Company Overview
We are a biotechnology company developing novel
adult stem cell therapies for debilitating neurodegenerative disorders such as Amyotrophic Lateral Sclerosis (“ALS”,
also known as Lou Gehrig’s disease), Multiple Sclerosis (“MS”), and Parkinson’s disease (“PD”)
among others. These diseases for the most part have no or limited treatment options and as such represent unmet medical needs.
We believe that NurOwn®, our proprietary process for the propagation of Mesenchymal Stem Cells (“MSC”) and their
differentiation into neurotrophic factor-(“NTF”) secreting cells (“MSC-NTF”), and their transplantation
at, or near, the site of damage, offers the hope of more effectively treating neurodegenerative diseases. Our core technology was
developed in collaboration with Prof. Daniel Offen of the Felsenstein Medical Research Center of Tel Aviv University, and the late
Prof. Eldad Melamed, who passed away in October 2015, and was former head of Neurology of the Rabin Medical Center and former member
of the Scientific Committee of the Michael J. Fox Foundation for Parkinson's Research. Our wholly-owned Israeli subsidiary, Brainstorm
Cell Therapeutics Ltd. (the “Israeli Subsidiary”), holds rights to commercialize the technology, through a licensing
agreement with Ramot at Tel Aviv University Ltd. (“Ramot”), the technology transfer company of Tel Aviv University,
Israel. We currently employ 22 employees in Israel and 2 in the United States.
Our Proprietary Technology
Our NurOwn® technology is based on a novel
differentiation protocol which induces differentiation of the bone marrow-derived mesenchymal stem cells into neuron-supporting
cells, MSC-NTF cells, capable of releasing several neurotrophic factors, including Glial-derived neurotrophic factor (“GDNF”),
Brain-derived neurotrophic factor (“BDNF”), Vascular endothelial growth factor (“VEGF”) and Hepatocyte
growth factor (“HGF”) which are critical for the growth, survival and differentiation of developing neurons. GDNF is
one of the most potent survival factors known for peripheral neurons. VEGF and HGF have been reported to have important neuro-protective
effects in ALS and in other neurodegenerative diseases.
Our approach to treatment of neurodegenerative
diseases with autologous adult stem cells includes a multi-step process beginning with harvesting of undifferentiated stem cells
from the patient's own bone marrow, and concluding with transplantation of differentiated, neurotrophic factor-secreting mesenchymal
stem cells (MSC-NTF) into the same patient – intrathecally and/or intramuscularly. Intrathecal (injection into the cerebrospinal
fluid) transplantation consists of injection by a standard lumbar puncture; there is no need for a laminectomy, which is an invasive,
orthopedic spine operation to remove a portion of the vertebral bone, as required by technologies in which cells are implanted
directly into the spinal cord. Intramuscular (injection directly into muscle) transplantation is performed via a standard injection
procedure as well.
Our proprietary technology and knowhow –the
production process for induction of differentiation of human bone marrow derived mesenchymal stem cells into differentiated cells
that produce NTF (MSC-NTF) for clinical use - is conducted in full compliance with current Good Manufacturing Practice (“cGMP”).
Our proprietary technology is licensed to and developed by our Israeli
Subsidiary.
The NurOwn
®
Transplantation Process
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Bone marrow aspiration from patient;
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Isolation and propagation of the mesenchymal stem cells;
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Differentiation of the mesenchymal stem cells into neurotrophic-factor secreting (MSC-NTF) cells; and
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Autologous transplantation into the patient’s spinal cord and/or muscle tissue.
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Differentiation before Transplantation
The ability to induce differentiation of autologous
adult mesenchymal stem cells into MSC-NTF cells
before
transplantation is unique to NurOwn®, making it the
first-of-its-kind for the treatment of neurodegenerative diseases.
The specialized cells secrete neurotrophic
factors that may lead to:
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Protection of existing motor neurons;
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Promotion of motor neuron growth; and
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Re-establishment of functional nerve-muscle interaction.
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Autologous (Self-transplantation)
The NurOwn® approach is autologous, or
self-transplanted, using the patient’s own stem cells. In autologous transplantation there is no risk of rejection and no
need for treatment with immunosuppressive agents, which can cause severe and/or long-term side effects. In addition, the use of
adult stem cells is free of controversy associated with the use of embryonic stem cells in some countries.
The ALS Program
NurOwn® is in clinical development for
the treatment of ALS. It has been granted Fast Track designation by the U.S. Food and Drug Administration (the “FDA”)
for this indication, and has been granted Orphan Status in both the United States and in Europe. We have completed two clinical
trials of NurOwn® in patients with ALS at Hadassah Medical Center (“Hadassah”) in collaboration with Professor
Dimitrios Karussis, who served as the principal investigator on these studies. We also have an agreement with Hadasit Medical Research
Services and Development Ltd., a subsidiary of the Hadassah Medical Organization, pursuant to which Hadassah provides the Israeli
Subsidiary with lab services relating to studies of NurOwn®. The first study, a Phase 1/2 safety and efficacy study of NurOwn®
in ALS patients administered either intramuscularly or intrathecally, was initiated in June 2011 after receiving approval from
the Israeli Ministry of Health (“MoH”). In March 2013, Professor Karussis presented some of the data from this trial
at the American Academy of Neurology Annual Meeting. The trial results demonstrated the safety of NurOwn® as well as signs
of efficacy on both the ALS Functional Rating Score (“ALSFRS-R”) and Forced Vital Capacity (“FVC”).
In January 2013, the Israeli MoH approved the
second study, a Phase 2a combined (intramuscular and intrathecal) treatment, dose-escalating trial, which we also conducted at
Hadassah in collaboration with Prof. Karussis. On September 27, 2013, we announced that we had completed treatment of 12 patients
in our ALS Phase 2a NurOwn® dose-escalating clinical trial. An interim safety summary for the first 12 patients in the study
was submitted to the Hadassah Medical Center Ethical Committee about two month after transplantation of the 12th patient. On December
10, 2013, we announced that Prof. Karussis presented some of his preliminary findings from this trial at the 24
th
International
Symposium on ALS/MND in Milan, Italy. In June 2014, Professor Karussis presented interim data from this study at the Joint Congress
of European Neurology in Istanbul, Turkey. The last follow-up visits in this study occurred in September 2014. On January 5, 2015,
the Company presented final top line data from this study in a press release and investor conference call. The results of this
study confirmed the safety profile observed in the earlier Phase 1/2 trial, with the vast majority of adverse events being low-grade
and transient. There were two deaths and two serious adverse events, all of which were deemed by the investigators to be unrelated
to treatment. Subjects in this study showed a meaningful reduction in the rate of disease progression for the three and six months
after treatment, compared to the three months prior to treatment.
In January 2016, the Company announced that the results of the two
completed studies were published in the Journal of the American Medical Association (JAMA) Neurology medical journal. The
results of these studies show that NurOwn
®
can slow disease progression in ALS.
In December 2013, the Company submitted an
Investigational New Drug (“IND”) application to the FDA for NurOwn® in ALS, and on April 28, 2014, we initiated
an FDA-approved randomized, double-blind, placebo controlled multi-center U.S. Phase 2 clinical trial evaluating NurOwn® in
ALS patients. The trial was conducted at the Massachusetts General Hospital (MGH) in Boston, Massachusetts, at the University
of Massachusetts Memorial Hospital (UMass) in Worcester, Massachusetts and at the Mayo Clinic in Rochester, Minnesota. The Principal
Investigators for the study were Drs. Merit Cudkowicz and James Berry at MGH, Dr. Robert Brown, at UMass and Dr. Anthony Windebank
and Dr. Nathan Staff, at the Mayo clinic. For this study, NurOwn® was manufactured at the Connell and O’Reilly Cell
Manipulation Core Facility at the Dana Farber Cancer Institute in Boston, Massachusetts and at the Human Cellular Therapy Lab
at the Mayo Clinic. In the study 48 patients were randomized 3:1 to receive NurOwn® or placebo.
In February 2015, the Company announced that
the Data Safety Monitoring Board (“DSMB”) for the multi-center U.S. Phase 2 clinical trial reviewed the safety data
collected through a cutoff date in January 2015, and did not find any significant lab abnormalities, adverse events or significant
protocol deviations that would be cause for concern and therefore approved continuation of the trial as planned.
On August 11, 2015, the Company announced that
it had completed enrollment achieving the target of 48 subjects to be enrolled in its ongoing randomized, double-blind placebo-controlled
Phase 2 clinical trial of NurOwn® in ALS. In November 2015, the Company announced that the DSMB for the multi-center
U.S. Phase 2 clinical trial reviewed the safety data collected through a cutoff date in October 2015, which included 47 of the
48 patients enrolled in the study. No treatment-related serious adverse events (SAEs) were reported for the study. Furthermore,
the DSMB did not identify any significant adverse events, lab abnormalities or significant protocol deviations that would be cause
for concern.
In January 2016, the Company announced the
publication of a paper in the January 2016 edition of JAMA Neurology discussing the outcome of the first in
man Phase 1/2 study and Phase 2 dose escalation study with NurOwn® in ALS. The data provide indication of clinically meaningful
benefit as reflected by a slower rate of disease progression in the period post treatment, as well as a positive trend on two novel
biomarkers, rate of decline of muscle volume and of compound motor axon potential (CMAPs). These are the first published clinical
data with stem cells that have been induced under culture conditions to produce NTFs, with the potential to achieve a neuroprotective
effect in ALS and modify the course of disease.
In April 2016 the Company presented
combined results of the Phase 1/2 and Phase 2a clinical studies that investigated NurOwn in ALS at the ISRASTEM 2016 and 6th Israel
Stem Cell Society (ISCS) joint annual meeting which took place in Tel Aviv, Israel.
In May 2016 the Company announced that for
the ninth consecutive year its wholly-owned subsidiary, Brainstorm Cell Therapeutics Ltd., was awarded a new grant of approximately $1,470,000 from Israel's Office
of the Chief Scientist (OCS). The Office of the Chief Scientist, is part of the Ministry of Economy Program to
support innovative technologies in Israel. The funds will support the development of NurOwn
®
Phase 2 clinical
program in ALS.
In July 2016 the Company announced topline
data from the recently completed U.S. randomized, double-blind, placebo-controlled phase 2 Study of NurOwn® in Patients with
ALS. The data confirms that the study achieved its primary objective, demonstrating that NurOwn
®
was safe and well
tolerated. NurOwn
®
also achieved multiple secondary efficacy endpoints, showing clear evidence of a clinically
meaningful benefit. Notably, response rates were higher for NurOwn
®
-treated subjects compared to placebo at
all time points in the study out to 24 weeks.
In October 2016, some of the Company's topline
phase 2 ALS clinical trial results were presented by Dr. Robert Brown and Dr. James Berry, at the 15th Annual Meeting of the Northeast
ALS Consortium (NEALS).
In October 2016 the Company announced that
it has been granted United States Patent No. 9,474,787 titled "Mesenchymal Stem Cells for the Treatment of CNS Diseases.
"The allowed claims cover mesenchymal stem cells that secrete neurotrophic factors, including brain-derived neurotrophic factor
(BDNF) and glial derived neurotrophic factor (GDNF), as well as a pharmaceutical compositions comprising these factors.
In December 2016 the Company announced that
data from the Company's Phase 2 study of NurOwn
®
in ALS, would be highlighted in presentations at the 27th International
Symposium on ALS/MND, being held December 7-9, 2016 in Dublin, Ireland. The new data from the Company's Phase 2
study of NurOwn® in ALS were presented by lead investigator Dr. James Berry. In the Phase 2 trial, levels of neurotrophic
factors and inflammatory markers were measured in cerebral-spinal fluid (CSF) samples collected from patients. In the samples
of those patients treated with NurOwn, a statistically significant increase in levels of neurotrophic factors VEGF, HGF and LIF
was observed from pre- to post-transplantation. There was also a statistically significant reduction in inflammatory markers
(MCP-1 and SDF-1) over this period, in patients treated with NurOwn® and this was not observed in the placebo group. Dr.
Berry also presented the pre-specified responder analyses from the Phase 2 trial which examined percentage improvements in post
treatment of Amyotrophic Lateral Sclerosis Functional Rating Scale (ALSFRS-R) slope compared to pre-treatment slope. These analyses
showed that, in the NurOwn® treated group, a greater number of patients achieved the high threshold of 100% improvement
in the post-treatment vs. pre-treatment slope, compared with the placebo group. The definition of these responders is that
their disease symptoms were essentially halted for the period of the treatment effect or they achieved a positive improvement on
their ALSFRS-R score. Moreover, in the pre-specified subgroup that was defined in order to exclude subjects whose disease
was progressing slowly, this effect was even more pronounced. Dr. Berry's presentation was posted on the Company website.
In December 2016 the Company announced that
it had recently completed a successful End-of-Phase 2 Meeting with the United States Food and Drug Administration (FDA).
The Company reached general agreement with the FDA to proceed to a Phase 3 trial. Importantly, the FDA accepted
the key elements of the Phase 3 program to support a Biologic License Application (BLA) for NurOwn® in ALS. The planned
Phase 3 clinical trial will be a randomized, double-blind, placebo-controlled multi-dose trial that will be conducted at multiple
sites in the U.S. and in Israel. The trial is expected to begin enrolling patients in the second quarter of 2017.
The Company also announced that it plans to
apply for Hospital Exemption for NurOwn® in Israel that will allow patient access to NurOwn® as a treatment
that has been granted Hospital Exemption. This recently approved pathway would permit the Company to partner with a medical center
in Israel and be allowed to treat patients with NurOwn® for a fee. Hospital Exemption allows for advanced
therapy medicinal products to be made available to a group of patients to be agreed upon by the Israeli Ministry of Health.
It is intended to provide patients with the possibility to benefit from a custom-made, innovative, individual treatment where there
is a critical unmet need and an absence of valid therapeutic alternatives. The treatment is usually a custom-made product, such
as NurOwn®, manufactured using a patient's own cells that are prepared on a non-routine basis. In order to qualify for
a Hospital Exemption, a number of important criteria must be met including preparation according to specific quality standards
(equivalent to those for a licensed product), use in a hospital and use under the exclusive responsibility of a medical practitioner.
In January 2017 the Company announced that
it had validated its cryopreservation process for NurOwn® in preparation for the upcoming Phase 3 clinical study in ALS.
The validation involved a comparison of NurOwn® (MSC-NTF cells) derived from fresh mesenchymal stem cells (MSC)
to those derived from cryopreserved MSC. Company scientists were successful in showing that the MSC can be stored in the
vapor phase of liquid nitrogen for prolonged periods of time while maintaining their characteristics. The cryopreserved MSC
are capable of differentiating into NurOwn®, similar to the NurOwn
®
derived from fresh MSC of the same
patient/donor, prior to cryopreservation. This will allow the Company to provide repeated doses of autologous NurOwn® from
a single bone marrow aspirate in its upcoming multidose clinical trial. Cryopreservation will avoid the need for patients to undergo
repeated bone marrow aspirations.
In February 2017 the Company announced that
it plans to contract with City of Hope's Center for Biomedicine and Genetics to produce clinical supplies of NurOwn®
adult stem cells for the company's planned randomized, double-blind, multi-dose Phase 3 clinical study in patients with ALS.
City of Hope is expected to support all U.S. medical centers that will be participating in the Phase 3 trial.
In February 2017 the Company announced that
it has signed an agreement with CCRM, a Toronto-based leader in developing and commercializing regenerative medicine technologies,
and cell and gene therapies, to support the market authorization request for NurOwn®. At this time, CCRM is helping
the Company explore the opportunity to access Health Canada's early access pathway for treatment of patients with ALS.
If NurOwn® qualifies for Health Canada's "Notice of Compliance with Conditions" pathway it could be authorized
in Canada for distribution in early 2018.
In March 2017 the Company announced that it
has signed a Memorandum of Understanding (MOU) with The Medical Research, Infrastructure, and Health Services Fund of
the Tel Aviv Sourasky Medical Center (Ichilov Hospital) to explore the possibility of making NurOwn® available to Amyotrophic
Lateral Sclerosis (ALS) patients under the provisions of Hospital Exemption regulation. The MOU also covers the participation
of Tel Aviv Sourasky Medical Center in the planned Phase 3 trial that will investigate NurOwn in ALS. The
MOU sets forth the basic terms under which the Company]and Tel Aviv Sourasky Medical Center would work together to submit
an application to the Israeli Ministry of Health that will allow patient access to NurOwn and is subject to a definitive agreement.
The agreement is expected to be formalized in the first half of 2017.
Future development of NurOwn® in ALS will require additional
clinical trials, including a Phase 3 FDA-approved multi dose trial.
Future Development Plans
In addition to its
active clinical program in ALS, the Company is focusing on further in-depth molecular characterization of NurOwn® and its adaptation
to additional indications. The Company is reviewing the potential clinical development of NurOwn® in other neurodegenerative
disorders, such as Parkinson’s disease, Huntington’s disease, and multiple sclerosis. More research is currently being
done on developing an additional product
which
might be suitable for many neurodegenerative diseases.
In addition, the Company is engaged in a number
of research initiatives to improve the scale and efficiency of NurOwn® production and to improve the stability of NurOwn®,
which is currently produced in clean room facilities close to the clinical trial sites, where the cells are administered to patients.
In January 2013, we announced the development of a proprietary method for cryopreservation, or freezing, of cells, which will enable
long-term storage, and production of repeat patient doses of NurOwn® without the need for additional bone marrow aspirations.
We believe that cryopreservation will enable us to create a personalized NurOwn® stem cell bank for each patient, for ongoing,
repeated treatments. We are planning to use cryopreserved cells in the upcoming Phase 3 clinical trial that will involve administration
of multiple doses of NurOwn®.
Corporate Information
We are incorporated under the laws of the
State of Delaware. Our principal executive offices are located at 3 University Plaza Drive, Suite 320, Hackensack, NJ 07601, and
our telephone number is (201) 488-0460. We maintain an Internet website at
http://www.brainstorm-cell.com
.
The information on our website is not incorporated into this Annual Report on Form 10-K.
History
The Company was incorporated under the laws
of the State of Washington on September 22, 2000, under the name Wizbang Technologies, Inc. and acquired the right to market and
sell a digital data recorder product line in certain states in the U.S. Subsequently, the Company changed its name to Golden Hand
Resources Inc. On July 12, 2004, the Company entered into a research and license agreement with Ramot to acquire certain stem cell
technology and decided to discontinue all activities related to the sales of the digital data recorder product. In November 2004,
the Company changed its name from Golden Hand Resources Inc. to Brainstorm Cell Therapeutics Inc. to better reflect its new line
of business in development of novel cell therapies for neurodegenerative diseases. In October 2004, the Company formed its wholly-owned
subsidiary, Brainstorm Cell Therapeutics Ltd. in Israel. On December 18, 2006, the stockholders of the Company approved a proposal
to change the state of incorporation of the Company from the State of Washington to the State of Delaware. The reincorporation
was completed on December 21, 2006 through the merger of the Company into a newly formed, wholly-owned Delaware subsidiary, also
named Brainstorm Cell Therapeutics Inc. On February 19, 2013, the Israeli Subsidiary formed its wholly-owned subsidiary, Brainstorm
Cell Therapeutics UK Ltd. in the United Kingdom (the “UK Subsidiary”). A reverse stock split of the Company’s
shares of Common Stock by a ratio of 1-for-15 was effected on September 15, 2014 at 11:59 p.m. pursuant to an amendment to the
Company’s Certificate of Incorporation approved by the stockholders of the Company on August 14, 2014. Unless otherwise indicated,
all share numbers and exercise prices in this Annual Report on Form 10-K are split-adjusted.
The Company’s shares of Common Stock
were approved for uplisting to the NASDAQ Capital Market, and commenced trading on the NASDAQ Capital Market when trading began
on September 30, 2014. The Company’s Common Stock trades under the ticker symbol “BCLI.”
Recent Developments
Chief Operating
Officer and Chief Medical Officer
The Company appointed
Dr. Ralph Kern, MD, as its Chief Operating Officer and Chief Medical Officer effective March 6, 2017.
On February 28, 2017,
the Company and Dr. Ralph Kern entered into an employment agreement, effective March 6, 2017 (the “Effective Date”),
which sets forth the terms of Dr. Kern’s employment (as amended by Amendment No. 1 dated March 3, 2017, the “Agreement”).
Pursuant to the Agreement, Dr. Kern will be paid an annual salary of $500,000 (the “Base Salary”), which may be increased
(but not decreased) at the sole discretion of the Board of Directors of the Company (the “Board”). Dr. Kern will
also be eligible to receive an annual cash bonus equal to 30% of his base salary, subject to his satisfaction of pre-established
performance goals to be mutually agreed upon by the Board and Dr. Kern. Performance shall be evaluated through a performance management
framework and a bonus range based on the target bonus. Dr. Kern will also receive other benefits that are generally made available
to the Company’s employees.
Pursuant to the Agreement,
Dr. Kern received on March 6, 2017, and is entitled to receive on each anniversary thereafter, a grant of restricted stock under
the Company’s 2014 Stock Incentive Plan (or any successor or other equity plan then maintained by the Company) comprised
of a number of shares of common stock of the Company, $0.00005 par value (“Common Stock”) with a fair market value
(determined based on the price of the Common Stock at the end of normal trading hours on the business day immediately preceding
the Effective Date according to Nasdaq) equal to 30% of Dr. Kern’s Base Salary (each, an “Equity Grant”). Each
Equity Grant shall vest as to twenty-five percent (25%) of the award on each of the first, second, third and fourth anniversary
of the date of grant, provided Dr. Kern remains continuously employed by the Company from the date of grant through each applicable
vesting date. Each Equity Grant shall be subject to accelerated vesting upon a Change of Control (as defined in the Agreement)
of the Company. In the event of Dr. Kern’s termination of employment, any portion of an Equity Grant that is not yet vested
(after taking into account any accelerated vesting) shall automatically be immediately forfeited to the Company, without the payment
of any consideration to the Executive.
Pursuant to the Agreement,
on March 6, 2017, Dr. Kern also received an option (the “Option”) under the Company’s 2014 Stock Incentive Plan
to purchase up to an aggregate number of shares of Common Stock with a fair market value (as determined based on the closing price
of the Common Stock at the end of normal trading hours on the business day immediately preceding the date of grant according to
Nasdaq) of $200,000 on the Effective Date. The Option is fully vested and exercisable as of the date of grant and shall remain
exercisable until the 2
nd
anniversary of the date of grant, regardless of whether Dr. Kern remains employed by
the Company. The exercise price per share shall be equal to the fair market value on the date of grant (as determined based on
the price of the Common Stock immediately preceding normal trading hours on the date of grant according to Nasdaq).
The Agreement contains termination provisions,
pursuant to which if the Company terminates the Agreement or Dr. Kern’s employment without Cause (as defined in the Agreement)
or if Dr. Kern terminates the Agreement or his employment thereunder with Good Reason (as defined in the Agreement), the Company
shall: (i) within 90 days pay Dr. Kern, as severance pay, a lump sum equal to six (6) months of Base Salary (which shall increase
to nine (9) months after the second anniversary of the Effective Date and twelve (12) months after the third anniversary of the
Effective Date) (provided Dr. Kern is actively employed by the Company on such dates) (the “Payment Period”); (ii)
pay Dr. Kern within 30 days of his termination of employment any bonus compensation that Dr. Kern would be entitled to receive
during the Payment Period in the absence of his termination without Cause or for Good Reason; (iii) immediately vest such number
of equity or equity based awards that would have vested during the six (6) months following the date of termination of employment;
and (iv) shall continue to provide to Dr. Kern health insurance benefits during the Payment Period, unless otherwise provided by
a subsequent employer. The foregoing severance payments are conditional upon Dr. Kern executing a waiver and release in favor of
the Company in a form reasonably acceptable to the Company.
Prior to joining
the Company, Dr. Kern was Senior Vice President, Head Worldwide Medical at Biogen Inc. since 2016. Prior positions at Biogen Inc.
include Vice President, Head of Global Therapeutic Areas from 2015 to 2016 and Vice President, Head of Global Medical Neurology
in 2015. Dr. Kern has also served Novartis Pharmaceuticals Corporation as Vice President, Head Neuroscience Medical Unit from 2014
to 2015 and as Vice President, Head MS Medical Unit from 2011 to 2014. He also worked for Genzyme Corporation from 2006 to 2011
where he served as Global Medical Director, Personalized Genetic Health (2010-2011), Head of Medical Affairs, Canada (2006-2008),
General Manager, Fabry Disease (2008-2010) and Head of Medical Affairs, Canada (2006-2008). He also served as University Neurology
Program Director at the University of Toronto (2003-2006), Consultant Neurologist at Mount Sinai Hospital (2001-2006) and Director,
EMG, EEG and Evoked Potential Laboratory at The Credit Valley Hospital (1988-2001).
Executive Vice
President, Chief Business Officer
Uri Yablonka was appointed
the Company’s Executive Vice President, Chief Business Officer and ceased to serve as the Company’s Chief Operating
Officer, effective March 6, 2017. Mr. Yablonka continues to serve as a member of the Board.
New Board Members
On February 26, 2017, the Board of Directors
(the “Board”) of the Company increased the size of the Board by two members and elected Dr. June S. Almenoff, MD, PhD,
and Arturo O. Araya to serve as independent directors of the Company, effective February 26, 2017. Dr. Almenoff and Mr. Araya
were each elected to serve until their respective term expires at the Company’s next annual meeting of stockholders to be
held in 2017 and until their respective successor is duly elected and qualified, or until their earlier death, resignation or removal.
Chief Financial Officer and Controller
On November 9, 2016, Yoram Bibring the Company’s
Chief Financial Officer notified the Company that he is terminating his part time employment with the Company effective at the
end of business on November 14, 2016 to pursue a full-time position with another company. Mr. Bibring’s departure was not
the result of any disagreement with the Company regarding its operations, policies, practices or related matters.
On November 14, 2016, the Company appointed
its Controller, Alla Patlis, as its Interim Chief Financial Officer, effective at the end of business on November 14, 2016.
The Company is conducting a search for a new Chief Financial Officer.
Governmental Grants
In May 2016, we received non-dilutive grants
amounting to approximately $1,470,000 from Israel's Office of the Chief Scientist (OCS) bringing the cumulative
amount of grants received as of December 31, 2016 to approximately $7.49 million. As of December 31, 2016, we recorded an additional
grants receivable of $154,000 relating to expenses incurred by us as of that date and, in December 2016 we submitted a request
for additional grants relating to our expected 2017 expenses amounting to approximately $5.6 million. This request in now under
consideration of the OCS and we expect to obtain approval of our request before June 30, 2017.
With regards to any funding received from the
OCS, we are obligated to pay royalties to the OCS, amounting to 3% to 3.5% of revenues (subject to the relevant regulations, as
amended from time to time) derived from sales of the products funded with the OCS grant, depending on the origin of the products’
production. Such royalty payments shall be up to an amount equal to 100% of the grant received. The grant is linked to the exchange
rate of the U.S. dollar and bears interest of Libor per annum.
Any plan approved by the OCS research committee
for grant funding is subject to Israel’s Encouragement of Industrial Research and Development Law, 5744 – 1984 (“R&D
Law”), which, among others, restricts the transfer of any know-how (as further defined therein) and the transfer of the manufacture
of the outcome product of such Approved Plan outside of Israel.
The OCS research committee may, in special
cases, approve the transfer abroad of know-how or any right thereof, derived from research and development conducted under the
Approved Plan in Israel, in exchange for receiving know-how from the party abroad; provided, however, that such exchange is towards
joint and new research and development.
The OCS research committee may, in special
cases and on grounds to be recorded, approve a request to transfer outside of Israel, the manufacturing or the rights to manufacture
a product developed within the framework of the Approved Plan; provided, however, that in exchange for such approval, the OCS shall
be entitled to,
inter alia
, payment of increased royalties due to the transfer of such manufacturing rights
Company Business Strategy
Our business strategy is to develop and commercialize
NurOwn® as a treatment for one or more neurodegenerative diseases. To this end, our efforts are currently directed to several
areas in research, development and manufacturing. The ALS program represents our lead indication and is the most advanced in development,
hence much of the Company’s focus is on this program. Important tasks included the execution of the US randomized, double-blind,
placebo controlled Phase 2 study, which we completed and published topline results in 2016. In January 2016, we published the results
of our Phase 1/2 and Phase 2a studies in the Journal of the American Medical Association (JAMA) Neurology medical journal. Finally,
we are making preparations to begin a multi-dose study in ALS patients in 2017. Beyond ALS, we are seeking to move additional programs
into clinical development. To that end, we are reviewing our existing preclinical data, initiating research in new areas like autism,
and engaging with regulatory and scientific experts to determine the most attractive clinical opportunities. With regard to manufacturing,
as noted above, several ongoing research projects and our collaboration with Octane have a goal of increasing the scale and efficiency
of NurOwn® production. Our current strategy is designed to allow the Company to be in a position to execute larger, registration-enabling
clinical studies in the most efficient time frame possible. We may also choose to seek a strategic partnership with a pharmaceutical
or biotechnology company to support the execution of a registration-enabling clinical programs.
Our business model calls for significant investments
in research and development. Our research and development expenditures (i) in 2015 (before participation by the OCS) were $6,335,000
which included $130,000 in stock-based compensation and (ii) in 2016 (before participation by the OCS) were $3,435,000which included
$96,000 in stock-based compensation.
Stem Cell Therapy
Our activities are focused within the stem
cell therapy field. Stem cells are non-specialized cells with a potential for both self-renewal and differentiation into cell types
with a specialized function, such as muscle, blood or brain cells. The cells have the ability to undergo asymmetric division such
that one of the two daughter cells retains the properties of the stem cell, while the other begins to differentiate into a more
specialized cell type. Stem cells are therefore central to normal human growth and development, and also are a potential source
of new cells for the regeneration of diseased and damaged tissue. Stem cell therapy aims to restore diseased tissue function by
the replacement and/or addition of healthy cells by stem cell transplants.
Mesenchymal stem cells (“MSCs”)
are a type of stem cell that can be obtained easily from adults and used for both autologous (cells administered back to the same
person from whom they were harvested) and allogeneic (cells administered to a person different than the person from whom the cells
were harvested) approaches. MSCs are “multipotent” cells that can produce more than one type of specialized cell of
the body, such as bone, fat, cartilage, and other types of cells. They secrete factors that promote tissue repair, and decrease
inflammatory and immune reactions. The bone marrow is an invaluable source of MSCs and can be accessed through a simple procedure
of aspiration. We believe that human MSCs, which are capable of
in vitro
growth and expansion and multipotent differentiation,
are a preferable source of therapeutic stem cells.
Neurodegenerative Diseases
Studies of neurodegenerative diseases suggest
that symptoms and functional impairments that arise in afflicted individuals are secondary to defects in neuron cell function and
neural circuitry. To date, systemic drug delivery approaches have not been effective in the treatment of these diseases possibly
due to the blood-brain-barrier and lack of effective central nervous system (CNS) target engagement. Consequently, alternative
approaches for treating neurodegenerative diseases have been attempted, such as transplantation of cells capable of replacing or
supplementing the function of damaged neurons at the site of damage. For such cell replacement therapy to work, implanted cells
must survive and integrate, both functionally and structurally, within the damaged tissue.
Amyotrophic Lateral Sclerosis (ALS)
ALS, often referred to as “Lou Gehrig's
disease,” is a progressive neurodegenerative disease that primarily affects motor nerve cells in the brain and the spinal
cord. Motor neurons reach from the brain to the spinal cord and from the spinal cord to the muscles throughout the body. The progressive
degeneration of the motor neurons in ALS leads to progressive weakness, respiratory failure and eventually, to death, with a median
survival for ALS patients is just 3-4 years from the onset of symptoms. Across the world, the prevalence of ALS is approximately
4-7 per 100,000. It is estimated that as many as 30,000 Americans have the disease at any given time, with a similar number afflicted
in Europe. Estimated annual treatment costs for advanced stage patients can be as high as approximately $100,000-$200,000.
Treatment decisions are typically determined by the patient's symptoms,
preferences and the stage of the disease. Medications occasionally used for ALS patients include:
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Riluzole – the only medication approved by the FDA to treat ALS. Riluzole extends the time to death or ventilation by several months; however it has not been shown to improve the daily functioning of ALS patients;
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Neudextar – approved by the FDA for the treatment of pseudo-bulbar affect, a type of emotional lability that may sometimes develop in ALS patients, as well as in patients with other neurological diseases.
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Baclofen or diazepam – not FDA-approved for ALS but sometimes used to control muscle spasms, stiffness or tightening (spasticity) that interfere with daily activities; and
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Trihexyphenidyl or amitriptyline – not FDA-approved for ALS but occasionally used to treat patients who have excess saliva or secretions, and emotional changes.
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Other medications may be prescribed to help reduce such symptoms
as fatigue, pain, sleep disturbances, constipation, and excess saliva and phlegm.
Multiple Sclerosis (MS)
MS is a chronic neuroinflammatory
and neurodegenerative disorder that affects the brain, optic nerves and spinal cord. Nerve cells are normally insulated with a
protective layer called myelin, which allows nerve signals to travel properly. In MS, the myelin is destroyed (demyelination),
causing loss of function of the nerve cells and disrupting transmission of brain messages to various parts of the body. While generally
thought to be an autoimmune disease, the exact cause of MS is unknown.
MS can cause blurred
vision, slurred speech, tremors, numbness, extreme fatigue, and problems with memory and concentration. Most MS patients experience
muscle weakness in their extremities and difficulty with coordination and balance. These symptoms may be severe enough to
impair walking or even standing. In the worst cases, MS can produce partial or complete paralysis. Most commonly, the course of
MS is waxes and wanes (“relapsing-remitting MS”), with progressive forms of the disease somewhat less common.
There are currently
over 2.5 million people with MS worldwide, with roughly 800,000 of these patients located in the U.S. and Europe. Over 10,000 new
cases are diagnosed annually in the U.S., with the majority of these in women between the ages of 20 and 50. Annual treatment costs
for MS can be as much as $80,000 a year per patient.
Treatment of MS focuses on symptom management,
treatment of attacks, and reduction of disease progression. There are a variety of disease-modifying treatments FDA-approved for
relapsing-remitting MS; however, patients with progressive forms of MS have a unmet need that remains to be addressed by currently
available DMTs.
Parkinson’s Disease (PD)
PD is a chronic, progressive neurodegenerative
disorder in which dopamine-producing neurons residing in the Substantia Nigra region of the brain undergo degeneration and eventually
die, resulting in progressive impairment in movement and gait and may be associated with dementia. The cause of the disease is
presently unknown.
Over 6.3 million people worldwide suffer from
PD, of whom about one million are in the United States. Most people are diagnosed with the disease between the ages of 55 and 65
and about 85% of people with PD are over the age of 65. Prevalence of PD is increasing in line with the general aging of the population.
The total economic burden of the disease has been estimated by the National Parkinson Foundation to exceed $14 billion annually
in the U.S. alone.
Treatment of PD primarily comprises dopamine
replacement, either directly (levodopa), with dopamine mimetics or by inhibition of its breakdown. These treatments focus on treating
the symptoms of the disease and are not a cure for PD. Levodopa has a propensity to cause serious motor response complications
with long-term use such as on-off phenomenon, motor fluctuations and involuntary movements. Moreover, effective drug dosage often
requires gradual increase, leading to more adverse side effects and eventual resistance to its therapeutic action. This greatly
limits patient benefit. Therefore, physicians and researchers have sought levodopa-sparing strategies in patients with early-stage
disease to delay the need for levodopa.
PD is also treated by Deep Brain Stimulation
(“DBS”), which consists of implanting electrodes deep into the brain to provide permanent electrical stimulation to
specific areas of the brain and to cause a delay in the activity in those areas. However, DBS is problematic as it may be associated
with significant treatment morbidity such as bleeding in the brain, infection and depression. In addition, similar to drug therapy,
DBS focuses on treating the symptoms of PD and does not provide a cure.
There is a greatly unsatisfied need for novel
approaches towards management of PD, primarily to control levodopa-induced adverse side effects and motor fluctuations, and potentially
to delay the onset of disease-related dementia.
In addition to the symptomatic drug development
approaches, there is an intense effort to develop cell and gene therapeutic “curative” approaches to restore the neural
function in patients with PD, by (i) replacing the dysfunctional cells with dopamine producing cell transplant, or by (ii) providing
growth factors and proteins, such as GDNF, that can maintain or preserve the patient’s remaining dopaminergic cells, protecting
them from further degeneration.
Intellectual Property
Patents:
On March 4, 2014, we were granted a U.S. Patent
(No. 8,663,987) for our “Mesenchymal Stem Cells for the Treatment of CNS Diseases” (serial number 12/994,761) patent
application. This patent relates to our proprietary stem cells induced to secrete large quantities of neurotrophic factors for
the treatment of neurodegenerative diseases. A divisional patent application therefrom was issued as US Patent 8,900,574
on December 2, 2014.
On February 11, 2014, the U.S. Patent and Trademark
Office (“USPTO”) granted US patent, 8,647,874 for the patent application entitled "Isolated Cells and Populations
Comprising Same for the Treatment of CNS Diseases." This patent relates to the production method of the Company's proprietary
stem cells induced to secrete large quantities of neurotrophic factors for the treatment of neurodegenerative diseases. On
September 3, 2014, the European Patent Office (“EPO”) issued corresponding patent 1893747, which is currently
validated in: CH, CZ, DE, DK, ES, FR, GB, IE, IT and NL.
On January 22, 2015, we received a Notice
of Allowance from Israel’s Patent Office for our patent application No. 209604 titled “Isolated Population of Cells,
Methods of Generating Same, and Uses Thereof in the Treatment of CNS Diseases." The patent was issued on September 1, 2015.
In October 2016 we were granted United States
Patent No. 9,474,787 titled "Mesenchymal Stem Cells for the Treatment of CNS Diseases. "The allowed claims cover
mesenchymal stem cells that secrete neurotrophic factors, including brain-derived neurotrophic factor (BDNF) and glial derived
neurotrophic factor (GDNF), as well as a pharmaceutical compositions comprising these factors.
We have pending patent applications as follows:
A. The
Israeli Subsidiary is the sole owner of United States Provisional patent application Serial No. 61/679,822, filed August 6, 2012,
entitled "Methods of Generating Mesenchymal Stem Cells Which Secrete Neurotrophic Factors.”. This application has now
been filed as International Application No.: PCT IL2013/050660 and is currently pending as National Phase in the US, EU, Israel,
Canada, Brazil and Japan.
This invention is directed to a method of generating
MSCs which secrete neurotrophic factors (“NTFs”) comprising incubating a population of undifferentiated MSCs in a differentiating
medium comprising basic fibroblast growth factor (“bFGF”), platelet derived growth factor (“PDGF”), heregulin
and cAMP. The application also covers a method of treating a disease for which administration of neurotrophic factors is beneficial
in a subject in need thereof, comprising administering to the subject a therapeutically effective amount of isolated population
of MSCs which secretes neurotrophic factors made according to the above method. Also taught is a method of selecting MSCs which
secrete NTFs from a mixed population of MSCs, comprising (a) analyzing the cells of said mixed population of cells for at least
one of the following parameters: (i) cells which express CD44 below a predetermined threshold, or (ii) cells which express CD73
above a predetermined threshold; and (b) selecting cells which are positive for at least one of said parameters, thereby selecting
the MSCs which secrete neurotrophic factors. The application teaches a pharmaceutical composition comprising the isolated population
of MSCs as an active agent and a pharmaceutically acceptable carrier.
The Israeli Subsidiary is the sole owner of
United States Provisional patent application Serial No. 61/938,172, filed February 11, 2014, entitled "Methods Qualifying
Cells.”. This application has now been filed as International Application No.: PCT/IL2015/050159
B. The
Israeli Subsidiary is co-owner, with Ramot, in the invention entitled “Mesenchymal Stem Cells for the Treatment of CNS Diseases”,
filed as a PCT application on May 26, 2009, currently pending as National Phase patent applications in the following countries:
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Europe: Serial No. 09754337.5
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Europe: Serial No. 13164650.7
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Hong Kong: Serial No. 11107062.5
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Hong Kong: Serial No. 13109415.3
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This invention is directed to an isolated human
cell comprising at least one mesenchymal stem cell phenotype and secreting brain-derived neurotrophic factor (“BDNF”),
wherein a basal secretion of the BDNF is at least five times greater than a basal secretion of the BDNF in a mesenchymal stem cell.
Also disclosed in this application is an isolated cell population comprising human mesenchymal stem cells, wherein at least 50%
of the cells express glial fibrillary acidic protein (“GFAP”) and secrete at least one neurotrophic factor. Also taught
is an isolated cell population comprising human cells wherein (i) at least N% of said human cells secreting BDNF, wherein a basal
secretion of said BDNF is at least five times greater than a basal secretion of the BDNF in a mesenchymal stem cell; (ii) at least
M% of said human cells comprise at least one mesenchymal stem cell phenotype; and (iii) at least one of the human cells secretes
the BDNF and the mesenchymal stem cell phenotype; where M and N are each independently selected between 1 and 99. Methods of generating
same and uses of same are also disclosed. The method of generating cells useful for treating a CNS disease or disorder comprises
(a) incubating mesenchymal stem cells in a culture medium comprising platelet lysate to generate propagated mesenchymal stem cells;
and (b) incubating said propagated mesenchymal stem cells in a differentiating medium, thereby generating cells useful for treating
the CNS disease or disorder. Another method taught is that of generating cells secreting neurotrophic factors, comprising (i) incubating
mesenchymal stem cells in a serum free medium comprising platelet lysate to generate propagated mesenchymal stem cells; and (ii)
incubating the propagated mesenchymal stem cells in a differentiating medium comprising at least one differentiating agent, said
at least one differentiating agent being selected from the group consisting of platelet derived growth factor (“PDGF”),
human neuregulin 1-b1, FGF2, EGF, N2, IBMX and cAMP, thereby generating cells secreting neurotrophic factors. The European applications
claim an isolated human cell comprising a cell being non-genetically manipulated, and characterized by: a) expressing tyrosine
hydroxylase, nestin and H-NF and b) secreting BDNF, and c) not secreting nerve growth factor (“NGF”) wherein a basal
secretion of said BDNF is at least five times greater than a basal secretion of said BDNF in a mesenchymal stem cell; an isolated
cell population comprising cells generated from human bone marrow derived cells expressing CD73, CD90 and CD105 and not expressing
CD14, CD19, CD34, CD45 and HLA-DR, wherein at least 50% of the cells of the cell population express GFAP and secrete BDNF; and
a method of generating cells useful for treating a CNS disease or disorder, the method comprising: (1) incubating bone marrow derived
cells expressing CD73, CD90 and CD105 and not expressing CD14, CD19, CD34, CD45 and HLA-DR in a culture medium comprising human
platelet lysate to generate propagated cells; and (2) incubating said propagated cells in a medium comprising a differentiating
agent, thereby generating cells useful for treating the CNS disease or disorder, wherein said differentiating agent is selected
from the group consisting of PDGF, human neuregulin 1-β1, FGF2, EGF, N2, IBMX and cAMP.
C. The Israeli Subsidiary
is the licensee of the following patent applications owned by Ramot under terms set forth in the Second Ramot Agreement and the
Assignment Agreement, as follows:
1. Invention entitled “Isolated Cells
and Populations Comprising Same for the Treatment of CNS Diseases”, filed as a PCT application on June 18, 2006, currently
pending as National Phase patent application in the US, Serial No.14/173,846.
This invention is directed to an isolated human
cell and populations thereof comprising at least one astrocytic phenotype and at least one mesenchymal stem cell phenotype, wherein
the mesenchymal stem cell phenotype is not an astrocytic phenotype; an isolated human cell comprising at least one mesenchymal
stem cell phenotype and at least one astrocytic structural phenotype, wherein the mesenchymal stem cell phenotype is not an astrocytic
structural phenotype; or an isolated human cell comprising at least one mesenchymal stem cell phenotype and at least one astrocytic
functional phenotype, wherein the mesenchymal stem cell phenotype is not an astrocytic functional phenotype. Also taught is a method
of generating astrocyte-like cells expressing S100 beta, glial fibrillary acidic protein (GFAP), glutamine synthetase, GLAST, GLTI
and glial derived neurotrophic factor (GDNF) comprising (a) culturing mesenchymal stem cells in a medium comprising human epidermal
growth factor (hEGF) and human basic fibroblast growth factor (hbFGF); and (b) incubating the mesenchymal stem cells in a differentiating
medium comprising platelet derived growth factor (PDGF) and human neuregulin 1-b1, thereby generating astrocyte-like cells. Another
disclosed method of generating astrocyte-like cells teaches (i) incubating mesenchymal stem cells in a medium comprising hEGF and
hbFGF to generate cells predisposed to generate into astrocyte-like cells; and (ii) incubating the predisposed cells in a differentiating
medium comprising PDGF and human neuregulin 1-b1, thereby generating astrocyte-like cells.
2. Invention entitled
“Methods, nucleic acid constructs and cells for treating neurodegenerative disorders”, filed on May 17, 2005 as United
States patent application Serial No. 13/783,607. This invention is directed to a method of treating a neurodegenerative disorder
by administering to an individual in need thereof cells capable of exogenously regulatable neurotransmitter synthesis. The cells
are produced by incubating bone marrow stromal cells in a differentiating medium comprising docosahexaenoic acid or arachidonic
acid and at least one differentiating agent.
Trademarks:
We have registered the trademark NUROWN (application
no. 85154891, filed October 18, 2010) for use in connection with “compositions of cells derived from stem cells for medical
purposes; stem cells for medical purposes.” US Trademark No. 4641441 for NUROWN was registered on November 18, 2014.
The patent applications, as well as relevant
know-how and research results are licensed from Ramot. We intend to work with Ramot to protect and enhance our mutual intellectual
property rights by filing continuations and divisional patent applications. New discoveries arising in the course of research and
development within the Company were and will be patented by us independently.
Research and License Agreement with Ramot
On July 12, 2004, we entered into a Research
and License Agreement (the “Original Ramot Agreement”) with Ramot, the technology licensing company of Tel Aviv University,
which agreement was amended on March 30, 2006 by the Amended Research and License Agreement (described below). Under the terms
of the Original Ramot Agreement, Ramot granted to us a license to (i) the inventions, know-how and results made with respect to
the above-mentioned stem cell technology developed by the team led by Prof. Melamed and Prof. Offen in the course of the performance
of the research, and the patents and pending patent applications owned by Ramot, and (ii) the results of further research to be
performed by the same team on the development of the stem cell technology. Simultaneously with the execution of the Original Ramot
Agreement, we entered into individual consulting agreements with Prof. Melamed and Prof. Offen pursuant to which all intellectual
property developed by Prof. Melamed or Prof. Offen in the performance of services thereunder will be owned by Ramot and licensed
to us under the Original Ramot Agreement.
Under the Original Ramot Agreement, we agreed
to fund further research relating to the licensed technology in an amount of $570,000 per year for an initial period of two years,
and for an additional two-year period if certain research milestones were met.
In consideration for the license, we originally
agreed to pay Ramot:
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An up-front license fee payment of $100,000;
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An amount equal to 5% of all net sales of products; and
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An amount equal to 30% of all sublicense receipts.
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On March 30, 2006 and on May 23, 2006, we entered
into an Amended Research and License Agreement and an Amendment Agreement to the Amended Research and License Agreement, respectively
(collectively, the “Amended Research and License Agreement”) with Ramot. Under the Amended Research and License Agreement,
the funding of further research relating to the licensed technology in an amount of $570,000 per year was reduced to $380,000 per
year. Moreover, under the Amended Research and License Agreement, the initial period of time that we agreed to fund the research
was extended from an initial period of two (2) years to an initial period of three (3) years. The Amended Research and License
Agreement also extended the additional two-year period in the Original Ramot Agreement to an additional three-year period, if certain
research milestones were met.
We entered into a Second Amended and Restated
Research and License Agreement with Ramot on July 26, 2007, effective July 12, 2004 (the “Second Ramot Agreement”),
which amended and replaced the Amended Research and License Agreement. The Second Ramot Agreement imposed on us development and
commercialization obligations, milestone and other obligations. The license was granted in consideration for (i) royalty payments
ranging from three percent (3%) to five percent (5%) of all net sales and (ii) potential payments concerning sublicenses ranging
from twenty percent (20%) to twenty-five percent (25%) of sublicense receipts. In addition, in the event that the research period
was extended for an additional three year period in accordance with the terms of the Second Ramot Agreement, then we had to make
payments to Ramot for each year of the extended research period in the amount of $380,000. As of June 30, 2007, we owed Ramot an
aggregate amount of $513,249 in overdue payments and patent fees under the Amended Research and License Agreement.
On August 1, 2007, we obtained a waiver and
release from Ramot pursuant to which Ramot agreed to an amended payment schedule regarding our payment obligations under the Second
Ramot Agreement and waived all claims against us resulting from our previous breaches, defaults and non-payment under the Amended
Research and License Agreement.
After our failure to meet the amended payment
schedule and subsequent negotiations, on December 24, 2009, we entered into a Letter Agreement and an amended agreement to the
Second Ramot Agreement (collectively, the “Letter Agreement”) with Ramot, pursuant to which, among other things, Ramot
agreed to: (i) release us from our obligation to fund three years of additional research (which would have totaled $1,140,000)
and (ii) accept conversion of certain research payments due in the amount of $272,000 into 74,666 shares of our Common Stock. Pursuant
to the Letter Agreement, we agreed, among other things, to: (i) reimburse Ramot for outstanding patent-related expenses; and (ii)
abandon our rights in certain joint patent rights and patents of Ramot in certain countries.
As of February 2011, Ramot had sold the 74,666
shares of Common Stock of the Company for approximately $235,000 and we paid the remaining $5,000 due to Ramot. To date there is
no additional debt to Ramot.
On December 20, 2011, we entered into an Assignment
Agreement with our Israeli Subsidiary (the “Assignment Agreement”), with the consent of Ramot. Under the Assignment
Agreement, we assigned and transferred all of our rights, interests, titles, liabilities and obligations (the “Rights”)
under the Second Ramot Agreement to our Israeli Subsidiary, effective as of January 1, 2007 and our Israeli Subsidiary agreed to
assume all such Rights. We agreed to be a guarantor of all obligations of our Israeli Subsidiary under the Second Ramot Agreement
and Ramot can look to us to demand compliance with the Second Ramot Agreement.
In May 2012, we, the Israeli Subsidiary and
Prof. Offen entered into a Consulting Agreement, effective as of January 1, 2012, which replaced the previous consulting agreement,
dated July 31, 2004, pursuant to which all work product resulting from the provision of services will vest solely with the Israeli
Subsidiary and if any work product resulting from the provision of services results in the creation or development of intellectual
property it will be deemed a joint invention, and will be jointly owned by Ramot and the Israeli Subsidiary.
On April 30, 2014 our Israeli Subsidiary and
Ramot entered into Amendment No. 2 to the Second Ramot Agreement, pursuant to which a new research period from April 30, 2014 to
October 30, 2014 was created.
On March 1, 2016, our Israeli Subsidiary and
Ramot entered into Amendment No. 3 to the Second Ramot Agreement, pursuant to which Ramot agreed to assign to the Israeli Subsidiary,
effective February 18, 2016, all of its worldwide right, title and interest in and to the results of the research conducted under
the Agreement and performed during the research period from April 30, 2014 to October 30, 2014. This change of status from exclusive
licensee of these patents, to owner these patents, did not materially change the ability of the Company to exclude others from
practicing the invention claimed therein.
Government Regulations and Supervision
Government Regulation and Product Approval
Once fully developed, we intend to market our
bone marrow derived differentiated neurothrophic-factor secreting cell products, NurOwn®, for autologous transplantation in
patients by neurosurgeons in medical facilities in the U.S., Europe, Japan and the Pacific Rim. We plan to submit a biologics license
application (“BLA”) in the United States from the development of NurOwn® for the treatment of ALS patients. We
initiated the regulatory process with a Pre-IND meeting with the FDA in September 2012, and submitted our IND application in December
2013. We have retained expert regulatory consultants to assist us in our approaches to the FDA.
In January 2013, the EMA Committee for Advanced
Therapies classified NurOwn® as an Advanced Therapy Medicinal Product.
Government authorities in the United States
at the federal, state and local level extensively regulate, among other things, the research, development, testing, manufacture,
quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing, export
and import of products such as those we are developing. Our product candidates must receive final approval from the FDA before
they may legally be marketed in the United States or by the appropriate foreign regulatory agency before it may be legally marketed
in foreign countries.
U.S. Drug Development Process
In the United States, the FDA regulates drugs
under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. Drugs are also subject to other federal,
state and local statutes and regulations. Biologics are subject to regulation by the FDA under the FDCA, the Public Health Service
Act, or the PHSA, and related regulations and other federal, state and local laws and regulations. Biological products are therapies
used to treat disease and health conditions. They include a wide variety of products including vaccines, blood and blood components,
gene therapies, tissue and proteins. Unlike most prescription products made through chemical processes, biological products generally
are made from human and/or animal materials. To be lawfully marketed in interstate commerce, a biologic product must be the subject
of a BLA, issued by the FDA on the basis of a demonstration that the product is safe, pure and potent, and that the facility in
which the product is manufactured meets standards to assure that it continues to be safe, pure and potent. The FDA has developed
and is continuously updating the requirements with respect to cell and gene therapy products and has issued documents concerning
the regulation of cellular and tissue-based products. Manufacturers of cell and tissue-based products must comply with the FDA’s
current good tissue practices, or cGTP, which are FDA regulations that govern the methods used in, and the facilities and controls
used for, the manufacture of such products. The primary intent of the cGTP requirements is to ensure that cell and tissue based
products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease.
The process of obtaining regulatory approvals
and ensuring compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of
substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product
development process, approval process, or after approval, may subject an applicant to administrative or judicial sanctions. These
sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning
letters, product recalls, product seizures, product detention, total or partial suspension of production or distribution, injunctions,
fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. The process required by the
FDA before a biological product or drug may be marketed in the United States generally involves the following:
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Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other regulations;
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Submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;
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Performance of adequate and well-controlled clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of the proposed biological product or drug for its intended use;
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Submission to the FDA of a new drug application, or NDA, for a new drug; or a biologic license application for a new biological product;
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Satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with Good Manufacturing Practices, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug’s or biologic’s identity, strength, quality and purity; and
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FDA review and approval of the BLA or NDA.
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The testing and approval process require substantial
time, effort and financial resources and we cannot be certain that any approvals for our product candidates will be granted on
a timely basis, if at all.
Once a pharmaceutical product candidate is
identified for development, it enters the preclinical testing phase. Preclinical tests include laboratory evaluations of product
chemistry, toxicity, formulation and stability, as well as animal studies. An IND sponsor must submit the results of the preclinical
tests, together with manufacturing information, analytical data and any available clinical data or literature, to the FDA as part
of the IND. The sponsor must also include a protocol detailing, among other things, the objectives of the initial clinical trial,
the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the initial clinical trial lends
itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically
becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that 30-day
time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
Clinical holds also may be imposed by the FDA at any time before or during trials due to safety concerns or non-compliance. Accordingly,
we cannot assure you that submission of an IND will result in the FDA allowing clinical trials to begin or, once begun, issues
will not arise that result in the suspension or termination of such trial.
All clinical trials must be conducted under
the supervision of one or more qualified investigators in accordance with GCP regulations. These regulations include the requirement
that all research subjects provide informed consent. Further, an institutional review board, or IRB, must review and approve the
plan for any clinical trial before it commences at any institution. An IRB considers, among other things, whether the risks to
individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves
the information regarding the clinical trial and the consent form that must be provided to each clinical trial subject or his or
her legal representative and must monitor the clinical trial until completed. Once an IND is in effect, each new clinical protocol
and any amendments to the protocol must be submitted to the IND for FDA review, and to the IRBs for approval.
Human clinical trials are typically conducted
in three sequential phases that may overlap or be combined:
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Phase 1.
The product is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted in patients having the specific disease.
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Phase 2.
Phase 2 trials involve investigations in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and the optimal dosage and schedule.
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Phase 3.
Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for regulatory approval and product labeling.
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Post-approval studies, also called Phase 4
trials, may be conducted after initial marketing approvals. These studies are used to obtain additional experience from the treatment
of patients in the intended therapeutic indication and may be required by the FDA as part of the approval process.
Progress reports detailing the results of the
clinical trials must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and the investigators
for serious and unexpected side effects. Phase 1, Phase 2 and Phase 3 testing may not be completed successfully within any specified
period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a
finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend
or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the
IRB’s requirements or if the drug or biologic has been associated with unexpected serious harm to patients.
Concurrent with clinical trials, companies
usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics
of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements.
The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things,
the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally,
appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate
does not undergo unacceptable deterioration over its shelf life.
During the development of a new drug or biologic,
a sponsor may be able to request a Special Protocol Assessment, or SPA, the purpose of which is to reach agreement with the FDA
on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim. An SPA is intended
to provide assurance that if the agreed upon clinical trial protocol is followed, the clinical trial endpoints are achieved, and
there is a favorable risk-benefit profile, the data may serve as the primary basis for an efficacy claim in support of a BLA or
an NDA. However, an SPA is not a guarantee of an approval of a product candidate or any permissible claims about the product candidate.
In particular, SPAs are not binding on the FDA if previously unrecognized public health concerns arise during the performance of
the clinical trial, other new scientific concerns regarding the product candidate’s safety or efficacy arise, or if the sponsoring
company fails to comply with the agreed upon clinical trial protocol.
The results of product development, preclinical
studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the biologic or
drug, proposed labeling and other relevant information, are submitted to the FDA as part of an NDA or BLA, requesting approval
to market the product. The submission of an NDA or BLA is subject to the payment of substantial user fees which may be waived under
certain limited circumstances.
FDA Review of Biologics License Applications
and New Drug Applications
The FDA reviews all BLAs and NDAs submitted
to ensure that they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional
information rather than accept a BLA or an NDA for filing. In this event, the BLA or NDA must be re-submitted with the additional
information. The re-submitted application also is subject to review before the FDA accepts it for filing. Once the submission is
accepted for filing, the FDA begins an in-depth substantive review. Under the goals and policies agreed to by the FDA under the
Prescription Drug User Fee Act, or PDUFA, the FDA has ten months in which to complete the initial review of a standard BLA or NDA
and respond to the applicant and six months for a priority BLA or NDA. The FDA does not always meet its PDUFA goal dates for standard
and priority BLAs or NDAs. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for
its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength,
quality and purity. The FDA reviews a BLA to determine, among other things, whether the product is safe, pure, and potent and the
facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued
safety, purity and potency. Before approving an NDA or BLA, the FDA will inspect the facility or facilities where the product is
manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are
in compliance with cGMP requirements, and additionally, in the case of biologics in accordance with cGTP guidelines, and adequate
to assure consistent production of the product within required specifications. The FDA may refer the NDA or BLA to an advisory
committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions.
An advisory committee is a panel of independent experts who provide advice and recommendations when requested by the FDA on matters
of importance that come before the agency. The FDA is not bound by the recommendation of an advisory committee.
The approval process is lengthy and difficult
and the FDA may refuse to approve a BLA or NDA if the applicable regulatory criteria are not satisfied or may require additional
clinical data or other data and information.
Even if such data and information is submitted,
the FDA may ultimately decide that the BLA or NDA does not satisfy the criteria for approval. Data obtained from clinical trials
are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a complete
response letter if the agency decides not to approve the BLA or NDA in its present form. The complete response letter usually describes
all of the specific deficiencies that the FDA identified in the BLA or NDA. The deficiencies identified may be minor, for example,
requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter
may include recommended actions that the applicant might take to conform the application to a condition suitable for approval.
If a complete response letter is issued, the applicant may either resubmit the BLA or NDA, addressing all of the deficiencies identified
in the letter, withdraw the application, or request an opportunity for a hearing.
If a product receives regulatory approval,
the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited,
which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings
or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical trials
designed to further assess a drug’s or biologic’s safety and effectiveness after BLA or NDA approval and may require
testing and surveillance programs to monitor the safety of approved products that have been commercialized.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant
orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease
or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States
and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available
in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product designation
must be requested before submitting an NDA or BLA. After the FDA grants orphan product designation, the identity of the therapeutic
agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage
in or shorten the duration of the regulatory review and approval process. However, orphan product designation does provide the
potential for a period of exclusivity and we may be eligible for grant funding of up to $400,000 per year for four years to defray
costs of clinical trial expenses, tax credits for clinical research expenses and potential exemption from the FDA application user
fee.
If a product that has orphan designation subsequently
receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan
product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product
for the same indication for seven years, except in limited circumstances, such as (i) the drug’s orphan designation is revoked;
(ii) its marketing approval is withdrawn; (iii) the orphan exclusivity holder consents to the approval of another applicant’s
product; (iv) the orphan exclusivity holder is unable to assure the availability of a sufficient quantity of drug; or (v) a showing
of clinical superiority to the product with orphan exclusivity by a competitor product. Competitors, however, may receive approval
of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but
for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval
of one of our products for seven years if a competitor obtains approval of the same drug or biological product as defined by the
FDA or if our drug or biological candidate is determined to be contained within the competitor's product for the same indication
or disease. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader
than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug status in the European Union has similar
but not identical benefits in the European Union.
In February 2011, we received Orphan Drug Designation
for NurOwn® for the treatment of ALS in the United States. In July 2013, we received Orphan Medicinal Product Designation for
NurOwn® for the treatment of ALS from the European Commission. Orphan designation grants a 10-year marketing exclusivity in
the EU for the designated indication, as well as several other regulatory incentives.
Patent Term Restoration and Marketing
Exclusivity
Depending upon the timing, duration and specifics
of FDA marketing approval of our product candidates, some of our U.S. patents may be eligible for limited patent term extension
under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments.
The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product
development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent
beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the
time between (a) the effective date of an IND and the submission date of a BLA or an NDA plus (b) the time between the submission
date of a BLA or an NDA and the approval of that application. Only one patent applicable to an approved drug or biologic is eligible
for the extension and the application for the extension must be submitted prior to the expiration of the patent and within 60 days
of approval of the drug or biologic. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the
application for any patent term extension or restoration.
Biologics Price Competition and Innovation
Act of 2009
The Biologics Price Competition and Innovation
Act of 2009, or BPCIA, amended the PHSA to create a new licensure framework for biosimilar products, which could ultimately subject
our biological product candidates to competition. Under the BPCIA, a manufacturer may submit an application for licensure of a
biological product that is "biosimilar to" or "interchangeable with" a referenced, branded biologic product.
Previously, there had been no licensure pathway for such biosimilar or interchangeable products. For purposes of the BPCIA, a reference
product is defined as the single biological product licensed under a full BLA against which a biological product is evaluated in
an application submitted under a follow-on BLA.
The BPCIA also created a 12-year period of
reference product exclusivity, which can be extended to 12.5 years with pediatric exclusivity. The 12-year exclusivity period begins
on the date of first licensure of the reference product under the PHSA and during which the licensure of a follow-on application
for a biosimilar or interchangeable product cannot be made effective. During the first four years (or four and one-half years with
pediatric exclusivity) of the 12-year period, an application for a biosimilar or interchangeable version of the reference product
cannot be submitted to the FDA. Under budget proposals submitted by President Obama, the Administration has requested that reference
product exclusivity would decrease from twelve to seven years. Congress has not yet enacted such a change in the BPCIA, but could
move to enact such a decrease in the reference product exclusivity period.
The BPCIA includes limits on obtaining 12-year
reference product exclusivity for certain changes or modifications to the reference product. A separate 12-year reference product
exclusivity period does not apply to:
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a BLA supplement for the product that is the reference product;
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a subsequent BLA filed by the same reference product sponsor or manufacturer (or a licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength; or
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a modification to the structure of the biological product that does not result in a change in safety, purity or potency.
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In February 2012, the FDA issued three draft
guidance documents on biosimilar product development. The FDA is soliciting comments on the draft guidance documents which are
described by the FDA as follows: (1) Scientific Considerations in Demonstrating Biosimilarity to a Reference Product, which is
intended to assist companies in demonstrating that a proposed therapeutic protein product is biosimilar to a reference product
for the purpose of submitting an application, called a "351(k)" application, to the FDA. This draft guidance describes
a risk-based "totality-of-the-evidence" approach that the FDA intends to use to evaluate the data and information submitted
in support of a determination of biosimilarity of the proposed product to the reference product; (2) Quality Considerations in
Demonstrating Biosimilarity to a Reference Protein Product, which provides an overview of analytical factors to consider when assessing
biosimilarity between a proposed therapeutic protein product and a reference product for the purpose of submitting a 351(k) application;
and (3) Biosimilars: Questions and Answers Regarding Implementation of the Biologics Price Competition and Innovation Act of 2009,
which provides answers to common questions from people interested in developing biosimilar products. We cannot predict when or
whether these draft guidance documents will ever be finalized or what changes the agency may make in its approach to implementation
of the BPCIA.
In addition to creating a 12-year period of
reference product exclusivity, the BPCIA clarifies the interaction of that exclusivity with orphan drug exclusivity, such that,
if a reference product has been designated for a rare disease or condition the licensure of a biosimilar or interchangeable version
of a reference product for such disease or condition may only occur after the later of the expiration of any applicable seven-year
orphan drug exclusivity or the 12-year reference product exclusivity (or seven and one-half years and 12.5 years with pediatric
exclusivity).
Our biological product candidates, if approved,
could be considered reference products entitled to 12-year exclusivity. Even if our products are considered to be reference products
eligible for exclusivity, another company could market a competing version of any of our biological products if the FDA approves
a full BLA for such product containing the sponsor's own preclinical data and data from adequate and well-controlled clinical trials
to demonstrate the safety, purity and potency of their product.
The BPCIA also sets forth a complex mechanism
for resolving patent disputes that involves a step-wise exchange of information prior to the initiation of a patent infringement
lawsuit against a biosimilar or interchangeable product sponsor. Unlike the Hatch-Waxman Act, the BPCIA provides no automatic stay
on approval of a biosimilar product application, except an interchangeable product receives the lesser of one year of exclusivity
after the date of first commercial marketing or 18 months of exclusivity after a final court decision or dismissal of a patent
challenge or, if the applicant has not been sued, after approval. The BPCIA does not prevent a competitor from conducting its own
clinical trials and submitting a full BLA on the same or similar product.
Post-Approval Requirements
Any drugs for which we receive FDA approval
are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse
effects with the product, reporting of changes in distributed products which would require field alert reports (FARs) for drugs
and biological product deviation reports (BPDRs), providing the FDA with updated safety and efficacy information, product sampling
and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion
and advertising requirements. In September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the
FDA enhanced post-marketing authority, including the authority to require postmarketing studies and clinical trials, labeling changes
based on new safety information, and compliance with risk evaluations and mitigation strategies, or REMS, approved by the FDA.
The FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market.
Drugs and biologics may be promoted only for the approved indications and in accordance with the provisions of the approved label.
Further, manufacturers of drugs and biologics must continue to comply with cGMP requirements, which are extensive and require considerable
time, resources and ongoing investment to ensure compliance. In addition, changes to the manufacturing process generally require
prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications
and additional labeling claims, are also subject to further FDA review and approval.
Drug and biologic manufacturers and other entities
involved in the manufacturing and distribution of approved drugs and biologics are required to register their establishments with
the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for
compliance with cGMP, GTP applicable to biologics, and other laws. The cGMP requirements apply to all stages of the manufacturing
process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the drug. Manufacturers
must establish validated systems to ensure that products meet specifications and regulatory standards, and test each product batch
or lot prior to its release.
The FDA may withdraw a product approval if
compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Discovery of
previously unknown problems with a product subsequent to its approval may result in restrictions on the product or even complete
withdrawal of the product from the market. Further, the failure to maintain compliance with regulatory requirements may result
in administrative or judicial actions, such as fines, warning letters, holds on clinical trials, product recalls or seizures, product
detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions
on marketing or manufacturing, injunctions or civil or criminal penalties.
From time to time, legislation is drafted,
introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing
and marketing of products regulated by the FDA. In addition to new legislation, the FDA regulations and policies are often revised
or reinterpreted by the agency in ways that may significantly affect our business and our product candidates. It is impossible
to predict whether further legislative or FDA regulation or policy changes will be enacted or implemented and what the impact of
such changes, if any, may be.
Foreign Regulation
In addition to regulations in the United States,
we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our product
candidates to the extent we choose to clinically evaluate or sell any products outside of the United States. Whether or not we
obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries
before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country
to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. As in the United States, post-approval
regulatory requirements, such as those regarding product manufacture, marketing, or distribution would apply to any product that
is approved outside the United States.
Third Party Payor Coverage and Reimbursement
Significant uncertainty exists as to the coverage
and reimbursement status of any of our biologic or drug candidates for which we obtain regulatory approval. In both the United
States and foreign markets, our ability to commercialize our product candidates successfully, and to attract commercialization
partners for our product candidates, depends in significant part on the availability of adequate financial coverage and reimbursement
from third party payors, including, in the United States, governmental payors such as the Medicare and Medicaid programs, managed
care organizations, and private health insurers. Medicare is a federally funded program managed by the Centers for Medicare and
Medicaid Services, or CMS, through local fiscal intermediaries and carriers that administer coverage and reimbursement for certain
healthcare items and services furnished to the elderly and disabled. Medicaid is an insurance program for certain categories of
patients whose income and assets fall below state defined levels and who are otherwise uninsured that is both federally and state
funded and managed by each state. The federal government sets general guidelines for Medicaid and each state creates specific regulations
that govern its individual program. Each payor has its own process and standards for determining whether it will cover and reimburse
a procedure or particular product. Private payors often rely on the lead of the governmental payors in rendering coverage and reimbursement
determinations. Therefore, achieving favorable CMS coverage and reimbursement is usually a significant gating issue for successful
introduction of a new product. The competitive position of some of our products will depend, in part, upon the extent of coverage
and adequate reimbursement for such products and for the procedures in which such products are used. Prices at which we or our
customers seek reimbursement for our product candidates can be subject to challenge, reduction or denial by the government and
other payors.
The U.S. Congress and state legislatures may,
from time to time, propose and adopt initiatives aimed at cost containment, which could impact our ability to sell our product
candidates profitably. For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act
and the associated reconciliation bill, which we refer to collectively as the Health Care Reform Law, a sweeping law intended to
broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse,
add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry
and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law revises the definition of “average
manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states once the provision
is effective. Further, the law imposes a significant annual fee on companies that manufacture or import branded prescription drug
products. Substantial new provisions affecting compliance have also been enacted, which may require us to modify our business practices
with healthcare practitioners. We will not know the full effects of the Health Care Reform Law until applicable federal and state
agencies issue regulations or guidance under the new law.
Although it is too early to determine the effect
of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under
the Medicare program, and may also increase our regulatory burdens and operating costs. Moreover, in the coming years, additional
changes could be made to governmental healthcare programs that could significantly impact the success of our product candidates.
The cost of pharmaceuticals continues to generate
substantial governmental and third party payor interest. We expect that the pharmaceutical industry will experience pricing pressures
due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals.
Our results of operations could be adversely affected by current and future healthcare reforms.
Some third party payors also require pre-approval
of coverage for new or innovative devices, biologics or drug therapies before they will reimburse healthcare providers that use
such therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented
in the future, the announcement or adoption of these proposals could have a material adverse effect on our ability to obtain adequate
prices for our product candidates and operate profitably.
Different pricing and reimbursement schemes
exist in other countries. In the European Union, governments influence the price of pharmaceutical products through their pricing
and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers.
Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price
has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials
that compare the cost-effectiveness of a particular drug or biological candidate to currently available therapies. Other member
states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs and biologics, has become very intense. As a result, increasingly
high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced
markets exert a commercial pressure on pricing within a country.
Other Healthcare Laws and Compliance
Requirements
In the United States, our activities are potentially
subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare
and Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector
General), the United States Department of Justice and individual United States Attorney offices within the Department of Justice,
and state and local governments. These regulations include:
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the federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other government reimbursement programs that are false or fraudulent;
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the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
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the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics, and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;
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the FDCA, which among other things, strictly regulates drug and biologic product marketing, prohibits manufacturers from marketing drug or biologic products for off-label use and regulates the distribution of drug samples; and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.
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Compliance with Environmental, Health and
Safety Laws
In addition to FDA regulations, we are also
subject to evolving federal, state and local environmental, health and safety laws and regulations. In the past, compliance with
environmental, health and safety laws and regulations has not had a material effect on our capital expenditures. We believe that
we comply in all material respects with existing environmental, health and safety laws and regulations applicable to us. Compliance
with environmental, health and safety laws and regulations in the future may require additional capital expenditures.
Sales and Marketing
We intend to establish and maintain fully-equipped
cGMP-certified Cell-Processing Centers in strategic locations to conduct NurOwn® production and distribution over the broadest
geographic area. Each Cell-Processing Center would receive an initial bone marrow sample of the patient, harvested at a medical
center. The patient’s MSC cells would be isolated and expanded, in order to produce an initial dose of NurOwn® cells.
A master cell bank for each individual patient would be cryopreserved and maintained for production of subsequent, future NurOwn®
doses on a long-term basis for future treatments. These doses would be produced as needed and transported to the medical centers,
where they would then be transplanted back into the patient.
We intend to seek partnering opportunities
with a strategic partner as we progress towards advanced clinical development and commercialization.
Competition
There are a number of clinical trials underway
for potential treatments for ALS, of which only two are stem cell-based trials being conducted by other commercial entities: (i)
US-based Neuralstem (CUR) is currently conducting a Phase 2 trial for its allogeneic, human (fetal) spinal cord derived neural
stem cells; and (ii) Q Therapeutics has gained FDA approval for a Phase 1/2 study with its Q-Cells
®
, purified
human glial progenitor cells isolated from brain tissue. Corestem, a Korean company, recently completed a Phase 1 trial in ALS
showing that repeated intrathecal administration of autologous, bone marrow-derived mesenchymal stem cells was safe. No significant
clinical benefit was reported. There is little public information available about Corestem. Five non-stem cell-based companies
are undergoing Phase 1/2, Phase 2 or Phase 3 clinical trials for ALS. Cytokinetics is a late stage biopharmaceutical company running
a Phase 3 clinical trial with Tirasemtiv, a chemical compound developed to enhance the signals between motor neurons and neuromuscular
junctions (NMJ). A number of academic institutions are also developing treatment candidates for ALS.
Employees
We currently have 22 employees, 19 of whom
are full-time. None of our employees is represented by a labor union.
Additional Information
We maintain a website at
www.brainstorm-cell.com
.
We make available through our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file those
reports with, or furnish them to, the SEC. We also similarly make available, free of charge through our website, the reports filed
with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act. We are not
including the information contained at
www.brainstorm-cell.com
or at any other Internet address as part of, or incorporating
it by reference into, this Annual Report on Form 10-K.
We operate in a rapidly changing environment
that involves a number of risks, some of which are beyond our control. Forward-looking statements in this report and those made
from time to time by us through our senior management are made under the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements concerning the expected future revenues, earnings or financial results or concerning
project plans, performance, or development of products and services, as well as other estimates related to future operations are
necessarily only estimates of future results and there can be no assurance that actual results will not materially differ from
expectations. Forward-looking statements represent management’s current expectations and are inherently uncertain. We do
not undertake any obligation to update forward-looking statements, except as required by applicable securities laws and regulations.
If any of the following risks actually occurs, our financial condition and operating results could be materially adversely affected.
Risks related to our business
We need to raise additional capital.
If we are unable to raise additional capital on favorable terms and in a timely manner, we will not be able to execute our business
plan and we could be forced to restrict or cease our operations.
We will need to raise additional funds to meet
our anticipated expenses so that we can execute our business plan. We expect to incur substantial and increasing net losses for
the foreseeable future as we increase our spending to execute our development programs. Our auditors have expressed in their audit
report that there is substantial doubt regarding our ability to continue as a going concern.
The amount of financing required will depend
on many factors including our financial requirements to fund our research and clinical trials, and our ability to secure partnerships
and achieve partnership milestones as well as to fund other working capital requirements. Our ability to access the capital markets
or to enlist partners is mainly dependent on the progress of our research and development and regulatory approval of our products.
To date the Company has not generated revenues from its activities
and has incurred substantial operating losses. Management expects the Company to continue to generate substantial operating losses
and to continue to fund its operations primarily through utilization of its current financial resources and through additional
raises of capital.
Such conditions
raise substantial doubts about the Company's ability to continue as a going concern. Management’s plan includes raising
funds from outside potential investors. However, there is no assurance such funding will be available to the Company or that
it will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its
objectives. These financial statements do not include any adjustments relating to the recoverability and classification of
assets, carrying amounts or the amount and classification of liabilities that may be required should the Company be unable to
continue as a going concern. Should we raise additional funds through the issuance of equity, equity-related or debt
securities, these securities may have rights, preferences or privileges (including registrations rights) senior to those of
the rights of our Common Stock and our stockholders will experience additional dilution.
Our independent registered public accounting
firm has expressed substantial doubt about our ability to continue as a going concern.
As described in Note 1 of our 2016 financial
statements incorporated herein by reference, our auditors in their audit opinion have expressed concern with respect to our ability
to continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome
of this uncertainty. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.
If our NurOwn
®
treatment
candidate does not demonstrate safety and efficacy sufficient to obtain regulatory approval, it will not receive regulatory approval
and we will be unable to market it.
The therapeutic treatment development and regulatory
approval process is expensive, uncertain and time-consuming. The timing of any future regulatory approval, if any, for our NurOwn®
treatment candidate cannot be accurately predicted. We do not expect to receive regulatory approval for any of our product candidates
until at least 2018, if ever. If we fail to obtain regulatory approval for our NurOwn® treatment candidate, we will be unable
to market and sell it and we may never be profitable.
As part of the regulatory process, we must
conduct clinical trials, including Phase 2 and Phase 3 clinical trials, for our NurOwn® treatment candidate to demonstrate
safety and efficacy in humans to the satisfaction of the FDA and regulatory authorities in other countries.
A failure of one or more of our clinical trials
can occur at any stage of testing. Previous results obtained in uncontrolled clinical trials may not be predictive of future results
obtained in controlled clinical trials. Interim results obtained in clinical trials may not be confirmed upon full analysis of
the results of a clinical trial. Results of later stage clinical trials may fail to show the desired safety and efficacy despite
acceptable results in earlier clinical trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations
and analyses and many companies that have believed their product candidates performed satisfactorily in preclinical and clinical
trials have nonetheless failed to obtain marketing approval of their treatments.
Specifically, we are currently comparing our
NurOwn® treatment candidate against placebo. There is no other active therapy for ALS. While comparisons of outcomes to results
from other reported clinical trials can provide some insight into the efficacy of our NurOwn® treatment candidate, there are
many factors that affect the outcome of clinical trials, some of which are not apparent in published reports, and results from
two different trials cannot always be reliably compared.
Part of our business in the foreseeable
future will be based on technology licensed from Ramot and if this license were to be terminated upon failure to make required
royalty payments in the future, we would need to change our business strategy and we may be forced to cease our operations.
Agreements we and our Israeli Subsidiary have
with Ramot impose on us royalty payment obligations. If we fail to comply with these obligations, Ramot may have the right to terminate
the license under certain circumstances. If Ramot elects to terminate our license, we would need to change our business strategy
and we may be forced to cease our operations. We currently do not owe Ramot any overdue payments. Royalties are due upon commencement
of revenues by the Company.
Our Company has a history of losses and
we expect to incur losses for the foreseeable future.
As a development stage company, we are in the
early stages of executing our business plan. We had no operational revenues for the fiscal years ended December 31, 2016 or December
31, 2015. Our ability to operate successfully is materially uncertain and our operations are subject to significant risks inherent
in a developing business enterprise. We are currently in the process of introducing the Company to strategic partners. In the upcoming
three years, the Company will focus on clinical trials. We are unable at this time to foresee when we will generate operational
revenues from strategic partnerships or otherwise. Furthermore, we expect to incur substantial and increasing operating losses
for the next several years as we increase our spending to execute our development programs. These losses are expected to have an
adverse impact on our working capital, total assets and stockholders’ equity, and we may never achieve profitability.
Our product development programs are
based on novel technologies and are inherently risky.
We are subject to the risks of failure inherent
in the development of products based on new technologies. The novel nature of our stem cell therapy creates significant challenges
with regard to product development and optimization, manufacturing, government regulations, and market acceptance. For example,
the FDA has relatively limited experience with stem cell therapies. None have been approved by them for commercial sale, and the
pathway to regulatory approval for our cell therapy product candidates may accordingly be more complex and lengthy. As a result,
the development and commercialization pathway for our therapies may be subject to increased uncertainty, as compared to the pathway
for new conventional drugs.
We are faced with uncertainties related
to our research.
Our research programs are based on scientific
hypotheses and experimental approaches that may not lead to desired results. In addition, the timeframe for obtaining proof of
principle and other results may be considerably longer than originally anticipated, or may not be possible given time, resource,
financial, strategic and collaborator scientific constraints. Success in one stage of testing is not necessarily an indication
that the particular program will succeed in later stages of testing and development. It is not possible to predict, based upon
studies in in-vitro models and in animals, whether any of the therapies designed for these programs will prove to be safe, effective,
and suitable for human use. Each therapy will require additional research and development, scale-up, formulation and extensive
clinical testing in humans. Unsatisfactory results obtained from a particular study relating to a program may cause the Company
to abandon its commitment to that program or to the lead therapy or product candidate being tested. The discovery of unexpected
toxicities, lack of sufficient efficacy, unacceptable pharmacology, inability to increase scale of manufacture, market attractiveness,
regulatory hurdles, competition, as well as other factors, may make our targets, lead therapies or product candidates unattractive
or unsuitable for human use, and we may abandon our commitment to that program, target, lead therapy or product candidate. In addition,
preliminary results seen in animal and/or limited human testing may not be substantiated in larger controlled clinical trials.
If serious or unexpected adverse side
effects are identified during the development of our NurOwn
®
treatment candidate, we may need to abandon or limit
its development.
If patients treated with our NurOwn® treatment
candidate suffer serious or unexpected adverse effects, we may need to abandon its development or limit development to certain
uses or subpopulations in which these effects are less prevalent, less severe or more acceptable from a risk-benefit perspective.
The field of stem cell therapy is relatively
new and our development efforts may not yield an effective treatment of human diseases.
Our intended cell therapeutic treatment methods
for ALS involve a new approach that has not yet been proven to work in humans. We are currently conducting a Phase 2 placebo-controlled
clinical trial for ALS, which, together with other stem cell therapies, may ultimately prove ineffective in treatment of human
diseases. If we cannot successfully implement our NurOwn® stem cell therapy in human testing, we would need to change our business
strategy and we may be forced to cease our operations.
Our NurOwn
®
treatment
candidate is based on a novel technology, which may raise development issues that we may not be able to resolve, regulatory issues
that could delay or prevent approval or personnel issues that may keep us from being able to develop our treatments.
Regulatory approval of treatment candidates
that utilize novel technology such as ours can be more expensive and take longer than for other treatments that are based on more
well-known or more extensively studied technology, due to our and the regulatory agencies’ lack of experience with them.
This may lengthen the regulatory review process, require us to perform additional studies, including clinical trials, increase
our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization
of these treatment candidates or lead to significant post-approval limitations or restrictions. For example, the differentiated
cell component of our NurOwn® treatment candidate is a complex biologic product that is manufactured from the patient’s
own bone marrow that must be appropriately harvested, isolated, expanded and differentiated so that its identity, strength, quality,
purity and potency may be characterized prior to release for treatment. No differentiated cell treatment for ALS has yet been approved
for marketing by the FDA or any other regulatory agency. The tests that we use to make identity, strength, quality, purity and
potency determinations on our NurOwn® treatment candidate may not be sufficient to satisfy the FDA’s expectations regarding
the criteria required for release of products for patient treatment and the regulatory agency may require us to employ additional
testing measures for this purpose, which could require us to undertake additional testing and/or additional clinical trials.
The novel nature of our NurOwn® treatment
candidate also means that fewer people are trained in or experienced with treatments of this type, which may make it difficult
to recruit, hire and retain capable personnel for the research, development and manufacturing positions that will be required to
continue our development and commercialization efforts.
A significant global market for our services
has yet to emerge.
Very few companies have been successful in
their efforts to develop and commercialize a stem cell product. Some stem cell products in general may be susceptible to various
risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy,
or other characteristics that may prevent or limit their approval or commercial use. The demand for stem cell processing and the
number of people who may use cell or tissue-based therapies is difficult to forecast. Physicians, patients, formularies, third
party payers or the medical community in general may not accept or utilize any products that the Company or its collaborative partners
may develop. Our success is dependent on the establishment of a large global market for our products and services and our ability
to capture a share of this market.
We have limited experience in conducting
and managing clinical trials and the application process necessary to obtain regulatory approvals
.
Our limited experience in conducting and managing
clinical trials and the application process necessary to obtain regulatory approvals might prevent us from successfully designing
or implementing a preclinical study or clinical trial. Many companies in the industry have suffered significant setbacks in advanced
clinical trials, despite promising results in earlier trials. If our clinical trials are unsuccessful, or if we do not complete
our clinical trials, we may not receive regulatory approval for or be able to commercialize our product candidates.
If we do not succeed in conducting and managing
our preclinical development activities or clinical trials, or in obtaining regulatory approvals, we might not be able to commercialize
our product candidates, or might be significantly delayed in doing so, which will materially harm our business.
Our ability to generate revenues from any of
our product candidates will depend on a number of factors, including our ability to successfully complete clinical trials, obtain
necessary regulatory approvals and implement our commercialization strategy. We may, and anticipate that we will need to, transition
from a company with a research and development focus to a company capable of supporting commercial activities and we may not succeed
in such a transition.
We may not be able to secure and maintain
research institutions to conduct our clinical trials.
We rely on research institutions to conduct
our clinical trials. Our reliance upon research institutions, including hospitals and clinics, provides us with less control over
the timing and cost of clinical trials and the ability to recruit subjects. If we are unable to reach agreements with suitable
research institutions on acceptable terms, or if any resulting agreement is terminated, we may be unable to quickly replace the
research institution with another qualified institution on acceptable terms. Furthermore, we may not be able to secure and maintain
suitable research institutions to conduct our clinical trials.
We are subject to a strict regulatory
environment. If we fail to obtain and maintain required regulatory approvals for our potential cell therapy products, our ability
to commercialize our potential cell therapy products will be severely limited.
None of our product candidates have received
regulatory approval for commercial sale yet. We do not expect to receive regulatory approval for any of our product candidates
until at least 2018, if ever.
Numerous statutes and regulations govern human
testing and the manufacture and sale of human therapeutic products in the United States and other countries where we intend to
market our products. Such legislation and regulation bears upon, among other things, the approval of protocols and human testing,
the approval of manufacturing facilities, testing procedures and controlled research, review and approval of manufacturing, preclinical
and clinical data prior to marketing approval including adherence to GMP during production and storage as well as regulation of
marketing activities including advertising and labeling.
The completion of the clinical testing of our
product candidates and the obtaining of required approvals are expected to take several years and require the expenditure of substantial
resources. We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay
or prevent regulatory approval and/or commercialization of our product candidates, including the following:
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The FDA or similar foreign regulatory authorities may find that our product candidates are not sufficiently safe or effective or may find our processes or facilities unsatisfactory;
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Officials at the Israeli MoH, the FDA or similar foreign regulatory authorities may interpret data from preclinical studies and clinical trials differently than we do;
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Our clinical trials may produce negative or inconclusive results or may not meet the level of statistical significance required by the Israeli MoH, the FDA or other regulatory authorities, and we may decide, or regulators may require us, to conduct additional preclinical studies and/or clinical trials or to abandon one or more of our development programs;
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The Israeli MoH, the FDA or similar foreign regulatory authorities may change their approval policies or adopt new regulations;
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There may be delays or failure in obtaining approval of our clinical trial protocols from the Israeli MoH, the FDA or other regulatory authorities or obtaining institutional review board approvals or government approvals to conduct clinical trials at prospective sites;
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We, or regulators, may suspend or terminate our clinical trials because the participating patients are being exposed to unacceptable health risks or undesirable side effects;
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We may experience difficulties in managing multiple clinical sites;
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Enrollment in our clinical trials for our product candidates may occur more slowly than we anticipate, or we may experience high drop-out rates of subjects in our clinical trials, resulting in significant delays; and
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We may be unable to manufacture or obtain from third party manufacturers sufficient quantities of our product candidates for use in clinical trials.
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Investors should be aware of the risks, problems,
delays, expenses and difficulties which may be encountered by us in light of the extensive regulatory environment in which our
business operates. In particular, our development costs will increase if we have material delays in our clinical trials, or if
we are required to modify, suspend, terminate or repeat a clinical trial. If we are unable to conduct our clinical trials properly
and on schedule, marketing approval may be delayed or denied by the Israeli MoH or the FDA.
Even if a product candidate is approved by
the Israeli MoH, the FDA or any other regulatory authority, we may not obtain approval for an indication whose market is large
enough to recoup our investment in that product candidate. We may never obtain the required regulatory approvals for any of our
product candidates. Later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions
on the product or manufacturer, including a withdrawal of the product from the market.
Even if regulatory approvals are obtained
for our product candidates, we will be subject to ongoing government regulation. If we or one or more of our partners or collaborators
fail to comply with applicable current and future laws and government regulations, our business and financial results could be
adversely affected.
The healthcare industry is one of the most
highly regulated industries in the United States. The federal government, individual state and local governments and private accreditation
organizations all oversee and monitor the activities of individuals and businesses engaged in the delivery of health care products
and services. Even if regulatory authorities approve any of our human therapeutic product candidates, current laws, rules and regulations
that could directly or indirectly affect our ability and the ability of our strategic partners and customers to operate each of
their businesses could include, without limitation, the following:
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State and local licensing, registration and regulation of laboratories, the collection, processing and storage of human cells and tissue, and the development and manufacture of pharmaceuticals and biologics;
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The federal Clinical Laboratory Improvement Act and amendments of 1988;
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Laws and regulations administered by the FDA, including the Federal Food Drug and Cosmetic Act and related laws and regulations;
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The Public Health Service Act and related laws and regulations;
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Laws and regulations administered by the United States Department of Health and Human Services, including the Office for Human Research Protections;
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State laws and regulations governing human subject research;
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Occupational Safety and Health requirements; and
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State and local laws and regulations dealing with the handling and disposal of medical waste.
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Compliance with such regulation may be expensive
and consume substantial financial and management resources. If we, or any future marketing collaborators or contract manufacturers,
fail to comply with applicable regulatory requirements, we may be subject to sanctions including fines, product recalls or seizures,
injunctions, total or partial suspension of production, civil penalties, withdrawal of regulatory approvals and criminal prosecution.
Any of these sanctions could delay or prevent the promotion, marketing or sale of our products.
Our NurOwn
®
treatment
candidate, even if approved, may not be accepted in the marketplace; therefore, we may not be able to generate significant revenue,
if any.
Even if our NurOwn® treatment candidate
is approved for sale, physicians and the medical community may not ultimately use it or may use it only in applications more restricted
than we anticipate. Our NurOwn® treatment candidate, if successfully developed, will compete with a number of traditional products
manufactured and marketed by major pharmaceutical and biotechnology companies. Our NurOwn® treatment candidate may also compete
with new products currently under development by such companies and others. Physicians will prescribe a treatment only if they
determine, based on experience, clinical data, side effect profiles and other factors, that it is beneficial as compared to other
products currently available and in use. Physicians also will prescribe a product based on their traditional preferences. Many
other factors influence the adoption of new products, including patient perceptions and preferences, marketing and distribution
restrictions, adverse publicity, product pricing, views of thought leaders in the medical community and reimbursement by government
and private payers. Any of these factors could have a material adverse effect on our business, financial condition, and results
of operations.
Adoption of our NurOwn
®
treatment candidate for the treatment of patients with ALS, or other neurodegenerative diseases, even if approved, may be slow
or limited. If our NurOwn
®
treatment candidate does not achieve broad acceptance as a treatment option for ALS,
or other neurodegenerative diseases, our business would be harmed.
If approved, the rate of adoption of our NurOwn®
treatment candidate as a treatment for ALS, or other neurodegenerative diseases, and the ultimate sales volume for our treatment,
will depend on several factors, including educating treating physicians on how to use our NurOwn® treatment candidate. Our
NurOwn® treatment candidate utilizes individualized stem cell therapy, which is significantly different from the pharmacological
approach currently used to treat neurodegenerative diseases. Acceptance of our NurOwn® treatment candidate by treating physicians
may require us to provide them with extensive education regarding the mechanism of action of our treatment, the method of delivery
of the treatment, expected side effects and the method of monitoring patients for efficacy and follow-up. In addition, the manufacturing
and delivery processes associated with our treatment will require treating physicians to adjust their current treatment of patients,
which may delay or prevent market adoption of our NurOwn® treatment candidate as a preferred therapy, even if approved.
We are subject to environmental, health
and safety laws.
We are subject to various laws and regulations
relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and humans, emissions
and wastewater discharges, and the use and disposal of hazardous or potentially hazardous substances used in connection with our
research. We also cannot accurately predict the extent of regulations that might result from any future legislative or administrative
action. Any of these laws or regulations could cause us to incur additional expense or restrict our operations.
Compliance with environmental laws and regulations
may be expensive, and current or future environmental regulations may impair our research, development or production efforts.
Our success will depend in part on establishing
and maintaining effective strategic partnerships and collaborations, which may impose restrictions on our business and subject
us to additional regulation.
A key aspect of our business strategy is to
establish strategic relationships in order to expand or complement our research and development or commercialization capabilities,
and to reduce the cost of research and development. There can be no assurance that we will enter into such relationships, that
the arrangements will be on favorable terms or that such relationships will be successful. If we are ultimately successful in executing
our strategy of securing collaborations with companies that would undertake advanced clinical development and commercialization
of our products, we may not have day-to-day control over their activities. Any such collaborator may adhere to criteria for determining
whether to proceed with a clinical development program under circumstances where we might have continued such a program. Potential
collaborators may have significant discretion in determining the efforts and amount of resources that they dedicate to our collaborations
or may be unwilling or unable to fulfill their obligations to us, including their development and commercialization. Potential
collaborators may underfund or not commit sufficient resources to the testing, marketing, distribution or other development of
our products. They may also not properly maintain or defend our intellectual property rights or they may utilize our proprietary
information in such a way as to invite litigation that could jeopardize or potentially invalidate our proprietary information or
expose us to potential liability. Potential collaboration partners may have the right to terminate the collaboration on relatively
short notice and if they do so or if they fail to perform or satisfy their obligations to us, the development or commercialization
of products would be delayed and our ability to realize any potential milestone payments and royalty revenue would be adversely
affected.
We will need to develop or acquire additional
capabilities in order to commercialize our NurOwn
®
treatment candidate, if approved for sale, and we may encounter
unexpected costs or difficulties in doing so.
We will need to acquire additional capabilities
and effectively manage our operations and facilities to successfully pursue and complete future research, development and, if our
NurOwn® treatment candidate receives regulatory approval, commercialization efforts. Currently, we have no experience in preparing
applications for marketing approval, commercial-scale manufacturing, managing of large-scale information technology systems or
managing a large-scale distribution system. We will need to add personnel and expand our capabilities, which may strain our existing
managerial, operational, regulatory compliance, financial and other resources. To do this effectively, we must:
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train, manage and motivate a growing employee base;
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accurately forecast demand for our treatment; and
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expand existing operational, financial and management information systems.
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We will need to increase our manufacturing
capacity prior to seeking approval for the sale of our products. If we are not successful in establishing a regulatory compliant
manufacturing process, we may not obtain approval of products or our ability to obtain regulatory approval for sale could be delayed,
which would further delay the period of time when we would be able to generate revenues from the sale of such products, if we are
even able to generate revenues at all.
We expect to expand
our development, regulatory, manufacturing and sales and marketing capabilities, and as a result, we may encounter difficulties
in managing our growth, which could disrupt our operations.
We expect to experience significant growth
in the number of our employees and the scope of our operations, particularly in the areas of product development, regulatory affairs,
manufacturing and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial,
operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due
to our limited financial resources and the limited experience of our management team in managing a company with such anticipated
growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel.
The physical expansion of our operations may lead to significant costs and may divert our management and business development resources.
Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
We have never manufactured our NurOwn
®
treatment candidate at commercial scale and there can be no assurance that it can be manufactured in compliance with regulations
at a cost or in quantities necessary to make it commercially viable.
We have no experience in commercial-scale manufacturing,
the management of large-scale information technology systems or the management of a large-scale distribution system. We may develop
our manufacturing capacity in part by expanding our current facilities and/or by setting up additional facilities in other regions
of the country. These activities would require substantial additional funds and we would need to hire and train significant numbers
of qualified employees to staff these facilities. We may not be able to develop commercial-scale facilities that are sufficient
to produce the treatment candidates or their components for later-stage clinical trials or commercial use.
Furthermore, we must supply all necessary documentation,
including product characterization and process validation, to regulatory authorities in support of our BLA on a timely basis and
must adhere to cGMP regulations and current Good Tissue Practices (“GTP”) enforced by the regulatory authority through
its facilities inspection program. We have not fully characterized our NurOwn® treatment candidate and have not validated our
manufacturing process. If the FDA determines that the products used in our clinical trials are not sufficiently characterized,
we may be required to repeat all or a portion of our clinical trials. If our facilities cannot pass a pre-approval plant inspection,
the regulatory approval of the treatment candidates will not be granted.
We are subject to significant regulation
with respect to manufacturing of our NurOwn
®
treatment candidate.
All entities involved in the preparation of
a therapeutic biological for clinical trials or commercial sale are subject to extensive regulation. Our NurOwn® treatment
candidate must be manufactured in accordance with cGMP and GTP before it can be used in our clinical trials or approved for commercial
sale. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to
control and assure the quality of investigational treatment candidates and treatments, including treatment component characterization
and process validation, approved for sale. Our facilities and quality systems and the facilities and quality systems of some or
all of our third party suppliers must pass a pre-approval inspection for compliance with the applicable regulations as a condition
of regulatory approval of our NurOwn® treatment candidate. If any inspection or audit of our manufacturing facilities identifies
a failure to comply with applicable regulations, or if a violation of applicable regulations occurs independent of an inspection
or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us
or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales
or the temporary or permanent closure of a facility. Any such remedial measures imposed on us or third parties with whom we contract
could materially harm our business.
Lack of coordination internally among
our employees and externally with physicians, hospitals and third-party suppliers and carriers, could cause manufacturing difficulties,
disruptions or delays and cause us to not meet our expected clinical trial requirements or potential commercial requirements.
Manufacturing our NurOwn® treatment candidate
requires coordination internally among our employees and externally with physicians, hospitals and third-party suppliers and carriers.
For example, a patient’s physician or clinical site will need to coordinate with us for the shipping of a patient’s
bone marrow to our manufacturing facility, and we will need to coordinate with them for the shipping of the treatment components
to them. Such coordination involves a number of risks that may lead to failures or delays in manufacturing our NurOwn® treatment
candidate, including:
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failure to obtain a sufficient supply of key raw materials of suitable quality;
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difficulties in manufacturing our treatment candidates for multiple patients simultaneously;
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difficulties in obtaining adequate patient-specific material, such as bone marrow samples, from physicians;
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difficulties in completing the development and validation of the harvested cells required to ensure the consistency of our NurOwn® treatment candidate;
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failure to ensure adequate quality control and assurances in the manufacturing process as we increase production quantities;
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difficulties in the timely shipping of patient-specific materials to us or in the shipping of the treatment candidates to the treating physicians due to errors by third-party carriers, transportation restrictions or other reasons;
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loss or destruction of, or damage to, patient-specific materials or our NurOwn® treatment candidate during the shipping process due to improper handling by third-party carriers, hospitals, physicians or us;
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loss or destruction of, or damage to, patient-specific materials or our NurOwn® treatment candidate during storage at our facilities; and
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loss or destruction of, or damage to, patient-specific materials or our NurOwn® treatment candidate stored at clinical and future commercial sites due to improper handling or holding by clinicians, hospitals or physicians.
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If we are unable to coordinate appropriately,
we may encounter delays or additional costs in achieving our clinical and commercialization objectives, including in obtaining
regulatory approvals of our treatment candidates and supplying products, which could materially damage our business and financial
position.
We face competition in our efforts to
develop cell therapies for ALS and other neurodegenerative diseases.
We face competition in our efforts to develop
cell therapies and other treatment or procedures to cure or slow the effects of ALS and other neurodegenerative diseases. Among
our competitors are companies that are involved in the fetal-derived cell transplants or embryonic stem cell derived cell therapy
and companies developing adult stem cells. Other companies are developing traditional chemical compounds, new biological drugs,
cloned human proteins and other treatments, which are likely to impact the markets that we intend to target. Some of our competitors
possess longer operating histories and greater financial, managerial, scientific and technical resources than we do and some possess
greater name recognition and established customer bases. Some also have significantly more experience in preclinical testing, human
clinical trials, product manufacturing, the regulatory approval process and marketing and distribution than we do.
The trend towards consolidation in the
pharmaceutical and biotechnology industries may adversely affect us.
There is a trend towards consolidation in the
pharmaceutical and biotechnology industries. This consolidation trend may result in the remaining companies having greater financial
resources and discovery technological capabilities, thus intensifying competition in these industries. This trend may also result
in fewer potential collaborators or licensees for our therapeutic product candidates. Also, if a consolidating company is already
doing business with our competitors, we may lose existing licensees or collaborators as a result of such consolidation.
There is a scarcity of experienced professionals
in the field of cell therapy and we may not be able to retain key personnel or hire new key personnel needed to implement our business
strategy and develop our products and businesses. If we are unable to retain or hire key personnel, we may be unable to continue
to grow our business or to implement our business strategy, and our business may be materially and adversely affected.
Given the specialized nature of cell therapy
and the fact that it is a young field, there is an inherent scarcity of experienced personnel in the field. Our success depends
on a significant extent to the continued services of certain highly qualified scientific and management personnel. We face competition
for qualified personnel from numerous industry sources, and there can be no assurance that we will be able to attract and retain
qualified personnel on acceptable terms. The loss of service of any of our key personnel could have a material adverse effect on
our operations or financial condition. In the event of the loss of services of such personnel, no assurance can be given that we
will be able to obtain the services of adequate replacement personnel. We do not have key person life insurance on our key personnel.
The future success of the Company also depends upon our ability to attract and retain additional qualified personnel (including
medical, scientific, technical, commercial, business and administrative personnel) necessary to support our anticipated growth,
develop our business, and maintain appropriate licensure, on acceptable terms. There can be no assurance that we will be successful
in attracting or retaining personnel required by us to continue and grow our operations. The loss of a key employee, the failure
of a key employee to perform in his or her current position or our inability to attract and retain skilled employees, as needed,
could result in our inability to continue to grow our business or to implement our business strategy, or may have a material adverse
effect on our business, financial condition and results of operations.
Technological and medical developments
or improvements in conventional therapies could render the use of stem cells and our services and planned products obsolete.
The pharmaceutical industry is characterized
by rapidly changing markets, technology, emerging industry standards and frequent introduction of new products. The introduction
of new products embodying new technologies, including new manufacturing processes, and the emergence of new industry standards
may render our technologies obsolete, less competitive or less marketable. Advances in other treatment methods or in disease prevention
techniques could significantly reduce or entirely eliminate the need for our stem cell services, planned products and therapeutic
efforts. Additionally, technological or medical developments may materially alter the commercial viability of our technology or
services, and require us to incur significant costs to replace or modify equipment in which we have a substantial investment. In
either event, we may experience a material adverse effect on our business, results of operations and financial condition.
We may expend our limited resources to
pursue our NurOwn
®
treatment candidate or a specific indication for its use and fail to capitalize on treatment
candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial
resources, we have focused development of our NurOwn® treatment candidate for use in patients with ALS. As a result, we may
forego or delay pursuit of opportunities with other treatment candidates or for other indications that later prove to have greater
commercial potential. Our spending on current and future research and development efforts on our NurOwn® treatment candidate
for this indication may not yield a commercially viable treatment. Our resource allocation decisions also may cause us to fail
to capitalize on a viable commercial treatment, a more viable indication or profitable market opportunities.
We have based our research and development
efforts on our NurOwn® treatment candidate. Notwithstanding our large investment to date and anticipated future expenditures
in our NurOwn® treatment candidate, we have not yet developed, and may never successfully develop, any marketed treatments
using this approach. As a result of pursuing the development of our NurOwn® treatment candidate, we may fail to develop treatment
candidates or address indications based on other scientific approaches that may offer greater commercial potential or for which
there is a greater likelihood of success.
Our long-term business plan is to develop our
NurOwn® treatment candidate for the treatment of neurodegenerative diseases, such as ALS, MS and PD. Even if we successfully
develop our NurOwn® treatment candidate for use in one indication, we may not be successful in our efforts to identify or discover
additional indications for it. Clinical programs to develop new indications for our NurOwn® treatment candidate will require
substantial technical, financial and human resources. These development programs may initially show promise in identifying potential
treatment indications, yet fail to obtain regulatory approval for commercial sale.
If we do not accurately evaluate the commercial
potential or target market for our NurOwn® treatment candidate, we may relinquish valuable rights to that treatment through
collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain
sole development and commercialization rights.
If Ramot is unable to obtain patents
on the patent applications and technology licensed to our Israeli Subsidiary or if patents are obtained but do not provide meaningful
protection, we may not be able to successfully market our proposed products.
We rely upon the patent applications filed
by Ramot, the technology licensing company of Tel Aviv University, and the license granted to us by Ramot, all in accordance with
the Second Ramot Agreement dated as of July 26, 2007. We further agreed under the Second Ramot Agreement that Ramot, in consultation
with us, is responsible for obtaining patent protection for technology owned by Ramot and licensed to us. No assurance can be given
that any of our pending or future patent applications will be approved, that the scope of any patent protection granted will exclude
competitors or provide us with competitive advantages, that any of the patents that may be issued to us will be held valid if subsequently
challenged, or that other parties will not claim rights to or ownership of our patents or other proprietary rights that we hold
license to. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate
any of our technology or products or design around any patents that have been or may be issued to us or any future licensors. Since
patent applications in the United States and in Europe are not disclosed until applications are published, there can be no assurance
that others did not first file applications for products covered by our pending patent applications, nor can we be certain that
we will not infringe any patents that may be issued to others. Also, we have abandoned our rights to certain patents of Ramot in
certain countries in connection with the Letter Agreement by and between us and Ramot dated December 24, 2009, which may limit
our ability to fully market our proposed products.
We also rely upon unpatented proprietary technology,
know-how and trade secrets and seek to protect them through confidentiality agreements with employees, consultants and advisors.
If these confidentiality agreements are breached, we may not have adequate remedies for the breach. In addition, others may independently
develop or otherwise acquire substantially the same proprietary technology as our technology and trade secrets.
We may be unable to protect our intellectual
property from infringement by third parties.
Despite our efforts to protect our intellectual
property, third parties may infringe or misappropriate our intellectual property. Our competitors may also independently develop
similar technology, duplicate our processes or services or design around our intellectual property rights. We may have to litigate
to enforce and protect our intellectual property rights to determine their scope, validity or enforceability. Intellectual property
litigation is costly, time-consuming, diverts the attention of management and technical personnel and could result in substantial
uncertainty regarding our future viability. The loss of intellectual property protection or the inability to secure or enforce
intellectual property protection would limit our ability to develop or market our services in the future. This would also likely
have an adverse effect on the revenues generated by any sale or license of such intellectual property. Furthermore, any public
announcements related to such litigation or regulatory proceedings could adversely affect the price of our Common Stock.
Third parties may claim that we infringe
on their intellectual property.
We may be subject to costly litigation in the
event our technology is claimed to infringe upon the proprietary rights of others. Third parties may have, or may eventually be
issued, patents that would be infringed by our technology. Any of these third parties could make a claim of infringement against
us with respect to our technology. We may also be subject to claims by third parties for breach of copyright, trademark or license
usage rights. Litigation and patent interference proceedings could result in substantial expense to us and significant diversion
of efforts by our technical and management personnel. An adverse determination in any such proceeding or in patent litigation could
subject us to significant liabilities to third parties or require us to seek licenses from third parties. Such licenses may not
be available on acceptable terms or at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent us from commercializing our products, which would have a material adverse effect on our business,
results of operations and financial condition.
As a result of our reliance on consultants,
we may not be able to protect the confidentiality of our technology, which, if disseminated, could negatively impact our plan of
operations.
We currently have relationships with academic
and industry consultants and subcontractors who are not directly employed by us, and we may enter into additional relationships
of such nature in the future. We have limited control over the activities of these consultants and can expect only limited amounts
of their time to be dedicated to our activities. These persons may have consulting, employment or advisory arrangements with other
entities that may conflict with or compete with their obligations to us. Our consultants typically sign agreements that provide
for confidentiality of our proprietary information and results of studies. However, in connection with every relationship, we may
not be able to maintain the confidentiality of our technology, the dissemination of which could hurt our competitive position and
results of operations. To the extent that our scientific consultants develop inventions or processes independently that may be
applicable to our proposed products, disputes may arise as to the ownership of the proprietary rights to such information, we may
expend significant resources in such disputes and we may not win those disputes.
It is uncertain to what extent the government,
private health insurers and third-party payers will approve coverage or provide reimbursement for the therapies and products to
which our services relate. Availability for such reimbursement may be further limited by an increasing uninsured population and
reductions in Medicare and Medicaid funding in the United States.
Our ability to successfully commercialize our
human therapeutic products will depend significantly on our ability to obtain acceptable prices and the availability of reimbursement
to the patient from third-party payers, such as government and private insurance plans. While we have not commenced discussions
with any such parties, these third-party payers frequently require companies to provide predetermined discounts from list prices,
and they are increasingly challenging the prices charged for pharmaceuticals and other medical products. Our human therapeutic
products may not be considered cost-effective, and reimbursement to the patient may not be available or sufficient to allow us
to sell our products on a competitive basis. Further, as cost containment pressures are increasing in the health care industry,
government and private payers adopt strategies designed to limit the amount of reimbursement paid to health care providers. Such
cost containment measures may include:
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Reducing reimbursement rates;
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Challenging the prices charged for medical products and services;
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Limiting services covered;
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Decreasing utilization of services;
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Negotiating prospective or discounted contract pricing;
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Adopting capitation strategies; and
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Seeking competitive bids.
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Similarly, the trend toward managed health
care and bundled pricing for health care services in the United States could significantly influence the purchase of healthcare
services and products, resulting in lower prices and reduced demand for our therapies.
We may not be able to negotiate favorable reimbursement
rates for our human therapeutic products. If we fail to obtain acceptable prices or an adequate level of reimbursement for our
products, the sales of our products would be adversely affected or there may be no commercially viable market for our products.
Unintended consequences of recently adopted
health reform legislation in the U.S. may adversely affect our business.
The healthcare industry is undergoing fundamental
changes resulting from political, economic and regulatory influences. In the U.S., comprehensive programs are under consideration
that seek to, among other things, increase access to healthcare for the uninsured and control the escalation of healthcare expenditures
within the economy. On March 23, 2010, health reform legislation was approved by Congress and has been signed into law. While we
do not believe this legislation will have a direct impact on our business, the legislation has only recently been enacted and requires
the adoption of implementing regulations, which may have unintended consequences or indirectly impact our business. For instance,
the scope and implications of the recent amendments pursuant to the Fraud Enforcement and Recovery Act of 2009 have yet to be fully
determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our business.
Also, in some instances our clients may be health insurers that will be subject to limitations on their administrative expenses
and new federal review of “unreasonable” rate increases which could impact the prices they pay for our services. If
the legislation causes such unintended consequences or indirect impact, it could have a material adverse effect on our business,
financial condition and results of operations.
Ethical and other concerns surrounding
the use of stem cell therapy may negatively impact the public perception of our stem cell services, thereby suppressing demand
for our services.
Although our stem cell business pertains to
adult stem cells only, and does not involve the more controversial use of embryonic stem cells, the use of adult human stem cells
for therapy could give rise to similar ethical, legal and social issues as those associated with embryonic stem cells, which could
adversely affect its acceptance by consumers and medical practitioners. Additionally, it is possible that our business could be
negatively impacted by any stigma associated with the use of embryonic stem cells if the public fails to appreciate the distinction
between adult and embryonic stem cells. Delays in achieving public acceptance may materially and adversely affect the results of
our operations and profitability.
We are exposed to fluctuations in currency
exchange rates.
A significant portion of our business, particularly
our research and development, is conducted outside the United States. Therefore, we are exposed to currency exchange fluctuations
in other currencies such as the New Israeli Shekels (“NIS”) and the Euro. Moreover, a portion of our expenses in Israel
and Europe are paid in NIS and Euros, respectively, which subjects us to the risks of foreign currency fluctuations. Our primary
expenses paid in NIS are employee salaries, fees for consultants and subcontractors and lease payments on our Israeli facilities.
The dollar cost of our operations in
Israel will increase to the extent increases in the rate of inflation in Israel are not offset by a devaluation of the NIS in relation
to the dollar, which would harm our results of operations.
Since a considerable portion of our expenses
such as employees' salaries are linked to an extent to the rate of inflation in Israel, the dollar cost of our operations is influenced
by the extent to which any increase in the rate of inflation in Israel is or is not offset by the devaluation of the NIS in relation
to the dollar. As a result, we are exposed to the risk that the NIS, after adjustment for inflation in Israel, will appreciate
in relation to the dollar. In that event, the dollar cost of our operations in Israel will increase and our dollar-measured results
of operations will be adversely affected. During the past few years inflation-adjusted NIS appreciated against the dollar, which
raised the dollar cost of our Israeli operations. We cannot predict whether the NIS will appreciate against the dollar or vice
versa in the future. Any increase in the rate of inflation in Israel, unless the increase is offset on a timely basis by a devaluation
of the NIS in relation to the dollar, will increase labor and other costs, which will increase the dollar cost of our operations
in Israel and harm our results of operations.
We may be subject to significant product
liability claims and litigation which could adversely affect our future earnings and financial condition.
Our business exposes us to potential product
liability risks inherent in the testing, processing and marketing of stem cell therapy products. Specifically, the conduct of clinical
trials in humans involves the potential risk that the use of our stem cell therapy products will result in adverse effects. Such
liability claims may be expensive to defend and result in large judgments against us. We currently maintain liability insurance
for our clinical trials; however such liability insurance may not be adequate to fully cover any liabilities that arise from clinical
trials of our stem cell therapy products. We also maintain errors and omissions, directors and officers, workers’ compensation
and other insurance appropriate to our business activities. If we were to be subject to a claim in excess of this coverage or to
a claim not covered by our insurance and the claim succeeded, we would be required to pay the claim from our own limited resources,
which could have a material adverse effect on our financial condition, results of operations and business. Additionally, liability
or alleged liability could harm our business by diverting the attention and resources of our management and damaging our reputation
and that of our subsidiaries.
Political, economic and military instability
in Israel may impede our ability to execute our plan of operations.
Our principal operations and the research and
development facilities of the scientific team funded by us under the Second Ramot Agreement are located in Israel. Accordingly,
political, economic and military conditions in Israel may affect our business. Since the establishment of the State of Israel in
1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Acts of random terrorism periodically occur
which could affect our operations or personnel. Ongoing or revived hostilities or other factors related to Israel could harm our
operations and research and development process and could impede our ability to execute our plan of operations.
In addition, Israeli-based companies and companies
doing business with Israel have been the subject of an economic boycott by members of the Arab League and certain other predominantly
Muslim countries since Israel's establishment. Although Israel has entered into various agreements with certain Arab countries
and the Palestinian Authority, and various declarations have been signed in connection with efforts to resolve some of the economic
and political problems in the Middle East, we cannot predict whether or in what manner these problems will be resolved. Wars and
acts of terrorism have resulted in damage to the Israeli economy, including reducing the level of foreign and local investment.
Furthermore, certain of our officers and employees
may be obligated to perform annual reserve duty in the Israel Defense Forces and are subject to being called up for active military
duty at any time. Israeli citizens who have served in the army may be subject to an obligation to perform reserve duty until they
are between 40 and 49 years old, depending upon the nature of their military service.
Man-Made Problems Such as Computer Viruses
or Terrorism May Disrupt Our Operations and Harm Our Operating Results
Despite our implementation of network security
measures our servers are vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our
computer systems. Any such event could have a material adverse effect on our business, operating results, and financial condition.
Efforts to limit the ability of malicious third parties to disrupt the operations of the internet or undermine our own security
efforts may meet with resistance. In addition, the continued threat of terrorism and heightened security and military action in
response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of the United States,
Israel and other countries and create further uncertainties or otherwise materially harm our business, operating results, and financial
condition. Likewise, events such as widespread blackouts could have similar negative impacts. To the extent that such disruptions
or uncertainties result in delays or access to data or personal information, our business, operating results, and financial condition
could be materially and adversely affected.
Risks related to our Common Stock
The price of our stock is expected to
be volatile.
The market price of our Common Stock has fluctuated
significantly, and is likely to continue to be highly volatile. To date, the trading volume in our stock has been relatively low
and significant price fluctuations can occur as a result. An active public market for our Common Stock may not continue to develop
or be sustained. If the low trading volumes experienced to date continue, such price fluctuations could occur in the future and
the sale price of our Common Stock could decline significantly. Investors may therefore have difficulty selling their shares.
Your percentage ownership will be diluted
by future issuances of our securities.
In order to meet our financing needs, we may
issue additional significant amounts of our Common Stock and warrants to purchase shares of our Common Stock. The precise terms
of any future financings will be determined by us and potential investors and such future financings may also significantly dilute
your percentage ownership in the Company.
ACCBT holds equity participation rights
and other rights that could affect our ability to raise funds.
Pursuant to the Subscription Agreement with
ACCBT Corp. (“ACCBT”), a company under the control of Mr. Chaim Lebovits, our President and Chief Executive Officer,
we granted ACCBT the right to acquire additional shares of our Common Stock whenever we issue additional shares of Common Stock
or other securities of the Company, or options or rights to purchase shares of the Company or other securities directly or indirectly
convertible into or exercisable for shares of the Company (including shares of any newly created class or series). This participation
right could limit our ability to enter into equity financings and to raise funds from third parties. ACCBT is entitled to purchase
its pro rata share of any additional securities we offer, so that its percentage ownership of the Company remains the same after
any such issuance of additional securities. Such additional securities will be offered to ACCBT at the same price and on the same
terms as the other investors in the transaction. ACCBT will have 30 days from the date of our notice to ACCBT of any intended transaction,
to decide whether it wishes to exercise its participation rights in the transaction. We also are prohibited from taking certain
corporate actions without the consent of ACCBT, including issuing shares, acquiring or divesting assets and making payment of cash
compensation over $60,000 per year. Further, ACCBT also has the right to appoint a majority of our Board of Directors. In connection
with the Subscription Agreement, we entered into a registration rights agreement with ACCBT pursuant to which we granted piggyback
registration rights to ACCBT. In addition, we issued ACCBT warrants to purchase up to 2,016,666 shares of Common Stock, of which
2,016,666 warrants are presently outstanding. The outstanding warrants contain cashless exercise provisions, which permit the cashless
exercise of up to 50% of the underlying shares of Common Stock. 672,222 of such warrants have an exercise price of $3.00 and the
remainder have an exercise price of $4.35. We registered 1,920,461 shares of Common Stock and 2,016,666 shares of Common Stock
underlying the ACCBT Warrants on registration statement No. 333-201705 dated January 26, 2015 pursuant to ACCBT’s registration
rights. ACCBT has waived its participation rights and anti-dilution rights with respect to issuances that were made on or prior
to January 8, 2015. In March 2014, we entered into an agreement with ACCBT according to which ACCBT waived certain anti-dilution
rights. On May 25, 2014, the Company entered into a Warrant Amendment Agreement with ACCBT, pursuant to which the expiration date
of each Warrant held by ACCBT was extended until November 5, 2017, in consideration of ACCBT having provided a series of waivers
of their rights, including the anti-dilution rights waiver.
You may experience difficulties in attempting
to enforce liabilities based upon U.S. federal securities laws against us and our non-U.S. resident directors and officers.
Our principal operations are located through
our subsidiary in Israel and our principal assets are located outside the U.S. Our Chief Financial Officer and some of our directors
are foreign citizens and do not reside in the U.S. It may be difficult for courts in the U.S. to obtain jurisdiction over our foreign
assets or these persons and as a result, it may be difficult or impossible for you to enforce judgments rendered against us or
our directors or executive officers in U.S. courts. Thus, should any situation arise in the future in which you have a cause of
action against these persons or entities, you are at greater risk in investing in our Company rather than a domestic company because
of greater potential difficulties in bringing lawsuits or, if successful, collecting judgments against these persons or entities
as opposed to domestic persons or entities.
If we fail to implement and maintain
an effective system of internal controls, we may be unable to accurately report our results of operations or prevent fraud, and
investor confidence and the market price of our Common Stock may be materially and adversely affected.
As a public company in the United States, we
are subject to the reporting obligations under the U.S. securities laws. The SEC, as required under Section 404 of the Sarbanes-Oxley
Act of 2002, has adopted rules requiring every public company to include a report of management on the effectiveness of such company’s
internal control over financial reporting in its annual report. In prior years, management has identified material weaknesses in
our internal control over financial reporting. If any of our prior material weaknesses recurs, or if we identify additional weaknesses
or fail to timely and successfully implement new or improved controls, our ability to assure timely and accurate financial reporting
may be adversely affected, and we could suffer a loss of investor confidence in the reliability of our financial statements, which
in turn could negatively impact the trading price of our shares of Common Stock, result in lawsuits being filed against us by our
stockholders, or otherwise harm our reputation. If material weaknesses are identified in the future, it could be costly to remediate
such material weaknesses, which may adversely affect our results of operations. In addition, our auditor is not required to attest
to the effectiveness of our internal controls over financial reporting due to our status of qualifying as a smaller reporting company.
As a result, current and potential investors could lose confidence in our financial reporting, which could harm our business and
have an adverse effect on our share price.
Delaware law could discourage a change
in control, or an acquisition of us by a third party, even if the acquisition would be favorable to you, and thereby adversely
affect existing stockholders.
The Delaware General Corporation Law contain
provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of our Company, even
when these attempts may be in the best interests of stockholders. Delaware law imposes conditions on certain business combination
transactions with “interested stockholders.” These provisions and others that could be adopted in the future could
deter unsolicited takeovers or delay or prevent changes in our control or management, including transactions in which stockholders
might otherwise receive a premium for their shares over then current market prices. These provisions may also limit the ability
of stockholders to approve transactions that they may deem to be in their best interests.
We do not expect to pay dividends in
the foreseeable future, and accordingly you must rely on stock appreciation for any return on your investment.
We have paid no cash dividends on our Common
Stock to date, and we currently intend to retain our future earnings, if any, to fund the continued development and growth of our
business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Further, any payment of cash dividends
will also depend on our financial condition, results of operations, capital requirements and other factors, including contractual
restrictions to which we may be subject, and will be at the discretion of our Board of Directors.