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PART
I
Forward-Looking
Statements
This
Annual Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking
statements contained in this Annual Report may not occur. Generally, these statements relate to business plans or strategies, projected
or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made
by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,”
“will,” “expect,” “believe,” “anticipate,” “project,” “plan,”
“intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to
identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are
subject to a number of uncertainties, risks and other influences, many of which are beyond our control, that may influence the accuracy
of the statements and the projections upon which the statements are based. Factors which may affect our results include, but are not
limited to, the risks and uncertainties discussed in Item 1A of this Annual Report (“Risk Factors”).
Any
one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking
statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from
those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking
statements, whether from new information, future events or otherwise.
Intellectual
Property
This
Annual Report includes references to our federally registered trademarks, BioRestorative Therapies and Dragonfly design,
BRTX-100, ThermoStem and BRTX. The Dragonfly logo is also registered with the U.S. Copyright Office. This
Annual Report also includes references to trademarks, trade names and service marks that are the property of other organizations. Solely
for convenience, trademarks and trade names referred to in this Annual Report appear without the ®, SM or ™ symbols, and copyrighted
content appears without the use of the symbol ©, but the absence of use of these symbols does not reflect upon the validity or enforceability
of the intellectual property owned by us or third parties.
(a)
Business Development
As
used in this Annual Report on Form 10-K, or the Annual Report, references to the “Company”, “we”, “us”,
or “our” refer to BioRestorative Therapies, Inc. and its subsidiaries.
We
were incorporated in Nevada on June 13, 1997. On August 15, 2011, we changed our name from “Stem Cell Assurance, Inc.” to
“BioRestorative Therapies, Inc.” Effective January 1, 2015, we reincorporated in Delaware. Effective December 31, 2022, we
reincorporated in Nevada.
We
develop therapeutic products and medical therapies using cell and tissue protocols, primarily involving adult
stem cells.
We
are currently pursuing our Disc/Spine Program with our initial investigational therapeutic product being called BRTX-100.
In March 2022, a United States patent issued in our Disc/Spine Program. We submitted an IND application to the U.S. Food and Drug
Administration, or the FDA, to obtain authorization to commence a Phase 2 clinical trial investigating the use of BRTX-100 in
the treatment of chronic lower back pain arising from degenerative disc disease. We have received such authorization from the FDA and
have commenced such clinical trial.
We
have obtained an exclusive license to use technology for investigational adult stem cell treatment of disc and spine conditions, including
protruding and bulging lumbar discs. The technology is an advanced stem cell injection procedure that may offer relief from lower back
pain, buttock and leg pain, and numbness and tingling in the leg and foot.
We
are also developing our ThermoStem Program. This pre-clinical program involves the use of brown adipose (fat) in connection with
the cell-based treatment of type 2 diabetes and obesity as well as hypertension, other metabolic disorders and cardiac deficiencies.
Patents related to the ThermoStem Program have been issued in the United States and other jurisdictions.
Material
Events During 2022
In
January 2022, Robert Paccasassi was elected our Vice President of Quality Assurance/Regulatory Compliance.
In
February 2022, a Japanese patent related to our ThermoStem Program was issued to us.
In
February 2022, we announced that we had initiated the site selection process for our active Phase 2 clinical trial targeting chronic
lumbar disc disease. To date, we have identified 17 sites in various cities in the United States and clinical trial agreements with 11
of such sites are in place.
In
March 2022, an Israeli patent related to our ThermoStem Program was issued to us.
In
March 2022, a United States patent related to BRTX-100, our lead cell therapy candidate, was issued. We have been granted exclusive
license rights with regard to the patent. See “Business – Disc/Spine Program – Exclusive License” below.
In
April 2022, we announced that we had completed the testing and certification of our clinical grade cell therapy manufacturing facility.
In
June 2022, we announced that the first patient had been enrolled in our Phase 2 clinical trial evaluating the safety and efficacy of
BRTX-100.
In
December 2022, we entered into an agreement with Regenexx, LLC pursuant to which the license rights granted by Regenexx to us for intellectual
property developed to address chronic lumber disc disease have been made exclusive. See “Business – Disc/Spine Program –
Exclusive License” below.
In
December 2022, we announced that we were awarded a Small Business Innovation Research (SBIR) Phase 1 grant from Eunice Kennedy Shriver
National Institute of Child Health & Human Development of the National Institutes of Health to enable the development and evaluation
of our ThermoStem Program for the treatment of polycystic ovary syndrome (PCOS). The work is to be done in collaboration with
Dr. Sheng Wu, Associate Professor, Center for Metabolic Disease Research at Temple University.
Materials
Events During 2023
In
February 2023, a notice of allowance was issued by the European Patent Office for a patent application related to our ThermoStem Program.
In
February 2023, a notice of allowance was issued by the United States Patent Office for a patent application related to our ThermoStem
Program.
(b)
Business
General
We
develop therapeutic products, using cell and tissue protocols, primarily involving adult stem cells. Our two core programs, as described
below, relate to the treatment of disc/spine disease and metabolic disorders:
|
● |
Disc/Spine
Program (brtxDisc). Our lead cell therapy candidate, BRTX-100, is a product formulated from autologous (or a person’s
own) cultured mesenchymal stem cells, or MSCs, collected from the patient’s bone marrow. We intend that the product will be
used for the non-surgical treatment of painful lumbosacral disc disorders or as a complimentary therapeutic to a surgical procedure.
The BRTX-100 production process utilizes proprietary technology and involves collecting a patient’s bone marrow, isolating
and culturing stem cells from the bone marrow and cryopreserving the cells. In an outpatient procedure, BRTX-100 is to be
injected by a physician into the patient’s damaged disc. The treatment is intended for patients whose pain has not been alleviated
by non-surgical procedures and who potentially face the prospect of surgery. We have received authorization from the FDA to commence
a Phase 2 clinical trial using BRTX-100 to treat chronic lower back pain arising from degenerative disc disease. We have commenced
such clinical trial through the execution of a CRO agreement with PRC Clinical, the execution of clinical trial site agreements,
patient enrollment, the commencement of patient procedures, the purchase of manufacturing equipment and the expansion of our laboratory
to include capabilities for clinical production. In March 2022, a United States patent related to our Disc/Spine Program was
issued. We have been granted exclusive license rights with regard to the patent. See “Disc/Spine Program” below. |
|
● |
Metabolic
Program (ThermoStem). We are developing a cell-based therapy candidate to target obesity and metabolic disorders using brown
adipose (fat) derived stem cells, or BADSC, to generate brown adipose tissue, or BAT. We refer to this as our ThermoStem Program.
BAT is intended to mimic naturally occurring brown adipose depots that regulate metabolic homeostasis in humans. Initial preclinical
research indicates that increased amounts of brown fat in animals may be responsible for additional caloric burning as well as reduced
glucose and lipid levels. Researchers have found that people with higher levels of brown fat may have a reduced risk for obesity
and diabetes. Patents related to the ThermoStem Program have been issued in the United States and other jurisdictions. See
“Metabolic Brown Adipose (Fat) Program” below. |
We
have also licensed an investigational curved needle device designed to deliver cells and/or other therapeutic products or material to
the spine and discs (and other parts of the body). We anticipate that FDA approval or clearance will be necessary for this device prior
to commercialization. We do not intend to utilize this device in connection with our Phase 2 clinical trial with regard to BRTX-100.
See “Curved Needle Device” below.
The
patents and patent applications for the Disc/Spine Program, the ThermoStem Program and the curved needle device are listed
below under “Technology; Research and Development.”
Overview
Every
human being has stem cells in his or her body. These cells exist from the early stages of human development until the end of a person’s
life. Throughout our lives, our body continues to produce stem cells that regenerate to produce differentiated cells that make up various
aspects of the body such as skin, blood, muscle and nerves. These are generally referred to as adult (non-embryonic) stem cells. These
cells are important for the purpose of medical therapies aiming to replace lost or damaged cells or tissues or to otherwise treat disorders.
Regenerative
cell therapy relies on replacing diseased, damaged or dysfunctional cells with healthy, functioning ones or repairing damaged or diseased
tissue. A great range of cells can serve in cell therapy, including cells found in peripheral and umbilical cord blood, bone marrow and
adipose (fat) tissue. Physicians have been using adult stem cells from bone marrow to treat various blood cancers for more than 65 years
(the first successful bone marrow transplant was performed in 1956). Recently, physicians have begun to use stem cells to treat various
other diseases. We intend to develop cell and tissue products and regenerative therapy protocols, primarily involving adult stem cells,
to allow patients to undergo cellular-based treatments.
We
are concentrating initially on therapeutic areas in which risk to the patient is low, recovery is relatively easy, results can be demonstrated
through sufficient clinical data, and patients and physicians will be comfortable with the procedure. We believe that there will be readily
identifiable groups of patients who will benefit from these procedures. We also believe that these procedures will be significantly less
expensive than the most common surgical procedure alternatives and will compare favorably, over the long-term, to conservative treatment
costs which may persist for years.
Accordingly,
we have focused our initial developmental efforts on cellular-based therapeutic products and clinical development programs in selective
areas of medicine for which the treatment protocol is minimally invasive. Such areas include the treatment of the disc and spine and
metabolic-related disorders. Upon regulatory approval, we will seek to obtain third party reimbursement for our products and procedures;
however; if we are not successful, patients may be required to pay for our products and procedures out of pocket in full and without
the ability to be reimbursed by any governmental and other third party payers, which would adversely impact our prospects.
We
have undertaken research and development efforts in connection with the development of investigational therapeutic products and medical
therapies using cell and tissue protocols, primarily involving adult stem cells. See “Disc/Spine Program,” “Metabolic
Brown Adipose (Fat) Program” and “Curved Needle Device” below. As a result of these programs, we have five United States
patents, twelve foreign patents, three United States patent applications, and five foreign patent applications related to research regarding
our ThermoStem Program, we have obtained licenses for ten United States patent applications related to our Disc/Spine Program,
one United States patent related to our Disc/Spine Program, and we have obtained a license for one United States patent related
to a curved needle device.
We
have established a research laboratory facility with Good Manufacturing Practice, or cGMP, capabilities to produce clinical grade products
and will seek to further develop cellular-based treatments, products and protocols, stem cell-related intellectual property, or IP, and
translational research applications. See “Laboratory” below.
We
have not generated any significant revenues to date. In November 2021, we completed a $23,000,000 public offering of our securities.
Such funds are sufficient for us to complete our Phase 2 clinical trial investigating the use of BRTX-100 in the treatment
of chronic lower back pain arising from degenerative disc disease, as further described in this section, as well as to continue our pre-clinical
research and development efforts with respect to our ThermoStem Program and to satisfy our current working capital needs; however,
the implementation of our business plan, as discussed below, will require the receipt of additional financing to fund our research and
development efforts, including our contemplated Phase 3 clinical trial with regard to BRTX-100 and our contemplated clinical trials
relating to our ThermoStem Program, and otherwise fund our operations. We intend to seek to raise capital through investment bankers
and from biotech funds, strategic partners and other financial institutions. We will require significant additional financing to complete
our contemplated Phase 3 clinical trial investigating the use of BRTX-100. We will also require a substantial amount of additional
funding to implement our other programs described in this section, and fund general operations. No assurance can be given that the amount
of funding that we anticipate may be required for such purposes is 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. If we are unable to obtain adequate funding, we may be required to significantly curtail or discontinue our proposed
operations.
Disc/Spine
Program
General
Among
the initiatives that we are currently pursuing is our Disc/Spine Program, with our initial product candidate being called BRTX-100.
We have obtained an exclusive license (see “Exclusive License” below) that permits us to use technology for adult
stem cell treatment of disc and spine conditions. The technology is an advanced stem cell culture and injection procedure into the intervertebral
disc, or IVD, that may offer relief from lower back pain, buttock and leg pain, and numbness and tingling in the leg and foot.
Lower
back pain is the most common, most disabling, and most costly musculoskeletal ailment faced worldwide. According to a 2016 market report
from Trinity Partners, a global life sciences consulting firm, of the 250 million American adults, nearly 25 million have chronic lower
back pain of which approximately 12 million have been diagnosed with and treated for disc degeneration and approximately 5.6 million
have pain caused by a protruding or injured disc. We believe that between 500,000 and one million invasive surgical procedures are performed
each year to try to alleviate the pain associated with these lower back conditions and that such procedures cost approximately $40 billion.
Clinical studies have documented that the source of the pain is most frequently damage to the IVD. This can occur when forces, whether
a single load or repetitive microtrauma, exceed the IVD’s inherent capacity to resist those loads. Aging, obesity, smoking, lifestyle,
and certain genetic factors may predispose one to an IVD injury. Current surgical approaches to back pain are extremely invasive (often
altering the spine’s biomechanics unfavorably and predisposing it to further disc degeneration) and are associated with unacceptably
low success rates (with a second operation occurring 10% to 20% of the time). In addition, current surgical approaches are costly with
spinal fusion surgery costing approximately $110,000, discectomy costing approximately $20,000 to $50,000 and disc replacement surgery
costing approximately $80,000 to $150,000. Even conservative treatments can be costly, with oral medications costing between $1,000 and
$2,000 per year, injection treatments costing approximately $8,000 per year and physical therapy costing approximately $20,000 annually.
We anticipate that the cost of a single treatment using BRTX-100 will compare favorably to conservative treatments which may continue
for years and will be less expensive than the most common surgical procedures.
While
once thought to be benign, the natural history of lower back pain is often one of chronic recurrent episodes of pain leading to progressive
disability. This is believed to be a direct result of the IVD’s poor healing capacity after injury. The IVD is the largest avascular
(having few or no blood vessels) structure in the body and is low in cellularity. Therefore, its inherent capacity to heal after injury
is poor. The clinical rationale of BRTX-100 is to deliver a high concentration of the patient’s own cultured MSCs into the
site of pathology to promote healing and relieve pain.
We
have developed a mesenchymal stem cell product candidate, BRTX-100, derived from autologous (or a person’s own) human bone
marrow, cultured and formulated, in a proprietary method, specifically for introduction into a painful lumbar disc. The product candidate
was developed utilizing in part the exclusive license described below under “Exclusive License.” As described below
under “BRTX-100” and “Production and Delivery,” BRTX-100 is a hypoxic (low oxygen) stem
cell product developed through a culturing process. In order to enhance the survivability of our bone marrow-derived MSCs in the avascular
environment of the damaged disc, BRTX-100 is designed to expand under hypoxic conditions. This process is intended to result in
a large cell count population with enhanced viability and therapeutic potential following injection into the injured disc.
We
submitted an IND application to the FDA to obtain authorization to commence a Phase 2 clinical trial investigating the use of BRTX-100,
our lead cell therapy candidate, in the treatment of chronic lower back pain arising from degenerative disc disease. We received such
authorization from the FDA in February 2017. We have commenced our Phase 2 clinical trial through the execution of a CRO agreement with
PRC Clinical, the execution of clinical trial site agreements, patient enrollment, the commencement of patient procedures, the purchase
of manufacturing equipment and the expansion of our laboratory to include capabilities for clinical production. We believe that, based
upon our periodic reports to the FDA as to the commencement of the clinical trial, the existing IND remains effective.
In
addition to developing BRTX-100, we may also seek to sublicense the technology to a strategic third party, who may assist in gaining
FDA approval for a lumbar disc indication, or third parties for use in connection with cellular-based developmental programs with regard
to disc and spine related conditions.
We
have established a laboratory, which includes a clean room facility, to perform the production of cell products (including BRTX-100)
for use in our clinical trials, for third party cell products or for general research purposes. We may also use this laboratory to develop
our pipeline of future products and expand our stem cell-related IP. See “Laboratory” and “Technology; Research and
Development” below.
In
March 2022, a United States patent related to BRTX-100, was issued. We have been granted exclusive license rights with respect
to the patent. See “Exclusive License” below.
BRTX-100
Our
lead product candidate, BRTX-100, is an autologous hypoxic (low oxygen) cultured mesenchymal stem cell product derived from a
patient’s own bone marrow and formulated with a proprietary biomaterial carrier (platelet lysate) to increase potency, viability
and survivability. We have designed the cryopreserved sterile cellular product candidate to be provided in vials for injection into painful
lumbar discs. We anticipate the product candidate will be delivered using a standard 20 gauge 3.5 inch introducer needle and a 25 gauge
6 inch needle that will extend into the disc center upon delivery. Upon regulatory approval, we plan to provide training to medical practitioners
with regard to the approved injection procedure. It is anticipated that the delivery of the product candidate will be a 30 minute procedure.
Mesenchymal
stem cells used in BRTX-100 are similar to other MSCs under development by others; however, in order to enhance the survivability
of our bone marrow-derived MSCs in the avascular environment of the damaged disc, BRTX-100 is designed to expand under hypoxic
conditions for a period of approximately three weeks. This process is intended to result in an approximate 40 million cell count population
with enhanced viability and therapeutic potential following injection locally into injured spinal discs. Publications and scientific
literature have indicated that MSCs preconditioned in hypoxic environment show enhanced skeletal muscle regeneration properties and improved
impacts upon circulation and vascular formation compared to MSCs cultured under normoxic (normal oxygen) conditions.
In
August 2018, the Journal of Translational Medicine published the results of our study evaluating the benefits of long-term hypoxic
culturing of human bone marrow-derived MSCs.
In
September 2021, we were awarded a National Institutes of Health Small Business Technology Transfer (STTR) Phase 1 grant for $256,000
to evaluate the therapeutic effects on our hypoxic cultured bone marrow derived mesenchymal stem cells (BRTX-100) after encapsulation
with a PEG-peptide hydrogel. The work is being done in collaboration with Washington University of St. Louis.
Since
June 2022, we have entered into clinical trial agreements with 11 sites to conduct our Phase 2 clinical trial targeting chronic lumbar
disc disease.
Production
and Delivery
The
production of our product candidate, BRTX-100, begins with the physician collecting bone marrow from the patient under local anesthesia.
Peripheral blood is also collected from the patient. The physician will then send the patient’s bone marrow and blood samples to
our laboratory (or a contract laboratory) for culturing and formulation. The hypoxic culturing process is intended to result in the selection
of a cell population that is suitable for an improved possibility of survival in the internal disc environment. We anticipate that the
cell culturing process and product formulation will take approximately three weeks, with an additional two weeks required for quality
control testing required to meet product release criteria. We will then send the therapeutic cryopreserved stem cells (BRTX-100)
in a sterile vial back to the physician’s offices where it will undergo a controlled thaw prior to the procedure. The price structure
for the procedure and our services has not been determined and no assurances can be given as to the effect that such price structure
will have on the marketability of such procedure and services. The following illustrates the process:
Exclusive
License
Pursuant
to our license agreement with Regenerative Sciences, LLC, or Regenerative, that became effective in April 2012, or the Regenerative License
Agreement, we have obtained, among other things, a worldwide (excluding Asia and Argentina), exclusive, royalty-bearing license from
Regenerative to utilize or sublicense a certain method for culturing cells for use in our developmental program involving disc and spine
conditions, including protruding or painful discs and the treatment of avascular zones. The investigational technology that has been
licensed is an advanced stem cell culture and injection procedure that may offer relief from lower back pain, buttock and leg pain, and
numbness and tingling in the leg and foot. Pursuant to the Regenerative License Agreement, we have also obtained a worldwide, exclusive,
royalty-bearing license from Regenerative to utilize or sublicense a certain investigational curved needle device for the administration
of specific cells and/or cell products to the disc and/or spine (and other parts of the body). It will be necessary to advance the design
of this investigational device to facilitate the delivery of substances, including living cells, to specific locations within the body
and minimize the potential for damage to nearby structures.
The
patents that are the subject of the Regenerative License Agreement have been assigned to Regenexx, LLC which we have been advised by
Regenerative is an affiliate of Regenerative.
Animal
Study
The
efficacy and safety of our product candidate, BRTX-100, has been tested in a degenerative intervertebral rabbit disc model. In
this study, 80 rabbits underwent surgery to create a puncture in the discs. Four weeks post-surgery, each rabbit had either contrast,
a biomaterial carrier or BRTX-100 injected into the discs. In order to study the biodistribution and efficacy of BRTX-100,
the rabbits were evaluated at day 56 and day 120.
The
key safety findings of the animal study are as follows:
|
● |
There
was no evidence or observation of gross toxicity related to the administration of BRTX-100 at either time point. The clinical
pathology across both groups and time points were within expected normal historical ranges and under the conditions of the test.
No abnormalities (including fractures or overt signs of lumbar disc disease) were identified after review of the radiographic images
taken at both endpoints for both groups. No toxicity or adverse finding was evident in the systemic tissues or the discs of animals
receiving BRTX-100. |
|
|
|
|
● |
There
was no detectable presence of human cells (BRTX-100) observed at the day 56 interim time point. This is consistent with the
proposed mechanism of action that BRTX-100 acts through a paracrine effect of secreted growth and immunomodulation factors. |
The
key efficacy findings of the animal study are as follows:
|
● |
BRTX-100
showed a statistically significant DHI (disc height increase) over the control group at day 120. |
|
|
|
|
● |
BRTX-100
showed a statistically significant improvement in disc histology over the control group at day 120 as graded by a validated histology
scale. BRTX-100 showed a significant improvement in the cellularity and matrix of the disc when compared to the control at
day 120. |
Clinical
Trial
We
submitted an IND application to the FDA to obtain authorization to commence a Phase 2 clinical trial investigating the use of BRTX-100,
our lead cell therapy candidate, in the treatment of chronic lower back pain arising from degenerative disc disease. We have received
such authorization from the FDA. We have commenced our Phase 2 clinical trial through the execution of a CRO agreement with PRC Clinical,
the execution of clinical trial agreements with 11 sites, patient enrollment, the commencement of patient procedures, the purchase of
manufacturing equipment and the expansion of our laboratory to include capabilities for clinical production.
The
following describes the Phase 2 clinical trial authorized by the FDA:
A
Phase 2 Prospective, Double-Blinded, Placebo Controlled, Randomized Study
|
● |
99
patients; randomized 2:1, BRTX-100 to control, 40 million cells/dose |
|
● |
10-20
clinical trial sites (we intend to utilize 15 clinical trial sites) |
|
● |
Primary
efficacy endpoint at 12 months |
|
● |
Patient
safety and efficacy follow up at 24 months |
|
● |
Included
subjects must have only one symptomatic diseased disc |
|
● |
Included
subjects must have current diagnosis of chronic lumbar disc disease typical pain with degeneration of a single disc confirmed by
history, exam, radiography, or other acceptable means |
|
● |
Included
subjects must have exhausted previous conservative non-operative therapies |
|
● |
Primary Efficacy Endpoint |
|
● |
Responder
endpoint - percentage of patients that meet the improvement in function and reduction in pain threshold |
|
● |
Improvement
in function defined as at least a 30% increase in function based on the Oswestry questionnaires (ODI) |
|
● |
Reduction
of pain defined as at least a 30% decrease in pain as measured using the Visual Analogue Scale (VAS) |
|
● |
Additional or Secondary Endpoints |
|
● |
Clinical
response at 12 months |
|
● |
Changes
from baseline in pain as assessed with the VAS score and ODI at weeks 2, 12, 26, 52 and 104 |
|
● |
Changes
from baseline in function as assessed with the ODI at weeks 2, 12, 26, 52 and 104 |
|
● |
Changes
from baseline in function as assessed by Roland Morris Disability Questionnaire (RMDQ) at weeks 26, 52 and 104 |
|
● |
Changes
from baseline function as assessed by Functional Rating Index (FRI) at weeks 12, 52 and 104 |
|
● |
Changes
from baseline Quality of Life assessment (SF-12 questionnaire) scores at weeks 2, 12, 26, 52 and 104 |
In
December 2021, we entered into a Master Service Agreement with Professional Research Consulting Inc. d/b/a PRC Clinical, a contract research
organization, or CRO, specializing in clinical trial management, to conduct our Phase 2 clinical trial.
The
FDA approval process can be lengthy, expensive and uncertain and there is no guarantee that the clinical trial(s) will be completed or
that the product will ultimately receive approval or clearance.
As
an alternative to undertaking any necessary clinical trials ourselves, we may explore the licensing of our rights with respect to our
product candidate, BRTX-100, to a strategic partner. Such an arrangement could possibly eliminate or significantly reduce the
need to raise the substantial capital needed to commence and complete the clinical trials and undertake the commercialization of BRTX-100
and would provide licensing-related revenue to us in lieu of product sales revenue. No assurance can be given that any licensing
agreement will be entered into, whether upon commercially reasonable terms or otherwise.
Defined
Health Report
In
March 2018, we engaged Defined Health, a business development and strategy consulting firm, to conduct an independent review of BRTX-100.
Defined Health has worked with many of the leading companies in the pharmaceutical, biotech and healthcare industries for over 25 years.
The
review was intended to collect informed, independent opinions regarding BRTX-100 among key opinion leaders, or KOLs (i.e., orthopedic
surgeons specializing in back and spine surgery with experience in stem cell therapy), who, upon studying applicable clinical material,
could offer opinions regarding the future therapeutic potential of BRTX-100.
As
noted in the Defined Health report, the KOLs indicated that stem cell therapies have great potential to treat chronic lumbar disc disease
and other therapeutic areas. The KOLs reacted positively to the value proposition of our product candidate, BRTX-100, and were
optimistic that the clinical data presented to date is likely to be mirrored in future clinical investigations. Given the opportunity,
the KOLs indicated that they would likely participate in a clinical trial should it be offered at their center and that they would recommend
the study to appropriately eligible patients. The report indicated that, if BRTX-100 were to be granted FDA approval, the KOLs
anticipate that it would be integrated into the standard of care for eligible chronic lumbar disc disease patients.
Similar
Therapies
Human
data from studies of therapies comparative to BRTX-100 have shown reduced pain, increased function, and an absence of significant
safety issues with a durable response, as shown below:
Impact
on Public Health
The
United States is the world’s leading consumer of hydrocodone (99%) and oxycodone (83%) and leads the world in per capital consumption
of such drugs (twice as much as second ranked Canada). In 2020, 91,000 persons in the United States died from overdoses.
Total
annual healthcare and lost productivity costs in the United States related to pain, including headache, back pain and neck pain, are
estimated to be $600 billion, which is twice the annual costs related to heart disease and greater than the combined annual costs related
to cancer and diabetes.
Metabolic
Brown Adipose (Fat) Program
Since
June 2011, we have been engaging in pre-clinical research efforts with respect to an investigational platform technology utilizing brown
adipose (fat) derived stem cells, or BADSCs, for therapeutic purposes. We have labeled this initiative our ThermoStem Program.
Brown
fat is a specialized adipose (fat) tissue found in the human body that plays a key role in the evolutionarily conserved mechanisms underlying
thermogenesis (generation of non-shivering body heat) and energy homeostasis in mammals - long known to be present at high levels in
hibernating mammals and human newborns. Recent studies have demonstrated that brown fat is present in the adult human body and may be
correlated with the maintenance and regulation of healthy metabolism, thus potentially being involved in caloric regulation. The pre-clinical
ThermoStem Program involves the use of a cell-based (brown adipose tissue construct) treatment for metabolic disease, such as
type 2 diabetes, obesity, hypertension and other metabolic disorders, as well as cardiac deficiencies. The diseases, disorders and syndromes
that may be targeted by our ThermoStem Program are as follows:
We
have had initial success in transplanting the brown adipose tissue construct in animals, and we are currently exploring ways to deliver
into humans. Even though present, BAT mass is very low in healthy adults and even lower in obese populations. Therefore, it may not be
sufficient to either naturally impact whole body metabolism, or to be targeted by drugs intended to increase its activity in the majority
of the population. Increasing BAT mass is crucial in order to benefit from its metabolic activity and this is what our ThermoStem
Program seeks to accomplish. We may also identify other naturally occurring biologics and chemically engineered molecules that may
enhance brown adipose tissue performance and activity.
Obesity,
the abnormal accumulation of white fat tissue, leads to a number of metabolic disorders and is the driving force behind the rise of type
2 diabetes and cardiovascular diseases worldwide. Pharmacological efforts to alter metabolic homeostasis through modulating central control
of appetite and satiety have had limited market penetration due to significant psychological and physiological safety concerns directly
attributed to modulating these brain centers. Adipose tissue is one of the largest organs in the human body and plays a key role in central
energy balance and lipid homeostasis. White and brown adipose tissues are found in mammals. White adipose tissue’s function is
to store energy, whereas BAT specializes in energy expenditure. As discussed in a 2020 article published in the International Journal
of Molecular Sciences, recent advancements in unraveling the mechanisms that control the induction, differentiation, proliferation,
and thermogenic activity of BAT, along with the application of imaging technologies for human BAT visualization, have generated optimism
that these advances may provide novel strategies for targeting BAT activation/thermogenesis, leading to efficacious and safe obesity
targeted therapies.
We
are developing a cell-based product candidate to target obesity and metabolic disorders using BADSCs. Our goal is to develop a bioengineered
implantable brown adipose tissue construct intended to mimic ones naturally occurring in the human body. We have isolated and characterized
a human multipotent stem cell population that resides within BAT depots. We have expanded these stem cells to clinically relevant numbers
and successfully differentiated them into functional brown adipocytes. We intend to use adult stem cells that may be differentiated into
progenitor or fully differentiated brown adipocytes, or a related cell type, which can be used therapeutically in patients. We are focusing
on the development of treatment protocols that utilize allogeneic cells (i.e., stem cells from a genetically similar but not identical
donor).
In
order to deliver these differentiated cells into target locations in vivo, we seeded BADSCs onto 3-dimensional biological scaffolds.
Pre-clinical animal models of diet-induced obesity, that were transplanted with differentiated BADSCs supported by a biological scaffold,
presented significant reductions in weight and blood glucose levels compared to scaffold only controls. We are identifying technology
for in vivo delivery in small animal models. Having completed our proof of concept using our BAT in small animals, we are currently
developing our next generation BAT. It is anticipated that this next version will contain a higher purity of BADSC and a greater percent
of functional brown adipocytes, which is expected to increase the therapeutic effect compared to our first generation product. In addition,
we are exploring the delivery of the therapeutic using encapsulation technology, which will only allow for reciprocal exchange of small
molecules between the host circulation and the BAT implant. We expect that encapsulation may present several advantages over our current
biological scaffolds, including prevention of any immune response or implant rejection that might occur in an immunocompetent host and
an increase in safety by preventing the implanted cells from invading the host tissues. We have developed promising data on the loading
of human stem cell-derived tissue engineered brown fat into an encapsulation device to be used as a cell delivery system for our metabolic
platform program for the treatment of type 2 diabetes, obesity, hyperlipidemia and hypertension. This advancement may lead to successful
transplantation of brown fat in humans. We are evaluating the next generation of BAT constructs that will first be tested in small animal
models. No assurance can be given that this delivery system will be effective in vivo in animals or humans. Our allogeneic brown
adipose derived stem cell platform potentially provides a therapeutic and commercial model for the cell-based treatment of obesity and
related metabolic disorders.
In
June 2012, we entered into an Assignment Agreement with the University of Utah Research Foundation, or the Foundation, and a Research
Agreement with the University of Utah, or the Utah Research Agreement. Pursuant to the Assignment Agreement, which provides for royalty
payments, we acquired the rights to two provisional patent applications that relate to human brown fat cell lines. No royalty amounts
are payable to date. The applications have been converted to a utility application in the United States and several foreign jurisdictions.
Pursuant to the Utah Research Agreement, the University of Utah provided research services relating to the identification of brown fat
tissue and the development and characterization of brown fat cell lines. The Utah Research Agreement provides that all inventions, discoveries,
patent rights, information, data, methods and techniques, including all cell lines, cell culture media and derivatives thereof, are owned
by us. In February 2019, we entered into a Services Agreement with the University of Utah pursuant to which the university has been retained
to provide research services with regard to the ThermoStem Program. Pursuant to this agreement, we will initiate preclinical models
to study the efficacy of our generation 2 encapsulated brown adipose tissue construct.
In
February 2014, our research with regard to the identification of a population of brown adipose derived stem cells was published in Stem
Cells, a respected stem cell journal.
In
March 2014, we entered into a Research Agreement with Pfizer Inc., a global pharmaceutical company. Pursuant to the Research Agreement
with Pfizer, we were engaged to provide research and development services with regard to a joint study of the development and validation
of a human brown adipose cell model. The Research Agreement with Pfizer provided for an initial payment to us of $250,000 and the payment
of up to an additional $525,000 during the two-year term of the Agreement, all of which has been received. The Research Agreement expired
upon completion of the services provided for therein.
In
August 2015, we entered into a one year research collaboration agreement with the University of Pennsylvania with regard to the understanding
of brown adipose biology and its role in metabolic disorders. In September 2018, we entered into a one year research collaboration agreement
with the University of Pennsylvania pursuant to which the university was provided access to our proprietary brown adipose tissue cells
for research purposes. No amounts were payable by or to us pursuant to either agreement.
In
September 2015, a United States patent related to the ThermoStem Program was issued to us.
In
April 2017, an Australian patent related to the ThermoStem Program was issued to us.
In
December 2017, a Japanese patent related to the ThermoStem Program was issued to us.
In
January 2019, a United States patent related to the ThermoStem Program was issued to us.
In
October 2019, an Australian patent related to the ThermoStem Program was issued to us.
In
October 2019, an Israeli patent related to the ThermoStem Program was issued to us.
In
March 2020, a United States patent related to our ThermoStem Program was issued to us.
In
March 2020, our collaboration with the University of Pennsylvania resulted in a publication in Cell Reports, a respected peer
reviewed journal, with regard to our ThermoStem Program.
In
April 2020, a European patent related to our ThermoStem Program was issued to us. This European patent was validated in Belgium,
France, Germany, Italy, Poland, Spain, Sweden, Switzerland, and the United Kingdom.
In
May 2020, an Israeli patent related to our ThermoStem Program was issued to us.
In
January 2021, a European patent related to our ThermoStem Program was issued to us. This European patent was validated in France,
Germany, Italy, Spain, and the United Kingdom.
In
March 2021, a United States patent related to our ThermoStem Program was issued to us.
In
June 2021, a Japanese patent related to our ThermoStem Program was issued to us.
In
July 2021, a United States patent related to our ThermoStem Program was issued to us.
In
August 2021, an Australian patent related to our ThermoStem Program was issued to us.
In
February 2022, a Japanese patent related to our ThermoStem Program was issued.
In
March 2022, an Israeli patent related to our ThermoStem Program was issued.
In
December 2022, we announced that we were awarded a Small Business Innovation Research (SBIR) Phase 1 grant from Eunice Kennedy Shriver
National Institute of Child Health & Human Development of the National Institutes of Health to enable the development and the evaluation
of our ThermoStem Program for the treatment of polycystic ovary syndrome (PCOS). The work is to be done in collaboration with
Dr. Sheng Wu, Associate Professor, Center for Metabolic Disease Research at Temple University.
In
February 2023, a notice of allowance was issued by the European Patent Office for a patent application related to our ThermoStem Program.
In
February 2023, a notice of allowance was issued by the United States Patent Office for a patent application related to our ThermoStem
Program
We
have completed proof of concept preclinical animal studies using our first generation brown adipose derived stem cells. We intend to
undertake additional preclinical animal studies in order to optimize delivery and explore the feasibility of targeting additional indications.
Such studies are planned to begin in 2023. Following the completion of such studies, if successful, we intend to file an IND with the
FDA and initiate a clinical trial. The FDA approval process can be lengthy, expensive and uncertain and there is no guarantee of ultimate
approval or clearance.
We
anticipate that much of our development work in this area will take place at our laboratory facility, outside core facilities at academic,
research or medical institutions, or contractors. See “Laboratory” below.
Curved
Needle Device
Pursuant
to the Regenerative License Agreement discussed under “Disc/Spine Program-Exclusive License” above, we have licensed
and further developed an investigational curved needle device, or CND, that is a needle system with a curved inner cannula to allow access
to difficult-to-locate regions for the delivery or removal of fluids and other substances. The investigational CND is intended to deliver
stem cells and/or other therapeutic products or material to the interior of a human intervertebral disc, the spine region, or potentially
other areas of the body. The device is designed to rely on the use of pre-curved nested cannulae that allow the cells or material to
be deposited in the posterior and lateral aspects of the disc to which direct access is not possible due to outlying structures such
as vertebra, spinal cord and spinal nerves. We anticipate that the use of the investigational CND will facilitate the delivery of substances,
including living cells, to specific locations within the body and minimize the potential for damage to nearby structures. The investigational
device may also have more general use applications. In August 2015, a United States patent for the CND was issued to the licensor, Regenerative.
We anticipate that FDA approval or clearance will be necessary for the investigational CND prior to commercialization. We do not intend
to utilize the CND in connection with our Phase 2 clinical trial with regard to BRTX-100. The FDA review and approval process
can be lengthy, expensive and uncertain and there is no guarantee of ultimate approval or clearance.
Laboratory
We
have established a laboratory in Melville, New York for research purposes and have built a cleanroom within the laboratory for the production
of cell-based product candidates, such as BRTX-100, for use in a clinical trial, for third party cell products or general research
purposes.
In
2021 and 2022, we expanded our laboratory to include capabilities for the clinical production of our pipeline of clinical and investigational
cell therapy candidates. Our expanded cGMP facility includes process development space, ISO 7 cleanrooms and state-of-the-art equipment.
We have expanded our research and development operations to include clinical manufacturing, a necessary step for our Phase 2 clinical
trial for BRTX-100. The new facility has been designed to provide cGMP manufacturing according to FDA and European Medicines Agency
regulations and guidelines to support clinical grade cell production. As we develop our business and our stem cell product candidates
and we obtain regulatory approval, we will seek to establish ourselves as a key provider of adult stem cells for therapies and expand
to provide cells in other market areas for stem cell therapy. We may also use outside laboratories specializing in cell therapy services
and manufacturing of cell products.
Technology;
Research and Development
We
intend to utilize our laboratory or a third party laboratory in connection with cellular research activities. We also intend to obtain
cellular-based therapeutic technology licenses and increase our IP portfolio. We intend to seek to develop potential stem cell delivery
systems or devices. The goal of these specialized delivery systems or devices is to deliver cells into specific areas of the body, control
the rate, amount and types of cells used in a treatment, and populate these areas of the body with sufficient stem cells so that there
is a successful therapeutic result.
We
also intend to perform research to develop certain stem cell optimization compounds, media designed to enhance cellular growth and regeneration
for the purpose of improving pre-treatment and post-treatment outcomes.
In
our Disc/Spine Program, twelve patent applications have been filed with regard to technology that is the subject of the Regenerative
License Agreement (see “Disc/Spine Program-Exclusive License” above). Regenerative has been issued a patent from one
of these applications with regard to its curved needle therapeutic delivery device. This patent expires in March 2031. In addition, in
March 2022, a United States patent related to BRTX-100 was issued. This patent expires in December 2029. The other ten applications
remain pending. The patents that are the subject of the Regenerative License Agreement have been assigned to Regenexx, LLC which we have
been advised is an affiliate of Regenerative.
In
our ThermoStem Program, we have three pending United States patent applications and five United States patents within three patent
families. Three of the patents expire in June 2032 and two of the patents expire in April 2034. With regard to the first patent family
in the ThermoStem Program, patent applications have been filed in five foreign jurisdictions (of which four applications have
been granted as foreign patents and one application has lapsed). The patents expire in June 2032. With regard to the second patent family
in the ThermoStem Program, patent applications have been filed in four foreign jurisdictions (of which four applications have
been granted as foreign patents). The patents expire in April 2034. With regard to the third patent family in the ThermoStem Program,
patent applications have been filed in four foreign jurisdictions.
Our
patent applications and those of Regenexx, LLC are currently in prosecution (i.e., we and Regenexx, LLC are seeking issued patents).
In
March 2014, we entered into a Research and Development Agreement with Rohto Pharmaceutical Co., Ltd., a Japanese pharmaceutical company,
or Rohto. Pursuant to the Research and Development Agreement with Rohto, we were engaged to provide research and development services
with regard to stem cells. The agreement with Rohto expired upon the completion of the services provided for therein.
We
have secured registrations in the U.S. Patent and Trademark Office for the following trademarks:
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BRTX-100 |
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THERMOSTEM |
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BRTX |
The
Dragonfly Logo is also registered with the U.S. Copyright Office.
We
also have federal common law rights in the trademark BioRestorative Therapies and other trademarks and trade names used in the
conduct of our business that are not registered.
Our
success will depend in large part on our ability to develop and protect our proprietary technology. We intend to rely on a combination
of patent, trade secret and know-how, copyright and trademark laws, as well as confidentiality agreements, licensing agreements, non-compete
agreements and other agreements, to establish and protect our proprietary rights. Our success will also depend upon our ability to avoid
infringing upon the proprietary rights of others, for if we are judicially determined to have infringed such rights, we may be required
to pay damages, alter our services, products or processes, obtain licenses or cease certain activities.
During
the years ended December 31, 2022 and 2021, we incurred $3,513,352 and $729,058, respectively, in research and development expenses.
Scientific
Advisors
We
have established a Scientific Advisory Board whose purpose is to provide advice and guidance in connection with scientific matters relating
to our business. The Scientific Advisory Board has established a Disc Advisory Committee which focuses on matters relating to our Disc/Spine
Program. Our Scientific Advisory Board members are Dr. Wayne Marasco (Chairman), Dr. Wayne Olan, Dr. Joy Cavagnaro, Dr. Jason Lipetz,
Dr. Harvinder Sandhu and Dr. Christopher Plastaras. The Disc Advisory Committee members are Dr. Lipetz (Chairman), Dr. Olan, Dr. Sandhu
and Dr. Plastaras. See Item 10 of this Annual Report (“Directors, Executive Officers and Corporate Governance – Scientific
Advisory Board”) for a listing of the principal positions for Drs. Marasco, Olan, Cavagnaro, Lipetz, Sandhu and Plastaras.
Competition
We
will compete with many pharmaceutical, biotechnology and medical device companies, as well as other private and public stem cell companies
involved in the development and commercialization of cell-based medical technologies and therapies.
Regenerative
medicine is rapidly progressing, in large part through the development of cell-based therapies or devices designed to isolate cells from
human tissues. Most efforts involve cell sources, such as bone marrow, adipose tissue, embryonic and fetal tissue, umbilical cord and
peripheral blood and skeletal muscle.
Companies
working in the area of regenerative medicine with regard to the disc and spine include, among others, Mesoblast, SpinalCyte, DiscGenics
and Isto Biologics. Companies that are developing products and therapies to combat obesity and diabetes, including through the use of
brown fat, include, among others, Novo Nordisk, Sanofi, Merck, Eli Lilly, Roche, Pfizer and Regeneron.
Many
of our competitors and potential competitors have substantially greater financial, technological, research and development, marketing
and personnel resources than we do. We cannot, with any accuracy, forecast when or if these companies are likely to bring their products
and therapies to market in competition with those that we are pursuing.
The
Biologics Price Competition and Innovation Act, or the BPCIA, sets forth an abbreviated pathway for the approval of biosimilar and interchangeable
biological products that could be used by future competitors, if any, of our product candidates that are approved by the FDA as a biologic.
For the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product
and the proposed biosimilar product. Interchangeability requires that a product is biosimilar to the reference product, and the product
must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered
multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing
safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Under the BPCIA, an application for
a biosimilar product cannot be submitted to the FDA until four years following approval of the reference product, and it may not be approved
by the FDA until 12 years after the original branded product is approved under a biologics license application, or BLA.
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 permit biosimilar applicants to reference approved biologics other than our
therapeutic candidates, thus circumventing our exclusivity and potentially creating the opportunity for competition sooner than anticipated.
Additionally, this period of regulatory exclusivity does not apply to companies pursuing regulatory approval via their own traditional
BLA, rather than via the abbreviated pathway. 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.
We
may also face increased competition from stem cell therapies performed by treatment centers that do not require FDA premarket approval.
In August 2022, a federal District Court in the case of United States v. California Stem Cell Treatment Center, Inc. held that
certain autologous adipose stem cell treatments were not “biological products” and therefore did not require FDA approval.
The FDA has appealed the decision but, should it be upheld, we could face competition from stem cell clinics that would not be required
to undergo the costly and time-consuming FDA approval process.
Set
forth below is a comparison of BRTX-100 to Mesoblast’s adult stem cell biologic:
We
believe that BRTX-100 has competitive advantages to Mesoblast’s product for the following reasons:
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The
use of autologous cells results in low to no risk of rejection, greater safety profile (introduction of viral/genetic) and streamlined
regulatory path |
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Hypoxic
culturing creates increased cell proliferation, greater plasticity, increased paracrine effect and increased cell survival after
application |
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Autologous
platelet lysate provides growth factors that interact with the cells, allowing for better cell survival |
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Low
to no risk of safety concerns related to immunological and zoonotic (animal to human) transmission |
Customers
Upon
regulatory approval, our cell product candidates are intended to be marketed to physicians, other health care professionals, hospitals,
research institutions, pharmaceutical companies and the military. It is anticipated that physicians who are trained and skilled in performing
spinal injections will be the physicians most likely to treat discs with injections of BRTX-100 upon regulatory approval. These
physicians would include interventional physiatrists (physical medicine physicians), pain management anesthesiologists, interventional
radiologists and neurosurgeons.
Governmental
Regulation
U.S.
Government Regulation
The
health care industry is highly regulated in the United States. The federal government, through various departments and agencies, state
and local governments, and private third-party accreditation organizations, regulate and monitor the health care industry, associated
products, and operations. The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose
substantial requirements upon the clinical development, approval, manufacture, distribution and marketing of medical products, including
drugs, biologics, and medical devices. These agencies and other federal, state and local entities regulate research and development activities
and the testing, manufacture, quality control, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval,
post-approval monitoring, advertising, promotion, sampling and import and export of medical products. The following is a general overview
of the laws and regulations pertaining to our business.
FDA
Regulation of Stem Cell Treatment and Products
The
FDA regulates the manufacture of human stem cell treatments and associated products under the authority of the Public Health Service
Act, or PHSA, and the Federal Food, Drug, and Cosmetic Act, or FDCA. Stem cells can be regulated under the FDA’s Human Cells, Tissues,
and Cellular and Tissue-Based Products Regulations, or HCT/Ps, or may also be subject to the FDA’s drug, biologic, or medical device
regulations, each as discussed below.
Human
Cells, Tissues, and Cellular and Tissue-Based Products Regulation
Under
Section 361 of the PHSA, the FDA issued specific regulations governing the use of HCT/Ps in humans. Pursuant to Part 1271 of Title 21
of the Code of Federal Regulations, or CFR, or the HCT/P Regulations, the FDA established a unified registration and listing system for
establishments that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations;
current good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging,
and distribution; and other procedures to prevent the introduction, transmission, and spread of communicable diseases.
The
HCT/P Regulations define HCT/Ps as articles “containing or consisting of human cells or tissues that are intended for implantation,
transplantation, infusion or transfer into a human recipient.” The HCT/P Regulations strictly constrain the types of products that
may be regulated solely as HCT/P. Factors considered include the degree of manipulation, whether the product is intended for a homologous
function, whether the product has been combined with noncellular or non-tissue components, and the product’s effect or dependence
on the body’s metabolic function. In those instances where cells, tissues, and cellular and tissue-based products have been only
minimally manipulated, are intended strictly for homologous use, have not been combined with noncellular or nontissue substances, and
do not depend on or have any effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit
a list of manufactured products, and adopt and implement procedures for the control of communicable diseases. If one or more of the above
factors has been exceeded, the product would be regulated as a drug, biological product, or medical device rather than an HCT/P.
Because
we are an enterprise in the early stages of operations and have not generated significant revenues from operations, it is difficult to
anticipate the likely regulatory status of the array of products and services that we may offer. We believe that some of the adult autologous
(self-derived) stem cells that will be used in our cellular therapy products and services, including the brown adipose (fat) tissue that
we intend to use in our ThermoStem Program, may be regulated by the FDA as HCT/Ps under the HCT/P Regulations. However, the FDA
may disagree with this position or conclude that some or all of our stem cell therapy products or services do not meet the applicable
definitions and exemptions to the regulation. In July 2020, the FDA issued an updated guidance document entitled “Regulatory Considerations
for Human Cells, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use” that provides additional
guidance on how FDA interprets the HCT/P Regulations, particularly the definition of the terms “minimally manipulated” and
“homologous use.” In the guidance, FDA stated it will exercise enforcement discretion until May 31, 2021 for products that
do not comply with the HCT/P Regulations. As of that date, manufacturers of products marketed as HCT/Ps that do not comply with the HCT/P
Regulations are subject to immediate FDA enforcement action. If we are not regulated solely under the HCT/P Regulations, we would need
to expend significant resources to comply with the FDA’s broad regulatory authority under the FDCA. Historically, the U.S. federal
courts have upheld the FDA’s authority to regulate stem cell products under the FDCA that do not comply with FDA’s interpretations
of the HCT/P Regulations. However, in August 2022, a federal District Court in the case of United States v. California Stem Cell Treatment
Center, Inc. held that certain autologous adipose stem cell treatments that FDA alleged were biological products were instead within
the HCT/P definition and therefore did not require FDA approval. The FDA has appealed the decision but, should it be upheld, it could
expand the types of stem cell products that are regulated solely under the HCT/P Regulations.
If
regulated solely under the FDA’s HCT/P statutory and regulatory provisions, once our laboratory in the United States becomes operational,
it will need to satisfy the following requirements, among others, to process and store stem cells:
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registration
and listing of HCT/Ps with the FDA; |
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donor
eligibility determinations, including donor screening and donor testing requirements; |
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current
good tissue practices, specifically including requirements for the facilities, environmental controls, equipment, supplies and reagents,
recovery of HCT/Ps from the patient, processing, storage, labeling and document controls, and distribution and shipment of the HCT/Ps
to the laboratory, storage, or other facility; |
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tracking
and traceability of HCT/Ps and equipment, supplies, and reagents used in the manufacture of HCT/Ps; |
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adverse
event reporting; |
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FDA
inspection; and |
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abiding
by any FDA order of retention, recall, destruction, and cessation of manufacturing of HCT/Ps. |
Non-reproductive
HCT/Ps and non-peripheral blood stem/progenitor cells that are offered for import into the United States and regulated solely under Section
361 of the PHSA must also satisfy the requirements under 21 C.F.R. § 1271.420. Section 1271.420 requires that the importer of record
of HCT/Ps notify the FDA prior to, or at the time of, importation and provide sufficient information for the FDA to make an admissibility
decision. In addition, the importer must hold the HCT/P intact and under conditions necessary to prevent transmission of communicable
disease until an admissibility decision is made by the FDA.
If
the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement actions
including public warning letters, fines, consent decrees, orders of retention, recall or destruction of product, orders to cease manufacturing,
and criminal prosecution. If any of these events were to occur, it could materially adversely affect us.
To
the extent that our cellular therapy activities are limited to developing products and services outside the United States, as described
in detail below, the products and services would not be subject to FDA regulation, but will be subject to the applicable requirements
of the foreign jurisdiction. We intend to comply with all applicable foreign governmental requirements.
Drug
and Biological Product Regulation
An
HCT/P product that does not meet the criteria for being solely regulated under Section 361 of the PHSA will be regulated as a drug, device
or biological product under the FDCA and/or Section 351 of the PHSA, and applicable FDA regulations. The FDA has broad regulatory authority
over drugs and biologics marketed for sale in the United States. The FDA regulates the research, clinical testing, manufacturing, safety,
effectiveness, labeling, storage, recordkeeping, promotion, distribution, and production of drugs and biological products. The FDA also
regulates the export of drugs and biological products manufactured in the United States to international markets in certain situations.
The
process required by the FDA before a drug or biologic may be marketed in the United States generally involves the following:
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completion of non-clinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practice,
or GLP, or other applicable regulations;
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submission of an IND, which allows clinical trials to begin unless the FDA objects within 30 days;
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performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug or biologic
for its intended use or uses conducted in accordance with FDA regulations and Good Clinical Practices, or GCP, which are international
ethical and scientific quality standards meant to ensure that the rights, safety and well-being of trial participants are protected and
that the integrity of the data is maintained;
●
registration of clinical trials of FDA-regulated products and certain clinical trial information;
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preparation and submission to the FDA of a new drug application, or NDA, in the case of a drug or BLA in the case of a biologic;
●
review of the product by an FDA advisory committee, where appropriate or if applicable;
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satisfactory completion of pre-approval inspection of manufacturing facilities and clinical trial sites at which the product, or components
thereof, are produced to assess compliance with cGMP requirements and of selected clinical trial sites to assess compliance with GCP
requirements; and
●
FDA approval of an NDA or BLA which must occur before a drug or biologic can be marketed or sold.
Approval
of an NDA requires a showing that the drug is safe and effective for its intended use and that the methods, facilities, and controls
used for the manufacturing, processing, and packaging of the drug are adequate to preserve its identity, strength, quality, and purity.
To obtain a BLA, a manufacturer must show that the proposed product is safe, pure, and potent and that the facility in which the product
is manufactured, processed, packed, or held meets established quality control standards.
For
purposes of an NDA or BLA approval by the FDA, human clinical trials are typically conducted in the following phases (which may overlap):
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Phase 1: The investigational product is initially given to healthy human subjects or patients and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion. These trials may also provide early evidence on effectiveness. During Phase 1 clinical
trials, sufficient information about the investigational product’s pharmacokinetics and pharmacologic effects may be obtained to
permit the design of well-controlled and scientifically valid Phase 2 clinical trials.
●
Phase 2: These clinical trials are conducted in a limited number of human subjects in the target population to identify possible adverse
effects and safety risks, to determine the efficacy of the investigational product for specific targeted diseases and to determine dosage
tolerance and dosage levels. Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning
larger and more costly Phase 3 clinical trials.
●
Phase 3: Phase 3 clinical trials are undertaken after Phase 2 clinical trials demonstrate that a dosage range of the investigational
product appears effective and has a tolerable safety profile. The Phase 2 clinical trials must also provide sufficient information for
the design of Phase 3 clinical trials. Phase 3 clinical trials are conducted to provide statistically significant evidence of clinical
efficacy and to further test for safety risks in an expanded human subject population at multiple clinical trial sites. These clinical
trials are intended to further evaluate dosage, effectiveness and safety, to establish the overall benefit-risk profile of the investigational
product and to provide an adequate basis for product labeling and approval by the FDA. In most cases, the FDA requires two adequate and
well-controlled Phase 3 clinical trials to demonstrate the efficacy of an investigational drug or biologic.
All
clinical trials must be conducted in accordance with FDA regulations, GCP requirements and their protocols in order for the data to be
considered reliable for regulatory purposes. Progress reports detailing the results of the clinical trials must be submitted at least
annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed
successfully within any specified period, or at all. These government regulations may delay or prevent approval of product candidates
for a considerable period of time and impose costly procedures upon our business operations.
The
FDA may require, or companies may pursue, additional clinical trials, referred to as Phase 4 clinical trials, after a product is approved.
Such trials may be made a condition to be satisfied for continuing drug approval. The results of Phase 4 clinical trials can confirm
the effectiveness of a product candidate and can provide important safety information. In addition, the FDA has authority to require
sponsors to conduct post-marketing trials to specifically address safety issues identified by the agency.
Under
the Pediatric Research Equity Act, or PREA, certain NDAs and BLAs and certain supplements to an NDA or BLA must contain data to assess
the safety and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration
for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric
data or full or partial waivers. The Food and Drug Administration Safety and Innovation Act, or FDASIA, amended the FDCA to require that
a sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage
form, new dosing regimen, or new route of administration submit an initial Pediatric Study Plan, or PSP, within 60 days of an end-of-Phase
2 meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 study. The initial
PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design,
age groups, relevant endpoints and statistical approach, or a justification for not including such detailed information, and any request
for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric studies along with
supporting information. The FDA and the sponsor must reach an agreement on the PSP. A sponsor can submit amendments to an agreed-upon
initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from preclinical studies, early
phase clinical trials, and/or other clinical development programs.
Changes
to some of the conditions established in an approved application, including changes in indications, labeling, manufacturing processes
or facilities, require submission and FDA approval of a new NDA or BLA, or an NDA or BLA supplement, before the change can be implemented.
An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA
uses the same procedures and actions in reviewing NDA and BLA supplements as it does in reviewing NDAs and BLAs.
Drug
and biological products must also comply with applicable requirements, including monitoring and recordkeeping activities, manufacturing
requirements, reporting to the applicable regulatory authorities of adverse experiences with the product, providing the regulatory authorities
with updated safety and efficacy information, product sampling and distribution requirements, and complying with promotion and advertising
requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or
in patient populations that are not described in the drug’s approved labeling, or off-label use, limitations on industry-sponsored
scientific and educational activities and requirements for promotional activities involving the internet. Although physicians may, in
their independent professional medical judgment, prescribe legally available drugs for off-label uses, manufacturers typically may not
market or promote such off-label uses. Modifications or enhancements to the product or its labeling, or changes of the site of manufacture,
are often subject to the approval of the FDA and other regulators, who may or may not grant approval or may include a lengthy review
process.
We
have determined that, under the FDA’s current interpretation of the applicable law, our BRTX-100 product candidate will
be regulated as a biological product under the PHSA. Therefore, we will need to expend significant resources to ensure regulatory compliance.
There is no assurance as to whether or when we will receive FDA approval of the BRTX-100 product candidate. The process of designing,
conducting, compiling and submitting the non-clinical and clinical studies required for BLA approval is time-consuming, expensive and
unpredictable. The process can take many years, depending on the product and the FDA’s requirements.
In
addition, even if a product candidate receives regulatory approval, the approval may be limited to specific disease states, patient populations
and dosages, or might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form
of onerous risk management plans, restrictions on distribution or use, or post-marketing trial requirements. Further, even after regulatory
approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, including
safety labeling or imposition of a Risk Evaluation and Mitigation Strategy, or REMS, the requirement to conduct post-market studies or
clinical trials or even complete withdrawal of the product from the market. Delay in obtaining, or failure to obtain, regulatory approval
for our products, or obtaining approval but for significantly limited use, would harm our business. Further, we cannot predict what adverse
governmental regulations may arise from future United States or foreign governmental action.
If
the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement actions
from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals,
seizure of our products, total or partial shutdown of our production, withdrawal of approvals, and criminal prosecutions. If any of these
events were to occur, it could materially adversely affect us.
FDA
Expedited Review Programs
The
FDA is authorized to expedite the review of NDAs and BLAs in several ways. Under the Fast Track program, the sponsor of a drug or biologic
product candidate may request the FDA to designate the product for a specific indication as a Fast Track product concurrent with or after
the filing of the IND. Drug and biologic products are eligible for Fast Track designation if they are intended to treat a serious or
life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies
to the combination of the product candidate and the specific indication for which it is being studied.
In
addition to other benefits, such as the ability to have greater interactions with the FDA, the FDA may initiate review of sections of
a Fast Track NDA or BLA before the application is complete, a process known as rolling review.
Any
product submitted to the FDA for marketing, including under a Fast Track program, may also be eligible for the following other types
of FDA programs intended to expedite development and review:
●
Breakthrough therapy designation. To qualify for the breakthrough therapy program, product candidates must be intended to treat a serious
or life-threatening disease or condition, and preliminary clinical evidence must indicate that such product candidates may demonstrate
substantial improvement on one or more clinically significant endpoints over existing therapies. The FDA will seek to ensure the sponsor
of a breakthrough therapy product candidate receives intensive guidance on an efficient drug development program, intensive involvement
of senior managers and experienced staff on a proactive, collaborative and cross-disciplinary review, and rolling review.
●
Priority review. A product candidate is eligible for priority review if it treats a serious condition and, if approved, it would be a
significant improvement in the safety or effectiveness of the treatment, diagnosis or prevention of a serious condition compared to marketed
products. The FDA aims to complete its review of priority review applications within six months as opposed to ten months for standard
review.
●
Accelerated approval. Drug or biologic products studied for their safety and effectiveness in treating serious or life-threatening illnesses
and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval. Accelerated approval means
that a product candidate may be approved on the basis of adequate and well-controlled clinical trials establishing that the product candidate
has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical
endpoint other than survival or irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity
and prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require
that a sponsor of a drug or biologic product candidate receiving accelerated approval perform adequate and well-controlled post-marketing
clinical trials. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials.
As a result of the FDA’s controversial use of the accelerated approval pathway for an Alzheimer’s drug (aducanumab), Congress
revised the accelerated approval process as a part of the Food and Drug Omnibus Reform Act of 2022 to provide the FDA with additional
authorities to enforce the post-approval study requirements and to withdraw approvals when those requirements are not met.
Fast
Track designation, breakthrough therapy designation, priority review and accelerated approval do not change the standards for approval
but may expedite the development or approval process.
Further,
with the passage of the 21st Century Cures Act, or the Cures Act, in December 2016, Congress authorized the FDA to accelerate review
and approval of products designated as regenerative advanced therapies. A product is eligible for this designation if it is a regenerative
medicine advanced therapy, or RMAT (which may include a cell therapy), that is intended to treat, modify, reverse or cure a serious or
life-threatening disease or condition, and preliminary clinical evidence indicates that the drug has the potential to address unmet medical
needs for such disease or condition. The benefits of a RMAT designation include early interactions with the FDA to expedite development
and review, benefits available to breakthrough therapies, potential eligibility for priority review and accelerated approval based on
surrogate or intermediate endpoints.
Medical
Device Regulation
The
FDA also has broad authority over the regulation of medical devices marketed for sale in the United States. The FDA regulates the research,
clinical testing, manufacturing, safety, labeling, storage, recordkeeping, premarket clearance or approval, promotion, distribution,
and production of medical devices. The FDA also regulates the export of medical devices manufactured in the United States to international
markets.
Under
the FDCA, medical devices are classified into one of three classes, Class I, Class II, or Class III, depending upon the degree of risk
associated with the medical device and the extent of control needed to ensure safety and effectiveness. Class I devices are subject to
the lowest degree of regulatory scrutiny because they are considered low risk devices and need only comply with the FDA’s General
Controls. The General Controls include compliance with the registration, listing, adverse event reporting requirements, and applicable
portions of the Quality System Regulation as well as the general misbranding and adulteration prohibitions.
Class
II devices are subject to the General Controls as well as certain Special Controls such as 510(k) premarket notification. Class III devices
are subject to the highest degree of regulatory scrutiny and typically include life supporting and life sustaining devices and implants.
They are subject to the General Controls and Special Controls that include a premarket approval application, or PMA. “New”
devices are automatically regulated as Class III devices unless they are shown to be low risk, in which case they may be subject to de
novo review to be moved to Class I or Class II. Clinical research of an investigational device is subject to the FDA’s Investigational
Device Exemption, or IDE, regulations. Nonsignificant risk devices are subject to abbreviated requirements that do not require a submission
to the FDA but must have Institutional Review Board (IRB) approval and comply with other requirements pertaining to informed consent,
labeling, recordkeeping, reporting, and monitoring. Significant risk devices require the submission of an IDE application to the FDA
and the FDA’s approval of the IDE application.
The
FDA premarket clearance and approval process can be lengthy, expensive and uncertain. It generally takes three to twelve months from
submission to obtain 510(k) premarket clearance, although it may take longer. Approval of a PMA could take one to four years, or more,
from the time the application is submitted and there is no guarantee of ultimate clearance or approval. Securing FDA clearances and approvals
may require the submission of extensive clinical data and supporting information to the FDA. Additionally, the FDA actively enforces
regulations prohibiting marketing and promotion of devices for indications or uses that have not been cleared or approved by the FDA.
In addition, modifications or enhancements of products that could affect the safety or effectiveness or effect a major change in the
intended use of a device that was either cleared through the 510(k) process or approved through the PMA process may require further FDA
review through new 510(k) or PMA submissions.
In
the event we develop processes, products or services which qualify as medical devices subject to FDA regulation, we intend to comply
with such regulations. If the FDA determines that our products are regulated as medical devices and we have failed to comply with applicable
regulatory requirements, it can impose a variety of enforcement actions from public warning letters, application integrity proceedings,
fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure of our products, total
or partial shutdown of our production, withdrawal of approvals, and criminal prosecutions. If any of these events were to occur, it could
materially adversely affect us.
Current
Good Manufacturing Practices and other FDA Regulations of Cellular Therapy Products
Products
that fall outside of the HCT/P regulations and are regulated as drugs, biological products, or devices must comply with applicable cGMP
regulations. These cGMPs and related quality standards are designed to ensure the products that are processed at a facility meet the
FDA’s applicable requirements for identity, strength, quality, sterility, purity, and safety. In the event that our domestic United
States operations are subject to the FDA’s drug, biological product, or device regulations, we intend to comply with the applicable
cGMPs and quality regulations.
If
the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement actions
from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals,
seizure of our products, total or partial shutdown of our production, withdrawal of approvals, and criminal prosecutions. If any of these
events were to occur, it could materially adversely affect us.
Promotion
of Foreign-Based Cellular Therapy Treatment— “Medical Tourism”
We
may establish, or license technology to third parties in connection with their establishment of, adult stem cell therapy facilities outside
the United States. We also intend to work with hospitals and physicians to make the stem cell-based therapies available for patients
who travel outside the United States for treatment. “Medical tourism” is defined as the practice of traveling across international
borders to obtain health care.
The
Federal Trade Commission, or the FTC, has the authority to regulate and police advertising of medical treatments, procedures, and regimens
in the United States under the Federal Trade Commission Act, or the FTCA. The FTC has regulatory authority to prevent unfair and deceptive
practices and false advertising. Specifically, the FTC requires advertisers and promoters to have a reasonable basis to substantiate
and support claims. The FTC has many enforcement powers, one of which is the power to order disgorgement by promoters deemed in violation
of the FTCA of any profits made from the promoted business and can order injunctions from further violative promotion. Advertising that
we may utilize in connection with our medical tourism operations will be subject to FTC regulatory authority, and we intend to comply
with such regulatory régime. Similar laws and requirements are likely to exist in other countries and we intend to comply with
such requirements.
Federal
Regulation of Clinical Laboratories
Congress
passed the Clinical Laboratory Improvement Amendments, or CLIA, in 1988, which provided the Centers for Medicare and Medicaid Services,
or CMS, authority over all laboratory testing, except research, that is performed on humans in the United States. The Division of Laboratory
Services, within the Survey and Certification Group, under the Center for Medicaid and State Operations, or CMSO, has the responsibility
for implementing the CLIA program.
The
CLIA program is designed to establish quality laboratory testing by ensuring the accuracy, reliability, and timeliness of patient test
results. Under CLIA, a laboratory is a facility that does laboratory testing on specimens derived from humans and used to provide information
for the diagnosis, prevention, treatment of disease, or impairment of, or assessment of health. Laboratories that handle stem cells and
other biologic matter are, therefore, included under the CLIA program. Under the CLIA program, laboratories must be certified by the
government, satisfy governmental quality and personnel standards, undergo proficiency testing, be subject to inspections, and pay fees.
To the extent that our business activities require CLIA certification, we intend to obtain and maintain such certification. If we are
subject to CLIA, the failure to comply with CLIA standards could result in suspension, revocation, or limitation of a laboratory’s
CLIA certificate. In addition, fines or criminal penalties could also be levied. If any of these events were to occur, it could impact
our business operations.
Health
Insurance Portability and Accountability Act—Protection of Patient Health Information
We
may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business.
The Health Insurance Portability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health
Act, or HITECH, and their respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, imposes
specified requirements relating to the privacy, security and transmission of individually identifiable health information on certain
types of individuals and organizations. In addition, certain state laws govern the privacy and security of health information in certain
circumstances, many of which differ from each other and from HIPAA in significant ways and may not have the same effect, thus complicating
compliance efforts. Further, we may need to also comply with additional federal or state privacy laws and regulations that may apply
to certain diagnoses, such as HIV/AIDS, to the extent that they apply to us.
The
Department of Health and Human Services, or HHS, through its Office for Civil Rights, investigates breach reports and determines whether
administrative or technical modifications are required and whether civil or criminal sanctions should be imposed. Companies failing to
comply with HIPAA and the implementing regulations may also be subject to civil money penalties or in the case of knowing violations,
potential criminal penalties, including monetary fines, imprisonment, or both. In some cases, the State Attorneys General may seek enforcement
and appropriate sanctions in federal court.
Other
Applicable U.S. Laws
In
addition to the above-described regulation by United States federal and state government, the following are other federal and state laws
and regulations that could directly or indirectly affect our ability to operate the business:
|
● |
state
and local licensure, registration, and regulation of the development of pharmaceuticals and biologics; |
|
● |
state
and local licensure of medical professionals; |
|
● |
state
statutes and regulations related to the corporate practice of medicine; |
|
● |
laws
and regulations administered by U.S. Customs and Border Protection related to the importation of biological material into the United
States; |
|
● |
other
laws and regulations administered by the FDA; |
|
● |
other
laws and regulations administered by HHS; |
|
● |
state
and local laws and regulations governing human subject research and clinical trials; |
|
● |
the
federal physician self-referral prohibition, also known as Stark Law, and any state equivalents to Stark Law; |
|
● |
the
federal False Claims Act, or FCA; |
|
● |
the
federal Anti-Kickback Statute, or AKS, and any state equivalent statutes and regulations; |
|
● |
federal
and state coverage and reimbursement laws and regulations; |
|
● |
state
and local laws and regulations for the disposal and handling of medical waste and biohazardous material; |
|
● |
Occupational
Safety and Health Administration, or OSHA, regulations and requirements; |
|
● |
the
Intermediate Sanctions rules of the IRS providing for potential financial sanctions with respect to “excess benefit transactions”
with tax-exempt organizations; |
|
● |
the
Physician Payments Sunshine Act (in the event that our products are classified as drugs, biologics, devices or medical supplies and
are reimbursed by Medicare, Medicaid or the Children’s Health Insurance Program); |
|
● |
state
and other federal laws addressing the privacy of health information; and |
|
● |
state
and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items
or services reimbursed by any third-party payer, including commercial insurers, state laws that require pharmaceutical companies
to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government or otherwise restrict payments that may be made to healthcare professionals and other potential referral
sources, state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians
and other healthcare professionals or marketing expenditures, and state laws governing the privacy and security of health information
in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating
compliance efforts. |
Violation
of any of the laws described above or any other governmental laws and regulations may result in penalties, including civil and criminal
penalties, damages, fines, the curtailment or restructuring of operations, the exclusion from participation in federal and state healthcare
programs and imprisonment. Furthermore, efforts to ensure that business activities and business arrangements comply with applicable healthcare
laws and regulations can be costly for manufacturers of branded prescription products.
Foreign
Government Regulation
In
general, we will need to comply with the government regulations of each individual country in which our therapy centers 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 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
for each country, creating greater uncertainty for the international regulatory process. Furthermore, government regulations can change
with little to no notice and may result in up-regulation of our product(s), thereby creating a greater regulatory burden for our cell
processing technology products. We have not yet thoroughly explored the applicable laws and regulations that we will need to comply with
in foreign jurisdictions. It is possible that we may not be permitted to expand our business into one or more foreign jurisdictions.
We
do not have any definitive plans or arrangements with respect to the establishment by us of stem cell therapy clinics in any country.
We intend to explore any such opportunities as they arise.
Offices
Our
principal executive offices are located at 40 Marcus Drive, Suite One, Melville, New York, and our telephone number is (631) 760-8100.
Our website is www.biorestorative.com. Our internet website and the information contained therein or connected thereto are not intended
to be incorporated by reference into this Annual Report.
Employees
We
currently have 10 employees, all of whom are full-time employees. We believe that our employee relations are good.
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.
Preceding
the full risk factors is a list of certain of the risk factors that follow. Reference is made to the complete risk factors for a full
description of the risks involved.
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. |
| ● | We
will need to obtain a significant amount of financing to complete our clinical trials and
implement our business plan. |
| ● | We
will need to enter into agreements in order to implement our business strategy. |
| ● | We
depend on our executive officers and on our ability to attract and retain additional qualified
personnel. |
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
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. |
| ● | The
development of our cell therapy product candidates is subject to uncertainty because autologous
cell therapy is inherently variable. |
| ● | 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. |
| ● | 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. |
| ● | 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
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. |
| ● | We
presently lack manufacturing capabilities to produce our product candidates in connection
with our Phase 3 clinical trial and 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. |
| ● | The
commercial potential and profitability of our products are unknown and subject to significant
risk and uncertainty. |
| ● | We
may have difficulties in sourcing brown adipose (fat) tissue. |
| ● | 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. |
| ● | We
are vulnerable to competition and technological change, and also to physicians’ inertia. |
| ● | 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
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. |
| ● | Our
cell therapy product candidates for which we intend to seek approval as biologic products
may face competition sooner than anticipated. |
| ● | 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
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. |
| ● | Our
inability to obtain reimbursement for our products and services from private and governmental
insurers could negatively impact demand for our products and services. |
Risks
Related to Our Intellectual Property
| ● | We
may not be able to protect our proprietary rights. |
| ● | Changes
to United States patent law may have a material adverse effect on our intellectual property
rights. |
| ● | 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. |
Risks
Related to Government Regulation
| ● | Even
if we obtain regulatory approval for a product candidate, our products will remain subject
to regulatory oversight. |
| ● | 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. |
| ● | 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. |
| ● | 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. |
| ● | Health
care companies have been the subjects of federal and state investigations, and we could become
subject to investigations in the future. |
| ● | 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. |
| ● | 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. |
Risks
Related to Our Common Stock
| ● | We
pay no dividends. |
| ● | 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.” |
| ● | Material
weaknesses in our internal control over financial reporting may cause us to fail to timely
and accurately report our financial results or result in a material misstatement of our consolidated
financial statements. |
| ● | 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. |
| ● | 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. |
| ● | Our
common stock is classified as a “penny stock;” the restrictions of the penny
stock regulations of the Securities and Exchange Commission may result in less liquidity
for our common stock. |
Risks
Associated with Our Nasdaq Listing
| ● | We
cannot assure you that we will be able to continue to comply with the minimum bid price requirement
of Nasdaq. |
| ● | The
market price of our common stock may not attract new investors, including institutional investors,
and may not satisfy the investing requirements of those investors. Consequently, the trading
liquidity of our common stock may not improve. |
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.
We
have a limited operating history. Since our inception, we have incurred net losses. As of December 31, 2022, our accumulated deficit
was $152,640,897.
We
will need to obtain a significant amount of financing to complete our clinical trials and implement our business plan.
Since
our inception, we have not generated 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 this Annual Report under Item 1 (“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 and otherwise fund our operations. We will require significant additional
funding to complete our clinical trials using BRTX-100. We will also require a substantial amount of additional funding to implement
our other programs described in this Annual Report under Item 1 (“Business”), including our metabolic ThermoStem Program,
and fund general operations. No assurance can be given that the amount of funding that we anticipate may be required for such purposes
is 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.
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 and agreements relating to the conduct of our Phase 2 clinical trial,
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.
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 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. 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 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 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 believe that these possible negative effects have lessened as more of the population has become 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 just recently 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:
|
● |
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; |
|
● |
intellectual
property constraints that prevent us from making, using, or commercializing any of our cell therapy product candidates; |
|
● |
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; |
|
● |
delays
in reaching agreement on acceptable terms with prospective clinical study sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different clinical study sites; |
|
● |
delays
in obtaining required Institutional Review Board, or IRB, approval at each clinical study site; |
|
● |
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; |
|
● |
difficulty
collaborating with patient groups and investigators; |
|
● |
failure
by our CRO, other third parties, or us to adhere to clinical study requirements; |
|
● |
failure
to perform in accordance with the FDA’s current Good Clinical Practices, or GCP, requirements, or applicable regulatory guidelines
in other countries; |
|
● |
delays
in having patients qualify for or complete participation in a study or return for post-treatment follow-up; |
|
● |
patients
dropping out of a study; |
|
● |
occurrence
of adverse events associated with the product candidate that are viewed to outweigh its potential benefits; |
|
● |
changes
in the standard of care on which a clinical development plan was based, which may require new or additional trials; |
|
● |
transfer
of manufacturing processes from any academic collaborators to larger-scale facilities operated by either a contract manufacturing
organization, or CMO, or by us, and delays or failure by our CMOs or us to make any necessary changes to such manufacturing process; |
|
● |
delays
in our clinical trials caused by the COVID-19 pandemic or other health emergencies; |
|
● |
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; |
|
● |
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 |
|
● |
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:
|
● |
obtain
approval for indications that are not as broad as the indications we sought; |
|
● |
have
the product removed from the market after obtaining marketing approval; |
|
● |
encounter
issues with respect to the manufacturing of commercial supplies; |
|
● |
be
subject to additional post-marketing testing requirements; and/or |
|
● |
be
subject to restrictions on how the product is distributed or used. |
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, and potential subjects’ concern over the COVID-19
pandemic. 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 just recently commenced the clinical trials necessary to obtain FDA approval to market our product candidate, BRTX-100. Since
we lack 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:
|
● |
patients
failing to complete clinical trials due to dissatisfaction with the treatment, side effects, concerns over COVID-19, or other reasons; |
|
|
|
|
● |
failure
by regulators to authorize us to commence a clinical trial; |
|
|
|
|
● |
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; |
|
|
|
|
● |
delays
or failure to obtain clinical supply for our products necessary to conduct clinical trials from contract manufacturers; |
|
|
|
|
● |
treatment
candidates demonstrating a lack of efficacy during clinical trials; |
|
● |
treatment
candidates demonstrating significant safety signals; and/or |
|
|
|
|
● |
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 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 some of our product candidates are subject to regulation
as biological drug products, we will need to demonstrate that those products 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, or 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 in connection with our Phase 3 clinical trial and 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.
We
have utilized our laboratory to provide the cell processing services necessary for clinical production of BRTX-100 for our Phase
2 disc clinical trial. We believe that we have sufficient laboratory capacity to provide such services with regard to the balance of
the Phase 2 trial; however, we would need to significantly expand our manufacturing capabilities to provide such cell processing services
in connection with a Phase 3 clinical trial and 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
may seek to utilize a third-party manufacturer for BRTX-100 or any of our other product candidates; however, we do not have any
arrangements in place with a third-party manufacturer. 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. |
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.
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. |
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, or 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, or BLA. The FDA has developed considerable experience
with the biosimilar and interchangeable biosimilar processes since the enactment of the BPCIA in 2009. Should any of our product candidates
be approved via the BLA pathway, we expect that biosimilar applicants will seek approval of biosimilar, and/or interchangeable, versions
of our product that could result in lower prices for our 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.
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, or 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, or 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, 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, or PPACA, as well as the Inflation Reduction Act, passed on August 16,
2022, and other health reforms include measures that would limit or prohibit payments for certain medical treatments or subject the pricing
of drugs and biologics to government control. In addition, in many foreign countries, particularly the countries of the European Union,
or 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, or FTO, search years ago 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, or 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, or 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, or 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, or 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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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. |
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, or CMS, other divisions
the Department of Health and Human Services, or 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, or AKS, the federal civil and criminal False Claims Act, or 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. For example, 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, or 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, advisors, 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, or 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,
policies, or court decisions may cause delays in the approval or rejection of an application, make it easier for our competitors to gain
regulatory approval to enter the marketplace, or allow competitors to enter the market without having to obtain FDA approval. 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. |
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 and Medicaid programs. 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.
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.
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 2030 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. Congress
has since 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, regulations, and interpretive determinations
may result in additional reductions in Medicare and other health care funding, which could impact our business.
Most
recently, on August 16, 2022, President Biden signed the Inflation Reduction Act, or the IRA, which provides for (i) the government to
set or negotiate prices for select high-cost Medicare Part D (beginning in 2026) and Medicare Part B drugs (beginning in 2028) that are
more than nine years (for small-molecule drugs) or 13 years (for biological products) from their FDA approval, (ii) manufacturers to
pay a rebate for Medicare Part B and Part D drugs when prices increase faster than inflation beginning in 2022 for Medicare Part D and
2023 for Medicare Part B drugs, and (iii) Medicare Part D redesign which replaces the current coverage gap provisions and establishes
a $2,000 cap for out-of-pocket limits costs for Medicare beneficiaries beginning in 2025, with manufacturers being responsible for 10%
of costs up to the $2,000 cap and 20% after that cap is reached. Implementation of the IRA is expected to be carried out through upcoming
actions by regulatory authorities, the outcome of which is uncertain.
Healthcare
reform measures that may be adopted in the future, may result in more rigorous coverage criteria and decreased reimbursement. 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, the IRA, and/or additional
legislation or regulation enacted in the future may impact our business. If the PPACA, the IRA, 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 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. We intend
to retain earnings, if any, to finance the development and expansion of our business. Our future dividend policy will be subject to the
discretion of our Board of Directors and will be contingent upon future earnings, if any, our financial condition, capital requirements,
general business conditions, and other factors. Therefore, we can give no assurance that any dividends of any kind will ever be paid
to holders of our common stock.
There
is no assurance that an active trading market for our common stock will be sustained.
Our
common stock is listed on Nasdaq. However, no assurance can be given that an active market for our common stock 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 development and 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 of an active and liquid market
for our securities developing in the foreseeable future. Even if there is a market for our securities, we cannot assure that securityholders
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, or 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, or the Sarbanes-Oxley Act, 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.
Material
weaknesses in our internal control over financial reporting may cause us to fail to timely and accurately report our financial results
or result in a material misstatement of our consolidated financial statements.
We identified control deficiencies in the design and operation of our internal control over financial reporting that constituted
a material weakness, as further described in Item 9A of this Annual Report (“Controls and Procedures”). A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility
that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. Our material
weakness related to the following control deficiencies:
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Lack
of adherence to formal policies and procedures; |
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Lack
of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner; and |
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Lack
of sufficient formal management testing over documented formal procedures and controls, and time to evaluate continuous effectiveness of controls to achieve complete and accurate financial
reporting and disclosures, including documented controls over the preparation and review of journal entries and account
reconciliations. |
The
deficiencies described above, if not remedied, could result in a misstatement of one or more account balances or disclosures in our annual
or interim consolidated financial statements that would not be prevented or detected, and, accordingly, we determined that these control
deficiencies constitute a material weakness.
To
address our material weakness, we have added accounting and finance personnel and implemented new financial accounting processes. We
intend to continue to take steps to remediate the material weakness described above through implementing enhancements and controls within
our accounting systems, hiring additional qualified accounting and finance resources and further evolving our accounting and quarterly
and annual close processes. We will not be able to remediate these control deficiencies until these steps have been completed and have
been operating effectively for a sufficient period of time and Management has concluded, through testing, that the controls are operating
effectively. The redesign and implementation of improvements to our accounting and proprietary systems and controls may be costly and
time consuming and the cost to remediate may impair our results of operations in the future.
If
we fail to remediate our material weakness, identify future material weaknesses in our internal control over financial reporting or fail
to meet the demands that have been placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be
unable to accurately report our financial results or report them within the timeframes required by law or stock exchange regulations.
Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by the
SEC or other regulatory authorities. If additional material weaknesses exist or are discovered in the future, and we are unable to remediate
any such material weakness, our reputation, results of operations and financial condition could suffer.
Our
stock price may fluctuate significantly and be highly volatile and this may make it difficult for a securityholder to resell our securities
at the volume, prices and times the securityholder 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
securityholder to resell our securities at the volume, prices and times the securityholder 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,” “Risks Related to Our Common Stock” and
“Risks Associated with Our Nasdaq Listing.”
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
currently have authorization to issue up to 75,000,000 shares of common stock of which, as of March 22, 2023, 3,767,615 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. In addition, there are 1,518,158 shares of Series B preferred stock
issued and outstanding. Such shares are convertible under certain circumstances into an equal number of shares of common stock.
Pursuant
to our November 2021 public offering of securities, we issued warrants for the purchase of an aggregate of 2,645,000 shares of common
stock as well as underwriter warrants for the purchase of 235,970 shares of common stock. We have an effective registration statement
on Form S-1 under the Securities Act registering the issuance of such shares. The shares issuable pursuant to the registration statement
on Form S-1 will be freely tradable in the public market, except for shares held by affiliates. In addition, in connection with the public
offering and pursuant to exchange agreements entered into with holders of convertible notes and warrants, we issued an aggregate of 313,789
shares of common stock and warrants for the purchase of an aggregate of 1,856,938 shares of common stock. The shares of common stock
issued to such holders are eligible for resale in the open market (subject to Rule 144 volume limitations applicable to affiliates),
potentially causing sales in the market to increase and our stock price to decline. We have registered the resale of the shares of common
stock issuable upon exercise of such warrants. The issuance of shares of common stock upon exercise of the above warrants would dilute
the ownership of our stockholders.
We
also have an effective registration statement on Form S-8 under the Securities Act registering 1,175,000 shares of our common stock issuable
under our 2021 Stock Incentive Plan, or the 2021 Plan, and intend to file a registration statement on Form S-8 under the Securities Act
with respect to the registration of an additional 1,325,000 shares of our common stock under the 2021 Plan. As of March 22, 2023, options
to purchase 1,493,656 shares of our common stock were outstanding under the 2021 Plan. In addition, as of such date,97,826 RSUs were outstanding
under the 2021 Plan. 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 may 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 (and other affiliates) upon their exercise of options
held by them 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.
Further,
we have an effective shelf registration statement on Form S-3 under the Securities Act registering $75,000,000 of our equity and debt
securities. Pursuant to the requirements of Form S-3, we currently may sell pursuant to such Form S-3, during any 12 month period, securities
having an aggregate market value of no more than one-third of the aggregate market value of the shares of our common stock held by non-affiliates.
As of March 22, 2023, the aggregate market value of shares of common stock held by non-affiliates was $9,286,812.
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 18,456,842 shares of preferred stock without further stockholder
approval, containing such rights and preferences as our Board of Directors shall determine. We may also 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 Nevada. Anti-takeover provisions in Nevada law and our articles 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. Of such
20,000,000 authorized shares, 1,518,158 shares of Series B preferred stock are issued and outstanding. 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 Securities and Exchange
Commission, or 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. The market price
for shares of our common stock is currently below $5.00 and we do not satisfy any of the exceptions to the SEC’s definition of
penny stock. Accordingly, our common stock is currently 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.
Risks
Associated with Our Nasdaq Listing
We
cannot assure you that we will be able to continue to comply with the minimum bid price requirement of Nasdaq.
Although
the market price of our common stock satisfied the initial listing minimum bid price requirement for Nasdaq, there can be no assurance
that the market price of our common stock will remain at the $1.00 per share level required for continuing compliance with that requirement.
There are many factors, such as negative financial or operational results, that could adversely affect the market price of our common
stock and jeopardize our ability to maintain Nasdaq’s minimum bid price requirement.
The
market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing
requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although
we believe that our Nasdaq listing has helped generate greater and broader investor interest, including institutional investors, there
can be no assurances in that regard. In addition, there can be no assurance that the market price of our common stock will satisfy the
investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.
ITEM
1B. |
UNRESOLVED
STAFF COMMENTS. |
Not
applicable.
Our
principal executive offices and laboratory are located at 40 Marcus Drive, Suite One, Melville, New York. We occupy 6,800 square feet
of space at the premises pursuant to a lease that expires in December 2024. The lease provides for an annual base rental during the five
year period ending in December 2024 ranging between $153,748 and $173,060. Our premises are suitable and adequate for our current operations.
ITEM
3. |
LEGAL
PROCEEDINGS. |
None.
ITEM
4. |
MINE
SAFETY DISCLOSURES. |
Not
applicable.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – ORGANIZATION, LIQUIDITY AND BUSINESS OPERATIONS
Corporate
History
BioRestorative
Therapies, Inc. has one wholly-owned subsidiary, Stem Pearls, LLC (“Stem Pearls”). BioRestorative Therapies, Inc. and its
subsidiary are referred to collectively as “BRT” or the “Company”.
On
December 23, 2022, the Company reincorporated from Delaware to Nevada by filing Articles of Incorporation with the state of Nevada. The
reincorporation was structured as a statutory merger.
Liquidity
The
accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which
contemplates realization of assets and satisfying liabilities in the normal course of business. For the year ended December 31, 2022,
the Company had a net loss of $18.5 million (of which, $12.6 million was attributable to non-cash stock-based compensation) and negative
cash flows from operations of $5.8 million. The Company’s operating activities consume the majority of its cash resources. The
Company anticipates that it will continue to incur net losses as it executes its development plans for 2023 and beyond, as well as other
potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from
operations, at least into the near future. The Company has previously funded, and plans to continue funding, these losses primarily through
current cash on hand, investments in marketable securities and additional infusions of cash from equity and debt financing.
Based
on cash on hand as of December 31, 2022, the Company believes it has sufficient cash to fund operations for the twelve months subsequent
to the filing date.
Current
funds noted above will not be sufficient to enable the Company to fully complete its development activities or attain profitable operations.
If the Company is unable to obtain such needed additional financing on a timely basis, the Company may have to curtail its development,
marketing and promotional activities, which would have a material adverse effect on the Company’s business, financial condition
and results of operations, and ultimately the Company could be forced to discontinue its operations and liquidate.
The
accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America (“GAAP”), which contemplate continuation of the Company 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 consolidated financial statements do not necessarily purport to represent realizable or settlement values. The accompanying consolidated
financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Business
Operations
BRT
develops therapeutic products and medical therapies using cell and tissue protocols, primarily involving adult stem cells. BRT’s
website is at www.biorestorative.com. BRT is currently developing a Disc/Spine Program referred to as “brtxDISC”. Its lead
cell therapy candidate, BRTX-100, is a product formulated from autologous (or a person’s own) cultured mesenchymal stem
cells collected from the patient’s bone marrow. The product is intended to be used for the non-surgical treatment of painful lumbosacral
disc disorders or as a complimentary therapeutic to a surgical procedure. BRT is also engaging in research efforts with respect to a
platform technology utilizing brown adipose (fat) for therapeutic purposes to treat type 2 diabetes, obesity and other metabolic disorders
and has labeled this initiative its ThermoStem Program. Further, BRT has licensed a patented curved needle device that is a needle system
designed to deliver cells and/or other therapeutic products or material to the spine and discs or other potential sites.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with GAAP. The summary of significant accounting policies
presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial
statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and
transactions have been eliminated upon consolidation.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, equity-based transactions, revenue and expenses and disclosure of contingent liabilities
at the date of the consolidated financial statements. The Company bases its estimates and assumptions on historical experience, known
or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined
with precision, actual results could differ from these estimates which may cause the Company’s future results to be affected.
Concentrations
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution.
The Company maintains deposits in its cash account in excess of the Federal Depository Insurance Coverage of $250,000. As of December
31, 2022, the Company has not experienced losses on this account.
The
royalties related to the Company’s sublicense comprised all of the Company’s revenue during the years ended December 31,
2022 and 2021. See “Revenue” below.
Revenue
The
Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The
Company derives all of its revenue pursuant to a license agreement between the Company and a stem cell treatment company (“SCTC”)
entered into in January 2012. In November 2022, the Company’s license rights under the agreement became exclusive. Pursuant to
the license agreement, the SCTC granted to the Company a license to use certain intellectual property related to, among other things,
stem cell disc procedures and the Company has granted to the SCTC a sublicense to use, and the right to sublicense to third parties the
right to use, in certain locations in the United States and the Cayman Islands, certain of the licensed intellectual property. In consideration
of the sublicenses, the SCTC has agreed to pay the Company royalties on a per disc procedure basis.
The
Company’s contracted transaction price is allocated to each distinct performance obligation and recognized as revenue when, or
as, the performance obligation is satisfied. The Company’s contracts have a single performance obligation which is not separately
identifiable from other promises in the contracts and is, therefore, not distinct. The Company’s performance obligation is satisfied
upon the transfer of risk of loss to the customer. The timing of the Company’s revenue recognition may differ from the timing of
receiving royalty payments. A receivable is recorded when revenue is recognized prior to receipt of a royalty payment and the Company
has an unconditional right to the royalty payment. Alternatively, when a royalty payment precedes the provision of the related services,
the Company records deferred revenue until the performance obligations are satisfied. During the years ended December 31, 2022 and 2021,
the Company recognized $119,800 and $46,000, respectively, of revenue related to the Company’s sublicenses.
Practical
Expedients
As
part of ASC Topic 606, the Company has adopted several practical expedients including:
● |
Significant
Financing Component - the Company does not adjust the promised amount of consideration for the effects of a significant financing
component since the Company expects, at contract inception, that the period between when the Company transfers a promised good or
service to the customer and when the customer pays for that good or service will be one year or less. |
● |
Unsatisfied
Performance Obligations - all performance obligations related to contracts with a duration for less than one year; the Company has
elected to apply the optional exemption provided in ASC Topic 606 and, therefore, is not required to disclose the aggregate amount
of transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of the reporting
period. |
● |
Right
to Invoice - the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the
customer of the Company’s performance completed to date; the Company may recognize revenue in the amount to which the entity
has a right to invoice. |
Contract
Modifications
Except
as disclosed above with the SCTC, there were no contract modifications during the years ended December 31, 2022 and 2021. Contract modifications
are not routine in the performance of the Company’s contracts.
Cash
and cash equivalents
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
There were no cash equivalents as of December 31, 2022 or 2021.
Accounts
Receivable
Accounts
receivable are reported at their outstanding unpaid principal balances net of allowances for doubtful accounts. The Company periodically
assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for allowances
for doubtful receivables based on management’s estimate of uncollectible amounts considering age, collection history, and any other
factors considered appropriate. The Company writes off accounts receivable against the allowance for doubtful accounts when a balance
is determined to be uncollectible. The Company did not record an allowance for doubtful accounts as of December 31, 2022 or 2021.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using straight-line method over the estimated useful lives of the related
assets, generally three to fifteen years. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Computer
equipment costs are capitalized, as incurred, and depreciated on a straight-line basis over a range of 3 - 5 years.
Leasehold
improvements are amortized over the lesser of (i) the useful life of the asset, or (ii) the remaining lease term. Maintenance and repairs
are charged to expense as incurred. The Company capitalizes cost attributable to the betterment of property and equipment when such betterment
extends the useful life of the assets. At the time of retirement or other disposition of property and equipment, the cost and accumulated
depreciation will be removed from the accounts and the resulting gain or loss, if any, will be reflected in operations.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including definite-lived intangible assets and right-of-use assets from operating leases, for impairment
whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of
these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate to the
carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then these assets are written
down first, followed by other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows
or appraised values, depending on the nature of the assets. For the years ended December 31, 2022 and 2021, we determined that there
was no impairment charge for our long-lived assets.
Intangible
Assets
The
Company records its intangible assets at cost in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles
- Goodwill and Other. Definite lived intangible assets are amortized over their estimated useful life using the straight-line method,
which is determined by identifying the period over which the cash flows from the asset are expected to be generated.
Fair
Value Measurements
As
defined in ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The
Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions
about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated,
or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and
the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent
measurement.
Level
1: |
Quoted
prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in
which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing
basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed
equities. |
|
|
Level
2: |
Pricing
inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as
of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.
These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities,
time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant
economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument,
can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options
and collars. |
|
|
Level
3: |
Pricing
inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally
developed methodologies that result in management’s best estimate of fair value. |
SCHEDULE
OF FAIR VALUE RECURRING BASIS
| |
Fair value measurements at reporting date using: | |
| |
Fair value | | |
Quoted prices in active markets for identical liabilities (Level 1) | | |
Significant other observable inputs (Level 2) | | |
Significant unobservable inputs (Level 3) | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Marketable securities as of December 31, 2022 | |
$ | 13,072,831 | | |
$ | 13,072,831 | | |
| - | | |
| - | |
Marketable securities as of December 31, 2021 | |
$ | - | | |
$ | - | | |
| - | | |
| - | |
During
the year ended December 31, 2022, the Company recognized unrealized gain of $33,665 on its marketable securities within Other income,
net in its Consolidated Statement of Operations.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, accounts payable and other current liabilities approximate their fair values based on the
short-term maturity of these instruments.
Net
Loss per Common Share
Net
loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year.
All outstanding options and warrants are considered potential common stock. The dilutive effect, if any, of stock options and warrants
are calculated using the treasury stock method. All outstanding convertible preferred stock is considered common stock at the beginning
of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents
is anti-dilutive with respect to losses, options, warrants, and convertible preferred stock have been excluded from the Company’s
computation of diluted net loss per common share for the years ended December 31, 2022 and 2021.
The
following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these
potential shares was antidilutive due to the Company’s net loss position even though the exercise price could be less than the
average market price of the common shares:
SCHEDULE
OF WEIGHTED AVERAGE DILUTIVE COMMON SHARES
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Options | |
| 864,639 | | |
| 839,639 | |
Warrants | |
| 4,791,082 | | |
| 4,739,871 | |
Unvested RSUs | |
| 201,870 | | |
| 293,479 | |
Convertible preferred stock | |
| 1,543,158 | | |
| 1,543,158 | |
Total | |
| 7,400,749 | | |
| 7,416,147 | |
Stock-Based
Compensation
The
Company applies the provisions of ASC 718, Compensation-Stock Compensation (“ASC 718”), which requires the measurement
and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the consolidated
statements of operations.
For
stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair
value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management
to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the
expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based
vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to
the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting
term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.
Pursuant
to ASU 2018-07 Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, the Company
accounts for stock options issued to non-employees for their services in accordance ASC 718. The Company uses valuation methods and assumptions
to value the stock options that are in line with the process for valuing employee stock options noted above.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss
and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date.
The
Company utilizes ASC 740, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the consolidated financial statements or tax returns. The Company accounts
for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and
the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely-than-not”
that a deferred tax assets will not be realized.
For
uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax
positions in the consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related
to uncertain tax positions in income tax expense in the consolidated statements of operations.
Derivative
Financial Instruments
The
Company evaluates its 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 the Company records 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. The Company reassesses the classification
of its 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.
Sequencing
Policy
Under
ASC 815-40-35 (“ASC 815”), the Company has adopted a sequencing policy, whereby, in the event that reclassification of contracts
from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient
authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the
basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares.
Pursuant to ASC 815, issuances of securities to the Company’s employees and directors, or to compensate grantees in a share-based
payment arrangement, are not subject to the sequencing policy.
Leases
A
lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time
in exchange for consideration. On January 1, 2019, the Company adopted ASC 842 and it primarily affected the accounting treatment for
operating lease agreements in which the Company is the lessee.
In
accordance with ASC 842, Leases, the Company recognized a right-of-use (“ROU”) asset and corresponding lease
liability on its balance sheets for its office space lease agreement. See Note 9 - Leases for further discussion, including the
impact on the Company’s financial statements and related disclosures.
ROU
assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum
lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate
the lease if it is reasonably certain that the Company will exercise that option.
Leases
in which the Company is the lessee are comprised of office rental. All of the leases are classified as operating leases. The Company
has a lease agreement for office space with a remaining term of two years as of December 31, 2022.
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
SCHEDULE
OF PROPERTY PLANT AND EQUIPMENT
| |
December 31, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Medical equipment | |
$ | 352,133 | | |
$ | 352,133 | |
Furniture and fixtures | |
| 123,486 | | |
| 123,487 | |
Computer software and equipment | |
| 117,544 | | |
| 107,648 | |
Office equipment | |
| 18,779 | | |
| 12,979 | |
Manufacturing equipment | |
| 242,852 | | |
| 30,712 | |
Leasehold improvements | |
| 342,048 | | |
| 304,661 | |
| |
| 1,196,842 | | |
| 931,620 | |
Less: accumulated depreciation | |
| (935,839 | ) | |
| (893,627 | ) |
Property and equipment, net | |
$ | 261,003 | | |
$ | 37,993 | |
Total
depreciation expense for the years ended December 31, 2022 and 2021 was $42,212 and $14,633, respectively. Depreciation expense is reflected
in general and administrative expenses and research and development expenses in the consolidated statement of operations.
NOTE
4 - INTANGIBLE ASSETS
The
Company is a party to a license agreement with the SCTC (as amended) (the “SCTC Agreement”). Pursuant to the SCTC Agreement,
the Company obtained, among other things, a worldwide, exclusive, royalty-bearing license from the SCTC to utilize or sublicense a certain
medical device patent for the administration of specific cells and/or cell products to the disc and/or spine (and other parts of the
body) and a worldwide (excluding Asia and Argentina), exclusive, royalty-bearing license to utilize or sublicense a certain method for
culturing cells. Pursuant to the license agreement with the SCTC, certain performance milestones (or payouts in lieu of performance milestones)
had to be satisfied in order for the Company to maintain its exclusive rights with regard to the disc/spine technology. The Company did
not timely satisfy the third of these performance milestones (which needed to be satisfied by February 2022). Accordingly, such rights
became non-exclusive. However, the Company entered into an amended agreement under which it paid $175,000 and issued 51,370 warrants,
with a fair value of $117,030, in exchange for renewed exclusivity. The consideration transferred to the SCTC in exchange for exclusivity
was capitalized to intangible assets on the Company’s consolidated balance sheet as of December 31, 2022.
In
February 2017, the Company received authorization from the Food and Drug Administration (the “FDA”) to proceed with a Phase
2 clinical trial. In February 2022, the Company announced that the United States Patent and Trademark Office has issued a notice of allowance
for a patent application relating to the Company’s BRTX-100 clinical program. This patent was issued in March 2022.
Intangible
assets consist of the following:
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS
| |
Patents and Trademarks | | |
Licenses | | |
Accumulated Amortization | | |
Total | |
Balance as of January 1, 2021 | |
| 3,676 | | |
| 1,301,500 | | |
| (640,908 | ) | |
| 664,268 | |
Amortization expense | |
| - | | |
| - | | |
| (74,528 | ) | |
| (74,528 | ) |
Balance as of December 31, 2021 | |
| 3,676 | | |
| 1,301,500 | | |
| (715,436 | ) | |
| 589,740 | |
Consideration transferred for license exclusivity | |
| - | | |
| 292,030 | | |
| - | | |
| 292,030 | |
Amortization expense | |
| - | | |
| - | | |
| (78,332 | ) | |
| (78,332 | ) |
Balance as of December 31, 2022 | |
| 3,676 | | |
| 1,593,530 | | |
| (793,768 | ) | |
| 803,438 | |
Weighted average remaining amortization period as of December 31, 2022 | |
| - | | |
| 11.25 | | |
| | | |
| | |
Amortization
of intangible assets consists of the following:
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSES
| |
Patents and Trademarks | | |
Licenses | | |
Accumulated Amortization | |
Balance as of January 1, 2021 | |
$ | 3,676 | | |
$ | 637,232 | | |
$ | 640,908 | |
Amortization expense | |
| - | | |
| 74,528 | | |
| 74,528 | |
Balance as of December 31, 2021 | |
| 3,676 | | |
| 711,760 | | |
| 715,436 | |
Amortization expense | |
| - | | |
| 78,332 | | |
| 78,332 | |
Balance as of December 31, 2022 | |
$ | 3,676 | | |
$ | 790,092 | | |
$ | 793,768 | |
Amortization
expense for the next five years is as follows:
SCHEDULE
OF FINITE LIVED INTANGIBLE ASSETS FUTURE AMORTIZATION EXPENSES
| |
| | |
2023 | |
| 89,131 | |
2024 | |
| 89,131 | |
2025 | |
| 89,131 | |
2026 | |
| 89,131 | |
2027 | |
| 89,131 | |
NOTE
5 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consist of:
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| |
December 31, 2022 | | |
December 31, 2021 | |
Accrued payroll | |
$ | 26,250 | | |
$ | 28,370 | |
Accrued research and development expenses | |
| - | | |
| 29,672 | |
Accrued general and administrative expenses | |
| 103,822 | | |
| 76,928 | |
Total accrued expenses | |
$ | 130,072 | | |
$ | 134,970 | |
Note
6 - NOTES PAYABLE
A
summary of the notes payable activity during the year ended December 31, 2022 is presented below:
SCHEDULE OF NOTES PAYABLE ACTIVITY
Outstanding, January 1, 2022 | |
$ | 250,000 | |
Issuances | |
| - | |
Forgiveness | |
| (250,000 | ) |
Outstanding, December 31, 2022 | |
| - | |
Note
7 - STOCKHOLDERS’ EQUITY (DEFICIT)
Series
A Preferred Stock
On
November 8, 2021, in connection with the Company’s public offering, the Company’s Board of Directors adopted a resolution
allowing for the designation and issuance of 1,543,158 shares of the Company’s Preferred Stock, $.01 par value per share, designated
as Series A Preferred Stock (“Series A”). The Series A had a liquidation preference of $0.001 per share. On September 8,
2022, the Company issued 1,543,158 shares of Series B Preferred Stock (“Series B”) to Auctus Fund, LLC (“Auctus”)
in exchange for an equal number of shares of the Company’s outstanding Series A. Simultaneously, the stock certificate representing
the Series A shares was being returned to the Company for cancellation. On such date and upon such exchange, the Company’s Board
of Directors cancelled the Series A.
Series
B Preferred Stock
Effective
September 8, 2022, the Company issued 1,543,158 shares of Series B to Auctus in exchange for an equal number of shares of the Company’s
outstanding Series A. The terms of the Series B are substantially identical to those of the Series A, except that, among other things,
the limitation on beneficial ownership of common stock of the Company upon a conversion of the Series B into Common Stock, and the limitation
on the number of votes attributable to the Series B, is 9.99% of the then outstanding Common Stock of the Company instead of 4.99% as
provided for the Series A. The Company shall, at all times, reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon the full conversion of the Series B. The Series B is not subject to redemption
by the Company or any Series B holder. The exchange of Series A for Series B had no impact on the Company’s financial statements
as of December 31, 2022.
Dividends
Series
B holders shall be entitled to receive, when and as declared by the Board of Directors, dividends on a pari passu basis with the holders
of the shares of Common Stock based upon the number of shares of Common Stock into which the Series B is then convertible.
Voting
Rights
Series
B holders shall be entitled to vote on all matters presented to the stockholders of the Company for a vote at a meeting of stockholders
of the Company or a written consent in lieu of a meeting of stockholders of the Company, and shall be entitled to such number of votes
for each share of Series B entitled to vote at such meetings or pursuant to such consent, voting together with the holders of shares
of Common Stock and other shares of preferred stock who are entitled to vote, and not as a separate class, except as required by law.
The number of votes to which the Series B holders shall be entitled to vote for each share of Series B shall equal the number of shares
of Common Stock into which such Series B is then convertible; provided, however, that in no event shall a Series B holder be entitled
to vote more than 9.99% of the then outstanding shares of Common Stock.
Conversion
Optional
Conversion - Each share of Series B shall be convertible, at any time and from time to time, at the option of the Series B holder, into
one share of Common Stock; provided, however, that in no event shall a Series B holder be entitled to convert any shares of Series B
to the extent that such conversion would result in beneficial ownership by such Series B holder of more than 9.99% of the outstanding
shares of common stock.
Automatic
Conversion – From time to time, in the event of that an event occurs, including adjustment due to merger, consolidation, etc.,
subdivision or combination of Common Stock, adjustment due to distribution, purchase rights, and notice of adjustments, which has the
effect of reducing a Series B holder’s beneficial ownership of shares of common stock to less than 9.5% of the then publicly disclosed
outstanding shares of Common Stock, then, within five (5) business days, the Series B holder shall provide notice to the Company to such
effect, which notice shall state the number of shares of Common Stock beneficially owned by the Series B holder and shall provide reasonable
detail with regard thereto, including the number of derivative securities compromising a portion of such beneficial share amount. Such
notice shall have the effect of a notice of conversion with respect to the conversion of such number of shares of Series B as would increase
the Series B holder’s beneficial ownership of Common Stock to 9.99% of the then publicly disclosed outstanding shares of Common
Stock.
On
October 25, 2022, Auctus converted 25,000 shares of Series B into 25,000 shares of Common Stock. The number of shares of Series B remaining
outstanding after this conversion is .
2021
Stock Incentive Plan
On
March 18, 2021, the Company’s Board of Directors adopted the BioRestorative Therapies, Inc. 2021 Stock Incentive Plan (the “2021
Plan”). Pursuant to the 2021 Plan, a total of 1,175,000 shares of common stock were initially authorized to be issued pursuant
to the grant of stock options, restricted stock units, restricted stock, stock appreciation rights and other incentive awards.
Amendments
to 2021 Stock Incentive Plan
On
December 10, 2021, subject to stockholder approval, the Company’s Board of Directors approved amendments to the 2021 Plan to increase
the number of shares of Common Stock authorized to be issued from 1,175,000 to 2,500,000 and to clarify certain provisions of the 2021
Plan as to the authority of the Board of Directors and the Compensation Committee to make adjustments to, among other things, the exercise
price of granted options. Concurrently, subject to stockholder approval of the amendments to the 2021 Plan, the Company’s Compensation
Committee reduced the exercise price of the outstanding options under the 2021 Plan for the purchase of an aggregate of 838,549 shares
of the Company’s common stock from $13.50 per share to $5.08 per share (the closing price of the Company’s common stock on
the day immediately preceding the Compensation Committee determination), including the options held by the Company’s officers and
directors as follows: (i) Lance Alstodt, the Company’s President, Chief Executive Officer and Chairman of the Board: 335,538 shares,
(ii) Francisco Silva, the Company’s Vice President of Research and Development and a director: 335,538 shares; (iii) Robert Kristal,
the Company’s Chief Financial Officer: 10,490 shares; (iv) Robert Paccasassi, the Company’s Vice President of Quality Assurance
and Regulatory Compliance: 8,277 shares; (v) Nickolay Kukekov, one of the Company’s directors: 25,236 shares; (vi) Patrick F. Williams,
one of the Company’s directors: 10,490 shares; and (vii) David Rosa, one of the Company’s directors: 10,490 shares. On November
3, 2022, the Company’s stockholders approved the amendments to the 2021 Plan.
The
impact resulting from the amendments was immaterial to the Company’s financial statements.
Compensatory
Common Stock Issuance
During
the year ended December 31, 2022, the Company issued 15,898 shares of immediately vested common stock with an aggregate value of $135,888
to third parties for services rendered. During the year ended December 31, 2021, the Company issued 5,000 shares of immediately vested
common stock with a value of $25,476 to a consultant for services rendered.
Warrant
and Option Valuation
The
Company has computed the fair value of warrants and options granted using the Black-Scholes option pricing model. The expected term used
for warrants and options issued to non-employees is the contractual life and the expected term used for options issued to employees and
directors is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified”
method to develop an estimate of the expected term of “plain vanilla” employee option grants. The Company is utilizing an
expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of
the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined
from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument
being valued.
Warrant
Activity Summary
On
October 21, 2021, the Company issued 22,917 shares of common stock to a warrant holder, as a result of the cashless exercise of 25,000
warrants.
During
the year ended December 31, 2021, the Company issued an aggregate of 147,832, shares of the Company’s common stock, as a result
of the cashless exercise of 170,473 warrants by Auctus.
During
the year ended December 31, 2022, the Company issued 51,370 warrants to the SCTC as part of consideration transferred in exchange for
exclusivity under a license agreement.
A
summary of the warrant activity during the years ended December 31, 2022 and 2021 is presented below:
SCHEDULE OF WARRANT ACTIVITY
| |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Life In Years | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2021 | |
| 3,750,598 | | |
$ | 4.40 | | |
| | | |
| - | |
Issued | |
| 4,862,710 | | |
| 9.91 | | |
| | | |
| - | |
Exercised | |
| (195,473 | ) | |
| 4.00 | | |
| | | |
| - | |
Exchanged or forfeited | |
| (3,677,964 | ) | |
| 3.39 | | |
| | | |
| - | |
Outstanding, December 31, 2021 | |
| 4,739,871 | | |
$ | 11.78 | | |
| 4.9 | | |
| - | |
Granted | |
| 51,370 | | |
| 2.92 | | |
| | | |
| - | |
Exercised | |
| - | | |
| - | | |
| | | |
| - | |
Expired | |
| (159 | ) | |
| 16,083 | | |
| | | |
| - | |
Outstanding, December 31, 2022 | |
| 4,791,082 | | |
| 10.71 | | |
| 3.9 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, December 31, 2022 | |
| 4,791,082 | | |
$ | 10.71 | | |
| 3.9 | | |
| - | |
In
applying the Black-Scholes option pricing model to warrants granted during 2022 and 2021, the Company used the following assumptions:
SCHEDULE OF WARRANTS GRANTED ASSUMPTIONS
| |
2022 | | |
2021 | |
Risk free interest rate | |
| 4.40 | % | |
| 0.98 | % |
Expected term (years) | |
| 5.00 | | |
| 4.10 - 5.00 | |
Expected volatility | |
| 313.55 | % | |
| 314.00 | % |
Expected dividends | |
| 0.00 | % | |
| 0.00 | % |
The
weighted average estimated fair value of the warrants granted during the years ended December 31, 2022 and 2021 was $2.28 and $11.77
per warrant, respectively. The Company did not issue any shares during the years ended December 31, 2022.
The
following table presents information related to stock warrants at December 31, 2022:
SCHEDULE
OF STOCK WARRANTS
Exercise Price | | |
Outstanding Number of Warrants | | |
Weighted Average Remaining Life In Years | | |
Exercisable Number of Warrants | |
$ | 2.92 | | |
| 51,370 | | |
| 4.9 | | |
| 51,370 | |
$ | 10.00 | | |
| 4,501,937 | | |
| 3.9 | | |
| 4,501,937 | |
$ | 12.00 | | |
| 235,970 | | |
| 3.9 | | |
| 235,970 | |
$ | 60.00 | | |
| 250 | | |
| 2.0 | | |
| 250 | |
$ | 800.00 | | |
| 869 | | |
| 1.8 | | |
| 869 | |
$ | 2,240.00 | | |
| 50 | | |
| 1.1 | | |
| 50 | |
$ | 2,800.00 | | |
| 264 | | |
| 1.2 | | |
| 264 | |
$ | 3,400.00 | | |
| 264 | | |
| 1.2 | | |
| 264 | |
$ | 4,000.00 | | |
| 55 | | |
| 1.1 | | |
| 55 | |
$ | 8,000.00 | | |
| 19 | | |
| 0.8 | | |
| 19 | |
$ | 14,000.00 | | |
| 18 | | |
| 0.5 | | |
| 18 | |
$ | 16,000.00 | | |
| 16 | | |
| 0.3 | | |
| 16 | |
| | | |
| 4,791,082 | | |
| | | |
| 4,791,082 | |
Stock
Options
On
March 18, 2021, the Company, pursuant to two employment agreements, granted to its Chief Executive Officer, President and Chairman of
the Board and its Vice President, Research and Development options to purchase an aggregate of 586,959 shares of the Company’s
common stock. The options initially vested to the extent of 50% on the date of grant, 25% on the one-year anniversary of the grant date
and 25% on the two-year anniversary of the grant date.
On
November 4, 2021, the Company granted options to purchase an aggregate of 140,824 shares of its common stock (including options to purchase
10,490 shares each granted to Robert Kristal, its Chief Financial Officer, Patrick Williams, a director of the Company, and David Rosa,
a director of the Company) to its officers and directors. Also included within the 140,824 share option grants were grants to each of
Mr. Alstodt and Mr. Silva for the purchase of 42,059 shares of common stock and to Dr. Nickolay Kukekov, a director of the Company, for
the purchase of 25,236 shares of common stock. Such options are exercisable to the extent of 50% on the date of grant and 50% quarterly
over a period of two years commencing one year from the date of grant.
On
November 4, 2021, the Company granted options to purchase an aggregate of 110,767 shares of the Company’s common stock to members
of its Scientific Advisory Board and various employees and consultants.
On
December 10, 2021, the Company reduced the exercise price of all options from $13.50 per share to $5.08 per share, subject to stockholder
approval. On November 3, 2022, stockholder approval was obtained. Per ASC 718 - Compensation - Stock Compensation, the Company
accounted for these changes as a modification and the net effect was immaterial to the financial statements as a whole.
The
Company granted an option for the purchase of 25,000 shares of common stock during the year ended December 31, 2022.
A
summary of the option activity during the years ended December 31, 2022 and 2021 is presented below:
SCHEDULE
OF STOCK OPTION ACTIVITY
| |
Number of Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Life in Years | | |
Aggregate Intrinsic Value | |
Outstanding, January 1, 2021 | |
| 1,215 | | |
| 5.08 | | |
| | | |
| | |
Granted | |
| 838,550 | | |
| 5.08 | | |
| | | |
| | |
Expired | |
| (126 | ) | |
| 5.08 | | |
| | | |
| | |
Outstanding, January 1, 2022 | |
| 839,639 | | |
| 5.08 | | |
| | | |
| | |
Granted | |
| 25,000 | | |
| 4.92 | | |
| | | |
| | |
Forfeited | |
| - | | |
| - | | |
| | | |
| | |
Expired | |
| - | | |
| - | | |
| | | |
| | |
Outstanding, December 31, 2022 | |
| 864,639 | | |
| 5.08 | | |
| 7.8 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, December 31, 2022 | |
| 578,628 | | |
| 5.08 | | |
| 7.8 | | |
| | |
The
weighted average grant date fair value of the stock options granted during the years ended December 31, 2022 and 2021, was approximately
$4.88 and $5.05, respectively.
In
applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:
SCHEDULE
OF STOCK OPTION GRANTED ASSUMPTIONS
| |
2022 | |
Risk free interest rate | |
| 2.42 | % |
Expected term (years) | |
| 3.50 | |
Expected volatility | |
| 285.91 | % |
Expected dividends | |
| 0.00 | % |
Restricted
Stock Units
Pursuant
to the 2021 Plan, the Company may grant restricted stock units (“RSUs”) to employees, consultants or non-employee directors
(“Eligible Individuals”). The number, terms and conditions of the RSUs that are granted to Eligible Individuals are determined
on an individual basis by the 2021 Plan administrator. On the distribution date, the Company shall issue to the Eligible Individual one
unrestricted, fully transferable share of the Company’s common stock (or the fair market value of one such share in cash) for each
vested and nonforfeitable RSU.
On
March 18, 2021, the Company, pursuant to two employment agreements, granted an aggregate of 293,479 RSUs to its Chief Executive Officer,
President, and Chairman of the Board and its Vice President, Research and Development with a fair value of $47.60 per share. The RSUs
vest to the extent of one-third on the one-year anniversary of the grant date, one-third on the two-year anniversary of the grant date,
and one-third on the three-year anniversary of the grant date. The RSUs had a grant date fair value of $13,969,624.
On
March 18, 2022, the Company granted an aggregate of 24,876 RSUs to its Chief Executive Officer, President and Chairman of the Board and
its Vice President, Research and Development with a fair value of $4.21 per share. The RSUs vest in twelve equal monthly installments.
A
summary of the unvested RSUs as of December 31, 2022 is as follows:
SCHEDULE
OF UNVESTED RESTRICTED STOCK UNITS
| |
Number of Shares | |
Outstanding, January 1, 2022 | |
| 293,480 | |
Granted | |
| 24,876 | |
Forfeited | |
| - | |
Vested | |
| (116,486 | ) |
Outstanding, December 31, 2022 | |
| 201,870 | |
The
following table presents information related to stock compensation expense:
SCHEDULE OF STOCK OPTION EXPENSE
| |
For the Years Ended December 31, | | |
Unrecognized at December 31, | | |
Weighted Average Remaining Amortization Period | |
| |
2022 | | |
2021 | | |
2022 | | |
(Years) | |
Research and development | |
| - | | |
| 81,479 | | |
| 803,257 | | |
| | |
General and administrative | |
| 12,612,862 | | |
| 23,027,476 | | |
| 1,294,684 | | |
| 0.73 | |
| |
| 12,612,862 | | |
| 23,108,955 | | |
| 2,097,941 | | |
| | |
The
following table presents stock compensation by award type:
SCHEDULE
OF STOCK COMPENSATION BY AWARD TYPE
| |
For the Years Ended December 31, | |
| |
2022 | | |
2021 | |
Options | |
| 7,741,864 | | |
| 19411976 | |
RSUs | |
| 4,735,108 | | |
| 3,671,503 | |
Shares issued for services | |
| 135,890 | | |
| 25,476 | |
| |
| 12,612,862 | | |
| 23,108,955 | |
NOTE
8 - INCOME TAXES
The
Company identified its federal and New York tax returns as its “major” tax jurisdictions. The period its income tax returns
are subject to examination for these jurisdictions is 2018 through 2022. The Company believes its income tax filing positions and deductions
will be sustained on audit, and it does not anticipate any adjustments that would result in a material change to its financial position.
Therefore, no liabilities for uncertain tax positions have been recorded.
At
December 31, 2022, the Company had approximately $59,900,000 and $10,300,000, respectively, of federal and state net operating losses
that may be available to offset future taxable income. As a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”),
certain future carryforwards do not expire. At December 31, 2022, approximately $8,000,000 of federal net operating losses will expire
from 2030 to 2038 and approximately $51,900,000 have no expiration. In accordance with Section 382 of the Internal Revenue Code, the
usage of the Company’s net operating loss carryforwards are subject to annual limitations due to several greater than 50% ownership
changes. The Section 382 limitations resulted in approximately $28,200,000 of federal NOLs not being realizable
as of December 31, 2022 and 2021 and the cumulative reversal of approximately $9,600,000 of net operating loss deferred tax assets.
The
Company has not performed a formal analysis for the year ended December 31, 2022, but it believes its ability to use such net operating
losses and tax credit carryforwards in the future is subject to annual limitations due to change of control provisions under Sections
382 and 383 of the Internal Revenue Code, which will significantly impact its ability to realize these deferred tax assets.
The
Company’s net deferred tax assets, liabilities and valuation allowance as of December 31, 2022 and 2021 are summarized as follows:
SCHEDULE
OF NET DEFERRED TAX ASSETS AND LIABILITIES
| |
2022 | | |
2021 | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Deferred tax assets: | |
| | | |
| | |
Net operating loss carryforwards | |
$ | 13,200,000 | | |
$ | 11,100,000 | |
Stock-based compensation | |
| 13,810,000 | | |
| 10,500,000 | |
Research and development costs | |
| 655,000 | | |
| - | |
Research & development tax credits | |
| 330,000 | | |
| 358,000 | |
Total deferred tax assets | |
| 27,995,000 | | |
| 21,958,000 | |
| |
| | | |
| | |
Deferred tax liabilities: | |
| | | |
| | |
Depreciation | |
| (106,000 | ) | |
| - | |
Intangible assets | |
| (113,000 | ) | |
| (4,000 | ) |
Total deferred tax liabilities | |
| (219,000 | ) | |
| (4,000 | ) |
| |
| | | |
| | |
Net deferred tax assets | |
| 27,776,000 | | |
| 21,954,000 | |
| |
| | | |
| | |
Valuation allowance | |
$ | (27,776,000 | ) | |
$ | (21,954,000 | ) |
| |
| | | |
| | |
Deferred tax asset, net of valuation allowance | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Change in valuation allowance | |
$ | (5,822,000 | ) | |
$ | (7,856,000 | ) |
The
income tax provision (benefit) as of December 31, 2022 and 2021 consists of the following:
SCHEDULE
OF INCOME TAX PROVISION (BENEFIT)
| |
2022 | | |
2021 | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Federal: | |
| | | |
| | |
Current | |
$ | - | | |
$ | - | |
Deferred | |
| - | | |
| - | |
| |
| | | |
| | |
State and local: | |
| | | |
| | |
Current | |
| - | | |
| - | |
Deferred | |
| - | | |
| - | |
| |
| | | |
| | |
Total income tax provision (benefit) | |
$ | - | | |
$ | - | |
A
reconciliation of the statutory federal income tax benefit to actual tax benefit for the years ended December 31, 2022 and 2021 is as
follows:
SCHEDULE
OF STATUTORY FEDERAL INCOME TAX RATE
| |
2022 | | |
2021 | |
Federal statutory blended income tax rates | |
| 21.0 | % | |
| 21.0 | % |
State statutory income tax rate, net of federal benefit | |
| 5.6 | | |
| 5.6 | |
Permanent differences | |
| (1.8 | ) | |
| (8.9 | ) |
Tax return to provision adjustment | |
| 6.7 | | |
| - | |
Change in valuation allowance | |
| (31.5 | ) | |
| (17.7 | ) |
Effective tax rate | |
| - | % | |
| - | % |
As
of the date of this filing, the Company has not filed its 2022 federal and state corporate income tax returns. The Company expects to
file these documents as soon as practicable.
NOTE
9 - LEASES
The
Company is a party to a lease for 6,800 square feet of space located in Melville, New York (the “Melville Lease”) with respect
to its corporate and laboratory operations. The Melville Lease was scheduled to expire in March 2020 (subject to extension at the option
of the Company for a period of five years) and provided for an annual base rental during the initial term ranging between $132,600 and
$149,260. In June 2019, the Company exercised its option to extend the Melville Lease and entered into a lease amendment with the lessor
whereby the five-year extension term commenced on January 1, 2020 with annual base rent ranging between $153,748 and $173,060.
When
measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its estimated
incremental borrowing rate at August 1, 2019. The weighted average incremental borrowing rate applied was 12%.
The
following table presents net lease cost and other supplemental lease information:
SCHEDULE
OF NET LEASE COST AND OTHER SUPPLEMENTAL LEASE INFORMATION
| |
Year Ended December 31, 2022 | | |
Year Ended December 31, 2021 | |
Lease cost | |
| | | |
| | |
Operating lease cost (cost resulting from lease payments) | |
$ | 163,132 | | |
$ | 158,372 | |
Net lease cost | |
$ | 163,132 | | |
$ | 158,372 | |
| |
| | | |
| | |
Operating lease - operating cash flows (fixed payments) | |
$ | 163,132 | | |
$ | 158,372 | |
Operating lease - operating cash flows (liability reduction) | |
$ | 119,055 | | |
$ | 101,190 | |
Non-current leases - right of use assets | |
$ | 241,760 | | |
$ | 357,805 | |
Current liabilities - operating lease liabilities | |
$ | 139,328 | | |
$ | 119,055 | |
Non-current liabilities - operating lease liabilities | |
$ | 162,317 | | |
$ | 301,645 | |
Future
minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the year ended December
31, 2022:
SCHEDULE
OF FUTURE MINIMUM PAYMENTS UNDER NON-CANCELABLE LEASES FOR OPERATING LEASES
Fiscal Year | |
Operating Leases | |
2023 | |
| 168,028 | |
2024 | |
| 173,060 | |
Total future minimum lease payments | |
| 341,088 | |
Amount representing interest | |
| (39,443 | ) |
Present value of net future minimum lease payments | |
$ | 301,645 | |
NOTE
10 - SUBSEQUENT EVENTS
On
February 17, 2023, the Company granted 400,357
stock options to its officers and a certain employee, of which 50%
were vested and exercisable upon grant. The remaining 50%
of the options issued to the Company’s officers and employee will vest quarterly in eight nearly equal installments
commencing one year from the date of grant. The Company issued an additional 228,660
stock options to its board members and scientific advisory board members, which will vest monthly over one year. The granted stock
options had an estimated fair value of approximately $1,745,000
as of the grant date, of which approximately $562,500
was immediately recognized as stock-based compensation expense, which will be reflected in the Company’s consolidated results
of operations for the first quarter of 2023.