectively
inactivates potential contaminating viruses, eliminates impurities, and removes denatured molecules and collagen fragments. Excellagen
consists almost exclusively of high molecular weight, intact, fibrillar collagen and is formulated at a concentration of 2.6%
(26 mg/mL) in a physiologic buffer with protein stabilizing agents.
Regentys
Manufacturing
Regentys
has contracted with Cook Biotech Incorporated (CBI), West Layette, IN on the development and manufacture of the Regentys ECMH™
(Extracellular Matrix Hydrogel) Rectal Solution, an extracellular matrix hydrogel derived from small intestinal submucosa (SIS)
of pigs. All manufacturing is conducted according to FDA cGMP standards.
Pantheon
Medical Manufacturing
Pantheon
manufacturers foot & ankle surgical kits including plates and screws under contract with a third-party contract manufacturer.
The FDA has granted 510(k) clearance (“510(k) Approval”) to the Pantheon plates and screws, authorizing Pantheon to
commercially distribute the foot & ankle surgical kit. The 510(k) Approval process, also known as pre-market notification,
requires demonstrating that the new medical device is substantially equivalent to a legally U.S. marketed medical device. Once
a device receives a 510(k) Approval, maintaining that status is based on compliance with annual requirements set by the FDA. All
manufacturing is conducted under FDA GMP compliance.
RAW
MATERIAL SUPPLIES
Generex
Historical Business Raw Materials
The
excipients used in our formulation are available from numerous sources in sufficient quantities for clinical purposes, and we
believe that they will be available in sufficient quantities for commercial purposes when required, although we have not yet attempted
to secure a guaranteed commercial supply of any such products. Components suitable for our RapidMist™ brand metered dose
inhaler are available from a limited number of potential suppliers, as is the chemical propellant used in the device. The components
which now comprise the device are expected to be used in the commercial version of our insulin product in countries where the
product has been approved. We do not currently have supply arrangements for commercial quantities with manufacturers for the components
and the propellant that we presently use in our RapidMist™ brand metered dose. Reputable and reliable suppliers for these
components exist and we believe that we can enter into arrangements for commercial supply with these suppliers when we are ready
to commence commercial production.
Insulin
is available worldwide from multiple sources. We do not currently have any agreements for the long-term supply of insulin, but
we expect that we will be readily able to negotiate such an agreement before further clinical trials or commercial sales commence.
AE37
and other Ii-Key hybrid immunotherapeutic peptides are produced via standard peptide synthesis and purification methods requiring
readily available amino acids and standard chemicals.
NuGenerex
Diagnostics Raw Materials
A
number of our components and critical raw materials are provided by third-party suppliers. Some of our supplies, including
antigens and antibodies may be available from only one or a limited number of sources. This may impact our ability
to manufacture or sell product if our suppliers cannot or will not deliver those materials in a timely fashion, or at all, due
to an interruption in their supply, quality or technical issues, or any other reason. The absence of any one or more of these supplies could
prevent us from being able to commercially produce and market the affected product or products.
Olaregen
Raw Materials
Excellagen
collagen is derived from bovine hides that are sourced from animals continuously reared and slaughtered in Australia, a country
recognized by the World Organization for Animal Health as having a negligible BSE risk. The cattle are declared fit for human
consumption by Australian Quarantine and Inspection Service, and the starting material is EDQM certified. As of 2010, the World
Health Organization (WHO) categorizes skin as a “lower-infectivity tissue” (Category IB). BSE has never been detected
in cattle in Australia. Each lot of Excellagen undergoes rigorous release testing according to validated test methods and product
specifications, including sterility.
Regentys
Raw Materials
Extracellular
matrix hydrogel is derived from porcine small intestinal submucosa, which is primarily Types I, III, IV and VI collagen. The natural
composition of SIS also includes fibronectin and laminin. The general function of these extracellular matrix (ECM) components are
well-established. Porcine intestines are sourced from domestic animals in compliance with ISO 22442.
Intellectual
Property
Generex
Historical Business
Oral-Lyn
& RapidMist
We
hold a number of patents in the United States and foreign countries covering our buccal and other delivery technologies. We also
have developed brand names and trademarks for products in appropriate areas. We consider the overall protection of our patent,
trademark and other intellectual property rights to be of material value and acts to protect these rights from infringement.
Patents
are a key determinant of market exclusivity for most branded pharmaceutical products. Protection for individual products or technologies
extends for varying periods, in accordance with the expiration dates of patents in the various countries. The protection afforded,
which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful
legal remedies in the country.
We
currently have five issued U.S. patents and one pending U.S. patent applications pertaining to various aspects of drug delivery
technology, including oral administration of macromolecular formulations (such as insulin) as well as pain relief medications
such as morphine and fentanyl. We currently hold eleven issued Canadian patents and one pending Canadian patent applications also
relating to various aspects of drug delivery technology. We also hold eleven issued patents and one pending patent applications
covering our drug delivery technology in jurisdictions other than the U.S. and Canada, including Brazil, Argentina, Israel, Australia
and Europe.
The
expiration dates of the U.S. issued patents range from 2017 to 2022. The expiration dates of the patents issued in Canada range
from 2017 to 2021. The expiration dates of the patents issued in other jurisdictions range from 2017 to 2028. We plan to submit
new patent applications for the reformulated Oral-Lyn II for Type II diabetes upon funding.
We
possess the worldwide manufacturing and marketing rights to our oral insulin product.
Immunotherapy
Intellectual Property Portfolio
Platform
Patents
The
foundational “Platform Patents” for Ii-Key technology focus on methods of increasing the antigen-specific activation
of CD4+ T cells. This cell type is a critical component of the immune system, involved both in the recognition of new
pathogenic agents as well as in autoimmune syndromes. The first technology platform (Ii-Key hybrid) relates to a means for increasing
the vaccine potency of virtually any protein and while the second (Ii-suppression) relates to generation of an effective cell-based
vaccine (REH-2007, REH-2014, REH-2015, REH-2017).
Oncology
Patents
This
group of patents relate more specifically to the use of the platform technologies for generating anti-cancer vaccines. We have
generated Ii-Key hybrid compounds specifically for patients with breast, prostate, bladder, melanoma and HPV-related cancers (AEX-2001,
AEX-2006, AEX-2007, REH-2005).
NuGenerex
Immuno-Oncology holds 9 U.S. patents and 1 worldwide patent covering:
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Compositions
and Methods Related to Ii Technology
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Ii
hybrid peptides used for the enhancement of antigen presentation
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Constructs
for the expression of Ii-Key/antigen epitope fusion peptides
|
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Hybrid
Ii-Key/antigen epitope fusion peptides
|
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Methods
for inhibiting Ii expression
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Although
some U.S. patents on the Ii-Key technology have expired, we are in discussions with third parties to extend the patent coverage
of the Ii-Key technology for cancer immunotherapy. The expiration dates of the immune-oncology applications of the Ii-Key hybrid
technologies extend to 2031.
Our
long-term success will substantially depend upon our ability to obtain patent protection for our technology and our ability to
protect our technology from infringement, misappropriation, discovery and duplication. We cannot be sure that any of our pending
patent applications will be granted, or that any patents which we own or obtain in the future will fully protect our position.
Our patent rights and the patent rights of biotechnology and pharmaceutical companies in general, are highly uncertain and include
complex legal and factual issues. We believe that our existing technology and the patents which we hold or for which we have applied
do not infringe anyone else's patent rights. We believe our patent rights will provide meaningful protection against others duplicating
our proprietary technologies. We cannot be sure of this, however, because of the complexity of the legal and scientific issues
that could arise in litigation over these issues.
We
also rely on trade secrets and other unpatented proprietary information. We seek to protect this information, in part, by confidentiality
agreements with our employees, consultants, advisors and collaborators.
NuGenerex
Diagnostics (NGDx) Intellectual Property
NGDx holds
a U.S. Patent for its sample delivery system which expires in 2026, US Patent # 7,749,771, titled “Device
and methods for detecting analyte in a sample.” This is the basis for our EXPRESS system platform.
On
June 2018, we filed for patent protection for the Express II format with the US Patent and Trademark Office. This patent is still
pending.
We
believe NGDx’s long-term success will substantially depend upon our ability to obtain patent protection for our
technology and our ability to protect our technology from infringement, misappropriation, discovery and duplication. We cannot
be sure that any future patents will be granted, or that any patents which we now own or obtain in the future will fully protect
our position. Our patent rights and the patent rights of medical device companies in general, are uncertain and con include complex
legal and factual issues. We believe that our existing technology and the patents which we hold or for which we have applied do
not infringe anyone else's patent rights. We believe our patent rights will provide meaningful protection against others duplicating
our proprietary technologies. We cannot be sure of this, however, because of the complexity of the legal and scientific issues
that could arise in litigation over these issues.
Olaregen
Intellectual Property
Olaregen
has the exclusive license to Excellagen in all regions of the world except Russia, China, and the other countries with Commonwealth
of Independent States (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia,
Tajikistan, Turkmenistan, Ukraine, and Uzbekistan).
The
U.S. patent on Excellagen has been issued as of October 10, 2017 and now has 17 years of additional exclusivity.
Regentys
Intellectual Property
Regentys
has licensed the exclusive, world-wide intellectual property rights for Regentys ECMHÔ from the University of Pittsburgh
in exchange for future royalties. The Intellectual property subject to the license is entitled "Extracellular Matrix Derived
Gels" and "Methods for Preparation of A Terminally Sterilized Hydrogel Derived From Extracellular Matrix" developed
by Stephen Badylak et.al. of University faculty.
Additionally,
Regentys and the University of Pittsburgh are co-owners by assignment of certain intellectual property rights pertaining to "Method
and Composition for Treating Inflammatory Bowel Disease Without Colectomy" developed by Stephen Badylak and Timothy Keane
of University and by Marc Ramer of the Regentys.
We
continue to develop intellectual property for its current and future products.
NuGenerex
Surgical Supply Subsidiaries Intellectual Property
We
pursue strategic alliances and partnerships through intellectual property license agreements, and secure key purchase agreements
from suppliers to build upon our portfolio of licensed IP.
We
also maintain stocking distribution agreements providing for exclusive distribution rights in certain geographic areas and use
of associated trademarks, service marks, and tradenames for the sale and promotion of the products we offer, which generally have
durations of one (1) to three (3) years, subject to renewal terms. Furthermore, we require leased employees, independent contractors,
consultants, and advisors to execute agreements, with varying terms of one (1) to three (3) years, that assign to us the IP existing
and generated from their work. We believe our IP and exclusive distribution agreements provide us with important competitive advantages
by (i) increasing our brand awareness and the brand awareness of the products we distribute; and (ii) ensuring that we use the
latest design and manufacturing technology for our products that are perceived to be important to our customers.
Seasonality
The
products and services provided by the organization are not subject to seasonality.
Competition
Generex
Historical Business Competition
We
expect that products based upon our buccal delivery technology and any other products that we may develop will compete directly
with products developed by other pharmaceutical and biotechnology companies, universities, government agencies and public and
private research organizations.
Products
developed by our competitors may use a different active pharmaceutical agent or treatment to treat the same medical condition
or indication as our product or may provide for the delivery of substantially the same active pharmaceutical ingredient as our
products using different methods of administration. For example, a number of pharmaceutical and biotechnology companies are engaged
in various stages of research, development and testing of alternatives to insulin therapy for the treatment of diabetes, as well
as new methods of delivering insulin. These methods, including nasal, transdermal, needle-free (high pressure) injection and pulmonary,
may ultimately successfully deliver insulin to diabetic patients. Some biotechnology companies also have developed different technologies
to enhance the presentation of peptide antigens. Some of our competitors and potential competitors have substantially greater
scientific research and product development capabilities, as well as financial, marketing and human resources, than we do.
Where
the same or substantially the same active ingredient is available using alternative delivery means or the same or substantially
the same result is achievable with a different treatment or technology, we expect that competition among products will be based,
among other things, on product safety, efficacy, ease of use, availability, price, marketing and distribution. When different
active pharmaceutical ingredients are involved, these same competitive factors will apply to both the active agent and the delivery
method.
We
consider other drug delivery and biotechnology companies to be direct competitors for the cooperation and support of major drug
and biotechnology companies that own or market proprietary pharmaceutical compounds and technologies, as well as for the ultimate
patient market. Of primary concern to us are the competitor companies that are known to be developing delivery systems for insulin
and other pharmaceutical agents that we have identified as product candidates and technologies to enhance the presentation of
peptide antigens.
Large
pharmaceutical companies, such as Merck & Co., Inc., GlaxoSmithKline PLC, Novartis, Inc., MedImmune Inc. (a subsidiary of
Astra-Zeneca, Inc.) and others, also compete in the oncology, immunomedicine and vaccine markets. These companies have greater
experience and expertise in securing government contracts and grants to support research and development efforts, conducting testing
and clinical trials, obtaining regulatory approvals to market products, as well as manufacturing and marketing approved products.
As such, they are also considered significant competitors in these fields of pharmaceutical products and therapies. There are
also many smaller companies which are pursuing similar technologies in these fields and are considered to be our competitors.
There are also
a number of companies developing alternative means of delivering insulin in the form of oral pills, transdermal patches, and intranasal
methods, which are at early stages of development. In addition to other delivery systems for insulin, there are numerous products,
such as sulfonylureas (Amaryl® and Glynase®), biguanides (branded and generic metformin products), thiazolidinediones
(Avandia® and Actos®), glucagon-like peptide 1 (Byetta® and Victoza®), and dipeptidyl peptidase IV inhibitors
(Januvia® and Onglyza™), which have been approved for use in the treatment of Type 2 diabetics in substitution of, or
in addition to, insulin therapy. These products may also be considered to compete with insulin products.
In
addition, there are a number of companies which are pursuing cancer treatments using immunotherapy technologies which have products
in various clinical trial stages. Some of these companies are Argos Therapeutics Inc., Celldex Therapeutics Inc., Northwest
Therapeutics Inc., Immatics Biotechnology GmbH, Immunocellular Therapeutics Ltd., TVAX Biomedical Inc. and Newlink Genetics Corporation.
These companies can also be considered to be competitors.
NuGenerex
Diagnostics Competition
The
diagnostics industry is a multi-billion dollar international industry and is intensely competitive. Many of our competitors
are substantially larger and have greater financial, research, manufacturing and marketing resources. Industry competition
in general is based on the following:
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Scientific
and technological Capability;
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Proprietary
know-how and intellectual protection;
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The
ability to develop and market products and processes;
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The
ability to obtain FDA or other regulatory clearances;
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The
ability to manufacture products that meet applicable governmental and NGO requirements;
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The
ability to manufacture products cost-effectively;
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Access
to adequate capital; and
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The
ability to find and retain qualified personnel.
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We
believe our scientific and technological capabilities as well as our proprietary technology and know-how relating to our rapid
tests, particularly for the development and manufacture of tests for the detection of antibodies to infectious diseases are, indeed,
very strong and will allow us to compete in this market.
Main
Competitors
In the diagnostic
space, Alere Inc., which was acquired by Abbott Laboratories in 2017, is our main competitor and one of the major players
in RTDs for infectious diseases. Standard Diagnostics is a strong competitor on an international basis, incorporating
a cassette design into each of their products. Our competitors also include Chembio Diagnostic Systems Inc., a publicly traded
diagnostic company that develops, manufactures and commercializes diagnostic solutions. There are a number of point-of-care strip
manufacturers in China which serve the market in that country. As of yet most of these companies have not made a significant impact
on the overall global market but could be considered as a future source of competition. As infectious diseases are epidemic and
in the minds of the public, there will be more competitors coming into the marketplace. However, competition will be based upon
the implementation of a cassette or a “dipstick” format.
Competitive
Advantage
We
believe our unique and simple EXPRESS product design delivers significant advantages over our competition.
Due
to the potential infectious character of the whole blood test sample, our EXPRESS series of RDTs are designed to perform
and deliver test results while sealed within the EXPRESS housing, carefully controlling the potentially infectious test sample.
This design helps to increase our ability to control the possibility of cross-contamination. Most of our competitors’
products, while inexpensive, are not as user-friendly, require substantially more training and have greater risk of cross- contamination. And,
the simplicity of use of our EXPRESS platforms fits directly into the necessities of World Health Organization Rapid Disease Testing
Algorithms and individual country disease reduction goals and priorities.
Our
products are more intuitive and self-explanatory than our competitors making it easier and safer to use. Our products require
less training and education. Each EXPRESS is configured to operate in the same way regardless of the type of disease being
tested.
With
ease of use, simple design and faster results, our products allow for more tests administered at the patient point of care level.
We
will compete on the basis these advantages. Most of our competitors’ products, while inexpensive, are not as user-friendly,
require substantially more training and have greater risk of cross- contamination.
NuGenerex
Immuno-Oncology Competition
The
cancer immunotherapy space is crowded as the scientific mechanisms of cancer and immunity become better understood. According
to the Cancer Research Institute, there are 3,394 immuno-oncology therapies in the current global development pipeline, with 1,287
of them in clinical studies. The major pharmaceutical companies, including Novartis, Bristol-Myers Squibb, Merck, Sanofi, and
Pfizer, among others have significant research and development efforts in the immune-oncology field.
Neon
Therapeutics is a leading immune-oncology biotechnology company. TapImmune and Marker Therapeutics recently merged to advance
innovative neoantigen and immunotherapy products.
NuGenerex
Surgical Products Competition
As
a national distributor, we primarily compete with other distributors, as well as large, vertically-integrated medical device manufacturers
that enjoy well-established distribution channels, national sales networks, direct sales models, and participation in large group
purchasing organizations contracted with major hospitals and surgery centers.
We
believe that our status as the manufacturer and distributor of FDA-approved Maxim X-Treme System, sets us apart from other distributors
and gives us a competitive advantage against distributors who are not able to manufacture their own products.
Generally,
we view Stryker Corporation, Smith & Nephew, and Orthofix International, N.V., as examples of our vertically-integrated competitors.
We believe those competitors, and companies like them, only distribute products they manufacture and have significant costs related
to research and development and organizational support. Conversely, we sell a broad portfolio of specialized third-party manufacturers’
products and have no costs related to research and development for such third-party products, nor do we have similar costs for
organizational support since we are not vertically-integrated. Thus, we believe our competitive advantage lies primarily with
our single-source fulfillment sales model, allowing us to offer a broader assortment of several manufacturers’ products.
Furthermore, as a manufacturer for some medical devices, we do not have significant costs associated with research and development
or organizational support. Thus, we generally see immediate increases in revenues because of the increased gross margins afforded
by the lower costs associated with being a manufacturer. Accordingly, the compensation packages we offer to our employed sales
team have higher-earning potentials than the compensation packages our competitors offer, allowing us to attract and retain talented
and experienced employees.
We
contract primarily with small- and medium-sized manufacturers of Orthopedic Implants that are subject to FDA compliance and approval
standards. These manufacturers are highly innovative and cost effective because of their streamlined sales infrastructures. Because
of our organizational structure, large distribution footprint, and our sales model, we tend to align well with our specialized
suppliers’ competitive strategies, which we believe results in more partnerships with such suppliers than our competitors,
because we can purchase large quantities of their product as a wholesale customer.
We
believe the competition in our industry is primarily caused by continued mergers and acquisitions of smaller distributors by larger,
vertically-integrated companies that produce, market and distribute medical devices, Orthopedic Implants, and Biologics. Our vertically-integrated
competitors benefit from their ability to control costs for the devices they manufacture and distribute. Moreover, the market
in which we operate is sensitive to changes in third-party and government reimbursements and, to a lesser degree, competitive
discount pricing. We believe that our industry will continue to see increased mergers and acquisitions because the market is significantly
fragmented with numerous medical device distributors and specialized suppliers offering similar product portfolios throughout
the United States.
Environmental
Compliance
Our
research and development activities have involved the controlled use of hazardous materials and chemicals. We believe that our
procedures for handling and disposing of these materials comply with all applicable government regulations. However, we cannot
eliminate the risk of accidental contamination or injury from these materials. If an accident occurred, we could be held liable
for damages, and these damages could severely impact our financial condition. We are also subject to many environmental, health
and workplace safety laws and regulations, particularly those governing laboratory procedures, exposure to blood-borne pathogens,
and the handling of hazardous biological materials. Violations and the cost of compliance with these laws and regulations could
adversely affect us. However, we do not believe that compliance with applicable environmental laws will have a material effect
on us in the foreseeable future.
Research
and Development Expenditures
NuGenerex
Diagnostics Research & Development Expenditures
A
substantial portion of our activities to date have been in research and development. Generex expended $381,030
in the fiscal year ended July 31, 2019 and $315,318 in the fiscal year ended July 31, 2018 on research and development
related to its buccal delivery products and Antigen’s immunotherapy products.
NGDx
research and development expenditures were $598,000 in the 12 months ended July 31, 2019 and $524,000 in the 12 months ended July
31, 2018. NGDx research and development is primarily related to development of the EXPRESS II and testing of existing products
for stability and accuracy and development of new test parameters.
NuGenerex
Immuno-Oncology (formerly Antigen Express) Research & Development Expenditures
NuGenerex Immuno-Oncology
is engaged in a clinical trial to evaluate the use of AE37 immunotherapeutic peptide vaccine in combination with pembrolizumab
(Merck’s Keytruda) for the treatment of triple negative breast cancer. We have expended roughly $450,000 to date to finance
the trial, including the cost of clinical supplies and packaging. The trial will require additional funding estimated at roughly
$1.5 million over the next three years.
Regentys
research and development expenditures were $770,000 from January 8, 2019 through July 31, 2019.
Employees
The
Generex management team has been working without contracts or employment agreements since taking over the Company in January 2017.
Upon financing, we expect to engage the management team as employees with terms to be determined by the Compensation Committee
of the Generex Board of Directors.
The
historical Generex businesses have no employees. Other than our officers, we have no employees in Generex Biotechnology Corporation
Dr. Eric von Hofe is the President of NuGenerex Immuno-Oncology, overseeing the development of AE37; we have hired a consultant
to help manage the AE37 clinical development program. Dr. James Anderson, a Generex Director oversees the Oral-Lyn development
program, and has outsourced development activities to third-party academic researchers for Ora-Lyn II reformulation.
NuGenerex
Distribution Solutions Employees
NDS
has retained a staff of four departmental leaders to kick off the restart of our MSO including HR, IT, Legal, and Sales.
NDS
intends to restart its MSO and launch sales initiatives of its new products and services. We will continue to augment our staff
with third-party contractors to expand our portfolio of ancillary services with a large focus on sales in targeted key markets.
NuGenerex
Diagnostics Employees
We had one
officer who is engaged as an independent contractor. We engage consultants from time to time to assist with financial recordkeeping
and other tasks. As of July 31, 2019, NGDx had four full time employees and two part-time regulatory consultants. Of these,
three were engaged in development, regulatory compliance, laboratory validation and manufacturing, one in sales and one in professional
or administrative activities.
We
use non-employee consultants to assist us in formulating research and development strategy, in preparing regulatory submissions,
and in developing protocols for clinical trials. We also use non-employee consultants to assist us in business development.
Olaregen
Employees
Olaregen
employs a staff of 5 full-time executives and administrative personnel, including the CEO, COO, Medical Director, and Vice Presidents
of Sales and Business Development. Additionally, the company contracts with distributors and contract sales forces in target market
sectors.
Following
the commercial launch of Excellagen in April 2019, the company plans to manage growth through a combination of hiring operations,
finance & accounting, marketing, and sales professionals, with support staff on an as needed basis. We will continue to augment
our staff with third-party contractors for manufacturing, distribution, and sales in target markets.
Regentys
Employees
Regentys
employs a staff of 4 full-time executives and administrative personnel, including the CEO, COO and Vice President of finance.
Item
1A. Risk Factors.
Risks
Related to Our Financial Condition
We
will be required to raise additional funds to finance our operations and remain a going concern; we may not be able to do so when
necessary, and/or the terms of any financings may not be advantageous to us.
Our
operations to date have consumed substantial amounts of cash and we have sustained negative cash flows from our operations for
the last several years. We will require future additional capital infusions including public or private financing, strategic partnerships
or other arrangements with organizations that have capabilities and/or products that are complementary to our own capabilities
and/or products, in order to continue the development of our product candidates. However, there can be no assurances that we will
complete any financings, strategic alliances or collaborative development agreements, and the terms of such arrangements may not
be advantageous to us. Any additional equity financing will be dilutive to our current stockholders and debt financing, if available,
may involve restrictive covenants. If we raise funds through collaborative or licensing arrangements, we may be required to relinquish,
on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to
develop or commercialize. Our failure to raise capital when needed could materially harm our business, financial condition and
results of operations.
We
have a history of losses and will incur additional losses.
Historically,
we have been a clinical development company with a limited line of commercial products in international markets. In 2018, we began
to recognize revenues resulting from the acquisition of the Veneto assets and operations. In 2019, we launched our first commercial
product Excellagen, which we expect to generate ongoing revenues going forward. While we have begun to generate revenues, we are
still operating at a loss, and there is no guarantee that we will be able to grow the revenues enough to offset our costs to realize
profitability.
To
date, we have not been profitable and our accumulated net loss available to shareholders was $416 million at July 31, 2019. Our
losses have resulted principally from costs incurred in research and development, including clinical trials, and from general
and administrative costs associated with our operations. In order to commercialize our historical assets and our recently acquired
product pipeline, we will need to conduct substantial additional research, development and clinical trials. We will also need
to receive necessary regulatory clearances both in the United States and foreign countries and obtain meaningful patent protection
for and establish freedom to commercialize each of our product candidates. We must also complete further clinical trials and seek
regulatory approvals for any new product candidates we discover, in-license, or acquire. We cannot be sure that we will obtain
required regulatory approvals, or successfully research, develop, commercialize, manufacture and market any other product candidates.
We expect that these activities, together with future general and administrative activities, will result in significant expenses
for the foreseeable future. We may never achieve profitability.
Our
disclosure controls and procedures and internal controls over financial reporting may not be effective in future periods as a
result of existing or newly identified material weaknesses in internal controls.
Effective
internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively
prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent fraud,
our reputation and operating results could be harmed. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a
report by management on internal control over financial reporting, including management’s assessment of the effectiveness
of such control. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new
or improved controls, or if we experience difficulties in their implementation, our business and operating results could be adversely
impacted, we could fail to meet our reporting obligations, and our business and stock price could be adversely affected.
At
July 31, 2019, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) and concluded that, subject to the inherent limitations, our disclosure controls and
procedures were not effective due to the existence of several significant deficiencies culminating in material weaknesses in our internal control over financial reporting because of inadequate segregation of duties over authorization, review
and recording of transactions, as well as the financial reporting of such transactions. We have not made a formal determination
that our disclosure control and procedures are effective since that date.
We
believe we have taken appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies, however
we cannot be certain that our remediation efforts will ensure that our management designs, implements and maintains adequate controls
over our financial processes and reporting in the future or that the changes made will be sufficient to address and eliminate
the material weaknesses previously identified. Our inability to remedy any additional deficiencies or material weaknesses that
may be identified in the future could, among other things, have a material adverse effect on our business, results of operations
and financial condition, as well as impair our ability to meet our quarterly, annual and other reporting requirements under the
Exchange Act in a timely manner, and require us to incur additional costs or to divert management resources.
Our
research and development and commercialization efforts may depend on entering into agreements with corporate collaborators.
Because
we have limited resources, we have sought to enter into collaboration agreements with other pharmaceutical companies that will
assist us in developing, testing, obtaining governmental approval for and commercializing products. We may be unable to achieve
commercialization of any of our products until we obtain a large pharmaceutical partner to assist us in such commercialization
efforts. To date, we have entered into a collaborative development program with Merck to evaluate our immunotherapeutic peptide
vaccine AE37 in combination with Merck’s Keytruda for the treatment of triple negative breast cancer in a phase II clinical
trial, however, this collaboration only involves the donation of Keytruda for the clinical trial, and any future financial commitment
from Merck for a co-development deal is dependent on the successful completion of the trial. There is no guarantee that the results
of the trial will be positive, or that Merck will continue the collaboration with financial support.
Additionally,
we have out-licensed AE37 for the immunotherapeutic treatment of prostate cancer to Shenzhen Bioscien (“Shenzhen”),
a Chinese biopharmaceutical company that has agreed to fund the development of AE37 for prostate cancer through a clinical development
program conducted under ICH guidelines that would allow global registration of the AE37 product in the prostate cancer indication.
The development deal includes upfront and milestone payments to Generex, together with a double-digit royalty on sales of AE37
in China in exchange for the rights to AE37 for prostate cancer treatment in China, with the ex-China global rights remaining
with us. Though Shenzhen has made an upfront payment of $700,000 to us, there is no guarantee that they will continue to fulfill
their contractual obligations to advance the clinical development of AE37 for prostate cancer. Further, there is no guarantee
that AE37 will prove to be safe and efficacious for the treatment of prostate cancer, or that the product will be approved by
regulatory authorities.
Moving
forward, we will need to expand current collaborations and develop new collaborations to advance new products that Generex and
its subsidiaries may wish to commercialize. We will continue to seek research collaborations, co-development and marketing agreements,
and licensing deals for its products in development, however, there is no guarantee that we will be successful in our efforts.
Any
collaborator with whom we may enter into such collaboration agreements may not support fully our research and commercial interests
since our program may compete for time, attention and resources with such collaborator's internal programs. Therefore, these collaborators
may not commit sufficient resources to our program to move it forward effectively, or that the program will advance as rapidly
as it might if we had retained complete control of all research, development, regulatory and commercialization decisions.
Risks
Related to Our Business
We
have reorganized our business model to transform us from a research & development biotechnology company to an integrated life
science and healthcare holding company that generates revenues through its subsidiary companies. There is no guarantee that this
business transformation will be successful.
Since
our new management team took control in January 2017, we have focused our efforts on making strategic acquisitions that will form
the foundation for building an end-to-end business model for the delivery of products and services through proprietary market
channels to physicians and patients. The initial step in the process was the acquisition of the Veneto group of assets that provided
an operating MSO with revenues, a network of physician partners (primarily orthopedic surgeons and podiatrists), contracts with
ancillary health services companies, including pharmacies and laboratories, and infrastructure, personnel, and IT systems that
are scalable to meet the demands of growth. With the goal of adding new products and services that can be utilized by the MSO
physicians in our proprietary network, we have acquired, and are in the process of acquiring revenue-generating companies in the
fields of wound care, surgical supplies, orthopedic implants, artificial joints, biologics, medical devices, and regenerative
medicine products. There are a number of risks associated with this end-to-end healthcare model, and there is no guarantee that
the model will deliver the expected revenues and profits going forward.
As
we evolve from being a company that was primarily involved in clinical development to a company that is also involved in commercialization
of novel products, including manufacturing, distribution, and utilization, we may encounter difficulties in expanding our operations
successfully.
We
have been reorganized as a life science and healthcare holding company, with wholly-owned and majority-owned subsidiaries that
operate independently. Our operating subsidiaries are led by management teams who are responsible for operating the businesses
and achieving corporate revenue and profit targets. Our corporate strategy is to unite the subsidiary companies, together with
the NuGenerex family of companies, through shared client access, cross-selling opportunities, share services, and joint development
programs. If the subsidiary companies do not work together to build the organization as envisioned, we may not realize the revenue
and profit expectations that are based on the synergies among our subsidiaries to drive intra-company sales.
As
we pursue our plans to reorganize the historical Generex clinical stage assets into separate operating subsidiaries that can more
effectively advance the clinical development and commercial value of our product pipeline, we may encounter difficulties in obtaining
the financing necessary to support our clinical development programs.
Through
the corporate restructuring, we have formed three subsidiaries to house the historical Generex assets, including NuGenerex Immuno-Oncology,
NuGenerex Diagnostics (NGDx), and NuGenerex Therapeutics (housing the Oral-Lyn oral insulin product and the RapidMist buccal delivery
technology). Each of these subsidiaries require significant funds and commercialization partners to advance their products and
technologies through the clinical development and regulatory processes necessary to achieve product commercialization. We may
not be able to obtain the necessary funds or find corporate partners to commercialize our historical assets, which will negatively
affect the value of these assets.
We
may not be able to unlock the intrinsic value of our historical development pipeline, because we may encounter difficulties in
financing and operating our commercial development programs successfully.
As
we advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing,
marketing and sales capabilities, and may need to further contract with third parties to provide these capabilities. As our operations
expand, we likely will need to manage additional relationships with such third parties, as well as additional collaborators, distributors,
marketers, and suppliers.
Maintaining
third party relationships for these purposes will impose significant added responsibilities on members of our management and other
personnel. We must be able to: manage our development efforts effectively; recruit and train sales and marketing personnel; manage
our participation in the clinical trials in which our product candidates are involved effectively; and improve our managerial,
development, operational and finance systems, all of which may impose a strain on our administrative and operational infrastructure.
If
we enter into arrangements with third parties to perform sales, marketing, or distribution services, any product revenues that
we receive, or the profitability of these product revenues to us, are likely to be lower than if we were to market and sell any
products that we develop without the involvement of these third parties. In addition, we may not be successful in entering into
arrangements with third parties to sell and market our products or in doing so on terms that are favorable to us. We likely will
have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell
and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or
in collaboration with third parties, we will not be successful in commercializing our products.
Future
business combinations or acquisitions may be difficult to integrate, which could cause us to shift our attention away from our
primary business and its operations.
We
may pursue future business combinations with other companies or strategic acquisitions of complementary businesses, product lines,
or technologies. There can be no assurance that such acquisitions will be available at all, nor on terms acceptable to us. These
transactions may require additional capital, which may increase our indebtedness or outstanding shares, resulting in a dilution
to our stockholders or a reduction in working capital. The inability to obtain such future capital may inhibit our growth and
operating results. Integration of acquisitions or additional products can be costly, time-consuming, and complicated which could
significantly impact operating results. Furthermore, the integration of any acquisition may disproportionally divert our executive
team’s time and resources from our primary business and its operations. We may sell some or all of our product lines to
other companies or we may agree to merge with another company. There can be no assurance that future transactions will ultimately
benefit us. If we face difficulty integrating future acquisitions or if our executive team’s attention is diverted, our
future results of operations may negatively impact our business, results of operations, and financial condition.
The
MSO acquired in the Veneto transaction may not continue to participate in the business following the acquisition.
The
MSO acquired from Veneto is named Rapport Services, LLC (“Rapport”), which is a physician-owned limited liability
company (or LLC) requiring an at-risk equity investment from physicians or physician groups that wish to participate in the network.
The Rapport physician investors own 99% of Rapport, and Generex (through its wholly-owned subsidiary NuGenerex Distribution Solutions
2) owns 1% and serves as the managing director of the LLC. The MSO was built through relationships between physicians and the
previous Veneto administration. There is no guarantee that the current network of physician partners will remain with Rapport.
There is no guarantee that the physicians will continue to utilize the ancillary healthcare services that Rapport provides the
MSO through contractual relationships with pharmacies, labs, or other providers of ancillary services.
Regulatory
actions may affect our ability to operate.
Our
MSO and pharmaceutical distribution businesses operate in fields that are very highly regulated by both the federal government
and state pharmacy licensing agencies. Adverse decisions by the DEA or state pharmacy regulators could materially and adversely
affect our ability to maintain and grow our distributions business. The MSOs we manage are primarily owned by physicians and serve
pharmacy and other healthcare organizations. We believe that our MSO business is structured to comply with laws and regulations
governing economic relationships between physicians and other health care providers, such as fraud and abuse laws. If regulators
or courts determine our activities did not comply, we may be required to restructure our business in a manner that would reduce
or eliminate its profitability.
The
MSO model may not be profitable without the right product mix and reimbursements from payors.
The
Rapport MSO operates as a limited liability company, and therefore distributes profits to the members based upon their equity
interest. Profitability is determined based the revenues generated by reimbursements, the cost of goods sold, and the cost of
services. The success of the MSO model is predicated on several factors, including: 1) the ability to obtain competitive and specialty
pricing from ancillary providers of pharmaceuticals, medical devices, surgical supplies, and biologics used by the physicians
in the MSO for the optimal care of their patients; 2) the reimbursements for pharmaceuticals, medical devices, surgical supplies,
and biologics that are established and paid by third-party payors, including insurance companies, pharmacy benefits managers (or
PBMs), distributors, and employers; 3) the cost for delivering ancillary services, including personnel, facilities, licenses,
insurances, and administrative expenses, among others, and 4) the ability to grow the business with new partners, clients, products
and services that provide new and increased revenue streams. We may not obtain pricing for goods and services that provide enough
margin to maintain profitability. Reimbursements from third-party payors for pharmaceuticals, medical devices, surgical supplies,
and biologics are under cost pressure, and subject to change on a quarterly basis, with the threat of reduced reimbursements an
ongoing concern. We may not be able to maintain the flexibility required or have the financing to support the appropriate level
of personnel, lease the correct number and type of facilities, secure the requisite licenses, and grow the business as projected
due to the variability of business cycles, the uncertainty in cost of goods and services, and the ongoing threat of declining
reimbursements.
Based
on the opinion of counsel, we believe that the Rapport MSO model is currently legal in 22 states, however, state laws and regulations
often change.
To
our knowledge, Rapport, a physician-owned limited liability company is operated in full compliance with all state and federal
regulations. Although we have obtained third-party legal guidance, there is no guarantee that the legal guidance is correct, nor
that the Rapport model is in full compliance with all regulations, nor that regulations will change rendering the model noncompliant.
The
regulations pertaining to the physician-owned MSO model may change such that the Rapport model is no longer compliant with state
laws, requiring changes to the MSO model.
Changes
to federal and state regulations may have significant adverse effect on the business. If the regulations change such that the
Rapport MSO model is no longer allowed, we will need to change our business model to maintain compliance. Despite the fact that
we are currently planning to institute additional service models under the NuGenerex subsidiary, there is no guarantee that we
will be able to maintain a profitable business that is in compliance with laws and regulations.
If
the statutes and regulations in our industry change, our business could be adversely affected.
The
U.S. healthcare industry has undergone significant changes designed to improve patient safety, improve clinical outcomes, and
increase access to medical care. These changes include enactments and repeals of various healthcare related laws and regulation.
Our operations and economic viability may be adversely affected by the changes in such regulations, including: (i) federal and
state fraud and abuse laws; (ii) federal and state anti-kickback statutes; (iii) federal and state false claims laws; (iv) federal
and state self-referral laws; (v) state restrictions on fee splitting; (vi) laws regarding the privacy and confidentiality of
patient information; and (vii) other laws and government regulations.
If
there are changes in laws, regulations, or administrative or judicial interpretations, we may have to change our business practices,
or our existing business practices could be challenged as unlawful, which could have a material adverse effect on our business,
financial condition, and results of operations.
We
are expanding our product and service offerings to offset risk associated with the cost of goods and regulatory concerns, however,
there is no guarantee that the new products and services will be successful in the marketplace.
We
launched DMEiq, LLC (“DME-IQ”), a tablet-based software and service business designed to help orthopedic practices
manage and operate an in-house program for orthopedic durable medical equipment (or DME). While we are beginning to generate revenues
with the first implementation of DME-IQ, the return on investment for us is still to be proven. The sales cycle for contracting
with new orthopedic practices to implement the DME-IQ program is long, and requires multiple meetings, financial and practice
analysis, and legal/regulatory review. There is no guarantee that we will be able to achieve our sales goals.
We
are in the process of acquiring manufacturers and suppliers of orthopedic implants, surgical supplies and tools, and biologics
that can be utilized by the MSO network. There is no guarantee that these acquisitions will be completed, or if completed, that
the products will be chosen by the MSO physicians in the surgical and medical practices.
Our
subsidiary Olaregen is offering our newly launched product for wound management, Excellagen to the MSO network of orthopedic
surgeons and podiatrists. There is no guarantee that we will get Excellagen on hospital and insurance formularies for
reimbursement. Therefore, there is a risk that the product may not be utilized as expected.
We
have non-binding letters of intent to acquire companies that manufacture and distribute orthopedic implants, surgical supplies
and equipment, and biologics. If we complete the target acquisitions, our operating earnings will be dependent on certain significant
suppliers.
The
target acquisitions use original equipment manufacturers & suppliers to support their operations. They distribute products
from dozens of suppliers and are dependent on these suppliers for the continuing supply of products. The companies rely on suppliers
to provide agreeable purchasing and delivery terms and performance incentives. Our ability to sustain adequate operating earnings
will be dependent upon our ability to obtain favorable terms and incentives from suppliers, as well as suppliers’ continuing
use of third-party distributors to sell and deliver their products. An unforeseen delay in raw material supplies, a change in
terms by a significant supplier, or a decision of such a supplier to distribute its products directly to healthcare providers
rather than through third-party distributors could have a material adverse effect on our results of operations and financial condition.
We
may encounter difficulties in managing our growth, and the nature of our business and rapid changes in the healthcare industry
makes it difficult to reliably predict future growth and operating results.
We
may not be able to successfully grow and expand. Successful implementation of our business plan will require management of growth,
including potentially rapid and substantial growth, which could result in an increase in the level of responsibility for management
personnel and strain on our human and capital resources. To manage growth effectively, we will be required, among other things,
to continue to implement and improve our operating and financial systems, procedures and controls and to expand, train and manage
our employee base. If we are unable to implement and scale improvements to our existing systems and controls in an efficient and
timely manner or if we encounter deficiencies, we will not be able to successfully execute our business plans.
Failure
to attract and retain sufficient numbers of qualified personnel could also impede our growth.
If
we are unable to manage our growth effectively, it will have a material adverse effect on our business, results of operations
and financial condition. The evolving nature of our business and rapid changes in the healthcare industry make it difficult to
anticipate the nature and amount of medical reimbursements, third-party private payments, and participation in certain government
programs and thus to reliably predict our future growth and operating results. Our growth strategy may incur significant costs,
which could adversely affect our financial condition. Our growth by strategic transactions strategy involves significant costs,
including financial advisory, legal and accounting fees, and may include additional costs for items such as fairness opinions
and severance payments. These costs could put a strain on our cash flows, which in turn could adversely affect our overall financial
condition.
We
are regulated by federal Anti-Kickback Statutes
The
federal Anti-Kickback Statute is a provision of the Social Security Act of 1972 that prohibits as a felony offense the knowing
and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, (1) the referral
of a patient for items or services for which payment may be made in whole or part under Medicare, Medicaid, or other federal healthcare
programs, (2) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid, or other
federal healthcare programs or (3) the purchase, lease, or order or arranging or recommending the purchasing, leasing or ordering
of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The Patient Protection and
Affordable Care Act (“ACA”) amended section 1128B of the Social Security Act to make it clear that a person need not
have actual knowledge of the statute, or specific intent to violate the statute, as a predicate for a violation. The OIG, which
has the authority to impose administrative sanctions for violation of the statute, has adopted as its standard for review a judicial
interpretation which concludes that the statute prohibits any arrangement where even one purpose of the remuneration is to induce
or reward referrals. A violation of the Anti-Kickback Statute is a felony punishable by imprisonment, criminal fines of up to
$25,000, civil fines of up to $50,000 per violation, and three times the amount of the unlawful remuneration. A violation also
can result in exclusion from Medicare, Medicaid or other federal healthcare programs. In addition, pursuant to the changes of
the Affordable Care Act (“ACA”), a claim that includes items or services resulting from a violation of the Anti-Kickback
Statute is a false claim for purposes of the False Claims Act.
We
cannot assure that the applicable regulatory authorities will not determine that some of our arrangements with physicians violate
the federal Anti-Kickback Statute or other applicable laws. An adverse determination could subject us to different liabilities,
including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other health
care programs, any of which could have a material adverse effect on our business, financial condition or results of operations.
We
are regulated by federal Stark Laws
The
federal Stark Law, 42 U.S.C. 1395nn, also known as the physician self-referral law, generally prohibits a physician from referring
Medicare and Medicaid patients to an entity (including hospitals) providing ‘‘designated health services,’’
if the physician or a member of the physician’s immediate family has a ‘‘financial relationship’’
with the entity, unless a specific exception applies. Designated health services include, among other services, inpatient hospital
services, outpatient prescription drug services, clinical laboratory services, certain imaging services (e.g., MRI, CT, ultrasound),
and other services that our affiliated physicians may order for their patients. The prohibition applies regardless of the reasons
for the financial relationship and the referral; and therefore, unlike the federal Anti-Kickback Statute, intent to violate the
law is not required. Like the Anti-Kickback Statute, the Stark Law contains statutory and regulatory exceptions intended to protect
certain types of transactions and arrangements. Unlike safe harbors under the Anti-Kickback Statute with which compliance is voluntary,
an arrangement must comply with every requirement of a Stark Law exception or the arrangement is in violation of the Stark Law.
Because
the Stark Law and implementing regulations continue to evolve and are detailed and complex, while we attempt to structure its
relationships to meet an exception to the Stark Law, there can be no assurance that the arrangements entered into by us with affiliated
physicians and facilities will be found to be in compliance with the Stark Law, as it ultimately may be implemented or interpreted.
The penalties for violating the Stark Law can include the denial of payment for services ordered in violation of the statute,
mandatory refunds of any sums paid for such services, and civil penalties of up to $15,000 for each violation, double damages,
and possible exclusion from future participation in the governmental healthcare programs. A person who engages in a scheme to
circumvent the Stark Law’s prohibitions may be fined up to $100,000 for each applicable arrangement or scheme.
Some
states have enacted statutes and regulations against self-referral arrangements similar to the federal Stark Law, but which may
be applicable to the referral of patients regardless of their payor source and which may apply to different types of services.
These state laws may contain statutory and regulatory exceptions that are different from those of the federal law and that may
vary from state to state. An adverse determination under these state laws and/or the federal Stark Law could subject us to different
liabilities, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or
other health care programs, any of which could have a material adverse effect on our business, financial condition or results
of operations.
We
must comply with Health Information Privacy and Security Standards
The
privacy regulations Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended, contain detailed
requirements concerning the use and disclosure of individually identifiable patient health information (“PHI”) by
entities like our MSOs and affiliated IPAs and medical groups. HIPAA covered entities must implement certain administrative, physical,
and technical security standards to protect the integrity, confidentiality and availability of certain electronic health information
received, maintained, or transmitted. HIPAA also implemented standard transaction code sets and standard identifiers that covered
entities must use when submitting or receiving certain electronic healthcare transactions, including billing and claim collection
activities. Violations of the HIPAA privacy and security rules may result in civil and criminal penalties, including a tiered
system of civil money penalties that range from $100 to $50,000 per violation, with a cap of $1.5 million per year for identical
violations. A HIPAA covered entity must also promptly notify affected individuals where a breach affects more than 500 individuals
and report breaches affecting fewer than 500 individuals annually. State attorneys general may bring civil actions on behalf of
state residents for violations of the HIPAA privacy and security rules, obtain damages on behalf of state residents, and enjoin
further violations.
Many
states also have laws that protect the privacy and security of confidential, personal information, which may be similar to or
even more stringent than HIPAA. Some of these state laws may impose fines and penalties on violators and may afford private rights
of action to individuals who believe their personal information has been misused. We expect increased federal and state privacy
and security enforcement efforts.
A
cyber security incident could cause a violation of HIPAA, breach of customer and patient privacy, or other negative impacts.
We
rely extensively on our information technology (or IT) systems to manage scheduling and financial data, communicate with customers
and their patients, vendors, and other third parties, and summarize and analyze operating results. In addition, we have made significant
investments in technology, including the engagement of a third-party IT provider. A cyber-attack that bypasses our IT security
systems could cause an IT security breach, a loss of protected health information, or other data subject to privacy laws, a loss
of proprietary business information, or a material disruption of our IT business systems. This in turn could have a material adverse
impact on our business and result of operations. In addition, our future results of operations, as well as our reputation, could
be adversely impacted by theft, destruction, loss, or misappropriation of public health information, other confidential data,
or proprietary business information.
Computer
malware, viruses, and hacking and phishing attacks by third parties have become more prevalent in our industry, have occurred
on our systems in the past, and may occur on our systems in the future. Because techniques used to obtain unauthorized access
to or sabotage systems change frequently and generally are not recognized until successfully launched against a target, we may
be unable to anticipate these techniques or to implement adequate preventative measures. As cyber-security threats develop and
grow, it may be necessary to make significant further investments to protect data and infrastructure. If an actual or perceived
breach of our security occurs, (i) we could suffer severe reputational damage adversely affecting customer or investor confidence,
(ii) the market perception of the effectiveness of our security measures could be harmed, (iii) we could lose potential sales
and existing customers, our ability to deliver our services or operate our business may be impaired, (iv) we may be subject to
litigation or regulatory investigations or orders, and (v) we may incur significant liabilities. Our insurance coverage may not
be adequate to cover the potentially significant losses that may result from security breaches. Additionally, while we currently do not have cybersecurity coverage, we plan to evaluate options for this
type of coverage in late 2019, or early 2020.
We
must comply with Environmental and Occupational Safety and Health Administration Regulations
We
are subject to federal, state and local regulations governing the storage, use and disposal of waste materials and products. Although
we believe that our safety procedures for storing, handling and disposing of these materials and products comply with the standards
prescribed by law and regulation, we cannot eliminate the risk of accidental contamination or injury from those hazardous materials.
In the event of an accident, we could be held liable for any damages that result and any liability could exceed the limits or
fall outside the coverage of our insurance coverage, which we may not be able to maintain on acceptable terms, or at all. We could
incur significant costs and attention of our management could be diverted to comply with current or future environmental laws
and regulations. Federal regulations promulgated by the Occupational Safety and Health Administration impose additional requirements
on us, including those protecting employees from exposure to elements such as blood-borne pathogens. We cannot predict the frequency
of compliance, monitoring, or enforcement actions to which we may be subject as those regulations are being implemented, which
could adversely affect our operations.
We
must comply with a range of other Federal and State Healthcare Laws.
We
are also subject to other federal and state healthcare laws that could have a material adverse effect on our business, financial
condition or results of operations. The Health Care Fraud Statute prohibits any person from knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program, which can be either a government or private payor
plan. Violation of this statute, even in the absence of actual knowledge of or specific intent to violate the statute, may be
charged as a felony offense and may result in fines, imprisonment, or both. The Health Care False Statement Statute prohibits,
in any matter involving a federal health care program, anyone from knowingly and willfully falsifying, concealing or covering
up, by any trick, scheme or device, a material fact, or making any materially false, fictitious or fraudulent statement or representation,
or making or using any materially false writing or document knowing that it contains a materially false or fraudulent statement.
A violation of this statute may be charged as a felony offense and may result in fines, imprisonment or both. Under the Civil
Monetary Penalties Law of the Social Security Act, a person (including an organization) is prohibited from knowingly presenting
or causing to be presented to any United States officer, employee, agent, or department, or any state agency, a claim for payment
for medical or other items or services where the person knows or should know (a) the items or services were not provided as described
in the coding of the claim, (b) the claim is a false or fraudulent claim, (c) the claim is for a service furnished by an unlicensed
physician, (d) the claim is for medical or other items or service furnished by a person or an entity that is in a period of exclusion
from the program, or (e) the items or services are medically unnecessary items or services. Violations of the law may result in
penalties of up to $10,000 per claim, treble damages, and exclusion from federal healthcare programs.
In
addition, the office of inspector general (“OIG”) may impose civil monetary penalties against any physician who knowingly
accepts payment from a hospital (as well as against the hospital making the payment) as an inducement to reduce or limit medically
necessary services provided to Medicare or Medicaid program beneficiaries. Further, except as permitted under the Civil Monetary
Penalties Law, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration that the person knows or
should know is likely to influence the beneficiary’s selection of a particular provider of Medicare or Medicaid payable
items or services may be liable for civil money penalties of up to $10,000 for each wrongful act.
In
addition to the state laws previously described, we may also be subject to other state fraud and abuse statutes and regulations
if we expand our operations nationally. Many states have adopted a form of anti-kickback law, self-referral prohibition, and false
claims and insurance fraud prohibition. The scope of these laws and the interpretations of them vary from state to state and are
enforced by state courts and regulatory authorities, each with broad discretion. Generally, state laws reach to all healthcare
services and not just those covered under a governmental healthcare program. A determination of liability under any of these laws
could result in fines and penalties and restrictions on our ability to operate in these states. We cannot assure that our arrangements
or business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.
Changes
in healthcare laws could create an uncertain environment and materially impact us.
We
cannot predict the effect that the ACA (also known as Obamacare) and its implementation, amendment, or repeal and replacement,
may have on our business, results of operations or financial condition. Any changes in healthcare laws or regulations that reduce,
curtail or eliminate payments, government-subsidized programs, government-sponsored programs, and/or the expansion of Medicare
or Medicaid, among other actions, could have a material adverse effect on our business, results of operations and financial condition.
For example, the ACA dramatically changed how healthcare services are covered, delivered, and reimbursed. The ACA requires insurers
to accept all applicants, regardless of pre-existing conditions, cover an extensive list of conditions and treatments, and charge
the same rates, regardless of pre-existing condition or gender.
The
ACA and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Acts”) also
mandated changes specific to home health and hospice benefits under Medicare. In 2012, the U.S. Supreme Court upheld the constitutionality
of the ACA, including the “individual mandate” provisions of the ACA that generally require all individuals to obtain
healthcare insurance or pay a penalty. However, the U.S. Supreme Court also held that the provision of the ACA that authorized
the Secretary of the U.S. Department of Health and Human Services (“HHS”) to penalize states that choose not to participate
in the expansion of the Medicaid program by removing all of its existing Medicaid funding was unconstitutional. In response to
the ruling, a number of state governors opposed its state’s participation in the expanded Medicaid program, which resulted
in the ACA not providing coverage to some low-income persons in those states. In addition, several bills have been, and are continuing
to be, introduced in U.S. Congress to amend all or significant provisions of the ACA, or repeal and replace the ACA with another
law. In December 2017, the individual mandate was repealed via the Tax Cuts and Jobs Act of 2017. Afterwards, legal and political
challenges as to the constitutionality of the remaining provisions of the ACA resumed.
Our
operations are subject to the nation’s healthcare laws, as amended, repealed, or replaced from time to time.
The
net effect of the ACA on our business is subject to numerous variables, including the law’s complexity, lack of complete
implementing regulations and interpretive guidance, gradual and potentially delayed implementation or possible amendment, as well
as the uncertainty as to the extent to which states will choose to participate in the expanded Medicaid program. The continued
implementation of provisions of the ACA, the adoption of new regulations thereunder and ongoing challenges thereto, also added
uncertainty about the current state of U.S. healthcare laws and could negatively impact our business, results of operations and
financial condition. Healthcare providers could be subject to federal and state investigations and payor audits.
Due
to our and our affiliates’ participation in government and private healthcare programs, we are from time to time involved
in inquiries, reviews, audits, and investigations by governmental agencies and private payors of our business practices, including
assessments of our compliance with coding, billing and documentation requirements. Federal and state government agencies have
active civil and criminal enforcement efforts against healthcare companies, and their executives and managers. The Deficit Reduction
Act (“DRA”), which provides a financial incentive to states to enact their own false claims acts, and similar laws
encourage investigations against healthcare companies by different agencies. These investigations could also be initiated by private
whistleblowers.
Responding
to audit and investigative activities are costly and disruptive to our business operations, even when the allegations are without
merit. If we are subject to an audit or investigation, a finding could be made that we or our affiliates erroneously billed or
were incorrectly reimbursed, and we may be required to repay such agencies or payors, may be subjected to pre-payment reviews,
which can be time-consuming and result in non-payment or delayed payments for the services we or our affiliates provide, and may
be subject to financial sanctions or required to modify our operations.
Product
pricing is subject to regulatory control.
Routinely,
the pricing and profitability of the products we sell are subject to control by third-party payors. The continuing efforts of
governmental and other third-party payors to contain or reduce the cost of healthcare through various means may adversely affect
our ability to successfully commercialize our products. We anticipate that there will continue to be federal and state proposals
to implement similar governmental control, although it is unclear which proposals will ultimately become law, if any. Direct or
indirect changes in prices, including any mandated pricing, could impact our revenues, profitability, and financial performance.
Our
revenues will depend on our customers’ continued receipt of adequate reimbursement from private insurers and government
sponsored healthcare programs.
Political,
economic, and regulatory influences continue to change the healthcare industry in the United States. The ability of hospitals
to pay fees for our products partially depends on the extent to which reimbursement for the costs of such materials and related
treatments will continue to be available from private health coverage insurers and other similar organizations. We may have difficulty
gaining market acceptance for the products we sell if third-party payors do not provide adequate coverage and reimbursement to
hospitals.
Major
third-party payors of hospitals, such as private healthcare insurers, periodically revise their payment methodologies based, in
part, upon changes in government sponsored healthcare programs. We cannot predict these periodic revisions with certainty, and
such revisions may result in stricter standards for reimbursement of hospital charges for certain specified products, potentially
adversely impacting our business, results of operations, and financial conditions.
The
FDA regulates the manufacturers and suppliers of the products that we sell, market, manufacture, and distribute, and regulatory
compliance is costly and could contribute to delays in the availability of our products.
Under
FDA regulations, we are subject to the same FDA regulation as the manufacturers and suppliers to whom we distribute. These regulations
govern (i) the manufacturing and processing of cellular and tissue products; (ii) the introduction of new medical devices; (iii)
the observance of certain standards with respect to the design, manufacturing, testing, labeling, promotion, and sales of the
devices; (iv) the maintenance of certain records; (v) the ability to track devices; (vi) the reporting of potential product defects;
(vii) the importing and exporting of devices; and (viii) various other matters. Furthermore, manufacturers that create the products
we market face an increasing amount of scrutiny and compliance costs as more states implement regulations governing medical devices
and Biologics. In addition, we are subject to ongoing compliance concerning our 510(k) Approvals, as well as potential on-site
inspections by the FDA. Being found in violation and failing to correct an FDA compliance issue could potentially result in product
recall, product seizure, or the de-listing of our products with 510(k) Approval. These types of FDA regulations could affect many
of the products we market, impacting our revenues and profitability, results of operations, and working capital.
Future
regulatory action remains uncertain.
We
operate in a highly regulated and evolving environment with rigorous regulatory enforcement. Any legal or regulatory action could
be time-consuming and costly. If we or the manufacturers or distributors that supply our products fail to comply with all applicable
laws, standards, and regulations, action by the FDA or other regulatory agencies could result in significant restrictions, including
restrictions on the marketing or use of the products we sell or the withdrawal of the products we sell from the market. Any such
restrictions or withdrawals could materially affect our reputation, business and operations.
U.S.
federal and state governmental regulation could restrict our ability to sell our products.
Our
business is subject to highly complex and evolving regulatory and licensing requirements that are subject to uncertainty, rapid
change, differing interpretations, and rigorous regulatory enforcement. Failure to comply with such regulatory requirements may
result in civil or criminal penalties, including the loss of licenses or the exclusion from future participation in government
healthcare programs. There can be no assurance that federal or state regulatory or enforcement authorities will not investigate
or challenge our current or future activities under these laws. Any state or federal regulatory or enforcement review of us, regardless
of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether
these changes are retroactive or will affect our Company on a going-forward basis only. Any investigation or challenge could have
a material adverse effect on our reputation, business, financial condition, and results of operations.
The
FDA and similar state authorities require us to list and register certain products, because we are a distributor, marketer, specification
developer and repackager/relabeler and manufacturer for FDA-regulated products.
If
we are successful in executing our business plan, we will be a distributor, marketer, and specification developer and repackager/relabeler
of FDA-regulated products, and as such we may be subject to independent requirements to register and list certain products. We
may be required to obtain state licensure or certifications and may be subject to inspections, in addition to complying with derivative
requirements applicable to the manufacturers of the products we market. Failure to comply with such applicable requirements could
result in a wide variety of enforcement actions, ranging from warning letters to more severe sanctions, such as significant costly
fines and civil penalties, operating restrictions, injunctions, and criminal prosecutions, all of which could adversely impact
our business.
Our
product candidates will remain subject to ongoing regulatory review even after they receive marketing approval, and if we fail
to comply with continuing regulations, we could lose these approvals and the sale of any of our approved commercial products could
be suspended.
Even
as we receive regulatory approval to market a particular product candidate, the manufacturing, labeling, packaging, adverse event
reporting, storage, advertising, promotion, and record keeping related to the product will remain subject to extensive regulatory
requirements. If we fail to comply with the regulatory requirements of the FDA and other applicable domestic and foreign regulatory
authorities or discover any previously unknown problems with any approved product, manufacturer, or manufacturing process, we
could be subject to administrative or judicially imposed sanctions, including:
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restrictions
on the products, manufacturers, or manufacturing processes;
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civil
or criminal penalties;
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product
seizures or detentions;
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pressure
to initiate voluntary product recalls;
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suspension
or withdrawal of regulatory approvals; and
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refusal
to approve pending applications for marketing approval of new products or supplements
to approved applications.
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If
physicians and patients do not accept our current and future products or if the market for indications for which any product candidate
is approved is smaller than expected, we may be unable to generate significant revenue, if any.
Even
when any of our product candidates obtain regulatory approval, they may not gain market acceptance among physicians, patients,
and third-party payers. Physicians may decide not to recommend our treatments for a variety of reasons including:
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timing
of market introduction of competitive products;
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demonstration
of clinical safety and efficacy compared to other products;
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limited
or no coverage by third-party payers;
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convenience
and ease of administration;
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prevalence
and severity of adverse side effects;
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restrictions
in the label of the drug;
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other
potential advantages of alternative treatment methods; and
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ineffective
marketing and distribution support of its products.
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If
any of our product candidates are approved, but fail to achieve market acceptance or such market is smaller than anticipated,
we may not be able to generate significant revenue and our business would suffer.
Intellectual
property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling certain of
our products.
The
medical device and pharmaceutical industries are characterized by extensive intellectual property litigation and, from time to
time, we may become the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive
to defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or
other intellectual property infringement against us could result in payment of significant monetary damages and/or royalty payments
or negatively impact our ability to sell current or future products in the affected category.
We
depend extensively on our patents and proprietary technology and the patents and proprietary technology we license from others,
and we must protect those assets in order to preserve our business.
Although
we expect to seek patent protection for any compounds, devices, biologics, systems, and processes we discover and/or for any specific
use we discover for new or previously known compounds, devices, biologics, systems, or processes, any or all of which may not
be subject to effective patent protection. In addition, our issued patents may be declared invalid or our competitors may find
ways to avoid the claims in the patents.
Our
success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the
proprietary rights of others. We are the exclusive licensee, sole assignee or co-assignee of numerous granted United States patents,
pending United States patent applications and international patents. The patent position of pharmaceutical and biotechnology firms
like us are generally highly uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency
regarding the breadth of claims allowed in United States patents and general uncertainty as to their legal interpretation and
enforceability. Accordingly, patent applications assigned or exclusively licensed to us may not result in patents being issued,
any issued patents assigned or exclusively licensed to us may not provide us with competitive protection or may be challenged
by others, and the current or future granted patents of others may have an adverse effect on our ability to do business and achieve
profitability.
Moreover,
because some of the basic research relating to one or more of our patent applications and/or patents were performed at various
universities and/or funded by grants, one or more universities, employees of such universities and/or grantors could assert that
they have certain rights in such research and any resulting products. Further, others may independently develop similar products,
may duplicate our products, or may design around our patent rights. In addition, as a result of the assertion of rights by a third-party
or otherwise, we may be required to obtain licenses to patents or other proprietary rights of others in or outside of the United
States. Any licenses required under any such patents or proprietary rights may not be made available on terms acceptable to us,
if at all. If we do not obtain such licenses, we could encounter delays in product market introductions during our attempts to
design around such patents or could find that the development, manufacture or sale of products requiring such licenses is foreclosed.
In addition, we could incur substantial costs in defending suits brought against us or in connection with patents to which we
hold licenses or in bringing suit to protect our own patents against infringement.
We
depend on license agreements with third-parties for certain intellectual property rights relating to our products and product
candidates. In general, our license agreements require us to make payments and satisfy performance obligations in order to keep
these agreements in effect and retain our rights under them. These payment obligations can include upfront fees, maintenance fees,
milestones, royalties, patent prosecution expenses, and other fees. These performance obligations typically include diligence
obligations. If we fail to pay, be diligent or otherwise perform as required under our license agreements, we could lose the rights
under the patents and other intellectual property rights covered by these agreements. If disputes arise under any of our in-licenses,
we could lose our rights under these agreements. Any such dispute may not be resolvable on favorable terms, or at all. Whether
or not any disputes of this kind are favorably resolved, our management’s time and attention and our other resources could
be consumed by the need to attend to these disputes and our business could be harmed by the emergence of such a dispute.
If
we lose our rights under these agreements, we might not be able to develop any related product candidates further, or following
regulatory approval, if any, we might be prohibited from marketing or commercializing these product candidates. In particular,
patents previously licensed to us might, after termination of an agreement, be used to stop us from conducting these activities.
Due
to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may
not have meaningful protection from competition.
Our
long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation,
discovery and duplication, and avoid infringing the proprietary rights of others. Our patent rights and the patent rights of biotechnology
and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. Because of this, our
pending patent applications may not be granted. These uncertainties also mean that any patents that we own or will obtain in the
future could be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition.
Due to our financial uncertainties, we may not possess the financial resources necessary to enforce our patents. Patents already
issued to us or our pending applications may become subject to dispute, and any dispute could be resolved against us.
Because
a substantial number of patents have been issued in the field of alternative drug delivery and because patent positions can be
highly uncertain and frequently involve complex legal and factual questions, the breadth of claims obtained in any application
or the enforceability of our patents cannot be predicted. Consequently, we do not know whether any of our pending or future patent
applications will result in the issuance of patents or, to the extent patents have been issued or will be issued, whether these
patents will be subject to further proceedings limiting their scope, will provide significant proprietary protection or competitive
advantage, or will be circumvented or invalidated. Several of our currently issued patents have expired or will expire in the
next twelve months.
Also,
because of these legal and factual uncertainties, and because pending patent applications are held in secrecy for varying periods
in the United States and other countries, even after reasonable investigation, we may not know with certainty whether any products
that we (or a licensee) may develop will infringe upon any patent or other intellectual property right of a third party. For example,
we are aware of certain patents owned by third parties that such parties could attempt to use in the future in efforts to affect
our freedom to practice some of the patents that we own or have applied for. Based upon the science and scope of these third-party
patents, we believe that the patents that we own or have applied for do not infringe any such third-party patents; however, we
cannot know for certain whether we could successfully defend our position, if challenged. We may incur substantial costs if we
are required to defend our intellectual property in patent suits brought by third parties. These legal actions could seek damages
and seek to enjoin testing, manufacturing and marketing of the accused product or process. In addition to potential liability
for significant damages, we could be required to obtain a license to continue to manufacture or market the accused product or
process.
We
may not be able to compete with treatments now being marketed and developed, or which may be developed and marketed in the future
by other companies.
Our
products will compete with existing and new therapies and treatments. We are aware of several companies currently seeking to develop
alternative means of delivering insulin, as well as new drugs intended to replace insulin therapy at least in part. We are also
aware of several companies currently seeking to develop alternative means of enhancing and suppressing peptides. In the longer
term, we also face competition from companies that seek to develop cures for diabetes and other malignant, infectious, autoimmune
and allergic diseases through techniques for correcting the genetic deficiencies that underlie some of these diseases.
Numerous
pharmaceutical, biotechnology and drug delivery companies, hospitals, research organizations, individual scientists, and nonprofit
organizations are engaged in the development of alternatives to our technologies. Some of these companies have greater research
and development capabilities, experience, manufacturing, marketing, financial, and managerial resources than we do. Collaborations
or mergers between large pharmaceutical or biotechnology companies with competing drug delivery technologies could enhance our
competitors’ financial, marketing, and other resources. Developments by other drug delivery companies could make our products
or technologies uncompetitive or obsolete. Accordingly, our competitors may succeed in developing competing technologies, obtaining
FDA approval for products or gaining market acceptance more rapidly than we can.
Some
of our most significant competitors, Pfizer, Eli Lilly, and Novo Nordisk, have discontinued development and/or sale of their inhalable
forms of insulin. Unlike inhaled insulin formulations, Generex Oral-lyn™ is a buccally absorbed formulation with no residual
pulmonary deposition.
Our
industry is highly competitive, and our product candidates may become obsolete.
The
healthcare industry is highly competitive and fragmented. We compete with other health care management companies for customers
across all our services, including MSOs and healthcare providers, such as local, regional, and national networks of physicians,
medical groups and hospitals, many of which are substantially larger than us and have significantly greater financial and other
resources, including personnel, than what we have.
We
are engaged in a rapidly evolving field. Competition from other pharmaceutical companies, biotechnology companies, and research
and academic institutions is intense and likely to increase. Many of those companies and institutions have substantially greater
financial, technical, and human resources than we do. Those companies and institutions also have substantially greater experience
in developing products, conducting clinical trials, obtaining regulatory approval and in manufacturing and marketing pharmaceutical
products. Our competitors may succeed in obtaining regulatory approval for their products more rapidly than we do. Competitors
have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products.
We are aware of potential competitors developing products similar to our sarcoma vaccine, ovarian cancer vaccine and pancreatic
cancer antibodies product candidates. Our competitors may succeed in developing products that are more effective and/or cost competitive
than those we are developing, or that would render our product candidates less competitive or even obsolete. In addition, one
or more of our competitors may achieve product commercialization or patent protection earlier than we do, which could materially
adversely affect our business.
Due
in part to our limited financial resources, we may fail to select or capitalize on the most scientifically, clinically or commercially
promising or profitable indications or therapeutic areas for our product candidates or those that are in-licensed, and/or we may
be unable to pursue the clinical trials that we would like to pursue.
We
have limited technical, managerial, and financial resources to determine the indications on which we should focus the development
efforts related to our product candidates. Due to our limited available financial resources, we may have curtailed clinical development
programs and activities that might otherwise have led to more rapid progress of our product candidates through the regulatory
and development processes.
We
may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources
that we do have. Furthermore, we cannot assure you that we will be able to retain adequate staffing levels to run our operations
and/or to accomplish all the objectives that we otherwise would seek to accomplish. Our decisions to allocate our research, management,
and financial resources toward particular indications or therapeutic areas for our product candidates may not lead to the development
of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate
drug development programs may also cause us to miss valuable opportunities.
If
the third parties on which we rely for the conduct of our clinical trials and results do not perform our clinical trial activities
in accordance with good clinical practices and related regulatory requirements, we may be unable to obtain regulatory approval
for or commercialize our product candidates.
We
use independent clinical investigators and other third-party service providers to conduct and/or oversee the clinical trials of
our product candidates, and expect to continue to do so for the foreseeable future. We rely heavily on these parties for successful
execution of our clinical trials. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted
in accordance with the FDA’s requirements and our general investigational plan and protocol.
The
FDA requires us and our clinical investigators to comply with regulations and standards, commonly referred to as good clinical
practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are
credible and accurate, and that the trial participants are adequately protected. Our reliance on third parties that we do not
control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule
or may not conduct our clinical trials in accordance with regulatory requirements or the respective trial plans and protocols.
The failure of these third parties to carry out their obligations could delay or prevent the development, approval, and commercialization
of our product candidates or result in enforcement action against us.
Risks
Related to Manufacturing & Distribution
We
have limited manufacturing capacity and have relied on, and expect to continue to rely on, third-party contract manufacturers
to produce our products and clinical development candidates.
We
do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our products and candidates,
and we currently lack the resources and the capabilities to build our own manufacturing facilities. As a result, we currently
rely, and expect to rely for the foreseeable future, on third-party contract manufacturers to supply our products and clinical
trial supplies. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured our product
candidates or products ourselves, including:
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reliance
on third-parties for manufacturing process development, regulatory compliance and quality
assurance;
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limitations
on supply availability resulting from capacity and scheduling constraints of third-parties;
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the
possible breach of manufacturing agreements by third-parties because of factors beyond
our control; and
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the
possible termination or non-renewal of the manufacturing agreements by the third-party,
at a time that is costly or inconvenient to us.
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If
we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing
capabilities, which could delay or impair our ability to obtain regulatory approval for our products and substantially increases
our costs or deplete profit margins, if any. If we do find replacement manufacturers, we may not be able to enter into agreements
with them on terms and conditions favorable to us, and there could be a substantial delay before new facilities could be qualified
and registered with the FDA and other foreign regulatory authorities.
The
FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding
foreign regulators also inspect these facilities to confirm compliance with current FDA Good Manufacturing Procedures (“cGMP”).
Contract manufacturers may face manufacturing or quality control problems, leading to drug substance production and shipment delays
or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure
to comply with cGMP requirements or other FDA, EMA, and comparable foreign regulatory requirements could adversely affect our
clinical research activities and our ability to develop our product candidates and market our products following approval.
Our
current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future
profit margins and our ability to develop our product candidates and commercialize any products that receive regulatory approval
on a timely basis.
Interruption
of manufacturing operations could adversely affect our business.
Our
suppliers have manufacturing facilities for certain product lines that may be concentrated in one (1) or more plants. Damage to
these facilities or issues in our manufacturing arising from a failure to follow specific internal protocols and procedures, compliance
concerns relating to quality systems regulations, equipment breakdown or malfunction, among other factors, could adversely affect
the availability of our products. In the event of an interruption in manufacturing of certain products, we may be unable to quickly
shift to alternate means of production to meet customer demand. In the event of a significant interruption, we may experience
lengthy delays in resuming production of affected products due to the need for regulatory approvals. We may experience loss of
market share, additional expense, or harm to our reputation.
Additionally,
we contract with a limited amount of suppliers for the raw materials that we use to produce certain products. While we have not
experienced a shortage of raw materials in the past and believe that it is unlikely that there will be one in the future, if there
were a shortage of raw materials, it could either increase the cost of production or prevent us from being able to produce some
of our products, which could adversely affect future results of our operations and financial condition.
We
may be adversely affected by product liability claims, unfavorable court decisions or legal settlements.
We
are exposed to potential product liability risks inherent in the design, manufacturing, and marketing of pharmaceuticals and medical
devices, many of which are administered to or implanted in the human body for long periods of time or indefinitely. These matters
are subject to many uncertainties and outcomes are not predictable. In addition, we may incur significant legal expenses regardless
of whether we are found to be liable.
While
we maintain product liability insurance, there can be no assurance that such coverage is sufficient to cover all product liabilities
that we may incur. We are not currently subject to any product liability proceedings, and we have no reserves for product liability
disbursements. However, we may incur material liabilities relating to product liability claims in the future, including product
liability claims arising out of the usage and delivery of our products. Should we incur product-related liabilities exceeding
our insurance coverage, we would be required to use available cash or raise additional cash to cover such liabilities.
If
government programs and insurance companies do not agree to pay for or reimburse patients for our pharmaceutical products, our
success will be impacted.
Sales
of our oral insulin formulation in Ecuador, Lebanon, Algeria and India and our other potential pharmaceutical products in other
markets will depend in part on the availability of reimbursement by third-party payers, such as government health administration
authorities, private health insurers and other organizations. Third-party payers often challenge the price and cost-effectiveness
of medical products and services. Governmental approval of health care products does not guarantee that these third-party payers
will pay for the products. Even if third-party payers do accept our product, the amounts they pay may not be adequate to enable
us to realize a profit. Legislation and regulations affecting the pricing of pharmaceuticals may change before our products are
approved for marketing, and any such changes could further limit reimbursement.
Because
we may not be able to obtain or maintain the necessary regulatory approvals for some of our products, we may not generate revenues
in the amounts we expect, or in the amounts necessary to continue our business. Our existing products as well as our manufacturing
facility must meet quality standards and are subject to inspection by a number of domestic regulatory and other governmental and
non-governmental agencies.
All
our proposed and existing products are subject to regulation in the U.S. by the FDA, the U.S. Department of Agriculture (“USDA”)
and/or other domestic and international governmental, public health agencies, regulatory bodies or non-governmental organizations.
In particular, we are subject to strict governmental controls on the development, manufacturing, labeling, distribution, and marketing
of our products. The process of obtaining required approvals or clearances varies according to the nature of, and uses for, a
specific product. These processes can involve lengthy and detailed laboratory testing, human or animal clinical trials, sampling
activities, and other costly, time-consuming procedures. The submission of an application to a regulatory authority does not guarantee
that the authority will grant an approval or clearance for that product. Each authority may impose its own requirements and can
delay or refuse to grant approval or clearance, even though a product has been approved in another country.
The
time required to obtain approval or clearance varies depending on the nature of the application and may result in the passage
of a significant period of time from the date of submission of the application. Delays in the approval or clearance processes
increase the risk that we will not succeed in introducing or selling the subject products, and we may determine to devote our
resources to different products.
Changes
in government regulations could increase our costs and could require us to undergo additional trials or procedures, or could make
it impractical or impossible for us to market our products for certain uses, in certain markets, or at all.
Changes
in government regulations may adversely affect our financial condition and results of operations because we may have to incur
additional expenses if we are required to change or implement new testing, manufacturing and control procedures. If we are required
to devote resources to develop such new procedures, we may not have sufficient resources to devote to research and development,
marketing, or other activities that are critical to our business.
We
can manufacture and sell our products only if we comply with regulations and quality standards established by government agencies
such as the FDA and the USDA, as well as non-governmental organizations such as the International Organization for Standardization
(“ISO”) and WHO. We have implemented a quality control system that is intended to comply with applicable regulations.
Although FDA approval is not required for the export of our products, there are export regulations promulgated by the FDA that
specifically relate to the export of our products that require compliance with FDA quality system regulation and that also require
meeting certain documentary requirements regarding the approval of the product in export markets. Although we believe that we
meet the regulatory standards required for the export of our products, these regulations could change in a manner that could adversely
impact our ability to export our products.
We
may not have sufficient resources to effectively introduce and market our products, which could materially harm our operating
results.
Introducing
and achieving market acceptance for our products will require substantial marketing efforts and will require us and/or our contract
partners, sales agents, and/or distributors to make significant expenditures of time and money. In some instances, we will be
significantly or totally reliant on the marketing efforts and expenditures of our contract partners, sales agents, and/or distributors.
If they do not have or commit the expertise and resources to effectively market the products that we manufacture, our operating
results will be materially harmed.
In
addition to the market success of our products, the success of our business depends on our ability to raise additional capital
through the sale of debt or equity or through borrowing, and we may not be able to raise capital or borrow funds on attractive
terms and/or in amounts necessary to continue our business, or at all.
General
Risks
General
economic conditions may adversely affect demand for our products and services.
Poor
or deteriorating economic conditions in the U.S. could adversely affect the demand for healthcare services and consequently, the
demand for our products and services. Poor economic conditions also could lead our suppliers to offer less favorable terms of
purchase, which would negatively affect our cash flows and profitability. These and other possible consequences of financial and
economic decline could have material adverse effect on our business, results of operations, and financial condition.
We
operate our business in regions subject to natural disasters and other catastrophic events, and any disruption to our business
resulting from natural disasters would adversely affect our revenue and results of operations.
We
operate our business in regions subject to severe weather and natural disasters, including hurricanes, floods, fires, earthquakes,
and other catastrophic events. Any natural disaster could adversely affect our ability to conduct business and provide products
and services to our customers, and the insurance we maintain may not be adequate to cover our losses resulting from any business
interruption resulting from a natural disaster or other catastrophic event.
Although
we have an ethics and anti-corruption policy in place, and have no knowledge or reason to know of any practices by our employees,
agents, or distributors that could be construed as in violation of such policies, our business includes sales of products to countries
where there is or may be widespread corruption.
We
have a policy in place prohibiting employees, distributors and agents from engaging in corrupt business practices, including activities
prohibited by the United States Foreign Corrupt Practices Act. Nevertheless, because we work through independent sales agents
and distributors outside the United States, we do not have control over the day-to-day activities of such independent agents and
distributors. In addition, in the donor-funded markets in Africa where we may sell our products, there is significant oversight
from the President’s Emergency Plan for AIDS Relief, or PEPFAR, the Global Fund, and advisory committees comprised of technical
experts concerning the development and establishment of national testing protocols. This is a process that includes an overall
assessment of a product which includes extensive product performance evaluations including five active collaborations and manufacturer’s
quality systems, as well as price and delivery.
We
depend heavily on our executive officers, directors, and principal consultants and the loss of their services would materially
harm our business.
We
believe that our success depends, and will likely continue to depend, upon our ability to retain the services of our current executive
officers, directors, principal consultants and others. In addition, we have established relationships with universities, hospitals
and research institutions, which have historically provided, and continue to provide, us with access to research laboratories,
clinical trials, facilities and patients. The loss of the services of any of these individuals or institutions would have a material
adverse effect on our business.
Risks
Related to Our Common Stock
Our
common stock is “penny stock”, which places restrictions on broker-dealers recommending the stock for purchase.
Our
common stock is defined as “penny stock” under the Exchange Act Exchange Act, and the rules promulgated thereunder.
The SEC has adopted regulations that define “penny stock” to include common stock that has a market price of less
than $5.00 per share, subject to certain exceptions. These rules include the following requirements:
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broker-dealers
must deliver, prior to the transaction, a disclosure schedule prepared by the SEC relating
to the penny stock market;
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broker-dealers
must disclose the commissions payable to the broker-dealer and its registered representative;
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broker-dealers
must disclose current quotations for the securities;
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if
a broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and
the broker-dealer’s presumed control over the market; and
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a
broker-dealer must furnish its customers with monthly statements disclosing recent price
information for all penny stocks held in the customer’s account and information
on the limited market in penny stocks.
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Additional
sales practice requirements are imposed on broker-dealers who sell penny stocks to persons other than established customers and
accredited investors. For these types of transactions, 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. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary market for our common stock. As a result, fewer
broker-dealers may be willing to make a market in our stock, which could make it more difficult for investors to dispose of our
common stock and cause a decline in the market value of our stock.
There
is a limited trading market for our common stock.
Our
common stock is not listed on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell
our shares than if our common stock was traded on an exchange. Although our common stock is quoted on the OTCQB, it is an unorganized,
inter-dealer, over-the-counter market which provides significantly less liquidity than the Nasdaq Capital Market or other national
securities exchange. These factors may have an adverse impact on the trading and price of our common stock.
Provisions
of our Restated Certificate of Incorporation could delay or prevent the acquisition or sale of our business.
Our
Restated Certificate of Incorporation permits our Board of Directors to designate new series of preferred stock and issue those
shares without any vote or action by our stockholders. Such newly authorized and issued shares of preferred stock could contain
terms that grant special voting rights to the holders of such shares that make it more difficult to obtain stockholder approval
for an acquisition of our business or increase the cost of any such acquisition.
We
do not intend to pay cash dividends on our common stock for the foreseeable future.
We
have paid no cash dividends on our common stock to date and we do not anticipate paying any cash dividends to holders of our common
stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of
the business, we currently anticipate that we will retain any earnings to finance our future expansion and for the implementation
of our business plan. Investors should take note of the fact that a lack of a cash dividend can further affect the market value
of our common stock and could significantly affect the value of any investment in the Company.
Our
issuance of common stock upon exercise of warrants or options or conversion of convertible notes may depress the price of our
common stock.
As
of July 31, 2019, we have 62,290,940 shares of common stock issued and outstanding, outstanding warrants to purchase 15,399,681
shares of common stock, outstanding options to purchase 7,988,675 shares of common stock, and outstanding convertible notes in
the amount of $3,944,972, convertible into 2,087,286 shares of common stock. The issuance of shares of common stock upon exercise
of outstanding warrants or conversion of convertible notes could result in substantial dilution to our stockholders, which may
have a negative effect on the price of our common stock.