ITEM
1. BUSINESS
BACKGROUND
We
were incorporated as Pharmascan Corp. in the State of Nevada on March 31, 2009. On September 21, 2010, we filed a Certificate
of Amendment to our Articles of Incorporation and changed our name to Technologies Scan Corp. On April 1, 2014, we filed a Certificate
of Amendment to our Articles of Incorporation and changed our name to “PetVivo Holdings, Inc.” (the “Name Change”).
Minnesota
PetVivo
On
March 11, 2014, our Board of Directors authorized the execution of that certain securities exchange agreement dated March 11,
2014 (the “Securities Exchange Agreement”) with PetVivo Inc., a Minnesota corporation (“PetVivo”), and
the shareholders of PetVivo who hold of record the total issued and outstanding shares of common stock of PetVivo (the “PetVivo
Shareholders”). In accordance with the terms and provisions of the Securities Exchange Agreement, we acquired all of the
issued and outstanding shares of stock of PetVivo from the PetVivo Shareholders, thus making PetVivo our wholly-owned subsidiary,
in exchange for the issuance to the PetVivo Shareholders of an aggregate 2,310,939,804 shares of our restricted common stock.
PetVivo
was founded in 2013 by John Lai and John Dolan, and is based in suburban Minneapolis, Minnesota. PetVivo is a biomedical device
company engaged in the business of acquiring/in-licensing and adapting human biomedical technology and products for commercial
sale in the veterinary market to treat pets and other animals suffering from arthritis and other afflictions. PetVivo’s
initial product, which is now being commercialized, is a medical device featuring the injections of patented gel-like protein-based
biomaterials into the afflicted body parts of pets and other animals suffering from osteoarthritis. PetVivo obtained the exclusive
rights in a License Agreement for commercialization of this product from Gel-Del for the treatment of pets and other animals.
Gel-Del
Technologies Inc.
Gel-Del
is a biomaterial and medical device development and manufacturing company with its offices and production facilities based in
Edina, Minnesota, and was founded in 1999 by its chief executive officer, Dr. David B. Masters. Dr. Masters developed Gel-Del’s
proprietary biomaterials that simulate a body’s cellular tissue and thus can be readily and effectively utilized to manufacture
implantable therapeutic medical devices. The chief advantage of Gel-Del biomaterials is their enhanced biocompatibility with living
tissues throughout the body. We are commercializing their technology in the veterinary field for the treatment of osteoarthritis.
Gel-Del has also successfully completed a pivotal clinical trial using their novel thermoplastic biomaterial as dermal filler
for human cosmetic applications. Gel-Del’s core competencies are developing and manufacturing medical devices containing
its proprietary thermoplastic protein-based biomaterials that mimic the body’s tissue to allow integration, tissue repair,
and regeneration for long-term implantation. These biomaterials are produced using a patented and scalable self-assembly production
process. The inherent thermoplastic properties of these biomaterials are then utilized to manufacture or coat implantable devices.
While
working together relating to their licensing agreement, in early 2014 our management and the management of Gel-Del determined
to combine the two companies into one business entity producing, marketing and selling medical products based on Gel-Del technology
for both humans and animals.
AGREEMENT
AND PLAN OF MERGER
On
March 20, 2017, we entered into triangular merger with our wholly-owned subsidiary, PetVivo Holdings Newco Inc. (“Newco”)
and Gel-Del (the “Merger Agreement”). In accordance with the terms and provisions of the Merger Agreement, we effected
a statutory merger transaction resulting in an exchange by the shareholders of Gel-Del on a pro rata basis of 100% of all outstanding
Gel-Del capital stock in exchange for 5,450,000 shares of our restricted common stock, which represented approximately 30% of
the total issued and outstanding shares of our common stock post-merger.
On
April 10, 2017, the Merger Agreement was consummated and we completed the acquisition of the total issued and outstanding shares
of common stock of Gel-Del from the Gel-Del shareholders. The acquisition was completed and consummated through a statutory merger
between Gel-Del and NewCo, which resulted in Gel-Del being the surviving entity and becoming our wholly-owned subsidiary. The
Merger Agreement became effective upon the filing with the Secretary of State of Minnesota on April 10, 2017. Upon the effectiveness
of the Merger Agreement, each share of Gel-Del common stock issued and outstanding immediately prior to the consummation of the
Merger Agreement was converted into the right to receive 0.798 common share of the Company. Gel-Del did not have any outstanding
options, warrants or other derivative securities or rights convertible into securities.
In
accordance with this merger transaction, we acquired all Gel-Del technology and related patents and other intellectual property
(IP) and production techniques, as well as Gel-Del’s modern and secure biomedical product manufacturing facilities being
constructed in Edina, Minnesota.
Company
Overview
We
are based in suburban Minneapolis, Minnesota. We are a biomedical device company, which has been primarily engaged in the business
of adapting human biomedical technology for products to be introduced for commercial sale in the veterinary market to treat pets
and other animals suffering from arthritis and other afflictions. Our initial product, now being commercialized, is a medical
device featuring injections of patented gel-like biomaterials into the afflicted body parts of pets or other animals suffering
from osteoarthritis. The technology and manufacturing capability of this product was developed by Gel-Del and acquired by us for
use to treat dogs, horses and other animals, but not for treatment of human afflictions. While working together pursuant to our
initial license agreement, we and Gel-Del determined to combine our two companies through a stock exchange merger for the purpose
of creating one combined entity utilizing Gel-Del technology to produce, market, and sell medical products based on Gel-Del technology
for both animals and humans. After lengthy negotiations the parties entered into a definitive agreement for this merger, which
resulted in the consummation of the merger in April, 2017.
CURRENT
BUSINESS OPERATIONS
General
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We
are an emerging biomedical device company focused on the licensing and commercialization
of innovative medical devices and therapeutics for pets, based in Minneapolis, Minnesota.
We operate in the $15 billion US veterinary care market that has grown at a CAGR of 6.4%
over the past five years according to the American Pet Products Association. Despite
the market size, veterinary clinics and hospitals have very few treatments and/or drugs
for use in pets and other animals.
The
role of pets in the family has greatly evolved in recent years. Many pet owners consider their pets an important member
of the family. They are now willing to spend greater amounts of money on their pets to maintain their health and quality
of life.
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We
intend to leverage investments already expended in the development of human therapeutics to commercialize treatments for pets
in a capital and time efficient way. A key component of this strategy is the accelerated timeline to revenues for veterinary medical
devices, which enter the market earlier than the more stringently regulated veterinary pharmaceuticals or human therapeutics.
We
are planning to aggressively launch our lead product Kush
™
Canine in Q4 2017. Kush Canine is a veterinarian-administered
joint injection for the treatment of osteoarthritis in dogs. The Kush Canine device is made from natural components that are lubricious
and cushioning to perform like cartilage for the treatment of pain and inflammation associated with osteoarthritis.
We
believe that Kush Canine is a superior treatment that safely improves joint function.
The reparative Kush Canine particles are lubricious, cushioning and long lasting. The
spongy protein-based particles in Kush Canine mimic the composition and protective function
of cartilage (i.e., providing both a slippery cushion and healing scaffolding). The Kush
Canine particles protect the joint as an artificial cartilage.
Using
industry sources we estimate osteoarthritis afflicts 20 million owned dogs in the United States and the European Union, making
canine osteoarthritis a $2.3 billion market opportunity. See Johnston, Spencer A. “Osteoarthritis. Joint anatomy, physiology,
and pathobiology.” The Veterinary clinics of North (1997):699-723;
http://www.humanesociety.org/issues/petoverpopulation/facts/pet_ownership_statistics.html
;
and
http://www.americanpetproducts.org/press_industrytrends.asp
.
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Osteoarthritis is a condition with degenerating cartilage, creating joint stiffness from mechanical stress resulting in inflammation and pain. The lameness caused by osteoarthritis worsens with time from the ongoing loss of protective cushion and lubricity (i.e., loss of slippery padding). There is no current treatment for osteoarthritis, only palliative pain therapy or joint replacement. Non-steroidal anti-inflammatory drugs (NSAIDs) are used to alleviate the pain and inflammation, but long-term use has been shown to cause gastric problems. NSAIDs do not treat the cartilage degeneration issue to halt or slow the progression of the osteoarthritis condition.
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We
believe that our Kush Canine osteoarthritis treatment is far superior to current methodology of using NSAIDs. NSAIDs have many
side effects, especially in canines, whereas the company’s injected Kush Canine treatment has been found to elicit no adverse
side effects. Remarkably, Kush treated dogs show an increase in activity even after they no longer are receiving pain medication.
No
special training is required for the administration of the Kush Canine devices. The treatment is injected into synovial joint
space using standard intra-articular injection technique and multiple joints can be treated simultaneously. Kush Canine immediately
treats effects of osteoarthritis with no special post treatment requirements.
Historically,
drug sales represent up to 30% of revenues at a typical veterinary practice (Veterinary Practice News). Revenues and margins at
veterinary practices are being eroded because online, big box and traditional pharmacies recently started filling veterinary prescriptions.
Veterinary practices are looking for ways to replace the lost prescription revenues. Our treatments expand practice revenues &
margins because they are veterinarian-administered. Our Kush Canine device is veterinarian-administered to expand practice revenues
and margins. We believe that the increased revenues and margins provided by Kush Canine will accelerate its adoption rate and
propel it forward as the standard of care for canine osteoarthritis.
Our
product launch schedule includes at least two additional product releases in 2018. Our Kush Equine device for the treatment of
equine lameness related to or impacting synovial joints is scheduled for launch in Q1 2018. The Kush Equine product has similar
features and benefits as our Kush Canine device. In addition to being a treatment for osteoarthritis, the joint cushioning and
lubricity effects of our devices have shown an ability to treat equine lameness that is due to navicular disease (a problem associated
with misalignment of joints and bones in the hoof and digits). We anticipate launching our Kush Digital Cushion (DC) device for
the treatment of navicular disease in 2018.
Based
on a variety of industry sources we estimate that 1 million owned horses in the United Stated and European Union suffer from lameness
and/or navicular disease each year, making the equine lameness and navicular disease market an annual opportunity worth $600 million.
See Kane, Albert J., Josie Traub-Dargatz, Willard C. Losinger, and Lindsey P. Garber; “The occurrence and causes of lameness
and laminitis in the US horse population” Proc Am Assoc Equine Pract. San Antonio (2000): 277-80; Seitzinger, Ann Hillberg,
J. L. Traub-Dargatz, A. J. Kane, C. A. Kopral, P. S. Morley, L. P. Garber, W. C. Losinger, and G. W. Hill. “A comparison
of the economic costs of equine lameness, colic, and equine protozoal myeloencephalitis (EPM).” In Proceedings, pp. 1048-1050.
2000; and Kilby, E. R. 10 CHAPTER, The Demographics of the U.S. Equine Population, The State of the Animals IV: 2007.
Our
current pipeline includes 17 therapeutic devices for both veterinary and human clinical applications.
We
anticipate growing our product pipeline through the acquisition or in-licensing of additional proprietary products from human
medical device companies specifically for use in pets. In addition to commercializing our own products in strategic market sectors
and in view of the Company’s vast proprietary product pipeline, the Company anticipates establishing strategic out-licensing
partnerships to provide secondary revenues.
We
plan to commercialize our products in the United States through distribution relationships supported by regional and national
distributors and complemented by the use of social media educating and informing the pet owners, and in Europe and rest of world
through commercial partners.
Most
veterinarians in the United States buy a majority of their equipment and supplies from one of six veterinary products distributors.
Combined, these six distributors delivery more than 85%, by revenue, of the products sold to companion animal veterinarians in
the U.S. Our product distribution will leverage the existing supply chain and veterinary clinic and clinician relationships already
established by these large distributors. We plan to support this distribution channel with regional sales representatives. Our
representatives will support our distributors and the veterinary clinics and hospitals. We will also target pet owners with product
education and treatment awareness campaigns utilizing a variety of social media tools. The unique nature and the anticipated benefits
provided by our products are expected to generate significant consumer response.
Gel-Del
Particles have been through a human trial and have been classified as a medical device. The FDA does not require submission of
a 510(k) or formal pre-market approval for medical devices used in veterinary medicine. We anticipate initial commercial production
and sales in early 2018. We anticipate selling through existing veterinary distributors. See — “Gel-Del Technology”
below.
Gel-Del
Technology
Our
wholly-owned subsidiary entered into that certain exclusive license agreement and manufacturing and supply agreement dated August
2, 2013 (the “License Agreement”) with Gel-Del pertaining to the manufacture and supply of products by Gel-Del derived
from certain technology, including protein-based biomaterials and devices, which are beneficial for the veterinary treatment of
animals having orthopedic joint afflictions (the “Technology”). We have since terminated the License Agreement based
upon consummation of the Stock Exchange Agreement, which was terminated pursuant to the Agreement and Plan of Merger transaction
with Gel-Del.
Gel-Del
is a biomaterial and medical device manufacturing company based in Edina, Minnesota. We will be working together to commercialize
Gel-Del’s technology in the veterinary field for the treatment of osteoarthritis. Gel-Del has also successfully completed
a pivotal clinical trial using their novel thermoplastic biomaterial as dermal filler for human cosmetic applications. Gel-Del’s
core competencies are developing and manufacturing medical devices containing its proprietary thermoplastic protein-based biomaterials
that mimic the body’s tissue to allow integration, tissue repair, and regeneration for long-term implantation. These biomaterials
are produced using a patented and scalable self-assembly production process. The inherent thermoplastic properties of these biomaterials
are then utilized to manufacture or coat implantable devices.
Below
is a listing of Gel-Del technologies:
Dermal
Filler
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Gel-Del
®
biomaterials are constructed from purified water, protein, and carbohydrate, tailored to simulate different body tissues
that biologically integrate (bio-integration). Gel-Del’s technology is used to manufacture CosmetaLife
®
,
dermal filler for wrinkle treatment by injection. These formed gel-particles fill, integrate and rejuvenate dermal skin tissue
to remove the wrinkle.
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Cardiovascular
Devices
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The
blood compatible Gel-Del material, which allows blood contact and bio-integrative processes to occur without clotting, platelet
attachment, or thrombogenesis, is used to repair cardiovascular tissue. VasoGraft
™
, a blood vessel graft
made from Gel-Del VasoCover™ material, is designed to mimic natural blood vessel tissue in almost every respect, including
the components used.
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Drug
Delivery
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Unique
fabrication techniques allow Gel-Del’s material to homogeneously distribute drug in milligram to nanogram amounts, resulting
in optimum performance and manufacturing capabilities for a variety of delivery methods, such as coatings, injectables, implantables
or transmucosal delivery. The first planned transmucosal product, OraPatch
™
, has been optimized and tested
with peptide drugs with better efficacy than oral dosing via swallowing.
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Orthopedic
Devices
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Gel-Del
material will be used in a variety of shapes for orthopedic and dental applications. The first products, OrthoGelic™
and OrthoMetic™, will be aimed at difficult to heal, non-union broken bones, by using particles to fill the empty space.
The orthopedic biomaterial, made to mimic the structural components of bone, can allow integration and healing to fill in
the break and exclude non-bone tissue infiltration.
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Wound
Healing and In Vitro Devices
The
ability of Gel-Del material to simulate body tissue is the technology behind BioSimix products. Applying bio-integrative materials
to troubled soft tissue by itself or with cells, can aid the healing-repair process. The first products planned, WoundGelic™
and CelGelic™, mimic the structural components of tissue to allow integration and healing with and without cells, respectively.
Intellectual
Property
Our
intellectual property portfolio is comprised of patents, patent applications, trademarks and trade secrets. We have eight issued
United States Patents with an additional seven US patent applications pending. In addition to the United States patent portfolio
we also have 12 patents issued or allowed in key markets around the world including Canada, Australia and the European Union.
We have an additional nine applications pending in those key foreign markets.
Our
patent portfolio is currently held in our wholly owned subsidiary Gel-Del Technologies. We believe we have developed a broad and
deep patent portfolio around our biomaterials and manufacturing processes in addition to the application of these biomaterials
for use as medical devices, medical device coatings and pharmaceutical delivery devices. The Company secures other technological
know-how by trade secret law and also possesses five trademarks that are either registered or protected pursuant to trademark
common law.
United
States Patents:
9,107,937
– Wound Treatments with Crosslinked Protein Amorphous Biomaterials
8,871,267
– Protein Matrix Materials, Devices and Methods of Making and Using Thereof
8,623,393
– Biomatrix Structural Containment and Fixation Systems and Methods of Use Thereof
8,529,939
– Mucoadhesive Drug Delivery Devices and Methods of Making and Using Thereof
8,465,537
– Encapsulated or Coated Stent Systems
8,153,591
– Protein Biomaterials and Biocoacervates and Methods of Making and Using Thereof
7,662,409
– Protein Matrix Materials, Devices and Methods of Making and Using Thereof
6,342,250
– Drug Delivery Devices Comprising Bio-degradable Protein for the Controlled Release of Pharmacologically Active
Agents & Method of Making
12
Foreign Patents Granted & Allowed
16
Patent Apps Pending (US & Foreign)
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To
maximize the strength and value of our patent portfolio many of the claims use the transitional term “comprising”,
which is synonymous with “including,” This use of transitional language is inclusive or open-ended and does not exclude
additional, unrecited elements or method steps. Our patents also include method claims covering many of the applications and uses
of the biomaterials as medical devices and drug delivery systems. With eight issued or allowed United States Patents that contain
328 claims, our intellectual property portfolio strongly protects our proprietary technology, including the composition of raw
elements used to produce our formulations, the fabricated biomaterials and their application in end products, thereby making our
material and devices much more attractive to industry partners.
We
will seek to protect our products and technologies through a combination of patents, regulatory exclusivity, and proprietary know-how.
Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary
technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the
United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property
protection possible for our current compounds and any future compounds in development. We also strenuously protect our proprietary
information and proprietary technology through a combination of contractual arrangements, trade secrets and patents, both in the
United States and abroad. However, even patent protection may not always afford us with complete protection against competitors
who seek to circumvent our patents.
We
depend upon the skills, knowledge and experience of our scientific and technical personnel, including those of our company, as
well as that of our advisors, consultants and other contractors, none of which is patentable. To help protect our proprietary
know-how, which may not be patentable, and inventions for which patents may be difficult to obtain or enforce, we rely on trade
secret protection and confidentiality agreements to protect our interests. To this end, we generally require all of our employees,
consultants, advisors and other contractors to enter into confidentiality agreements that prohibit disclosure of confidential
information and, where applicable, require disclosure and assignment of ownership to us the ideas, developments, discoveries and
inventions important to our business.
Companion
Animal Market
Over
the last several decades, we believe the animal health market and industry has a strong
component in the overall U.S. economy and is more resistant to economic cycles. The veterinary
sector is as an attractive area to participate in the growth of the broader healthcare
industry without reimbursement risk. Based on our best knowledge, U.S. consumers will
spend an estimated $60 billion on pets this year—a number that has been growing
at a pace of more than 5% over the past decade. Therapeutics constitutes a small portion
of this market (less than $2 billion) but we believe it is poised to expand as pet care
becomes more complex and companies launch new products for unmet needs. The growth in
the U.S. companion animal market has been continuing to increase due to the increase
in the number of pet owning households.
The
American Pet Products Association (APPA) 2013-2014 National Pet Owners Survey indicates U.S. pet ownership reached record
levels in 2013. Specifically, 68% of all U.S. households owned a pet in 2013, up from 62% in 2002. The number of pet owning
households totaled 82.5 million, representing a 10-year CAGR of 2.5%. In 2012, dogs and cats were the most popular pet
species, owned by 46.7% and 37.3% of U.S. households, respectively. APPA also reported that there were 83.3 million dogs
(10-year CAGR of +2.5%) and 95.6 million cats (10-year CAGR of +2.1%) in the U.S. In comparison, the total U.S. human
population increased at +0.9% CAGR over the last decade. APPA reported that 2.8% of U.S. households owned horses in 2012.
According to the APPA the total number of horses owned by U.S. households increased to 8.3 million in 2012, a 5% increase
over the previous APPA survey conducted two years earlier.
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Osteoarthritis
Market.
Osteoarthritis, the most common inflammatory joint disease in both dogs and horses, is a progressive condition that
is caused by a deterioration of joint cartilage. Over time the joint cartilage deterioration creates joint stiffness from mechanical
stress resulting in inflammation, pain and loss of range of motion, which may be referred to as lameness. Osteoarthritis joint
stiffness and lameness worsens with time from gradual cartilage degeneration and an ongoing loss of protective cushion and lubricity
(i.e., loss of slippery padding). As there is no cure for osteoarthritis, the various treatment methods are focused on managing
the related symptoms of pain and inflammation. Veterinarians recommend several treatments depending on the severity of the disease,
including a combination of rest, weight loss, physical rehabilitation, and a regimen of pain and anti-inflammatory drugs (NSAIDs).
Non-steroidal anti-inflammatory drugs (NSAIDs) are used to alleviate the pain and inflammation caused by OA, but long-term NSAIDs
cause gastric problems. Moreover, NSAIDs do not treat the cartilage degeneration issue to halt or slow progression of the OA condition
.
The
prevalence of companion animal osteoarthritis is estimated through a variety of methods. In looking at the dog osteoarthritis
incidence Spence Johnston’s article
“Osteoarthritis. Joint anatomy, physiology, and pathobiology”
is
often cited, this article reports that 20% of all dogs over the age of one year suffer from osteoarthritis. Using this simple
methodology, management has estimated that 20% of the total dog population is under age one.
83.3
million – 20% = 66.6 million x 20% with OA = 13.3 million dogs with OA in U.S.
Our
osteoarthritis market data has been validated by a number of reports evaluating a new NSAID that is estimated to be ready for
commercial sale by Aratana Therapeutics, Inc. (PETX) in 2016. Craig-Hallum’s July 22, 2013 institutional research report
on Aratana Therapeutics estimates the U.S. dog osteoarthritis market at 16.6 million dogs. William Blair & Company, L.L.C.
released a July 25, 2013 Equity Research report by Aratana Therapeutics that concluded that roughly 10% of dogs and cat suffer
from osteoarthritis. (83.3 million dogs x 10% = 8.3 million dogs with OA) Stifel issued report on Aratana Therapeutics dated July
22, 2013 that estimated the osteoarthritis market to be 55% of dogs over the age of 10. This equates to a US market in 2014 of
7.1 million dogs with osteoarthritis.
Horse
Osteoarthritis (Lameness)
The
equine osteoarthritis is the most common cause of lameness in horses. The annual average costs for diagnosis and treatment of
equine lameness $3,000 per horse, with downtime & homecare costs being much higher (Oke and McIlwraith, 2010). “The
USDA National Economic Cost of Equine Lameness… in the United States” published by 1978 places the annual incidence
of lameness at 8.5-13.7 lameness events/100 horses.
As
noted previously the APPA reported the total number of horses owned by U.S. households increased to 8.3 million in 2012. A 2007
publication by Emily Kilby “The Demographics of the U.S. Equine Population” concludes the horse population for 9,464,200
in 2006 with racehorses being 9% of that population or 846,000 horses. The article “The Occurrence and Causes of Lameness
and Laminitis in the U.S. Horse Population” estimates that 17% of racehorses and 5.4% of the rest of the horse population
go lame annually. Based on the above assumptions we calculate that there are up to 611,658 new lame horses each year.
Distribution
Most
U.S. veterinarians buy a majority of their equipment and supplies from a preferred distributor. More than 75% of veterinarians
name Butler Schein Animal Health, Inc., Webster Veterinary Supply Inc. (recently acquired by Patterson), MWI, Midwest Veterinary
Supply, Inc. or Victor Medical Company as their preferred distributor. Combined, these top tier distributors sell more than 85%,
by revenue, of the products sold to companion animal veterinarians in the U.S. Butler, Webster and MWI are recognized by manufacturers,
distributors and veterinarians as the pre-eminent national companion animal veterinary supply distributors in the US. There are
no other distributors that provide equivalent levels of service to manufacturers and regularly visit veterinarians in as wide
a geographic area as Butler, Webster or MWI. Midwest and Victor are large, regional distributors, also with strong reputations
for high-quality service. The above data in this paragraph was sourced from File No. 101 0023 at the U.S. Federal Trade Commission.
Our
product distribution will leverage the existing supply chain and veterinary clinic and clinician relationships already established
by these large distributors. We intend to support and supplement this distribution channel with regional business development
& training representatives. Our business development representatives will provide product training to distribution representatives,
veterinarians and other veterinary staff. In addition our representatives will exhibit at key veterinary conferences in addition
to supporting ongoing case studies. All of these sales, distribution, marketing and education efforts will also be supported by
both veterinarian and pet owner product education and treatment awareness campaigns that will be conducted utilizing a variety
of social media tools. The unique nature and the anticipated benefits provided by our first product are expected to generate significant
consumer response.
Our
primary distribution channel is through the existing stocking distributors who having operating typical margins between fourteen
to sixteen percent. We have budgeted a twenty percent margin for our distributors and a full fifty percent margin for the veterinary
practices.
Gel-Del
Particle Devices
Orthopedic
Joint Treatments
A
treatment for joint pain, which is made of injected protein-based gel-particles. In vivo studies indicate that the gel particle
device can easily be combined with synovial fluid in a rabbit knee to form a joint cushion, buffering the adjacent bones/cartilage
where no damage was caused to the cartilage from replacing the synovial fluid. The particles show an effectiveness to repair,
reconstitute or remodel the tissue, cartilage, ligaments and/or bone and/or enhance the functionality of the joint (e.g. repair
deteriorated components present in the joint to provide cushion or shock absorbing features to the joint and to provide joint
lubricity)
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AppTec
Laboratories accomplished a gel-particle rabbit study. In short, New Zealand white rabbits (6) were injected in both stifle
joints (knees) to fill but not extend the synovial space (~0.5 cc GDP/site).Rabbits were tested every other day for abnormal
clinical signs including range of motion and joint observations until sacrifice. Behavioral testing revealed no abnormal scores
for range of motion, withdrawal response, or joint observations (all animals were 100% normal). At one week and at four weeks
the animals were sacrificed. AppTec pathologists evaluated knee joint histology. The reported cartilage surfaces of the femoral
and tibia condyles and the menisci were grossly and histologically 100% normal for all animals and test sites. The test particles
were found in all of the injection sites.
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The
test article did not cause changes in the articular cartilage of the femur or tibia when injected into the stifle joint of
rabbits. The test article and control rabbit knees were not different for either 1 or 4 week time points for all histological
measurements. In conclusion, the particles do not cause inflammation or damage to knee joint and will stick to exposed tissues
and biologically integrate with those tissues. The particles were not found to stick to articular cartilage in any sample.
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Regenerative
Characteristics
The
particles devices for joint injections have been extensively studied for a broad range of applications including the treatment
of wrinkles as dermal filler. Here is an overview of the pre-clinical and clinical studies completed on CosmetaLife, which is
the name used for particle device when they used as a dermal filler.
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Particle
Integration after 12 Weeks
The
image at left shows collagen in blue, fibroblasts in red and CosmetaLife in gray. Note the typical cellularization and
integration of collagen within the CosmetaLife matrix perimeter. Also notice the fibroblasts (collagen producers) are
integrated throughout the injection site. Microvascularization, indicated by arrowheads, is also present in several locations.
There is little to no sign of inflammation.
Trichrome
Stain - 20x Objective
CosmetaLife
(GDP) Particles
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CosmetaLife
is an easy-to-inject, water-protein-based dermal filler that not only fills nasolabial wrinkle depressions but also helps rejuvenate
the dermal tissues, counteracting damage that causes wrinkles. The dermal cells are attracted to the CosmetaLife gel-particles,
attach to them, and then slowly replace them with natural dermal material (extracellular matrix). The natural biological replacement
process of CosmetaLife to collagen is estimated to take 6-12 months. CosmetaLife clinical trial on nasolabial folds supports this
estimate. According to current scientific thought, the resulting natural extracellular matrix, comprised mostly of collagen, is
estimated to last 10-16 years.
CosmetaLife
injections allow the body to create more natural dermal structure in and around every particle. Enhancing the natural process
of dermal tissue construction with CosmetaLife allows for long-term dermal contouring, corrections, and rejuvenation with little
to no adverse side effects noted in clinical trials.
Particle
Device Clinical Studies.
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The
Company has conducted several biocompatibility animal studies. In the implantation study,
no abnormal clinical signs were noted for any of the rabbits. The results of the sensitization
study in guinea pigs showed a sensitization response equivalent to the negative controls.
The
results of the histological report on the rabbit skin biopsies clearly demonstrate structural integration of the particles
into the host tissues by week 12. Evaluators observed the particle material integration with normal tissue, remodeled
and/or new collagen, and fibroblasts throughout the injected particles, mild to no inflammation, and new collagen-matrix
production.
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A
Food and Drug Administration (FDA) IDE approved pivotal human clinical trial was begun with CosmetaLife late in 2006. The clinical
trial was a randomized, double blind, parallel assignment, multi-center comparison of the safety and efficacy of CosmetaLife versus
Restylane
®
(Control) for the correction of nasolabial folds. One hundred seventy-one patients were skin tested
and 145 were treated at six trial sites. The number of study exits after treatment totaled four subjects. This clinical trial
was reported and published at www.clinicaltrial.gov (NCT00414544).
The
feedback from physician investigators has been positive with respect to CosmetaLife injection qualities, cosmetic appearance,
and its feel to the touch. During the first three to four months of the study, CosmetaLife showed no decrease in efficacy, as
compared to Restylane that showed an 11 percent decrease in efficacy. The FDA/IDE approved human clinical trial for the CosmetaLife
product through twelve months was found to be the same as compared to control hyaluronic acid product, Restylane (For each interval
the consensus of the blinded subjects tested preferred CosmetaLife or showed no preference at 3, 6, 9 and 12 months).
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CosmetaLife
particles, shown in figure to the left, were photographed from a light microscope under high magnification. GDP particles
were immersed in a saline solution to help disperse them for better viewing. These particles are approximately 100 microns
in size (0.1 mm in diameter).
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Gel-Del
Technologies uses existing, scalable processes to reduce the infrastructure requirements and manufacturing risks to deliver a
consistent high quality product while being responsive to volume requirements. Gel-Del is scaling the manufacturing process for
Gel-Del Particles production, to date making batches in up to 2.0-kilogram quantities to near GMP (Good Manufacturing Practices)
standards acceptable for human clinical trials.
Particles
Safety Study.
Patients injected with CosmetaLife were found to have no or mild inflammatory, irritation, or immunogenic responses.
These results suggest the particles are biocompatible because it closely matches the skin structure, composition, and moisture
content. The no to low immunogenic responses are attributed to the tight cross-linking of the GDP matrix, which prevents immunogenic
progenitor cells from producing antibodies.
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In
the clinical trial, the incidence of possible reaction to a skin test was 2.55 percent,
with only one subject showing a reaction to a second test or 0.6%, (1 out of 171). We
also have a study report by AppTec, Inc., our Contract Research Organization, that GDP
(CosmetaLife) did not produce an antibody response during the clinical trial further
supporting our belief that GDP is safe to use.
Gel-Del
Particles are composed of materials that approximately meet the Generally Regarded As Safe (GRAS) requirements of the
FDA. GDP contains materials from certified bovine and porcine tissue sources that do not harbor prion disease or BSE.
Additionally, steps in the manufacturing process have been validated for deactivating all viruses.
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Extrusion
force testing and the Clinical Trial usage both demonstrate the consistent and easy injection of GDP.
Twenty-five
month stability testing shows that GDP is stable at room temperature conditions. Moreover, GDP has been shown to be stable at
40 °C (104 °F) conditions for at least 3 months.
Competition
The
development and commercialization of new animal health medicines is highly competitive, and we expect considerable competition
from major pharmaceutical, biotechnology and specialty animal health medicines companies. As a result, there are, and likely will
continue to be, extensive research and substantial financial resources invested in the discovery and development of new animal
health medicines. Our potential competitors include large animal health companies, such as Zoetis, Inc.; Merck Animal Health,
the animal health division of Merck & Co., Inc.; Merial, the animal health division of Sanofi S.A.; Elanco, the animal
health division of Eli Lilly and Company; Bayer Animal Health, the animal health division of Bayer AG; NAH, the animal health
division of Novartis AG; Boehringer Ingelheim Animal Health, the animal health division of Boehringer Ingelheim GmbH; Virbac Group;
Ceva Animal Health; Vetoquinol and Dechra Pharmaceuticals PLC. We are also aware of several smaller early stage animal health
companies, such as Kindred Bio, Aratana Therapeutics Inc., NextVet and VetDC that are developing products for use in the pet therapeutics
market.
ITEM
1A. RISK FACTORS
An
investment in our securities involves a high degree of risk. You should carefully consider the risks described below together
with all of the other information included in this report before making an investment decision with regard to our securities.
If any of the following risks actually occurs, our business, financial condition, and/or results of operations could be harmed.
In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should
only purchase our securities if you can afford to suffer the loss of your entire investment.
RISKS
RELATED TO OUR BUSINESS
We
have a limited operating history upon which an evaluation of our prospects can be made.
We
were incorporated in March 2009. Our lack of operating history makes an evaluation of our business and prospects very difficult.
Our prospects must be considered speculative, considering the risks, expenses, and difficulties frequently encountered in the
establishment of a new business. We cannot be certain that our business will be successful or that we will generate significant
revenues. As of the date of this Annual Report, we have not commenced business operations involving the marketing and sale and
distribution of the Gel-Del products. We may never be successful in developing a market for our products and thus may never become
profitable. Therefore, our ability to operate our business successfully remains untested. If we are successful in marketing our
products, we anticipate that we will retain future earnings, if any, and other cash resources for the future operation and development
of our business as appropriate. We do not currently anticipate declaring or paying any cash dividends in the foreseeable future.
Payment of any future dividends is solely at the discretion of our board of directors, which will take into account many factors
including our operating results, financial conditions and anticipated cash needs. For these reasons, we may never achieve profitability
or pay dividends.
We
anticipate that our ability to generate revenues in the foreseeable future will depend on the successful development and commercialization
of our products. If we are not successful in commercializing the products or are significantly delayed or limited in doing so,
our business will be materially adversely affected and we may need to curtail or cease operations.
Because
we are a development stage company, we have no revenues to sustain our operations.
We
are a development stage company that is currently developing our business. To date, we have not generated revenues. The success
of our business operations will depend upon our ability to obtain customers and provide quality products to those customers. We
are not able to predict whether we will be able to develop our business and generate revenues. If we are not able to complete
the successful development of our business plan, generate revenues and attain sustainable operations, then our business will fail.
We
have incurred a net loss since inception and expect to incur net losses for the foreseeable future.
During
fiscal year ended March 31, 2017, our net loss was $16,521,698. We expect to incur operating and capital expenditures for the
next year and, as a result, we expect significant net losses in the future. We will need to generate significant revenues to develop
our business and expand our operations. We may not be able to generate sufficient revenues to achieve profitable operations.
We
will need to raise additional capital to subsequently market the Gel-Del products and expand our operations. Our failure to raise
additional capital will significantly affect our ability to fund our proposed activities.
We
are currently not engaged in any sophisticated marketing program to market our products because we lack capital and revenues to
justify the expenditure. In addition, our available funds will not fund our activities for the next twelve months. If we fail
to raise additional funds, investors may lose their entire cash investment.
Our
future capital requirements depend on many factors, including, but not limited to:
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the
results of our target animal studies for our current and future product candidates;
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the
timing of, and the costs involved in, obtaining regulatory approvals for any of our current or future product candidates;
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the
upfront and other payments, and associated costs, related to development and marketing of products;
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the
number and characteristics of the product candidates we pursue;
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the
scope, progress, results and costs of researching and developing any of our current or future product candidates and conducting
target animal studies;
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whether
we acquire any other companies, assets, intellectual property or technologies in the future;
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the
cost of commercialization activities, if any of our current or future product candidates are approved for sale, including
marketing, sales and distribution costs;
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the
cost of manufacturing our current and future product candidates and any products we successfully commercialize;
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our
ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such
agreements;
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the
expenses needed to attract and retain skilled personnel;
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the
costs associated with being a public company; and
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the
costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation
costs and the outcome of such litigation.
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Additional
funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available
to us on a timely basis, we may be required to delay, limit, reduce or terminate:
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our
target animal studies or other development activities for our current or future product candidates;
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our
establishment of sales and marketing capabilities or other activities that may be necessary to commercialize any of our current
or future product candidates; or
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our
in-licensing and acquisition efforts and expansion of our product portfolio.
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We
are substantially dependent on the success of our current product candidates
.
We
currently have the Kush™ Canine Particles ready for commercial distribution as a medical device. To date, we have invested
nearly all of our efforts and financial resources in the prior in-licensing, research and development of the Kush™ Canine
Particles.
Our
near-term prospects, including our ability to finance our company and to enter into strategic collaborations and generate revenue,
will depend heavily on the successful development and commercialization of our current product candidates. The development and
commercial success of our current product candidates will depend on a number of factors, including the following:
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timely
initiation and completion of our target animal studies for our current product candidates, which may be significantly slower
than we currently anticipate and will depend substantially upon the satisfactory performance of third-party contractors;
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our
ability to demonstrate to the satisfaction of the CVM, the USDA and the European Medicines Agency, or EMA, or the applicable
EU Member State national competent authorities, the safety and efficacy of our product candidates and to obtain regulatory
approval in the United States and Europe;
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our
success in educating veterinarians and pet owners about the benefits, administration and use of our product candidates;
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the
prevalence and severity of adverse side effects, including a continued acceptable safety profile of the product following
approval;
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achieving
and maintaining compliance with all regulatory requirements applicable to our product candidates;
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the
availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;
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the
effectiveness of our marketing, sales and distribution strategy and operations;
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the
ability of our third-party manufacturers to manufacture supplies of any of our current or future product candidates and to
develop, validate and maintain commercially viable manufacturing processes that are compliant with current Good Manufacturing
Practices, or cGMP;
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our
ability to successfully launch commercial sales of our current product candidates, assuming necessary approvals are obtained,
whether alone or in collaboration with others;
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our
ability to enforce our intellectual property rights in and to our product candidates and avoid third-party patent interference,
third-party initiated and U.S. PTO-initiated administrative patent proceedings or patent infringement claims; and
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acceptance
of our product candidates as safe and effective by veterinarians, pet owners and the animal health community.
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Many
of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to generate revenue through
the sale of our product candidates. If we are not successful in commercializing one or more of our product candidates, or are
significantly delayed in doing so, our business will be materially harmed and the value of your investment could substantially
decline.
We
may be unable to obtain all required regulatory approvals for our existing or future product candidates under applicable regulatory
requirements. The denial or delay of any such approval would delay commercialization efforts and adversely impact our potential
to generate revenue, our business and our results of operations
.
Our
product candidates are in various stages of development, and with regards to some of these product candidates, our business depends
up on their successful development, regulatory approval and commercialization. We currently have no products approved for sale
and we may never obtain regulatory approval to commercialize any of our other current or future product candidates. The research,
testing, manufacturing, labeling, approval, sale, marketing and distribution of therapeutics products are subject to extensive
regulation by the CVM, the USDA, the EMA and other regulatory authorities in the United States and other countries, whose regulations
differ from country to country. We are not permitted to market our products in the United States until we receive approval of
a New Animal Drug Application, or NADA, from the CVM or a full product license from the USDA with respect to our biologic products,
or in Europe until we receive approval from the European Commission or applicable EU State national competent authorities.
Even
if we receive approval of an NADA, USDA product license or foreign regulatory filing for our product candidates, the CVM, the
USDA or the applicable foreign regulatory body may approve our product candidates for a more limited indication than we originally
requested, and the CVM or the USDA may not approve the labeling that we believe is necessary or desirable for the successful commercialization
of our product candidates. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent
commercialization of our product candidates and would materially adversely impact our business and prospects.
Even
if our current or future product candidates obtain regulatory approval, they may never achieve market acceptance or commercial
success
.
Even
if we obtain CVM, USDA, EMA or other regulatory approvals, our current or future product candidates may not achieve market acceptance
among veterinarians/clinicians and owners, and may not be commercially successful. Market acceptance of any of our current or
future product candidates for which we receive approval depends on a number of factors, including:
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the
safety of our products as demonstrated in our target animal or human studies;
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the
indications for which our products are approved;
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the
acceptance by veterinarians/clinicians and pet owners of the product as a safe and effective treatment;
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the
proper training and administration of our products by veterinarians/clinicians;
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the
potential and perceived advantages of our product candidates over alternative treatments, including generic medicines and
products approved for use by animals or humans that are used off label;
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the
cost of treatment in relation to alternative treatments and willingness to pay for our products, if approved, on the part
of veterinarians/clinicians and pet owners;
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the
willingness of pet owners to pay for our treatments, relative to other discretionary items, especially during economically
challenging times;
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the
relative convenience and ease of administration;
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the
prevalence and severity of adverse side effects; and
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the
effectiveness of our sales and marketing efforts and those of our collaborators.
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Any
failure by our product candidates that obtain regulatory approval to achieve market acceptance or commercial success would adversely
affect our financial results.
Development
of pet therapeutics involves an expensive and lengthy process with an uncertain outcome, and results of earlier studies may not
be predictive of future study results
.
Development
of pet therapeutics is expensive and can take many years to complete, and its outcome is inherently uncertain. To gain approval
to market a pet therapeutic for a particular species of pet, we must provide the CVM, the USDA or foreign regulatory authorities,
as applicable, with data from animal safety and effectiveness studies that adequately demonstrate the safety and efficacy of that
product in the target animal for the intended indication applied for in the NADA, product license or other regulatory filing.
We rely on contract research organizations, or CROs, and other third parties to ensure the proper and timely conduct of our studies
and development efforts and, while we have agreements governing their committed activities, we have limited influence over their
actual performance. Failure can occur at any time during the development process. Success in prior target animal studies or in
the treatment of human beings with a product candidate does not ensure that our target animal studies will be successful and the
results of development efforts by other parties may not be indicative of the results of our target animal studies and other development
efforts. Product candidates in our studies may fail to show the desired safety and efficacy despite showing such results in initial
data or previous human or animal studies conducted by other parties. Even if our studies and other development efforts are completed,
the results may not be sufficient to obtain regulatory approval for our product candidates.
Once
our target animal studies commence, we may experience delays in such studies and other development efforts and we do not know
whether planned studies will begin on time, need to be redesigned or be completed on schedule, if at all. Pet therapeutics studies
can be delayed or discontinued for a variety of reasons, including delay or failure to:
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reach
agreement on acceptable terms with prospective CROs and study sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs and trial sites;
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complete
target animal studies due to deviations from study protocol;
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address
any safety concerns that arise during the course of testing;
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address
any conflicts with new or existing laws or regulations;
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add
new study sites; or
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manufacture
sufficient quantities of product for use in studies.
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If
we experience delays in the completion of, or terminate any development efforts for our product candidates, the commercial prospects
of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will
be delayed. In addition, any delays in completing our development efforts will increase our costs, slow down our product candidate
development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences
may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to,
a delay in the commencement or completion of our development efforts may also ultimately lead to the denial of regulatory approval
of our product candidates.
Our
product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from
achieving significant market penetration.
The
development and commercialization of pet therapeutics is highly competitive, and we expect considerable competition from major
pharmaceutical, biotechnology and specialty animal health medicines companies. As a result, there are, and will likely continue
to be, extensive research and substantial financial resources invested in the discovery and development of new pet therapeutics.
Our potential competitors include large animal health companies, such as Zoetis, Inc.; Merck Animal Health, the animal health
division of Merck & Co., Inc.; Merial, the animal health division of Sanofi S.A.; Elanco, the animal health division
of Eli Lilly and Company; Bayer Animal Health, the animal health division of Bayer AG; Boehringer Ingelheim Animal Health, the
animal health division of Boehringer Ingelheim GmbH; Novartis Animal Health, the animal health division of Novartis AG; Virbac
Group; Ceva Animal Health; Vetoquinol and Dechra Pharmaceuticals PLC. We are also aware of several smaller early stage animal
health companies such as Kindred Bio, Aratana Therapeutics, NextVet and VetDC that are developing products for use in the pet
therapeutics market.
We
are an early-stage company with a limited history of operations and many of our competitors have substantially more resources
than we do, including both financial and technical resources. In addition, many of our competitors have more experience than we
have in the development, manufacture, regulation and worldwide commercialization of animal health medicines. We are also competing
with academic institutions, governmental agencies and private organizations that are conducting research in the field of animal
health medicines.
Our
competition will be determined in part by the potential indications for which our products are developed and ultimately approved
by regulatory authorities. Additionally, the timing of market introduction of some of our potential products or of competitors'
products may be an important competitive factor. Accordingly, the speed with which we can develop our compounds, complete target
animal studies and approval processes, and supply commercial quantities to market are 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.
If
we are not successful in identifying, licensing or acquiring, developing and commercializing additional product candidates, our
ability to expand our business and achieve our strategic objectives would be impaired.
Although
a substantial amount of our effort will focus on the continued development and potential approval of our current Gel-Del patented
products, a key element of our strategy is to identify, license or acquire, develop and commercialize a portfolio of products
to serve the pet therapeutics market. Even if we successfully identify and license further potential product candidates, we may
still fail to yield product candidates for development and commercialization for many reasons, including the following:
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competitors
may develop alternatives that render our product candidates obsolete;
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product
candidates we develop may nevertheless be covered by third parties' patents or other exclusive rights;
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a
product candidate may on further study be shown to have harmful side effects in pets or other characteristics that indicate
it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
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a
product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
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a
product candidate may not be accepted as safe and effective by veterinarians, pet owners and the pet therapeutic community.
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If
we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and
our business will be more vulnerable to any problems that we encounter in developing and commercializing our current and future
product candidates.
If
we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop any of our
current or future product candidates, conduct our in-licensing and development efforts and commercialize any of our current or
future product candidates.
Our
success depends in part on our continued ability to attract, retain and motivate highly qualified management and scientific personnel.
We are highly dependent upon our senior management, as well as our senior scientists and other members of our senior management
team. The loss of services of any of these individuals could delay or prevent the successful development of our current or future
product pipeline, completion of our planned development efforts or the commercialization of our product candidates.
Competition
for qualified personnel in the animal health fields is intense due to the limited number of individuals who possess the skills
and experience required by our industry. We will need to hire additional personnel as we expand our development and commercial
activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent
we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have
divulged proprietary or other confidential information, or that their former employers own their research output.
We
rely substantially on outsourced contract manufacturers to manufacture our biomaterial products
With
respect to our products, we do not currently have, nor do we currently plan to acquire, the infrastructure or capability internally
to manufacture commercial quantities of the formulated Gel-Del Particles We will rely on our contract manufacturers to manufacture
the active pharmaceutical ingredients and products, and their facilities may be subject to inspections by the CVM, the USDA or
the EMA We do not control the manufacturing processes used by, and we are completely dependent on, these manufacturers to comply
with cGMP for the manufacture of both ingredients and finished products, and if they cannot successfully manufacture material
that conforms to our specifications and is made in compliance with the strict regulatory requirements of the CVM, the USDA or
other regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities.
If the CVM, the USDA or the EMA does not approve our contract manufacturers' facilities used for the manufacture of our product
candidates, or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which
would adversely impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
Furthermore,
we may encounter difficulties with new or existing manufacturing processes, particularly if we seek to increase our manufacturing
capacity significantly to support commercialization of our product candidates, if approved. Our reliance on contract manufacturers
also requires us to provide trade secrets or other proprietary information to others engaged to make our products, increasing
the possibility that our trade secrets or other proprietary information may be disclosed or misappropriated.
The
commercialization of any of our Gel-Del Particles product candidates could be stopped, delayed or made less profitable if third-party
manufacturers fail to provide us with sufficient quantities of product or fail to do so at acceptable quality levels or prices
and in a timely manner
.
To
manufacture our product candidates in the quantities that we believe would be required to meet anticipated market demand, our
third-party manufacturers may need to increase manufacturing capacity, which could involve significant challenges and may require
additional regulatory approvals. In addition, the development of commercial-scale manufacturing capabilities may require us and
our third-party manufacturers to invest substantial additional funds and hire and retain technical personnel who have the necessary
manufacturing experience. Neither we nor our third-party manufacturers may successfully complete any manufacturing scale-up activities
required to increase existing manufacturing capabilities in a timely manner, or at all.
The
raw materials used to manufacture our products are generally readily available and can be obtained from multiple suppliers in
commercial quantities. However, we rely on our contract manufacturers to obtain any raw materials necessary to manufacture our
products, and we do not have any control over the process or timing of the acquisition of these materials. Furthermore, if there
is a disruption to our or our third-party manufacturers' relevant operations, we will have no other means of producing our product
candidates until they restore the affected facilities or we or they procure alternative manufacturing facilities or raw materials.
Additionally, any damage to or destruction of our third-party manufacturers' facilities or equipment may significantly impair
our ability to manufacture product candidates on a timely basis.
We
currently rely on third parties to conduct all of our target animal studies and certain other development efforts. If these third
parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory
approval for or commercialize our current or future product candidates
.
We
currently do not conduct our target animal studies, and we rely on CROs to conduct these studies. The third parties with whom
we contract for the execution of our studies play a significant role in the conduct of these studies and the subsequent collection
and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we
have limited ability to control the amount or timing of resources that they devote to our programs. Although we rely on these
third parties to conduct our studies, we remain responsible for ensuring that each of our studies is conducted in accordance with
the development plan and protocol. Moreover, the CVM, the USDA and EMA require us to comply with regulations and standards, commonly
referred to as current good clinical practices, ("cGCPs"), or good laboratory practices, ("GLPs"), for conducting,
monitoring, recording and reporting the results of our studies to ensure that the data and results are scientifically credible
and accurate.
In
addition, the execution of target animal studies and the subsequent compilation and analysis of the data produced requires coordination
among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these
parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial
entities, some of which may compete with us. Many of our potential agreements with these third parties may be terminated by these
third parties upon as little as 30 days' prior written notice of a material breach by us that is not cured within 30 days.
Many of these agreements may also be terminated by such third parties under certain other circumstances, including our insolvency
or our failure to comply with applicable laws. In general, these agreements require such third parties to reasonably cooperate
with us at our expense for an orderly winding down of services of such third parties under the agreements. If the third parties
conducting our target animal studies do not perform their contractual duties or obligations, experience work stoppages, do not
meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the data
they obtain is compromised due to the failure to adhere to our development protocols or cGCPs, or for any other reason, we may
need to enter into new arrangements with alternative third parties, which could be difficult and costly, and our target animal
studies may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, the regulatory
approval for and commercialization of the product candidate being tested in such studies may be delayed or require us to utilize
additional resources.
We
currently have no sales organization. If we are unable to establish sales capabilities on our own or through third parties, we
may not be able to market and sell our current or future product candidates, if approved, or generate product revenue
.
We
currently do not have a sales organization. In order to commercialize any of our current or future product candidates in the United
States and any jurisdictions outside the United States, we must build our marketing, sales, distribution, managerial and other
non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in
doing so. We expect to establish a direct sales organization in the United States, complemented by distributors, to commercialize
our product candidates, which will be expensive and time-consuming. Outside of the United States we intend to partner with companies
with an established commercial presence to market our products in those locations. If we are unable to enter into such arrangements
on acceptable terms or at all, we may not be able to successfully commercialize our current product candidates or any future product
candidates that receive regulatory approval. We have no prior experience in the marketing, sale and distribution of pet therapeutics
and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain
and motivate qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel,
and effectively oversee a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal
sales, marketing and distribution capabilities would adversely impact the commercialization of these products. If we are not successful
in commercializing any of our current or future product candidates, either on our own or through collaborations with one or more
distributors, our future product revenue will suffer and we would incur significant additional losses.
We
will need to increase the size of our organization, and we may experience difficulties in managing growth.
We
will need to continue to expand our managerial, operational, financial and other resources in order to manage our operations and
target animal studies, continue our development activities and commercialize any of our current or future product candidates.
Our management and personnel, systems and facilities currently in place may not be adequate to support this future growth. Our
need to effectively execute our growth strategy requires that we:
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manage
our target animal studies and other development efforts effectively;
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identify,
recruit, maintain, motivate and integrate additional employees;
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manage
our internal development efforts effectively while carrying out our contractual obligations to third parties; and
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continue
to improve our operational, financial and management controls, reporting systems and procedures.
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We
are incurring significant costs as a result of operating as a public company, and our management is expected to devote substantial
time to new compliance initiatives
.
As
a privately-held company, we were not required to comply with certain corporate governance and financial reporting practices and
policies required of a publicly-traded company. As a publicly-traded company, we have incurred and will continue to incur significant
legal, accounting and other expenses that we were not required to incur in the recent past, particularly after we are no longer
an "emerging growth company" as defined under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. In addition,
new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank
Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated and to be promulgated thereunder, as
well as under the Sarbanes-Oxley Act, the JOBS Act, and the rules and regulations of the U.S. Securities and Exchange Commission,
or SEC, and The NASDAQ Global Market, have created uncertainty for public companies and increased our costs and time that our
board of directors and management must devote to complying with these rules and regulations. We expect these rules and regulations
to increase our legal and financial compliance costs and lead to a diversion of management time and attention from revenue-generating
activities.
Furthermore,
the need to establish the corporate infrastructure demanded of a public company may divert management's attention from implementing
our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have
made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems
to meet our reporting obligations as a publicly-traded company. However, the measures we take may not be sufficient to satisfy
our obligations as a publicly-traded company.
For
as long as we remain an "emerging growth company" as defined in the JOBS Act, we may take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not "emerging growth companies."
These exemptions provide for, but are not limited to, relief from the auditor attestation requirements of Section 404 of
the Sarbanes-Oxley Act, less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and stockholder approval
of any golden parachute payments not previously approved and an extended transition period for complying with new or revised accounting
standards. We may take advantage of these reporting exemptions until we are no longer an "emerging growth company."
We may remain an "emerging growth company" for up to five years. To the extent we are no longer eligible to use exemptions
from various reporting requirements under the JOBS Act; we may be unable to realize our anticipated cost savings from those exemptions.
We
are not currently required to evaluate our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley
Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404
of the Sarbanes-Oxley Act, when applicable, could have a material adverse effect on our business and share price.
As
an emerging growth company, we are not required to evaluate our internal control over financial reporting in a manner that meets
the standards of publicly-traded companies required by Section 404 of the Sarbanes-Oxley Act, or Section 404. We are
required to meet these standards in the course of preparing our consolidated financial statements as of and for the year ended
March 31, 2017 and our management has reported on the effectiveness of our internal control over financial reporting for such
year. Additionally, under the recently enacted JOBS Act, our independent registered public accounting firm will not be required
to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley
Act until we are no longer an "emerging growth company." The rules governing the standards that must be met for our
management to assess our internal control over financial reporting are complex and require significant documentation, testing
and possible remediation.
A
material weakness in internal control was identified in connection with the preparation of our financial statements and the audit
of our financial results. In order to remedy the material weakness, we will need to implement resulting improvements in our internal
controls. In connection with the implementation of the necessary procedures and practices related to internal control over financial
reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements of Section 404. Furthermore, failure to achieve and maintain an effective internal
control environment could have a material adverse effect on our business and share price and could limit our ability to report
our financial results accurately and timely.
Changes
in distribution channels for pet therapeutics could negatively impact our market share, margins and distribution of our products
.
In
most markets, pet owners typically purchase their pet therapeutics directly from veterinarians. Pet owners increasingly could
purchase pet therapeutics from sources other than veterinarians, such as Internet-based retailers, "big-box" retail
stores or other over-the-counter distribution channels. This trend has been demonstrated by the significant shift away from the
veterinarian distribution channel in the sale of parasiticides and vaccines in recent years. Pet owners also could decrease their
reliance on, and visits to, veterinarians as they rely more on Internet-based animal health information. Because we expect to
market our pet prescription products through the veterinarian distribution channel, any decrease in visits to veterinarians by
pet owners could reduce our market share for such products and materially adversely affect our operating results and financial
condition. In addition, pet owners may substitute human health products for pet therapeutics if human health products are deemed
to be lower-cost alternatives.
Legislation
has also been proposed in the United States, and may be proposed in the United States or abroad in the future, that could impact
the distribution channels for our pet products. For example, such legislation may require veterinarians to provide pet owners
with written prescriptions and disclosure that the pet owner may fill prescriptions through a third party, which may further reduce
the number of pet owners who purchase their pet therapeutics directly from veterinarians. Such requirements may lead to increased
use of generic alternatives to our products or the increased substitution of our products with other pet therapeutics or human
health products if such other products are deemed to be lower-cost alternatives. Many states already have regulations requiring
veterinarians to provide prescriptions to pet owners upon request and the American Veterinary Medical Association has long-standing
policies in place to encourage this practice.
Over
time, these and other competitive conditions may increase our reliance on Internet-based retailers, "big-box" retail
stores or other over-the-counter distribution channels to sell our pet products. Any of these events could materially adversely
affect our operating results and financial condition.
Consolidation
of our customers could negatively affect the pricing of our products
.
Veterinarians
are our primary customers. In recent years, there has been a trend towards the concentration of veterinarians in large clinics
and hospitals. If this trend towards consolidation continues, these customers could attempt to improve their profitability by
leveraging their buying power to obtain favorable pricing. The resulting decrease in our prices could have a material adverse
effect on our operating results and financial condition.
Generic
products may be viewed as more cost-effective than our products
.
We
may face competition from products produced by other companies, including generic alternatives to any of our products. We will
need to depend on patents to provide us with exclusive marketing rights for some of our products. The protection afforded which
varies from country to country, is limited by the scope and applicable terms of patents and the availability of legal remedies
in the applicable country. As a result, we may face competition from lower-priced generic alternatives to many of our products.
Generic competitors are becoming more aggressive in terms of pricing, and generic products are an increasing percentage of overall
animal health sales in certain regions. In addition, private label products may compete with our products. If pet therapeutics
customers increase their use of new or existing generic or private label products, our operating results and financial condition
could be materially adversely affected.
Our
pet therapeutics will be subject to unanticipated safety or efficacy concerns, which may harm our reputation
.
Unanticipated
safety or efficacy concerns can arise with respect to pet therapeutics, whether or not scientifically or clinically supported,
leading to product recalls, withdrawals or suspended or declining sales, as well as product liability, and other claims. In addition,
we depend on positive perceptions of the safety and quality of our products, and pet therapeutics generally, by our customers,
veterinarians and end-users, and such concerns may harm our reputation. These concerns and the related harm to our reputation
could materially adversely affect our operating results and financial condition, regardless of whether such reports are accurate.
After
consummation of our merger acquisition of Gel-Del, we acquired and now own all intellectual property rights developed by Gel-Del.
All
of the intellectual property rights of Gel-Del or that we develop with respect to Gel-Del Particles are or will be owned by us.
However, we may face claims from non-practicing entities, which have no relevant product revenue and against whom our own patent
portfolio may thus have no deterrent effect.
In
addition to infringement claims against us, if third parties have prepared and filed patent applications in the United States
that also claim technology to which we have rights, we may have to participate in interference proceedings in the U.S. PTO to
determine the priority of invention. Third parties may also attempt to initiate reexamination, post grant review or inter
parties’ review of our patents in the U.S. PTO. We may also become involved in similar opposition proceedings in the European
Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products
and technology.
If
our efforts to protect the proprietary nature of the intellectual property related to any of our current or future product candidates
are not adequate, we may not be able to compete effectively in our market.
We
will rely upon a combination of patents, trade secret protection and confidentiality to protect the intellectual property related
to our current product candidates and our development programs.
Composition-of-matter
patents on the active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property protection
for pharmaceutical products, including pet therapeutics, as such patents provide protection without regard to any particular method
of use or manufacture. Method-of-use patents protect the use of a product for the specified method. This type of patent does not
prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the
scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications,
veterinarians may recommend that pet owners use these products off label, or pet owners may do so themselves. Although off-label
use may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult
to prevent or prosecute. Method of manufacturing patents protects a specific way to make a product and do not prevent a third
party from making the product by a different method and then using the product for our uses. We cannot be certain that the claims
in our patent applications will be considered patentable by the U.S. PTO and courts in the United States, or by the patent offices
and courts in foreign countries.
The
strength of patents in the field of pet therapeutics involves complex legal and scientific questions and can be uncertain. The
patent applications that we own or license may fail to result in issued patents in the United States or in other foreign countries.
Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may
result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents
and patent applications may not adequately protect our products or our intellectual property or prevent others from designing
around our claims. If the breadth or strength of protection provided by the patents and patent applications we own, in-license
or pursue with respect to any of our current or future product candidates is threatened, it could threaten our ability to commercialize
any of our current or future product candidates. Further, if we encounter delays in our development efforts, the period of time
during which we could market any of our current or future product candidates under patent protection would be reduced. Since patent
applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain
that we were the first to file any patent application related to our product candidates. Furthermore, for patent applications
in which claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third
party or instituted by the U.S. PTO to determine who was the first to invent any of the subject matter covered by the patent claims
of our applications. For patent applications containing a claim not entitled to a priority date before March 16, 2013, there
is a greater level of uncertainty in the patent law with the passage of the America Invents Act, which brings into effect significant
changes to the U.S. patent laws that have yet to be well defined, and which introduces new procedures for challenging pending
patent applications and issued patents. A primary change under this reform is creating a "first to file" system in the
United States, which requires us to minimize the time from invention to filing of a patent application.
Even
where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our
proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual
property against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially
greater intellectual property portfolios than we have.
We
will also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable,
processes for which patents are difficult to enforce and any other elements of our product development processes that involve
proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign
their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and
any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed
such agreements with all parties who may have helped to develop our intellectual property or had access to our proprietary information,
nor that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information
will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially
equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same
extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting
and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure
of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive
advantage in our market, which could materially adversely affect our business, results of operations and financial condition.
Any
disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly
duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
We
may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming
and unsuccessful
.
Competitors
may infringe our patents, or patents that may issue to us in the future, or the patents of our licensors that are licensed to
us. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming.
In addition, if we or one of our future collaborators were to initiate legal proceedings against a third party to enforce a patent
covering our current product candidates, or one of our future products, the defendant could counterclaim that our patent is invalid
and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability
are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including
lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone
connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a materially misleading statement,
during prosecution. Third parties may also raise similar claims before the U.S. PTO, even outside the context of litigation. The
outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question,
for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during
prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least
part, and perhaps all, of the patent protection on our current or future product candidates. Such a loss of patent protection
could have a material adverse impact on our business.
Litigation
or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and
other employees. Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments.
If securities analysts or investors perceive these results to be unsuccessful, it could have an adverse effect on the price of
our common stock. Finally, we may not be able to prevent, alone or with the support of our licensors, misappropriation of our
trade secrets or confidential information, particularly in countries where the laws may not protect those rights fully.
The
regulatory approval process is uncertain, requires us to utilize significant resources, and may prevent us from obtaining approvals
for the commercialization of some or all of our product candidates
.
The
research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of pet therapeutics
are subject to extensive regulation by the CVM, the USDA or the EMA and other regulatory authorities in the United States
and other countries, which regulations differ from country to country. We are not permitted to market any of our current or future
product candidates in the United States until we receive approval of an NADA from the CVM or a product license from the USDA.
We have not submitted an application for or received marketing approval for our current product candidates. Obtaining approval
of an NADA from CVM or a product license from the USDA can be an uncertain process that requires us to utilize significant resources.
The CVM, the USDA or any foreign regulatory bodies can delay, limit or deny approval of any of our product candidates for many
reasons, including:
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are unable to demonstrate to the satisfaction of the CVM, the USDA, the EMA or the applicable foreign regulatory body that
the product candidate is safe and effective for the requested indication;
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the
CVM, the USDA or the applicable foreign regulatory body may disagree with our interpretation of data from our target animal
studies and other development efforts;
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we
may be unable to demonstrate that the product candidate's benefits outweigh any safety or other perceived risks;
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the
CVM, the USDA or the applicable foreign regulatory body may require additional studies;
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the
CVM, the USDA or the applicable foreign regulatory body may not approve of the formulation, labeling and/or the specifications
of our current and future product candidates;
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the
CVM, the USDA or the applicable foreign regulatory body may fail to approve our manufacturing processes or facilities, or
the manufacturing processes or facilities of third-party manufacturers with which we contract; and
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the
approval policies or regulations of the CVM, USDA or the applicable foreign regulatory body may significantly change in a
manner rendering the data from our studies insufficient for approval.
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In
addition, failure to comply with CVM and other applicable United States and foreign regulatory requirements may subject us to
administrative or judicially imposed sanctions, including: warning letters, civil and criminal penalties, injunctions, withdrawal
of approved products from the market, product seizure or detention, product recalls, total or partial suspension of production,
and refusal to approve pending NADAs or product licenses or supplements to approved NADAs or product licenses.
Regulatory
approval of an NADA or supplement NADA, or of a product license, is not guaranteed, and the approval process requires us to utilize
significant resources, may take several years, and is subject to the substantial discretion of the CVM, the USDA or the EMA. Despite
the time and expense exerted, failure can occur at any stage, and we could encounter problems that cause us to abandon or repeat
studies, or perform additional studies. If any of our current or future product candidates fails to demonstrate safety and efficacy
in our studies or for any other reason does not gain regulatory approval, our business and results of operations will be materially
and adversely harmed.
Even
if we receive regulatory approval for any of our current or future product candidates, we will be subject to ongoing CVM, USDA
or EMA obligations and continued regulatory review, which may result in significant additional expense. Additionally, any product
candidates, if approved, will be subject to labeling and manufacturing requirements and could be subject to other restrictions.
Failure to comply with these regulatory requirements or the occurrence of unanticipated problems with our products could result
in significant penalties.
Any
regulatory approvals that we or any of our collaborators receive for any of our current or future product candidates may be subject
to conditions of approval or limitations on the approved indicated uses for which the product may be marketed, or may contain
requirements for potentially costly surveillance to monitor the safety and efficacy of the product candidate. In addition, if
the CVM, the USDA or the EMA approves any of our current or future product candidates, the manufacturing processes, labeling,
packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject
to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information
and reports, registration, as well as continued compliance with cGMP, GLP and good clinical practices, or GCP, for any studies
that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated
severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory
requirements, may result in, among other things:
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restrictions
on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product
recalls;
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fines,
warning letters or holds on target animal studies;
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refusal
by the CVM, the USDA or the EMA to approve pending applications or supplements to approved applications filed by us or our
strategic collaborators, or suspension or revocation of product license approvals;
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product
seizure or detention, or refusal to permit the import or export of products; and
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injunctions
or the imposition of civil or criminal penalties.
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The
CVM's, USDA's or the EMA's policies may change and additional government regulations may be enacted that could prevent, limit
or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation
that may arise from future legislation or administrative action, either in the United States or abroad. 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 and we may not achieve or sustain profitability,
which would adversely affect our business.
Failure
to obtain regulatory approvals in foreign jurisdictions for our product candidates would prevent us from marketing our products
internationally
.
In
order to market any product outside of the United States, including in the EEA (which is comprised of the 28 member states
of the European Union plus Norway, Iceland and Liechtenstein) and many other foreign jurisdictions, separate regulatory approvals
are required. More concretely, in the EEA, pet therapeutics can only be commercialized after obtaining a Marketing Authorization
("MA"). Before granting the MA, the EMA or the competent national authorities of the member states of the EEA make an
assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
The
approval procedures vary among countries and can involve additional studies and testing, and the time required to obtain approval
may differ from that required to obtain CVM or USDA approval. Animal studies conducted in one country may not be accepted by regulatory
authorities in other countries. Approval by the CVM or USDA does not ensure approval by regulatory authorities in other countries,
and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign
countries or by the CVM or the USDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative
effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with
obtaining CVM or USDA approval. We may not be able to file for regulatory approvals or to do so on a timely basis and, even if
we do file them, we may not receive necessary approvals to commercialize our products in any market.
If
approved, any of our current or future products may cause or contribute to adverse medical events that we are required to report
to the CVM, USDA and regulatory authorities in other countries and, if we fail to do so, we could be subject to sanctions that
would materially harm our business
.
If
we are successful in commercializing any of our current or future products, regulations of the CVM, the USDA and of the regulatory
authorities in other countries require that we report certain information about adverse medical events if those products may have
caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become
aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within
the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if
it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of
our products. If we fail to comply with our reporting obligations, the CVM, USDA and regulatory authorities in other countries
could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay
in approval or clearance of future products.
Legislative
or regulatory reforms with respect to pet therapeutics may make it more difficult and costly for us to obtain regulatory clearance
or approval of any of our current or future product candidates and to produce, market, and distribute our products after clearance
or approval is obtained
.
From
time to time, legislation is drafted and introduced in the U.S. Congress that could significantly change the statutory provisions
governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated products. In addition, CVM and
USDA regulations and guidance are often revised or reinterpreted by the CVM and USDA in ways that may significantly affect our
business and our products. Similar changes in laws or regulations can occur in other countries. Any new regulations or revisions
or reinterpretations of existing regulations in the United States or in other countries may impose additional costs or lengthen
review times of any of our current or future product candidates. We cannot determine what effect changes in regulations, statutes,
legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes
could, among other things, require:
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to manufacturing methods;
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recall,
replacement, or discontinuance of certain products; and
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additional
record keeping.
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Each
of these would likely entail substantial time and cost and could materially harm our financial results. In addition, delays in
receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial
condition, and results of operations.
Our
research and development relies on evaluations in animals, which may become subject to bans or additional regulations
.
As
a biopharmaceutical company with a focus on pet therapeutics, the evaluation of our existing and new products in animals is required
to register our products. Animal testing in certain industries has been the subject of controversy and adverse publicity. Some
organizations and individuals have attempted to ban animal testing or encourage the adoption of additional regulations applicable
to animal testing. To the extent that the activities of such organizations and individuals are successful, our research and development,
and by extension our operating results and financial condition, could be materially adversely affected. In addition, negative
publicity about us or our industry could harm our reputation.
RISKS
RELATED TO OUR COMMON STOCK
Our
ability to raise additional capital through the sale of our stock may be harmed by competing resales of our common stock by the
selling shareholders in our registration statement that was declared effective by the SEC.
The
price of our common stock could fall if the selling shareholders sell substantial amounts of our common stock. These sales would
make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate,
because the selling shareholders may offer to sell their shares of common stock to potential investors for less than we do. Moreover,
potential investors may not be interested in purchasing shares of our common stock if the selling shareholders are selling their
shares of common stock.
We
depend on the efforts and abilities of our officers.
We
currently have four officers and directors who are also our only employees. The demands on each of these individuals' time will
increase because of our status as a public company. Our officers and directors have limited experience in managing a public company,
which may impact our ability to meet our financial and business objectives as potential investors may not want to invest in a
company whose management has limited public company experience. The interruption of the services of our management could significantly
hinder our operations, profits and future development, if suitable replacements are not promptly obtained. We do not currently
have any executive compensation agreements. We cannot guaranty that our management will remain with us.
Our
management ranks are thin and losing or failing to add key personnel could affect our ability to successfully grow our business.
Our
future performance depends substantially on the continued service of our management. In particular, our success depends upon the
continued efforts of our management personnel, including our Chief Executive Officer, John Lai, and our Chief Financial Officer/Treasurer
and Secretary, John F. Dolan. We cannot guarantee that either Messrs. Lai or Dolan will remain with us.
The
costs to meet our reporting requirements as a public company subject to the Securities Exchange Act of 1934 will be substantial.
We
will incur ongoing expenses associated with professional fees for accounting and legal expenses associated with being a public
company. We estimate that these costs will range up to $50,000 per year for the next few years. Those fees will be higher if our
business volume and activity increases. Those obligations will reduce and possibly eliminate our ability and resources to fund
our operations effectively.
Our
auditors have questioned our ability to continue operations as a "going concern." Investors may lose all of their investment
if we are unable to continue operations and generate revenues.
We
hope to obtain significant revenues from future product sales. In the absence of significant sales and profits, we may seek to
raise additional funds to meet our working capital needs, principally through the additional sales of our securities. However,
we cannot guarantee that we will be able to obtain sufficient additional funds when needed, or that such funds, if available,
will be obtainable on terms satisfactory to us. As a result, substantial doubt exists about our ability to continue as a going
concern.
Our
officers and directors own approximately 73.21% of our outstanding shares of common stock, allowing these shareholders to control
matters requiring approval of our shareholders.
Our
officers and directors beneficially own, in the aggregate, approximately 73.21% of our outstanding shares of common stock. Such
concentrated control of the company may negatively affect the price of our common stock. In addition, our officers and directors
can control matters requiring approval by our security holders, including the election of all directors.
Investors
should not look to dividends as a source of income.
We
do not intend to pay cash dividends in the foreseeable future. Consequently, any economic return will initially be derived, if
at all, from appreciation in the fair market value of our stock, and not as a result of dividend payments.
The
trading price of our common stock on the over-the-counter market will fluctuate significantly and stockholders may have difficulty
reselling their shares.
As of the date of this Annual Report, our common stock trades on the Pink Sheets OTC market. There is a volatility associated
with such securities in general and the value of your investment could decline due to the impact of any of the following factors
upon the market price of our common stock: (i) disappointing results from our exploration or development efforts; (ii) failure
to meet our revenue or profit goals or operating budget; (iii) decline in demand for our common stock; (iv) downward revisions
in securities analysts' estimates or changes in general market conditions; (v) technological innovations by competitors or in
competing technologies; (vi) lack of funding generated for operations; (vii) investor perception of our industry or our prospects;
and (viii) general economic trends
In
addition, stock markets generally experience price and volume fluctuations and the market prices of over-the-counter (OTC) securities
have been highly volatile. These fluctuations are sometimes unrelated to operating performance and may adversely affect the market
price of our common stock. As a result, investors may be unable to sell their shares at a fair price and you may lose all or part
of your investment.
Additional
issuance of equity securities may result in dilution to our existing stockholders.
Our
Articles of Incorporation, as amended, authorize the issuance of 250,000,000 shares of common stock. The Board of Directors has
the authority to issue additional shares of our capital stock to provide additional financing in the future, and the issuance
of any such shares may result in a reduction of the book value or market price of the then outstanding shares of our common stock.
If we do issue any such additional shares in the future, such issuance also will cause a reduction in the proportionate ownership
and voting power of all other stockholders.
Because
we may be subject to the "penny stock" rules, the level of trading activity in our stock may be reduced - which may
make it difficult for investors to sell their shares.
Broker-dealer
practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the
Securities and Exchange Commission. Penny stocks, like shares of our common stock, generally are equity securities with a price
of less than $5.00, other than securities registered on certain national securities exchanges or quoted on NASDAQ. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the market, and monthly account statements showing the market
value of each penny stock held in the customer's account. In addition, broker-dealers who sell these securities to persons other
than established customers and "accredited investors" must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Consequently, these
requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject
to the penny stock rules, and investors in our common stock may find it difficult to sell their shares.
Our
shares are eligible to be traded electronically.
Our
shares are eligible with Depository Trust Company (DTC) to trade electronically. Because we are DTC eligible, our shares can be
electronically transferred between brokerage accounts.