Item 1. Business.
Overview
We are a biotech innovation
company with a mission of prolonging life and enhancing its quality by improving the health of the immune system.
We are developing biotechnologies
specifically focused on improving the health of the immune system through immune mapping and reprogramming. Our immune mapping technologies
are designed to provide a personalized comprehensive profile of the immune system and we plan to utilize them in our upcoming reprogramming
clinical trials to monitor subjects’ immune response before, during and after drug administration. Our immune reprogramming technologies
are designed to retrain the immune system to induce tolerance with the objectives of addressing rejection of transplanted organs as well
as ameliorate autoimmune diseases and allergies. These programs are currently in the pre-clinical stage with one product candidate slated
for GMP manufacturing (clinical grade material) and toxicology studies in preparation for clinical trials.
Immune Reprogramming – Immune Modulation
The discovery of immunosuppressive
(anti-rejection and monoclonal) drugs over 40 years ago has made possible life-saving organ transplantation procedures and blocking of
unwanted immune responses in autoimmune diseases. However, immune suppression leads to significant undesirable side effects, such as increased
susceptibility to life-threatening infections and cancers, because it indiscriminately and broadly suppresses immune function throughout
the body. While the use of these drugs has been justifiable because they prevent or delay organ rejection, their use for treatment of
autoimmune diseases and allergies may not be acceptable because of the above-mentioned side effects. Furthermore, transplanted organs
often ultimately fail despite the use of immune suppression, and about 40% of transplanted organs survive no more than 5 years.
New, focused therapeutic approaches
are needed that modulate only the small portion of immune cells that are involved in rejection of the transplanted organ, as this approach
can be safer for patients than indiscriminate immune suppression. Such approaches are referred to as immune tolerance, and when therapeutically
induced, may be safer for patients and also potentially allow long-term survival of transplanted tissues and organs.
In the late 1990s, academic
research on these approaches was conducted at the Transplant Center at Loma Linda University in connection with a project that secured
initial grant funding from the U.S. Department of Defense. The focus of that project was for skin grafting for burn victims. Twenty
years of research at LLU and an affiliated incubator led to a series of discoveries that have been translated into a large patent portfolio
of therapeutic approaches that may be applied to the modulation of the immune system in order to induce tolerance to self and transplanted
organs.
We have an exclusive worldwide
license from LLU for commercializing this nucleic acid-based technology (which is currently at the pre-clinical stage), called Apoptotic
DNA Immunotherapy™ (ADI™), which utilizes a novel approach that mimics the way our bodies naturally induce tolerance to our
own tissues (“therapeutically induced immune tolerance”). While immune suppression requires continuous administration to prevent
rejection of a transplanted organ, induction of tolerance has the potential to retrain the immune system to accept the organ for longer
periods of time. Thus, ADI™ may allow patients to live with transplanted organs with significantly reduced immune suppression. ADI™
is a technology platform, which we believe can be engineered to address a wide variety of indications.
We are developing ADI™
product candidates for organ transplantation including skin grafting, autoimmune diseases including psoriasis and type 1 diabetes (T1D),
and allergies, with an initial focus on psoriasis, T1D, and skin allografting., To submit a Biologics License Application (“BLA”)
for a biopharmaceutical product, clinical safety and efficacy must be demonstrated in a series of clinical studies conducted with human
subjects. For products in our class of drugs, the first-in-human trials will be a combination of Phase I (safety/tolerability) and Phase
II (efficacy) in affected subjects. To obtain approval to initiate the Phase I/II studies, an Investigational New Drug (IND) Application
will be submitted compiling non-clinical efficacy data as well as manufacturing and pre-clinical or clinical toxicology data. To date,
we have conducted non-clinical studies in a stringent model of skin transplantation using genetically mismatched donor and recipient animals
demonstrating a 3-fold increase in the survival of the skin graft in animals that were tolerized with ADI™ compared to animals that
receive immune suppression alone. Prolongation of graft life was observed despite discontinuation of immune suppression after the first
5 weeks. Additionally, in an induced non-clinical model for psoriasis, ADI™ treatment resulted in a 69% reduction in skin thickness
and a 38% decrease in skin flaking (two clinical parameters for assessment of psoriasis skin lesions). The Phase I/II studies in psoriasis
will evaluate the safety/tolerability of ADI™ in patients diagnosed with psoriasis. Since the drug will be administered in subjects
diagnosed with psoriasis, effectiveness of the drug to improve psoriatic lesions will also be evaluated. In another Phase I/II study,
patients requiring skin allografts will receive weekly intra-dermal injections of ADI™ in combination with standard immune suppression
to assess safety/tolerability and possibility of reducing levels of immunosuppressive drugs as well as prolongation of graft life.
ADI™ Advantages
ADI™ is a nucleic acid-based
technology (e.g., DNA-based) which we believe selectively suppresses only those immune cells involved in the rejection of tissues
and transplanted organs. It does so by tapping into the body’s natural process of cell death (apoptosis) to reprogram the immune
system to stop unwanted attacks on self or transplanted tissues. Apoptosis is a natural process used by the body to clear dying cells
and to allow recognition and tolerance to self-tissues. ADI™ triggers this process enabling the cells of the immune system to recognize
the targeted tissues as “self”. Conceptually, it is designed to retrain the immune system to become accepting of the organ
similar to how natural apoptosis reminds our immune system to be tolerant to our own “self” tissues.
While efforts have been made
by various groups to promote tolerance through cell therapies and ex vivo manipulation of patient cells (takes place
outside the body typically requiring hospitalization), to our knowledge, we will be unique in our approach of using in-body induction
of apoptosis to promote tolerance to specific tissues. In addition, ADI™ treatment itself will not require additional hospitalization,
only an injection of minute amounts of the therapeutic drug into the skin.
Reduce Chronic Rejection
While immunosuppressants control
acute rejection during the early time-period after receiving an organ, chronic rejection of the organ that occurs one or more years after
the transplant procedure continues to pose a major challenge for organ recipients.
Chronic rejection has been
likened to autoimmunity (a misdirected immune response that occurs when the immune system goes awry), where specific tissues in the transplanted
organ are attacked by the immune system. In other words, chronic rejection may not be caused just by differences between the donor
and the recipient, but rather by an immune response by the recipient to specific tissues in the organ. Our pre-clinical studies suggest
that ADI™ has the ability to tolerize to specific tissues in a transplanted organ, and conceivably, reducing incidences of chronic
rejection.
Moreover, preclinical studies
have demonstrated that ADI™ treatment significantly and substantially prolongs graft survival, in addition to successfully “reversing”
other established immune-mediated inflammatory processes.
Reduce immune suppression
Studies in animal models have
shown that conditioning/desensitizing the animals to receive the transplant, prolongs the survival of the transplanted tissue or organ. These
studies have used repeated exposure to low doses of protein components in specific organs to reduce immunologic recognition and attack
on the transplanted organ.
Based on some of our data,
we believe that with ADI™ treatment, recipients can be conditioned/desensitized ahead of transplantation, thereby retraining the
immune system to more readily accept the organ and also reduce the levels of immunosuppressive drugs needed post-transplantation.
Preformed Antibodies
Studies have shown that presence
of preformed antibodies prior to transplantation procedures increases the rate of organ rejection. Preformed antibodies can develop in
previously transplanted patients, patients who have given birth, and patients who have previously received blood transfusions. With more
than 113,000 patients on transplant waiting lists in the U.S. alone, patients with pre-existing antibodies have much lower chances at
qualifying to receive organs due to their increased risk of rejection – even with immune suppression.
Sadly, transplanted patients
have a probability of needing re-transplantation at some point due to eventual chronic rejection of their transplanted organ, with the
possible exception of some newborn recipients. With increased incidence of preformed antibodies, these patients may never have the opportunity
to receive another organ. Based on experimental data, we believe that ADI™ may have the potential to address this issue providing
these individuals better opportunities at receiving an organ transplantation.
ADI™ Key Differentiators
Ease of Delivery
Therapeutic products are typically
administered systemically (i.e., by mouth in pill form or injected intramuscularly/intravenously). This requires repeated large doses
of the drug to allow sufficient concentrations to reach the affected sites. ADI™ is a DNA-based product that can be injected directly
into the skin where the target cells of the immune system reside, thereby significantly simplifying the delivery of the product and reducing
the amount of product needed.
Repeat Dosing
DNA-based products are less
likely to result in formation of neutralizing antibodies, which lend themselves to repeat dosing as may be required by ADI™ products.
Cost of Goods Advantage
ADI™ products are DNA-based
and cost-effective to manufacture. Furthermore, DNA-based products are very stable and do not require adherence to cold chain (temperature-controlled)
protocols for shipping. This also makes the product ideal for global distribution.
Simplified Therapy Delivery System
We believe that tolerance induction
using ADI™ may potentially obviate the need for hospitalization because it can simply be injected into the skin. This approach reduces
treatment costs and complexities in treatment delivery. The anticipated administration of ADI™ will include an initial priming
regimen that will require injections administered once a week for several weeks. Thereafter, booster or maintenance doses will be
provided on an individual basis as determined by immune and inflammation testing. ADI™ treatments will be significantly more
convenient and comfortable for patients because they do not require removal of patient cells for ex vivo manipulation.
ADI™ Technology Platform
ADI™ utilizes a novel
approach that mimics the way our bodies naturally induce tolerance to our own tissues. It is a technology platform which we believe
can be engineered to address a wide variety of indications. ADI™ includes two DNA molecules which are designed to deliver signals
to induce tolerance. The first DNA molecule encodes a pro-apoptotic protein, which induces ‘programmed’ cell death. This
is a core component of the technology because it is intended to greatly increase the recruitment of dendritic cells, which are implicated
in regulating the immune system. The second DNA molecule encodes the protein of interest (guiding antigen), which is modified to
promote a path of tolerance. The guiding antigen is intended to result in tolerance induction specific to the tissue where the protein
is found.
ADI™ has shown efficacy
in several preclinical models (skin grafting, psoriasis, type 1 diabetes, alopecia areata and multiple sclerosis) and its efficacy can
be attributed to multiple factors:
| 1. | ADI™
does not rely on a single mechanistic approach. It has multiple components (interchangeable target antigen, apoptosis, methylated
plasmid DNA) that affect different arms of the immune system, which can be manipulated. |
| 2. | ADI™
activates key immune cells known to maintain tolerance in test animals and humans. |
| 3. | ADI™
has been successfully applied to a stringent transplantation model. |
| 4. | ADI™
lends itself to repeat dosing, which may be required to achieve its full potential therapeutic effect. |
Proof of Concept: Skin Grafting
Results shown are 5 weeks
post-transplantation
The proof-of-concept experiment
performed in transplantation was a skin allograft transplantation procedure in which the donor skin was obtained from white BALB/c mice
and transplanted to black C57BL/6 mice. The experiment was designed to address a more challenging scenario where the donor tissue was
obtained from a donor which is genetically mismatched with the recipient. This is unlike clinical scenarios where the donor and recipient
are genetically matched as much as possible. While these experiments were repeated in several separate experiments, the results shown
here were obtained from a study conducted with 14 mice in the ADI™ treatment group and 7 mice in the control group. Prior to submission
of an Investigational New Drug Application, additional non-clinical studies will be conducted in a pig model to establish the precise
protocol (e.g. timing of vaccine administration, dosing, and appropriate immunosuppressive agents that will be used in combination with
ADI™) that will be used in the clinical trials. In addition, IND-enabling safety/toxicology studies will be conducted by a GLP lab
to ensure product safety for clinical testing.
Proof of Concept: Psoriasis
| ● | Psoriasis
causes increased skin thickness and scaling in an established 10-day psoriasis model |
| ● | ADI™
treatment resulted in a 69% reduction in skin thickening and 38% reduction in scaling over the 10-day study period |
Proof of Concept: Type 1 Diabetes
90% of female NOD mice developed
spontaneous autoimmune diabetes. Disease progression may be different for individual animals.
ADI™ was administered
once a week for 8 weeks after each animal developed hyperglycemia. All animals responded with 80% showing durable response for the entire
40-week study period.
| ● | Type
1 or autoimmune diabetes is a condition where the body’s immune system mistakenly attacks cells in the pancreas resulting in diminished
production of insulin |
| ● | ADI™
incorporates an antigen (GAD) expressed in the pancreas |
| ● | Administration
of ADI™ using GAD as the antigen over an 8-week period in animals with T1D restores insulin production and reverses hyperglycemia |
License
Agreement with Loma Linda University –
On March 8, 2018, we entered
into an Assignment Agreement (the “Assignment Agreement”) with Sekris Biomedical, Inc. (“Sekris”). Sekris was
a party to a License Agreement with Loma Linda University (“LLU”), entered into and made effective on May 25, 2011, and amended
on June 24, 2011, July 16, 2012 and December 27, 2012 (the “Original Agreement,” and together with the Assignment Agreement,
the “Sekris Agreements”). Pursuant to the Assignment Agreement, Sekris transferred and assigned all of its rights and obligations
in and to liabilities under the Original Agreement, of whatever kind or nature, to us. In exchange, on March 8, 2018, we issued a warrant
to Sekris to purchase up to 500,000 shares of our common stock (the “Sekris Warrant”). The warrant was immediately exercisable
and has an exercise price of $4.00 per share. The expiration date of the warrant is March 8, 2023. On March 15, 2018, as amended on July
1, 2020, we entered into a LLU License Agreement directly with Loma Linda University, which amends and restates the Sekris Agreements.
Pursuant to the LLU License
Agreement, we obtained the exclusive royalty-bearing worldwide license in and to all intellectual property, including patents, technical
information, trade secrets, proprietary rights, technology, know-how, data, formulas, drawings, and specifications, owned or controlled
by LLU and/or any of its affiliates (the “LLU Patent and Technology Rights”) and related to therapy for immune-mediated inflammatory
diseases (the ADI™ technology). In consideration for the LLU License Agreement, we issued 25,000 shares of common stock to LLU.
Pursuant to the LLU License
Agreement, we are required to pay an annual license fee to LLU. Also, we paid LLU $455,000 in July 2020 for outstanding milestone payments
and license fees. We are also required to pay to LLU milestone payments in connection with certain development milestones. Specifically,
we are required to make the following milestone payments: $175,000 on March 31, 2022; $100,000 on March 31, 2024; $500,000 on March 31,
2026; and $500,000 on March 31, 2027. Additionally, as consideration for prior expenses incurred by LLU to prosecute, maintain and defend
the LLU Patent and Technology Rights, we made the following payments to LLU: $70,000 due at the end of December 2018, and a final
payment of $60,000 due at the end of March 2019. We are required to defend the LLU Patent and Technology Rights during the term of the
LLU License Agreement. Additionally, we will owe royalty payments of (i) 1.5% of Net Product Sales and Net Service Sales on any Licensed
Products (defined as any finished pharmaceutical products which utilizes the LLU Patent and Technology Rights in its development, manufacture
or supply), and (ii) 0.75% of Net Product Sales and Net Service Sales for Licensed Products and Licensed Services not covered by a valid
patent claim for technology rights and know-how for a three (3) year period beyond the expiration of all valid patent claims. We also
are required to produce a written progress report to LLU, discussing our development and commercialization efforts, within 45 days following
the end of each year. All intellectual property rights in and to LLU Patent and Technology Rights shall remain with LLU (other than improvements
developed by or on our behalf).
The LLU License Agreement shall
terminate on the last day that a patent granted to us by LLU is valid and enforceable or the day that the last patent application licensed
to us is abandoned. The LLU License Agreement may be terminated by mutual agreement or by us upon 90 days written notice to LLU. LLU may
terminate the LLU License Agreement in the event of (i) non-payments or late payments of royalty, milestone and license maintenance fees
not cured within 90 days after delivery of written notice by LLU, (ii) a breach of any non-payment provision (including the provision
that requires us to meet certain deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after
delivery of written notice by LLU and (iii) LLU delivers notice to us of three or more actual breaches of the LLU License Agreement by
us in any 12-month period. Additional Milestone Deadlines include: (i) submission of an IND/clinical trial application to initiate first-in-human
clinical trials on or before March 31, 2022, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2024, (iii)
the completion of Phase III clinical trials by March 31, 2026 and (iv) biologic licensing approval by the FDA by March 31, 2027.
Pre-clinical and Clinical Plans
The resources and efforts used
for the IND-enabling work summarized below supports both the psoriasis and TID clinical programs
High-level objectives for psoriasis
clinical program:
| ● | Completion
of IND-enabling work. Aditxt has initiated GMP manufacturing of clinical grade material that will be used for the first-in-human studies
in subjects with psoriatic lesions. Included in the manufacturing program is stability studies; the regulatory agency requires
one month of stability data for the GMP material for submission of the clinical trial application (CTA). Stability data will
continue to be gathered while the clinical trials are ongoing and up to 24 months. Aditxt has also completed the in-life portion
of the toxicology studies. Safety data have been recorded and Aditxt is now awaiting immunotoxicology data, which are forthcoming. |
| | |
| ● | Upon completion of GMP manufacturing and toxicology studies, a CTA will be submitted in Q4 2022 to initiate the Phase I/II FIH clinical
trials. |
The FIH clinical studies will
combine Phase I (designed to test clinical safety) and Phase IIa (designed to obtain proof of effectiveness in human subjects), in subjects
with psoriatic skin lesions. We have selected this indication for several reasons, including:
|
1. |
Our existing preclinical data have shown promising results in reducing scaling and skin thickness in the mouse model; |
|
2. |
The relative ease of visualization of healing of psoriatic lesions; and |
|
3. |
The need for therapies that suitable and justifiable in individuals with mild to moderate psoriasis (current biologic therapies are primarily used in moderate to severe cases). |
We have identified a contract
research organization with capabilities to conduct a multi-center study and ability to recruit the needed number of subjects to complete
the clinical trials. Upon approval by the regulatory agency clinical trials will be initiated.
High-level objectives for type
1 diabetes (T1D) clinical program:
|
● |
Completion of IND-enabling work. Aditxt has initiated GMP manufacturing of clinical grade material that will be used for the first-in-human studies in subjects with psoriatic lesions. Included in the manufacturing program is stability studies; the regulatory agency requires one month of stability data for the GMP material for submission of the clinical trial application (CTA). Stability data will continue to be gathered while the clinical trials are ongoing and up to 24 months. Aditxt has also completed the in-life portion of the toxicology studies. Safety data have been recorded and Aditxt is now awaiting immunotoxicology data, which are forthcoming. |
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● |
Clinical Phase I/II Study to demonstrate safety and clinical proof-of-concept in T1D |
Our clinical studies will combine
Phase I (designed to test clinical safety) and Phase II (designed to obtain proof of effectiveness in human subjects), in T1D patients.
We have selected this indication for several reasons, including:
|
1. |
Our existing preclinical data have shown promising results using ADI™ to reverse hyperglycemia in the mouse model; and |
|
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|
2. |
There is currently no treatment for T1D and the only option for patients suffering from T1D is insulin replacement therapy. |
We will be identifying clinical
trial centers with adequate patients. Upon approval by the FDA and/or the applicable regulatory agency clinical trials will be initiated.
High-level objectives for skin
allograft clinical program:
|
● |
Completion of preclinical studies to identify
the appropriate protocol for dosing and combination of ADI™ with immune suppression protocols.
|
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● |
Completion
of IND-enabling work including GMP manufacturing and toxicology studies. |
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Clinical Phase I/II Study to demonstrate safety and clinical proof-of-concept in patients requiring skin allografts. |
Our clinical studies will combine
Phase I (designed to test clinical safety) and Phase II (designed to obtain proof of effectiveness in human subjects), in patients requiring
skin allografts. We have selected this indication for several reasons, including:
|
1. |
Our existing preclinical data have shown promising results using ADI™ to prolong skin allograft survival in mismatched mouse model; and |
|
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|
|
2. |
The relative ease of visualization of graft quality without the need for biopsies. |
We will be identifying clinical
trial centers with adequate patients. Upon approval by the FDA and/or the applicable regulatory agency clinical trials will be initiated.
We are developing our immune
monitoring platforms with the objective of utilizing them as clinical assays in pre-clinical and clinical studies. The multiplex technologies
could potentially allow evaluation of more analytes with less tissue samples.
Drug Approval Process
In the United States, FDA approval
is required before any new drugs can be introduced to the market. We currently have a product candidate for our first-in-human studies,
but as of the date of report, we have not submitted an application to the regulatory agencies for approval.
We are working with a contract
manufacturer who has the know-how, product ingredients including plasmid DNA molecules, and our patent-pending bacterial strain. Several
batch runs have been successfully completed to demonstrate our ability to produce the DNA plasmids in a GMP facility. Based on validation
studies, we are reasonably confident in our ability to produce clinical grade product candidates at larger scales. The contract manufacturer
has provided a proposal for manufacturing of our clinical grade material, which will be signed and accepted once we are ready to initiate
GMP manufacturing. We are not currently party to an agreement with this contract manufacturer.
The product candidate selected
for clinical trials must be subjected to pre-clinical safety/toxicology studies by an independent GLP (Good Laboratory Practice) laboratory
to demonstrate its suitability for clinical testing in human patients. Upon completion of manufacturing and safety/toxicology testing,
an Investigational New Drug (IND) application will be prepared for submission to the regulatory agencies.
Upon receipt of clearance to
initiate clinical testing, the ADI™ product can be tested in human patients. Our product will be tested in clinical trials,
one in patients with psoriasis and one in patients who require skin allografting. Therefore, our first-in-human studies will be combined
Phase I/Phase II studies in which safety and efficacy data will be obtained. We plan to start with in skin indications (psoriasis
and skin allografting) because we believe these indications will be most efficient in providing safety and efficacy data in clinical trials. In
parallel, we will continue to develop additional product formulations for other indications.
We are developing our immune
monitoring platforms with the objective of utilizing them as clinical assays in pre-clinical and clinical studies. The multiplex technologies
could potentially allow evaluation of more analytes with less tissue samples. In the U.S., FDA approval is required before any In
Vitro Diagnostic (“IVD”) device can be introduced to the market for clinical use (excluding research purposes). This
process does not require clinical trials, but it does require validation data demonstrating accuracy of the device.
Target Market
Psoriasis affects close to
100 million people worldwide and presents a large market estimated at over $20 billion annually. Treatments range include topical and
systemic therapeutics including vitamin D analogs, steroids, retinoids, immunosuppressants and biologics (i.e. monoclonal antibodies).
While in more recent years, several classes of biologics have entered the market, most are primarily used for patients suffering from
moderate to severe psoriasis because of their impairment of systemic immune responsiveness to infections and cancers. Aditxt believes
that products based on the ADI™ platform will not be associated with similar side effects and can be targeted for use in mild to
moderate cases.
T1D is one of the most common
chronic disorders in children and affects nearly 2 million Americans, and has an incidence and prevalence increasing at alarming rates
in industrialized countries. Current treatment consists of daily delivery of insulin as replacement therapy, but administration of the
hormone can induce life-threatening hypoglycemia and does not completely prevent morbidity and mortality associated with the disease.
Aditxt is leveraging the ADI™ technology to develop a new class of immunotherapy designed to arrest the autoimmune destruction of
the insulin producing beta cells of the pancreas. This will be the first therapy to accomplish that long sought after goal, thus increasing
life span and quality of life for up to 40,000 of US citizens and about 300,000 people around the world who develop T1D each year, with
a 3-5% increase in yearly incidence.
In the U.S. alone, there are
over 36,000 patients who receive organ transplantations each year, with more than 113,000 on transplant waiting lists.
The field of organ transplantation
has been made possible and continues to rely on broad-acting immunosuppressive drugs, high levels of which can result in a compromised
immune system that renders organ recipients susceptible to cancer and potentially life-threatening infections including re-activation
of latent viruses.
In addition, immunosuppressants
control acute rejection during the early time-period after receiving an organ but chronic rejection of the organ remains an unmet challenge
for surgeons and transplant recipients.
While efforts have been made
by various groups to promote tolerance through cell therapies and ex vivo manipulation of patient cells, these procedures
take place outside the body and typically require hospitalization.
Moreover, transplanted patients
will need re-transplantation at some point, with the possible exception of some newborn recipients. With increased incidence of preformed
antibodies, these patients may never have the opportunity to receive another organ. Preformed antibodies can develop in previously transplanted
patients, patients who have given birth, and patients who have previously received blood transfusions. These patients have much lower
chances at qualifying to receive organs due to their increased risk of rejection – even with immune suppression. The potential
to reduce formation of preformed antibodies in these patients will provide better opportunities for them to receive another transplanted
organ.
There are gaps between current
approaches and what the market needs. We believe that ADI™ addresses these gaps. ADI™ is easy to administer (does
not require ex-vivo treatment of patient cells), it does not appear to suppress the immune system, it may allow patients
to live with transplanted organs with significantly reduced immune suppression, it may provide for long-term survival of transplanted
tissues and organs, may be more effective because it does not rely on a single immune pathway/mechanism, and potentially provides patients
with pre-existing antibodies a chance to qualify to receive organs.
While these advantages present
opportunities for unmet medical needs in the field of organ transplantation, the industry in which we operate is highly competitive. A
small company such as us will meet significant challenges including regulatory requirements for approval of a new class of therapeutic
agents, challenges in large scale manufacturing and marketing, cost of developing a novel therapeutic agent, which may require co-development
partners who may or may not be willing to work with us, and the willingness of transplant surgeons to adopt our therapeutic vaccines in
their existing immune suppression protocols. These challenges pose risks that we may not be able to overcome.
Immune Mapping - Immune Monitoring
We believe that understanding
the dynamic status of an individual’s immune system is key to developing and administering precision immunotherapies such as ADI™.
We have secured an exclusive worldwide license for commercializing a technology platform which provides a personalized comprehensive profile
of the immune system. It is intended to be informative for individual immune responses to viruses, bacterial antigens, peptides, drugs,
bone marrow and solid organ transplants, and cancer. It has broad applicability to many other agents of clinical interest impacting the
immune system, including those not yet identified such as future infectious agents. We plan to brand this technology, and other future
licensed and/or in-house developed monitoring technologies collectively as AditxtScore™.
AditxtScore™ is being
designed to allow individuals to understand, manage and monitor their immune profiles in order to be informed about attacks on or by their
immune system. We believe AditxtScore™ can also assist the medical community in anticipating possible immune responses and reactions
to viruses, bacteria, allergens and transplanted organs. It can be useful in anticipating attacks on the body by having the ability to
determine its potential response and for developing a plan to deal with an undesirable reaction by the immune system. Its advantages include
the ability to provide a simple, rapid, accurate, high throughput, single platform assay that can be multiplexed to determine the immune
status with respect to several factors simultaneously, in 3-16 hours, as well as detect antigen and antibody in a single test (i.e. infectious,
recovered, immune). In addition, it can determine and differentiate between various types of cellular and humoral immune responses (T
and B cells). It also provides for simultaneous monitoring of cell activation and levels of cytokine release (i.e., cytokine storms).
We plan to utilize AditxtScore™
in our upcoming clinical trials to monitor subjects’ immune response before, during and after ADI™ drug administration. We
are working with regulatory consultants with the objective to obtain FDA approval for AditxtScore™ as a clinical assay. We are currently
securing marketing and distribution partnerships for application of AditxtScore™ in the infectious diseases market. To obtain FDA
approval to use AditxtScore™ as a clinical assay, we are performing validation studies to demonstrate AditxtScore™’s
utility to evaluate various components of the immune system reproducibly. We believe that these data will show AditxtScore™’s
ability to measure various components of the immune system (e.g. humoral and cell-mediated immune responses) to provide a broader view
of the immune system and its status in health and disease. Our plan is to submit a 510(K) application to the FDA after compilation of
these data. Beyond infectious diseases, we plan to develop AditxtScore™ for applications in additional markets such as organ rejection,
allergies, drug/vaccine response, and disease susceptibility. The following are further descriptions of the applications of AditxtScoreTM:
(1) Organ Rejection
Typically, by the time a transplanted
or a native organ shows signs of failure, the damage is already done, and reversal of the tissue injury becomes challenging. Access to
early warning signs of damage would be invaluable to reverse or even prevent the damage. There are currently no practical, efficient assays
available to measure cellular immune responses and available tools do not provide timely information for patients. AditxtScore™
can be used to provide a sensitive and rapid tool to determine T cell response and to differentiate between various types of cellular
immune responses. It can be multiplexed providing information about the number of cells responding as well as quantifying the amounts
of various cytokines released by the cells in a single assay. Determination of cellular response has valuable applications for prediction,
monitoring, early detection, and treatment of disease, including organ failure/rejection, as well as treatment efficacy. It can also reveal
dysfunction of the immune system potentially contributing to more severe disease.
(2) Allergies
Our immune system protects
us by acting as a barrier against foreign substances and by eliminating them when they penetrate our bodies. Once the initial exposure
has occurred, memory cells develop to prepare the body against a future exposure. This process is called immunity. In certain situations,
however, instead of immunity, the immune system develops memory cells that result in a more severe reaction during a future exposure to
the same substance. This type of response is called a hypersensitivity response, commonly known as an allergic response. AditxtScore™
can be used to develop multiplex assays each designed to test and monitor immune response to allergens. Based on the ability of this technology
to run multiple tests in a single assay, 100 or more substances can potentially be tested for simultaneously.
(3) Drug/Vaccine Response
There are currently no effective
assays to predict and easily assess responses to vaccination. To determine whether an individual has responded to a particular vaccine,
antibody titers are measured. This process may take several days. Furthermore, for vaccines that require a series of injections, titers
are not measured between injections and may not be known for months. AditxtScore™ can be used to determine whether a patient is
a responder or non-responder. It can provide an effective and rapid tool for potentially determining beneficial responses to a vaccine
and can be used to monitor titer development post vaccination. It can allow evaluation of multiple vaccines in a single test (for memory
B cell detection). This application can be useful for vaccines, cancer therapeutics anti-rejection drugs, anti-viral drugs, among others.
(4) Disease Susceptibility
Disease susceptibility can
vary from one individual to another, and it can be a function of various factors, including genetic variability and differences in human
leukocyte antigens (HLA) encoded by major histocompatibility complex (MHC) and responsible for regulation of the immune system in humans.
People with certain HLA types may have higher or lower susceptibility to diseases. AditxtScore™ can be used to develop assays to
evaluate differences in HLA types in individuals to help elucidate the relationship between certain HLA types and susceptibility to various
diseases.
(5) Infectious Diseases
Infectious diseases can cause
a major predicament for scientific and medical professionals, epidemiologists, and infectious disease specialists, among others, who need
to determine how to treat patients in real time while efficacious therapies are still being developed. Proper decision making requires
understanding why some affected individuals show minor or no symptoms, some recover, and others die. This is fundamental to creating effective
targeted therapeutics which may differ depending on the underlying profile of the individual at risk for, or with, disease. The immune
system plays a major role in how any given individual responds to the infectious agent. This response can be inadequate or too robust
or appropriately effective. Regardless, the kinetics of the response by the cellular and humoral (antibody) immune systems to the infectious
agent are often unknown. A basic critical question, then, is what do the dynamics of the immune response look like from exposure to and
through the disease period and during convalescence for those who survive and those who don’t; and how might vaccines and therapies
alter these profiles such that predictions of vaccine/drug efficacy could be inferred prior to vaccination/treatment and/or disease severity
or progression be prognosticated. AditxtScore™ can be used to help address these questions with multiplex assays each designed to
test and monitor the immune response to infectious agents. Based on the ability to run multiple tests in a single assay, 100 or more agents
can potentially be tested for simultaneously.
License Agreement with Leland Stanford Junior
University (“Stanford”)
On February 3, 2020, we entered
into an exclusive license agreement (the “February 2020 License Agreement”) with Stanford with regard to a patent concerning
a method for detection and measurement of specific cellular responses. Pursuant to the February 2020 License Agreement, other than as
described below, we received an exclusive worldwide license to Stanford’s patent with regard to use, import, offer, and sale of
Licensed Products (as defined in the agreement). The license to the patented technology is exclusive, including the right to sublicense,
beginning on the effective date of the agreement and ending when the patent expires. Under the exclusivity agreement, we acknowledged
that Stanford had already granted a non-exclusive license in the Nonexclusive Field of Use, under the Licensed Patents in the Licensed
Field of Use in the Licensed Territory (as those terms are defined in the February 2020 License Agreement”). However, Stanford
agreed to not grant further licenses under the Licensed Patents in the Licensed Field of Use in the Licensed Territory. On December 29,
2021, we entered into an amendment to the February 2020 License Agreement which extended our exclusive right to license the technology
deployed in AditxtScoreTM and securing worldwide exclusivity in all fields of use of the licensed technology.
We were obligated to pay and
paid a fee of $25,000 to Stanford within 60 days of February 3, 2020. We also issued 18,750 shares of the Company’s common stock
to Stanford. An annual licensing maintenance fee is payable by us on the first anniversary of the February 2020 License Agreement in the
amount of $40,000 for 2021 through 2024 and $60,000 starting in 2025 until the license expires upon the expiration of the patent. The
Company is required to pay and has paid $25,000 for the issuances of certain patents. The Company will pay milestone fees of $50,000 on
the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory clearance of an in
vitro diagnostic product developed and a potential licensed product. We are also required to: (i) provide a listing of the management
team or a schedule for the recruitment of key management positions by March 31, 2020 (which has been completed), (ii) provide a business
plan covering projected product development, markets and sales forecasts, manufacturing and operations, and financial forecasts until
at least $10,000,000 in revenue by June 30, 2020 (which has been completed), (iii) conduct validation studies by September 30, 2020 (which
has been completed), (iv) hold a pre-submission meeting with the FDA by September 30, 2020 (which has been completed), (v) submit a 510(k)
application to the FDA, Emergency Use Authorization (“EUA”), or a Laboratory Developed Test (“LDT”) by March 31,
2021, (which has been completed), (vi) develop a prototype assay for human profiling by December 31, 2021 (which has been completed),
(vii) execute at least one partnership for use of the technology for transplant, autoimmunity, or infectious disease purposes by March
31, 2022and (viii) will provide further development and commercialization milestones for specific fields of use in writing by December
31, 2022.
In addition to the annual license
maintenance fees outlined above, we will pay Stanford royalties on Net Sales (as such term is defined in the February 2020 License Agreement)
during the of the term of the agreement as follows: 4% when Net Sales are below or equal to $5 million annually or 6% when Net Sales are
above $5 million annually. The February 2020 License Agreement may be terminated upon our election on at least 30 days advance notice
to Stanford, or by Stanford if we: (i) are delinquent on any report or payment; (ii) are not diligently developing and commercializing
Licensed Product; (iii) miss certain performance milestones; (iv) are in breach of any provision of the February 2020 License Agreement;
or (v) provide any false report to Stanford. Should any events in the preceding sentence occur, we have a thirty (30) day cure period
to remedy such violation.
Plan of Operations – Immune Monitoring
As previously announced on
August 6, 2020, the initial application of the platform will be AditxtScore™ for COVID-19 which has been designed to provide a more
complete assessment of an individual’s infection and immunity status with respect to the SARS-CoV-2 virus. Infection status will
be determined by evaluating the presence or absence of the virus, and immunity status by measuring levels of antibodies against viral
antigens and their ability to neutralize the virus. We will soon be expanding the panel to measure other components of the immune response
such as cellular immunity.
In
August 2020, we filed for an Emergency Use Authorization (EUA) with the FDA with the ultimate objective of filing a 510(K) application.
On January 14, 2022, we submitted requests to obtain two EUAs for our antibody and neutralizing tests following an on November 15, 2021
by the Department of Health and Human Services that COVID-19 related tests will require FDA review and FDA’s position that COVID-19 tests
that have been in use prior to the announcement must submit applications for EUAs but can continue to operate unless informed otherwise.
In the meantime, we are providing AditxtScore™ as a service as a Laboratory Developed Test (LDT) to assess immunity status to COVID-19.
In early 2021, we established
our AditxtScore™ Immune Monitoring Center in Richmond, Virginia (the “Center”). The Center operates as a Clinical Laboratory
Improvement Amendments (CLIA) certified facility for the processing of our AditxtScore™ for COVID-19 Lab Developed Test (LDT) for
our prospective channel partners, including labs and hospitals.
Intellectual Property (IP)
We strive to protect and enhance
the proprietary technology, inventions, and improvements that are commercially important to our business, including seeking, maintaining
and defending patent rights, whether developed internally or licensed from third parties. Our policy is to seek to protect our proprietary
position by, among other methods, filing patent applications in the United States and in jurisdictions outside of the United States, to
protect our proprietary technology, inventions, improvements and product candidates that are important to the development and implementation
of our business. We also rely on trade secrets and know-how relating to our proprietary technology and product candidates, continuing
innovation, and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of immuno-therapy.
We also plan to rely on data exclusivity, market exclusivity, and patent term extensions when available. Our commercial success will depend
in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions, and improvements;
to preserve the confidentiality of our trade secrets; to obtain and maintain licenses to use intellectual property owned by third parties;
to defend and enforce our proprietary rights, including any patents that we may own in the future; and to operate without infringing on
the valid and enforceable patents and other proprietary rights of third parties.
The ADi™ technology
falls in two main categories, the AditxtReprogramming™ therapeutic program (which includes Apoptotic DNA Immunotherapy™
also known as ADi™) and the AditxtScore™ diagnostic technology. Both categories are protected by multiple families of patents
and patent applications, including several issued U.S. and non-U.S. patents.
The projected expiration dates
for the AditxtReprogramming™ patents and patents issuing from pending applications extend until 2043 for some patents. As of the
date of this report, our patent portfolio for AditxtReprogramming™ includes both patents and patent applications licensed from LLU
or Stanford and patent applications owned solely by Aditxt, including 7 U.S. patents, 6 U.S. applications, 88 foreign patents, and 13
foreign applications. These patents and patent applications cover three different technical aspects of AditxtReprogramming™, treatment
of autoimmune diseases and type 1 diabetes, treatment of organ transplantation, and development of a new class of immunotherapeutics for
various indications. The patents and patent applications cover both methods of treatment for these indications as well as a compositions
of matter including plasmids that are able to induce tolerance of antigens or immune attack on antigens, depending on the indication,
along with methods of producing such plasmids.
The AditxtScore™ technology
is also protected by protected by multiple families of patents and patent applications, including several issued U.S. and non-U.S. patents.
The projected expiration dates for these AditxtScore™ patents and patents issuing from pending applications ranges from 2037 to
2043. As of the date of this report, our patent portfolio for AditxtScore™ includes both patents and patent applications licensed
from Stanford and patent applications owned solely by Aditxt, including 2 U.S. patents, 4 U.S. applications, and 2 foreign applications.
These patents and patent applications encompass methods, systems and kits for detection and measurement of specific immune responses.
We also possess and/or in-license
substantial know-how and trade secrets relating to the development and commercialization of our product candidates, including related
manufacturing processes and technology. We plan to continue expanding and strengthening our IP portfolio with additional patent applications
in the future.
In March 2021, Aditxt signed
an agreement with a regulatory consultant based in Munich, Germany, which will play a central role in navigating the first AditxtReprogramming™ therapeutic
program through the clinical trial and regulatory process. The firm will work with the Aditxt’s AditxtReprogramming™ team to
submit a clinical trial application to the regulatory agency in Germany. Psoriasis is the first indication being targeted for clinical
trial in the AditxtReprogramming™ therapeutics pipeline. Other candidates that are advancing toward clinical trials include
ADi™ for type 1 diabetes and skin allografting.
Employees
We have fifty-eight (58) full
time employees. We consider the relations with our employees to be good.
Item 1A. Risk Factors.
You should carefully consider the risks described
below, as well as general economic and business risks and the other information in this Annual Report on Form 10-K. The occurrence
of any of the events or circumstances described below or other adverse events could have a material adverse effect on our business, results
of operations and financial condition and could cause the trading price of our common stock to decline. Additional risks or uncertainties
not presently known to us or that we currently deem immaterial may also harm our business.
Risks Related to Our Financial Position and
Need for Capital
We have generated no significant revenue
from commercial sales to date and our future profitability is uncertain.
We were incorporated in September
2017 and have a limited operating history and our business is subject to all of the risks inherent in the establishment of a new business
enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently
encountered in connection with development and expansion of a new business enterprise. Since inception, we have incurred losses and expect
to continue to operate at a net loss for at least the next several years as we commence our research and development efforts, conduct
clinical trials and develop manufacturing, sales, marketing and distribution capabilities. Our net loss for the years ended December 31,
2021 and 2020 was $46,371,364 and $9,149,227, respectively, and our accumulated deficit as of December 31, 2021 was $67,352,809. There
can be no assurance that the products under development by us will be approved for sale in the U.S. or elsewhere. Furthermore, there can
be no assurance that if such products are approved, they will be successfully commercialized, and the extent of our future losses and
the timing of our profitability are highly uncertain. If we are unable to achieve profitability, we may be unable to continue our operations.
If we fail to obtain the capital necessary
to fund our operations, we will be unable to continue or complete our product development and you will likely lose your entire investment.
We will need to continue to
seek capital from time to time to continue development of our lead drug candidate beyond our initial combined Phase I/IIa clinical trial
and to acquire and develop other product candidates. Once approved for commercialization, we cannot provide any assurances that any revenues
it may generate in the future will be sufficient to fund our ongoing operations.
Our business or operations
may change in a manner that would consume available funds more rapidly than anticipated and substantial additional funding may be required
to maintain operations, fund expansion, develop new or enhance products, acquire complementary products, business or technologies or otherwise
respond to competitive pressures and opportunities, such as a change in the regulatory environment or a change in preferred treatment
modalities. In addition, we may need to accelerate the growth of our sales capabilities and distribution beyond what is currently envisioned,
and this would require additional capital. However, we may not be able to secure funding when we need it or on favorable terms. We may
not be able to raise sufficient funds to commercialize the product candidates we intend to develop.
If we cannot raise adequate
funds to satisfy our capital requirements, we will have to delay, scale back or eliminate our research and development activities, clinical
studies or future operations. We may also be required to obtain funds through arrangements with collaborators, which arrangements may
require us to relinquish rights to certain technologies or products that we otherwise would not consider relinquishing, including rights
to future product candidates or certain major geographic markets. This could result in sharing revenues which we might otherwise retain
for ourselves. Any of these actions may harm our business, financial condition and results of operations.
The amount of capital we may
need depends on many factors, including the progress, timing and scope of our product development programs; the progress, timing and scope
of our preclinical studies and clinical trials; the time and cost necessary to obtain regulatory approvals; the time and cost necessary
to further develop manufacturing processes and arrange for contract manufacturing; our ability to enter into and maintain collaborative,
licensing and other commercial relationships; and our partners’ commitment of time and resources to the development and commercialization
of our products.
Our financial situation creates doubt whether
we will continue as a going concern.
The Company was incorporated
on September 28, 2017 and through the date of this report has generated no significant revenues. For the years ended December 31, 2021
and 2020, the Company had a net loss of $46,371,364 and $9,149,227, respectively. There can be no assurances that we will be able to achieve
a level of revenues adequate to generate sufficient cash flow from operations or additional financing through private placements, public
offerings and/or bank financing necessary to support our working capital requirements. To the extent that funds generated from any private
placements, public offerings and/or bank financing are insufficient, we will have to raise additional working capital. No assurance can
be given that additional financing will be available, or if available, will be on acceptable terms. These conditions raise substantial
doubt about our ability to continue as a going concern. If adequate working capital is not available, we may be forced to discontinue
operations, which would cause investors to lose their entire investment.
We may need to raise additional funding,
which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay,
limit or terminate our product development efforts or other operations.
We do not expect that our current
cash position will be sufficient to fund our current operations for the next 12 months. Our operating plan may change as a result of many
factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt
financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances
and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to obtain regulatory
approval for, and to commercialize, our product candidates. Raising funds in the current economic environment may present additional challenges.
Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions
are favorable or if we have specific strategic considerations.
Any additional fundraising
efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize
our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable
to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance
of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares
to decline. The sale of additional equity or convertible securities may dilute our existing stockholders. The incurrence of indebtedness
would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations
on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other
operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through
arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to
relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have
a material adverse effect on our business, operating results and prospects.
If we are unable to obtain
funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development
programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business
opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Even if we can raise additional funding,
we may be required to do so on terms that are dilutive to you.
The capital markets have been
unpredictable in the past for unprofitable companies such as ours. In addition, it is generally difficult for development stage companies
to raise capital under current market conditions. The amount of capital that a company such as ours is able to raise often depends on
variables that are beyond our control. As a result, we may not be able to secure financing on terms attractive to us, or at all. If we
are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are
not available on acceptable terms, or at all, our business, including our results of operations, financial condition and our continued
viability will be materially adversely affected.
Risks Related to Product Development, Regulatory
Approval, Manufacturing and Commercialization
The regulatory approval process is expensive,
time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of our future product candidates, if
any.
We will not be permitted to
market our product candidates in the United States until we receive approval from the FDA, or in any foreign countries until we receive
the requisite approval from corresponding agencies in such countries. The testing, manufacturing, labeling, approval, selling, marketing
and distribution of health and life science-related products are subject to extensive regulation, which regulations differ from country
to country.
Successfully completing our
clinical program and obtaining approval of a Biologics License Application (“BLA”) is a complex, lengthy, expensive and uncertain
process, and the FDA or other applicable foreign regulator may delay, limit or deny approval of our product candidates for many reasons,
including, among others, because:
| ● | we
may not be able to demonstrate that our product candidates are safe and effective in treating patients to the satisfaction of the FDA
or foreign regulator; |
| ● | the
results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or foreign regulator
for marketing approval; |
| ● | the
FDA or foreign regulator may disagree with the number, design, size, conduct or implementation of our clinical trials; |
| ● | the
FDA or foreign regulator may require that we conduct additional clinical trials; |
| ● | the
FDA or foreign regulator may not approve the formulation, labeling or specifications of our product candidates; |
| ● | the
contract research organizations (CROs) and other contractors that we may retain to conduct our clinical trials may take actions outside
of our control that materially adversely impact our clinical trials; |
| ● | the
FDA or foreign regulator may find the data from preclinical studies and clinical trials insufficient to demonstrate that our product
candidate(s) are safe and effective for their proposed indications; |
| ● | the
FDA or foreign regulator may disagree with our interpretation of data from our preclinical studies and clinical trials; |
| ● | the
FDA or foreign regulator may not accept data generated at our clinical trial sites or may disagree with us over whether to accept efficacy
results from clinical trial sites outside the United States or outside the EU, as applicable, where the standard of care is potentially
different from that in the United States or in the EU, as applicable; |
| ● | if
and when our BLAs or foreign equivalents are submitted to the applicable regulatory authorities, such agencies may have difficulties
scheduling the necessary review meetings in a timely manner, may recommend against approval of our application or may recommend or require,
as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use
restrictions; |
| ● | the
FDA or foreign regulator may require development of a Risk Evaluation and Mitigation Strategy (REMS), which would use risk minimization
strategies to ensure that the benefits of certain prescription drugs outweigh their risks, as a condition of approval or post-approval; |
| ● | the
FDA or other applicable foreign regulatory agencies may not approve the manufacturing processes or facilities of third-party manufacturers
with which we contract; or |
| ● | the
FDA or the other applicable foreign regulatory agencies may change their approval policies or adopt new regulations. |
We may encounter substantial delays in completing
our clinical studies which in turn will require additional costs, or we may fail to demonstrate adequate safety and efficacy to the satisfaction
of applicable regulatory authorities.
It is difficult to predict
if or when any of our product candidates, will prove safe or effective in humans or will receive regulatory approval. Before
obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies
to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain
as to outcome. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure
of one or more clinical studies can occur at any stage of testing. Events that may prevent successful or timely completion of clinical
development include:
| ● | delays
in reaching, or failing to reach, a consensus with regulatory agencies on study design; |
| ● | delays
in reaching, or failing to reach, agreement on acceptable terms with a sufficient number of prospective contract research organizations
(“CROs”) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly
among different CROs and trial sites; |
| | |
| ● | delays in obtaining required Institutional Review Board (“IRB”) or Ethics Committee (“EC”) approval at each clinical
study site; |
| | |
| ● | delays in recruiting a sufficient number of suitable patients to participate in our clinical
studies; |
| | |
| ● | imposition of a clinical hold by regulatory agencies, after an inspection of our clinical
study operations or study sites; |
| ● | failure
by our CROs, other third parties or us to adhere to the clinical study, regulatory or legal requirements; |
| | |
| ● | failure to perform in accordance with the FDA’s
good clinical practices (“GCP”) or applicable regulatory guidelines in other countries; |
|
● |
delays in the testing, validation, manufacturing and delivery of sufficient quantities of our product candidates to the clinical sites; |
|
|
|
|
● |
delays in having patients’ complete participation in a study or return for post-treatment follow-up; |
|
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|
● |
clinical study sites or patients dropping out of a study; |
|
|
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|
● |
delay or failure to address any patient safety concerns that arise during the course of a trial; |
|
|
|
|
● |
unanticipated costs or increases in costs of clinical trials of our product candidates; |
|
|
|
|
● |
occurrence of serious adverse events associated with the product candidates that are viewed to outweigh their potential benefits; or |
|
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|
● |
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols. |
We could also encounter delays
if a clinical trial is suspended or terminated by us, by the IRBs or ECs of the institutions in which such trials are being conducted,
by an independent Safety Review Board (“SRB”) for such trial or by the FDA, European Medicines Agency (“EMA”),
or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical
trial operations or trial site by the FDA, EMA, or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen
safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative
actions or lack of adequate funding to continue the clinical trial.
Any inability to successfully
complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenues from product
sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing or formulation changes to our
product candidates, we may need to conduct additional studies to bridge our modified product candidates to earlier versions.
Clinical study delays could
also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors
to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates. In
addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development
and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly
harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement
or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
The outcome of preclinical
studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial
do not necessarily predict final results. Further, preclinical and clinical data are often susceptible to various interpretations and
analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical
trials have, nonetheless, failed to obtain marketing approval. If the results of our clinical studies are inconclusive or if there
are safety concerns or adverse events associated with our other product candidates, we may:
|
● |
be delayed in obtaining marketing approval for our product candidates, if approved at all; |
|
● |
obtain approval for indications or patient populations that are not as broad as intended or desired; |
|
|
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|
● |
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings; |
|
● |
be required to change the way the product is administered; |
|
|
|
|
● |
be required to perform additional clinical studies to support approval or be subject to additional post-marketing testing requirements; |
|
|
|
|
● |
have regulatory authorities withdraw their approval of a product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy; |
|
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|
● |
be sued; or |
|
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|
|
● |
experience damage to our reputation. |
Additionally, our product candidates
could potentially cause other adverse events that have not yet been predicted. The inclusion of ill patients in our clinical studies may
result in deaths or other adverse medical events due to other therapies or medications that such patients may be using. As described above,
any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and impair our ability
to commercialize our products.
If our future pre-clinical development and
future clinical Phase I/II studies are unsuccessful, we may be unable to obtain regulatory approval of, or commercialize, our product
candidates on a timely basis or at all.
The successful completion of
pre-clinical development and multiple clinical trials is critical to the success of our future products. If the pre-clinical development
and clinical trials are unsuccessful or produce inconsistent results or unanticipated adverse side effects, or if we are unable to collect
reliable data, regulatory approval of our products could be delayed or not given and as a result we may be unable to commercialize our
products. Generally, we expect to engage third parties such as consultants, universities or other collaboration partners to conduct clinical
trials on our behalf. Incompatible practices or misapplication of our products by these third parties could impair the success of our
clinical trials.
Even if we receive regulatory approval for
any of our product candidates, we may not be able to successfully commercialize the product and the revenue that we generate from their
sales, if any, may be limited.
If approved for marketing,
the commercial success of our product candidates will depend upon each product’s acceptance by the medical community, including
physicians, patients and health care payors. The degree of market acceptance for any of our product candidates will depend on a number
of factors, including:
|
● |
demonstration of clinical safety and efficacy; |
|
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|
● |
relative convenience, dosing burden and ease of administration; |
|
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|
● |
the prevalence and severity of any adverse effects; |
|
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|
● |
the willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies; |
|
● |
efficacy of our product candidates compared to competing products; |
|
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|
● |
the introduction of any new products that may in the future become available targeting indications for which our product candidates may be approved; |
|
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|
● |
new procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show utility; |
|
● |
pricing and cost-effectiveness; |
|
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|
● |
the inclusion or omission of our product candidates in applicable therapeutic and vaccine guidelines; |
|
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|
● |
the effectiveness of our own or any future collaborators’ sales and marketing strategies; |
|
● |
limitations or warnings contained in approved labeling from regulatory authorities; |
|
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|
|
● |
our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals from government bodies regulating the pricing and usage of therapeutics; and |
|
|
|
|
● |
the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing approvals. |
If any of our product candidates
are approved, but do not achieve an adequate level of acceptance by physicians, health care payors, and patients, we may not generate
sufficient revenues and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party
payors on the benefits of our product candidates may require significant resources and may never be successful.
In addition, even if we obtain
regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize our product candidates
successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability
to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to
restrictions or post-approval commitments that render our product candidates not commercially viable. For example, regulatory authorities
may approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the
performance of costly post-marketing clinical trials, or may approve any of our product candidates with a label that does not include
the labeling claims necessary or desirable for the successful commercialization for that indication. Further, the FDA or comparable foreign
regulatory authorities may place conditions on approvals or require risk management plans or a Risk Evaluation and Mitigation Strategy
(“REMS”) to assure the safe use of the drug. If the FDA or applicable foreign regulatory agency concludes a REMS is needed,
the sponsor of the BLA must submit a proposed REMS; the regulatory agencies will not approve the BLA without an approved REMS, if required.
A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution
methods, patient registries and other risk minimization tools. The regulatory agencies may also require a REMS for an approved product
when new safety information emerges. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution,
prescription or dispensing of our product candidates. Moreover, product approvals may be withdrawn for non-compliance with regulatory
standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the
commercial success of our product candidates.
Adverse events involving our products may
lead the FDA or applicable foreign regulatory agency to delay or deny clearance for our products or result in product recalls that could
harm our reputation, business and financial results.
Once a product receives regulatory
clearance or approval, the agency has the authority to require the recall of commercialized products in the event of adverse side effects,
material deficiencies or defects in design or manufacture. The authority to require a recall must be based on a regulatory finding that
there is a reasonable probability that the product would cause serious injury or death. Manufacturers may, under their own initiative,
recall a product if any material deficiency in a product is found. A government-mandated or voluntary recall by us or one of our distributors
could occur as a result of adverse side effects, impurities or other product contamination, manufacturing errors, design or labeling defects
or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and have an adverse effect
on our financial condition and results of operations. The regulatory agencies require that certain classifications of recalls be reported
to them within ten (10) working days after the recall is initiated. Companies are required to maintain certain records of recalls, even
if they are not reportable to the regulatory agency. We may initiate voluntary recalls involving our products in the future that we determine
do not require notification of the regulatory agencies. If the regulatory agency disagrees with our determinations, they could require
us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our
sales. In addition, the regulatory agency could take enforcement action for failing to report the recalls when they were conducted.
The in-licensing of technologies and the
successful testing and early development of technologies in the laboratory may not be indicative of future results and may not result
in commercially viable technologies or products. Further, our future products may have to be modified from their originally conceived
versions in order to reach or be successful in the market.
Positive results from laboratory
testing and early developmental successes, may not be predictive of future successful development, commercialization and sales results
and should not be relied upon as evidence that products developed from our technologies will become commercially viable and successful.
Further, the products we plan to develop in the future may have to be significantly modified from their originally conceived versions
in order for us to control costs, compete with similar products, receive market acceptance, meet specific development and commercialization
timeframes, avoid potential infringement of the proprietary rights of others, or otherwise succeed in developing our business and earning
ongoing revenues. This can be a costly and resource draining activity. What appear to be promising technologies when we license them may
not lead to viable technologies or products, or to commercial success.
Complying with numerous regulations pertaining
to our business is an expensive and time-consuming process, and any failure to comply could result in substantial penalties.
We are subject to the Clinical
Laboratory Improvement Amendment of 1988, or CLIA, which is a federal law regulating clinical laboratories that perform testing on specimens
derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. Our clinical laboratory
is located in Richmond, Virginia and must be certified under CLIA in order for us to perform testing on human specimens. CLIA is intended
to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel
qualifications, administration, and participation in proficiency testing, patient test management, quality control, quality assurance
and inspections. We currently hold a CLIA certificate to perform high-complexity testing. Laboratories performing high complexity testing
are required to meet more stringent requirements than laboratories performing less complex tests. CLIA regulations require clinical laboratories
like ours to comply with various operational, personnel, facilities administration, quality, and proficiency testing requirements intended
to ensure that testing services are accurate, reliable and timely. CLIA certification is a prerequisite for reimbursement eligibility
for services provided to state and federal health care program beneficiaries. CLIA is user-fee funded. Therefore, all costs of administering
the program must be covered by the regulated facilities, including certification and survey costs. To renew this certificate, we are subject
to survey and inspection every two years. Moreover, CLIA inspectors may make periodic inspections of our clinical laboratory outside of
the renewal process. The failure to comply with CLIA requirements can result in enforcement actions, including the revocation, suspension,
or limitation of our CLIA certificate of compliance, as well as a directed plan of correction, state on-site monitoring, civil money penalties,
civil injunctive suit and/or criminal penalties. We must maintain CLIA compliance and certification to be eligible to bill for assays
provided to Medicare beneficiaries. If we were to be found out of compliance with CLIA program requirements and subjected to sanctions,
our business and reputation could be harmed. Even if it were possible for us to bring our laboratory back into compliance, we could incur
significant expenses and potentially lose revenue in doing so.
Additionally, certain states
require laboratory licenses in order to test specimens from patients in those states or received from ordering physicians in those states.
We may also be subject to regulation in foreign jurisdictions if we seek to expand international distribution of our assays outside the
United States.
If we were to lose our CLIA
certification or state laboratory licenses, whether as a result of a revocation, suspension or limitation, we would no longer be able
to offer our assays (including our AditxtScore™ platform), which would limit our revenues and harm our business. If we were to lose,
or fail to obtain, a license in any other state where we are required to hold a license, we would not be able to test specimens from those
states.
Risks Related to the Company and our Business
Our technology is subject to licenses from
LLU and Stanford, each of which are revocable in certain circumstances, including in the event we do not achieve certain payments and
milestone deadlines. Without these licenses, we may not be able to continue to develop our product candidates.
The LLU License Agreement may
be terminated by LLU in the event of a breach by us of any non-payment provision (including the provision that requires us to meet certain
deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after delivery of written notice by
LLU. Additional Milestone Deadlines include: (i) the requirement to have regulatory approval of an IND application to initiate first-in-human
clinical trials on or before March 31, 2022, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2024, (iii)
the completion of Phase III clinical trials by March 31, 2026 and (iv) biologic licensing approval (BLA) by the FDA by March 31, 2027.
If the LLU License Agreement were to be terminated by LLU, we would lose our most significant asset and may no longer be able to develop
our product candidates, which would have a material adverse effect on our operations.
The February 2020 License Agreement
with Stanford may be terminated by Stanford if we (i) are delinquent on any report or payments; (ii) are not diligently developing and
commercializing Licensed Product (as defined in the February 2020 License Agreement); (iii) miss a milestone described in the agreement;
(iv) are in breach of any other provision of the agreement; or (v) if we provide a false report to Stanford. The Termination discussed
above will take effect only upon 30 days written notice by Stanford unless we remedy the breach within a 30-day cure period. If the February
2020 License Agreement were to be terminated by Stanford, we would lose a significant asset and may no longer be able to develop our product
candidates, which would have a material adverse effect on our operations.
Our results of operations will be affected
by the level of royalty and milestone payments that we are required to pay to third parties.
The LLU License Agreement and
February 2020 License Agreement with Stanford each require us to remit royalty payments and meet certain performance milestones related
to in-licensed intellectual property. Any failure on our part to pay royalties owed or meet milestones could lead to us losing rights
under our licenses and could thereby adversely affect our business. As our product sales increase, we may, from time-to-time, disagree
with our third-party collaborators as to the appropriate royalties owed and the resolution of such disputes may be costly and may consume
management’s time. Furthermore, we may enter into additional license agreements in the future, which may also include royalty payments.
We face substantial competition, which may
result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization
of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies and specialized biotechnology companies,
as well as products and processes being developed at universities and other research institutions. Our competitors have developed, are
developing or will develop product candidates and processes competitive with our product candidates. Competitive therapeutic treatments
include those that have already been approved and accepted by the medical community and any new treatments that may enter the market.
We believe that a significant number of products are currently available, under development, and may become commercially available in
the future, for the treatment of indications for which we may try to develop product candidates.
More established companies
may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our
competitors may have significantly greater financial, technical and human resources. As a result of these factors, our competitors may
have an advantage in marketing their approved products and may obtain regulatory approval of their product candidates before we are able
to, which may limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are safer,
more effective, more widely used and less expensive than ours, and may also be more successful than us in manufacturing and marketing
their products.
Mergers and acquisitions in
the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors.
Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large and established companies. These companies compete with us in recruiting and retaining qualified scientific, management and
commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
Our technologies and products under development,
and our business, may fail if we are not able to successfully commercialize them and ultimately generate significant revenues as a result.
Successful development of technologies
and our product candidates will require significant additional investment, including costs associated with additional development, completing
trials and obtaining regulatory approval, as well as the ability to manufacture or have others manufacture our products in sufficient
quantities at acceptable costs while also preserving product quality. Difficulties often encountered in scaling up production include
problems involving production yields, quality control and assurance, shortage of qualified personnel, production costs and process controls.
In addition, we are subject to inherent risks associated with new technologies and products. These risks include the possibility that
any of our technologies or future products may:
| ● | be
ineffective or less effective than anticipated; |
| ● | fail
to receive necessary regulatory approvals; |
| ● | be
difficult to competitively price relative to alternative solutions; |
| ● | be
harmful to consumers or the environment; |
| ● | be
difficult to manufacture on an economically viable scale; |
| ● | be
subject to supply chain constraints for raw materials; |
| ● | fail
to be developed and accepted by the market prior to the successful marketing of alternative products by competitors; |
| ● | be
difficult to market because of infringement on the proprietary rights of third parties; or |
| ● | be
too expensive for commercial use. |
Furthermore, we may be faced
with lengthy market partner or distributor evaluation and approval processes. Consequently, we may incur substantial expenses and devote
significant management effort in order to customize products for market partner or distributor acceptance, though there can be no assurance
of such acceptance. As a result, we cannot accurately predict the volume or timing of any future sales.
Customers may not adopt our products quickly,
or at all.
Customers in the sector in
which we operate can be generally cautious in their adoption of new products and technologies. In addition, given the relative novelty
of our future planned products (including our AditxtScore™ platform), customers of those products may require education regarding
their utility and use, which may delay their adoption. There can be no assurance that customers will adopt our products quickly, or at
all.
The significant level of competition in
the markets for our products developed in the future may result in pricing pressure, reduced margins or the inability of our future products
to achieve market acceptance.
The markets for our future
products are intensely competitive and rapidly changing. We may be unable to compete successfully, which may result in price reductions,
reduced margins and the inability to achieve market acceptance for our products.
Our competitors may have longer
operating histories, significantly greater resources, greater brand recognition and large customer bases than we do. As a result, they
may be able to devote greater resources to the manufacture, promotion or sale of their products, receive greater resources and support
from market partners and independent distributors, initiate or withstand substantial price competition or more readily take advantage
of acquisition or other opportunities.
We rely on third parties for the distribution
of our current and future products, including our AditxtScore™ platform. If these parties do not distribute our products in
a satisfactory or timely manner, in sufficient quantities or at an acceptable cost, our sales and development efforts could be delayed
or otherwise negatively affected.
We rely on third parties for
the distribution of our current and future products, including our AditxtScore™ platform. Our reliance on third parties to distribute
products may present significant risks to us, including the risk that should any of these third parties fail to adequately distribute
our products and services to end consumers and other market participants, our business may be materially harmed. Additionally, if we need
to enter into agreements for the distribution of our future products with other third parties, there can be no assurance we will be able
to do so on favorable terms, if at all.
We may rely on third parties for the production
of our future products. If these parties do not produce our products at a satisfactory quality, in a timely manner, in sufficient
quantities or at an acceptable cost, our sales and development efforts could be delayed or otherwise negatively affected.
We may rely on third parties
for the manufacture of our future products. Our reliance on third parties to manufacture our future products may present significant risks
to us, including the following:
| ● | reduced
control over delivery schedules, yields and product reliability; |
| ● | manufacturing
deviations from internal and regulatory specifications; |
| ● | the
failure of a key manufacturer to perform as we require for technical, market or other reasons; |
| ● | difficulties
in establishing additional manufacturer relationships if we are presented with the need to transfer our manufacturing process technologies
to them; |
| ● | misappropriation
of our intellectual property; and |
| ● | other
risks in potentially meeting our product development schedule or satisfying the requirements of our market partners, distributors, direct
customers and end users. |
If we need to enter into agreements
for the manufacturing of our future products, there can be no assurance we will be able to do so on favorable terms, if at all.
If we are unable to establish successful
relations with third-party market partners or distributors, or these market partners or distributors do not focus adequate resources on
selling our products or are otherwise unsuccessful in selling them, sales of our products may not develop.
We anticipate relying on independent
market partners and distributors to distribute and assist us with the marketing and sale of our products. Our future revenue generation
and growth will depend in large part on our success in establishing and maintaining this sales and distribution channel. If our market
partners and distributors are unable to sell our products, or receive negative feedback from end users, they may not continue to purchase
or market our products. In addition, there can be no assurance that our market partners and distributors will focus adequate resources
on selling our products to end users or will be successful in selling them. Many of our potential market partners and distributors are
in the business of distributing and sometimes manufacturing other, possibly competing, products. As a result, these market partners
and distributors may perceive our products as a threat to various product lines currently being distributed or manufactured by them. In
addition, these market partners and distributors may earn higher margins by selling competing products or combinations of competing products.
If we are unable to establish successful relationships with independent market partners and distributors, we will need to further develop
our own sales and distribution capabilities, which would be expensive and time-consuming and might not be successful.
If we are not able to attract and retain
highly skilled employees and contractors, we may not be able to implement our business model successfully.
We will rely upon employees
and third-party consultant/contractors to effectively establish, manage and grow our business. Consequently, we believe that our future
viability will depend largely on our ability to attract and retain highly skilled personnel. In order to do so, we may need to pay
higher compensation, fees, and/or other incentives to our employees or consultants than we currently expect, and such higher compensation
payments would have a negative effect on our operating results. Competition for experienced, high-quality employees, consultants and contractors
is intense and we cannot assure that we will be able to recruit and retain such personnel. We may not be able to hire or retain the necessary
personnel to implement our business strategy. Our failure to hire and retain such personnel could impair our ability to develop new products
and manage our business effectively.
The loss of our management team or other
key personnel would have an adverse impact on our future development and impair our ability to succeed.
In the early stages of development,
our business will be significantly dependent on the Company’s management team and other key personnel. Our success will be particularly
dependent upon Mr. Amro Albanna and Dr. Shahrokh Shabahang. The loss of any one of these individuals or any other future key personnel
could have a material adverse effect on the Company and our ability to further execute our intended business.
The use of our products may be limited by
regulations, and we may be exposed to product liability and remediation claims.
The use of our planned products
may be regulated by various local, state, federal and foreign regulators. Even if we are able to comply with all such regulations
and obtain all necessary registrations, we cannot provide assurance that our future products will not cause injury to the environment,
people, or animals and/or otherwise have unintended adverse consequences, under all circumstances. For example, our products may be improperly
combined with other chemicals or, even when properly combined, our products may be blamed for damage caused by those other chemicals.
The costs of remediation or products liability could materially adversely affect our results, financial condition and operations.
We may be held liable for, or incur costs
to settle, liability and remediation claims if any products we develop, or any products that use or incorporate any of our technologies,
cause injury or are found unsuitable during product testing, manufacturing, marketing, sale or use. These risks exist even with respect
to products that have received, or may in the future receive, regulatory approval, registration or clearance for commercial use. We cannot
guarantee that we will be able to avoid product liability exposure.
At the stage customary to do
so, we expect to maintain product liability insurance at levels we believe are sufficient and consistent with industry standards for like
companies and products. However, we cannot guarantee that our product liability insurance will be sufficient to help us avoid product
liability-related losses. In the future, it is possible that meaningful insurance coverage may not be available on commercially reasonable
terms or at all. In addition, a product liability claim could result in liability to us greater than our assets or insurance coverage.
Moreover, even if we have adequate insurance coverage, product liability claims or recalls could result in negative publicity or force
us to devote significant time and attention to these matters, which could harm our business.
There may be limitations on the effectiveness
of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm our Company.
We do not expect that internal
control over financial accounting and disclosure, even if timely and well established, will prevent all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems
to prevent error or fraud could materially adversely affect our business.
COVID-19 may impact our operations.
On January 30, 2020 the World
Health Organization declared the COVID-19 coronavirus outbreak a “Public Health Emergency of International Concern” and on
March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions
on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 coronavirus
and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets
of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last
and what the complete financial effect will be to the Company, capital raise efforts and additional development of our technologies may
be negatively affected.
Risks Relating to Our Intellectual Property
Rights
The failure to obtain or maintain patents,
licensing agreements and other intellectual property could materially impact our ability to compete effectively.
In order for our business to
be viable and to compete effectively, we need to develop and maintain, and we will heavily rely on, a proprietary position with respect
to our technologies and intellectual property. However, there are significant risks associated with our actual or proposed intellectual
property. The risks and uncertainties that we face with respect to our rights principally include the following:
| ● | pending
patent applications we have filed or will file may not result in issued patents or may take longer than we expect to result in issued
patents; |
| ● | we
may be subject to interference proceedings; |
| ● | we
may be subject to reexamination proceedings; |
| ● | we
may be subject to post grant review proceedings; |
| ● | we
may be subject to inter partes review proceedings; |
| ● | we
may be subject to derivation proceedings; |
| ● | we
may be subject to opposition proceedings in the U.S. or in foreign countries; |
| ● | any
patents that are issued to us may not provide meaningful protection; |
| ● | we
may not be able to develop additional proprietary technologies that are patentable; |
| ● | other
companies may challenge patents licensed or issued to us; |
| ● | other
companies may have independently developed and patented (or may in the future independently develop and patent) similar or alternative
technologies, or duplicate our technologies; |
| ● | other
companies may design around technologies we have licensed or developed; |
| ● | enforcement
of patents is complex, uncertain and very expensive and we may not be able to secure, enforce and defend our patents; and |
| ● | in
the event that we were to ever seek to enforce our patents in ligation, there is some risk that they could be deemed invalid, not infringed,
or unenforceable. |
We cannot be certain that any
patents will be issued as a result of any pending or future applications, or that any patents, once issued, will provide us with adequate
protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable,
or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries,
we cannot be certain that we or our licensors were the first to invent or to file patent applications covering them.
It is also possible that others
may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring
the payment of significant fees or royalties in order to enable us to conduct our business. There is no guarantee that such licenses will
be available based on commercially reasonable terms. As to those patents that we have licensed, our rights depend on maintaining our obligations
to the licensor under the applicable license agreement, and we may be unable to do so.
If we are unable to obtain and maintain
patent protection for our products, or if the scope of the patent protection obtained is not sufficiently broad, competitors could develop
and commercialize products similar or identical to ours, and our ability to successfully commercialize our products could be impaired.
The patent prosecution process
is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable
cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our development
output before it is too late to obtain patent protection.
The patent position of life
science companies generally is highly uncertain, involves complex legal and factual questions and has in past years been the subject of
much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States
and we may fail to seek or obtain patent protection in all major markets. For example, unlike the U.S., European patent law restricts
the patentability of methods of treatment of the human body. Our pending and future patent applications may not result in patents being
issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive
technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries
may diminish the value of our patents or narrow the scope of our patent protection, even post-grant.
Recent patent reform legislation
has increased the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued
patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act
includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications
are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office, or USPTO, recently developed new regulations
and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the
Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear
what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation
could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our
issued patents, all of which could have a material adverse effect on our business and financial condition.
Moreover, we may be subject
to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter
partes review, post-grant review or interference proceedings challenging our patent rights (whether licensed or otherwise held)
or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or
invalidate, our patent rights (whether licensed or otherwise held), allow third parties to commercialize our technology or products and
compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing
third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications (whether
licensed or otherwise held) is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize
current or future product candidates.
Even if our patent applications
(whether licensed or otherwise held) result in the issuance of patents, they may not issue in a form that will provide us with any meaningful
protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be
able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.
The issuance of a patent is
not conclusive as to its inventorship, scope, validity or enforceability, and our licensed or owned patents may be challenged in the courts
or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent
claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using
or commercializing similar or identical products, or limit the duration of the patent protection of our products. Given the amount of
time required for the development, testing and regulatory review of new life science product candidates, patents protecting such candidates
might expire before or shortly after such candidates are commercialized. As a result, our intellectual property rights portfolio may not
provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may become involved in lawsuits to protect
or enforce our intellectual property rights, which could be expensive, time-consuming and ultimately unsuccessful.
Competitors may infringe our
intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive
and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging
that we infringe their intellectual property or that our intellectual property is invalid or unenforceable. In addition, in a patent infringement
proceeding, a court may decide that a licensed or owned patent of ours is invalid or unenforceable, in whole or in part, construe the
patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do
not cover that technology. Moreover, lawsuits to protect or enforce our intellectual property rights could be expensive, time-consuming
and ultimately unsuccessful.
Third parties may initiate legal proceedings
alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain.
Our commercial success depends
upon our ability to develop, manufacture, market and sell our product candidates without infringing the proprietary rights of third parties.
There is considerable intellectual property litigation in the life sciences industry. We cannot guarantee that our product candidates
will not infringe third-party patents or other proprietary rights. We may become party to, or threatened with, future adversarial proceedings
or litigation regarding intellectual property rights with respect to our products and technology, including inter partes review,
interference, or derivation proceedings before the USPTO and similar bodies in other countries. Third parties may assert infringement
claims against us based on existing intellectual property rights and intellectual property rights that may be granted in the future.
If we are found to infringe
a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing
and marketing our products. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even
if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed
to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could
be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a
patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business
operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets
of third parties could have a similar negative impact on our business.
Obtaining and maintaining our
patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our own patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees and
annuities on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the
patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of
a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment
or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance
events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond
to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In
such an event, our competitors might be able to enter our markets, which could have a material adverse effect on our business.
We may be subject to claims by third parties
asserting that our employees or we have misappropriated their intellectual property or claiming ownership of what we regard as our own
intellectual property.
Certain employees and contractors
were previously employed at universities or other companies, including potential competitors. Although we try to ensure that our employees
and contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these
employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s
former employer. Litigation may be necessary to defend against these claims, and any such litigation could have an unfavorable outcome.
In addition, while it is our
policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements
assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops
intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and
we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what
we regard as our intellectual property.
If we fail in prosecuting or
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even
if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and adverse results,
and be a distraction to management.
Some intellectual property which we own
or have licensed may have been discovered through government funded programs such as, for example, the government funded programs referenced
in intellectual property licensed under the LLU License Agreement, and thus may be subject to federal regulations such as “march-in”
rights, certain reporting requirements, and a preference for United States industry. Compliance with such regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with non-U.S.
manufacturers.
Some of the intellectual property
rights we own or have licensed have been generated through the use of United States government funding and may therefore be subject to
certain federal regulations. As a result, the United States government may have certain rights to intellectual property embodied in our
current or future products and product candidates pursuant to the Bayh-Dole Act of 1980. These United States government rights in certain
inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use
inventions for any governmental purpose. In addition, the United States government has the right to require us to grant exclusive, partially
exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not
been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government
action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”).
The United States government also has the right to take title to these inventions if we fail to disclose the invention to the government
and fail to file an application to register the intellectual property within specified time limits. In addition, the United States government
may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual
property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require
us to expend substantial resources. In addition, the United States government requires that any products embodying the subject invention
or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference
requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to
grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that
under the circumstances domestic manufacture is not commercially feasible. This preference for United States manufacturers may limit our
ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. Any exercise by the government
of any of the foregoing rights could harm our competitive position, business, financial condition, results of operations and prospects.
Intellectual property litigation could cause
us to spend substantial resources and distract our personnel from their normal responsibilities.
Even if resolved in our favor,
litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract
our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results
of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be
negative, it could have an adverse effect on the price of our common stock. Such litigation or proceedings could increase our operating
losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may
not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be
able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources.
Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to
compete in the marketplace.
We may spend considerable resources developing
and maintaining patents, licensing agreements and other intellectual property that may later be abandoned or may otherwise never result
in products brought to market.
Not all technologies and candidate
products that initially show potential as the basis for future products ultimately meet the rigors of our development process and as a
result may be abandoned and/or never otherwise result in products brought to market. In some cases, prior to abandonment we may be
required to incur significant costs developing and maintaining intellectual property and/or maintaining license agreements and our business
could be harmed by such costs.
We rely on information technology, and if
we are unable to protect against service interruptions, data corruption, cyber-based attacks or network security breaches, our operations
could be disrupted, and our business could be negatively affected.
We rely on information technology
networks and systems to process, transmit and store electronic and financial information; to coordinate our business; and to communicate
within our Company and with customers, suppliers, partners and other third-parties. These information technology systems may be susceptible
to damage, disruptions or shutdowns, hardware or software failures, power outages, computer viruses, cyber-attacks, telecommunication
failures, user errors or catastrophic events. If our information technology systems suffer severe damage, disruption or shutdown, and
our business continuity plans do not effectively resolve the issues in a timely manner, our operations could be disrupted, and our business
could be negatively affected. In addition, cyber-attacks could lead to potential unauthorized access and disclosure of confidential information,
and data loss and corruption. There is no assurance that we will not experience these service interruptions or cyber-attacks in the future.
Risks Related to Our Common Stock
We received a written notice from Nasdaq
that we have failed to comply with certain listing requirements of the Nasdaq Stock Market, which could result in our Common Stock being
delisted from the Nasdaq Stock Market.
On January 18, 2022, we received
a notification from Nasdaq related to our failure to maintain a minimum bid price of $1 per share. Based upon the closing bid price for
the last 30 consecutive business days, we no longer meet this requirement. However, the Nasdaq Listing Rules also provide us a compliance
period of 180 calendar days in which to regain compliance. Accordingly, if at any time from the date of this notice until July 18, 2022,
the closing bid price our common stock is at least $1 for a minimum of ten consecutive business days, Nasdaq will provide us with written
confirmation of compliance and the matter will be closed. If we do not regain compliance with the minimum bid price requirement by July
18, 2022, we may be afforded a second 180 calendar day period to regain compliance. To qualify, we would be required to meet all other
initial listing standards, except for the minimum bid price requirement. In addition, we would be required to notify Nasdaq of our intent
to cure the deficiency during the second compliance period. If we do not regain compliance with the minimum bid price requirement by the
end of the compliance period (or the second compliance period, if applicable), our common stock will become subject to delisting. If we
are delisted from Nasdaq, our common stock may be eligible for trading on an over-the-counter market. If we are not able to obtain a listing
on another stock exchange or quotation service for our common stock, it may be extremely difficult or impossible for stockholders to sell
their shares. We intend to monitor the closing bid price of our common stock and may be required to seek approval from our stockholders
to affect a reverse stock split of the issued and outstanding shares of our common stock. However, there can be no assurance that the
reverse stock split would be approved by our stockholders. Further, there can be no assurance that the market price per new share of our
common stock after the reverse stock split will remain unchanged or increase in proportion to the reduction in the number of old shares
of our common stock outstanding before the reverse stock split. Even if the reverse stock split is approved by our stockholders, there
can be no assurance that we will be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance
with other Nasdaq listing rules.
If we are delisted from Nasdaq,
but obtain a substitute listing for our common stock, it will likely be on a market with less liquidity, and therefore experience potentially
more price volatility than experienced on Nasdaq. Stockholders may not be able to sell their shares of common stock on any such substitute
market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading market. As a result
of these factors, if our common stock is delisted from Nasdaq, the value and liquidity of our common stock, warrants and pre-funded warrants
would likely be significantly adversely affected. A delisting of our common stock from Nasdaq could also adversely affect our ability
to obtain financing for our operations and/or result in a loss of confidence by investors, employees and/or business partners.
We do not expect to pay dividends in the
foreseeable future.
We do not intend to declare
dividends for the foreseeable future, as we anticipate that we will reinvest any and all future earnings in the development and growth
of our business. Therefore, investors will not receive any funds unless they sell their securities, and holders may be unable to sell
their securities on favorable terms or at all. We cannot assure you of a positive return on your investment or that you will not lose
the entire amount of your investment.
Future sales or issuances of substantial
amounts of our common stock, including, potentially, as a result of the acquisition transaction with Cellvera Global f/k/a AiPharma Global,
could result in significant dilution.
On December 28, 2021, we entered
into a Share Exchange Agreement with Cellvera Global f/k/a AiPharma Global, pursuant to which we (i)
will acquire 9.5% of the issued and outstanding equity interests in Cellvera Global in exchange for the issuance of 4,816,193 shares of
our common stock of Aditxt and a cash payment of $250,000, at an initial closing upon the satisfaction or waiver of certain conditions
to closing; and (ii) acquire the remaining 90.5% of the issued and outstanding equity interests in Cellvera Global in exchange for the
issuance of 39,927,974 shares of our common stock and a cash payment of $250,000 at a secondary closing upon the satisfaction or waiver
of certain conditions to closing. Additionally, we may elect to raise additional capital due to market conditions or strategic
considerations. If additional shares are issued in connection with the proposed acquisition transaction or additional capital is raised
through the sale of equity or convertible debt securities, the issuance of those securities could result in further dilution to our stockholders.
While we have entered into a Share Exchange
Agreement with Cellvera Global, we cannot assure you that the transactions contemplated by
the Share Exchange Agreement will be consummated or, that if such transactions are consummated, they will be accretive to stockholder
value.
The
initial closing under the Share Exchange Agreement was expected to occur on or before January 31, 2022. We can provide no assurance that
the conditions to the initial closing will be satisfied. Further, even if we are able to complete the initial closing following
the satisfaction of such conditions, there is no guarantee that the conditions to the secondary closing, including but not limited to,
the approval of the transaction by our stockholders, will be completed in the time frame or in the manner currently anticipated, or that
we will recognize the anticipated benefits of the transaction.
In connection with the contemplated acquisition
of Cellvera Global, we have provided secured loans to Cellvera Global in the aggregate principal amount of $14.5 million, which amounts
came due on January 31, 2022. Although, we have agreed to forbear from exercising our rights and remedies against Cellvera Global while
we continue to work towards an initial closing under the Share Exchange Agreement, if we are unable to complete the transactions contemplated
by the Share Exchange Agreement, we cannot provide any assurance that we will be able to timely collect such amounts from Cellvera Global,
if at all.
In connection with the contemplated
acquisition of Cellvera Global, we entered into a Secured Credit Agreement with Cellvera Global, pursuant to which we have provided secured
loans to Cellvera Global in the aggregate principal amount of $14.5 million, which amounts became due on January 31, 2022. On February
14, 2022, we entered into a Forbearance Agreement with Cellvera Global, pursuant to which we agreed to forbear from exercising our rights
and remedies against Cellvera Global until the earlier of June 30, 2022 or the date of any default under the Forbearance Agreement. Under
the Forbearance Agreement, the Company and the Borrower also agreed to certain amendments to the Credit Agreement, including, but not
limited to: (i) the delivery by Cellvera Global of certain financial statements and forecasts,
and (ii) certain regularly scheduled payments to be made by Cellvera Global to the Company
during the forbearance period. If Cellvera Global defaults upon its obligations under the Forbearance Agreement or if we are otherwise
unable to complete the contemplated acquisition of Cellvera Global under the Share Exchange Agreement, we cannot provide any assurance
that we will be able to time collect the amounts due under the Secured Credit Agreement, if at all. The note receivable to Cellvera Global
was deemed impaired and written down to zero at December 31, 2021.
We may engage in future acquisitions or
strategic transactions, including the transaction with Cellvera Global, which may require us to seek additional financing or financial
commitments, increase our expenses and/or present significant distractions to our management.
As described herein, we entered
into a Share Exchange Agreement with Cellvera Global in December 2021. We also entered into a non-binding letter of intent to acquire
a point-of care diagnostic technology development company in December 2021. We may need to acquire additional financing to fund our obligations
under the Share Exchange Agreement, the letter of intent or to fund other potential acquisitions or strategic transactions (particularly,
if the acquired entity is not cash flow positive or does not have significant cash on hand). Obtaining financing through the issuance
or sale of additional equity and/or debt securities, if possible, may not be at favorable terms and may result in additional dilution
to our current stockholders. Additionally, any such transaction may require us to incur non-recurring or other charges, may increase our
near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely
affect our operations and financial results. For example, an acquisition or strategic transaction may entail numerous operational and
financial risks, including the risks outlined above and additionally:
| ● | exposure
to unknown liabilities; |
| | |
| ● | disruption of our business and diversion of our management’s
time and attention in order to develop acquired products or technologies; |
| | |
| ● | higher than expected acquisition and integration costs; |
| | |
| ● | write-downs of assets or goodwill or impairment charges; |
| | |
| ● | increased amortization expenses; |
| | |
| ● | difficulty and cost in combining the operations and personnel
of any acquired businesses with our operations and personnel; |
| | |
| ● | impairment of relationships with key suppliers or customers
of any acquired businesses due to changes in management and ownership; and |
| | |
| ● | inability to retain key employees of any acquired businesses. |
Accordingly, although there
can be no assurance that we will undertake or successfully complete any transactions of the nature described above, and any transactions
that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.
Upon dissolution of our Company, you may
not recoup all or any portion of your investment.
In the event of a liquidation,
dissolution or winding-up of our Company, whether voluntary or involuntary, our assets would be used to pay all of our debts and liabilities,
and only thereafter would any remaining assets be distributed to our stockholders, subject to rights of the holders of the Preferred Stock,
if any, on a pro rata basis. There can be no assurance that we will have assets available from which to pay any amounts
to our stockholders upon such a liquidation, dissolution or winding-up. In such an event, you would lose all of your investment.
Limitation of Liability and Indemnification
of Management.
The Delaware General Corporation
Law and the Company’s Amended and Restated Certificate of Incorporation provide for the limitation of the liability of directors
for monetary damages. Such provisions may discourage shareholders from bringing a lawsuit against directors for breaches of fiduciary
duty and may also have the effect of reducing the likelihood of derivative litigation against directors and officers even though such
action, if successful, might otherwise be a benefit to the Company’s shareholders. In addition, a shareholder’s investment
in the Company may be adversely affected to the extent that costs of settlement and damage awards against the Company’s officers
or directors are paid by the Company pursuant to such provisions. Additionally, in accordance with Delaware law and the Company’s
Amended and Restated Certificate of Incorporation, the Company shall indemnify, hold harmless and provide advancement of expenses, to
the fullest extent permitted by applicable law, directors, officers, employees, and agents that are made a party or threatened to be made
a party to legal proceedings by reason of the fact that such parties were working at the request of the Company. We direct you to
the Company’s Amended and Restated Certificate of Incorporation for more information.
Anti-takeover provisions under Delaware
law could discourage, delay or prevent a change in control of our Company and could affect the trading price of our securities.
We are a Delaware corporation
and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting
us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested
stockholder, even if a change in control would be beneficial to our existing stockholders.
Our management team is required to devote
substantial time to public company compliance initiatives.
As a publicly reporting company,
we incur significant legal, accounting and other expenses. Our management and other personnel devote a substantial amount of time to comply
with our reporting obligations. Moreover, these reporting obligations increase our legal and financial compliance costs and make some
activities more time-consuming and costly.
Failure to develop our internal controls
over financial reporting as we grow could have an adverse impact on us.
As our Company matures, we
will need to develop our current internal control systems and procedures to manage our growth. We are required to establish and maintain
appropriate internal controls over financial reporting. Failure to establish appropriate controls, or any failure of those controls once
established, could adversely impact our public disclosures regarding our business, financial condition or results of operations. In addition,
management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed
in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses
and conditions that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment
of our internal controls over financial reporting or disclosure of our public accounting firm’s attestation to or report on management’s
assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
We could issue “blank check” preferred
stock without stockholder approval with the effect of diluting interests of then-current stockholders and impairing their voting
rights, and provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable.
Our Amended and Restated Certificate
of Incorporation provides for the authorization to issue up to 3,000,000 shares of “blank check” preferred stock with
designations, rights and preferences as may be determined from time to time by our board of directors. Our board of directors is empowered,
without stockholder approval, to issue one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights
which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock
could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our board
of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change
control of our company. In addition, advanced notice is required prior to stockholder proposals, which might further delay a change of
control.
Our Amended and Restated Certificate of
Incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially
all disputes between the Company and its stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum
for disputes with the Company or its directors, officers or employees.
Our Amended and Restated Certificate
of Incorporation provides that unless the Company consents in writing to the selection of an alternative forum, the State of Delaware
is the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting
a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s
stockholders, (iii) any action asserting a claim against the Company, its directors, officers or employees arising pursuant to any provision
of the Delaware General Corporation Law (the “DGCL”) or our Amended and Restated Certificate of Incorporation or
the Company’s Amended and Restated Bylaws, or (iv) any action asserting a claim against the Company, its directors, officers, employees
or agents governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court
of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable
party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested
in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject
matter jurisdiction. This exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities
Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims
may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to
enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Section 22 of the Securities
Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the
Securities Act or the rules and regulations thereunder. However, our Amended and Restated Bylaws contain a federal forum provision which
provides that unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United
States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities
Act. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation are deemed to have
notice of and consented to this provision. The Supreme Court of Delaware has held that this type of exclusive federal forum provision
is enforceable. There may be uncertainty, however, as to whether courts of other jurisdictions would enforce such a provision, if applicable.
These choice of forum provisions
may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or
its directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.
Alternatively, if a court were to find our choice of forum provisions contained in either our Amended and Restated Certificate of Incorporation
or Amended and Restated Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving
such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
We are an “emerging growth company”
and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common
stock less attractive to investors.
We are an “emerging growth
company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we intend to take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth
companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments
not previously approved. In addition, pursuant to Section 107 of the JOBS Act, as an “emerging growth company” we intend
to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new
or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. As a result, our financial statements may not be comparable
to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
We cannot predict if investors
will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage
of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth
company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion
or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public
offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years;
or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.