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Item
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Description
of Business.
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About Immunosyn Corporation;
Background and History
Immunosyn
Corporation (“Immunosyn” or the “Company”) is a Delaware corporation
headquartered in La Jolla, California that owns an exclusive worldwide license
to market, distribute and sell a biopharmaceutical drug product, currently
referred to as SF-1019, for multiple uses including the treatment of any and all
diseases and pathological conditions, subject to receipt of appropriate
regulatory approval in each jurisdiction where SF-1019 will be
marketed. Under the terms of its exclusive license, the Company is
further granted the rights to any improvement of SF-1019 and other compounds
which are developed under the same technology platform and which are chemically
similar to SF-1019.
The
exclusive license has been granted to Immunosyn by Argyll Biotechnologies, LLC
(“Argyll Biotech”). Argyll Biotech is a closely-held Delaware limited
liability company, headquartered in La Jolla, California, that owns and controls
worldwide rights to SF-1019. SF-1019 has not been approved for human
use in any jurisdiction. Argyll Biotech is preparing to conduct
clinical trials, develop manufacturing protocols and, if possible, apply for
regulatory approval of SF-1019’s use. Through a series of private
investments, Argyll Biotech and its affiliates and other persons have provided
the funding to bring SF-1019 from its inception to preliminary experimental
research. Argyll Biotech intends to continue to manage and fund the
process for research, product development, clinical testing and regulatory
approval of SF-1019, including refinement for additional
uses. SF-1019 is the first such product that Argyll Biotech hopes to
bring into the marketplace through these efforts. Argyll Biotech
received 147,000,000 shares of Common Stock of the Company for its license fee
and is the Company’s largest shareholder
Immunosyn’s
primary asset is its exclusive worldwide license from Argyll Biotech to market,
distribute and sell SF-1019. The Company also has the right of first
offer to enter into additional license agreements for uses of other compounds
which are not already covered under the existing license
agreement. In addition to SF-1019, Argyll Biotech has licensed
certain intellectual property developed by Professor Kenneth Willeford,
Professor of Biochemistry and Molecular Biology, Mississippi State
University. Argyll Biotech has also retained Professors Jonathan
Heeney, Chairman, Department of Virology, BPRC, and Angus Dalgleish, Chair of
Oncology, Gastroenterology and Endocrinology, St. George’s Hospital Medical
School, who are both well known anti-viral researchers and immuno-pathology
specialists, as its scientific advisors. We believe that the combined
experience of all of Argyll Biotech’s scientific advisory board members should
provide substantial guidance toward achieving approval of SF-1019 for marketing,
distribution and sale to the target market.
SF-1019
is an experimental extract from caprine (goat) serum containing a number of
unique lipopeptide molecules. Argyll Biotech’s consultants first
identified the precursor to SF-1019 in the mid-1990’s, which they believed to be
an effective booster and modulator of an individual’s immune
system. Subsequent research by such consultants revealed that the
precursor to SF-1019 had potential efficacy in the regulation and normalization
of an individual’s immune system response to multiple viral pathologies,
including human immunodeficiency virus (“HIV”). Argyll Biotech
intends to develop SF-1019 for treatment of diabetes and CIDP first and then
other diseases, and Immunosyn will be responsible for commercializing SF-1019
when and as approval for such treatment is procured.
Argyll
Biotech is responsible for all research and product development, clinical
testing, regulatory approvals, production and product support. Argyll
Biotech anticipates that it will commence clinical trials and studies of SF-1019
and prepare and submit all filings required for regulatory approval
of
that
product for treatment of various diseases including CIPD, RSD, diabetic
neuropathy and diabetic ulcers, both in the United States and in other countries
that are targeted for distribution and sale of the product. The
Company believes that a proof of concept trial is underway in Europe for
treatment of diabetic ulcers with SF-1019. It is expected that the
next phase of the trial will be completed during the first half of 2008 and, if
successful, larger-scale independently-managed formal clinical trials will take
place shortly thereafter. The Company believes that a limited
feasibility clinical study of SF-1019 was conducted in the U.S. for treatment of
CIDP and RSD as well. Argyll Biotech has also retained a consulting
firm to provide clinical and regulatory consulting services in support of the
marketing authorization process by the US FDA.
Immunosyn’s
exclusive license agreement with Argyll Biotech shall remain in full force and
effect for the later of 10 years from the date when SF-1019 is first
commercially sold or the date when the patent coverage for SF-1019 expires,
which in most jurisdictions is generally for twenty (20) years from the date of
filing. Either party may terminate the agreement only on account of
an uncured material breach by the other party. Immunosyn may
terminate the agreement if a non-rebuttable regulatory or patient safety issue
is raised. Any fees paid prior to termination are
non-refundable.
Immunosyn
is a development stage company that was incorporated in August 2006 in order to
work as Argyll Biotech’s sales, marketing and distribution channel for
SF-1019. Although Immunosyn cannot guarantee that Argyll Biotech will
successfully conclude development of SF-1019, Immunosyn is hopeful that its
initial product offering based on SF-1019 will be an effective and affordable
treatment for the maintenance and enhancement of the quality of life for
patients suffering from CIDP, diabetic neuropathy, diabetic ulcers and other
diseases.
As a
sales, marketing, and distribution channel for Argyll Biotech’s treatment for
various diseases including CIDP, diabetic neuropathy and diabetic ulcers,
Immunosyn’s primary business strategy is to build a sales and marketing force
and related resources so that if and when SF-1019 is approved for human use it
can be sold; and secondly, to increase awareness and acceptance of SF-1019 in
the CIDP and diabetes treatment communities.
Business
CIDP is a
neurological disorder characterized by slowly progressive weakness and a loss of
sensation in the legs and arms. CIDP is more common in young adults,
and it affects men more than women. Symptoms include tingling or
numbness (beginning in the toes and fingers); weakness of the arms and legs;
aching pain in the muscles; loss of deep tendon reflexes; fatigue; and abnormal
sensation. CIDP is similar to Guillain-Barré-Strohl-Landry syndrome,
which appears suddenly and generally improves spontaneously. Although
CIDP was once called “chronic Guillain-Barré syndrome,” it is now regarded as a
related, but distinct condition. The course of CIDP varies widely
among individuals. Some may have a bout of CIDP followed by
spontaneous recovery, while others may have many bouts with partial recovery in
between relapses.
Diabetes
mellitus refers to a family of diseases featuring high glucose levels caused by
the body’s inability to produce and/or utilize insulin. According to
the United States National Diabetes Information Clearinghouse, the 2005 estimate
of prevalence or total number of cases of diabetes in adults is 20.8 million,
with 14.6 million diagnosed cases and an additional 6.2 million undiagnosed
cases
(http://www.ndep.nih.gov/diabetes/pubs/FS_GenSnapshot.pdf). According
to the same source, the 2005 incidence, or number of new cases, is 1.5
million.
One of
the most severe complications of diabetes is lower-limb amputation, which is
caused by diabetic ulcers. These ulcers form as a result of diabetic
neuropathy, or peripheral neuropathy, a nervous system disease evident in 60% of
diabetic patients (Caring For Diabetes Educational Forum;
http://www.caringfordiabetes.com/T&P/MicroComplications/T_P_Neuropathy.cfm). According
to the National Diabetes Education Program, diabetic neuropathy causes
micro-vascular damage that can result in loss of protective sensation in the
feet, poor circulation and foot ulcers.
According
to Diabetes Atlas, third edition © International Diabetes Federation, 2006 and
www.diabetes.niddk.nih.gov
,
globally, an approximated 246 million people have diabetes mellitus, of which an
estimated 50% have diabetic neuropathy (DN) and one in six will develop a foot
ulcer.
We
believe that SF-1019 is a new category of drug that may be characterized as an
“Immunomodulator.” Many disease pathologies that affect individuals
are the result of an over-active immune system. Specifically, when a
viral agent begins to adversely affect an individual’s cells, the immune system
frequently becomes overactive, which destroys the viral agent but also injures
surrounding healthy cell structures. Other disease pathologies
suppress an individual’s immune system, which allows other diseases and agents
to kill healthy cells. We believe that SF-1019 regulates an
individual’s immune system to prevent it from both over-reacting and
under-reacting to a viral invasion of an individual’s body systems.
We
believe that SF-1019 contains a number of unique lipopeptide molecules which
neutralize viral pathogens and their inhibitory properties by activation of a
cytokine system. This, in turn, enhances an individual’s cell
mediated immunity and augments the individual’s humoral immune system by
eliminating negative inhibitory cytokine factors and eliminates pathogenic
free-floating organisms, while simultaneously sparing normal and healthy
cells.
Argyll
Biotech’s core objective is the continued development of SF-1019 and its
cognates and variants for treatment of multiple medical
conditions. Rather than detract from its core proficiency, Argyll
Biotech’s founders and its scientific and advisory team elected to license the
marketing, distribution and sale of SF-1019 and other products to another
entity, whose strategy would be to target key markets and demographics for
treatment with SF-1019 and its cognates and variants. The exclusive
license agreement between Argyll Biotech, as the licensor, and Immunosyn, as the
licensee, is a result of that decision.
The Argyll Biotech License
Agreement
The
Company is in the development stage and has only engaged in organizational and
fundraising
activities to
date. Its principal asset is the exclusive worldwide license with
Argyll Biotech. The Company intends to develop its operations so that
it is in a position to market, distribute and sell SF-1019 as soon as
appropriate regulatory approvals are received by Argyll Biotech for
SF-1019. The key terms of the exclusive license agreement with Argyll
Biotech are as follows:
Grant
of Rights
Argyll
Biotech has granted Immunosyn the exclusive worldwide right to market, sell,
distribute and promote SF-1019 in its current form for multiple uses including
the treatment of any and all diseases and pathological conditions, including
Chronic Inflammatory Demyelinating Polyneuropathy (CIDP), Diabetic Neuropathy
(DN) and diabetic ulcers (DU). Argyll Biotech has also licensed its
trademarks to Immunosyn. Immunosyn is further granted the rights to
any improvement of SF-1019 and other compounds, which are developed using the
same technology platform and which are chemically similar to
SF-1019. Finally, during the first five years of the term of the
exclusive license agreement, Immunosyn has a right to enter into partnering
arrangements with Argyll Biotech for development of other novel drug treatment
products.
Development
and Regulatory Matters
Argyll
Biotech anticipates that it will commence clinical trials and studies of SF-1019
and prepare and submit all filings required for such clinical trials and studies
for treatment of CIDP, diabetic neuropathy and diabetic ulcers, both in the
United States and in other countries that are targeted for distribution and sale
of the product. Argyll Biotech will also submit periodic written
reports to Immunosyn to document its efforts toward procuring regulatory
approval of SF-1019, as well as clinical budgets and plans for each year during
which development efforts are conducted. Argyll Biotech will retain
full responsibility for preparation and implementation of all trial protocols
and regulatory activities and for all costs associated with those
activities.
Distribution
and Promotion
Immunosyn
will assume full responsibility to promote and sell SF-1019 for its approved
uses. To accomplish this, Immunosyn has agreed to establish a sales
force, and an order processing and distribution network for each country in
which regulatory approval of SF-1019 is granted. Immunosyn has also
agreed to develop full marketing plans for each such country, although Argyll
Biotech will retain a right to participate in all marketing and promotion
activities. Each party is responsible for its own costs associated
with these activities.
License
Fees
Immunosyn
issued 147,000,000 shares of its Common Stock to Argyll Biotech in 2006 which
Argyll Biotech has sold or expects to sell to raise funds for product
development and regulatory approval for SF-1019. The license fee was
earned when paid and there are no restrictions on the release or use of the
proceeds received by Argyll Biotech from the sale of Immunosyn’s shares, and
these proceeds may be used at Argyll Biotech’s sole discretion for any
purpose. No refund will be owed by Argyll Biotech in the event the
cost of development and regulatory approval is substantially less than the fee,
nor are there any penalties owed by Argyll Biotech if it fails to complete
product development or obtain regulatory approval for its
distribution.
Payments
and Reports
Argyll
Biotech is not obligated to provide any accounting for its use of proceeds, nor
does Immunosyn have any audit rights to inspect Argyll Biotech’s use of the
license proceeds.
Manufacture
and Supply
Argyll
Biotech retains responsibility for manufacturing and supplying all of
Immunosyn’s requirements of SF-1019. Argyll Biotech and Immunosyn
have agreed that the purchase price of SF-1019 sold by Argyll Biotech to
Immunosyn will be forty percent (40%) of the gross sales price that Immunosyn
sells SF-1019 to a third party consumer for. Argyll Biotech shall
also confirm through testing and other programs that the commercial quantities
of SF-1019 that it manufactures are fully compliant with all manufacturing and
laboratory standards applicable to drug products which are intended for use in
humans.
Intellectual
Property Ownership
Argyll
Biotech will retain full ownership of its intellectual property, including
intellectual property that is jointly-developed by the
parties. Argyll Biotech must take reasonable steps to protect its
intellectual
property from third-party infringement, and to defend Immunosyn against charges
of infringement that refer, relate or pertain to Immunosyn’s marketing, sale and
distribution of SF-1019.
Publication
and Confidentiality
Argyll
Biotech and Immunosyn must collaborate on all publications of scientific or
medical reports relating to either company’s business, operations, research and
development or clinical trial results.
Recall
and Indemnification
Argyll
Biotech has agreed to retain full responsibility for costs and activities
relating to any recall of SF-1019, and must defend, indemnify and hold Immunosyn
harmless for, from and against damages associated with those
recalls.
Term
and Termination
The
exclusive worldwide license agreement shall remain in full force and effect for
the later of 10 years from the date when SF-1019 is first commercially sold or
the date when the patent coverage for SF-1019 expires in any country, which in
most jurisdictions is generally for twenty (20) years from the date of filing on
a country-by-country basis. Either party may terminate the agreement
only on account of an uncured material breach by the other
party. Immunosyn may terminate the agreement if a non-rebuttable
regulatory or patient safety issue is raised, in which event all remaining
license fee obligations will immediately be cancelled. Any fees paid
prior to termination are non-refundable.
Government
Regulations
The
United States Food and Drug Administration (the “FDA”) and comparable regulatory
agencies in foreign countries, as well as drug regulators in state and local
jurisdictions, impose substantial requirements upon clinical development,
manufacture and marketing of pharmaceutical products. These agencies
and other federal, state and local entities regulate research and development
activities and the human testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of Argyll Biotech’s SF-1019, as well as any other products that either
Argyll Biotech or Immunosyn may independently develop or may otherwise license
for marketing and distribution.
The
process required by the FDA under the drug provisions of the United States Food,
Drug, and Cosmetic Act before any initial products may be marketed in the United
States generally involves the following:
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Preclinical
laboratory and animal tests;
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Submission
of an Investigational New Drug Application (“IND”), which must become
effective before human clinical trials may
begin;
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Adequate
and well-controlled human clinical trials to establish the safety and
efficacy of the product candidate for its intended
use;
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Submission
to the FDA of a New Drug Application (“NDA”);
and
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FDA
approval and review of a NDA.
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The
testing and approval process requires substantial time. Preclinical
tests include laboratory evaluation of the product candidate, its chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of the product candidate. Certain preclinical
tests must be conducted in compliance with good laboratory practice
regulations. Violations of these regulations can, in some cases, lead
to an invalidation of the studies, requiring such studies to be
replicated. In some cases, long-term preclinical studies are
conducted while clinical studies are ongoing.
Argyll
Biotech must submit the results of preclinical tests, together with
manufacturing information and analytical data, to the FDA as part of an IND,
which must become effective before any human clinical trials begin in the United
States. Analogous requirements are in place in the countries of the
European Union and in the United Kingdom, where Argyll Biotech is preparing to
conduct preclinical and clinical trials. If the FDA or its foreign
equivalent raises questions about an IND within a certain period of time after
its submission, that regulatory body may impose a clinical hold. In
such a case, the IND sponsor and the regulatory authority must resolve any
outstanding concerns before clinical trials can begin. All clinical
trials must be conducted under the supervision of a qualified investigator in
accordance with good clinical practice regulations. These regulations
include the requirement that all subjects provide informed
consent. Further, an independent Institutional Review Board (“IRB”)
at each medical center proposing to conduct clinical trials must review and
approve any clinical study. The IRB also continues to monitor the
study and must be kept aware of the study’s progress, particularly as to adverse
events and changes in any research. Progress reports detailing the
results of the clinical trials must be submitted at least annually to the FDA or
its foreign equivalent and more frequently if adverse events occur.
Human
clinical trials are typically conducted in three sequential phases that may
overlap:
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Phase
I: The drug is initially introduced into healthy human subjects
or patients and tested for safety, dosage tolerance, absorption,
metabolism, distribution and
excretion.
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Phase
II: The drug is studied in a limited patient population to
identify possible adverse effects and safety risks, to determine the
efficacy of the product for specific targeted diseases and to determine
dosage tolerance and optimal
dosage.
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Phase
III: When Phase II evaluations demonstrate that a dosage range
of the drug is effective and has an acceptable safety profile, Phase III
trials are undertaken to further evaluate dosage and clinical efficacy and
to further test for safety in an expanded patient population, often at
geographically dispersed clinical study
sites.
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Concurrent
with preclinical studies and clinical trials, Argyll Biotech must develop
information about the chemistry and physical characteristics of SF-1019 and must
finalize a process for manufacturing this product in accordance with good
manufacturing practice (“GMP”) requirements. The manufacturing
process must be capable of consistently producing quality batches of SF-1019 and
Argyll Biotech must develop methods for testing the quality, purity and potency
of the drug candidate. Additionally, appropriate packaging must be
selected and tested and chemistry stability studies must be conducted to
demonstrate that the SF-1019 product does not undergo unacceptable deterioration
over its shelf life.
We
understand that Argyll Biotech intends to submit the results of SF-1019 product
development, pre-clinical studies and clinical studies to the FDA or its foreign
equivalent as part of an NDA for approval of the marketing and commercial
shipment of the product. The appropriate regulatory authority will
review each NDA submitted and may request additional information, rather than
accept the NDA for filing. In this event, the application must be
resubmitted with additional information. The resubmitted application
is also subject to review before the regulatory body accepts it for
filing. Once the NDA is
accepted,
the regulatory agency begins an in-depth review of the
NDA. Regulatory agencies have substantial discretion in the approval
process and may disagree with Argyll Biotech’s interpretation of the data
submitted in the NDA. The review process may be significantly
extended by the regulatory agency’s requests for additional information or
clarification regarding information already provided. Also, as part
of the review, the regulatory agency may refer the application to an appropriate
advisory committee, typically a panel of clinicians, for review, evaluation and
a recommendation. Manufacturing establishments also are often subject
to inspections prior to NDA approval to assure compliance with GMPs and with
manufacturing commitments made in relevant marketing applications.
In the
United States, under the Prescription Drug User Fee Act (“PDUFA”), submission of
an NDA with clinical data requires payment of a user fee. For fiscal
year 2007, that fee was $896,200. Similar fees and requirements are
in place in foreign jurisdictions. In return, the relevant regulatory
agencies assign time goals for reviewing NDAs prior to issuing a “complete
response” in which an NDA may be approved, or denied if the regulatory agency’s
criteria are not satisfied, or require additional clinical data. Even
if these data are submitted, the regulatory agency may ultimately decide that
the NDA does not satisfy the criteria for approval. If the regulatory
agency approves the NDA, the product becomes available for physicians to
prescribe, but even after approval, a regulatory agency may later decide to
withdraw product approval if compliance with regulatory standards is not
maintained or if safety problems occur after the product reaches the
market. A regulatory agency may also require post-marketing studies,
known as Phase IV studies, as a condition to approval to develop additional
information regarding the safety of a product. In addition, a
regulatory agency can require surveillance programs to monitor approved products
that have been commercialized, and such agencies have the power to require
changes in labeling or to prevent further marketing of a product based on the
results of these post-marketing programs.
Regulatory
agencies also regulate drug labeling and promotion activities. As
marketing and distribution will be the primary and substantial business function
of Immunosyn, the Company anticipates that it will experience a significant
burden as a result of these regulatory activities. Regulatory
agencies actively enforce regulations prohibiting the marketing of products for
unapproved or “off-label” uses. Further regulations on certain
pharmaceutical marketing practices are imposed in the United States by the
United States Federal Trade Commission and Office of the Inspector General of
the United States Department of Health and Human
Services. Reimbursement practices and HHS coverage of medicine will
be important to the success of procurement and utilization of Argyll Biotech’s
SF-1019 and other products and product candidates, if they are ever approved for
marketing.
European
Regulations
The
initial preclinical trials and clinical studies of SF-1019 are expected to be
conducted by Argyll Biotech under European auspices and
jurisdiction. Prior regulatory approval in order to initiate Phase I
(healthy human volunteer) studies is required in many of the European Union
member states. Following successful completion of Phase I studies,
data must be submitted in a summarized format to the applicable regulatory
authority in the member state in respect of applications for the conduct of
later Phase II proposed studies. European Union regulatory
authorities typically are required to raise objections within one to three
months after receipt of a proposal for a study, but they often have a right to
extend this review period at their discretion. In addition, one or
more independent ethics committees, which typically operate similarly to an
Institutional Review Board in the United States, will review the ethics of
conducting the proposed research.
In order
to gain marketing approval in the European Union, Argyll Biotech must submit a
dossier to the relevant authority for review, which, in the European Union, is
known as a Marketing Authorization Application (“MAA”). The format of
the MAA is specific and is laid out by each
applicable
regulatory authority, although in general it will contain information on the
quality of the chemistry, manufacturing and pharmaceutical aspects of the
product as well as non-clinical and clinical data.
For many
products, the European Union provides a choice of a centralized or decentralized
authorization route. Under the centralized route, one marketing
authorization is granted for the entire European Union, while under the
decentralized route, a series of national marketing authorizations are
granted. In the centralized system, an application will be reviewed
by the members of the Committee for Proprietary Medicinal Products (“CPMP”), on
behalf of the European Medicines Agency (“EMEA”). The EMEA will,
based upon the review of the CPMP, provide an opinion to the European Commission
on the safety, quality and efficacy of the product. The decision to
grant or refuse an authorization is made by the European
Commission. In circumstances where use of the centralized route is
not mandatory, Argyll Biotech can choose to use the decentralized route, in
which case an application will be reviewed by each member state’s regulatory
agency. If a regulatory agency grants authorization, other member
states’ regulatory agencies and authorities are asked to “mutually recognize”
the authorization granted by the first member state’s regulatory
agency.
Failure
to comply with applicable regulatory requirements after obtaining regulatory
approval can, among other things, result in the suspension of regulatory
approval, as well as possible civil and criminal sanctions. Renewals
in the European Union may require additional data, which may result in a license
being withdrawn. In the European Union, regulators have the authority
to revoke, suspend or withdraw approvals of previously-approved products, to
prevent companies and individuals from participating in the drug approval
process, to request recalls, to seize violative products and to obtain
injunctions to close manufacturing plants not operating in conformity with
regulatory requirements and to stop shipments of violative
products.
Pricing
Controls
Before a
pharmaceutical product may be marketed and sold in certain foreign countries the
proposed pricing for the product must be approved. The requirements
governing product pricing vary widely from country to country and can be
implemented disparately at a national level.
The
European Union generally provides options for its member states to control the
prices of medicinal products for human use. A member state may
approve a specific price for the medicinal product or it may instead adopt a
system of direct or indirect controls on the profitability of the company
placing the medicinal product on the market. For example, the
regulation of prices of pharmaceuticals in the United Kingdom is generally
designed to provide controls on the overall profits that pharmaceutical
companies may derive from their sales to the United Kingdom National Health
Service. The United Kingdom system is generally based on
profitability targets or limits for individual companies which are normally
assessed as a return on capital employed by the company in servicing the
National Health Service market, comparing capital employed and
profits.
In
comparison, Italy generally establishes prices for pharmaceuticals based on a
price monitoring system. The reference price is the European average
price calculated on the basis of the prices in four reference markets: France,
Spain, Germany and the United Kingdom. Italy generally establishes
the price of medicines belonging to the same therapeutic class on the lowest
price for a medicine belonging to that category. Spain generally
establishes the selling price for new pharmaceuticals based on the prime cost,
plus a profit margin within a range established each year by the Spanish
Commission for Economic Affairs.
Third
Party Reimbursements
In the
United States, European Union, and elsewhere, sales of therapeutic and other
pharmaceutical products are dependent in part on the availability and adequacy
of reimbursement to the consumer or the health care provider from third party
payors, such as government and private insurance plans. Third party
payors are increasingly challenging the prices charged for medical products and
services and new products that are more expensive than existing treatments may
have difficulty finding ready acceptance unless there is a clear therapeutic
benefit.
Patent
Restoration and Marketing Activity
The Drug
Price Competition and Patent Term Restoration Act of 1984, known as the
Hatch-Waxman Amendments (“Hatch-Waxman”), permits the FDA to approve an
abbreviated NDA for generic versions of innovator drugs, as well as NDAs with
less original clinical data. Hatch-Waxman also provides certain
patent restoration and exclusivity protections to innovator drug
manufacturers.
The
abbreviated NDA process permits competitor companies to obtain marketing
approval for a drug with the same active ingredient for the same uses as an
innovator drug but does not require the conduct and submission of clinical
studies demonstrating safety and efficacy for that product. Instead
of safety and efficacy data, a competitor could make a copy of any of Argyll
Biotech’s drugs and only submit data demonstrating that the copy is a
bioequivalent to the SF-1019 product, which may allow the competitor to obtain
marketing approval from the FDA.
Hatch-Waxman
also provides competitors with the ability to market copies of innovator
products with the submission of significantly less clinical data outside of the
abbreviated NDA context. Such applications are known as “505(b)(2)
NDAs,” or “paper NDAs.” They may rely on clinical investigations not
conducted by or for that applicant and for which the applicant has not obtained
a right of reference or use. Such products are subject to the same
patent notification procedures as for abbreviated NDAs.
Hatch-Waxman
also provides for the restoration of a portion of a product’s United States
patent term that is lost during a drug’s clinical development and NDA review by
the FDA, and further provides for the statutory protection, known as
exclusivity, against the FDA’s approval or acceptance of certain competitor
applications. Patent term restoration can return up to five years of
a patent term for a patent that covers a new product or its use to compensate
for time lost during product development and the regulatory review
process. This period is generally one-half the time between the
effective date of an IND and the submission date of an NDA, plus the time
between the submission date of the NDA and the approval of that application,
subject to a maximum extension of five years. No extension can extend
the patent life beyond fourteen years after the drug approval
date. The application for patent term restoration is subject to
approval by the United States Patent and Trademark Office in conjunction with
the FDA.
Hatch-Waxman
also provides for differing periods of statutory protection for new drugs
approved under an NDA. Among the types of exclusivity are those for a
new chemical entity and those for a new formulation or a new indication for a
previously-approved drug. Marketing exclusivity in the United States
for the type of product that Immunosyn intends to market and distribute, if
granted by the FDA, would prohibit that agency from approving the application of
another company that submits an abbreviated NDA or a paper NDA for five
years. This marketing exclusivity protection does not prohibit the
FDA from approving a full NDA.
Competition
Competition
in the biotechnology industry is intense. Potential competitors in
the United States and Europe are numerous and include pharmaceutical, chemical
and biotechnology companies, most of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than Immunosyn. Among others, Eli Lilly & Company and Wyeth
Pharmaceuticals, Inc. market antidepressants, and Pfizer, Inc. markets
anticonvulsants that are prescribed for treating diabetic
neuropathy. In addition, Daval International Limited, a United
Kingdom company (“Daval”), is also testing a caprine serum product, called
Aimspro, for treating multiple sclerosis and other neurological
disorders.
Argyll
Biotech intends to seek to limit potential sources of competition by developing
products that are eligible for orphan drug designation and approval or other
forms of protection. Specifically, Argyll Biotech intends to target
CIDP as a potential candidate for treatment with SF-1019 due to its orphan drug
for orphan drug status. CIDP is listed by the National Organization
for Rare Disorders (
http://www.rarediseases.org
/)
as an orphan disease with less than 200,000 cases in the United
States. The only available treatment is IVIG (intravenous gamma
globulin) at a cost of $2000-$6000 per month depending on dosage. The
mechanism of action of IVIG is to block release of inflammatory cytokines
directly and therefore lasts only about 1-2 weeks. However, due to
their substantially greater resources, competitors may develop similar
technologies and products more rapidly or may market them more
effectively. Competing technologies or products may be more effective
than any of those that are being or will be developed by Argyll
Biotech. In addition, existing competitors enjoy the strategic
advantages of existing brand recognition, marketing and distribution networks,
thus enabling them to introduce new products much more rapidly than
Immunosyn.
Employees
As of
December 31, 2007, we had three executive officers, Mr. Stephen D. Ferrone,
President and CEO, Mr. Douglas McClain, Jr., our Corporate Secretary, and G.
David Criner, Chief Financial and Accounting Officer. Stephen D.
Ferrone is currently our only full-time employee. On February 1,
2008, Douglas A. McClain, Jr. resumed the position of Chief Financial and
Accounting Officer on a part-time basis following Mr. Criner’s
resignation. The Company expects to hire additional executive staff
and employees, including potentially a full-time CFO, as needed.
Item
1A. Risk
Factors
The
risks and uncertainties described below are not the only ones we may
face. The following risks, together with additional risks and
uncertainties not currently known to us or that we currently deem immaterial,
could impair our business, financial condition and results of
operation.
Risks Related to the
Company’s Business
Our
independent auditor has issued a going concern opinion which raises doubts about
our ability to continue as a going concern.
Our
independent auditor has expressed doubt about our ability to continue as a going
concern. Note 2 to our financial statements includes an explanatory
paragraph expressing doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent on
our ability to implement our business plan, raise capital and generate
revenues. Since inception, we have borrowed $632,016 from Argyll
Equities, LLC and Argyll Biotech who together own approximately 60% of
Immunosyn’s Common Stock. These advances are unsecured and are to be
repaid on demand. In addition, the Company had accounts payable and
accrued expenses of $151,693 and $16,717, respectively, as of December 31,
2007.
As of
December 31, 2007, Immunosyn had an accumulated deficit of $828,600 and a
working capital deficit of $733,523 which is considered insufficient to fund
operations over the next 12 months.
Immunosyn
or Argyll Biotech may not be able to secure financing, which in turn could
affect Immunosyn’s and Argyll Biotech’s respective abilities to operate as a
going concern.
As of
December 31, 2007, Argyll Biotech had an accumulated deficit of approximately
$715,000 and a working capital deficit of approximately
$564,000. Argyll Biotech does not anticipate any revenues in the
foreseeable future but continues to incur significant losses from
operations. This raises substantial doubt about Argyll Biotech’s
ability to continue as a going concern. Argyll will require
substantial additional financing to bring SF-1019 to market. If
adequate financing is not available to Argyll Biotech, it may be required to
delay, scale back or eliminate some of its research and development programs or
the proposed clinical trials of SF-1019, to relinquish rights to certain
technologies or products or to license third parties to commercialize
technologies and products that Immunosyn might otherwise seek to
license. Argyll Biotech’s inability to obtain financing, if required,
would have a material adverse effect on the value of Immunosyn’s exclusive
license and Immunosyn’s ability to develop its operations and implement its
business plan.
Argyll
Biotech and Immunosyn have no operating history, which makes it impossible to
evaluate their business and to predict any future operating
results.
To date,
Immunosyn’s founders and Argyll Biotech have been primarily engaged in
organizational and fundraising
activities,
including obtaining various consulting agreements for the development of
products and technologies and developing and testing
products. Immunosyn has not generated any revenues to date and does
not anticipate generating any revenues until such time as SF-1019 is approved
for distribution by applicable regulatory authorities. Accordingly,
neither Argyll Biotech nor the Company has any operating history upon which an
evaluation of their performance and prospects can be made.
Immunosyn
expects to incur substantial losses for the foreseeable future and may never
achieve profitability.
Immunosyn
anticipates that it will continue to incur significant operating losses for the
foreseeable future. We may never generate revenues or achieve
profitability and, if we ever achieve profitability, we may not be able to
maintain profitability.
Immunosyn
and Argyll Biotech have no experience in completing development, obtaining
regulatory approval or marketing a novel biopharmaceutical product and, to be
successful, both organizations will need qualified personnel to complete
development, successfully complete trials and launch SF-1019 in the
marketplace.
Both
Argyll Biotech and Immunosyn are recently formed entities and, consequently,
lack the requisite personnel, facilities, equipment or experience to execute
their product development, testing, regulatory approval and marketing
objectives. Argyll Biotech will be required to hire additional
qualified scientific and technical personnel as well as personnel with expertise
in clinical testing and government regulation, to expand various research and
development programs and to pursue product development, regulatory approval and
marketing plans. Immunosyn will also have to hire marketing and
administrative personnel to promote its presence in the portion of the medical
community that treats maladies associated
with CIDP
and diabetes. There is intense competition for qualified personnel in
the areas of Argyll Biotech’s and the Company’s respective activities, and there
can be no assurances that Argyll Biotech or the Company will be able to attract
and retain the qualified personnel necessary for the development of its and
their respective businesses.
The
Company and Argyll Biotech face competition for qualified individuals from
numerous pharmaceutical and biotechnology companies, universities and research
institutions. The failure to attract and retain key scientific,
marketing and technical personnel would have a material adverse effect on the
development of the Company’s and Argyll Biotech’s respective businesses and our
and their abilities to develop, market and sell products.
The
Company may not be successful in identifying and attracting executive officers,
and even if it were to do so, it may not be successful in retaining such
individuals.
The
Company intends to identify and attract individuals to fill permanent key
executive positions. Based on its current cash balance, management
believes the Company cannot attract individuals to fill permanent key management
positions and cannot build its operations. There is intense
competition of qualified personnel in the Company’s field and there can be no
assurances that the Company will be able to attract and retain the qualified
personnel necessary for the development of its business. Instead, the
Company may chose to retain executives with other backgrounds, including persons
previously or currently affiliated with its affiliates, which could have a
material adverse effect on the development of the Company’s
business. The failure to attract and retain executive officers would
have a material adverse effect on the development of the Company’s
business.
The
Company and its affiliates, including Argyll Biotech, are recipients of several
subpoenas issued by the United States Securities and Exchange Commission to
investigate their business practices and the offering of investments in the
Company’s predecessor.
Pursuant
to a subpoena dated January 20, 2006 issued by the Securities and Exchange
Commission (“SEC”) to an affiliate of Argyll Biotech in proceedings captioned In
the Matter of Directors Financial Group, Ltd. and In The Matter of Prime Bank
Securities, and pursuant to two subpoenas issued by the SEC to affiliates of
Argyll Biotech on March 30, 2006 in a proceeding captioned In The Matter of The
Argyll Group, LLC, the Company and its affiliates have been asked to produce all
documents concerning a wide variety of topics including many related directly to
a prior licensee of SF-1019, Nurovysn Merger Corporation. Pursuant to
a third subpoena, dated December 15, 2006, issued by the SEC to the Company, the
Company has been asked to produce documents concerning private placements of the
Company’s stock and other matters disclosed in this report. The
Company and its affiliates have actively cooperated with the SEC and have
produced documents responsive to these subpoenas, completing their responses in
early August 2007. The Company has had no further communication with
the SEC regarding the subpoenas since January 2007. Although
Immunosyn and its affiliates believe they have complied with the SEC’s
subpoenas, there can be no assurance that the Company and its affiliates will
not be found liable for one or more violations of law which could expose the
Company and its affiliates, including Argyll Biotech, to liability for fines and
penalties, as well as injunctive or other sanctions that might prohibit or
restrict the Company’s or Argyll Biotech’s ability to proceed with financing its
operations. Even if the Company and its affiliates are fully in
compliance with all of their legal obligations, the existence of these
proceedings may delay or otherwise negatively impact their ability to conduct
their operations. Furthermore, the existence of these proceedings may
discourage future investors from acquiring the securities of the Company or
Argyll Biotech.
SF-1019
has not been approved for any human use nor for treatment of any particular
disease, and such approval may never be obtained.
The
Company is entirely dependent upon Argyll Biotech’s sole experimental drug,
SF-1019, which has not been tested in any clinical trials. Argyll
Biotech is the assignee of a number of issued patents and pending patent
applications filed in selected countries around the world. Argyll
Biotech has no issued patent on SF-1019 and the rights which Argyll Biotech has
received from its pending patents and patent applications may not offer
sufficient protection to allow it to manufacture, market and/or sell its
products. Argyll Biotech has not received regulatory approval of
SF-1019’s use in clinical trials. Argyll Biotech and the Company
cannot guarantee that SF-1019 will ever receive regulatory approval for the uses
for which it may be licensed to Immunosyn, namely, treatment of various diseases
including, without limitation, CIDP, diabetic neuropathy and diabetic
ulcers. No clinical trials have been conducted anywhere and following
commencement of any clinical trials, completion and evaluation of those trials
may not occur or a substantial period of time may elapse before Immunosyn has a
product that may be sold and distributed for human use.
Even if a
new drug product is well along the path of a clinical trial and the trial is
close to completion, regulatory authorities have the ability to shut down any
trials due to safety, efficacy or other concerns; to request additional trials
or data to verify results; or to force any portion or all of a trial to be
repeated for any number of reasons. Any such action by the regulatory
authorities or any delay of a clinical trial could materially and adversely
affect the Company’s exclusive license from Argyll Biotech. Even if
Argyll Biotech is successful in bringing SF-1019 into a clinical trial for
treatment of various diseases including, without limitation, CIDP, diabetic
neuropathy or diabetic ulcers, there can be no assurances that those trials will
successfully demonstrate that SF-1019 is efficacious against various diseases
including, without limitation, CIDP, diabetic neuropathy or diabetic
ulcers. Unless and until the appropriate regulatory authority
provides a final approval for the use of SF-1019 for treating various diseases
including, without limitation, CIDP, diabetic neuropathy or diabetic ulcers, the
licensed rights will be of no value.
Immunosyn
has been informed that Argyll Biotech is implementing controls to prevent
unregulated use of SF-1019 and if Argyll Biotech is unable to do so or the FDA
takes any action to prevent the export or experimental use of unapproved drugs
such as SF-1019, the Company’s licensed rights will be of diminished
value.
Prior to
Argyll Biotech’s development of SF-1019, caprine serum had been the subject of
unregulated use by parties unrelated to Argyll Biotech and the
Company. Last year, the Company learned that research
samples of SF-1019 have been used by several individuals in the United States
and Mexico, and such uses have been publicized as “testimonials” on a
shareholder’s web site. To the extent unapproved research samples of
SF-1019 have been exported from the United States or used in the United States,
the FDA may issue cease and desist letters and take other action to prevent any
further export, use or promotion within the United States. Such
actions by the FDA, if any, may delay or affect Argyll Biotech’s ability to
obtain FDA approval for SF-1019 and will have a material adverse effect on the
Company’s exclusive license from Argyll Biotech.
The
Company has been informed that Argyll Biotech has taken steps to prevent
distribution or export of SF-1019 for unapproved human use in any country,
including the United States. In addition, the Company has informed
all of its shareholders to discontinue all further promotion of SF-1019 that
does not comply with FDA regulations. The Company’s Board of
Directors has assumed responsibility for coordinating these controls with Argyll
Biotech and monitoring their implementation.
The
Company depends on Argyll Biotech’s ongoing research and growing intellectual
property portfolio to develop and protect technologies and
products.
Argyll
Biotech is developing pharmaceutical compositions directed to a new class of
biological response modifiers it refers to as immune cell proliferating factors
(“ICPF”). These factors, derived from mammalian cells, have shown
preliminary promise in laboratory testing by stimulating the immune system of
otherwise healthy, but infected test animals. SF-1019 is believed by
Argyll Biotech to contain one or more such factors and Argyll Biotech is
currently performing research to confirm this. Argyll Biotech is working
closely with one of the original developers of ICPF therapy, Professor Kenneth
Willeford, of Mississippi State University (“MSU”). Dr. Willeford is
a named inventor of a number of Argyll Biotech’s pending patent applications,
all of which are exclusively licensed by MSU to Argyll Biotech. US
Patent Application No. 10/825,603 (the “603 Application”), entitled “
Prophylactic and therapeutic
benefits of a new class of immune stimulating peptides
,” has recently
been allowed by the United States Patent and Trademark Office, and is expected
to issue in the second quarter of 2008.
Argyll
Biotech has transferred its worldwide rights to market and distribute SF-1019 to
Immunosyn by way of an exclusive licensing agreement. Argyll Biotech
and Immunosyn together intend to pursue regulatory approval for SF-1019 and
related technologies in the United States. Neither Immunosyn nor
Argyll can guarantee that any applications for additional patents will be
granted in the United States Patent and Trademark Office or in any other patent
offices, or that their proprietary compositions and/or treatments will receive
regulatory approval from the United States Food and Drug Administration or any
other regulatory body either within or outside the United States.
The
pharmaceutical industry places considerable importance on obtaining patent and
trade secret protection for new technologies, products and
processes. Argyll Biotech’s vigorous pursuit of patent protection
will be balanced with a prudent preservation of trade secrets, assertive
enforcement of intellectual property, and a sensible respect for the proprietary
rights of others. Predictions cannot be made at this time about
results that future research may yield with regard to SF-1019 and related
treatments, or about the viability of the prospective patent portfolio
surrounding this technology. Nevertheless, the Company’s success in
the biological response modifiers market will depend on Argyll Biotech’s ability
to obtain and enforce its intellectual property rights in the United States and
abroad for the products and treatments that the Company is continually
developing and that it intends to market and distribute.
Immunosyn’s
exclusive license from Argyll Biotech is the Company’s primary asset and the
exclusive license agreement, including, without limitation, the fee established
in that agreement, is between related entities and does not bear any
relationship to established or traditional methods of valuing such fees and, as
such, may be unfair to the Company.
Pursuant
to our exclusive license agreement with Argyll Biotech, the Company issued
147,000,000 shares of Common Stock to Argyll Biotech at par value of $0.0001 per
share in payment of the exclusive world-wide license rights to SF-1019 for a
term that will last for the later of 10 years from the date when SF-1019 is
first commercially sold or the date when the patent covering SF-1019 expires,
which in most jurisdictions is twenty years from the date of
filing. On October 25, 2007, Immunosyn entered into an Amended and
Restated License Agreement with Argyll Biotech. The amended license
agreement expands the grant of rights to Immunosyn to include the exclusive
worldwide right to market, sell, distribute and promote SF-1019 in its current
form for multiple uses including the treatment of any and all diseases and
pathological conditions (not just Chronic Inflammatory Demyelinating
Polyneuropathy (CIDP), Diabetic Neuropathy (DN) and diabetic ulcers
(DU)). Immunosyn is further granted the rights to any improvement of
SF-1019 and other compounds, which are developed under the same technology
platform and which are chemically similar to SF-1019. In conjunction,
Immunosyn also
obtained
an exclusive, worldwide license to all intellectual property owned by or
assigned to Argyll Biotechnologies, LLC for the purpose of marketing,
distribution, sale and promotion of SF-1019. Immunosyn continues to
have the right of first offer to enter into additional license agreements for
uses of other compounds that are developed and which are not already covered
under the amended license agreement. The exclusive license agreement
is between related entities, was not negotiated in an arms-length transaction,
and does not bear any relationship to established or traditional methods of
valuing such fees. Instead, the license rights were recorded at
Argyll Biotech’s cost basis of the underlying patents licensed to
Immunosyn.
Argyll
Biotech may use the proceeds from the sale of our Common Stock for purposes
other than the development and regulatory approval of SF-1019; the terms of
Immunosyn’s exclusive license agreement do not provide the Company with any
oversight or right to control Argyll Biotech’s use of such license
fees.
Argyll
Biotech reserves the right to use the cash and other proceeds it receives from
the sale of the Company’s stock received as payment of its license fee for
purposes other than development and regulatory approval of SF-1019, including
corporate purposes of its other affiliates. Furthermore, under the
terms of the exclusive license agreement between Argyll Biotech and Immunosyn,
the license fee was deemed earned by Argyll Biotech when Immunosyn issued its
shares of Common Stock and non-refundable, regardless of the true cost of
completing development and obtaining regulatory approval of
SF-1019. The Company has no right to control the proceeds received by
Argyll Biotech from its sale of the Company’s stock, and the Company has no
audit or other rights to require that all of these proceeds be applied solely to
the development and regulatory approval of SF-1019. If the amount
required to achieve these goals is less than the amount of the proceeds received
from Argyll Biotech’s sale of the Company’s stock, the Company will not be
entitled to any refund. In the event Argyll Biotech is unsuccessful
in completing product development or obtaining regulatory approval, the Company
has no right to make any claim with respect to Argyll Biotech’s use of the
proceeds.
Argyll
Biotech will be our sole supplier of SF-1019; the exclusive license agreement
provides that the cost of SF-1019 to Immunosyn shall be equal to 40%
of the “gross sale price” (as defined) of SF-1019 as sold to a third party
customer by Immunosyn. In the event Argyll Biotech succeeds in
obtaining regulatory approval for distribution and sale of SF-1019, Argyll
Biotech will be the sole supplier of SF-1019 to the Company. In the
event of any disruption in the manufacturing process of Argyll Biotech and its
contractors, the Company will have no other source for purchasing SF-1019 and
satisfying its customer commitments. Argyll Biotech will determine
the purchase price for SF-1019 in its reasonable discretion based on its
manufacturing costs, development expenses, overhead and customary industry
mark-up.
The
safety and efficacy profiles for SF-1019 that emerge from controlled clinical
trials may be substantially less favorable than in prior uncontrolled
observations of SF-1019’s precursors which may materially and adversely affect
our business.
Argyll
Biotech’s only data regarding the safety and efficacy of SF-1019 is based on
uncontrolled observations of a precursor to SF-1019 among a small group of
individuals, not SF-1019 itself. If and when formal and controlled
clinical trials are conducted using SF-1019 over broad populations and
geographic areas, it is possible that heretofore unknown adverse safety and
unfavorable efficacy effects may be observed, in which case the Company’s
ability to market SF-1019 for its intended use may be materially and
substantially affected or eliminated. Moreover, formal clinical
trials are expensive and Argyll Biotech may have severely underestimated the
cost of conducting and concluding such trials. If the Company is
unable to commence the marketing, distribution and sale of SF-1019 because
formal clinical trials reveal adverse safety or lack of efficacy information, or
if the clinical trials last longer or sustain substantially higher costs
than are currently projected, the Company’s business will be severely and
adversely diminished.
A
decrease in the projected prices that Immunosyn may charge for SF-1019 and the
level of third party reimbursement that Immunosyn may receive from third party
payors may adversely impact our business.
To the
extent that SF-1019 becomes approved for distribution in the United States or in
any foreign markets, Immunosyn’s ability to commercialize SF-1019 successfully
will depend in part on the price Immunosyn may charge for that product and on
the extent to which reimbursement for the cost of that product will be available
from government health administration authorities, private health insurance and
other third-party payers. Government officials and private health
insurers are increasingly challenging the price of medical products and
services. Significant uncertainty exists as to the pricing
flexibility which distributors will have with respect to newly approved health
care products as well as their reimbursement. There can be no
assurance that the Company’s assumptions concerning product pricing will be
achieved.
Third-party
payers may attempt to control costs further by selecting exclusive providers of
their pharmaceuticals products. If third-party payers were to make
this type of arrangement with one or more of Immunosyn’s competitors, those
payers would not reimburse patients for purchasing SF-1019.
Argyll
Biotech may not apply for or be successful in receiving orphan/special drug
status on any products.
Under the
Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to
treat a rare disease or condition. A disease or condition that
affects populations of fewer than 200,000 people in the United States generally
constitutes a rare disease or condition. Argyll Biotech may seek
orphan drug approval for certain aspects or treatment modalities of SF-1019 in
an attempt to get SF-1019 into the marketplace more quickly and
competitively. There can be no assurances that SF-1019 is entitled to
orphan drug status, that Argyll Biotech will proceed with this strategy or that,
if it does proceed, any orphan drug designation will be approved or
authorized.
If
Argyll Biotech fails to keep up with rapid technological change and evolving
therapies, the proprietary technologies that form the substance of SF-1019 could
become less competitive or obsolete.
The
pharmaceutical industry is characterized by rapid and significant technological
change. Immunosyn expects that pharmaceutical technology will
continue to develop rapidly and the Company’s future success will depend on
Argyll Biotech’s ability to develop and maintain a competitive
position. Technological development by others may result in products
developed by Argyll Biotech or the Company, both branded or generic, becoming
obsolete before they are marketed or before Immunosyn or Argyll Biotech recover
any portion of their expenses incurred with respect to such
product. Alternative therapies or new medical treatments could alter
existing treatment regimes, and thereby reduce the need for one or more of the
products developed by Argyll Biotech, which would adversely affect Immunosyn’s
business.
Many
of Immunosyn’s competitors have substantially greater capabilities and resources
and may be able to market products more effectively, which would limit
Immunosyn’s ability to generate revenue and cash flow.
Competition
in Immunosyn’s industry is intense. Potential competitors in the
United States and Europe are numerous and include pharmaceutical, chemical and
biotechnology companies, most of which
have
substantially greater capital resources, marketing experience, research and
development staffs and facilities than does Immunosyn. Among others,
Eli Lilly & Company and Wyeth Pharmaceuticals, Inc. market antidepressants,
and Pfizer, Inc. markets anticonvulsants that are prescribed for treating
diabetic neuropathy. In addition, Daval is also testing a caprine
serum product, called Aimspro, for treating multiple sclerosis and other
neurological disorders
Argyll
Biotech intends to seek to limit potential sources of competition by developing
products that are eligible for orphan drug designation and NDA approval or other
forms of protection, but Argyll Biotech’s and Immunosyn’s competitors may
develop similar technologies and products more rapidly or may market them more
effectively. Competing technologies or products may be more effective
than any of those that are being or will be developed by Argyll
Biotech.
Immunosyn
will depend on Argyll Biotech and other third parties for clinical testing of
SF-1019. Any disruption in such third party relationship could delay
the Company’s ability to distribute and market products on a timely basis or at
all.
Neither
Immunosyn nor Argyll Biotech currently has any internal product testing
capabilities. Argyll Biotech’s inability to retain third parties for
the clinical testing of products on acceptable terms, or at all, would adversely
affect their ability to develop, distribute and market products. It
will be Argyll Biotech’s responsibility to arrange for and supervise clinical
testing. Any failures by third parties to adequately perform their
responsibilities may delay the submission of products for regulatory approval,
impair Immunosyn’s ability to deliver products on a timely basis or otherwise
impair Immunosyn’s competitive position. The Company’s dependence on
third parties for the development of products may adversely affect its potential
profit margins and its ability to deliver products on a timely
basis.
Argyll
Biotech and Immunosyn will depend on others to manufacture their products and
any disruption in manufacturing could have a material adverse effect on our
business.
Argyll
Biotech and Immunosyn have never manufactured any products and SF-1019 may not
be suitable for commercial manufacturing in a cost-effective
manner. Manufacturers of products developed by Argyll Biotech will be
subject to current good manufacturing practices prescribed by the FDA and other
rules and regulations prescribed by applicable regulatory
authorities. Argyll Biotech may not be able to enter into or maintain
relationships either domestically or abroad with manufacturers whose facilities
and procedures comply or will continue to comply with current good manufacturing
practices or applicable foreign requirements. Failure by a
manufacturer to comply with current good manufacturing practices or applicable
foreign requirements could result in significant time delays or Immunosyn’s
inability to commercialize or continue to market a product and could have a
material adverse effect on Immunosyn’s sales of products and, therefore, its
cash flow.
In the
United States, failure to comply with current good manufacturing practices or
other applicable legal requirements can lead to federal seizure of violating
products, injunctive actions brought by the federal government and potential
criminal and civil liability on part of a company and its officers and
employees. Argyll Biotech’s or Immunosyn’s failure to satisfy any of
these legal requirements prior to attempting to market or distribute any
products will place the Company and its resources and assets at substantial
risk.
Immunosyn
has limited sales and marketing capability and may not be successful in selling
or marketing any products.
Immunosyn
currently has no sales and marketing capability. The creation of
infrastructure to commercialize medical products is a difficult, expensive and
time-consuming process. Immunosyn may
not be
able to establish direct or indirect sales and distribution capabilities
anywhere in the world or be successful in gaining market acceptance for any
products, including SF-1019.
Some
of the concepts that are inherent in Argyll Biotech’s technologies have been
known, in various forms, for several years, and at least one other party is
developing similar drug products based on those concepts which, if approved for
human use, may adversely affect Immunosyn’s exclusive license from Argyll
Biotech.
Some of
the basic biochemistry behind SF-1019, specifically the concept of using
extracts from caprine serum, is in the public domain. Because the
basic biochemistry may be in the public domain, third parties may be developing
similar technologies and techniques which would compete with
SF-1019. Argyll Biotech is aware of at least one potential
competitor, Daval, which is developing and/or marketing a product extracted from
caprine serum in the United Kingdom. Neither Argyll Biotech nor
Immunosyn can determine whether any other entities have made similar progress
with this biochemistry or if another competitor is currently poised to enter the
market with a competing product. In the event that this does occur,
the value of Immunosyn’s exclusive license from Argyll Biotech may be severely
diminished.
Third
parties may assert claims against Argyll Biotech and the Company for
infringement of patents and other intellectual property rights, which could harm
our business.
Parties
not affiliated with either Immunosyn or Argyll Biotech have obtained or may
obtain United States or foreign patents or possess or may possess proprietary
rights relating to products being developed or to be developed by Immunosyn or
Argyll Biotech. Patents now in existence or hereafter issued to
others may adversely affect the development or commercialization of products
developed or to be developed by Immunosyn or Argyll Biotech. Further,
Immunosyn’s or Argyll Biotech’s activities may infringe patents owned by
others. Under its exclusive license agreement, Argyll Biotech is
obligated to defend Immunosyn against charges of infringement that refer, relate
or pertain to Immunosyn’s marketing, sale and distribution of
SF-1019. Immunosyn and Argyll Biotech could incur substantial costs
in defending infringement suits brought against them or in asserting any
infringement claims against others, which they may not have the funds or
insurance to cover.
The
concept of using extracts from caprine serum to treat Acquired Immune Deficiency
Syndrome (AIDS), as well as other diseases, was pioneered by the late Dr. Gary
R. Davis. A number of applications and provisional applications for
patents have been filed on his behalf, including at least two provisional
applications whose status as of the date of this report is
undetermined. The late Dr. Davis executed a Technology Assignment
Agreement in favor of Argyll Biotech that purportedly transfers all of his
rights in his intellectual property related to the development of treatments for
AIDS. However, Argyll Biotech is also aware of previous assignments
by the late Dr. Davis to third parties covering his intellectual property, and
Argyll Biotech has not determined to what extent those assignments conflict with
or render the late Dr. Davis’ agreement with Argyll Biotech
invalid.
Argyll
Biotech is aware of the existence of several pending patent applications by a
prospective competitor, Daval, based on work previously conducted by some of
Argyll Biotech’s scientific consultants. It is the Company’s belief
that the invention disclosed in U.S. Patent Application No. 10/825,603 (the “603
Application”) licensed by Argyll Biotech is different from what is described in
these disclosures, regardless of whether these disclosures describe patentable
inventions. As of the date of this report, Argyll Biotech has not
received an opinion of non-infringement with respect to these patent claims nor
has any analysis been conducted to determine whether any of these disclosures,
or the prior work by the late Dr. Davis, cover Argyll Biotech’s development,
manufacture or sale of SF-1019.
On or
about July 27, 2006, Daval filed suit in the High Court of Justice, Chancery
Division in London, England against Argyll Biotech and five of Argyll Biotech’s
research scientists and others, including Douglas McClain, Sr., seeking an
injunction and damages or an account of profits based on allegations of breach
by the scientists and Mr. McClain of confidentiality agreements with Daval,
breaches by such persons of their fiduciary duties and conspiracy by Argyll
Biotech and certain of its shareholders to wrongfully disclose and use Daval’s
alleged trade secrets. Argyll Biotech has filed its defenses and
continues to investigate the merits of the suit and the basis of its defenses
including, among other grounds, that one of the active ingredients in SF-1019
disclosed in Argyll Biotech’s 603 Application is based on independent research
by Argyll Biotech’s research scientists, and the method of producing SF-1019 is
materially different from Daval’s process. The action is listed for
trial in the UK in January 2009. Immunosyn is not involved in this
litigation.
Immunosyn
could incur substantial costs in connection with any suits relating to matters
for which it may agree to indemnify Argyll Biotech. An adverse
outcome in any litigation could have a material adverse effect on Immunosyn’s
ability to market and distribute products or on Argyll Biotech to utilize
relevant patents in the future. In addition, Argyll Biotech or
Immunosyn could be required to obtain licenses under patents or other
proprietary rights of third parties. These licenses may not be made
available on terms acceptable to Argyll Biotech and Immunosyn, or at
all. If Argyll Biotech or Immunosyn is required to, and does not
obtain any required licenses, Argyll Biotech or Immunosyn could be prevented
from, or encounter delays in, developing, manufacturing or marketing SF-1019 or
other products.
SF-1019
and other products which may be marketed and distributed by the Company may be
subject to recall which would likely harm our business.
If
SF-1019 is approved for distribution and Immunosyn is successful in marketing
SF-1019, product recalls may be issued at Immunosyn’s or Argyll Biotech’s
discretion or by the FDA, the Federal Trade Commission or other government
agencies having regulatory authority over distribution and sales of
pharmaceutical products. The Company’s products may need to be
recalled due to disputed labeling claims, manufacturing issues, quality defects,
or other reasons. Under its exclusive license agreement, Argyll
Biotech is responsible for costs and activities relating to any recall of
SF-1019, and must defend, indemnify and hold Immunosyn harmless for, from and
against damages associated with those recalls. Product recalls, if
any in the future, may harm Argyll Biotech and Immunosyn’s reputations and cause
Argyll Biotech and Immunosyn to lose opportunities or customers, or force Argyll
Biotech and Immunosyn to pay refunds. Immunosyn does not carry any
insurance to cover the risk of potential product recall. Any product
recall will have a material adverse affect on Argyll Biotech and Immunosyn,
their prospects, financial condition and results of operations.
Argyll
Biotech and Immunosyn may face exposure from product liability claims and
product liability insurance may not be available or may not be sufficient to
cover the costs of liability claims related to their technologies or
products.
If
Immunosyn has a product in distribution, Argyll Biotech and Immunosyn will face
exposure to product liability claims if the use of SF-1019 is alleged to have
resulted in adverse effects to users of such products related to those
technologies. Product liability claims may also be brought by
clinical trial participants, although to date, no such claims have been brought
against Argyll Biotech and neither Argyll Biotech nor Immunosyn have any
knowledge of any such pending claims. If any such claims were brought
against Immunosyn or Argyll Biotech, the cost of defending such claims may
adversely affect Immunosyn’s or Argyll Biotech’s business.
Regulatory
approval for commercial sale of SF-1019 or any other products that the Company
intends to market and distribute does not mitigate product liability
risks. Any precautions that Argyll Biotech or Immunosyn takes may not
be sufficient to avoid significant product liability
exposure. Although Argyll Biotech anticipates obtaining product
liability and clinical trials insurance on their technologies and products at
levels with which their management deems reasonable, no assurance can be given
that this insurance will cover any particular claim or that Argyll Biotech has
or will have obtained an appropriate level of liability insurance coverage for
development activities.
If
SF-1019 is brought to market, Argyll Biotech and Immunosyn intend to seek up to
$3 million per year, claims-made product liability insurance
coverage. However, such coverage may not be adequate. In
the future, adequate insurance coverage or indemnification by collaborative
partners may not be available in sufficient amounts, or at acceptable costs, if
at all.
To the
extent that product liability insurance, if available, does not cover potential
claims, Argyll Biotech and Immunosyn will be required to self-insure the risks
associated with those claims. The successful assertion of an
uninsured product liability or other claim against Argyll Biotech or Immunosyn
could limit their ability to market and distribute any products or could cause
monetary damages. In addition, future product labeling may include
disclosure of additional adverse effects, precautions and contra indications,
which may adversely impact product sales.
If
Argyll Biotech loses key management or scientific staff, or if Immunosyn or
Argyll Biotech are unable to protect their respective rights in their trade
secrets, the Company’s business will suffer.
Immunosyn
is entirely dependent on Argyll Biotech’s scientific consultants for
continuation and completion of all testing and development of
SF-1019. Argyll Biotech’s scientific consultants and advisory staff
members have accepted profit and incentive packages and formal consulting
arrangements have been either accepted or are under negotiation. Such
persons maintain positions of management and are responsible for all drug
development activities relating to SF-1019 and have been instrumental in the
development and maintenance of key relationships within the scientific research
and medical communities as well as with inventors, co-development partners and
others. Nonetheless, Immunosyn has no management or other control
over those persons or any of their activities, and their failure to accomplish
any goals established for Argyll Biotech or Immunosyn will substantially and
adversely affect Immunosyn’s business prospects.
Immunosyn
and Argyll Biotech also rely upon the maintenance of trade secret protection for
confidential and proprietary information. Others may independently
develop substantially equivalent proprietary information and techniques or gain
access to both our trade secrets or disclose Argyll Biotech’s proprietary
technology. Immunosyn and Argyll Biotech may not be able to
meaningfully protect their trade secrets, which could limit Immunosyn’s ability
to benefit from its exclusive license to market and distribute SF-1019 for its
intended uses.
Immunosyn
requires, and has been informed that Argyll Biotech requires, their respective
employees, consultants, members of the scientific advisory board and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment or consulting relationships. These
agreements may not provide meaningful protection of relevant trade secrets or
adequate remedies in the event of unauthorized use or disclosures of
confidential and proprietary information.
The
Company’s management and internal systems might be inadequate to handle its
potential growth.
The
Company’s success will depend in significant part on the development of its
operations and the effective management of growth. Any growth will
place a significant strain on the Company’s systems and resources. To
manage future growth, the Company’s management must build operational and
financial systems and expand, train, retain and manage its employee
base. The Company’s management may not be able to manage its growth
effectively if its systems, procedures, controls and resources are inadequate to
support operations. In such case, the Company’s expansion would be
halted or delayed and the Company may lose its opportunity to gain significant
market share or the timing with which it would otherwise gain significant market
share. Any inability to manage growth effectively may harm the
Company’s ability to institute its current or any subsequent business
plans. The strain on the Company’s systems, procedures, controls and
resources is further heightened by the fact that its executive offices and the
operational development facilities of Argyll Biotech are located in separate
time zones, namely, San Diego, California, Chicago, Illinois, Hardwick,
Massachusetts, and London, England.
To
the extent that Argyll Biotech and the Company have international operations, it
will be subject to risks associated with conducting business in foreign
countries.
The
Company expects to have rights to market, distribute and sell SF-1019 in
territories outside of the United States to the extent that SF-1019 will be
approved by local regulatory authorities for distribution in such
territories. To the extent that it develops these international
operations, the Company and Argyll Biotech will be subject to the risks of
conducting business in foreign countries including:
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difficulty
in establishing or managing distribution
relationships;
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different
standards for the development, use, packaging, pricing and marketing of
products and technologies;
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inability
to locate qualified local employees, partners, distributors and
suppliers;
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the
potential burden of complying with a variety of foreign laws, trade
standards and regulatory requirements, including the regulations of
pharmaceutical products and treatment and foreign intellectual property
laws and regulations; and
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general
geopolitical risks, such a political and economic instability, changes in
diplomatic and trade relations, and foreign currency
risks.
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The
Company does not expect to engage in forward currency transactions, which means
that the Company may be susceptible to fluctuations in the United States dollar
against foreign currencies.
Clinical
trials for SF-1019 will be expensive and time consuming, and their outcome is
uncertain. Any delay or other factor which negatively affects Argyll
Biotech’s ability to fund clinical trials will adversely affect the Company’s
operations and revenues.
Before
obtaining regulatory approval for the commercial sale of a product, Argyll
Biotech must demonstrate through pre-clinical testing and clinical trials that
SF-1019 is safe and effective for use in humans. Conducting clinical
trials is a lengthy, time-consuming and expensive process. The
proceeds received by Argyll Biotech from sale of the Common Stock issued by
Immunosyn in payment for the exclusive license are anticipated to pay only a
minor part of these expenses, and it is almost certain that those proceeds will
not be adequate to cover the entire amount of testing and trials that will be
required. In addition, we cannot assure that such license fees will
be utilized to pay for clinical trials for SF-1019.
In
addition, regulatory authorities may require additional clinical trials, which
could result in increased costs and significant development delays.
Completion
of clinical trials for any product, including SF-1019, will generally take
several years or more. The length of time varies substantially
according to the type, complexity, novelty and intended use of the product
candidate. Argyll Biotech’s commencement and rate of completion of
clinical trials may be delayed or affected by many factors,
including:
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inability
of vendors to manufacture sufficient quantities of materials for use in
clinical trials;
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slower
than expected rate of patient recruitment of variability in the number and
types of patients in a study;
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inability
to adequately follow patients after
treatment;
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safety
issues, side effects or other adverse
effects;
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lack
of efficacy during the clinical trials;
and
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government
or regulatory delays.
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Any delay
in the commencement or completion of testing and trials will result in
additional delays in Immunosyn’s ability to market and distribute SF-1019, which
will adversely affect Immunosyn’s ability to generate any revenues.
SF-1019
or its variants may never be successfully commercialized.
SF-1019
or its variants are not expected to be available for commercial sale for at
least two years, if at all. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons, including:
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discovery
during pre-clinical testing or clinical trials that the products are
ineffective or cause harmful side
effects;
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failure
to receive necessary regulatory
approvals;
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inability
to manufacture on a large or economically feasible
scale;
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failure
to achieve market acceptance; and
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preclusion
from commercialization due to proprietary rights of third
parties.
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Any
products and technologies, including SF-1019, developed by Argyll Biotech will
require extensive additional development, including pre-clinical testing and
clinical trials, as well as regulatory approvals, prior to
commercialization. Argyll Biotech’s product development efforts may
not be successful; may fail to receive required regulatory approvals from United
States or foreign authorities for any indication; and any products, if
introduced, may not be capable of being produced in commercial quantities at
reasonable costs or being successfully marketed. The failure of
Argyll Biotech’s research and development activities to result in any
commercially viable products or technologies would materially adversely affect
Immunosyn’s future prospects, as those prospects are linked entirely to Argyll
Biotech’s success through the exclusive license between the two
companies.
The
industry in which we operate is subject to extensive government regulation and
SF-1019 requires regulatory approvals, which makes it more expensive for us and
Argyll Biotech to operate our businesses.
Virtually
all aspects of Immunosyn’s and Argyll Biotech’s business are regulated by
federal and state statutes and governmental agencies in the United States and
other countries. Failure to comply with applicable statutes and
government regulations could have a material adverse affect on Immunosyn’s and
Argyll Biotech’s ability to develop and sell SF-1019, which will have a negative
impact on Immunosyn’s cash flow. The development, testing,
manufacturing, processing, quality, safety, efficacy, packaging, labeling,
record-keeping, distribution, storage and advertising of pharmaceutical
products, and disposal of waste products arising from these activities, are
subject to regulation by one or more federal agencies. These
activities are also regulated by similar state and local agencies and equivalent
foreign authorities. Even if regulatory approval is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections. Subsequent discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on the product or manufacturer, including withdrawal of the
product from the market.
The
regulatory requirements applicable to any product may be modified in the
future. Immunosyn cannot determine what effect changes in regulations
or statutes or legal interpretations may have on its or Argyll Biotech’s
business in the future. Regulatory changes could require
modifications to manufacturing methods, expanded or different labeling, the
recall, replacement or discontinuation of certain products, additional record
keeping and expanded documentation of the properties of certain products and
scientific substantiation. Any changes or new legislation could have
a material adverse effect on Argyll Biotech’s or Immunosyn’s ability to develop
and sell SF-1019 and therefore, generate revenue and cash flow.
Even
after Argyll Biotech expends substantial resources on research, clinical
development and the preparation and processing of regulatory applications, it
may not be able to obtain regulatory approval for any of the products that
Immunosyn intends to license from it. Moreover, regulatory approval
for marketing a proposed pharmaceutical product in any jurisdiction may not
result in similar approval in other jurisdictions. The failure to
obtain and maintain regulatory approvals for SF-1019 would have a material
adverse effect on Immunosyn’s ability to distribute and sell products and,
therefore, generate revenue and cash flow.
The
Company may be exposed to potential risks relating to our internal controls over
financial reporting and our ability to have the operating effectiveness of our
internal controls attested by our independent auditors.
As
directed by Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX 404”), the SEC
adopted rules requiring public companies to include a report of management on
the company’s internal controls over financial reporting in their annual
reports, including in their Form 10-KSB. We are subject to this
requirement commencing with our fiscal year ending December 31, 2007 and a
report of our management is included under Item 8A(T) of this Annual Report on
Form 10-KSB. In addition, SOX 404 requires the independent registered
public accounting firm auditing a company’s financial statements to also attest
to and report on the operating effectiveness of such company’s internal
controls. However, this annual report does not include an attestation
report because, under current law, we will not be subject to these requirements
until our annual report for the fiscal year ending December 31,
2008. We can provide no assurance that we will comply with all of the
requirements imposed thereby. There can be no assurance that we will
receive a positive attestation from our independent auditors. In the
event we identify significant deficiencies or material weaknesses in our
internal controls that we cannot remediate in a timely manner or we are unable
to receive a positive attestation from our independent auditors
with
respect
to our internal controls, investors and others may lose confidence in the
reliability of our financial statements.
Risks Related to the
Company’s Securities
There
is not now nor may there ever be an active market for the Company’s Common
Stock.
The
Company’s Common Stock is currently quoted on the Over-The-Counter Bulletin
Board. Trading of the Company’s Common Stock on such exchange has
been light and sporadic. Further, although the Company intends to
seek to have its Common Stock listed on the NASDAQ Capital Market in the future,
it can make no representation nor provide any assurance that its Common Stock
will ever be able to meet the initial listing standards of this or any other
stock exchange. Even if the Company’s Common Stock becomes listed on
the NASDAQ Capital Market, at any given time, several days or weeks may elapse
with no trading whatsoever of the Common Stock. The Company is
providing no assurances of any kind or nature whatsoever that an active market
for its Common Stock will ever develop. Any investor in the Company
should understand that there may be no alternative exit strategy for them to
recover or liquidate their investments in the Common
Stock. Accordingly, investors must be prepared to bear the entire
economic risk of an investment in the Common Stock for an indefinite period of
time.
Additional
uncertainty will be experienced with respect to the price of the Common Stock
because the Company is a biotechnology entity and the market price of the
securities of biotechnology companies is especially volatile. The
Company is in the development stage. If the Company’s operations do
not develop and its revenues do not grow or grow more slowly than the Company
anticipates, if operating or capital expenditures exceed the Company’s
expectations and cannot be adjusted accordingly or if some other event adversely
affects the Company, the market price of its Common Stock will
decline.
Even
if the Company were to become a NASDAQ Capital Market company, it may not be
able to attract the attention of major brokerage firms or securities
analysts.
Security
analysts and major brokerage houses may not provide coverage of the
Company. The Company may also not be able to attract any brokerage
houses to conduct secondary offerings and other capital raising transactions
with respect to its securities. The Company’s business and ability to
continue as a going concern would be adversely affected if it is unable to raise
funds.
Immunosyn
has never paid dividends and has no plans to pay dividends at any time in the
near or distant future.
Immunosyn
has never paid dividends on its capital stock, and the Company does not
anticipate paying any dividends for the foreseeable or distant
future. The Company’s present business plan does not include, for the
foreseeable future and beyond, any payments of dividends to
stockholders. Stockholders’ sole strategy for any return on their
investments will be the potential for the increase in the value of their stock
and the possibility of liquidating their stock positions.