Liquidity
and Capital Resources
Liquidity
We
measure our liquidity in a number of ways, including the following:
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,064,610
|
|
|
$
|
1,664
|
|
|
|
|
|
|
|
|
|
|
Working
Capital (Deficiency)
|
|
$
|
2,142,227
|
|
|
$
|
(13,651,716
|
)
|
|
|
|
|
|
|
|
|
|
Notes
Payable (Gross)
|
|
$
|
9,637,102
|
|
|
$
|
8,393,327
|
|
Availability
of Additional Funds
Based
upon our accumulated deficit and stockholders’ deficit as of December 31, 2020 of $89,842,833 and $1,331,492, respectively,
along with our forecast for continued operating losses and our need for financing to fund our contemplated clinical trials, as of
such date, we required additional equity and/or debt financing to continue our operations.
As
of December 31, 2020, our outstanding debt of $9,637,102, together with interest at rates ranging between 5% and 7% per annum, was due
on November 16, 2023. As of December 31, 2020, the outstanding debt
amount of $9,637,102 did not include $657,598 of estimated DIP and Plan costs associated with the DIP Funding and the Plan (the “Auctus
Costs”). As of December 31, 2020, the Auctus Costs were not finalized and, of which, $500,000 and $157,598 are recorded in debt
discount and accrued expenses, respectively, on the consolidated balance sheets.
Our
operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures.
Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully
commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with
other companies or acquire other companies or technologies to enhance or complement our product and service offerings.
We
may be unable to raise sufficient additional capital when we need it or raise capital on favorable terms. We have granted a security
interest in all of our assets to certain lenders, including Auctus, in connection with our Chapter 11 plan of reorganization. This may
impede our ability to raise additional debt financing. In addition, future financing may require us to pledge certain assets and enter
into covenants that could restrict certain business activities or our ability to incur further indebtedness and may contain other terms
that are not favorable to our stockholders or us. If we are unable to obtain adequate funds on reasonable terms, we may be required to
significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms.
Our
consolidated financial statements included elsewhere in this Annual Report have been prepared in conformity with accounting principles
generally accepted in the United States of America, or U.S. GAAP, which contemplate our continuation as a going concern and the realization
of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented
in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
The
following events have mitigated the above factors with regards to our ability to continue as a going concern: (i) as part of our Chapter
11 reorganization approximately $14,700,000 in outstanding debt and other liabilities were exchanged for (a) shares of common stock,
(b) new convertible notes with three year terms or (c) new convertible notes with three year terms and warrants to purchase shares of
common stock; (ii) we secured DIP financing during our Chapter 11 reorganization in the aggregate amount of $1,189,413, and $3,848,548
in debt financing as part of our Chapter 11 reorganization to sustain operations; and (iii) pursuant to the plan of reorganization, Auctus
is required to loan to us, as needed and subject to our becoming current in our SEC reporting obligations (which will be the case upon
the filing of this Annual Report), an additional amount equal to $3,500,000, less the amount of Auctus’ DIP financing ($1,226,901,
inclusive of accrued interest) and its DIP costs. As a result of the above, we have sufficient cash to fund operations for the twelve
months subsequent to the filing date. In addition, the Company will need to obtain further funding of at least $12,000,000 to commence
and complete a Phase 2 clinical study of the use of BRTX-100.
During
the years ended December 31, 2020 and 2019, our sources and uses of cash were as follows:
Net
Cash Used in Operating Activities
We
experienced negative cash flows from operating activities for the years ended December 31, 2020 and 2019 in the amounts of $1,964,265
and $6,918,734, respectively. The net cash used in operating activities for the year ended December 31, 2020 was primarily due to
cash used to fund a net loss of $11,272,687, adjusted for non-cash expenses in the aggregate amount of $8,736,072 and partially
offset by $572,350 of cash generated by changes in the levels of operating assets and liabilities, primarily as a result of increases
in accrued expenses. The net cash used in operating activities for the year ended December 31, 2019 was primarily due to cash used to
fund a net loss of $14,647,890, adjusted for non-cash expenses in the aggregate amount of $7,189,303 and partially offset by $539,853
of cash generated by changes in the levels of operating assets and liabilities, primarily as a result of increases in accrued interest,
expenses, and other current liabilities, partially offset by an increase in accounts payable.
Net
Cash Used in Investing Activities
During
the years ended December 31, 2020 and 2019, cash used in investing activities was $- and $35,631, respectively.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities during the years ended December 31, 2020 and 2019 was $5,027,211 and $6,838,505, respectively.
During the year ended December 31, 2020, $5,517,211 of net proceeds were from debt financings. During the year ended December 31, 2019,
$10,888,339 of net proceeds were from debt financings, $1,658,500 of net proceeds were from equity financings, partially offset by $5,708,334
of repayments on debt financings and prepayment premiums.
We
anticipate that the costs to complete our Phase 2 clinical trials with regard to our Disc/Spine Program will be at least $12,000,000.
In addition, we anticipate approximately $45,000,000 in additional funding will be needed to complete the clinical trials using BRTX-100
(assuming the receipt of no revenues). As noted above in “Availability of Additional Funds” we secured additional funding
as part of Chapter 11 reorganization in the aggregate amount of $5,037,961 as well as approximately $14,700,000 in outstanding debt and
other liabilities being exchanged for (a) shares of common stock, (b) new convertible notes with three year terms or (c) new convertible
notes with three year terms and warrants to purchase shares of common stock. Additionally, pursuant to the plan of reorganization, Auctus
is required to loan to us, as needed and subject to our becoming current in our SEC reporting obligations (which will be the case upon
the filing of this Annual Report), an additional amount equal to $3,500,000, less the amount of Auctus’ DIP financing ($1,226,901,
inclusive of accrued interest) and its DIP costs. As a result of the above, we have sufficient cash to fund operations for the twelve
months subsequent to the filing date.
Critical
Accounting Policies and Estimates
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the financial statements and the reported
amounts of revenue and expenses during the periods. Our significant estimates and assumptions include the recoverability and useful lives
of long-lived assets, the fair value of our common stock, stock-based compensation, warrants issued in connection with notes payable,
derivative liabilities and the valuation allowance related to our deferred tax assets. Certain of our estimates, including the carrying
amount of the intangible assets, could be affected by external conditions, including those unique to us and general economic conditions.
It is reasonably possible that these external factors could have an effect on our estimates and could cause actual results to differ
from those estimates.
Intangible
Assets
Intangible
assets are comprised of trademarks and licenses with original estimated useful lives of 10 and 17 years, respectively. Once placed into
service, we amortize the cost of the intangible assets over their estimated useful lives on a straight-line basis.
Impairment
of Long-lived Assets
We
review for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying amount. While our near term liquidity is tight, historically we have been
successful in raising capital as needed (although there can be no assurance that we will continue to be successful in raising capital
as needed). We continue to progress our scientific agenda and meet related milestones. We have not identified any impairment losses.
Income
Taxes
We
recognize deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in
our financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the
tax basis of assets and liabilities and their respective financial reporting amounts, or temporary differences, at enacted tax rates
in effect for the years in which the temporary differences are expected to reverse.
We
adopted the provisions of Accounting Standards Codification, or ASC, Topic 740-10, which prescribes a recognition threshold and measurement
process for financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return.
Stock-Based
Compensation
We
measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees
and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally
re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then
recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Since
the shares underlying our 2010 Equity Participation Plan were registered on May 27, 2014, we estimate the fair value of the awards granted
under the Plan based on the market value of our freely tradable common stock as reported on the OTC. The fair value of our restricted
equity instruments was estimated by management based on observations of the cash sales prices of both restricted shares and freely tradable
shares. Awards granted to directors are treated on the same basis as awards granted to employees.
Derivative
Financial Instruments
We
evaluate our convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative
financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board (“FASB”)
ASC. The accounting treatment of derivative financial instruments requires that we record embedded conversion options (“ECOs”)
and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each
subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period
at each balance sheet date. Conversion options are recorded as a discount to the host instrument and are amortized as amortization of
debt discount on the consolidated financial statements over the life of the underlying instrument. We reassess the classification of
our derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract
is reclassified as of the date of the event that caused the reclassification.
The
Multinomial Lattice Model and Black-Scholes Model were used to estimate the fair value of the ECOs of convertible notes payable, the
warrants, and stock options that are classified as derivative liabilities on the consolidated balance sheets. The models include subjective
input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the actual volatility
during the most recent historical period of time equal to the weighted average life of the instruments.
Recently
Issued Accounting Pronouncements
See
Note 3 to our consolidated financial statements for the years ended December 31, 2020 and 2019 included elsewhere in this Annual Report
following Item 16 (“Form 10-K Summary”).
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
Factors
That May Affect Future Results and Financial Condition
The
risk factors listed in this section provide examples of risks, uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Readers should be aware that the occurrence of any of the events
described in these risk factors could have a material adverse effect on our business, results of operations and financial condition.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events, or otherwise.
Risks
Related to Our Business Generally
We
have a limited operating history; we have incurred substantial losses since inception; we expect to continue to incur losses for the
near term; as of December 31, 2020, we had a stockholders’ deficiency.
We
have a limited operating history. Since our inception, we have incurred net losses. As of December 31, 2020, we had a working
capital of $2,142,229 and a stockholders’ deficit of $1,331,492. On October 30, 2020, the Bankruptcy
Court confirmed the plan of reorganization pursuant to the Chapter 11 Case (the “Plan of Reorganization”) and on November
16, 2020, the Plan of Reorganization became effective.
We
will need to obtain a significant amount of financing to initiate and complete our clinical trials and implement our business plan.
Since
our inception, we have not generated significant revenues from our operations and have funded our operations through the sale of our
equity securities and debt securities. The implementation of our business plan, as discussed in Item 1 of this Annual Report (“Business”),
will require the receipt of sufficient equity and/or debt financing to purchase necessary equipment, technology and materials, fund our
clinical trials and other research and development efforts, retire our outstanding debt and otherwise fund our operations. We anticipate
that we will require approximately $12,000,000 in financing to complete a Phase 2 clinical trial using BRTX-100. We anticipate
that we will require approximately $45,000,000 in further additional funding to complete our clinical trials using BRTX-100 (assuming
the receipt of no revenues). We will also require a substantial amount of additional funding to implement our other programs described
in Item 1 of this Annual Report (“Business”), including our metabolic ThermoStem Program, repay our outstanding debt
(assuming such debt is not converted into equity) and fund general operations. We received debtor-in-possession (“DIP”) funding
of $1,189,413 during the Chapter 11 Case and debt financing of $3,848,548 on the effective date of the Chapter 11 Case. The Plan of Reorganization
provides for additional debt funding of $3,500,000 (less our DIP funding obligation, including accrued interest, of $1,226,901 at the
effective date of the Chapter 11 Case, less DIP costs incurred by the DIP lender) as needed, from our DIP lender upon our becoming current
in our SEC periodic report filings (which will be the case upon the filing of this Annual Report). Such additional funding from the DIP
lender, if received, will not be sufficient to satisfy our needs. No assurance can be given that the anticipated amounts of required
funding are correct or that we will be able to accomplish our goals within the timeframes projected. In addition, no assurance can be
given that we will be able to obtain any required financing on commercially reasonable terms or otherwise. In the event we do not obtain
the financing required for the above purposes, we may have to curtail our development, marketing and promotional activities, which would
have a material adverse effect on our business, financial condition and results of operations, and ultimately we could be forced to discontinue
our operations and liquidate.
We
may need to obtain additional financing to satisfy debt obligations. An event of default pursuant to our outstanding debt obligations
could trigger an acceleration of the due date of such obligations, including our secured debt.
As
described in this Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources – Availability of Additional Funds”), as of December 31, 2020, our outstanding debt of $9,634,104,
together with interest at rates ranging between 5% and 7% per annum, was due on November 16, 2023. As of December 31, 2020, the outstanding
debt amount of $9,637,102 did not include $657,598 of estimated DIP and Plan costs associated with the DIP Funding and the Plan (the
“Auctus Costs”). As of December 31, 2020, the Auctus Costs were not finalized and, of which, $500,000 and $157,598 are recorded
in debt discount and accrued expenses, respectively, on the consolidated balance sheets. The DIP lender is required, pursuant to
the Plan of Reorganization as discussed above, to lend us an additional $3,500,000 (less our DIP funding obligation, including accrued
interest, of $1,226,901 at the effective date of the Chapter 11 Case, less the DIP costs incurred by the DIP lender), as needed.
Although our outstanding debt is repayable on November 16, 2023 (unless sooner converted into equity), an event of default pursuant to
the secured and unsecured promissory notes evidencing such indebtedness could trigger an acceleration of the due dates of all of the
notes. We do not have the financial resources to satisfy such debt obligations. Since the repayment of a substantial portion of our outstanding
debt is secured by a security interest in all of our assets, in the event of a default, and foreclosure upon our assets, we could be
forced to cease operations and liquidate.
Our
business strategy is high risk.
We
are focusing our resources and efforts primarily on the development of cellular-based products and services which will require extensive
cash for research, development and commercialization activities. This is a high-risk strategy because there is no assurance that our
products and services, including our Disc/Spine Program and our ThermoStem metabolic brown fat research initiative, will
ever become commercially viable (commercial risk), that we will prevent other companies from depriving us of market share and profit
margins by offering services and products based on our inventions and developments (legal risk), that we will successfully manage a company
in a new area of business, regenerative medicine, and on a different scale than we have operated in the past (operational risk), that
we will be able to achieve the desired therapeutic results using stem and regenerative cells (scientific risk), or that our cash resources
will be adequate to develop our products and services until we become profitable, if ever (financial risk). We are using our cash in
one of the riskiest industries in the economy (strategic risk). This may make our securities an unsuitable investment for many investors.
We
will need to enter into agreements in order to implement our business strategy.
Except
for a certain license agreement with Regenerative Sciences, LLC described in Item 1 of this Annual Report (“Business – Disc/Spine
Program - License”), we do not have any material agreements or understandings in place with respect to the implementation of our
business strategy. No assurances can be given that we will be able to enter into any necessary agreements with respect to the development
of our business. Our inability to enter into any such agreements would have a material adverse effect on our results of operations and
financial condition.
We
depend on our executive officers and on our ability to attract and retain additional qualified personnel; we do not currently have a
Chief Financial Officer.
Our
performance is substantially dependent on the performance of Lance Alstodt, our Chief Executive Officer. We rely upon him for strategic
business decisions and guidance. We are also dependent on the performance of Francisco Silva, our Vice President of Research and Development.
Each of Messrs. Alstodt and Silva is subject to an employment agreement with us. We do not have any key-man insurance policies on the
lives of either of our executive officers. We do not currently have a Chief Financial Officer. Pending the hiring of a Chief Financial
Officer, we are utilizing financial consultants with regard to the preparation of our financial statements. We believe that our future
success in developing marketable products and services and achieving a competitive position will depend in large part upon whether we
can attract and retain additional qualified management and scientific personnel, including a Chief Financial Officer. Competition for
such personnel is intense, and there can be no assurance that we will be able to attract and retain such personnel. The loss of the services
of Mr. Alstodt and/or Mr. Silva or the inability to attract and retain additional personnel, including a Chief Financial Officer, and
develop expertise as needed would have a substantial negative effect on our results of operations and financial condition.
The
impact of COVID-19 and related risks could materially affect our results of operations and prospects.
Beginning
in March 2020, the global pandemic related to the novel coronavirus COVID-19 began to impact the global economy. Because of the size
and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time.
Risks presented by the ongoing effects of COVID-19 include, among others, the following:
Clinical
Trials. We anticipate that the COVID-19 pandemic may negatively impact our contemplated clinical trials. Due to the worldwide efforts
being taken to combat COVID-19 and the increased clinical work being done in this respect, we believe that it may be difficult for certain
needed laboratory supplies, equipment and other materials to be obtained in order to conduct our clinical trials. We also anticipate
that, due to a fear of COVID-19 transmission, there may be a hesitancy on the part of certain individuals to become clinical trial participants.
We hope that these possible negative effects will lessen as more of the population becomes vaccinated; however, the impact that the vaccinations
will have is uncertain at this time.
Adverse
Legislative and/or Regulatory Action. Federal, state and local government actions to address and contain the impact of COVID-19 may
adversely affect us. For example, we may be subject to legislative and/or regulatory action that negatively impacts the manner in which
the clinical trials may be conducted.
Operational
Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of our senior management or a significant
percentage of our workforce are unable to continue to work because of illness, government directives or otherwise. In addition, in connection
with increased remote working arrangements, we face a heightened risk of cybersecurity attacks or data security incidents and are more
dependent on internet and telecommunications access and capabilities.
Risks
Related to Our Cell Therapy Product Development Efforts
Our
future success is significantly dependent on the timely and successful development and commercialization of BRTX-100, our lead product
candidate for the treatment of chronic lumbar disc disease; if we encounter delays or difficulties in the development of this product
candidate, as well as any other product candidates, our business prospects would be significantly harmed.
We
are dependent upon the successful development, approval and commercialization of our product candidates. Before we are able to seek regulatory
approval of our product candidates, we must conduct and complete extensive clinical trials to demonstrate their safety and efficacy in
humans. Our lead product candidate, BRTX-100, is in early stages of development and we have not yet commenced a Phase 2 clinical
trial using BRTX-100 to treat chronic lower back pain due to degenerative disc disease related to protruding/bulging discs.
Clinical
testing is expensive, difficult to design and implement, and can take many years to complete. Importantly, a failure of one or more of
these or any other clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result
of, clinical trials that could delay or prevent our ability to complete our clinical studies, receive regulatory approval or commercialize
our cell therapy product candidates, including the following:
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suspensions,
delays or changes in the design, initiation, enrollment, implementation or completion of required clinical trials; adverse changes
in our financial position or significant and unexpected increases in the cost of our clinical development program; changes or uncertainties
in, or additions to, the regulatory approval process that require us to alter our current development strategy; clinical trial results
that are negative, inconclusive or less than desired as to safety and/or efficacy, which could result in the need for additional
clinical studies or the termination of the product’s development; delays in our ability to manufacture the product in quantities
or in a form that is suitable for any required clinical trials;
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●
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intellectual
property constraints that prevent us from making, using, or commercializing any of our cell therapy product candidates;
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|
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●
|
the
supply or quality of our product candidates or other materials necessary to conduct clinical trials of these product candidates may
be insufficient or inadequate; the inability to generate sufficient pre-clinical, toxicology, or other in vivo or in vitro data,
to support the initiation of clinical studies;
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|
|
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●
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delays
in reaching agreement on acceptable terms with prospective CROs and clinical study sites, the terms of which can be subject to extensive
negotiation and may vary significantly among different CROs and clinical study sites;
|
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●
|
delays
in obtaining required Institutional Review Board (“IRB”) approval at each clinical study site;
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●
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imposition
of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND application
or amendment, or equivalent application or amendment; as a result of a new safety finding that presents unreasonable risk to clinical
trial participants; a negative finding from an inspection of our clinical study operations or study sites; developments on trials
conducted by competitors or approved products post-market for related technology that raise FDA concerns about risk to patients of
the technology broadly; or if the FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;
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difficulty
collaborating with patient groups and investigators;
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failure
by our CROs, other third parties, or us to adhere to clinical study requirements;
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failure
to perform in accordance with the FDA’s current Good Clinical Practices (“GCP”) requirements, or applicable regulatory
guidelines in other countries;
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●
|
delays
in having patients qualify for or complete participation in a study or return for post-treatment follow-up;
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|
patients
dropping out of a study;
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occurrence
of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
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changes
in the standard of care on which a clinical development plan was based, which may require new or additional trials;
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transfer
of manufacturing processes from any academic collaborators to larger-scale facilities operated by either a contract manufacturing
organization (“CMO”) or by us, and delays or failure by our CMOs or us to make any necessary changes to such manufacturing
process;
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delays
in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates for
use in clinical studies or the inability to do any of the foregoing;
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the
FDA may not accept clinical data from trials that are conducted at clinical sites in countries where the standard of care is potentially
different from the United States; and
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failure
to raise sufficient funds to complete our clinical trials.
|
Any
inability to successfully complete pre-clinical and clinical development could result in additional costs to us or impair our ability
to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required, or we
may elect, to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical study delays could also
shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before
we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Even
if we are able to successfully complete our clinical development program for our product candidates, and ultimately receive regulatory
approval to market one or more of the products, we may, among other things:
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obtain
approval for indications that are not as broad as the indications we sought;
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have
the product removed from the market after obtaining marketing approval;
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encounter
issues with respect to the manufacturing of commercial supplies;
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be
subject to additional post-marketing testing requirements; and/or
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be
subject to restrictions on how the product is distributed or used.
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We
anticipate that we will not be able to commercialize our BRTX-100 product candidate for at least five years.
We
may experience delays and other difficulties in enrolling a sufficient number of patients in our clinical trials which could delay or
prevent the receipt of necessary regulatory approvals.
We
may not be able to initiate or complete as planned any clinical trials if we are unable to identify and enroll a sufficient number of
eligible patients to participate in the clinical trials required by the FDA or other regulatory authorities. We also may be unable to
engage a sufficient number of clinical trial sites to conduct our trials.
We
may face challenges in enrolling patients to participate in our clinical trials due to the novelty of our cell-based therapies, the size
of the patient populations and the eligibility criteria for enrollment in the trial. In addition, some patients may have concerns regarding
cell therapy that may negatively affect their perception of therapies under development and their decision to enroll in the trials. Furthermore,
patients suffering from diseases within target indications may enroll in competing clinical trials, which could negatively affect our
ability to complete enrollment of our trials. Enrollment challenges in clinical trials often result in increased development costs for
a product candidate, significant delays and potentially the abandonment of the clinical trial.
We
may have other delays in completing our clinical trials and we may not complete them at all.
We
have not commenced the clinical trials necessary to obtain FDA approval to market our product candidate, BRTX-100, or any of our
other product candidates in development. Since our Company lacks significant experience in completing clinical trials and bringing a
drug through commercialization, we have hired outside consultants with such experience. Clinical trials for BRTX-100 and other
product candidates in development may be delayed or terminated as a result of many factors, including the following:
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patients failing to complete
clinical trials due to dissatisfaction with the treatment, side effects or other reasons;
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failure by regulators to
authorize us to commence a clinical trial;
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suspension or termination
by regulators of clinical research for many reasons, including concerns about patient safety, the failure of study sites and/or investigators
in our clinical research program to comply with GCP requirements, or our failure, or the failure of our contract manufacturers, to
comply with current cGMP requirements;
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delays or failure to obtain
clinical supply for our products necessary to conduct clinical trials from contract manufacturers;
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treatment candidates demonstrating
a lack of efficacy during clinical trials;
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treatment candidates demonstrating
significant safety signals; and/or
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inability to continue to
fund clinical trials or to find a partner to fund the clinical trials.
|
Any
delay or failure to complete clinical trials and obtain FDA approval for our product candidates could have a material adverse effect
on our cost to develop and commercialize, and our ability to generate revenue from, a particular product candidate.
The
development of our cell therapy product candidates is subject to uncertainty because autologous cell therapy is inherently variable.
When
manufacturing an autologous cell therapy, the number and composition of the cell population varies from patient to patient. Such variability
in the number and composition of these cells could adversely affect our ability to manufacture autologous cell therapies in a cost-effective
or profitable manner and meet acceptable product release specifications for use in a clinical trial or, if approved, for commercial sale.
As a consequence, the development and regulatory approval process for autologous cell therapy products could be delayed or may never
be completed.
Any
disruption to our access to the media (including cell culture media) and reagents we are using in the clinical development of our cell
therapy product candidates could adversely affect our ability to perform clinical trials and seek future regulatory submissions.
Certain
media (including cell culture media) and reagents, as well as devices, materials and systems, that we intend to use in our planned clinical
trials, and that we may need or use in commercial production, are provided by unaffiliated third parties. Any lack of continued availability
of these media, reagents, devices, materials and systems for any reason would have a material adverse effect on our ability to complete
these studies and could adversely impact our ability to achieve commercial manufacture of our planned therapeutic products. Although
other available sources for these media, reagents, devices, materials and systems may exist in the marketplace, we have not evaluated
their cost, effectiveness, or intellectual property foundation and therefore cannot guarantee the suitability or availability of such
other potential sources.
Products
that appear promising in research and development may be delayed or may fail to reach later stages of clinical development.
The
successful development of cellular based products is highly uncertain. Product candidates that appear promising in preclinical and early
research and development may be delayed or fail to reach later stages of development. Decisions regarding the further development of
product candidates must be made with limited and incomplete data, which makes it difficult to ensure or even accurately predict whether
the allocation of limited resources and the expenditure of additional capital on specific product candidates will result in desired outcomes.
Pre-clinical and clinical data can be interpreted in different ways, and negative or inconclusive results or adverse events during a
clinical trial could delay, limit or prevent the development of a product candidate. Positive preclinical data may not continue or occur
for future subjects in our clinical studies and may not be repeated or observed in ongoing or future studies involving our product candidates.
Furthermore, our product candidates may also fail to show the desired safety and efficacy in later stages of clinical development despite
having successfully advanced through initial clinical studies. In addition, regulatory delays or rejections may be encountered as a result
of many factors, including changes in regulatory policy during the period of product development.
Our
clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory
approval and commercialization.
The
clinical trials of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and
rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test
and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we
must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both
safe and effective for use in each target indication. In particular, because our product candidates are subject to regulation as biological
drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target indications. Each product candidate
must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. The risk/benefit
profile required for product licensure will vary depending on these factors and may include decrease or elimination of pain, adequate
duration of response, a delay in the progression of the disease, an improvement in function and/or decrease in disability.
In
addition, even if such trials are successfully completed, we cannot guarantee that the FDA will interpret the results as we do, and more
trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory
to the FDA for support of a marketing application, we may be required to expend significant resources, which may not be available to
us, to conduct additional trials in support of potential approval of our product candidates.
Even
if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize a product
candidate, and the approval may be for a narrower indication than we seek.
We
cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate.
Even if our product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete
their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA
Advisory Committee or other regulatory authority recommends non-approval or restrictions or conditions on approval. In addition, we may
experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes
in regulatory authority policy during the period of product development, clinical trials and the review process. Regulatory authorities
also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form
of narrow indications, contraindications or a Risk Evaluation and Mitigation Strategy (“REMS”). These regulatory authorities
may require warnings or precautions with respect to conditions of use or they may grant approval subject to the performance of costly
post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims or allow the promotional claims
that are necessary or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could
materially harm the commercial prospects for our product candidates and materially and adversely affect our business, financial condition,
results of operations and prospects.
We
may never obtain FDA approval for any of our product candidates in the United States and, even if we do, we may never obtain approval
for or commercialize any of our product candidates in any foreign jurisdiction, which would limit our ability to realize our full market
potential.
In
order to eventually market any of our product candidates in any particular foreign jurisdiction, we must establish and comply with numerous
and varying regulatory requirements regarding safety and efficacy on a jurisdiction-by-jurisdiction basis. Approval by the FDA in the
United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, preclinical
studies and clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory
approval in one country does not guarantee regulatory approval in any other country.
Approval
processes vary among countries and can involve additional product testing and validation and additional administrative review periods.
Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical
trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent
the introduction of our product candidates in those countries. The foreign regulatory approval process involves similar risks to those
associated with FDA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets,
nor have we attempted to obtain such approval. If we fail to comply with regulatory requirements in international markets or to obtain
and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and
our ability to realize the full market potential of our products may be unrealized.
We
presently lack manufacturing capabilities to produce our product candidates at commercial scale quantities and do not have an alternate
manufacturing supply, which could negatively impact our ability to meet any future demand for the products.
Currently,
we expect our laboratory (or a contract laboratory) to provide the cell processing services necessary for clinical production of BRTX-100
for our disc clinical trial. To date, we have not produced any products at our laboratory. We expect that we would need to significantly
expand our manufacturing capabilities to meet potential commercial demand for BRTX-100 and any other of our product candidates,
if approved, as well as any of our other product candidates that might attain regulatory approval. Such expansion would require additional
regulatory approvals. Even if we increase our manufacturing capabilities, it is possible that we may still lack sufficient capacity to
meet demand. Ultimately, if we are unable to supply our products to meet commercial demand, whether because of processing constraints
or other disruptions, delays or difficulties that we experience, sales of the products and their long-term commercial prospects could
be significantly damaged.
We
do not presently have a third-party manufacturer for BRTX-100 or any of our other product candidates. If our facilities at which
these product candidates would be manufactured or our equipment were significantly damaged or destroyed, or if there were other disruptions,
delays or difficulties affecting manufacturing capacity, our planned and future clinical studies and commercial production for these
product candidates would likely be significantly disrupted and delayed. It would be both time consuming and expensive to replace this
capacity with third parties, particularly since any new facility would need to comply with the regulatory requirements.
Ultimately,
if we are unable to supply our cell therapy product candidates to meet commercial demand (assuming commercial approval is obtained),
whether because of processing constraints or other disruptions, delays or difficulties that we experience, our production costs could
dramatically increase and sales of the product and its long-term commercial prospects could be significantly damaged.
The
commercial potential and profitability of our products are unknown and subject to significant risk and uncertainty.
Even
if we successfully develop and obtain regulatory approval for our cell therapy product candidates, the market may not understand or accept
the products, which could adversely affect both the timing and level of future sales. Ultimately, the degree of market acceptance of
our product candidates (or any of our future product candidates) will depend on a number of factors, including:
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the
clinical effectiveness, safety and convenience of the product particularly in relation to alternative treatments;
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our
ability to distinguish our products (which involve adult cells) from any ethical and political controversies associated with stem
cell products derived from human embryonic or fetal tissue; and
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the
cost of the product, the reimbursement policies of government and third-party payors and our ability to obtain sufficient third-party
coverage or reimbursement.
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Even
if we are successful in achieving sales of our product candidates, it is not clear to what extent, if any, the products will be profitable.
The costs of goods associated with production of cell therapy products are significant. In addition, some changes in manufacturing processes
or procedures generally require FDA or foreign regulatory authority review and approval prior to implementation. We may need to conduct
additional pre-clinical studies and clinical trials to support approval of any such changes. Furthermore, this review process could be
costly and time-consuming and could delay or prevent the commercialization of product candidates.
We
may have difficulties in sourcing brown adipose (fat) tissue.
We
use brown adipose (fat) tissue to identify and characterize brown adipose derived stem cells for use in our pre-clinical ThermoStem
Program. There is no certainty that we will be able to continue to collect brown adipose samples through any relationships that we
have, have had or may establish with potential sources of brown adipose tissue. The inability to procure brown fat tissue would have
a material adverse effect upon our ability to advance our ThermoStem Program.
We
are required to complete a certain milestone to maintain our exclusive license rights with regard to the disc/spine technology. The loss
of such exclusive rights would have a material adverse effect upon us.
Pursuant
to our license agreement with Regenerative Sciences, LLC, we must complete our Phase 2 clinical trial by a certain date (which we believe
to be February 2022) in order to maintain our exclusive rights with regard to the disc/spine technology. We will not be able to achieve
such milestone. Any loss of such exclusive rights would have a material adverse effect upon our business, results of operations and financial
condition. See “Business-Disc/Spine Program – License.”
If
safety problems are encountered by us or others developing new stem cell-based therapies, our stem cell initiatives could be materially
and adversely affected.
The
use of stem cells for therapeutic indications is still in the very early stages of development. If an adverse event occurs during clinical
trials related to one of our proposed products and/or services or those of others, the FDA and other regulatory authorities may halt
clinical trials or require additional studies. The occurrence of any of these events would delay, and increase the cost of, our development
efforts and may render the commercialization of our proposed products and/or services impractical or impossible.
We
are vulnerable to competition and technological change, and also to physicians’ inertia.
We
will compete with many domestic and foreign companies in developing our technology and products, including biotechnology, medical device
and pharmaceutical companies. Many current and potential competitors have substantially greater financial, technological, research and
development, marketing, and personnel resources. There is no assurance that our competitors will not succeed in developing alternative
products and/or services that are more effective, easier to use, or more economical than those which we may develop, or that would render
our products and/or services obsolete and non-competitive. In general, we may not be able to prevent others from developing and marketing
competitive products and/or services similar to ours or which perform similar functions or which are marketed before ours.
Competitors
may have greater experience in developing products, therapies or devices, conducting clinical trials, obtaining regulatory clearances
or approvals, manufacturing and commercialization. It is possible that competitors may obtain patent protection, approval or clearance
from the FDA or achieve commercialization earlier than we can, any of which could have a substantial negative effect on our business.
We
will compete against cell-based therapies derived from alternate sources, such as bone marrow, adipose tissue, umbilical cord blood and
potentially embryos. Doctors historically are slow to adopt new technologies like ours, whatever the merits, when older technologies
continue to be supported by established providers. Overcoming such inertia often requires very significant marketing expenditures or
definitive product performance and/or pricing superiority.
We
expect that physicians’ inertia and skepticism will also be a significant barrier as we attempt to gain market penetration with
our future products and services. We may need to finance lengthy time-consuming clinical studies (so as to provide convincing evidence
of the medical benefit) in order to overcome this inertia and skepticism.
We
may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not
realize the benefits of such alliances or licensing arrangements.
We
may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third
parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates
and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges,
increase our near and long-term expenditures, issue securities that dilute the shares of our existing stockholders, or disrupt our management
and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming
and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements
for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third
parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. To date, such efforts
have not been successful.
Further,
collaborations involving our product candidates, such as our collaborations with third-party research institutions, are subject to numerous
risks, which may include the following:
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collaborators
have significant discretion in determining the efforts and resources that they will apply to a collaboration;
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collaborators
may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization
programs based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability
of funding, or other external factors, such as a business combination that diverts resources or creates competing priorities;
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collaborators
may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate,
repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;
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collaborators
could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product
candidates;
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a
collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing
and distribution;
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collaborators
may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information
in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary
information or expose us to potential liability;
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disputes
may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of
our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;
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collaborations
may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization
of the applicable product candidates; and
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collaborators
may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we
would not have the exclusive right to commercialize such intellectual property.
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As
a result, if we enter into collaboration agreements and strategic partnerships or license our products or businesses, we may not be able
to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company
culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic
transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into
new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization
of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition,
and results of operations.
We
have limited experience in the development and marketing of cell therapies and may be unsuccessful in our efforts to establish a profitable
business.
Our
business plan has been focused historically on capturing a piece of the burgeoning field of cell therapy. We have limited experience
in the areas of cell therapy product development and marketing, and in the related regulatory issues and processes. Although we have
recruited a team that has experience with designing and conducting clinical trials and have hired FDA consultants, as a company, we have
limited experience in conducting clinical trials and no experience in conducting clinical trials through to regulatory approval of any
product candidate. In part because of this lack of experience, we cannot be certain that planned clinical trials will begin or be completed
on time, if at all. We cannot assure that we will successfully achieve our clinical development goals or fulfill our plans to capture
a piece of the cell therapy market.
Our
cell therapy business is based on novel technologies that are inherently expensive, risky and may not be understood by or accepted in
the marketplace, which could adversely affect our future value.
The
clinical development, commercialization and marketing of cell and tissue-based therapies are at an early-stage, substantially research-oriented,
and financially speculative. To date, very few companies have been successful in their efforts to develop and commercialize a cell therapy
product. In general, cell-based or tissue-based products may be susceptible to various risks, including undesirable and unintended side
effects, unintended immune system responses, inadequate therapeutic efficacy, or other characteristics that may prevent or limit their
approval or commercial use. In addition, BRTX-100 is a cell-based candidate that is produced by using a patient’s own stem
cells derived from bone marrow. Regulatory approval of novel product candidates such as BRTX-100, which is manufactured using
novel manufacturing processes, can be more complex and expensive and take longer than other, more well-known or extensively studied pharmaceutical
or biopharmaceutical products, due to the FDA’s lack of experience with them. To our knowledge, the FDA has not yet approved a
disc related stem cell therapy product. This lack of experience may lengthen the regulatory review process, require us to conduct additional
studies or clinical trials, which would increase our development costs, lead to changes in regulatory positions and interpretations,
delay or prevent approval and commercialization of these product candidates or lead to significant post-approval limitations or restrictions.
Furthermore, the number of people who may use cell or tissue-based therapies is difficult to forecast with accuracy. Our future success
is dependent on the establishment of a large global market for cell- and tissue-based therapies and our ability to capture a share of
this market with our product candidates.
Our
cell therapy product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
The
enactment of the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) created an abbreviated regulatory pathway
for the approval of products demonstrated to be biosimilar, or “highly similar,” to or “interchangeable” with
an FDA-approved innovator (original) biologic product. The abbreviated regulatory pathway establishes legal authority for the FDA to
review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on
its similarity to an existing reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA
until 12 years after the original branded product is approved under a biologics license application (“BLA”). Although the
FDA has approved several biosimilar products, complex provisions of the law are still being implemented by the FDA and interpreted by
the federal courts. As a result, the ultimate impact, implementation, and meaning of the BPCIA are still subject to some uncertainty
and FDA actions and court decisions concerning the law could have a material adverse effect on the future commercial prospects for our
biological products.
We
believe that, if any of our product candidates are approved as a biological product under a BLA, it should qualify for the 12-year period
of exclusivity. However, there is a risk that the FDA could approve biosimilar applicants for other reference products that no longer
have such exclusivity, thus potentially creating the opportunity for greater competition sooner than anticipated. Moreover, the extent
to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional
generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors
that are still developing.
The
FDA’s regulation of regenerative medicine products remains unpredictable and we are not certain what impact this will have on the
potential approval of our products.
The
FDA’s regulation of therapies derived from stem cell products and technologies is evolving and may continue to evolve. In December
2016, the 21st Century Cures Act (the “Cures Act”) was signed into law in the United States to advance access to medical
innovations. Among other things, the Cures Act established a new FDA regenerative medicine advanced therapy (“RMAT”) designation.
This designation offers a variety of benefits to product candidates, including enhanced FDA support during clinical development, priority
review on application filing, accelerated approval based on potential surrogate endpoints, and the potential use of patient registry
data and other forms of real world evidence for post-approval confirmatory studies. There is no certainty that any of our product candidates
will receive RMAT designation or any other type of expedited review program designation from the FDA. In any event, the receipt of an
FDA RMAT designation or other expedited review program designation may not result in a faster development process, review or approval
compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA.
We
may be subject to significant product liability claims and litigation, including potential exposure from the use of our product candidates
in human subjects, and our insurance may be inadequate to cover claims that may arise.
Our
business exposes us to potential product liability risks inherent in the testing, processing and marketing of cell therapy products.
Such liability claims may be expensive to defend and result in large judgments against us. We face an inherent risk of product liability
exposure related to the testing of our current and any future product candidates in human clinical trials and will face an even greater
risk with respect to any commercial sales of our products should they be approved. No product candidate has been widely used over an
extended period of time, and therefore safety data is limited. Cell therapy companies derive the raw materials for manufacturing of product
candidates from human cell sources, and therefore the manufacturing process and handling requirements are extensive, which increases
the risk of quality failures and subsequent product liability claims.
We
will need to maintain insurance coverage adequate to cover our clinical trials and increase that coverage before commercializing product
candidates, if ever. At any time during our clinical trials or after commercialization, if that occurs, we may not be able to obtain
or maintain product liability insurance on acceptable terms with adequate coverage or at all, or if claims against us substantially exceed
our coverage, then our financial position could be significantly impaired.
Whether
or not we are ultimately successful in any product liability litigation that may arise, such litigation could consume substantial amounts
of our financial and managerial resources, result in decreased demand for our products and injure our reputation.
We
seek to maintain errors and omissions, directors and officers, workers’ compensation and other insurance at levels we believe to
be appropriate to our business activities. If, however, we were subject to a claim in excess of this coverage or to a claim not covered
by our insurance and the claim succeeded, we would be required to pay the claim from our own limited resources, which could have a material
adverse effect on our financial condition, results of operations and business. Additionally, liability or alleged liability could harm
our business by diverting the attention and resources of our management and damaging our reputation.
Our
internal computer systems, or those that are expected to be used by our clinical investigators, clinical research organizations or other
contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of development programs
for our product candidates.
We
rely on information technology systems to keep financial records, maintain laboratory and corporate records, communicate with staff and
external parties and operate other critical functions. Any significant degradation or failure of these computer systems could cause us
to inaccurately calculate or lose data. Despite the implementation of security measures, these internal computer systems and those used
by our clinical investigators, clinical research organizations, and other contractors and consultants are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. The techniques that could
be used by criminal elements or foreign governments to attack these computer systems are sophisticated, change frequently and may originate
from less regulated and remote areas of the world. While we have not experienced any such system failure, theft of information, accident
or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption
of our clinical development activities. For example, the loss of clinical trial data from historical or future clinical trials could
result in delays in regulatory approval efforts and significantly increase costs to recover or reproduce the data. To the extent that
any disruption, theft of information, or security breach were to result in a loss of or damage to data or applications, or inappropriate
disclosure of confidential or proprietary information, we could incur liability and the clinical development and the future development
of our product candidates could be delayed.
To
operate and sell in international markets carries great risk.
We
intend to market our products and services both domestically and in foreign markets. A number of risks are inherent in international
transactions. In order for us to market our products and services in non-U.S. jurisdictions, we need to obtain and maintain required
regulatory approvals or clearances in these countries and must comply with the country specific regulations regarding safety, manufacturing
processes and quality. These regulations, including the requirements for approvals or clearances to market, may differ from the FDA regulatory
scheme. International operations and sales also may be limited or disrupted by political instability, price controls, trade restrictions
and changes in tariffs. Additionally, fluctuations in currency exchange rates may adversely affect demand for our services and products
by increasing the price of our products and services in the currency of the countries in which the products and services are offered.
There
can be no assurance that we will obtain regulatory approvals or clearances in all of the countries where we intend to market our products
and services, or that we will not incur significant costs in obtaining or maintaining foreign regulatory approvals or clearances, or
that we will be able to successfully commercialize our products and services in various foreign markets. Delays in receipt of approvals
or clearances to market our products and services in foreign countries, failure to receive such approvals or clearances or the future
loss of previously received approvals or clearances could have a substantial negative effect on our results of operations and financial
condition.
Our
inability to obtain reimbursement for our products and services from private and governmental insurers could negatively impact demand
for our products and services.
Market
acceptance and sales of our product candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions
about formulary coverage as well as levels at which government authorities and third-party payors, such as private health insurers and
health maintenance organizations, reimburse patients for the price they pay for our product candidates, as well as levels at which these
payors pay directly for our product candidates, where applicable, could affect whether we are able to successfully commercialize these
products. We cannot guarantee that reimbursement will be available for any of our product candidates. We also cannot guarantee that coverage
or reimbursement amounts will not reduce the demand for, or the price of, our product candidates.
If
coverage and reimbursement are not available or are available only at limited levels, we may not be able to successfully commercialize
our products. The Patient Protection and Affordable Care Act (“PPACA”) and other health reform proposals include measures
that would limit or prohibit payments for certain medical treatments or subject the pricing of drugs to government control. In addition,
in many foreign countries, particularly the countries of the European Union (the “EU”), the pricing of drugs and biologics
is subject to government control. If our products are or become subject to government regulation that limits or prohibits payment for
our products, or that subjects the price of our products to government control, we may not be able to generate revenue, attain profitability
or commercialize our products.
In
addition, third-party payors are increasingly limiting both coverage and the level of reimbursement of new drugs and biologics. They
may also impose strict prior authorization requirements and/or refuse to provide any coverage of uses of approved products for medical
indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether
and how much third-party payors will reimburse patients for their use of newly-approved drugs and biologics. If we are unable to obtain
adequate levels of reimbursement for our product candidates, our ability to successfully market and sell our product candidates will
be harmed.
Risks
Related to Our Intellectual Property
We
may not be able to protect our proprietary rights.
Our
commercial success will depend in large part upon our ability to protect our proprietary rights. There is no assurance, for example,
that any additional patents will be issued based on our or our licensor’s pending applications or, if issued, that such patents
will not become the subject of a re-examination, will provide us with competitive advantages, will not be challenged by any third parties,
or that the patents of others will not prevent the commercialization of products and services incorporating our technology. Furthermore,
there can be no guarantee that others will not independently develop similar products and services, duplicate any of our products and
services, or design around any patents we obtain.
Our
commercial success will also depend upon our ability to avoid infringing patents issued to others. If we were judicially determined to
be infringing on any third-party patent, we could be required to pay damages, alter our products, services or processes, obtain licenses,
or cease certain activities. If we are required in the future to obtain any licenses from third parties for some of our products and/or
services, there can be no guarantee that we would be able to do so on commercially favorable terms, if at all. United States and foreign
patent applications are not immediately made public, so we might be surprised by the grant to someone else of a patent on a technology
we are actively using. Although we conducted a freedom to operate (“FTO”) search on the licensed technology associated with
our Disc/Spine Program, modifications made, and/or further developments that may be made, to that technology may not be covered
by the initial FTO. No FTO has been undertaken with respect to our ThermoStem brown fat initiative.
Litigation,
which would result in substantial costs to us and the diversion of effort on our part, may be necessary to enforce or confirm the ownership
of any patents issued or licensed to us, or to determine the scope and validity of third-party proprietary rights. If our competitors
claim technology also claimed by us and prepare and file patent applications in the United States, we may have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office (the “Patent Office”) or a foreign patent office to determine
priority of invention, which could result in substantial costs and diversion of effort, even if the eventual outcome is favorable to
us. Any such litigation or interference proceeding, regardless of outcome, could be expensive and time-consuming.
Successful
challenges to our patents through oppositions, re-examination proceedings or interference proceedings could result in a loss of patent
rights in the relevant jurisdiction. If we are unsuccessful in actions we bring against the patents of other parties, and it is determined
that we infringe upon the patents of third parties, we may be subject to litigation, or otherwise prevented from commercializing potential
products and/or services in the relevant jurisdiction, or may be required to obtain licenses to those patents or develop or obtain alternative
technologies, any of which could harm our business. Furthermore, if such challenges to our patent rights are not resolved in our favor,
we could be delayed or prevented from entering into new collaborations or from commercializing certain products and/or services, which
could adversely affect our business and results of operations.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course
of litigation 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 negative, it could have a substantial adverse effect on the price of our
common stock.
In
addition to patents, we rely on unpatented trade secrets and proprietary technological expertise. Some of our intended future cell-related
therapeutic products and/or services may fit into this category. We also rely, in part, on confidentiality agreements with our partners,
employees, advisors, vendors, and consultants to protect our trade secrets and proprietary technological expertise. There can be no guarantee
that these agreements will not be breached, or that we will have adequate remedies for any breach, or that our unpatented trade secrets
and proprietary technological expertise will not otherwise become known or be independently discovered by competitors.
Failure
to obtain or maintain patent protection, failure to protect trade secrets, third-party claims against our patents, trade secrets, or
proprietary rights or our involvement in disputes over our patents, trade secrets, or proprietary rights, including involvement in litigation,
could divert our efforts and attention from other aspects of our business and have a substantial negative effect on our results of operations
and financial condition.
We
may not be able to protect our intellectual property in countries outside of the United States.
Intellectual
property law outside the United States is uncertain and, in many countries, is currently undergoing review and revisions. The laws of
some countries do not protect our patent and other intellectual property rights to the same extent as United States laws. Third parties
may attempt to oppose the issuance of patents to us in foreign countries by initiating opposition proceedings. Opposition proceedings
against any of our patent filings in a foreign country could have an adverse effect on our corresponding patents that are issued or pending
in the United States. It may be necessary or useful for us to participate in proceedings to determine the validity of our patents or
our competitors’ patents that have been issued in countries other than the United States. This could result in substantial costs,
divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of operations
and financial condition.
Changes
to United States patent law may have a material adverse effect on our intellectual property rights.
The
Leahy-Smith America Invents Act (“AIA”), which was signed into law in 2011, significantly changes United States patent law.
It may take some time to establish what the law means, since it is just being interpreted by the lower courts, Federal Circuit Courts
of Appeal, and the Supreme Court. The effects of these decisions are still not known. The first major change is that AIA switches the
United States patent system from a “first to invent” system to a “first to file” system. Now that the first to
file system is in effect, there is a risk that another company may independently develop identical or similar patents at approximately
the same time, and be awarded the patents instead of us. Further, for the second major change, AIA abolished interference proceedings,
and establishes derivation proceedings to replace interference proceedings in all cases in which the time period for instituting an interference
proceeding has not lapsed where an inventor named in an earlier application derived the claimed invention from a named inventor. Now
that the derivation proceedings are in effect, there is a risk that the inventorship of any pending patent application can be challenged
for reasons of derivation. The third major change is that AIA established post-grant opposition proceedings that will apply only to patent
applications filed after “first to file” became effective. Post-grant opposition will enable a person who is not the patent
owner to initiate proceedings in the Patent Office within nine months after the grant of a patent that can result in cancellation of
a patent as invalid. In addition to AIA, recent court decisions have created uncertainty with regard to our ability to obtain and maintain
patents. Therefore there is a risk that any of our patents once granted may be subject to post-grant opposition, which will increase
uncertainty on the validity of any newly granted patent or may ultimately result in cancellation of the patent.
In
addition, the Supreme Court has recently taken more limiting positions as to what constitutes patentable subject matter. As a result,
many patents covering what were previously patentable inventions are now determined to cover inventions which are deemed non-statutory
subject matter and are now invalid. As a result of this and subsequent opinions by the Court of Appeals for the Federal Circuit, the
Patent Office is now applying more stringent limitations to claims in patent applications and is refusing to grant patents in areas of
technology where patents were previously deemed available. Therefore there is a risk that we will be unable to acquire patents to cover
our products and if such patents are granted they may subsequently be found to be invalid.
In
certain countries, patent holders may be required to grant compulsory licenses, which would likely have a significant and detrimental
effect on any future revenues in such country.
Many
countries, including some countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses
to third parties. In addition, most countries limit the enforceability of patents against government agencies or government contractors.
In these countries, the patent owner may be limited to monetary relief and may be unable to enjoin infringement, which could materially
diminish the value of the patent. Compulsory licensing of life-saving products is also becoming increasingly common in developing countries,
either through direct legislation or international initiatives. Such compulsory licenses could be extended to our product candidates,
which may limit our potential revenue opportunities, including with respect to any future revenues that may result from our product candidates.
Risks
Related to Government Regulation
Even
if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory oversight.
Our
product candidates for which we obtain regulatory approval will be subject to ongoing regulatory requirements for manufacturing, labeling,
packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information. Any regulatory
approvals that we receive for our product candidates also may be subject to a REMS or the specific obligations imposed as a condition
for marketing authorization by equivalent authorities in a foreign jurisdiction, limitations on the approved indicated uses for which
the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing,
including Phase 4 clinical trials, and surveillance to monitor the quality, safety and efficacy of the product. For example, in the United
States, the holder of an approved new drug application (“NDA”) or BLA is obligated to monitor and report adverse events and
any failure of a product to meet the specifications in the NDA or BLA. The holder of an approved NDA or BLA also must submit new or supplemental
applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising
and promotional materials must comply with the Federal Food, Drug and Cosmetic Act (“FDCA”) and implementing regulations
and are subject to FDA oversight and post-marketing reporting obligations, in addition to other potentially applicable federal and state
laws.
In
addition, product manufacturers and their facilities may be subject to payment of application and program fees and are subject to continual
review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments
made in the NDA, BLA or foreign marketing application. If we or a regulatory authority discover previously unknown problems with a product,
such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or if
a regulatory authority disagrees with the promotion, marketing or labeling of our product, a regulatory authority may impose restrictions
relative to that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or
suspension of manufacturing.
If
we fail to comply with applicable regulatory requirements for any product candidate following approval, a regulatory authority may:
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issue
a warning or untitled letter asserting that we are in violation of the law;
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seek
an injunction or impose administrative, civil or criminal penalties or monetary fines;
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suspend
or withdraw regulatory approval;
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suspend
any ongoing clinical trials;
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refuse
to approve a pending BLA or comparable foreign marketing application (or any supplements thereto) submitted by us or our strategic
partners;
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restrict
the marketing or manufacturing of the product;
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seize
or detain the product or otherwise demand or require the withdrawal or recall of the product from the market;
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refuse
to permit the import or export of products;
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request
and publicize a voluntary recall of the product; or
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refuse
to allow us to enter into supply contracts, including government contracts.
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Any
government enforcement action or investigation of alleged violations of law could require us to expend significant time and resources
in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to
commercialize our product candidates and adversely affect our business, financial condition, results of operations and prospects.
We
may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information
privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
In
the United States, the research, manufacturing, distribution, sale, and promotion of drugs and biologic products are subject to regulation
by various federal, state, and local authorities, including the FDA, the Centers for Medicare and Medicaid Services (“CMS”),
other divisions the Department of Health and Human Services (“HHS”) (e.g., the Office of Inspector General), the United States
Department of Justice offices of the United States Attorney, the Federal Trade Commission and state and local governments. Our operations
are directly, or indirectly through our prescribers, customers and purchasers, subject to various federal and state fraud and abuse laws
and regulations, including the federal Anti-Kickback Statute (“AKS”), the federal civil and criminal False Claims Act (“FCA”),
the Physician Payments Sunshine Act and regulations and equivalent provisions in other countries. In addition, we may be subject to patient
privacy laws by both the federal government and the states in which we conduct our business.
State
and federal regulatory and enforcement agencies continue actively to investigate violations of health care laws and regulations, and
the United States Congress continues to strengthen the arsenal of enforcement tools. Most recently, the Bipartisan Budget Act of 2018
increased the criminal and civil penalties that can be imposed for violating certain federal health care laws, including the AKS. Enforcement
agencies also continue to pursue novel theories of liability under these laws. Government agencies have recently increased regulatory
scrutiny and enforcement activity with respect to programs supported or sponsored by pharmaceutical companies, including reimbursement
and co-pay support, funding of independent charitable foundations and other programs that offer benefits for patients. Several investigations
into these programs have resulted in significant civil and criminal settlements.
Because
of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our
business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any
of the laws described above or any other government regulations that apply to us, we may be subject to penalties, including civil and
criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment
and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our
results of operations. Even if we are not determined to have violated these laws, government investigations into these issues typically
require the expenditure of significant resources and generate negative publicity, which could harm our financial condition and divert
the attention of our management from operating our business.
Further,
in the event we determine to operate in foreign jurisdictions, including conducting clinical trials, we will need to comply with the
United States Foreign Corrupt Practices Act of 1977 (the “FCPA”). The FCPA prohibits a corporation, including its subsidiaries,
third-party contractors, distributors, consultants and employees, from corruptly making or offering to make payments to foreign officials
for the purpose of obtaining or enhancing business. Under the law, “foreign officials” include employees of health systems
operated by government entities. The FCPA also establishes specific record-keeping and internal accounting controls. Violations of the
FCPA can result in the imposition of civil penalties or criminal prosecution. Failure to comply with the FCPA will adversely affect our
business.
In
addition to the FCPA, we will also need to comply with the foreign government laws and regulations of each individual country in which
any therapy centers that we may establish are located and products are to be distributed and sold. These regulations vary in complexity
and can be as stringent, and on occasion even more stringent, than FDA regulations in the United States. Due to the fact that there are
new and emerging stem cell and cell therapy regulations that have recently been drafted and/or implemented in various countries around
the world, the application and subsequent implementation of these new and emerging regulations have little to no precedence. Therefore,
the level of complexity and stringency is not always precisely understood today for each country, creating greater uncertainty for the
international regulatory process. Furthermore, there can be no guarantee that laws and regulations will not be implemented, amended and/or
reinterpreted in a way that will negatively affect our business. Likewise, there can be no assurance that we will be able, or will have
the resources, to maintain compliance with all such healthcare laws and regulations. Failure to comply with such healthcare laws and
regulations, as well as the costs associated with such compliance or with enforcement of such healthcare laws and regulations, may have
a material adverse effect on our operations or may require restructuring of our operations or impair our ability to operate profitably.
Our
current and future employees, consultants and advisors and our future principal investigators, medical institutions and commercial partners
may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We
are exposed to the risk of fraud or other misconduct by our current and future employees, consultants and advisors and our future principal
investigators, medical institutions and commercial partners, including contract laboratories, and CROs. Misconduct by these parties could
include intentional failures to comply with FDA regulations or the regulations applicable in other jurisdictions, provide accurate information
to the FDA and other regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad,
report financial information or data accurately or disclose unauthorized activities to us.
We
currently do not and in the future may not independently conduct all aspects of our product candidate research and preclinical and clinical
testing and product candidate manufacturing. If we rely on third parties, including CROs, medical institutions, and contract laboratories
to monitor and manage data for our ongoing preclinical and clinical programs, we will still maintain responsibility for ensuring their
activities are conducted in accordance with the applicable study protocol, legal, regulatory and scientific standards. We and our third-party
vendors will be required to comply with current cGMP, GCP, and Good Laboratory Practice (“GLP”) requirements, which are a
collection of laws and regulations enforced by the FDA, the EU and comparable foreign authorities for all of our product candidates in
clinical development.
In
addition, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended
to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a
wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.
Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the
FDA or other regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation.
The
precautions we take to detect and prevent employee and third-party misconduct may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with
these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting
our rights, those actions could have a significant impact on our business, financial condition, results of operations and prospects,
including the imposition of significant fines or other sanctions.
The
failure to receive regulatory approvals for our cell therapy product candidates would likely have a material and adverse effect on our
business and prospects.
To
date, we have not received regulatory approval to market any of our product candidates in any jurisdiction. If we seek approval of any
of our cell therapy product candidates, we will be required to submit to the FDA and potentially other regulatory authorities extensive
pre-clinical and clinical data supporting its safety and efficacy, as well as information about the manufacturing process and to undergo
inspection of our manufacturing facility or other contract manufacturing facilities, if utilized, among other things. The process of
obtaining FDA and other regulatory approvals is expensive, generally takes many years and is subject to numerous risks and uncertainties,
particularly with complex and/or novel product candidates such as our cell-based product candidates. Changes in regulatory approval requirements
or policies may cause delays in the approval or rejection of an application or may make it easier for our competitors to gain regulatory
approval to enter the marketplace. Ultimately, the FDA and other regulatory agencies have substantial discretion in the approval process
and may refuse to accept any application or may decide that our product candidate data are insufficient for approval without the submission
of additional preclinical, clinical or other studies. In addition, varying agency interpretations of the data obtained from preclinical
and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any difficulties or failures that we encounter
in securing regulatory approval for our product candidates would likely have a substantial adverse impact on our ability to generate
product sales, and could make any search for a collaborative partner more difficult. Similarly, any regulatory approval we ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
If
we are unable to conduct clinical studies in accordance with regulations and accepted standards, we may be delayed in receiving, or may
never receive, regulatory approvals of our product candidates from the FDA and other regulatory authorities.
To
obtain marketing approvals for our product candidates in the United States and abroad, we must, among other requirements, complete adequate
and well-controlled clinical trials sufficient to demonstrate to the FDA and other regulatory bodies that the product candidate is safe
and effective for each indication for which approval is sought. If the FDA finds that patients enrolled in the trial are or would be
exposed to an unreasonable and significant risk of illness or injury, due to, among other things, occurrence of a serious adverse event
in an ongoing clinical trial, the FDA can place one or more of our clinical trials on hold. If safety concerns develop, we may, or the
FDA or an institutional review board may require us to, stop the affected trials before completion.
The
completion of our clinical trials also may be delayed or terminated for a number of other reasons, including if:
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third-party
clinical investigators do not perform the clinical trials on the anticipated schedule or consistent with the clinical trial protocol,
good clinical practices required by the FDA and other regulatory requirements, or other third parties do not perform data collection
and analysis in a timely or accurate manner;
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inspections
of clinical trial sites by the FDA or other regulatory authorities reveal violations that require us to undertake corrective action,
suspend or terminate one or more sites, or prohibit use of some or all of the data in support of marketing applications; or
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the
FDA or one or more institutional review boards suspends or terminates the trial at an investigational site, or precludes enrollment
of additional subjects.
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Our
development costs will increase if there are material delays in our clinical trials, or if we are required to modify, suspend, terminate
or repeat a clinical trial. If we are unable to conduct our clinical trials properly, we may never receive regulatory approval to market
our product candidates.
Health
care companies have been the subjects of federal and state investigations, and we could become subject to investigations in the future.
Both
federal and state government agencies have heightened civil and criminal enforcement efforts. There are numerous ongoing investigations
of health care companies, as well as their executives and managers. In addition, amendments to the federal FCA, including under healthcare
reform legislation, have made it easier for private parties to bring “qui tam” (or whistleblower) lawsuits against
companies under which the whistleblower may be entitled to receive a percentage of any money paid to the government. The FCA provides,
in part, that an action can be brought against any person or entity that has knowingly presented, or caused to be presented, a false
or fraudulent request for payment from the federal government, or who has made a false statement or used a false record to get a claim
approved. The government has taken the position that claims presented in violation of the federal AKS, Stark Law or other healthcare-related
laws, including laws enforced by the FDA, may be considered a violation of the FCA. Penalties include substantial fines for each false
claim, plus three times the amount of damages that the federal government sustained because of the act of that person or entity and/or
exclusion from the Medicare program. In addition, a majority of states have adopted similar state whistleblower and false claims provisions.
We
are not aware of any government investigations involving any of our facilities or management. While we believe that we are in compliance
with applicable governmental healthcare laws and regulations, any future investigations of our business or executives could cause us
to incur substantial costs, and result in significant liabilities or penalties, as well as damage to our reputation.
It
is uncertain to what extent the government, private health insurers and third-party payors will approve coverage or provide reimbursement
for the therapies and products to which our services relate. Availability for such reimbursement may be further limited by reductions
in Medicare, Medicaid and other federal healthcare program funding in the United States.
To
the extent that health care providers cannot obtain coverage or reimbursement for our products and therapies, they may elect not to provide
such products and therapies to their patients and, thus, may not need our services. Further, as cost containment pressures are increasing
in the health care industry, government and private payors may adopt strategies designed to limit the amount of reimbursement paid to
health care providers.
Similarly,
the trend toward managed health care and bundled pricing for health care services in the United States, could significantly influence
the purchase of healthcare products and services, resulting in lower prices and reduced demand for our therapeutic products under development.
We
may directly or indirectly receive revenues from federal health care programs, such as Medicare. Federal health care programs are subject
to changes in coverage and reimbursement rules and procedures, including retroactive rate adjustments. These contingencies could materially
decrease the range of services covered by such programs or the reimbursement rates paid directly or indirectly for our products and services.
To the extent that any health care reform favors the reimbursement of other therapies over our therapeutic products under development,
such reform could affect our ability to sell our services, which may have a material adverse effect on our revenues.
The
limitation on reimbursement available from private and government payors may reduce the demand for, or the price of, our products and
services, which could have a material adverse effect on our revenues. Additional legislation or regulation relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future which could adversely affect the revenues generated from
the sale of our products and services.
Furthermore,
there has been a trend in recent years towards reductions in overall funding for Medicare, Medicaid and other federal health care programs.
There has also been an increase in the number of people who are not eligible for or enrolled in Medicare, Medicaid or other governmental
programs. The reduced funding of governmental programs could have a negative impact on the demand for our services to the extent it relates
to products and services which are reimbursed by government and private payors.
Unintended
consequences of healthcare reform in the United States may adversely affect our business.
The
healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences. In the United States,
the PPACA was signed into law in 2010 under the Obama administration. By implementing comprehensive reforms, the law seeks to, among
other things, increase access to healthcare for the uninsured and control the escalation of healthcare expenditures within the economy.
While we do not believe this law will have a direct impact on our business, the law requires the adoption of various implementing regulations,
which may have unintended consequences or indirectly impact our business.
In
addition, other legislative changes have been adopted since the PPACA was enacted. These changes include aggregate reductions in Medicare
payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, following passage of the Bipartisan Budget
Act of 2018, will remain in effect through 2027 unless additional Congressional action is taken. In January 2013, President Obama signed
into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several types of providers
and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In
the past two years, Congress has considered additional reductions in Medicare reimbursement for drugs and devices as part of legislation
to reduce the budget deficit. Similar legislation could be enacted in the future. The Medicare regulations and interpretive determinations
that determine how drugs, devices and services are covered and reimbursed also are subject to change. These laws may result in additional
reductions in Medicare and other health care funding, which could impact our business.
Healthcare
reform measures that may be adopted in the future, may result in more rigorous coverage criteria and decreased reimbursement. Under the
Trump administration, Congress passed certain legislation to alter the PPACA. In addition, Congress and select states have proposed legislation
to alter and/or repeal the PPACA and/or transform certain aspects of existing federal and state health programs. The implementation of
cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize
our product candidates. It is difficult to predict how enforcement initiatives under the PPACA and/or additional legislation or regulation
enacted in the future may impact our business. If the PPACA and/or additional legislation or regulation enacted in the future cause such
unintended consequences or indirect impact, they could have a material adverse effect on our business, financial condition and results
of operations.
Competitor
companies or hospitals in the EU may be able to take advantage of EU rules permitting sales of unlicensed medicines for individual patients
to sell competing products without a marketing authorization.
The
EU medicines rules allow individual member states to permit the supply of a medicinal product without a marketing authorization to fulfill
special needs, where the product is supplied in response to a bona fide unsolicited order, formulated in accordance with the specifications
of a healthcare professional and for use by an individual patient under his direct personal responsibility. This may, in certain countries,
also apply to products manufactured in a country outside the EU and imported to treat specific patients or small groups of patients.
In addition, advanced therapy medicinal products do not need a marketing authorization if they are prepared on a non-routine basis and
are used within the same EU member state in a hospital in accordance with a medical prescription for an individual patient.
These
exemptions could allow our competitors to make sales in the EU without having obtained a marketing authorization and without undergoing
the expense of clinical trials, especially if those competitors have cell processing facilities in the relevant EU member state. Similarly,
certain hospitals may be able to compete with us on the basis of these rules.
Risks
Related to and Our Common Stock
We
pay no dividends.
We
have never paid cash dividends in the past, and currently do not intend to pay any cash dividends in the foreseeable future.
There
is no assurance that an active trading market for our securities will be sustained.
No
assurance can be given that an active market for our shares will be sustained. In addition, although there have been market makers in
our common stock, we cannot assure that these market makers will continue to make a market in our securities or that other factors outside
of our control will not cause them to stop market making in our securities. Making a market in securities involves maintaining bid and
ask quotations and being able to effect transactions in reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements. Furthermore, the maintenance of a public trading market depends upon the existence of willing buyers
and sellers, the presence of which is not within our control or that of any market maker. Market makers are not required to maintain
a continuous two-sided market, are required to honor firm quotations for only a limited number of securities, and are free to withdraw
firm quotations at any time. Even with a market maker, factors such as our past losses from operations and the small size of our company
mean that there can be no assurance that an active and liquid market for our securities will be sustained or that stockholders will be
able to resell their securities at any price.
Stockholders
who hold unregistered shares of our common stock are subject to resale restrictions pursuant to Rule 144 due to our former status as
a “shell company.”
We
previously were a “shell company” pursuant to Rule 144, promulgated under the Securities Act (“Rule 144”), and,
as such, sales of our securities pursuant to Rule 144 cannot be made unless, among other things, we continue to remain subject to Section
13 or 15(d) of the Exchange Act, and we file all of our required periodic reports with the SEC under the Exchange Act. Because our unregistered
securities cannot be sold pursuant to Rule 144 unless we continue to meet such requirements, any unregistered securities we sell in the
future or issue to consultants or employees, in consideration for services rendered or for any other purpose, will have no liquidity
unless we continue to comply with such requirements. As a result, it may be more difficult for us to obtain financing to fund our operations
and pay our consultants and employees with our securities instead of cash.
We
have incurred, and will continue to incur, increased costs as a result of being an SEC reporting company.
The
Sarbanes-Oxley Act of 2002, as well as a variety of related rules implemented by the SEC, have required changes in corporate governance
practices and generally increased the disclosure requirements of public companies. As a reporting company, we incur significant legal,
accounting and other expenses in connection with our public disclosure and other obligations. Based upon SEC regulations currently in
effect, we are required to establish, evaluate and report on our internal control over financial reporting. We believe that compliance
with the myriad of rules and regulations applicable to reporting companies and related compliance issues will continue to require a significant
amount of time and attention from our management.
Our
stock prices may fluctuate significantly and be highly volatile and this may make it difficult for a stockholder to resell our securities
at the volume, prices and times the stockholder finds attractive.
The
market price of our common stock may be subject to significant fluctuations and be highly volatile, which may make it difficult for a
stockholder to resell our securities at the volume, prices and times the stockholder finds attractive. There are many factors that will
impact our stock price and trading volume, including, but not limited to, the factors listed above under “Risks Related to Our
Business Generally,” “Risks Related to Our Cell Therapy Product Development Efforts,” “Risks Related to Our Intellectual
Property,” “Risks Related to Government Regulation” and “Risks Related to Our Common Stock”.
Stock
markets, in general, experience significant price and volume volatility, and the market price of our securities may continue to be subject
to such market fluctuations that may be unrelated to our operating performance and prospects. Increased market volatility and fluctuations
could result in a substantial decline in the market price of our securities.
There
may be significant future issuances or resales of our common stock which may materially and adversely dilute stockholders’ ownership
interest and affect the market price of our securities.
We
have authorization to issue up to 300,000,000,000 shares of common stock of which, as of April 27, 2021, 3,175,977,710 shares
were issued and outstanding. We are not restricted from issuing additional shares of our common stock in the future, including securities
convertible into, or exchangeable or exercisable for, shares of our common stock. Pursuant to the Plan of Reorganization, we issued warrants
for the purchase of an aggregate of 15,226,346,970 shares of our common stock. In addition, pursuant to the Plan of Reorganization,
we issued or will be issuing convertible notes in the aggregate estimated principal amount of $11,794,700. Such notes are or will
be convertible into shares of our common stock at prices related to the market price of our common stock at the time of conversion. Our
issuance of additional shares of common stock in the future will dilute the ownership interests of our then existing stockholders.
Pursuant
to the Plan of Reorganization, an aggregate of 1,049,726,797 shares of common stock were issued to holders of unsecured claims. Such
shares are freely tradeable in the public market, except for shares held by affiliates.
We
have effective registration statements on Form S-8 under the Securities Act registering an aggregate of 19,955,000 shares of our common
stock issuable under our 2010 Equity Participation Plan (the “2010 Plan”). As of April 27, 2021, options to purchase
4,879,617 shares of our common stock were outstanding under the 2010 Plan. In addition, as of such date, 45,000 shares of common stock
were issued as stock grants pursuant to the 2010 Plan. The 2010 Plan terminated on November 17, 2020 and accordingly no further grants
may be made under the 2010 Plan.
Immediately
following the filing of this Annual Report, we intend to file a registration statement on Form S-8 under the Securities Act registering
4,700,000,000 shares of our common stock issuable under our 2021 Stock Incentive Plan (the “2021 Plan”). As of April 27,
2021, options to purchase 2,347,835,948 shares of our common stock were outstanding under the 2021 Plan. In addition, as of such
date, 1,173,917,974 restricted stock units were outstanding under the 2021 Plan. All of such options and restricted stock units are held
by our senior management team, Messrs. Alstodt and Silva.
The
shares issuable pursuant to the registration statements on Form S-8 will be freely tradable in the public market, except for shares held
by affiliates. We intend to include a resale prospectus in our registration statement on Form S-8 with regard to the 2021 Plan covering
the resale of the shares issuable to Messrs. Alstodt and Silva upon their exercise of the above described options and the vesting of
the above described RSUs. The resale of such shares will be currently subject to the volume limitations imposed by Rule 144.
The
sale of a substantial number of shares of our common stock or securities convertible into, or exchangeable or exercisable for, shares
of our common stock, whether directly by us in future offerings or by our existing stockholders in the secondary market, the perception
that such issuances or resales could occur or the availability for future issuances or resale of shares of our common stock or securities
convertible into, or exchangeable or exercisable for, shares of our common stock could materially and adversely affect the market price
of our securities and our ability to raise capital through future offerings of equity or equity-related securities on attractive terms
or at all.
In
addition, our Board of Directors is authorized to designate and issue preferred stock without further stockholder approval, and we may
issue other equity and equity-related securities that are senior to our common stock in the future for a number of reasons, including,
without limitation, to support operations and growth, and to comply with any future changes in regulatory standards.
Anti-takeover
provisions and the regulations to which we may be subject may make it more difficult for a third party to acquire control of us, even
if the change in control would be beneficial to our securityholders.
We
are incorporated in Delaware. Anti-takeover provisions in Delaware law and our certificate of incorporation and bylaws could make it
more difficult for a third party to acquire control of us and may prevent stockholders from receiving a premium for their securities.
Our certificate of incorporation provides that our Board of Directors may issue up to 20,000,000 shares of preferred stock, in one or
more series, without stockholder approval and with such terms, preferences, rights and privileges as the Board of Directors may deem
appropriate. These provisions and other factors may hinder or prevent a change in control, even if the change in control would be perceived
as beneficial to, or sought by, our other stockholders.
Our
common stock is classified as a “penny stock;” the restrictions of the penny stock regulations of the SEC may result in less
liquidity for our common stock.
The
SEC has adopted regulations which define a “penny stock” to be any equity security that has a market price (as therein defined)
of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Unless exempt, the rules
require the delivery, prior to any transaction involving a penny stock by a retail customer, of a disclosure schedule prepared by the
SEC relating to the penny stock market. Disclosure is also required to be made about commissions payable to both the broker/dealer and
the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information on the limited market in penny stocks. Our common stock
is classified as a penny stock. As a result of the penny stock restrictions, brokers or potential investors may be reluctant to trade
in our securities, which may result in less liquidity for our securities.
Substantial
future sales of shares of our common stock in the public market could cause our stock price to fall.
Shares
of our common stock that we have issued or are issuable upon the exercise of warrants or upon the conversion of convertible debt may
be covered by registration statements which permit the public sale of stock. Other holders of shares of common stock that we have issued,
including shares issuable upon the exercise of warrants and the conversion of convertible debt, may be entitled to dispose of their shares
subject to the requirements of Rule 144 or other applicable exemption from registration under the Securities Act. Pursuant to the Plan
of Reorganization, the shares of our common stock issuable pursuant to the conversion of convertible promissory notes in the aggregate
principal amount of $3,644,279 are subject to certain lock-up restrictions over the 180 day period following the November 16, 2020 effective
date of the Plan of Reorganization. As those lock-up restrictions expire during said 180 day period, the shares of common stock issuable
pursuant to the conversion of such notes will become eligible for resale in the open market (subject to Rule 144 volume limitations applicable
to affiliates), resulting in more shares eligible for sale and potentially causing sales in the market to increase and our stock price
to decline. In addition, effective February 17, 2021, certain lock-up restrictions imposed by the Plan of Reorganization with regard
to the resale of the 1,049,726,797 shares of common stock issued to holders of unsecured claims expired. The unrestricted eligibility
of such shares for resale in the open market (subject to Rule 144 volume limitations applicable to affiliates) could also have a negative
effect upon our stock price. Additional sales of a substantial number of our shares of our common stock in the public market, or the
perception that sales could occur, could have a material adverse effect on the price of our stock.