ITEM 1A. RISK FACTORS
Investment in our common stock involves a substantial degree of risk and should be regarded as speculative. As a result, the purchase of our common stock should be considered only by persons who can reasonably afford to lose their entire investment. Before you elect to purchase our common stock, you should carefully consider the risk and uncertainties described below in addition to the other information incorporated herein by reference. Additional risks and uncertainties of which we are unaware or which we currently believe are immaterial could also materially adversely affect our business, financial condition or results of operations. If any of the risks or uncertainties discussed in this Annual Report occur, our business, prospects, liquidity, financial condition and results of operations could be materially and adversely affected, in which case the trading price of our common stock could decline, and you could lose all or part of your investment.
Risks Related to COVID-19
We face risks related to health epidemics, including the recent COVID-19 pandemic, which could have a material adverse effect on our business and results of operations.
In December 2019 a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 or coronavirus emerged. While initially the outbreak was largely concentrated in China it has spread globally. Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. The continued COVID-19 pandemic could adversely impact our operations, including among others, the timing and ability to pursue strategic alternatives, given the impact it may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners, and the ability, if we elect to do so, to advance our research and development activities and pursue development of any of our pipeline products, each of which could have an adverse impact on our business and our financial results.
In addition, the stock market has been unusually volatile during the COVID-19 pandemic and such volatility may continue. Our stock price has also experienced volatility during this time, including occasional significant increases and decreases, and such increases and decreases may repeat or continue for the foreseeable future.
There are no comparable recent events which may provide guidance as to the effect of the COVID-19 pandemic, and, as a result, the ultimate impact of the pandemic, or any similar health epidemic that may occur in the future, is highly uncertain and subject to change. We do not yet know the full extent of COVID-19’s impact on our business, our operations, or the global economy as a whole. However, the effects may have a material adverse impact on our future results of operations.
Risks Related to the Proposed Go Forward Business
If the Advisory Nominees Proposal is approved at the 2020 Annual Meeting, the New Director Slate has advised us that it intends for the Company to recommence operations and focus our efforts on utilizing our 3D bioprinting technology to develop human tissues and disease models for drug discovery and development. In this case, the Company will be recommencing its operations as an early-stage company with an unproven business strategy, and may never achieve profitability.
If the Advisory Nominees Proposal is approved at the Annual Meeting, the New Director Slate has advised us that it intends for the Company to recommence operations and focus its efforts on utilizing its 3D bioprinting technology to develop human tissues and disease models for drug discovery and development. In this case, the Company will be recommencing its operations as an early-stage company with an unproven business strategy, and may never achieve profitability. Our success will depend upon the viability of our platform technology and any disease models we develop, as well as on our ability to determine which drug candidates we should pursue. Our success will also depend on our ability to select an appropriate development strategy for any drug candidates we identify, including internal development or partnering or licensing arrangements with pharmaceutical companies. We may never achieve profitability, or even if we achieve profitability, we may not be able to maintain or increase our profitability.
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The New Director Slate has advised us that they expect that the Company will incur substantial additional operating losses over the next several years as our research and development activities increase.
The New Director Slate has advised us that they expect that the Company will incur substantial additional operating losses over the next several years as our research and development activities increase. The amount of future losses and when, if ever, we will achieve profitability are uncertain. Our ability to generate revenue and achieve profitability will depend on, among other things:
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successfully developing human tissues and disease models for drug discovery and development that enable us to identify drug candidates;
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successfully outsource certain portions of our development efforts;
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entering into partnering or licensing arrangements with pharmaceutical companies to further develop and conduct clinical trials for any drug candidates we identify;
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obtaining any necessary regulatory approval for any drug candidates we identify; and
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raising sufficient funds to finance our activities and long-term business plan.
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We might not succeed at any of these undertakings. If we are unsuccessful at one or more of these undertakings, our business, prospects, and results of operations will be materially adversely affected.
Using our platform technology to develop human tissues and disease models for drug discovery and development is new and unproven.
Utilizing our 3D bioprinting platform technology to develop human tissues and disease models for drug discovery and development will involve new and unproven technologies, disease models and approaches, each of which is subject to the risk associated with new and evolving technologies. To date, we have not identified or developed any drug candidates utilizing the business model recommended by the New Director Slate. Our future success will depend on our ability to utilize our 3D bioprinting platform to develop human tissues and disease models that will enable us to identify and develop viable drug candidates. We may experience unforeseen technical complications, unrecognized defects and limitations in our technology or our ability to develop disease models or identify viable drug candidates. These complications could materially delay or substantially increase the anticipated costs and time to identify and develop viable drug candidates, which would have a material adverse effect on our business and financial condition and our ability to continue operations.
We will face intense competition in our drug discovery efforts.
The biotechnology industry is subject to intense competition and rapid and significant technological change. There are many potential competitors for the disease indications we may pursue, including major drug companies, specialized biotechnology firms, academic institutions, government agencies and private and public research institutions. Many of these competitors have significantly greater financial and technical resources, experience and expertise in the following areas than we have, including:
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research and technology development;
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development of or access to disease models;
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identification and development of drug candidates;
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regulatory processes and approvals; and
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identifying and entering into agreements with potential collaborators.
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Principal competitive factors in our industry include: the quality, scientific and technical support, management and the execution of drug development and regulatory approval strategies; skill and experience of employees, including the ability to recruit and retain skilled, experienced employees; intellectual property portfolio; range of capabilities, including drug identification, development and regulatory approval; and the availability of substantial capital resources to fund these activities.
In order to effectively compete, we may need to make substantial investments in our research and technology development, drug candidate identification and development, testing and regulatory approval and licensing and business development activities. There is no assurance that we will be successful in discovering effective drug candidates using our 3D bioprinted tissues or disease models. Our technologies and drug development plans also may be rendered obsolete or noncompetitive as a result of technologies, products and services introduced by competitors. Any of these risks may prevent us from building a successful drug discovery business or entering into a strategic partnership or collaboration related to, any drug candidates we identify on favorable terms, or at all.
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If we purse drug development through 3D bioprinted tissues and disease models, we will require access to a constant, steady, reliable supply of human cells to support our development activities.
If we pursue drug development through 3D bioprinted tissues and disease models, we will require access to a constant, steady, reliable supply of human cells to support our development activities. We typically purchased certain qualified human cells from selected third-party suppliers based on quality assurance, cost effectiveness, and regulatory requirements. We formed our wholly-owned subsidiary, Samsara, to eventually serve as a key source of the primary human cells we utilized in our business and we recently dissolved Samsara in connection with pursuing the proposed Merger with Tarveda, which was not successful. If we recommence our development operation, we will need to identify one or more sources of qualified human cells and there can be no guarantee that we would be able to access the quantity and quality of raw materials needed at a cost-effective price. In this event, any failure to obtain a reliable supply of sufficient human cells or a supply at cost effective prices would harm our business and our results of operations and could cause us to be unable to obtain a sufficient supply of human cells to support our drug development efforts.
The business plan proposed by the New Director Slate will be adversely impacted if we are unable to successfully attract, hire and integrate key additional employees or contractors.
Our future success depends in part on our ability to successfully attract and then retain key additional executive officers and other key employees and contractors to support our proposed drug discovery plans. Recruiting and retaining qualified scientific and clinical personnel is critical to our success. Competition to hire qualified personnel in our industry is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. If we are unable to attract and retain high quality personnel, our ability to pursue our drug discovery business will be limited, and our business, prospects, financial condition and results of operations may be adversely affected.
The business plan proposed by the New Director Slate will be adversely impacted if we are unable to secure adequate laboratory facilities and equipment.
In connection with our strategic alternatives process and restructuring beginning in August 2019, we exited our lease agreement for our prior company headquarters (which included laboratory space) and sold most of our lab equipment (with the exception of our bioprinters). In order to proceed with our proposed business plan, we will need to secure adequate lab space and equipment. If we are unable to secure such space and equipment at all, or on commercially reasonable terms, our business opportunity would be adversely impacted.
We may require substantial additional funding to pursue the business plan proposed by the New Director Slate. Raising additional capital would cause dilution to our existing stockholders and may restrict our operations or require us to relinquish rights to our technologies or to a drug candidate.
We currently do not have any committed external source of funds and do not expect to generate any meaningful revenue in the foreseeable future. The New Director Slate has advised us that they believe that our existing cash, cash equivalents and marketable securities and interest thereon will be sufficient to fund our projected operating requirements under the proposed business plan for at least 12 months. They have based these estimates on assumptions that may prove to be wrong, and the Company may use its available capital resources sooner than it currently expects if the operating plans change. If the New Director Slate elects to change the proposed business plan and decide that the Company should pursue further research and development activities, the Company will require substantial additional funding to operate its proposed business, including expanding its facilities and hiring additional qualified personnel, and would expect to finance these cash needs through a combination of equity offerings, debt financings, government or other third-party funding and licensing or collaboration arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt, the ownership interests of our stockholders will be diluted. In addition, the terms of any equity or convertible debt we agree to issue may include liquidation or other preferences that adversely affect the rights of our stockholders.
Further, additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail or cease our operations. Raising additional funding through debt or equity financing is likely to be difficult or unavailable altogether given the early stage of our technology and any drug candidates we identify. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings.
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Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes, and results of earlier studies and trials may not be predictive of future results.
Before obtaining marketing approval from regulatory authorities for the sale of any drug candidates we identify, any such drug candidates must undergo extensive clinical trials to demonstrate the safety and efficacy of the drug candidates in humans. Human clinical testing is expensive and can take many years to complete, and we cannot be certain that any clinical trials will be conducted as planned or completed on schedule, if at all. The New Director Slate has advised us that they may elect to have the Company complete this testing, or some portion thereof, internally or enter into a partnering or development agreement with a pharmaceutical company to complete these trials. Our inability, or the inability of any third party with whom we enter into a partnering or development agreement, to successfully complete preclinical and clinical development could result in additional costs to us and negatively impact our ability to generate revenues or receive development or milestone payments. Our future success is dependent on our ability, or the ability of any pharmaceutical company with who we enter into a partnering or development agreement, to successfully develop, obtain regulatory approval for, and then successfully commercialize any drug candidates we identify.
Any drug candidates we identify will require additional clinical development, management of clinical, preclinical and manufacturing activities, regulatory approval in applicable jurisdictions, achieving and maintaining commercial-scale supply, building of a commercial organization, substantial investment and significant marketing efforts. We are not permitted to market or promote any of our drug candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our drug candidates.
We, or any third party with whom we enter into a partnering or development agreement, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to earn development or milestone payments or for any drug candidates to obtain regulatory approval, including:
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we, or any third party with whom we enter into a partnering or development agreement, may experience delays in or failure to reach agreement on acceptable terms with prospective CROs and clinical sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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we, or any third party with whom we enter into a partnering or development agreement, may fail to obtain sufficient enrollment in clinical trials or participants may fail to complete clinical trials;
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clinical trials of our drug candidates may produce negative or inconclusive results, and we, or any pharmaceutical company with who we enter into a partnering or development agreement, may decide, or regulators may require, additional clinical trials;
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we, or any third party with whom we enter into a partnering or development agreement, may decide, or regulators or institutional review boards may require the suspension or termination of clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
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regulators or institutional review boards may require additional or unanticipated clinical trials to obtain approval or any drug candidates may be subject to additional post-marketing testing requirements to maintain regulatory approval;
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regulators may revise the requirements for approving any drug candidates, or such requirements may not be as anticipated;
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the cost of clinical trials for any drug candidates may be greater than anticipated;
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the supply or quality of any drug candidates or other materials necessary to conduct clinical trials of our drug candidates may be insufficient or inadequate or may be delayed;
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regulatory authorities may suspend or withdraw their approval of a product or impose restrictions on its distribution; and
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we may experience delays due to the recent COVID-19 pandemic, including with respect to the receipt of drug candidates or other materials, submission of NDAs, filing of INDs and starting any clinical trials for other indications or programs.
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If we, or any third party with whom we enter into a partnering or development agreement, experience delays in the completion of, or termination of, any clinical trial of any drug candidates that we develop, or are unable to achieve clinical endpoints due to unforeseen events, such as the COVID-19 pandemic, the commercial prospects of our drug candidates will be harmed, and our ability to develop milestones, development fees or product revenues from any of these drug candidates will be delayed.
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The New Director Slate has advised us that they expect that the Company will rely upon third-party contractors and service providers for the execution of critical aspects of any future development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of any future development programs.
The New Director Slate has advised us that they expect that the Company will outsource certain functions, tests and services to contract research organizations (“CROs”), medical institutions and collaborators as well as outsourcing manufacturing to collaborators and/or contract manufacturers, and we rely on third parties for quality assurance, clinical monitoring, clinical data management and regulatory expertise. They may elect in the future to engage a CRO to run all aspects of a clinical trial on our behalf. There is no assurance that such individuals or organizations will be able to provide the functions, tests, biologic supply or services as agreed upon or in a quality fashion and we could suffer significant delays in the development of our drug candidates or development programs.
In some cases, there may be only one or few providers of such services, including clinical data management or manufacturing services. In addition, the cost of such services could be significantly increased over time. We may rely on third parties and collaborators to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties and collaborators for clinical development activities reduces our control over these activities. Our reliance on these parties, however, does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with GCP regulations and the investigational plan and protocols contained in the regulatory agency applications. In addition, these third parties may not complete activities on schedule or may not manufacture under cGMP conditions. Preclinical or clinical studies may not be performed or completed in accordance with GLP regulatory requirements or our trial design. If these third parties or collaborators do not successfully carry out their contractual duties or meet expected deadlines, obtaining regulatory approval for manufacturing and commercialization of our drug candidates may be delayed or prevented. We may rely substantially on third-party data managers for our clinical trial data. There is no assurance that these third parties will not make errors in the design, management or retention of our data or data systems. There is no assurance these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.
In addition, we will exercise limited control over our third-party partners and vendors, which makes us vulnerable to any errors, interruptions or delays in their operations. If these third parties experience any service disruptions, financial distress or other business disruption, or difficulties meeting our requirements or standards, it could make it difficult for us to operate some aspects of our business.
The near and long-term viability of the drug discovery and development efforts proposed by the New Director Slate will depend on the Company’s ability to successfully establish strategic relationships.
The near and long-term viability of the drug discovery and development efforts proposed by the New Director Slate will depend in part on the Company’s ability to successfully establish new strategic partnering, collaboration and licensing arrangements with biotechnology companies, pharmaceutical companies, universities, hospitals, insurance companies and or government agencies. Establishing strategic relationships is difficult and time-consuming. Potential partners and collaborators may not enter into relationships with us based upon their assessment of our technology or drug candidates or our financial, regulatory or intellectual property position. If we fail to establish a sufficient number of strategic relationships on acceptable terms, we may not be able to develop and obtain regulatory approval for our drug candidates or generate sufficient revenue to fund further research and development efforts. Even if we establish new strategic relationships, these relationships may never result in the successful development or regulatory approval for any drug candidates we identify for a number of reasons both within and outside of our control.
Risks Related to our Historical Business
The development of new biopharmaceutical products involves a lengthy and complex process.
We previously focused the majority of our resources on the development of our liver tissue candidate. In addition to our liver tissue candidate, we conducted initial research and development activities on several other tissue candidates. Each of our therapeutic tissue candidates were in the early stages of research and development and would have required substantial financial resources, development, preclinical testing, clinical trials, manufacturing scale-up and regulatory approval prior to being ready for sale. If we decide to renew our focus on developing our liver tissue candidate and expend funds for such development, this process could take many years of effort without any assurance of ultimate success. Product development efforts with respect to a tissue candidate could fail for many reasons, including:
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the failure of the tissue candidate in preclinical or clinical studies, including failing to demonstrate sufficient durability and functionality to support further development activities;
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the inability to satisfy the regulatory requirements to successfully submit an IND with the FDA;
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adverse patient reactions to the tissue candidate or indications of other safety concerns;
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insufficient clinical trial data to support the effectiveness or superiority of the tissue candidate;
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inability to manufacture sufficient quantities of the tissue candidate for development, clinical, or commercialization activities in a timely and cost-efficient manner;
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failure to obtain, or delays in obtaining, the required regulatory approvals for the tissue candidate, the facilities or the process used to manufacture the tissue candidate;
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changes in the regulatory environment, including pricing and reimbursement, that make development of a new product or of an existing product for a new indication no longer attractive;
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the failure to obtain or maintain satisfactory drug reimbursement rates by governmental or third-party payers; and
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the development of a competitive product or therapy.
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The 3D bioprinted tissue candidates that we were developing represent new therapeutic approaches that could be subject to heightened regulatory scrutiny, delays in clinical development and/or delays in achieving the regulatory approvals required for commercialization.
Our liver tissue candidate represented a new approach to treating liver disease, inborn errors of metabolism, and other diseases. Similarly, our other early stage therapeutic tissue candidates represented new therapeutic approaches in their respective disease areas. However, we were unable to achieve satisfactory results with the liver tissue candidate which we were developing. As a result, the development of these therapeutic tissue candidates would be subject to a number of challenges, including:
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obtaining regulatory approval from the FDA and other regulatory authorities, which have limited experience with regulating the development and commercialization of 3D bioprinted human tissues developing and deploying consistent and reliable processes for manufacturing 3D bioprinted tissues for implantation into patients;
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utilizing these tissue candidates in combination with other therapies, which may increase the risk of adverse side effects;
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developing processes for the safe administration of these tissues, including long-term follow-up for all patients who receive these tissue candidates;
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sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and process these tissue candidates that are free from viruses and other pathogens that may increase the risk of adverse side effects;
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developing a manufacturing process and distribution network that can provide a stable supply with a cost of goods that allows for an attractive return on investment;
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qualifying, engaging, and training clinical trial investigators and institutions who will be able to implement the institutionally-approved protocols, recruit and treat patients, and generate data in accordance with targeted goals and timelines; and
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establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance, and obtaining adequate coverage, reimbursement and pricing by third-party payors and government authorities.
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The regulatory approval process for novel tissue candidates, such as our therapeutic tissue candidates, can be more expensive and take longer than for other, better known or extensively studied product candidates.
Further, the manufacturing processes we would be required to use in connection with our therapeutic tissue candidates may not yield a sufficient supply of satisfactory products that are safe, effective, scalable, or profitable.
Moreover, actual or perceived safety issues, including adoption of new therapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved, of physicians to subscribe to the novel treatment options.
Physicians, hospitals and third-party payors often are slow to adopt new products, technologies and treatment practices that require additional upfront costs and training. Physicians may not be willing to undergo training to adopt novel therapies, may decide the therapy is too complex to adopt without appropriate training and may choose not to administer the therapy. Based on these and other factors, hospitals and payors may decide that the benefits of a new therapy do not or will not outweigh its costs.
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We have not yet tested any bioprinted therapeutic tissue candidates in clinical trials. Results in early preclinical studies may not be indicative of results obtained in later preclinical studies. Similarly, results from early clinical trials may not be indicative of results obtained in later clinical trials.
Our tissue candidates involve novel technologies and have never been evaluated in clinical trials. It is unknown how translatable the preclinical animal models used in our preclinical studies are to humans. If we elect to resume the development of our therapeutic tissues, we would be required to demonstrate through adequate and well-controlled clinical trials that our tissue candidates are safe and effective, with a favorable risk-benefit profile, for use in their target indications before we could have sought regulatory approvals for their commercial sale. Initial positive results we have observed for our tissue candidates in preclinical animal models may not be predictive of results from our later preclinical trial results, nor of results from future clinical trials in humans. For example, in May 2019, we announced that data generated from a larger group of animal studies differed from our earlier pilot studies and put into question the durability and functionality of our liver tissue candidate. In August 2019, we announced our decision to stop pursuing the development of our liver tissue candidate following our completion of additional studies that did not resolve the durability and functionality issues we had identified. We also announced that as a result of these adverse study results, our board of directors determined that it is in the best interests of our stockholders to explore our available strategic alternatives, rather than to continue to pursue our therapeutic liver tissue and other early stage development projects.
Our experience manufacturing therapeutic tissues is limited. We believe that manufacturing issues, including technical or quality issues or issues, contributed to the viability and functionality issues with our liver tissue candidate, and our ultimate decision to stop the development of this tissue. There is no assurance that we can solve these and any future manufacturing issues.
Before initiating a clinical trial or commercializing any of our tissue candidates, we would have been required to demonstrate to the FDA that the chemistry, manufacturing and controls for our tissue products meet applicable requirements. Because no bioprinted tissue product has been approved in the United States, there is no manufacturing facility that has demonstrated the ability to comply with FDA requirements, and therefore the timeframe and requirements for demonstrating compliance to the FDA’s satisfaction is uncertain.
Bioprinted tissue manufacturing is an emerging industry. To our knowledge, there are no contract manufacturing organizations with experience in manufacturing bioprinted tissue products under GMP conditions. We have conducted all of our manufacturing internally.
We conducted all of our research in research facilities and we were in the process of implementing applicable FDA manufacturing requirements. However, we have limited experience as a company in developing a manufacturing facility that meets all applicable GMP requirements, and we may never have been successful in developing our own manufacturing facility.
Manufacturing our therapeutic tissue candidates is complicated and presents novel technical challenges. We believe that manufacturing issues, including technical or quality issues, contributed to the viability and functionality issues with our liver tissue candidate, and our ultimate decision to stop the development of this tissue. If we elect to resume the development of our therapeutic tissues, we may encounter problems achieving adequate quantities and quality of clinical-grade materials to conduct our clinical trials, or to meet FDA, European Medicines Agency or other applicable standards or specifications with consistent and acceptable production yields and costs.
We have not scaled up the manufacturing process for our therapeutic liver tissue beyond the scale used for research and nonclinical studies. The time and efforts required for us to develop and validate our manufacturing process to support clinical use would potentially delay our ability to develop this program in accordance with our expected timelines.
In order to manufacture and supply any of our tissue candidates on a commercial scale in the future, we would be required to bolster our quality control and quality assurance capabilities, including by augmenting our manufacturing processes and adding personnel. We may encounter problems hiring and retaining the experienced specialist scientific and manufacturing personnel needed to operate our manufacturing process, which could result in additional delays in our production or difficulties in maintaining compliance with applicable regulatory requirements. Further, if we engage in scale-up manufacturing of any approved product, we may encounter unexpected issues relating to the manufacturing processes, donor variability, or the quality, purity or stability of the product, and we may be required to refine or alter our manufacturing processes to address these issues. Resolving these issues could result in significant additional delays and result in significantly increased costs.
Further, any unresolved problems in our manufacturing process could make us a less attractive collaborator for potential partners, including larger pharmaceutical companies and academic research institutions, which could limit our ability to successfully enter into a strategic partnership or collaboration related to, or otherwise license or sell the assets or intellectual property associated with, our in vivo therapeutic tissues and manufacturing technologies on favorable terms, or at all.
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We obtained our clinical grade livers from a single source, and if we elect to resume the development of our therapeutic liver tissue, we will need to reestablish a commercial source for our clinical grade livers or isolated cells to support our clinical trials and/or commercialization.
Our liver tissue candidate was manufactured using human primary liver cells from non-transplantable livers we receive from the International Institute for the Advancement of Medicine. We relied upon this single source to obtain the clinical grade non-transplantable livers that served as the starting materials for manufacturing the liver cells we used in our therapeutic liver tissue. The availability and quality of clinical grade livers may be sporadic and unpredictable. As a result, if we elect to renew our focus on development of our therapeutics tissues, we will need to reestablish a commercial source for our clinical grade livers or isolated cells to supply our clinical program or meet commercial demand, and our development plans may be delayed or stalled, which would significantly harm our business. In addition, in order to preserve resources, we discontinued our ability to isolate liver cells from donated organs by restructuring our operations and dissolving our Samsara subsidiary. In order to recommence isolating liver cells from donated organs, we would need to reestablish the access to cell isolation capabilities either through an external collaboration or internally, which could require significant time and financial resources.
Our liver tissue candidate included primary cells from two donors. If the FDA did not authorize us to include cells from more than one donor, our development timeline would be delayed.
Our NovoTissues Liver product was manufactured using cells from a liver donor and cells from an umbilical cord donor. Under 21 CFR §1271, cells from more than one donor cannot be combined in the manufacturing process absent a waiver from the FDA. We applied to the FDA for a waiver authorizing us to include cells from two donors in manufacturing our therapeutic liver tissue for clinical trials. As a result, even if we elected to resume the development of our therapeutic liver tissues, we would be required to redesign our therapeutic liver tissue unless we received a waiver from the FDA. This decision by the FDA could result in additional development costs and a delay in our development timeline, in which case our business would be materially harmed.
If we elect to resume the development of our therapeutic tissues, we may not enjoy the market exclusivity benefits of any orphan drug designation.
Under the Orphan Drug Act, the first product with an orphan drug designation receives market exclusivity, which prohibits the FDA from approving the “same” drug for the same indication. The FDA has stated that drugs can be the “same” even when they are not identical, but has not provided guidance with respect to how it will determine “sameness” in the context of 3D bioprinted tissues. If we elected to continue to pursue the development of our therapeutic tissues, it could be possible that another bioprinted therapeutic tissue product could be approved for the treatment of a disease one of our orphan products is intended to treat before our product is approved, which means that we would not obtain orphan drug exclusivity and could also potentially be blocked from approval until the first product’s orphan drug exclusivity for a product expires or until we demonstrated, if we could, that our product is superior. Further, if we obtained orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved and granted orphan drug exclusivity, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care.
If we elect to resume the development of our therapeutic tissues, a competitor may achieve regulatory approval before we do or develop therapies that are more advanced or effective than ours, which would harm our business and financial condition, and our ability to successfully market or commercialize any tissue candidates.
The biotechnology and pharmaceutical industries, including the fields of gene therapies, cellular therapies, and engineered tissue products, are characterized by rapid technological progress, competition, and a strong emphasis on intellectual property. We are aware of several companies focused on developing gene therapies and cellular therapies for use in treating end stage liver disease and/or inborn errors of metabolism. If we elect to resume the development of our therapeutic tissues, we may face competition from large or specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies, and public and private research institutions.
Some of our potential competitors, alone or with their strategic partners, have greater financial, technical and other resources than we do, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in these industries may result in even greater concentration of resources among a smaller number of competitors. If we elect to resume the development of our therapeutic tissues, these competitors may obtain FDA or other regulatory approval for their products more rapidly than us, which could result in our competitors establishing a strong market position before we would be able to enter the market, if ever. Further, new or advanced technologies may render our tissue candidates uneconomical or obsolete. Our competitors could also develop products that are safer, more effective, have fewer or less side effects, or are more convenient or less expensive than any tissue candidates that we elected to develop.
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If we elect to resume the development of our in vitro tissues business, such business would depend on new and unproven technology and approaches, and we may be unable to establish it as a profitable, standalone business.
Our in vitro products and services involve new and unproven models and approaches. We began offering our first commercial product (and related research services), our ExVive™ Human Liver Tissue, on a limited basis in April 2014 and more broadly in November 2014. We began offering our second product (and related research services), our ExVive™ Human Kidney Tissue, for predictive preclinical testing of drug compounds in September 2016. In May 2019, we announced plans to conduct additional preclinical studies necessary to optimize our manufacturing processes and complete additional preclinical studies that would generate consistent scientific data regarding the prolonged functionality and therapeutic benefits of our in vivo liver tissues. After a rigorous assessment of our liver therapeutic tissue program following completion of these additional studies, we concluded that the variability of biological performance and related duration of potential benefits presented development challenges and lengthy timelines that no longer supported an attractive opportunity. As a result, we suspended development of our lead program. We also suspended development of all other related pipeline development activity.
Our commercial products reflected a novel approach to preclinical testing of drug compounds and disease modeling, and even if we elect to resume the development of our products there is no assurance that they would perform as expected or as would be required by our customers. The commercial acceptance of, and the results of our efforts to increase customer awareness and demand for, our drug discovery and biological research tools, products and services, did not result in our development of a profitable, standalone business. In addition, we experienced that some of our customers continued to require unique features, cell sourcing, validation data, or greater degrees of reproducibility than we were able to achieve to date, in order to utilize our commercial products in their drug discovery, biological research or development programs. Even if we or our customers are successful in our respective efforts, we or our customers may not be able to discover or develop commercially viable therapeutics or other products therefrom. Based on these and other risks, there is no assurance that, if we elect to resume the development of our in vitro tissues business, that we would be successful in our efforts to advance the programs and commercialize our products.
The successful commercialization of our in vitro products and services is subject to a variety of risks.
If we elect to pursue the commercialization of our in vitro products and services, any such efforts would be subject to risks and uncertainties, including:
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failing to develop products or services that are effective, reproducible, and competitive;
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failing to demonstrate the commercial and technical viability of any products or services that we successfully develop, failing to meet customer expectations or requirements or otherwise failing to achieve market acceptance of such products or services;
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failing to be cost effective and timely;
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being unable to implement features or functionality required by customers;
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being difficult or impossible to manufacture on a large scale;
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being unable to establish and maintain supply and manufacturing relationships with reliable third parties;
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being unable to obtain a sufficient supply of human cells for our products, services and research and development activities on a timely basis and at acceptable quality levels and costs;
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failing to develop our products and services before the successful marketing of similar products and services by competitors;
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being unable to hire and retain qualified personnel; and
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infringing the proprietary rights of third parties or competing with superior products marketed by third parties.
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If we elect to resume the development and commercialization of our in vitro products, any of these or any other risks and uncertainties could occur, our efforts to commercialize our in vitro products and services may be unsuccessful, which would harm our business and results of operations. Further, these risks may prevent us from successfully entering into a strategic partnership or collaboration related to, or otherwise license or sell the assets or intellectual property associated with, our in vivo therapeutic liver tissue on favorable terms, or at all. If we fail to do so, any strategic transaction we consummate may offer limited value for our business and proprietary technology and may not enhance stockholder value.
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If we elect to resume the development and commercialization of our in vitro products, we would face intense competition which could result in reduced acceptance and demand for our in vitro products and services.
The biotechnology industry is subject to intense competition and rapid and significant technological change. There are many potential competitors for our in vitro products and services, including major drug companies, specialized biotechnology firms, academic institutions, government agencies and private and public research institutions. Many of these competitors have significantly greater financial and technical resources, experience and expertise in the following areas than we have, including:
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research and technology development;
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product identification and development;
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regulatory processes and approvals;
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production and manufacturing;
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securing government contracts and grants to support their research and development efforts;
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sales and marketing of products, services and technologies; and
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identifying and entering into agreements with potential collaborators.
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Principal competitive factors in our industry include: the quality, scientific and technical support, price and breadth of technology and services; management and the execution of product development and commercialization strategies; skill and experience of employees, including the ability to recruit and retain skilled, experienced employees; intellectual property portfolio; range of capabilities, including product identification, development, regulatory approval, manufacturing and marketing; and the availability of substantial capital resources to fund these activities.
In order to effectively compete, we would need to make substantial investments in our research and technology development, product identification and development, testing and regulatory approval, manufacturing, customer awareness activities, publications of our technology and results in scientific publications and sales and marketing activities. If we elected to do so, there is no assurance that we would be successful in commercializing and gaining significant market share for any products or services we offer in part through use of our technology. Our technologies, products and services also may be rendered obsolete or noncompetitive as a result of products and services introduced by competitors. Any of these risks may prevent us from successfully building a successful in vitro business or entering into a strategic partnership or collaboration related to, or otherwise license or sell the assets or intellectual property associated with, our in vitro business on favorable terms, or at all. If we fail to do so, any strategic transaction we consummate may offer limited value for our business and proprietary technology and may not enhance stockholder value.
If we elect to resume the development and commercialization of our in vitro products, we would require access to a constant, steady, reliable supply of human cells to successfully develop and commercialize our in vitro products and services.
If we elect to resume the development and commercialization of our in vitro products, we would require a reliable supply of qualified human cells for our commercial products and services and for our research and product development activities. We typically purchased certain qualified human cells from selected third-party suppliers based on quality assurance, cost effectiveness, and regulatory requirements. We formed our wholly-owned subsidiary, Samsara, to eventually serve as a key source of the primary human cells we utilized in our business and we recently dissolved Samsara in connection with pursuing the proposed Merger with Tarveda, which was not successful. We have relied on a combination of third-party suppliers and Samsara to meet our demand for human cells for our in vitro business. We worked closely with Samsara and our third-party suppliers to assure adequate supply while maintaining high quality and reliability. Following any resumption of the development and commercialization of our in vitro products and services, if demand for our products and services were to grow significantly, we would most likely need to identify additional sources of qualified human cells and there can be no guarantee that we would be able to access the quantity and quality of raw materials needed at a cost-effective price. In this event, any failure to obtain a reliable supply of sufficient human cells or a supply at cost effective prices would harm our business and our results of operations and could cause us to be unable to comply with the associated contractual obligations we would owe to our customers and collaboration partners.
Risks Related to Government Regulation
Violation of government regulations or quality programs could harm demand for our products or services, and the evolving nature of government regulations could have an adverse impact on our business.
To the extent that our products are used in the manufacturing or testing processes for customers drug and medical device products, such end-products or services may be regulated by the FDA under Quality System Regulations (“QSR”) or the Centers for Medicare & Medicaid Services under Clinical Laboratory Improvement Amendments of 1988 (“CLIA’88”) regulations. The customer is ultimately responsible for QSR, CLIA’88 and other compliance requirements for their products. Failure to comply with these requirements could result in lost sales of our products and regulatory delays or objections and potential product liability claims. In
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addition, customers may require that services be conducted pursuant to the requirements of Good Laboratory Practice (“GLP”) in order to provide suitable data for their INDs and other regulatory filings. No regulatory review of data from our platform technology has yet been conducted and there is no guarantee that our technology will be acceptable under GLP, or that compliance with GLP requirements could be achieved on the timetable required by customers. As a result, the violation of government regulations or failure to comply with quality requirements could harm demand for these products or services, and the evolving nature of government regulations could have an adverse impact on our ability to commercialize our products or services or sell the assets or intellectual property associated with these products and services on favorable terms, or at all. If we fail to do so, any strategic transaction we consummate may offer limited value for our existing business and proprietary technology and may not enhance stockholder value.
In the past, we have used hazardous chemicals, biological materials and infectious agents in our business. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.
Our product manufacturing, research and development, and testing activities have involved the controlled use of hazardous materials, including chemicals, biological materials and infectious disease agents. We cannot eliminate the risks of accidental contamination or the accidental spread or discharge of these materials, or any resulting injury from such an event. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our insurance coverage and our total assets. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. We were also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, and the experimental use of animals. Our operations may have required that environmental permits and approvals be issued by applicable government agencies. If we failed to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance.
Risks Related to Our Capital Requirements, Finances and Operations
Our board of directors may decide to pursue a dissolution and liquidation of the Company. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.
If the Advisory Proposal is not approved at the 2020 Annual Meeting, our board of directors may decide to pursue a dissolution and liquidation of the Company, which would also require stockholder approval. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as we continue to fund our operations, and the costs that would be incurred to effect such liquidation or dissolution. In addition, if our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation of the Company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provisions for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. As a result of this requirement, a portion of our remaining cash assets may need to be reserved pending the resolution of such obligations. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation of the Company. If a dissolution and liquidation were pursued, our board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of our liquidation, dissolution or winding up.
We may be unable to continue as a going concern in the future.
We have had recurring losses from operations since inception and will likely not generate meaningful revenue for the foreseeable future. We believe that our existing cash, cash equivalents and marketable securities and interest thereon will be sufficient to fund our projected operating requirements under our current operating plan. However, if our operating plans change and our projected operating requirements increase, we may be unable to continue as a going concern. In this event, the perception that we may not be able to continue as a going concern may have an adverse impact on our business due to concerns about our ability to meet our future contractual obligations or pursue additional strategic transactions. Further, if we are unable to continue as a going concern, we may have to liquidate our assets, and the values we receive for our assets in liquidation and dissolution could be significantly lower than the values reflected in our financial statements and an investor could lose all or part of its investment in our equity.
If we were to resume our research and development activities and pursue development of any of our pipeline products, we would require substantial additional funding. Raising additional capital would cause dilution to our existing stockholders and may restrict our operations or require us to relinquish rights to our technologies or to a product candidate.
We currently do not have any committed external source of funds and do not expect to generate any meaningful revenue in the foreseeable future. We believe that our existing cash, cash equivalents and marketable securities and interest thereon will be sufficient to fund our projected operating requirements under our current operating plan. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect if our operating plans change. If
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our current operating plans change and we decide to pursue further research and development activities, we will require substantial additional funding to operate our business, including to expand our facilities and hire additional qualified personnel, and would expect to finance these cash needs through a combination of equity offerings, debt financings, government or other third-party funding and licensing or collaboration arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt, the ownership interests of our stockholders will be diluted. In addition, the terms of any equity or convertible debt we agree to issue may include liquidation or other preferences that adversely affect the rights of our stockholders. Convertible debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, and declaring dividends, and may impose 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.
Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to curtail or cease our operations.
Given our failure to obtain stockholder approval for the proposed Merger with Tarveda, raising additional funding through debt or equity financing will be difficult or not successful at all, would be dilutive and may cause the market price of our common stock to decline further. Raising additional funding through debt or equity financing is likely to be difficult or unavailable altogether given the early stage of our therapeutic candidates. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline further and existing stockholders may not agree with our financing plans or the terms of such financings.
We have a history of operating losses and expect to incur significant additional operating losses.
We have generated operating losses each year since we began operations, including $2.8 million and $6.5 million for the three months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, we had incurred cumulative operating losses of $232.7 million and cumulative net losses totaling $282.3 million. We expect to incur substantial additional operating losses over the next several years. To achieve profitability, we must either generate sufficient revenue through our in vitro tissues business to offset the costs of operating our business, or we must successfully develop and obtain regulatory approval for one or more of our therapeutic candidates and effectively market and sell any products we develop. Even if we are successful in commercializing a therapeutic product that receives regulatory approval, we may not be able to realize revenues at a level that would allow us to achieve or sustain profitability. We may never generate significant revenue, and even if we do generate significant revenue, we may never achieve profitability.
Our quarterly operating results may vary, which could negatively affect the market price of our common stock.
Our results of operations in any quarter may vary from quarter to quarter and are influenced by such factors as expenses related to:
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evaluating and implementing strategic alternatives, technology licensing opportunities, potential collaborations, and other strategic transactions;
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responding to the SEC inquiry;
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responding to shareholder demand letters; and
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changes in costs related to the COVID-19 pandemic or the general global economy.
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We believe that operating results for any particular quarter are not necessarily a meaningful indication of future results. Nonetheless, fluctuations in our quarterly operating results could negatively affect the market price of our common stock.
Our business could be adversely impacted if we are unable to retain our executive officers and other key personnel.
Our future success will depend to a significant degree upon the continued contributions of our key personnel, especially our executive officers. We do not currently have long-term employment agreements with our executive officers or our other key personnel, and there is no guarantee that our executive officers or key personnel will remain employed with us. Moreover, we have not obtained key man life insurance that would provide us with proceeds in the event of the death, disability or incapacity of any of our executive officers or other key personnel. Further, the process of attracting and retaining suitable replacements for any executive officers and other key personnel we lose in the future would result in transition costs and would divert the attention of other members of our senior management from our existing operations. Additionally, such a loss could be negatively perceived in the capital markets. The election of the New Director Slate would represent a change of control, whereby the officers will likely leave the company and need to be replaced.
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We may be subject to security breaches or other cybersecurity incidents that could compromise our information and expose us to liability.
We routinely collect and store sensitive data (such as intellectual property, proprietary business information and personally identifiable information) for the Company, its employees and its suppliers and customers. We make significant efforts to maintain the security and integrity of our computer systems and networks and to protect this information. However, like other companies in our industry, our networks and infrastructure may be vulnerable to cyber-attacks or intrusions, including by computer hackers, foreign governments, foreign companies or competitors, or may be breached by employee error, malfeasance or other disruption. Any such breach could result in unauthorized access to (or disclosure of) sensitive, proprietary or confidential information of ours, our employees or our suppliers or customers, and/or loss or damage to our data. Any such unauthorized access, disclosure, or loss of information could cause competitive harm, result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and/or cause reputational harm.
Risks Related to Our Common Stock and Liquidity Risks
We could fail to maintain the listing of our common stock on The Nasdaq Capital Market, which could seriously harm the liquidity of our stock and our ability to raise capital or complete a strategic transaction.
The Nasdaq Stock Market LLC (“Nasdaq”) has established continued listing requirements, including a requirement to maintain a minimum closing bid price of at least $1 per share. If a company trades for 30 consecutive business days below such minimum closing bid price, it will receive a deficiency notice from Nasdaq. Assuming it is in compliance with the other continued listing requirements, Nasdaq would provide such company a period of 180 calendar days in which to regain compliance by maintaining a closing bid price at least $1 per share for a minimum of ten consecutive business days.
On June 25, 2019, we received a notice letter from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer met the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, we obtained an additional compliance period of 180 calendar days by electing to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market. On March 26, 2020, we obtained shareholder approval to effect a reverse stock split in a range from 20:1 to 40:1, which is subject to the approval of our board of directors (such final ratio, as determined by our board of directors, the “Reverse Stock Split Ratio” such reverse stock split, the “Reverse Stock Split”). On April 17, 2020 we received an additional notice letter from Nasdaq indicating that based on extraordinary market conditions, Nasdaq has determined to toll the compliance periods for bid price and market value of publicly held shares requirements (collectively, the “Price-based Requirements”) through June 30, 2020. Accordingly, since we had 66 calendar days remaining in, the compliance period as of April 16, 2020, we will, upon reinstatement of the Price-based Requirements, still have 66 calendar days from July 1, 2020, or until September 4, 2020, to regain compliance. We can regain compliance, either during the suspension or during the compliance period resuming after the suspension, by evidencing compliance with the Price-based Requirements for a minimum of 10 consecutive trading days. We intend to comply with the Price-based Requirements by effecting the Reverse Stock Split. However, there can be no assurance that we will be able to regain compliance with the minimum bid price requirement or maintain compliance with the other listing requirements necessary for us to maintain the listing of our common stock on The Nasdaq Capital Market. If we are unable to cure the deficiency or regain compliance, our common stock will be delisted from The Nasdaq Capital Market and begin trading on the OTC bulletin board.
A delisting from The Nasdaq Capital Market and commencement of trading on the OTC bulletin board would likely result in a reduction in some or all of the following, each of which could have a material adverse effect on stockholders:
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the liquidity of our common stock;
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the market price of our common stock (and the accompanying valuation of our Company);
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our ability to obtain financing or complete a strategic transaction;
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the number of institutional and other investors that will consider investing in shares of our common stock;
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the number of market markers or broker-dealers for our common stock; and
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the availability of information concerning the trading prices and volume of shares of our common stock.
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The Reverse Stock Split that we intend to effect may not increase our stock price over the long-term.
The principal purpose of the Reverse Stock Split is to increase the per share market price of our common stock. It cannot be assured, however, that the Reverse Stock Split will accomplish the objective of increasing the per share market price of our common stock for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of our common stock will proportionally increase the market price of our common stock, it cannot be assured that the Reverse Stock Split will increase the
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market price of our common stock by a multiple of the Reverse Stock Split Ratio, as determined by our board of directors, or result in any permanent or sustained increase in the market price of our common stock, which is dependent upon many factors, including our business and financial performance, general market conditions and prospects for future success. Therefore, while price of our common stock might meet the continued listing requirements for The Nasdaq Capital Market initially, it cannot be assured that it will continue to do so.
The Reverse Stock Split may decrease the liquidity of our common stock.
Although our board of directors believes that the anticipated increase in the market price of our common stock could encourage interest in our common stock and possibly promote greater liquidity for our stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the Reverse Stock Split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for our common stock.
The Reverse Stock Split may lead to a decrease in our overall market capitalization.
Should the market price of our common stock decline after the Reverse Stock Split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the Reverse Stock Split. A reverse stock split may be viewed negatively by the market and, consequently, can lead to a decrease in our market capitalization. If the per share market price does not increase in proportion to the Reverse Stock Split ratio, then the value of our Company, as measured by its stock capitalization, will be reduced. In some cases, the per share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of our common stock will remain the same after the Reverse Stock Split is effected, or that the Reverse Stock Split will not have an adverse effect on the stock price of our common stock due to the reduced number of shares outstanding after the Reverse Stock Split.
Our two largest shareholders have significant influence over key decision making as a result of their concentrated ownership of the voting power of our outstanding capital stock.
Our two largest shareholders, ARK Investment Management LLC (“ARK”) and Nikko Asset Management Americas, Inc. (“Nikko”), collectively own approximately 30% of our outstanding stock and, as demonstrated by the unsuccessful proposed Merger with Tarveda, are able to exercise sufficient voting rights to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, sale of all or substantially all of our assets, or liquidation or dissolution. This concentrated position could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets, or liquidation or dissolution that a substantial portion of our other stockholders support, or conversely this significant influence could potentially result in the consummation of such a transaction or liquidation that a substantial portion of our other stockholders do not support. This significant influence could also discourage a potential investor from acquiring our common stock or a potential counterparty from entering into negotiations about a potential strategic transaction and might harm the trading price of our common stock. As stockholders, even with significant influence, ARK and Nikko are entitled to vote their shares in their own interests, which may not always be in the interests of our stockholders generally.
We have a limited trading history and there is no assurance that an active market in our common stock will continue at present levels or increase in the future.
There is limited trading history in our common stock, and although our common stock is now traded on The Nasdaq Capital Market, there is no assurance that an active market in our common stock will continue at present levels or increase in the future. As a result, an investor may find it difficult to dispose of our common stock on the timeline and at the volumes they desire. This factor limits the liquidity of our common stock and may have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.
Compliance with the reporting requirements of federal securities laws can be expensive.
We are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including the compliance obligations of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). The costs of complying with the reporting requirements of the federal securities laws, including preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders, can be substantial.
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If we fail to comply with the rules of Section 404 of the Sarbanes-Oxley Act related to accounting controls and procedures, or, if we discover material weaknesses and deficiencies in our internal control and accounting procedures, we may be subject to sanctions by regulatory authorities and our stock price could decline.
Section 404 of the Sarbanes-Oxley Act (the “Section 404”) requires that we evaluate and determine the effectiveness of our internal control over financial reporting. We believe our system and process evaluation and testing comply with the management certification requirements of Section 404. We cannot be certain, however, that we will be able to satisfy the requirements in Section 404 in all future periods. If we are not able to continue to meet the requirements of Section 404 in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC or Nasdaq. Any such action could adversely affect our financial results or investors’ confidence in us and could cause our stock price to fall. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we identify deficiencies in our internal controls that are deemed to be material weaknesses, we may be required to incur significant additional financial and management resources to achieve compliance.
The price of our common stock may continue to be volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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continued macroeconomic conditions related to the COVID-19 pandemic;
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any announcement regarding the strategic transaction process;
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reduced government funding for research and development activities;
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actual or anticipated variations in our operating results;
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adoption of new accounting standards affecting our industry;
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additions or departures of key personnel;
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sales of our common stock or other securities in the open market;
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degree of coverage of securities analysts and reports and recommendations issued by securities analysts regarding our business;
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volume fluctuations in the trading of our common stock; and
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other events or factors, many of which are beyond our control.
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The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.
Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our capital stock.
We are authorized to issue 200,000,000 shares of common stock and 25,000,000 shares of preferred stock. As of June 30, 2020, there were an aggregate of 157,975,208 shares of our common stock issued and outstanding and available for issuance on a fully diluted basis and no shares of preferred stock outstanding. That total for our common stock includes 27,357,005 shares of our common stock that may be issued upon the exercise of outstanding stock options or is available for issuance under our equity incentive plans, and 1,188,718 shares of common stock that may be issued through our Employee Stock Purchase Plan (“ESPP”).
In the future, we may issue additional authorized but previously unissued equity securities to raise funds to support our continued operations and to implement our business plan. We may also issue additional shares of our capital stock or other securities that are convertible into or exercisable for our capital stock in connection with hiring or retaining employees, future acquisitions, or for other business purposes. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders may result. In addition, the future issuance of any such additional shares of capital stock may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock is currently traded on The Nasdaq Capital Market. Moreover, depending on market conditions, we cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or to our stockholders.
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We do not intend to pay dividends for the foreseeable future.
We have paid no dividends on our common stock to date and it is not anticipated that any dividends will be paid to holders of our common stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of our business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock and could significantly affect the value of any investment.
Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.
Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions:
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authorize the issuance of preferred stock which can be created and issued by our board of directors without prior stockholder approval, with rights senior to those of the common stock;
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provide for a classified board of directors, with each director serving a staggered three-year term;
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prohibit our stockholders from filling board vacancies, calling special stockholder meetings, or taking action by written consent; and
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require advance written notice of stockholder proposals and director nominations.
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In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
Risks Related to Our Intellectual Property
If we are not able to adequately protect our proprietary rights, our business could be harmed.
Our success will depend to a significant extent on our ability to obtain patents and maintain adequate protection for our technologies, intellectual property and products and service offerings in the United States and other countries. If we do not protect our intellectual property adequately, competitors may be able to use our technologies and gain a competitive advantage.
To protect our products and technologies, we and our collaborators and licensors must prosecute and maintain existing patents, obtain new patents and pursue other intellectual property protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products and technologies. Moreover, the patent positions of many biotechnology and pharmaceutical companies are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, we cannot guarantee that:
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any patent applications filed by us will issue as patents;
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third parties will not challenge our proprietary rights, and if challenged that a court or an administrative board of a patent office will hold that our patents are valid and enforceable;
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third parties will not independently develop similar or alternative technologies or duplicate any of our technologies by inventing around our claims;
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any patents issued to us will cover our technology and products as ultimately developed;
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we will develop additional proprietary technologies that are patentable;
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the patents of others will not have an adverse effect on our business; or
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as issued patents expire, we will not lose some competitive advantage.
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We may not be able to protect our intellectual property rights throughout the world.
Certain foreign jurisdictions have an absolute requirement of novelty that renders any public disclosure of an invention immediately fatal to patentability in such jurisdictions. Therefore, there is a risk that we may not be able to protect some of our intellectual property in the United States or abroad due to disclosures, which we may not be aware of, by our collaborators or licensors. Some foreign jurisdictions prohibit certain types of patent claims, such as “method-of-treatment/use-type” claims; thus, the scope of protection available to us in such jurisdictions is limited.
Moreover, filing, prosecuting and defending patents on all of our potential products and technologies throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not sought or obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our future products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
We may be involved in lawsuits or other proceedings to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our collaborators or licensors. Or, our licensors may breach or otherwise prematurely terminate the provisions of our license agreements with them. To counter infringement or unauthorized use, we may be required to file infringement claims or lawsuits, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our collaborators or licensors is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Additionally, our licensors may retain certain rights to use technologies licensed by us for research purposes. Patent disputes can take years to resolve, can be very costly and can result in loss of rights, injunctions and substantial penalties. Moreover, patent disputes and related proceedings can distract management’s attention and interfere with running the business.
Furthermore, because of the potential for substantial discovery in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments which could harm our business.
As more companies file patents relating to bioprinters and bioprinted tissues, it is possible that patent claims relating to bioprinters or bioprinted human tissue may be asserted against us, and any such assertions could harm our business. Moreover, we may face claims from non-practicing entities, which have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect. Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation and diversion of resources, cause product shipment or delays or require us to enter into royalty or license agreements. These licenses may not be available on acceptable terms, or at all. Even if we are successful in defending such claims, infringement and other intellectual property litigation can be expensive and time-consuming to litigate and divert management’s attention from our core business. Any of these events could harm our business significantly.
Our current and future research, development and commercialization activities also must satisfy the obligations under our license agreements. Any disputes arising under our license agreements could be costly and distract our management from the conduct of our business. Moreover, premature termination of a license agreement could have an adverse impact on our business.
In addition to infringement claims against us, if third parties have prepared and filed patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the United States Patent and Trademark Office (“PTO”) to determine the priority of invention. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party.
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Third parties may also attempt to initiate reexamination, post grant review or inter partes review of our patents or those of our collaborators or licensors in the PTO. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology.
We depend on license agreements with University of Missouri, Clemson, and UniQuest for rights to use certain patents, pending applications, and know how. Failure to comply with obligations under these agreements and any related or other termination of these agreements could materially harm our business and prevent us from developing or commercializing new product candidates.
We are party to license agreements with University of Missouri, Clemson, and UniQuest PC under which we were granted exclusive rights to patents and patent applications that are important to our business and to our ability to develop and commercialize our NovoGen Bioprinters and 3D tissue products fabricated using our NovoGen Bioprinters. Our rights to use these patents and patent applications and employ the inventions claimed in these licensed patents are subject to the continuation of and our compliance with the terms of our license agreements. If we were to breach the terms of these license agreements and the agreements were terminated as a result, our ability to continue to develop and commercialize our NovoGen Bioprinters and 3D tissue products and to operate our business could be adversely impacted.