Investing
in our common stock involves a high degree of risk. We have described below a number of uncertainties and risks which, in addition
to uncertainties and risks presented elsewhere in this Quarterly Report, may adversely affect our business, operating results and
financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Quarterly
Report
, and those included in our Annual Report on Form 10-K for the year ended December
31, 2015, filed with the SEC
should be considered carefully in evaluating our company and our business and the value of
our securities.
Risks Relating to Our Stage of Development and Capital Structure
We may not be able to continue as
a going concern if we do not obtain additional financing by December, 2016.
We have incurred losses since our
inception and have not demonstrated the ability to generate revenues from the sales of our products or services. These
factors create substantial doubt about our ability to continue as a going concern. The consolidated financial
statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.
Our ability to continue as a
going concern is dependent on us generating cash from the sales of our securities and/or obtaining debt
financing.
Our cash and cash equivalents
balance at March 31, 2016 was approximately $7.6 million. On May 06, 2016, we closed a public offering of 20,000,000 shares
of common stock and 20,000,000 common stock purchase warrants at a public offering price of $0.40 per each share and common
stock purchase warrant. We received aggregate gross proceeds of $8.0 million and net proceeds of approximately $7,420,000
from the offering. Based upon our cash at March 31, 2016, and the proceeds from our May public offering, we expect to be able
to fund our operations through December 31, 2016. Our ability to continue as a going concern is wholly dependent upon
obtaining sufficient financing to fund our operations. Accordingly, despite our ability to secure capital in the past, there
is no assurance that additional equity or debt financing will be available to us when needed. In the event that we are not
able to secure financing, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations
altogether or file for bankruptcy.
Our auditors have expressed substantial
doubt about our ability to continue as a going concern.
Our
auditors’ report on our December 31, 2015 financial statements expressed an opinion that our capital resources as of the
date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year
unless we raised additional funds. Accordingly, our current cash level raises substantial doubt about our ability to continue
as a going concern. If we do not obtain additional funds by such time, we may no longer be able to continue as a going
concern and will cease operation which means that our shareholders may lose their entire investment
.
We have a history of losses.
Since inception
in 1996 and through March 31, 2016, we have accumulated losses totaling approximately $
178,564,000
.
On March 31, 2016, we had a working capital surplus of approximately $
1,116,000
and
stockholders’ deficit of approximately
$(169,000)
. Our net losses for the two
most recent fiscal years have been approximately $20,904,000 and $22,629,000, for 2015 and 2014, respectively, while our loss for
the three months ended March 31, 2016 was approximately $6,606,000. Although we recognized revenue in 2016 and 2015 as a result
of us providing subcontractor services and the licensing of our intellectual property, we have generated no significant revenue
from the sales of our proposed products.
Our ability to
generate revenues and achieve profitability will depend upon our ability to complete the development of our proposed products,
obtain the required regulatory approvals, manufacture and market and sell our proposed products. To date, we have not generated
any revenue from the commercial sale of our proposed products. No assurances can be given as to exactly when, if at all, we will
be able to fully develop, commercialize, market, sell and/or derive any, let alone material, revenues from our proposed products.
We will need to raise additional
capital to continue operations.
Since our inception,
we have funded our operations through the sale of our securities, credit facilities, the exercise of options and warrants, and
to a lesser degree, from grants and research contracts and other revenue generating activities such as licensing. As of March 31,
2016, we had cash, cash equivalents and short-term investments on hand of approximately $7,621,000. We cannot assure you that we
will be able to secure additional capital through financing transactions, including issuance of debt, licensing agreements or grants.
Our inability to license our intellectual property, obtain grants or secure additional financing will materially impact our ability
to fund our current and planned operations.
We have spent
and expect to continue spending substantial cash in the research, development, clinical and pre-clinical testing of our proposed
products with the goal of ultimately obtaining FDA approval and equivalent international approvals to market such products. We
will require additional capital to conduct research and development, establish and conduct clinical and pre-clinical trials, enter
into commercial-scale manufacturing arrangements and to provide for marketing and distribution of our products. We cannot assure
you that financing will be available if needed. If additional financing is not available, we may not be able to fund our operations,
develop or enhance our technologies, take advantage of business opportunities or respond to competitive market pressures. If we
exhaust our cash reserves and are unable to secure adequate additional financing, we may be unable to meet operating obligations
which could result in us initiating bankruptcy proceedings or delaying, or eliminating some or all of our research and product
development programs.
We will need to raise additional
capital to pay our indebtedness as it comes due.
We have a substantial
level of debt. As of March 31, 2016, we had approximately $7,235,000 in aggregate principal amount long-term indebtedness outstanding.
Under our amended loan and security agreement, we were required to make monthly interest only payments through September 2015;
and are required to make monthly interest and principal payments of approximately $435,000 per month from January 2016 through
March 2017 and make a balloon payment for the remaining principal in April 2017. As security for such indebtedness, we have pledged
substantially all of our assets, including our intellectual property. If we are unable to make the required payments, or if we
fail to comply with the various requirements and covenants of our indebtedness, we would be in default, which would permit the
holders of our indebtedness to accelerate the maturity and require immediate repayment and lead to potential foreclosure on the
assets securing the debt. Any default under our indebtedness would have a material adverse effect on our business, operating results
and financial condition. Additionally, our amended loan and security agreement governing this loan also contains a number of affirmative
and restrictive covenants, including reporting requirements and other collateral limitations, certain limitations on liens and
indebtedness, dispositions, mergers and acquisitions, restricted payments and investments, corporate changes and limitations on
waivers and amendments to certain agreements, our organizational documents, and documents relating to debt that is subordinate
to our obligations under the credit facility. Our failure to comply with the covenants in the amended loan and security agreement
could result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion
of our debt and potential foreclosure on the assets securing the debt. If we are unable to refinance or repay our indebtedness
as it becomes due, including upon an event of default, we may become insolvent and be unable to continue operations.
If we are
unable to meet the continued listing requirements for the Nasdaq Capital Market, our securities will be subject to delisting.
On
April 20, 2016, we received a written notice from the Nasdaq Stock Market LLC that we are not in compliance with Nasdaq Listing
Rule 5550(a)(2), as the minimum bid price of our common stock has been below $1.00 per share for 30 consecutive business days.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until October 17, 2016, to regain
compliance with the minimum bid price requirement. To regain compliance, the closing bid price of our common stock must meet or
exceed $1.00 per share for at least ten consecutive business days during this 180 calendar day period. In the event we do not regain
compliance by October 17, 2016, we may be eligible for an additional 180 calendar day grace period if we meet the initial listing
standards, with the exception of bid price, for the Nasdaq Capital Market, and provide written notice to Nasdaq of our intention
to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If we do not regain
compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide
notice that our common stock will be subject to delisting. We will then be entitled to appeal the determination to a Nasdaq Listing
Qualifications Panel and request a hearing. We cannot be sure that our share price will comply with the requirements for continued
listing of our shares on the Nasdaq Capital Market in the future or that we will comply with the other continued listing requirements.
If our shares lose their status on the Nasdaq Capital Market, we believe that our shares would likely be eligible to be quoted
on the inter-dealer electronic quotation and trading system operated by Pink OTC Markets Inc., commonly referred to as the Pink
Sheets and now known as the OTCQB market. These markets are generally considered not to be as efficient as, and not as broad as,
the Nasdaq Capital Market. If our common stock is delisted, this would, among other things, substantially impair our ability to
raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.
Risks Relating to Our Business
Our business
is dependent on the successful development of our product candidates and our ability to raise additional capital.
Our business is
significantly dependent on our product candidates which are currently at different phases of pre-clinical and clinical development.
The process to approve our product candidates is time-consuming, involves substantial expenditures of resources, and depends upon
a number of factors, including the availability of alternative treatments, and the risks and benefits demonstrated in our clinical
trials. Our success will depend on our ability to achieve scientific and technological advances and to translate such advances
into FDA-approvable, commercially competitive products on a timely basis. Failure can occur at any stage of the process. If we
are not successful in developing our product candidates, we will have invested substantial amounts of time and money without developing
revenue-producing products. As we enter a more extensive clinical program for our product candidates, the data generated in these
studies may not be as compelling as the earlier results. This, in turn, could adversely impact our ability to raise additional
capital and pursue our business plan and planned research and development efforts.
Our proposed products
are not likely to be commercially available for at least several years, if at all. Our development schedules for our proposed products
may be affected by a variety of factors, including technological difficulties, clinical trial failures, regulatory hurdles, competitive
products, intellectual property challenges and/or changes in governmental regulation, many of which will not be within our control.
Any delay in the development, introduction or marketing of our product candidates could result either in such products being marketed
at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their
commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described
elsewhere in this section, there can be no assurance that we will be able to successfully complete the development or marketing
of any of our proposed product candidates.
Our business
relies on technologies that we may not be able to commercially develop and we are unable to predict when or if we will be able
to earn revenues.
We have allocated
the majority of our resources to the development of our stem cell and small molecule technologies. Our ability to generate revenue
and operate profitably will depend on being able to develop these technologies for human applications. These are emerging technologies
that may have limited human application. We cannot guarantee that we will be able to develop our technologies or that if developed,
our technologies will result in commercially viable products or have any commercial utility or value. We anticipate that the commercial
sale of our proposed products and/or royalty/licensing fees related to our technologies, will be our primary sources of revenue.
We recognized revenue of approximately $10,000 and $19,000 for the years ended December 31, 2015 and 2014, respectively, and $3,000
for the three months ended March 31, 2016, related to the licensing of certain intellectual property to third parties and certain
subcontractor services that we provided. If we are unable to develop our technologies, we may never realize any significant revenue.
Additionally, given the uncertainty of our technologies, product candidates and the need for government regulatory approval, we
cannot predict when, or if ever, we will be able to realize revenues related to our products. As a result, we will be primarily
dependent on our ability to raise capital through the sale of our securities for the foreseeable future.
Our product
development programs are based on novel technologies in an emerging field and are inherently risky.
We are subject to the risks inherent in
the development of products based on new technologies. The novel nature of therapies in the field of regenerative medicine creates
significant challenges in regard to product development and optimization, manufacturing, government regulation, third party reimbursement,
and market acceptance. For example, the pathway to regulatory approval for cell-based therapies, including our product candidates,
may be more complex and lengthy than the pathway for conventional drugs. These challenges may prevent us from developing and commercializing
products on a timely or profitable basis or at all. Regenerative medicine is still an emerging field. There can be no assurances
that we will ultimately produce any viable commercialized products and processes. Even if we are able to produce a commercially
viable product, there may be strong competitors in this field and our products may not be able to successfully compete against
them.
Our stem cell therapy programs rely
on experimental surgical devices and experimental and highly invasive surgical procedures.
We are subject to the risks inherent in
the use and development of experimental surgical devices and procedures. We have limited experience with medical devices and must
rely on outside consultants and manufacturers to develop and seek any required approvals for the device we use in connection with
our stem cell therapy program. Additionally, the surgical procedures required to administer our stem cell therapy is experimental,
highly invasive and is required to be performed by highly experienced neurosurgeons who have received special training. We cannot
guarantee consistent and safe performance of the device or the surgical procedure. A surgery related adverse event may result in
a clinical hold and may have long-term and damaging effects on our ability to complete development of the stem cell therapy programs,
including the completion of any ongoing or planned clinical trials. Even if one or more of our programs is successful and receives
marketing approval from a regulatory authority, due to the specialized nature of the device and surgical procedure, there may not
be sufficient train surgeons to administer our therapy.
We are unable
to predict when or if we will be able to earn revenues.
Given the uncertainty
of our technologies and the need for government regulatory approval, we cannot predict when, or if ever, we will be able to realize
revenues related to our products.
Our proposed products
are not likely to be commercially available for at least several or more years, if ever. Accordingly, we do not foresee generating
any significant revenue during such time. As a result, we will be primarily dependent on our ability to raise capital through the
sale of our securities to fund our operations for the foreseeable future.
Our inability
to manufacture and store our stem cells in-house that are used in our products could adversely impact our business.
We currently outsource
most of the manufacturing of our stem cells and small molecule pharmaceutical compounds to third party contractors and as such
have limited ability to adequately control the manufacturing process and the safe storage thereof. Any manufacturing or storage
irregularity, error, or failure to comply with applicable regulatory procedure would require us to find new third parties to outsource
our manufacturing and storage responsibilities or our business would be impacted. Additionally, as part of our business plan, we
are developing in-house manufacturing capabilities but there can be no assurance that such capabilities will be successfully developed
or if developed, be sufficient to meet our demands. And delays in the development of such in-house manufacturing capabilities could
adversely affect our plans.
If we are
unable to complete pre-clinical and clinical testing and trials or if clinical trials of our product candidates are prolonged,
delayed, suspended or terminated, our business and results of operations could be materially harmed.
We are currently
in clinical trials for NSI-566 and NSI-189, two of our proposed products, with regard to multiple indications. Although we have
commenced a number of trials, the ultimate outcome of the trials is uncertain. If we are unable to satisfactorily complete such
trials, or if such trials yield unsatisfactory results, we may be unable to obtain regulatory approval for and commercialize our
proposed products. No assurances can be given that our clinical trials will be completed or result in successful outcomes. A number
of events, including any of the following, could delay the completion of our planned clinical trials and negatively impact our
ability to obtain regulatory approval for, and to market and sell, a particular product candidate:
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conditions imposed on us by the FDA or any foreign regulatory authority regarding the scope or design of our clinical trials;
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delays in obtaining, or our inability to obtain, required approvals from institutional review boards, or IRBs, or other reviewing entities at clinical sites selected for participation in our clinical trials;
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insufficient supply or deficient quality of our product candidates or other materials necessary to conduct our clinical trials;
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delays in obtaining regulatory agency agreement for the conduct of our clinical trials;
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lower than anticipated enrollment and retention rate of subjects in clinical trials;
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serious and unexpected side effects experienced by patients in our clinical trials which are related to the use of our product candidates; or
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failure of our third-party contractors to meet their contractual obligations to us in a timely manner.
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Clinical trials
may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended
or terminated by us, the FDA, the IRBs at the sites where the IRBs are overseeing a trial, or a data safety monitoring board, or
DSMB, overseeing the clinical trial at issue, or other regulatory authorities due to a number of factors. Additionally, changes
in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments
may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the cost, timing or successful
completion of a clinical trial. We do not know whether our clinical trials will be conducted as planned, will need to be restructured
or will be completed on schedule, if at all. Delays in our clinical trials will result in increased development costs for our drug
candidates. In addition, if we experience delays in the completion of, or if we terminate, any of our clinical trials, the commercial
prospects for our drug candidates may be harmed and our ability to generate product revenues will be jeopardized. Furthermore,
many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead
to the denial of regulatory approval of a drug candidate. If regulatory authorities do not approve our products or if we fail to
maintain regulatory compliance, we would be unable to commercialize our proposed products, and our business and results of operations
could be materially harmed.
The results
of pre-clinical studies and clinical trials may not be predictive of the results of our later-stage clinical trials and our proposed
products may not have favorable results in later-stage clinical trials or receive regulatory approval.
Positive results
from pre-clinical studies or our Phase 1 and Phase 2 trials should not be relied upon as evidence that our clinical trials will
succeed. Even if our product candidates achieve positive results in pre-clinical studies or during our Phase 1 and Phase 2 studies,
we will be required to demonstrate through further clinical trials that our product candidates are safe and effective for use in
a diverse population before we can seek regulatory approvals for their commercial sale. There is typically an extremely high rate
of attrition from the failure of product candidates as they proceed through clinical trials. If any product candidate fails to
demonstrate sufficient safety and efficacy in any clinical trial, then we may experience potentially significant delays in, or
be required to abandon, development of that product candidate. Additionally, failure to demonstrate safety and efficacy results
acceptable to the FDA in later stage trials could impair our development prospects and even prevent regulatory approval of our
current and future product candidates. Any such delays or abandonment in our development efforts of any of our product candidates
would materially impair our ability to generate revenues.
Our research and development
expenses are subject to uncertainty.
Factors affecting our research and
development expenses include, but are not limited to:
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competition from companies that have substantially greater assets and financial resources than we have;
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need for acceptance of our proposed products;
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ability to anticipate and adapt to a competitive market and rapid technological developments;
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amount and timing of operating costs and capital expenditures relating to outsourcing of manufacturing and management of pre-clinical and clinical trials;
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need to rely on multiple levels of outside funding due to the length of drug development cycles and governmental approved protocols associated with the pharmaceutical industry; and
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dependence upon key personnel including key independent consultants and advisors.
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There can be no
guarantee that our research and development expenses will be consistent from period to period. We may be required to accelerate
or delay incurring certain expenses depending on the results of our studies and the availability of adequate funding.
We are subject to numerous risks
inherent in conducting clinical trials.
We outsource the
management of our clinical trials to third parties. Agreements with clinical investigators and medical institutions for clinical
testing and with other third parties for data management services, place substantial responsibilities on these parties that, if
unmet, could result in delays in, or termination of, our clinical trials. For example, if any of our clinical trial sites fail
to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical
investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to
meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to
adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be
unable to obtain regulatory approval for, or successfully commercialize, our proposed products. Delays in recruitment, lack of
clinical benefit or unacceptable side effects would delay or prevent the completion of our clinical trials.
We or our regulators
may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials
if at any time we believe they present an unacceptable risk to the patients enrolled in our clinical trials or do not demonstrate
clinical benefit. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials
at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements
or that they present an unacceptable safety risk to the patients enrolled in our clinical trials.
Our clinical trial
operations are subject to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical trial sites
are not in compliance with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations
or warning letters detailing deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem
our responses to be inadequate, or are dissatisfied with the corrective actions we or our clinical trial sites have implemented,
our clinical trials may be temporarily or permanently discontinued, we may be fined, we or our investigators may be precluded from
conducting any ongoing or any future clinical trials, the government may refuse to approve our marketing applications or allow
us to manufacture or market our products, and we may be criminally prosecuted.
The lengthy approval
process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval
for our proposed products, which would materially harm our business, results of operations and prospects.
There are
no assurances that we will be able to submit a pre-market application or obtain FDA approval in order to market and sell our products.
There can be no
assurance that even if the clinical trial of any potential product candidate is successfully initiated and completed, that we will
be able to submit a Biologics License Application (“BLA”) or New Drug Application (“NDA”) to the FDA, or
that any BLA or NDA that we submit will be approved in a timely manner, if at all. If we are unable to submit a BLA or NDA with
respect to any future product, or if such application is not approved by the FDA, we will be unable to commercialize that product.
The FDA can and does reject BLAs and NDAs and may require additional clinical trials, even when product candidates performed well
or achieved favorable results during initial clinical trials. If we fail to commercialize our product candidates and are unable
to generate sufficient revenues to attain profitability our business will be adversely effected.
The manufacturing
of stem cell-based therapeutic products is novel and dependent upon specialized key materials
.
The manufacturing
of stem cell-based therapeutic products is a complicated and difficult process, dependent upon substantial know-how and subject
to the need for continual process improvements. We depend almost exclusively on third party manufacturers to supply our cells.
In addition, our suppliers’ ability to scale-up manufacturing to satisfy the various requirements of our planned clinical
trials is uncertain. Manufacturing irregularities or lapses in quality control could have a material adverse effect on our business.
Additionally, many of the materials that we use to prepare our cell-based products are highly specialized, complex and available
from only a limited number of suppliers. The loss of one or more of these sources would likely delay our ability to conduct planned
clinical trials and otherwise adversely affect our business.
We may be
subject to litigation that will be costly to defend or pursue and uncertain in its outcome.
Our business may
bring us into conflict with licensees, licensors, or others with whom we have contractual or other business relationships or with
our competitors or others whose interests differs from ours. If we are unable to resolve these conflicts on terms that are satisfactory
to all parties, we may become involved in litigation brought by or against such parties. Any litigation is likely to be expensive
and may require a significant amount of management's time and attention, at the expense of other aspects of our business. The outcome
of litigation is always uncertain, and in some cases could include judgments against us which could have a materially adverse effect
on our business.
We may not be able to obtain necessary licenses to third-party patents and other rights.
A number of companies,
universities and research institutions have filed patent applications or have received patents relating to technologies in our
field. We cannot predict which, if any, of these applications will issue as patents or how many of these issued patents will be
found valid and enforceable. There may also be existing issued patents on which we would infringe by the commercialization of our
product candidates. If so, we may be prevented from commercializing these products unless the third party is willing to grant a
license to us. We may be unable to obtain licenses to the relevant patents at a reasonable cost, if at all, and may also be unable
to develop or obtain alternative non-infringing technology. If we are unable to obtain such licenses or develop non-infringing
technology at a reasonable cost, our business could be significantly harmed. Also, any infringement lawsuits commenced against
us may result in significant costs, divert our management’s attention and result in an award against us for substantial damages,
or potentially prevent us from continuing certain operations.
We may not
be able to obtain government or third-party payor coverage and reimbursement.
Our ability to
successfully commercialize our product candidates, if approved, depends to a significant degree on the ability of patients to be
reimbursed for the costs of such products and related treatments. We cannot assure you that reimbursement in the U.S. or in foreign
countries will be available for any products developed, or, if available, will not decrease in the future, or that reimbursement
amounts will not reduce the demand for, or the price of, our products. There is considerable pressure to reduce the cost of therapeutic
products. Government and other third party payors are increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new therapeutic products and by refusing, in some cases, to provide any coverage for uses of
approved products for disease indications for which the FDA or other relevant authority has not granted marketing approval. Moreover,
in some cases, government and other third party payors have refused to provide reimbursement for uses of approved products for
disease indications for which the FDA or other relevant authority has granted marketing approval. Significant uncertainty exists
as to the reimbursement status of newly approved health-care products or novel therapies such as ours. We cannot predict what additional
regulation or legislation relating to the health care industry or third-party coverage and reimbursement may be enacted in the
future or what effect such regulation or legislation may have on our business. If additional regulations are overly onerous or
expensive or if healthcare related legislation makes our business more expensive or burdensome than originally anticipated, we
may be forced to significantly downsize our business plans or completely abandon the current business model.
Our products may not be profitable
due to manufacturing costs and our inability to receive favorable pricing.
Our products may
be significantly more expensive to manufacture than other drugs or therapies currently on the market today due to a fewer number
of potential manufacturers, greater level of needed expertise and other general market conditions affecting manufacturers of our
proposed products. Even if we are able to receive approval for the reimbursement of our proposed products the amount of reimbursement
may be significantly less than the manufacturing costs of our products. Additionally, other market factors may limit the price
which we can charge for our proposed products while still being competitive. Accordingly, even if we are successful in developing
our proposed products, we may not be able to charge a high enough price for us to earn a profit.
We are dependent on the acceptance
of our products by the healthcare community.
Our product candidates,
if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical community, in
general, may decide not to accept and utilize these products. The products that we are attempting to develop represent substantial
departures from established treatment methods and will compete with a number of more conventional therapies marketed by major pharmaceutical
companies. If the healthcare community does not accept our products for any reason, our business will be materially harmed.
We depend on key employees and
consultants for our continued operations and future success.
We are highly
dependent on our chief executive officer, chief scientific officer and outside consultants. Although we have entered
into employment and consulting agreements with these parties, these agreements can be terminated at any time. The loss
of any of these key employees or consultants could adversely affect our opportunities and materially harm our future prospects. In
addition, we anticipate growth and expansion into areas and activities requiring additional expertise, such as clinical testing,
regulatory compliance, manufacturing and marketing. We anticipate the need for additional management personnel as well
as the development of additional expertise by existing management personnel. There is intense competition for qualified personnel
in the areas of our present and planned activities, and there can be no assurance that we will be able to attract and retain the
qualified personnel necessary for the development our business.
The employment contracts of certain key employees contain significant anti-termination provisions which could make changes
in management difficult or expensive.
We have entered
into employment agreements with Messrs. Daly and Lloyd Jones and Dr. Johe. Each of these employment agreements require the payment
of severance, in the event certain conditions are met, if these individuals are terminated. These provisions will make the replacement
of these employees very costly and could cause difficulty in effecting a change in control.
If we are
unable to successfully execute our new refocused business strategy or integrate our new management team, our business could be
harmed.
During 2016, the strategic direction of
our company and executive management team have undergone significant change. In January 2016, we announced a new strategic refocusing
to concentrate our resources on the NSI-189 small molecule program. As part of this refocusing, we announced that we will seek
external funding to defray all, or substantially all, of the costs associated with the NSI-566 stem cell therapy program. During
2016, we also received the resignation of our former President and Chief Executive Officer and founder. In addition, in February
2016, Richard Daly joined our company as our new President and Chief Executive Officer and was appointed to the board and, in May
2015, Jonathan Lloyd joined our company as our new Chief Financial Officer. Our success depends largely on the development and
execution of our refocused business strategy by our senior management team as well as the acceptance of such refocused strategy
and team by our stakeholders. The recent transitions in our executive team may be disruptive to our business, and if we are unable
to manage orderly transitions, our business may be adversely affected. Additionally, since our management team consists of a limited
number of individuals, the loss of these members of our senior management team or key personnel would likely harm our ability to
implement our business strategy and respond to the rapidly changing market conditions in which we operate. There may be a limited
number of persons with the requisite skills to serve in these positions, and we cannot assure you that we would be able to identify
or employ such qualified personnel on acceptable terms, if at all. We cannot assure you that we will be able to successfully execute
our refocused business strategy or that management will succeed in working together as a team. In the event we are unsuccessful,
our business and prospects could be harmed.
Our competition has significantly
greater experience and financial resources.
The biotechnology
industry is characterized by rapid technological developments and a high degree of competition. We compete against numerous companies,
many of which have substantially greater resources. Several such enterprises have initiated cell therapy research programs and/or
efforts to treat the same diseases which we target. Given our current stage of development and resources, it may be extremely difficult
for us to compete against more developed companies.
As a result, our
proposed products could become obsolete before we recoup any portion of our related research and development and commercialization
expenses. Competition in the biopharmaceutical industry is based significantly on scientific and technological factors. These factors
include the availability of patent and other protection for technology and products, the ability to commercialize technological
developments and the ability to obtain governmental approval for testing, manufacturing and marketing. We compete with specialized
biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies
that are applying biotechnology to their operations. Many major pharmaceutical companies have developed or acquired internal biotechnology
capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions
and governmental agencies and private research organizations, also compete with us in recruiting and retaining highly qualified
scientific personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical field will
also depend to a considerable degree on the continuing availability of capital to us.
We believe that
our proposed products under development and in pre-clinical testing and clinical trials will address unmet medical needs for those
indications for which we are focusing our development efforts. Our competition will be determined in part by the potential indications
for which our proposed products are developed and ultimately approved by regulatory authorities. Additionally, the timing of market
introduction of some of our proposed products or of competitors’ products may be an important competitive factor. Accordingly,
the relative speed with which we can develop our proposed products, complete preclinical testing, clinical trials and approval
processes and supply commercial quantities to market is expected to be important competitive factors. We expect that competition
among products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability,
price and patent position.
Our outsource model depends on
third parties to assist in developing and testing our proposed products.
Our strategy for
the development, clinical and pre-clinical testing and commercialization of our proposed products is based in large part on an
outsource model. This model requires us to engage third parties in order to further develop our technology and products as well
as for the day to day operations of our business. In the event we are not able to enter into such relationships in the future,
our ability to operate and develop products may be seriously hindered or we may be required to spend considerable time and resources
to bring such functions in-house. Either outcome could result in our inability to develop a commercially feasible product or in
the need for substantially more working capital to complete the research in-house.
The commercialization of therapeutic
products exposes us to product liability claims.
Product liability
claims could result in substantial litigation costs and damage awards against us. We attempt to mitigate this risk by obtaining
and maintaining appropriate insurance coverage. Historically, we have obtained liability insurance that covers our clinical trials.
If we begin commercializing products, we will need to increase our insurance coverage. We may not be able to obtain insurance on
acceptable terms, if at all, and the policy limits on our insurance policies may be insufficient to cover our liability.
We currently
rely heavily upon third party FDA-regulated manufacturers and suppliers for our products
We currently manufacture
our cells both in-house and on an outsource basis. We outsource the manufacturing of our pharmaceutical compound to third party
manufacturers. We manufacture cells in-house which are not required to meet stringent FDA requirements. We use these cells in our
research and collaborative programs. At present, we outsource all the manufacturing and storage of our stem cells and pharmaceuticals
compound to be used in pre-clinical and clinical works, and which are subject to higher FDA requirements, to Charles River Laboratories,
Inc., of Wilmington, Massachusetts (stem cells) and Albany Molecular Resources, Inc. (small molecule). Failure by our contract
manufacturer to achieve and maintain high manufacturing standards could result in patient injury or death, product recalls or withdrawals,
delays or failures in testing or delivery, cost overruns, or other problems that could seriously hurt our business. Contract manufacturers
may encounter difficulties involving production yields, quality control, and quality assurance. These manufacturers are subject
to ongoing periodic and unannounced inspections by the FDA and corresponding state and foreign agencies to ensure strict compliance
with cGMPs, GTPs and other applicable government regulations and corresponding foreign standards; however, we do not have control
over third-party manufacturers’ compliance with these regulations and standards.
Because manufacturing
facilities are subject to regulatory oversight and inspection, failure to comply with regulatory requirements could result in material
manufacturing delays and product shortages, which could delay or otherwise negatively impact our clinical trials and product development.
Moreover, we do not have quantity or volume commitment orders from these manufacturers and we cannot assure you that the manufacturers
will be able to manufacture in the quantity we require on a timely basis or at all. In the event we are required to seek alternative
third party suppliers or manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable
terms. Any such event would materially impact our business prospects and could delay the development of our products. Moreover,
there can be no assurance that any manufacturer or supplier that we select will be able to supply our products in a timely or cost
effective manner or in accordance with applicable regulatory requirements or our specifications. In addition, due to the novelty
of our products and product development, there can be no assurances that we would be able to find other suitable third party FDA-regulated
manufacturers on a timely basis and at terms reasonable to us. Even if we were to locate alternative manufacturers there may be
delays before they are able to begin manufacturing. Failure to secure such third party manufacturers or suppliers would materially
impact our business.
We rely
on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays
that prevent us from successfully commercializing our product candidates.
We do not have
the in-house capability to conduct clinical trials for our product candidates. We rely, and will rely in the future, on medical
institutions, clinical investigators, contract research organizations, contract laboratories, and collaborators to perform data
collection and analysis and other aspects of our clinical trials. Our reliance on these third parties for clinical development
activities results in reduced control over these activities. Furthermore, these third parties may also have relationships with
other entities, some of which may be our competitors. Our preclinical activities or clinical trials conducted in reliance on third
parties may be delayed, suspended, or terminated if:
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the third parties do not successfully carry out their contractual duties;
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the third parties fail to meet FDA and other regulatory obligations or expected deadlines;
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we replace a third party for any reason; or
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the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, or for other reasons.
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Third party performance
failures may increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization
of our product candidates. While we believe that there are numerous alternative sources to provide these services, in the event
that we seek such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional
costs.
Risks Relating to Intellectual Property
We may not be able to withstand
challenges to our intellectual property rights.
We rely on our
intellectual property, including issued and applied-for patents, as the foundation of our business. Our intellectual property rights
may come under challenge. No assurances can be given that our current and potential future patents will survive such challenges.
For example, in 2005 one of our patents was challenged in the USPTO. Although we prevailed in this particular matter, these cases
are complex, lengthy, expensive, and could potentially be adjudicated adversely to our interests, removing the protection afforded
by an issued patent. The viability of our business would suffer if such patent protection were limited or eliminated. Moreover,
the costs associated with defending or settling intellectual property claims would likely have a material adverse effect on our
business and future prospects.
We may not be able to adequately
protect against the piracy of the intellectual property in foreign jurisdictions.
We conduct research
in countries outside of the U.S., including through our subsidiary in the People’s Republic of China. A number of our competitors
are located in these countries and may be able to access our technology or test results. The laws protecting intellectual property
in some of these countries may not adequately protect our trade secrets and intellectual property. The misappropriation of our
intellectual property may materially impact our position in the market and any competitive advantages, if any, that we may have.
Risks Relating to Our Common Stock
The market price for our common
shares is particularly volatile.
The market for
our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share
price will continue to be more volatile than those of a seasoned issuer. The volatility in our share price is attributable to a
number of factors. Mainly however, we are a speculative or “risky” investment due to our limited operating history,
lack of significant revenues to date and the uncertainty of FDA approval. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned
issuer. Additionally, in the past, plaintiffs have often initiated securities class action litigation against a company following
periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
The following
factors may add to the volatility in the price of our common shares: actual or anticipated variations in our quarterly or annual
operating results; the results of clinical trials for our product candidates; FDA’s determination with respect to filings
for new clinical studies, new drug applications and new indications; government regulations; announcements of significant acquisitions,
strategic partnerships or joint ventures; our capital commitments; offerings of our securities and additions or departures of our
key personnel. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless
of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect
the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.
The requirements
of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain
qualified board members.
As a public company,
we incur significant legal, accounting and other expenses that we would not incur as a private company, including costs associated
with public company reporting requirements. We also incur costs associated with the Sarbanes-Oxley Act of 2002, as amended, the
Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented or to be implemented by the SEC and the
Nasdaq. The expenses incurred by public companies generally for reporting, insurance and corporate governance purposes have been
increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities
more time-consuming and costly. These laws and regulations could also make it more difficult or costly for us to obtain certain
types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make
it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as
our executive officers and may divert management’s attention. Furthermore, if we are unable to satisfy our obligations as
a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially
civil litigation.
We have
never paid a cash dividend and do not intend to pay cash dividends on our common stock in the foreseeable future.
We have never
paid cash dividends nor do we anticipate paying cash dividends in the foreseeable future. Accordingly, any return on your investment
will be as a result of stock appreciation if any. Additionally, we are prohibited from paying any cash dividends under the terms
of our loan and security agreement.
Our anti-takeover
provisions may delay or prevent a change of control, which could adversely affect the price of our common stock.
Our amended and
restated certificate of incorporation and amended and restated bylaws contain provisions that may make it difficult to remove our
board of directors and management and may discourage or delay “change of control” transactions, which could adversely
affect the price of our common stock. These provisions include, among others:
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our board of directors is divided into three classes, with each class serving for a staggered three-year term, which prevents stockholders from electing an entirely new board of directors at an annual meeting;
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advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors and propose matters to be brought before an annual meeting of our stockholders may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and
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our board of directors may, without stockholder approval, issue series of preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control.
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If securities
or industry analysts do not publish research reports, or publish unfavorable research about our business, the price and trading
volume of our common stock could decline.
The trading market
for our common stock will depend in part on the research and reports that securities or industry analysts publish about us and
our business. We currently have limited research coverage by securities and industry analysts. In the event an analyst downgrades
our securities, the price of our securities would likely decline. If analysts cease to cover us or fails to publish regular reports
on us, interest in our securities could decrease, which could cause the price of our common stock and other securities and their
trading volume to decline.
Our charter
documents and Delaware law contain provisions that could make it difficult for us to be acquired in a transaction that might be
beneficial to our stockholders.
Our board of directors
has the authority to issue shares of preferred stock and to fix the rights, preferences, privileges, and restrictions of these
shares without stockholder approval. Additionally, our Bylaws provide for a staggered board. These provisions
in our charter documents, along with certain provisions under Delaware law, may make it more difficult for a third party to acquire
us or discourage a third party from attempting to acquire us, even if the acquisition might be beneficial to our stockholders.
Our board
of directors has broad discretion to issue additional securities which might dilute the net tangible book value per share of our
common stock for existing stockholders.
We are entitled
under our certificate of incorporation to issue up to 300,000,000 shares of common stock and 7,000,000 “blank check”
shares of preferred stock. Shares of our blank check preferred stock provide our board of directors with broad authority to determine
voting, dividend, conversion, and other rights. As of March 31, 2016 we have issued and outstanding 92,044,042 shares of common
stock and we have 45,399,403 shares of common stock reserved for future grants under our equity compensation plans and for issuances
upon the exercise or conversion of currently outstanding options, warrants and convertible securities. As of March 31, 2016, we
had no shares of preferred stock issued and outstanding. Accordingly, we are entitled to issue up to 162,556,555 additional shares
of common stock and 7,000,000 additional shares of “blank check” preferred stock. Our board may generally issue those
common and preferred shares, or convertible securities to purchase those shares, without further approval by our shareholders.
Any preferred shares we may issue will have such rights, preferences, privileges and restrictions as may be designated from time-to-time
by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.
It is likely that we will be required to issue a large amount of additional securities to raise capital in order to further our
development and marketing plans. It is also likely that we will be required to issue a large amount of additional securities to
directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone
grants or under our various stock plans. The issuance of additional securities may cause substantial dilution to our shareholders.
Risks Related
to Government Regulation and Approval of our Product Candidates.
The regulatory
approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and
our products may not receive regulatory approval.
The time required to obtain approval by
the FDA and comparable foreign authorities is inherently unpredictable but typically takes many years following the commencement
of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition,
approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course
of a drug candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for
any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to
develop in the future will ever obtain regulatory approval.
Our drug candidates could fail to receive regulatory approval
for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
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we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA, NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; or
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
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We are currently
undertaking clinical trials for our lead products candidates NSI-189 and NSI-566. We cannot assure you that we will
successfully complete any clinical trials in connection with such INDs. Further, we cannot predict when we might first
submit any product license application (NDA or BLA) for FDA approval or whether any such product license application will be granted
on a timely basis, if at all. Moreover, we cannot assure you that FDA approvals for any products developed by us will
be granted on a timely basis, if at all. Any delay in obtaining, or failure to obtain, such approvals could have a material adverse
effect on the marketing of our products and our ability to generate product revenue.
In addition, even
if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications
than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance
of costly post-marketing clinical trials, or may approve a drug candidate with a label that does not include the labeling claims
necessary or desirable for the successful commercialization of that drug candidate. Any of the foregoing scenarios could materially
harm the commercial prospects for our drug candidates.
Development
of our product candidates is subject to extensive government regulation.
Our research and
development efforts, as well as any future clinical trials, and the manufacturing and marketing of any products we may develop,
will be subject to, and restricted by, extensive regulation by governmental authorities in the U.S. and other countries. The process
of obtaining FDA and other necessary regulatory approvals is lengthy, expensive and uncertain. FDA and other legal and regulatory
requirements applicable to our proposed products could substantially delay or prevent us from initiating additional clinical trials.
We may fail to obtain the necessary approvals to commence clinical testing or to manufacture or market our potential products in
reasonable time frames, if at all. In addition, the U.S. Congress and other legislative bodies may enact regulatory reforms or
restrictions on the development of new therapies that could adversely affect the regulatory environment in which we operate or
the development of any products we may develop.
A substantial
portion of our research and development entails the use of stem cells obtained from human tissue. The U.S. federal and state governments
and other jurisdictions impose restrictions on the acquisition and use of human tissue, including those incorporated in federal
Good Tissue Practice, or “GTP,” regulations. These regulatory and other constraints could prevent us from obtaining
cells and other components of our products in the quantity or of the quality needed for their development or commercialization.
These restrictions change from time to time and may become more onerous. Additionally, we may not be able to identify or develop
reliable sources for the cells necessary for our potential products — that is, sources that follow all state and federal
laws and guidelines for cell procurement. Certain components used to manufacture our stem and progenitor cell product candidates
will need to be manufactured in compliance with the FDA’s GMP. Accordingly, we will need to enter into supply agreements
with companies that manufacture these components to GMP standards. There is no assurance that we will be able to enter into any
such agreements.
Noncompliance
with applicable regulatory requirements can subject us, our third party suppliers and manufacturers and our other collaborators
to administrative and judicial sanctions, such as, among other things, warning letters, fines and other monetary payments, recall
or seizure of products, criminal proceedings, suspension or withdrawal of regulatory approvals, interruption or cessation of clinical
trials, total or partial suspension of production or distribution, injunctions, limitations on or the elimination of claims we
can make for our products, refusal of the government to enter into supply contracts or fund research, or government delay in approving
or refusal to approve new drug applications.
We cannot predict if or when
we will be able to commercialize our products due to regulatory constraints.
Federal, state
and local governments and agencies in the U.S. (including the FDA) and governments in other countries have significant regulations
in place that govern many of our activities. We are, or may become, subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use
of animals and the use and disposal of hazardous or potentially hazardous substances used in connection with its research and development
work. The preclinical testing and clinical trials of our proposed products are subject to extensive government regulation that
may prevent us from creating commercially viable products. In addition, our sale of any commercially viable product will be subject
to government regulation from several standpoints, including manufacturing, advertising, marketing, promoting, selling, labeling
and distributing. If, and to the extent that, we are unable to comply with these regulations, our ability to earn revenues,
if any, will be materially and negatively impacted.
If our clinical
trials fail to demonstrate that any of our product candidates are safe and effective for the treatment of particular diseases,
the FDA may require us to conduct additional clinical trials or may not grant us marketing approval for such product candidates
for those diseases.
We are not permitted
to market our product candidates in the United States until we receive approval of a BLA or NDA from the FDA. Before obtaining
regulatory approvals for the commercial sale of any product candidate for a target indication, we must demonstrate with evidence
gathered in preclinical and well-controlled clinical trials, and, with respect to approval in the United States, to the satisfaction
of the FDA and, with respect to approval in other countries, similar regulatory authorities in those countries, that the product
candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls
used to produce the product are compliant with applicable statutory and regulatory requirements. Our failure to adequately demonstrate
the safety and effectiveness of any of our product candidates for the treatment of particular diseases may delay or prevent our
receipt of the FDA’s approval and, ultimately, may prevent commercialization of our product candidates for those diseases.
The FDA has substantial discretion in deciding whether, based on the benefits and risks in a particular disease, any of our product
candidates should be granted approval for the treatment of that particular disease. Even if we believe that a clinical trial or
trials has demonstrated the safety and statistically significant efficacy of any of our product candidates for the treatment of
a disease, the results may not be satisfactory to the FDA. Preclinical and clinical data can be interpreted by the FDA and other
regulatory authorities in different ways, which could delay, limit or prevent regulatory approval. If regulatory delays are significant
or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for those of our product
candidates involved will be harmed, and our prospects for profitability will be significantly impaired.
Satisfaction of
these and other regulatory requirements is costly, time consuming, uncertain, and subject to unanticipated delays. Despite our
efforts, our drug candidates may not:
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offer improvement over existing comparable products;
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be proven safe and effective in clinical trials; or
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meet applicable regulatory standards.
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In addition, in
the course of its review of a BLA or NDA or other regulatory application, the FDA or other regulatory authorities may conduct audits
of the practices and procedures of a company and its suppliers and contractors concerning manufacturing, clinical study conduct,
non-clinical studies and several other areas. If the FDA and/or other regulatory authorities conducts an audit relating to a BLA,
NDA or other regulatory application and finds a significant deficiency in any of these or other areas, the FDA or other regulatory
authorities could delay or not approve such BLA, NDA or other regulatory application. If regulatory delays are significant or regulatory
approval is limited or denied altogether, our financial results and the commercial prospects for those of our products or product
candidates involved will be harmed, and our prospects for profitability will be significantly impaired.
Both before
and after marketing approval, our product candidates are subject to extensive and rigorous ongoing regulatory requirements and
continued regulatory review, and if we fail to comply with these continuing requirements, we could be subject to a variety of sanctions.
Both before and
after the approval of our product candidates, we, our product candidates, our operations, our facilities, our suppliers, and our
contract manufacturers, contract research organizations, and contract testing laboratories are subject to extensive regulation
by governmental authorities in the United States and other countries, with regulations differing from country to country. In the
United States, the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy,
potency, labeling, packaging, adverse event reporting, storage, record keeping, quality systems, advertising, promotion, sale and
distribution of therapeutic products. These requirements include submissions of safety and other post-marketing information and
reports, registration, as well as continued compliance with cGMP, requirements and current good clinical practice, or cGCP, requirements
for any clinical trials that we conduct post-approval. Failure to comply with applicable requirements could result in, among other
things, one or more of the following actions: restrictions on the marketing of our products or their manufacturing processes, notices
of violation, untitled letters, warning letters, civil penalties, fines and other monetary penalties, unanticipated expenditures,
delays in approval or refusal to approve a product candidate, suspension or withdrawal of regulatory approvals, product, seizure
or detention, voluntary or mandatory product recalls and related publicity requirements, interruption of manufacturing or clinical
trials, operating restrictions, injunctions, import or export bans, and criminal prosecution. We or the FDA, or an institutional
review board, may suspend or terminate human clinical trials at any time on various grounds, including a finding that the subjects
are being exposed to an unacceptable health risk.
The FDA’s policies may change and
additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we
are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely
affect our business, prospects and ability to achieve or sustain profitability.
If side effects are identified during
the time our drug candidates are in development or after they are approved and on the market, we may choose to or be required to
perform lengthy additional clinical trials, discontinue development of the affected drug candidate, change the labeling of any
such products, or withdraw any such products from the market, any of which would hinder or preclude our ability to generate revenues.
Undesirable side effects caused by our
drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more
restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. The drug-related
side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential
product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Even
if any of our drug candidates receives marketing approval, as greater numbers of patients use a drug following its approval, an
increase in the incidence of side effects or the incidence of other post-approval problems that were not seen or anticipated during
pre-approval clinical trials could result in a number of potentially significant negative consequences, including:
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regulatory authorities may withdraw their approval of the product;
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regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
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we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of these events could substantially
increase the costs and expenses of developing, commercializing and marketing any such drug candidates or could harm or prevent
sales of any approved products.
Even if our product candidates receive
regulatory approval in the United States, we may never receive approval or commercialize our products outside of the United States.
In order to market any products outside
of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding
safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative
review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval.
The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United
States as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure
or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure
to obtain regulatory approval in other countries or any delay or setback in obtaining such approval would impair our ability to
develop foreign markets for our drug candidates.
Our product candidates for which
we intend to seek approval as biologic products may face competition sooner than anticipated.
We expect our stem cell product candidates
to be regulated by the FDA as biologic products and we intend to seek approval for these products pursuant to the BLA pathway.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for the approval of biosimilar
and interchangeable biologic products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and
approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its
similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA
until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and
implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain
when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse
effect on the future commercial prospects for our biologic products.
We believe that
any of our product candidates approved as a biologic product under a BLA should qualify for the 12-year period of exclusivity.
However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will
not consider our drug candidates to be reference products for competing products, potentially creating the opportunity for generic
competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one
of our reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear,
and will depend on a number of marketplace and regulatory factors that are still developing.