Business Overview
We are a
biotechnology company currently focused on developing therapeutic products and
research products. In the area of therapeutic product development, our objective
is to create an unlimited source of human cells for use in the treatment of
several diseases including diabetes, liver disease, corneal disease and retinal
disease through cell transplant therapy. In furtherance of this objective, we
are currently developing (i) stem cells that are comparable in function to,
but distinct in derivation from, embryonic stem cells from which cells for human
transplant can be derived, (ii) techniques to cause those cells to be
“differentiated” into the specific cell types required for transplant, and
(iii) manufacturing protocols to produce these cells without contamination
with animal by-products in compliance with U.S. Food and Drug Administration
requirements. While our cell lines are comparable to embryonic cell lines
because they have the potential to become any cell in the human body through
differentiation, the development of our cell lines does not require the use of
fertilized eggs or the destruction of any embryos created through
fertilization.
Incidental
to the research being conducted in the development of therapeutic products, we
have developed research products (specialized cell systems, media and reagents
for use in stem cell and other medical research) which we have commercialized
and are selling to academic institutions, governmental entities and commercial
research companies. The sale of these research products is expected to provide
us with revenue to support a portion of the development of therapeutic
products.
According
to the National Institutes of Health, research on stem cells is advancing
knowledge about how an organism develops from a single cell and how healthy
cells replace damaged cells in adult organisms. This area of science is also
leading scientists to investigate the possibility of cell-based therapies to
treat disease, which is often referred to as regenerative or reparative
medicine. A potential application of human stem cells is the generation of cells
and tissues that may be used for cell-based therapies. Today, donated organs and
tissues are often used to replace ailing or destroyed tissue, but the need for
transplantable tissues and organs far outweighs the available supply. Stem
cells, directed to differentiate into specific cell types, offer the possibility
of a renewable source of replacement cells and tissues to treat diseases
including diabetes, liver disease, corneal disease and retinal
disease.
Stem
cells are undifferentiated primary cells that have the potential to become any
tissues or organs of the body. However, stem cell therapies have technical,
ethical and legal hurdles to overcome before they will be able to be used to
effect tissue and organ repair. To realize the promise of cell-based therapies
for the treatment of diseases, scientists must be able to manipulate stem cells
so that they possess the necessary characteristics for successful
differentiation, transplantation and engraftment. The following is a list of
some of the major steps in successful cell-based treatments that scientists will
have to learn to precisely control to ready such treatments for clinical use. To
be useful for transplant purposes, stem cells must be reproducibly made
to:
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proliferate
extensively and generate sufficient quantities of
tissue;
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differentiate
into the desired cell type(s);
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survive
in the recipient after transplant;
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integrate
into the surrounding tissue after transplant;
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function
appropriately;
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avoid
harming the recipient; and
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avoid
or reduce the problem of immune
rejection.
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We
believe that the market for our products will be substantial given the current
limited supply of human cells required to make transplants possible, the need
for cells that will not be rejected, and the need for cells produced without
contamination by animal by-products. Addressing these core issues will provide
an excellent opportunity for the commercialization of our products.
In
addition to the work we are doing to develop cells for therapeutic cell
transplant, we are engaged in the development, production and sale of specialty
research products. This portion of our business is focused on the needs of stem
cell researchers for specialized cells, media and reagents used in the
development of therapeutic products.
During
2007, we had two peer review papers published.
History
We were
incorporated in Delaware on June 7, 2005 under the name BTHC III, Inc. to
effect the reincorporation of BTHC III, LLC, a Texas limited liability company,
mandated by a plan of reorganization. Pursuant to the plan of reorganization, an
aggregate of 500,000 shares of our common stock were issued to holders of
administrative and tax claims and unsecured debt, of which 350,000 shares were
issued to Halter Financial Group. The plan of reorganization required the
consummation of a merger or acquisition prior to June 20, 2007. Until the
Share Exchange Agreement described below, BTHC III, Inc. conducted no
operations. In October 2006, BTHC III, Inc. affected a 4.42-for-one stock
split with respect to the outstanding shares of common stock. After giving
effect to the stock split and eliminating fractional shares, there were
2,209,993 shares of common stock outstanding.
On
December 28, 2006, pursuant to a Share Exchange Agreement, BTHC III, Inc.
issued 33,156,502 shares of common stock, representing approximately 93.7% of
the common stock outstanding immediately after the transaction, to the
shareholders of International Stem Cell Corporation, a California corporation
(“ISC California”), in exchange for all outstanding stock of ISC California. As
a result of this transaction, ISC California became wholly owned by us. This
transaction is being accounted for as a “reverse merger” for accounting
purposes. Consequently, the assets and liabilities and the historical operations
that are reflected in our financial statements are those of ISC California and
its subsidiary. On January 29, 2007, we changed our name to International
Stem Cell Corporation and in connection therewith our trading symbol changed to
ISCO.OB.
ISC
California was incorporated in California in June 2006 for the purpose of
restructuring the business of Lifeline Cell Technology, LLC, which was organized
in California in August 2001. As a result of the restructuring, Lifeline
became wholly-owned by ISC California. All of our current operations are
conducted by Lifeline. Our principal executive offices are located at 2595 Jason
Court, Oceanside, California 92056, and our telephone number is
(760) 940-6383.
Frequently Asked
Questions
What are Stem
Cells?
Cells are
the basic living units that make up a human being. Stem cells have two important
characteristics that distinguish them from other types of cells. First, they are
unspecialized cells that renew themselves for long periods of time. Second,
under certain physiologic or experimental conditions, they can be induced to
become cells with special functions such as the beating cells of the heart
muscle or the insulin-producing cells of the pancreas. Scientists currently work
with two kinds of stem cells from animals and humans:
embryonic stem cells
and
adult stem cells,
which
have different functions and characteristics. We are developing a third category
of stem cells that we believe will have the therapeutic advantages of embryonic
stem cells without the difficulties discussed herein.
What are Embryonic Stem
Cells?
Embryonic
stem cells are derived from embryos that develop from eggs that have been
fertilized in vitro—typically in an in vitro fertilization clinic—which are
donated for research purposes with informed consent of the donors. They are not
derived from eggs fertilized in a woman’s body. The embryos from which human
embryonic stem cells are derived are typically four or five days old and are a
hollow microscopic ball of cells called the
blastocyst.
Embryonic stem
cells are grown in a laboratory through a process known as cell
culture.
Human
embryonic stem cells, or hES cells, are isolated by transferring the inner cell
mass into a laboratory culture dish that contains a nutrient broth known as a
culture medium. The cells then divide and spread over the surface of the dish.
Over the course of several days, the cells of the inner cell mass proliferate
and begin to crowd the culture dish. When this occurs, they are removed and
plated into several fresh culture dishes. The process of replating the cells is
repeated many times and for many months. After six months or so, the original
small cluster of cells of the inner cell mass yields millions of embryonic stem
cells. Once cell lines are established, or even before that stage, batches of
them can be frozen and shipped to other laboratories for further culture and
experimentation.
Why are Embryonic Stem Cells
Important?
Embryonic
stem cells are of interest because of their ability to be differentiated, or
develop into virtually any other cell made by the human body. In theory, if stem
cells can be grown and their development directed in culture, it would be
possible to grow cells for the treatment of specific diseases. The first
potential applications of human embryonic stem cell technology may be in the
area of drug discovery. The ability to grow pure populations of specific cell
types offers a proving ground for chemical compounds that may have medical
importance in that it may ultimately permit the rapid screening of chemicals.
Treating specific cell types and measuring their response may offer an expedited
methodology to ascertain test agents such as chemicals that can be used to treat
the diseases that involve those specific cell types.
The study
of human development may also benefit from embryonic stem cell research in that
understanding the events that occur at the first stages of development has
potential clinical significance for preventing or treating birth defects,
infertility and pregnancy loss. The earliest stages of human development have
been difficult or impossible to study. Human embryonic stem cells offer insights
into developmental events that cannot be studied directly in humans in utero or
fully understood through the use of animal models.
What are Adult Stem
Cells?
An adult
stem cell is an undifferentiated cell found among differentiated cells in a
tissue or organ. An adult stem cell can renew itself and can differentiate to
yield the major specialized cell types of the tissue or organ. These cells can
be isolated from many tissues, including the brain. The most common places to
obtain these cells are from the bone marrow that is located in the center of
some bones and from umbilical cord blood obtained at birth.
Why Not Use Stem Cells Derived from
Adults?
There are
several approaches now in human clinical trials that utilize mature stem cells
(such as blood-forming cells, neuron-forming cells and cartilage-forming cells).
However, adult stem cells are limited in their inability to proliferate in
culture. Unlike embryonic stem cells, which have a capacity to reproduce
indefinitely in the laboratory, adult stem cells are difficult to grow in the
lab and their potential to reproduce diminishes with age. Therefore, obtaining
clinically significant amounts of adult stem cells may prove to be
difficult.
What is Therapeutic
Cloning?
Cloning
is simply using the natural process of cell division to make exact copies of a
cell. Cloning to make cells creates many identical cells called a “cell line”
and cloning to make cells for medical use is generally called “therapeutic
cloning.” Therapeutic cloning is not the same thing as cloning an entire animal,
which is called “reproductive cloning.” Therapeutic cloning never creates a
complete human being. We work only in the field of therapeutic
cloning.
Why is Stem Cell Research
Controversial?
The
sources of some types of stem cells cause social and religious controversy. Some
scientists obtain stem cells from aborted fetal tissue, causing opposition from
those opposed to abortion. Another controversial source of stem cells is the
residual frozen human fertilized eggs (embryos) that remain after vitro
fertilization procedures. A final controversial source of stem cells are those
obtained from very early stage embryos created by therapeutic cloning because
this process of obtaining stem cells results in the destruction of these
early-stage embryos.
Is Stem Cell Research Banned in the
United States?
Embryonic
stem cell research, in general, is not banned in the United States. Work by
private organizations is not restricted except by the restrictions applicable to
all human research. In addition, Proposition 71 in California, which voters
approved in November 2004, specifically allows state funds to be used for
stem cell research.
Why Not Use the Currently “Approved”
Embryonic Stem Cells Lines?
The human
embryonic stem cell lines approved by President George W. Bush were all produced
using methods that exposed them to animal protein and animal cells. We believe
that this will likely make them unsuitable for human therapeutic purposes and
restrict their utility even for research into human disease. We have developed
technologies to create human embryonic stem cell lines that will be free of
non-human materials.
How Will Stem Cells from
International Stem Cell be Different?
Our
research is based on perfecting proprietary techniques for deriving stem cells
through a technology based on parthenogenesis, which results in the creation of
human “parthenogenetic” stem cells that have the same capacity to become all
cells found in the human body just as do embryonic stem cells. However, the
parthenogenetic process does not use fertilized human eggs or cause the
destruction of such eggs. From the parthenogenetic stem cells we have created,
we will conduct research to develop specialized cells (such as liver, pancreatic
and retinal cells) needed for transplantation. We do not obtain stem cells from
fetal tissue from abortion clinics and our technology does not require the use
of discarded frozen human embryos. We do not anticipate using such sources of
stem cells in the future.
Ethical Issues
The use
of embryonic stem cells derived from fertilized human eggs has created an
ethical debate in the United States and around the world. However, since no
fertilized human eggs are used in creating our cells and no fertilized human
embryo is being created or destroyed, our hope is that our success in perfecting
parthenogenesis will resolve many of the current ethical controversies that
surround traditional embryonic stem cell research.
We also
own the worldwide rights to use in our chosen therapeutic fields, a technology
known as Somatic Cell Nuclear Transfer to create human stem cells. The
President’s Council on Bioethics, as reported in the publication “Reproduction
and Responsibility — The Regulation of New Biotechnologies,” 2004, has agreed on
a series of recommendations for the use of such technology, addressed to both
the government and to the relevant scientific and medical practitioners for
professional self-scrutiny. In addition, countries such as the United Kingdom
have made similar recommendations. Although we have chosen for now to pursue our
own proprietary technology, we have implemented the relevant recommendations
from this study into our research practices and will continue to adhere to
internationally accepted standards regarding the use of this technology in
obtaining and using human embryonic stem cells for our therapeutic
research.
Our Technology
With the
assistance of our Chief Scientific Officer, Dr. Elena Revazova, we are
perfecting a proprietary patent pending process, based on parthenogenesis, for
the creation of new stem cell lines that we believe will have all the beneficial
characteristics of traditional embryonic stem cells. Our technology allows
embryonic-like stem cells, called parthenogenetic stem cells, to be created
without the use of fertilized embryos or fertilized human eggs (called
“oocytes”). Because of their DNA complement, parthenogenetic stem cells have the
potential to become cells that will not be rejected by some patients. These
cells could be used to create stem cell “banks” in which cells could be stored
and matched to a patient’s immune system when needed for transplantation. Though
not currently our primary area of focus, Somatic Cell Nuclear Transfer, a
process to which we also hold a license, can use a patient’s own cells to create
stem cells having the same genetic makeup as the patient, thus avoiding immune
rejection, the most common cause of transplant failure. This technology,
however, is not currently our primary area of focus.
Our Products
Specialty Research
Products
A
critical element for any researcher seeking to develop a therapeutic cell from
either a human embryonic stem cell or an adult stem cell is causing the stem
cell to change (“differentiate”) into the specific cell needed for a particular
therapy. The challenge is to discover the proper set of culture conditions
(combinations of proteins, salts, temperatures and hundreds of other
environmental factors) to change stem cells into the specific cell types that
can be used to cure specific diseases; then develop the procedures needed to
produce such cells on demand as needed for human therapy. This process is driven
in large part by the “media” and the other added chemicals (called “reagents”)
used to develop the cells. The type of media and reagents used can dictate what
kind of cells will be produced and is critical to the process of developing cell
transplants from differentiated stem cells.
Our
research products consist of cells, growth media and related cell-based products
essential to the process of creating and differentiating stem cells. The
customers for these products are academic research centers, government research
centers, and corporations engaged in developing cell-based
therapies.
Our
research products include:
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Fibrolife
TM
human fibroblast medium, available as a serum-free or low serum
formats.
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Human
fibroblast cells for use as feeder layers to grow human embryonic stem
cells (eliminates contamination from mouse cells).
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Two
types of low serum human endothelial media
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VascuLife
TM
VEGF-Microvascular
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VascuLife
TM
EnGS.-Microvasular
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Human
endothelial cells. (Endothelial cells form blood
vessels).
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DermaLife
TM
human serum-free keratinocyte medium for the culture of human
epidermal.
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Human
epidermal keratinocyte cells for use as a model to study healing,
toxicology or basic cell biology.
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Line
of adult neural stem cells with the ability to produce neurons that can
survive in low-oxygen and low glucose conditions, a product useful for the
discovery of drugs for the treatment of strokes.
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Two
types of media for the culture of the adult neural
cells
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NeuralLife
TM
ags NSC expansion medium kit
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NeuralLife
TM
ags NSC differentiation medium kit.
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An
assortment of cell culture reagents and supplements for the growth of
human cells.
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We
believe products such as these are essential to the development of our own
proprietary therapeutic products and are a natural adjunct to that endeavor. We
also sale of these products to other stem cell-related researchers and
businesses will benefit us in several ways: (1) it provides revenue to help
support our therapeutic research, (2) it may provide us with an opportunity
to preview stem cell work being conducted throughout the world, and (3) if
our products are adopted by a successful producer of therapeutic cells, we have
the potential of becoming a supplier in a much broader market than
research.
Further,
because of the process by which therapeutic products are developed and submitted
to the FDA for approval, the media and reagents used in developing cells for
clinical trials tend to a large degree to become “baked in” to the final
therapeutic product. Because of a reluctance or legal inability to change the
process of creating the therapeutic product once it has been approved, if
another company uses our media and reagents to develop an FDA approved product,
we may become the sole approved supplier of these media and reagents for the
manufacture of that product.
Our human
cell culture products also consist of standardized living cells, including fully
functional adult cells and (non-embryonic) stem cell lines. The cells are
provided frozen in vials containing approximately 500,000 cells each, or are
plated into flasks. Each Cell System will be quality tested for the expression
of specific markers (to assure the cells are the correct type) for proliferation
rate, viability, morphology and for the absence of pathogens. Each Cell System
will have associated donor information.
In
addition to our Cell System, pursuant to the terms of a License Agreement with
Advanced Cell Technology, Inc. (“Advanced Cell Technology”), we will manufacture
and sell embryonic stem cell products developed by Advanced Cell Technology. The
first products we expect to release are (i) medium optimized for the growth of
human embryonic stem cells, and (ii) pre-coated tissue culture plates for
the serum-free and feeder-layer-free culture of embryonic stem
cells.
Our long
term plans for additional product offerings based on the technology licensed
from Advanced Cell Technology include:
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Stem
cells derived functional human liver cells provided in plates or frozen (a
byproduct of therapeutic research). These cells must have active and
inducible enzyme systems, they must have a correct morphology, they must
express albumin and they must attach to the cell culture
dish.
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Stem
cells derived functional islet cells provided in plates or frozen. These
cells must produce and express insulin in response to
glucose.
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Reagents
for the culture and differentiation of embryonic stem
cells.
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Stem
cell derived retinal cells provide frozen for the study of retinal
disease.
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Therapeutic
Products
We have
already used human stem cells to create retinal cells known as retinal pigment
epithelial, or RPE. We are currently expanding these cells as part of
pre-clinical trials, targeting 2008 as the year for animal
implantation.
We are in
the process of developing specialized liver cells for use in the treatment of
liver disease and pancreatic “islet” cells to treat diabetes as the third
target.
We made a
discovery during the derivation of retinal cells from stem cells that lead to
the in vitro growth of a tissue sphere that closely resembles a human
cornea. Studies by an independent pathology laboratory confirmed that
the tissue spheres were consistent with human cornea. We have
reproduced this work and are continuing to develop methods to perfect the
“corneal construct” and the methods of manufacture. We have filed
patents to protect our IP. Further research will be done in 2008 to
confirm that the corneal constructs have a critical “endothelial layer”, to
confirm that they have proper optical properties and to confirm that they can be
reproducibly manufactured. The goal of this project is to manufacture
human corneas implantation to cure corneal blindness. Techniques of
implantation have already been developed and can be applied using cultured
corneas.
Our Markets
Therapeutic
Market
Retinal Diseases
— Diseases
involving retinal degeneration include age-related macular degeneration (“AMD”)
and retinitis pigmentosa (“RP”). These diseases are characterized by the death
of critical photoreceptor cells called rods and cones. Photoreceptor death is
due to an abnormality and/or to disruption or death of supportive cells called
retinal pigment epithelial (“RPE”) cells. The use of RPE derived from
parthenogenetic stem cells may prove beneficial in the treatment of AMD and RP
as retinal cell transplant therapy has been shown to be clinically feasible for
the treatment of AMD and RP and the differentiation procedures to derive human
retinal cells from parthenogenetic stem cells have been worked out. We are
working toward the manufacture of these cells for therapeutic use.
According
to a 2004 study on
Blindness
and Blinding Diseases in the U.S.
published by the University of
Washington, approximately 13,000,000 Americans have signs of AMD, over
10,000,000 suffer visual loss and over 200,000 are legally blind from the
disease. The occurrence of AMD increases with a patient’s age. According to the
same study, approximately 6,300,000 people are projected to develop AMD in 2030,
compared to 1,700,000 in 1995.
Because
the therapeutic use of retinal cells is one of the more advanced applications in
stem cell therapy and we have already produced human retinal pigment epithelial
cells from human embryonic and parthenogenetic stem cell lines, we
are focusing on retinal cells as our first therapeutic market target. Our goal
is to manufacture retinal cells derived from hES cells to replace the limited
supply of donor derived cells for therapeutic use. We will collaborate with
academic research and other research institutions to develop FDA-approved
therapeutic methodologies for producing retinal cells for therapeutic
use.
Corneal
Disease
—
According to
the Eye Bank Association of America’s 2006 Eye Banking Statistical Report, there
are more than 34,000 corneal transplants performed annually in the
US. An additional 150,000 transplants are performed in the rest of
the world. There are eight million corneal blind patients in
developing countries who would benefit from corneal replacement were
it not for the lack of established eye banking operations and religious/ethical
issues. Concern over donor-to-recipient disease transmission and the
increasing use of LASIK treatment has reduced the availability of donated
corneas and increased costs. Demand for corneal tissue is growing
based on advances in corneal transplant techniques (Goins et al.,
2007). Even considering the fact that fees would be less in
developing countries, the existing corneal transplant market is billions of
dollars in size and is growing.
Diabetes —
Another area of
focus is on diabetes. According to the American Diabetes Association,
approximately 20,800,000 people, or 7% of the U.S. population, have some form of
diabetes, and the National Institutes of Health estimates that there are as many
as 2,500,000 people suffering from Type 1 Diabetes (Insulin Dependent Diabetes
Mellitus). Normally, certain cells in the pancreas, called the islet ß cells,
produce insulin which promotes the uptake of the sugar glucose by cells in the
human body. Degeneration of pancreatic islet ß cells results in a lack of
insulin in the bloodstream which results in diabetes. Although diabetics can be
treated with daily injections of insulin, these injections enable only
intermittent glucose control.
The
transplantation of insulin producing cells called “islet cells” from one person
to another has been shown to relieve the suffering and serious side effects
caused by current therapies. As the primary source of islet cells today is organ
donations, available supply is extremely limited. Therefore, our objective in
the field of diabetes therapy is to increase the availability of pancreatic
islet cells by inducing stem cells derived from our parthenogenic cell lines to
grow and become islets or the individual cells found in the islets.
Liver Disease —
According to
the American Liver Foundation, chronic liver disease (including hepatitis C) is
the third most common cause of death due to chronic diseases in persons 35 to 64
years of age. In the United States diseases such as cirrhosis and hepatitis were
ranked as the 12th leading cause of death in 2000. The only effective treatment
currently available for people with liver failure is full or partial organ
transplantation. Unfortunately, as with islets, the demand for organs far
exceeds the number of organs available. According to the United Network for
Organ Sharing, there are currently more than 17,000 persons on the wait list for
a liver transplant.
Liver
cell transplantation has been used in early stage clinical trials to treat
patients with liver failure caused by acute or chronic disease and in patients
with genetically caused metabolic defects. This therapy has proven to be
especially useful as a “bridge” to keep patients alive until they can receive a
whole liver transplant, as well as an alternative to whole-organ transplantation
in specific cases. The procedure involves supplementing a patient’s liver
function by injecting a donor’s liver cells (obtained from livers donated from
brain dead, heart beating donors) into a patient’s liver or spleen where the
liver cells remain and function. Our objective is to provide an alternate source
of liver cells for the treatment of liver disease through cell transplant
therapy.
Research Market
The
research market for cell systems is made up of scientists performing basic
research and applied research in the biological sciences. Basic research
involves the study of cell biology, and the biochemical pathways to human
disease. Applied research involves drug discovery, vaccine development, clinical
research including cell engineering, and cell transplantation.
The
domestic market can be broken into three segments. These include:
(i) academic researchers in universities and privately-funded research
organizations; (ii) government institutions such as the National Institutes
of Health, the U.S. Army, the U.S. Environmental Protection Agency and others;
and (iii) industrial organizations such as pharmaceutical companies and
consumer product companies.
Management
believes that the combined academic and government market comprises
approximately 40% of the total market and that the industrial segment comprises
approximately 60% of the remaining market.
We
believe the following are the main drivers in the research market for commercial
cell systems:
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The
need for experimental human cells which are more predictive of human
biology than non-human cells or genetically modified cell
lines.
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The
desire to lower the cost of drug development in the pharmaceutical
industry. We believe that human cell systems may provide a platform for
screening toxic drugs early in the development process, thus avoiding late
stage failures in clinical trials and reducing costs.
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The
need to eliminate animal products in research reagents that may
contaminate future therapeutic products.
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The
need for experimental control. Serum-free defined media provides the
benefit of experimental control because there are fewer undefined
components.
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The
need for consistency in experiments that can be given by quality
controlled products.
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The
need to eliminate the necessity to formulate media in-house, obtain tissue
or perform cell isolations.
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The
need to reduce animal testing in the consumer products
industry.
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Our
internal projections for the global market for human cell systems for use in
basic research are several hundred million dollars annually with an anticipated
growth rate between 10% and 20%.
Intellectual
Property
Patents
We have
filed patent applications covering our proprietary technology to create stem
cells without the use of fertilized eggs or transferred DNA. In addition, we
have obtained exclusive worldwide licenses to a portfolio of patents and patent
applications from Advanced Cell Technology.
Our
patent portfolio consists of 30 families of patents consisting of over 110
separate patents (including international filings) and patent applications in
the field of stem cell culture. We also have an exclusive license to the only
patent issued by the U.S. Patent & Trademark Office for the creation of
human embryonic stem cells, or hES cells using nuclear transfer technology for
human therapeutic use. Of these, eight are issued patents and a majority of the
patents and applications have been filed in the United States and in foreign
countries through the Patent Corporation Treaty or by direct country filings in
those jurisdictions deemed significant to our operations.
ISC has
several internally-generated patents pending. Two of these pending patents cover
both composition of matter for its parthenogenetic stem cell lines and the
methods of deriving them. ISC has also filed patents on unique
methods of differentiating parthenogenetic stem cells.
Lifeline
has protected its research products and branding through both patents and
trademarks. Lifeline has patents pending on its unique packaging for
research products. Lifeline has registered trademarks on its company
name, logo and various product names to protect its branding
investment.
The
patentability of human cells in countries throughout the world reflects widely
differing governmental attitudes. In the United States, hundreds of patents
covering human embryonic stem cells have already been granted, including those
on which we rely. In certain countries in Europe, the European Patent Office
currently appears to take the position that hES cells themselves are not
patentable, while the United Kingdom has decided that some types of hES cells
can be patented. As a result, we plan to file internationally wherever feasible
and focus our research strategy on cells that best fit the United States and
United Kingdom Patent Offices’ definitions of patentable cells.
License
Agreements
In
May 2005, we entered into three exclusive license agreements with Advanced
Cell Technology for the production of therapeutic products in the fields of
diabetes, liver disease, retinal disease, and the creation of research products
in all fields. The license agreements give us access to all aspects of Advanced
Cell Technology’s human cell patent portfolio as it existed on that date, plus a
combination of exclusive and non-exclusive rights to future developments. A
significant feature of the licensed technology is that it allows us to isolate
and differentiate hES stem cells directly from a “blastocyst.” The hES cells can
be immediately differentiated into stem cells capable of expansion and
differentiation into islet cells, liver cells, and retinal cells.
Pursuant
to the terms of our agreements with Advanced Cell Technology, in exchange for
worldwide therapeutic rights to Advanced Cell Technology’s portfolio of patents
and patent applications in the fields of diabetes, liver disease and retinal
disease, we are required to make a payment of $112,500 in May 2008 and
annual payments thereafter of $150,000, plus milestone payments linked to the
launch of therapeutic products (not research products) ranging from $250,000 at
first launch to $1 million upon reaching sales of $10 million, with a
maximum of $1.75 million in the aggregate. The agreements also require us
to pay royalties on sales and meet minimum research and development
requirements. The agreements continue until expiration of the last valid claim
within the licensed patent rights. Advanced Cell Technology is required to
defend any patent infringement claims. Either party may terminate the agreements
for an uncured breach, or we may terminate the agreements at any time with
30 days notice.
The
agreements with Advanced Cell Technology further provide that any technology
either party currently owns, develops or licenses in the future may be licensed
on a non-exclusive basis by the other party for use in specific fields. This
arrangement gives us continuing access to future discoveries made or licensed by
Advanced Cell Technology in our fields of diabetes, liver disease, retinal
disease, plus all research products, and obligates us to provide similar license
rights to Advanced Cell Technology in the fields of blood and cardiovascular
diseases.
Exclusive License Agreement Number
One, as amended
, covers patent rights and technology that are relevant
to:
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the
research, development, manufacture and sale of human and non-human animal
cells for commercial research; and
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the
manufacture and selling of hES cells for therapeutic and diagnostic use in
the treatment of human diabetes, liver diseases, retinal diseases and
retinal degenerative diseases.
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Exclusive License Agreement Number
Two, as amended
, covers patent rights and technology that are relevant
to:
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the
research, development, manufacture and sale of human and non-human animal
cells and defined animal cell lines for commercial
research;
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the
manufacture and selling of human cells for therapeutic and diagnostic use
in the treatment of human diabetes, liver diseases, retinal diseases and
retinal degenerative diseases; and
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the
use of defined animal cell lines in the process of manufacturing and
selling human cells for therapeutic and diagnostic use in the treatment of
human diabetes, liver diseases and retinal
diseases.
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Exclusive License Agreement Number
Three, as amended
, covers patent rights and technology relevant to the
research, development, manufacture and sale of human cells for cell therapy in
the treatment of therapeutic and diagnostic use in the treatment of human
diabetes and liver diseases, and retinal diseases and retinal degenerative
diseases.
Research
Agreements
Dr. Revazova,
our Chief Scientific Officer, currently is conducting basic research at the
Scientific Center for Obstetrics, Gynecology and Perinatology of the Russian
Academy of Medical Sciences in Moscow, Russia. This laboratory contains all of
the necessary equipment and scientific resources to complete our preliminary
research in parthenogenesis and Somatic Cell Nuclear Transfer technology.
Through a research agreement, Dr. Revazova continues to conduct research
into the creation and characterization of embryonic stem cell lines. The
Institute provides Dr. Revazova access to the equipment and technicians
needed to create and fully characterize human parthenogenic and embryonic stem
cells. This includes equipment for immunofluorescence, karyotyping, gene
expression, and equipment for molecular biology and cell biology. Under the
terms of the agreement, we retain all intellectual property rights in the United
States and the Institute retains such rights in Russia. We share equally in any
royalty payments from the rest of the world, but we retain control of all
marketing and distribution anywhere in the world, except Russia. Although the
agreement expired by its terms at the end December 2006, we and the
Institute have continued the terms of the expired agreement while we are
negotiating a new agreement. If negotiations are unsuccessful, we will seek a
similar relationship with another laboratory in Russia. We do not consider the
availability of such a laboratory to be necessary for our current
operations.
During
2007, we entered into sponsored research agreements with the University of
California at Irvine (UCI) and are in negotiations to develop collaborative
research agreements with domestic and international research organizations from
both the public and private sector. These agreements allow us to team
up with nationally and internationally known research scientists to study stem
cell technologies developed or licensed by ISC for possible use in therapeutic
fields. Dr. Hans Keirstead at UCI will be working with our proprietary stem
cells on the further development of retinal pigment epithelial cells as well as
towards the derivation of photoreceptors to treat macular degeneration and
retinitis pigmentosa. Other developing collaborative agreements will
focus on the creation of liver cells for the treatment of liver disease, beta
cells for the treatment of diabetes and continuing work on our corneal tissues
for use in transplantation therapy for corneal-caused vision loss.
Competition
The
development of therapeutic and diagnostic agents for human disease is intensely
competitive. Pharmaceutical companies currently offer a number of pharmaceutical
products to treat diabetes, liver diseases, retinal disease, corneal disease and
other diseases for which our technologies may be applicable. Many pharmaceutical
and biotechnology companies are investigating new drugs and therapeutic
approaches for the same purposes, which may achieve new efficacy profiles,
extend the therapeutic window for such products, alter the prognosis of these
diseases, or prevent their onset. We believe that our therapeutic products, when
and if successfully developed, will compete with these products principally on
the basis of improved and extended efficacy and safety and their overall
economic benefit to the health care system. We believe that our most significant
competitors will be fully integrated pharmaceutical companies and more
established biotechnology companies. Smaller companies may also be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical or biotechnology companies. Some of our primary competitors in
the development of stem cell therapies are Geron Corporation, Genzyme
Corporation, StemCell Technologies Inc., Advanced Cell Technology, Aastrom
Biosciences, Inc. and ViaCell, Inc., most of which have substantially greater
resources and experience. In the field of research products, our primary
competitors for stem cells, media and reagents are Lonza, Chemicon, Invitrogen
Corp., StemCell Technologies Inc., Millipore and Specialty Media. These
companies primarily provide standard media that have not been optimized for
human embryonic stem cell growth.
Sales and
Marketing
To date,
sales of our research products have been modest and derived primarily through
word of mouth, but we are developing a sales force and establishing distribution
networks both domestic and international, to market our research and our cell
therapy and diagnostic products in the U.S. Because of the nature of the markets
in which we participate, we believe that a modest size sales force will be
sufficient. We also anticipate partnering with large biotech and pharmaceutical
companies for the marketing and sales of some, but not necessarily all, of our
stem cell based therapeutic products. As of March 11, 2008, we had three
full-time sales and marketing employees.
Government
Regulation
Regulation
by governmental authorities in the United States and other countries is a
significant factor in the development, manufacture and marketing of our proposed
therapeutic products and in our ongoing research and product development
activities. The nature and extent to which such regulation applies to us will
vary depending on the nature of any products which may be developed by us. We
anticipate that many, if not all, of our proposed therapeutic products will
require regulatory approval by governmental agencies prior to commercialization.
In particular, human therapeutic products are subject to rigorous preclinical
and clinical testing and other approval procedures of the FDA, and similar
regulatory authorities in European and other countries. Various governmental
statutes and regulations also govern or influence testing, manufacturing,
safety, labeling, storage and recordkeeping related to such products and their
marketing. The process of obtaining these approvals and the subsequent
compliance with appropriate statutes and regulations require the expenditure of
substantial time and money, and there can be no guarantee that approvals will be
granted.
FDA Approval
Process
Prior to
commencement of clinical studies involving humans, preclinical testing of new
pharmaceutical products is generally conducted on animals in the laboratory to
evaluate the potential efficacy and safety of the product candidate. The results
of these studies are submitted to the FDA as a part of an Investigational New
Drug (IND) application, which must become effective before clinical testing
in humans can begin. Typically, human clinical evaluation involves a
time-consuming and costly three-phase process. In Phase 1, clinical trials are
conducted with a small number of people to assess safety and to evaluate the
pattern of drug distribution and metabolism within the body. In Phase 2,
clinical trials are conducted with groups of patients afflicted with a specific
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In some cases, an initial trial is conducted in diseased
patients to assess both preliminary efficacy and preliminary safety and patterns
of drug metabolism and distribution, in which case it is referred to as a Phase
1-2 trial. In Phase 3, large-scale, multi-center, comparative trials are
conducted with patients afflicted with a target disease in order to provide
enough data to demonstrate the efficacy and safety required by the FDA. The FDA
closely monitors the progress of each of the three phases of clinical testing
and may, at its discretion, re-evaluate, alter, suspend, or terminate the
testing based upon the data which have been accumulated to that point and its
assessment of the risk/benefit ratio to the patient. Monitoring of all aspects
of the study to minimize risks is a continuing process. All adverse events must
be reported to the FDA.
The
results of the preclinical and clinical testing on a non-biologic drug and
certain diagnostic drugs are submitted to the FDA in the form of a New Drug
Application (“NDA”) for approval prior to commencement of commercial sales. In
the case of vaccines or gene and cell therapies, the results of clinical trials
are submitted as a Biologics License Application (“BLA”). In responding to a NDA
or BLA, the FDA may grant marketing approval, request additional information or
refuse to approve if the FDA determines that the application does not satisfy
its regulatory approval criteria. There can be no assurance that approvals will
be granted on a timely basis, if at all, for any of our proposed
products.
European and Other Regulatory
Approval
Whether
or not FDA approval has been obtained, approval of a product by comparable
regulatory authorities in Europe and other countries will likely be necessary
prior to commencement of marketing the product in such countries. The regulatory
authorities in each country may impose their own requirements and may refuse to
grant an approval, or may require additional data before granting it, even
though the relevant product has been approved by the FDA or another authority.
As with the FDA, the regulatory authorities in the European Union (“EU”) and
other developed countries have lengthy approval processes for pharmaceutical
products. The process for gaining approval in particular countries varies, but
generally follows a similar sequence to that described for FDA approval. In
Europe, the European Committee for Proprietary Medicinal Products provides a
mechanism for EU-member states to exchange information on all aspects of product
licensing. The EU has established a European agency for the evaluation of
medical products, with both a centralized community procedure and a
decentralized procedure, the latter being based on the principle of licensing
within one member country followed by mutual recognition by the other member
countries.
Other
Regulations
We are
also subject to various United States federal, state, local and international
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices and the use and disposal of hazardous or
potentially hazardous substances, including radioactive compounds and infectious
disease agents, used in connection with our research work. We cannot accurately
predict the extent of government regulation which might result from future
legislation or administrative action.
Employees
In
addition to our four executive officers, we utilize the services of 18 full-time
and two part-time staff members.
Risks Related to Our
Business
Our business is
at an early stage of development and we may not develop products that can be
commercialized.
Our
business is at an early stage of development. We do not have any products in
late-stage clinical trials. We are still in the early stages of identifying and
conducting research on potential products. Our potential products will require
significant research and development and preclinical and clinical testing prior
to regulatory approval in the United States and other countries. We may not be
able to obtain regulatory approvals, enter clinical trials for any of our
product candidates, or commercialize any products. Our product candidates may
prove to have undesirable and unintended side effects or other characteristics
adversely affecting their safety, efficacy or cost-effectiveness that could
prevent or limit their use. Any product using any of our technology may fail to
provide the intended therapeutic benefits, or achieve therapeutic benefits equal
to or better than the standard of treatment at the time of testing or
production.
We have a history
of operating losses and do not expect to be profitable in the near
future.
We have
not generated any profits since our entry into the biotechnology business and
have incurred significant operating losses. We expect to incur additional
operating losses for the foreseeable future and, as we increase our research and
development activities, we expect our operating losses to increase
significantly. We do not have any sources of significant revenues and may not
have any in the foreseeable future.
We will need
additional capital to conduct our operations and develop our products and our
ability to obtain the necessary funding is uncertain.
We need
to obtain significant additional capital resources from sources including equity
and/or debt financings, license arrangements, grants and/or collaborative
research arrangements in order to develop products. Our current burn rate is
approximately $425,000 per month excluding capital expenditures and the company
has been funding this through private equity financings, as required. Management
is aware that more formal financing in an amount sufficient to fund operations
for a year or more will be required and intends to seek such financing when the
capital markets permit, but if such financing is not available or available only
on terms that are detrimental to the long term survival of the company, it could
have a major adverse effect on the company’s ability to continue to function.
The timing and degree of any future capital requirements will depend on many
factors, including:
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the
accuracy of the assumptions underlying our estimates for capital needs in
2008 and beyond;
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scientific
progress in our research and development programs;
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the
magnitude and scope of our research and development programs and our
ability to establish, enforce and maintain strategic arrangements for
research, development, clinical testing, manufacturing and
marketing;
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our
progress with preclinical development and clinical
trials;
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the
time and costs involved in obtaining regulatory
approvals;
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the
costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims; and
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the
number and type of product candidates that we pursue.
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Additional
financing through strategic collaborations, public or private equity financings
or other financing sources may not be available on acceptable terms, or at all.
Additional equity financing could result in significant dilution to our
stockholders. Further, if additional funds are obtained through arrangements
with collaborative partners, these arrangements may require us to relinquish
rights to some of our technologies, product candidates or products that we would
otherwise seek to develop and commercialize on our own. If sufficient capital is
not available, we may be required to delay, reduce the scope of or eliminate one
or more of our product lines, any of which could have a material adverse affect
on our financial condition or business prospects.
Clinical trials
are subject to extensive regulatory requirements, very expensive, time-consuming
and difficult to design and implement. Our products may fail to achieve
necessary safety and efficacy endpoints during clinical
trials.
Human
clinical trials can be very expensive and difficult to design and implement, in
part because they are subject to rigorous regulatory requirements. The clinical
trial process is also time consuming. We estimate that clinical trials of our
product candidates will take at least several years to complete. Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors,
including:
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unforeseen
safety issues;
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determination
of dosing issues;
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lack
of effectiveness during clinical trials;
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slower
than expected rates of patient recruitment;
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inability
to monitor patients adequately during or after treatment;
and
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inability
or unwillingness of medical investigators to follow our clinical
protocols.
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In
addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or if the
FDA finds deficiencies in our IND submissions or the conduct of these
trials.
Patents obtained
by other persons may result in infringement claims against us that are costly to
defend and which may limit our ability to use the disputed technologies and
prevent us from pursuing research and development or commercialization of
potential products.
A number
of pharmaceutical, biotechnology and other companies, universities and research
institutions have filed patent applications or have been issued patents relating
to cell therapy, stem cells, and other technologies potentially relevant to or
required by our expected products. We cannot predict which, if any, of such
applications will issue as patents or the claims that might be allowed. We are
aware that a number of companies have filed applications relating to stem cells.
We are also aware of a number of patent applications and patents claiming use of
stem cells and other modified cells to treat disease, disorder or
injury.
If third
party patents or patent applications contain claims infringed by either our
licensed technology or other technology required to make and use our potential
products and such claims are ultimately determined to be valid, there can be no
assurance that we would be able to obtain licenses to these patents at a
reasonable cost, if at all, or be able to develop or obtain alternative
technology. If we are unable to obtain such licenses at a reasonable cost, we
may not be able to develop some products commercially. There can be no assurance
that we will not be obliged to defend ourselves in court against allegations of
infringement of third party patents. Patent litigation is very expensive and
could consume substantial resources and create significant uncertainties. An
adverse outcome in such a suit could subject us to significant liabilities to
third parties, require disputed rights to be licensed from third parties, or
require us to cease using such technology.
We may not be
able to adequately protect against piracy of intellectual property in foreign
jurisdictions.
Considerable
research in the areas of stem cells, cell therapeutics and regenerative medicine
is being performed in countries outside of the United States, and a number of
our competitors are located in those countries. The laws protecting intellectual
property in some of those countries may not provide adequate protection to
prevent our competitors from misappropriating our intellectual
property.
Our competition
includes fully integrated biotechnology and pharmaceutical companies that have
significant advantages over us.
The
market for therapeutic stem cell products is highly competitive. We expect that
our most significant competitors will be fully integrated pharmaceutical
companies and more established biotechnology and stem cell companies. These
companies are developing stem cell-based products and they have significantly
greater capital resources in research and development, manufacturing, testing,
obtaining regulatory approvals, and marketing capabilities. Many of these
potential competitors are further along in the process of product development
and also operate large, company-funded research and development programs. As a
result, our competitors may develop more competitive or affordable products, or
achieve earlier patent protection or product commercialization than we are able
to achieve. Competitive products may render any products or product candidates
that we develop obsolete.
If we fail to
meet our obligations under our license agreements, we may lose our rights to key
technologies on which our business depends.
Our
business depends in part on licenses from third parties. These third party
license agreements impose obligations on us, such as payment obligations and
obligations to diligently pursue development of commercial products under the
licensed patents. If a licensor believes that we have failed to meet our
obligations under a license agreement, the licensor could seek to limit or
terminate our license rights, which could lead to costly and time-consuming
litigation and, potentially, a loss of the licensed rights. During the period of
any such litigation, our ability to carry out the development and
commercialization of potential products could be significantly and negatively
affected. If our license rights were restricted or ultimately lost, our ability
to continue our business based on the affected technology platform could be
severely adversely affected.
Restrictive and
extensive government regulation could slow or hinder our production of a
cellular product.
The
research and development of stem cell therapies is subject to and restricted by
extensive regulation by governmental authorities in the United States and other
countries. The process of obtaining FDA and other necessary regulatory approvals
is lengthy, expensive and uncertain. We may fail to obtain the necessary
approvals to continue our research and development, which would hinder our
ability to manufacture or market any future product.
Research in the
field of nuclear transfer and embryonic stem cells is currently subject to
strict government regulations, and our operations could be restricted or
outlawed by any legislative or administrative efforts impacting the use of
nuclear transfer technology or human embryonic material.
Our
business is focused on human cell therapy, which includes the production of
human differentiated cells from stem cells and involves human oocytes. Although
our focus is on stem cells derived from unfertilized oocytes, certain aspects of
that work may involve the use of nuclear transfer technology or material deemed
to be embryonic material. Nuclear transfer technology, commonly known as
therapeutic cloning, and research utilizing embryonic stem cells is
controversial, and currently subject to intense scrutiny, particularly in the
area of nuclear transfer of human cells and the use of human embryonic material.
Cloning for research purposes is unlawful in many states and this type of
prohibition may expand into other states, including some where we now
operate.
Although
current federal law only restricts the use of federal funds for human embryonic
cell research, commonly referred to as hES cell research, there can be no
assurance that our operations will not be restricted by any future legislative
or administrative efforts by politicians or groups opposed to the development of
hES call technology or nuclear transfer technology, or that such efforts might
not be extended to include our parthenogenic technology. Further, there can be
no assurance that legislative or administrative restrictions directly or
indirectly delaying, limiting or preventing the use of hES technology, nuclear
transfer technology, the use of human embryonic material, or the sale,
manufacture or use of products or services derived from nuclear transfer
technology or other hES technology will not be adopted in the future or extend
to include our parthenogenetic processes.
Restrictions on
the use of human stem cells, and the ethical, legal and social implications of
that research, could prevent us from developing or gaining acceptance for
commercially viable products in these areas.
Although
our stem cells are derived from unfertilized human eggs through a process called
“parthenogenesis” that can produce cells suitable for therapy, but are believed
to be incapable of producing a human being, such cells are nevertheless often
referred to as “embryonic” stem cells. Because the use of human embryonic stem
cells gives rise to ethical, legal and social issues regarding the appropriate
use of these cells, our research related to human parthenogenic stem cells could
become the subject of adverse commentary or publicity and some political and
religious groups may still raise opposition to our technology and practices. In
addition, many research institutions, including some of our scientific
collaborators, have adopted policies regarding the ethical use of human
embryonic tissue, which, if applied to our procedures, may have the effect of
limiting the scope of research conducted using our stem cells, thereby impairing
our ability to conduct research in this field. In some states, use of embryos as
a source of stem cells is prohibited.
To the extent we
utilize governmental grants in the future, the governmental entities involved
may retain certain rights in technology that we develop using such grant money
and we may lose the revenues from such technology if we do not commercialize and
utilize the technology pursuant to established government
guidelines.
Certain
of our licensors’ research have been or are being funded in part by government
grants and our research may be so funded in the future. In connection with
certain grants, the governmental entity involved retains rights in the
technology developed with the grant. These rights could restrict our ability to
fully capitalize upon the value of this research by reducing total revenues that
might otherwise be available since such governmental rights may give it the
right to practice the invention without payment of royalties.
We rely on
parthenogenesis, cell differentiation and other stem cell technologies that we
may not be able to successfully develop, which may prevent us from generating
revenues, operating profitably or providing investors any return on their
investment.
We have
concentrated our research on our parthenogenesis, cell differentiation and stem
cell technologies, and our ability to operate profitably will depend on being
able to successfully implement or develop these technologies for human
applications. These are emerging technologies with, as yet, limited human
applications. We cannot guarantee that we will be able to successfully implement
or develop our nuclear transfer, parthenogenesis, cell differentiation and other
stem cell technologies or that these technologies will result in products or
services with any significant commercial utility. We anticipate that the
commercial sale of such products or services, and royalty/licensing fees related
to our technology, would be our primary sources of revenues.
The outcome of
pre-clinical, clinical and product testing of our products is uncertain, and if
we are unable to satisfactorily complete such testing, or if such testing yields
unsatisfactory results, we will be unable to commercially produce our proposed
products.
Before
obtaining regulatory approvals for the commercial sale of any potential human
products, our products will be subjected to extensive pre-clinical and clinical
testing to demonstrate their safety and efficacy in humans. We cannot assure you
that the clinical trials of our products, or those of our licensees or
collaborators, will demonstrate the safety and efficacy of such products at all,
or to the extent necessary to obtain appropriate regulatory approvals, or that
the testing of such products will be completed in a timely manner, if at all, or
without significant increases in costs, program delays or both, all of which
could harm our ability to generate revenues. In addition, our prospective
products may not prove to be more effective for treating disease or injury than
current therapies. Accordingly, we may have to delay or abandon efforts to
research, develop or obtain regulatory approval to market our prospective
products. The failure to adequately demonstrate the safety and efficacy of a
therapeutic product under development could delay or prevent regulatory approval
of the product and could harm our ability to generate revenues, operate
profitably or produce any return on an investment in us.
If we are unable
to keep up with rapid technological changes in our field or compete effectively,
we will be unable to operate profitably.
We are
engaged in activities in the biotechnology field, which is characterized by
extensive research efforts and rapid technological progress. If we fail to
anticipate or respond adequately to technological developments, our ability to
operate profitably could suffer. We cannot assure you that research and
discoveries by other biotechnology, agricultural, pharmaceutical or other
companies will not render our technologies or potential products or services
uneconomical or result in products superior to those we develop or that any
technologies, products or services we develop will be preferred to any existing
or newly-developed technologies, products or services.
We may not be
able to protect our proprietary technology, which could harm our ability to
operate profitably.
The
biotechnology and pharmaceutical industries place considerable importance on
obtaining patent and trade secret protection for new technologies, products and
processes. Our success will depend, to a substantial degree, on our ability to
obtain and enforce patent protection for our products, preserve any trade
secrets and operate without infringing the proprietary rights of others. We
cannot assure you that:
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we
will succeed in obtaining any patents, obtain them in a timely manner, or
that the breadth or degree of protection that any such patents will
protect our interests;
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the
use of our technology will not infringe on the proprietary rights of
others;
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patent
applications relating to our potential products or technologies will
result in the issuance of any patents or that, if issued, such patents
will afford adequate protection to us or will not be challenged,
invalidated or infringed; or
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patents
will not be issued to other parties, which may be infringed by our
potential products or technologies.
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We are
aware of certain patents that have been granted to others and certain patent
applications that have been filed by others with respect to nuclear transfer and
other stem cell technologies. The fields in which we operate have been
characterized by significant efforts by competitors to establish dominant or
blocking patent rights to gain a competitive advantage, and by considerable
differences of opinion as to the value and legal legitimacy of competitors’
purported patent rights and the technologies they actually utilize in their
businesses.
Our business is
highly dependent upon maintaining licenses with respect to key
technology.
Although
our primary focus relates to intellectual property we have developed internally,
some of the patents we utilize are licensed to us by Advanced Cell Technology,
which has licensed some of these from other parties, including the University of
Massachusetts. These licenses are subject to termination under certain
circumstances (including, for example, our failure to make minimum royalty
payments or to timely achieve development and commercialization benchmarks). The
loss of any of such licenses, or the conversion of such licenses to
non-exclusive licenses, could harm our operations and/or enhance the prospects
of our competitors. Although our licenses with Advanced Cell Technology allow us
to cure any defaults under the underlying licenses to them and to take over the
patents and patents pending in the event of default by Advanced Cell Technology,
the cost of such remedies could be significant and we might be unable to
adequately maintain these patent positions. If so, such inability could have a
material adverse affect on our business.
Certain
of such licenses also contain restrictions (
e.g.
, limitations on our
ability to grant sublicenses) that could materially interfere with our ability
to generate revenue through the licensing or sale to third parties of important
and valuable technologies that we have, for strategic reasons, elected not to
pursue directly. The possibility exists that in the future we will require
further licenses to complete and/or commercialize our proposed products. There
can be no assurance that we will be able to acquire any such licenses on a
commercially viable basis.
Patents
pending may not be granted.
Our
business is based in large part on technology which we have developed and on
which we have filed domestic and international patent
applications. However, although we have researched prior art in the
fields covered by our patents and believe that they will ultimately be granted,
there can be no guarantee that any or all of such patent applications will be
granted or that, if granted, we will have the resources to defend them in the
event of infringement.
Certain of our
technology may not be subject to protection through patents which leaves us
vulnerable to theft of our technology.
Certain
parts of our know-how and technology are not patentable. To protect our
proprietary position in such know-how and technology, we intend to require all
employees, consultants, advisors and collaborators to enter into confidentiality
and invention ownership agreements with us. There can be no assurance, however,
that these agreements will provide meaningful protection for our trade secrets,
know-how or other proprietary information in the event of any unauthorized use
or disclosure. Further, in the absence of patent protection, competitors who
independently develop substantially equivalent technology may harm our
business.
We depend on our
collaborators to help us develop and test our proposed products, and our ability
to develop and commercialize products may be impaired or delayed if
collaborations are unsuccessful.
Our
strategy for the development, clinical testing and commercialization of our
proposed products requires that we enter into collaborations with corporate
partners, licensors, licensees and others. We are dependent upon the subsequent
success of these other parties in performing their respective responsibilities
and the continued cooperation of our partners. Our collaborators may not
cooperate with us or perform their obligations under our agreements with them.
We cannot control the amount and timing of our collaborators’ resources that
will be devoted to our research and development activities related to our
collaborative agreements with them. Our collaborators may choose to pursue
existing or alternative technologies in preference to those being developed in
collaboration with us.
Under
agreements with collaborators, we may rely significantly on such collaborators
to, among other things:
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design
and conduct advanced clinical trials in the event that we reach clinical
trials;
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fund
research and development activities with us;
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pay
us fees upon the achievement of milestones; and
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market
with us any commercial products that result from our
collaborations.
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The
development and commercialization of potential products will be delayed if
collaborators fail to conduct these activities in a timely manner, or at all. In
addition, our collaborators could terminate their agreements with us and we may
not receive any development or milestone payments. If we do not achieve
milestones set forth in the agreements, or if our collaborators breach or
terminate their collaborative agreements with us, our business may be materially
harmed.
Our reliance on
the activities of our non-employee consultants, research institutions, and
scientific contractors, whose activities are not wholly within our control, may
lead to delays in development of our proposed products.
We rely
extensively upon and have relationships with scientific consultants at academic
and other institutions, some of whom conduct research at our request, and other
consultants with expertise in clinical development strategy or other matters.
These consultants are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to us. We have limited control over the activities of these
consultants and, except as otherwise required by our collaboration and
consulting agreements to the extent they exist, can expect only limited amounts
of their time to be dedicated to our activities.
These
research facilities may have commitments to other commercial and non-commercial
entities. We have limited control over the operations of these laboratories and
can expect only limited amounts of time to be dedicated to our research
goals.
We may be subject
to litigation that will be costly to defend or pursue and uncertain in its
outcome.
Our
business may bring us into conflict with our licensees, licensors or others with
whom we have contractual or other business relationships, or with our
competitors or others whose interests differ from ours. If we are unable to
resolve those conflicts on terms that are satisfactory to all parties, we may
become involved in litigation brought by or against us. That litigation is
likely to be expensive and may require a significant amount of management’s time
and attention, at the expense of other aspects of our business. The outcome of
litigation is always uncertain, and in some cases could include judgments
against us that require us to pay damages, enjoin us from certain activities, or
otherwise affect our legal or contractual rights, which could have a significant
adverse effect on our business.
We may not be
able to obtain third-party patient reimbursement or favorable product pricing,
which would reduce our ability to operate profitably.
Our
ability to successfully commercialize certain of our proposed products in the
human therapeutic field may depend to a significant degree on patient
reimbursement of the costs of such products and related treatments at acceptable
levels from government authorities, private health insurers and other
organizations, such as health maintenance organizations. We cannot assure you
that reimbursement in the United States or foreign countries will be available
for any products we may develop or, if available, will not be decreased in the
future, or that reimbursement amounts will not reduce the demand for, or the
price of, our products with a consequent harm to our business. We cannot predict
what additional regulation or legislation relating to the health care industry
or third-party coverage and reimbursement may be enacted in the future or what
effect such regulation or legislation may have on our business. If additional
regulations are overly onerous or expensive, or if health care related
legislation makes our business more expensive or burdensome than originally
anticipated, we may be forced to significantly downsize our business plans or
completely abandon our business model.
Our products may
be expensive to manufacture, and they may not be profitable if we are unable to
control the costs to manufacture them.
Our
products may be significantly more expensive to manufacture than other
therapeutic products currently on the market today. We hope to substantially
reduce manufacturing costs through process improvements, development of new
science, increases in manufacturing scale and outsourcing to experienced
manufacturers. If we are not able to make these, or other improvements, and
depending on the pricing of the product, our profit margins may be significantly
less than that of other therapeutic products on the market today. In addition,
we may not be able to charge a high enough price for any cell therapy product we
develop, even if they are safe and effective, to make a profit. If we are unable
to realize significant profits from our potential product candidates, our
business would be materially harmed.
To be successful,
our proposed products must be accepted by the health care community, which can
be very slow to adopt or unreceptive to new technologies and
products.
Our
proposed products and those developed by our collaborative partners, if approved
for marketing, may not achieve market acceptance since hospitals, physicians,
patients or the medical community in general may decide not to accept and
utilize these products. The products that we are attempting to develop represent
substantial departures from established treatment methods and will compete with
a number of more conventional therapies manufactured and marketed by major
pharmaceutical companies. The degree of market acceptance of any of our
developed products will depend on a number of factors, including:
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our
establishment and demonstration to the medical community of the clinical
efficacy and safety of our proposed products;
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our
ability to create products that are superior to alternatives currently on
the market;
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our
ability to establish in the medical community the potential advantage of
our treatments over alternative treatment methods; and
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reimbursement
policies of government and third-party payors.
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If the
healthcare community does not accept our products for any of the foregoing
reasons, or for any other reason, our business would be materially
harmed.
We depend on key
personnel for our continued operations and future success, and a loss of certain
key personnel could significantly hinder our ability to move forward with our
business plan.
Because
of the specialized nature of our business, we are highly dependent on our
ability to identify, hire, train and retain highly qualified scientific and
technical personnel for the research and development activities we conduct or
sponsor. The loss of one or more key executive officers, or scientific officers,
particularly Mr. Janus, Mr. Aldrich, Mr. Adams or Dr. Revazova, would
be significantly detrimental to us. In addition, recruiting and retaining
qualified scientific personnel to perform research and development work is
critical to our success. Our anticipated growth and expansion into areas and
activities requiring additional expertise, such as clinical testing, regulatory
compliance, manufacturing and marketing, will require the addition of new
management personnel and the development of additional expertise by existing
management personnel. There is intense competition for qualified personnel in
the areas of our present and planned activities, and there can be no assurance
that we will be able to continue to attract and retain the qualified personnel
necessary for the development of our business. The failure to attract and retain
such personnel or to develop such expertise would adversely affect our
business.
We may not have
sufficient product liability insurance, which may leave us vulnerable to future
claims we will be unable to satisfy.
The
testing, manufacturing, marketing and sale of human therapeutic products entail
an inherent risk of product liability claims. We currently have $1 million
of product liability insurance. However, such insurance may not be adequate to
meet potential product liability claims. In the event we are forced to expend
significant funds on defending product liability actions, and in the event those
funds come from operating capital, we will be required to reduce our business
activities, which could lead to significant losses. We cannot assure you that
adequate insurance coverage will be available in the future on acceptable terms,
if at all, or that, if available, we will be able to maintain any such insurance
at sufficient levels of coverage or that any such insurance will provide
adequate protection against potential liabilities. Whether or not a product
liability insurance policy is obtained or maintained in the future, any product
liability claim could harm our business or financial condition.
Risks
Related to the Securities Markets and Our Capital Structure
Stock prices for
biotechnology companies have historically tended to be very
volatile.
Stock
prices and trading volumes for many biotechnology companies fluctuate widely for
a number of reasons, including but not limited to the following factors, some of
which may be unrelated to their businesses or results of
operations:
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clinical
trial results;
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the
amount of cash resources and such company’s ability to obtain additional
funding;
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announcements
of research activities, business developments, technological innovations
or new products by competitors;
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entering
into or terminating strategic relationships;
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changes
in government regulation;
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disputes
concerning patents or proprietary rights;
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changes
in our revenues or expense levels;
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public
concern regarding the safety, efficacy or other aspects of the products or
methodologies we are developing;
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reports
by securities analysts;
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activities
of various interest groups or organizations;
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media
coverage; and
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status
of the investment markets.
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This
market volatility, as well as general domestic or international economic, market
and political conditions, could materially and adversely affect the market price
of our common stock.
The application
of the “penny stock” rules to our common stock could limit the trading and
liquidity of the our common stock, adversely affect the market price of our
common stock and increase stockholder transaction costs to sell those
shares.
As long
as the trading price of our common stock is below $5.00 per share, the
open-market trading of our common stock will be subject to the “penny stock”
rules, unless we otherwise qualify for an exemption from the “penny stock”
definition. The “penny stock” rules impose additional sales practice
requirements on certain broker-dealers who sell securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse). These regulations, if they apply, require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks. Under these
regulations, certain brokers who recommend such securities to persons other than
established customers or certain accredited investors must make a special
written suitability determination regarding such a purchaser and receive such
purchaser’s written agreement to a transaction prior to sale. These regulations
may have the effect of limiting the trading activity of our common stock,
reducing the liquidity of an investment in our common stock and increasing the
transaction costs for sales and purchases of our common stock as compared to
other securities.
The market price
for our common stock may be particularly volatile given our status as a
relatively unknown company with a limited operating history and lack of profits,
which could lead to wide fluctuations in our share price. The price at which
stockholders purchase shares of our common stock may not be indicative of the
price of our common stock that will prevail in the trading
market.
The
market for our common stock may be characterized by significant price volatility
when compared to seasoned issuers, and we expect that our stock price could
continue to be more volatile than a seasoned issuer for the indefinite future.
The potential volatility in our share price is attributable to a number of
factors. First, there has been limited trading in our common stock. As a
consequence of this lack of liquidity, any future trading of shares by our
stockholders may disproportionately influence the price of those shares in
either direction. Second, we are a speculative or “risky” investment due to our
limited operating history and lack of profits to date, and uncertainty of future
market acceptance for our potential products. As a consequence of this enhanced
risk, more risk averse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more
inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned issuer. Many of
these factors will be beyond our control and may decrease the market price of
our common stock, regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price for our common
stock will be at any time or as to what effect that the sale of shares or the
availability of shares for sale at any time will have on the prevailing market
price.
In
addition, the market price of our common stock could be subject to wide
fluctuations in response to:
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quarterly
variations in our revenues and operating expenses;
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announcements
of new products or services by us;
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fluctuations
in interest rates;
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significant
sales of our common stock;
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the
operating and stock price performance of other companies that investors
may deem comparable to us; and
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news
reports relating to trends in our markets or general economic
conditions.
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Shares eligible
for future sale may adversely affect the market.
From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended, subject to certain limitations. In general, pursuant to
Rule 144, a stockholder (or stockholders whose shares are aggregated) who
has satisfied a six month holding period may, under certain circumstances, sell
within any three-month period a number of securities which does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume of the class during the four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, the sale of
securities, without any limitations, by a non-affiliate of our company who has
satisfied a one-year holding period. Any substantial sale of our common stock
pursuant to Rule 144 or pursuant to any resale prospectus may have an
adverse effect on the market price of our securities. Currently, almost all of
our securities are either free trading or subject to the release of trading
restrictions under the six month or one year holding periods of Rule
144.
Certain
provisions of our Certificate of Incorporation and Delaware law may make it more
difficult for a third party to affect a change-in-control.
Our
Certificate of Incorporation authorizes the Board of Directors to issue up to
20,000,000 shares of preferred stock. The preferred stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the Board of Directors without further action by the stockholders. These terms
may include voting rights including the right to vote as a series on particular
matters, preferences as to dividends and liquidation, conversion rights,
redemption rights and sinking fund provisions. The issuance of any preferred
stock could diminish the rights of holders of our common stock, and therefore
could reduce the value of such common stock. In addition, specific rights
granted to future holders of preferred stock could be used to restrict our
ability to merge with, or sell assets to, a third party. The ability of the
Board of Directors to issue preferred stock could make it more difficult, delay,
discourage, prevent or make it more costly to acquire the Company or affect a
change-in-control.
The sale or
issuance of a substantial number of shares may adversely affect the market price
for our common stock.
The
future sale of a substantial number of shares of our common stock in the public
market, or the perception that such sales could occur, could significantly and
negatively affect the market price for our common stock. We expect that we will
likely issue a substantial number of shares of our capital stock in financing
transactions in order to fund our operations and the growth of our business.
Under these arrangements, we may agree to register the shares for resale soon
after their issuance. We may also continue to pay for certain goods and services
with equity, which would dilute our current stockholders. Also, sales of the
shares issued in this manner could negatively affect the market price of our
stock.
Limitations on
director and officer liability and indemnification of our officers and directors
by us may discourage stockholders from bringing suit against a
director.
Our
certificate of incorporation and bylaws provide, with certain exceptions as
permitted by governing state law, that a director or officer shall not be
personally liable to us or our stockholders for breach of fiduciary duty as a
director, except for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law, or unlawful payments of dividends. These
provisions may discourage stockholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by stockholders on our behalf against a director. In addition, our
certificate of incorporation and bylaws may provide for mandatory
indemnification of directors and officers to the fullest extent permitted by
governing state law.
Compliance with
the rules established by the SEC pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002 will be complex. Failure to comply in a timely manner
could adversely affect investor confidence and our stock
price.
Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of
2002 require us to perform an annual assessment of our internal controls over
financial reporting, certify the effectiveness of those controls and secure an
attestation of our assessment by our independent registered public accountants.
The standards that must be met for management to assess the internal controls
over financial reporting as now in effect are new and complex, and require
significant documentation, testing and possible remediation to meet the detailed
standards. We may encounter problems or delays in completing activities
necessary to make an assessment of our internal controls over financial
reporting. In addition, the attestation process is new and we may encounter
problems or delays in completing the implementation of any requested
improvements and receiving an attestation of the assessment by our independent
registered public accountants. If we cannot perform the assessment or certify
that our internal controls over financial reporting are effective, or our
independent registered public accountants are unable to provide an unqualified
attestation on such assessment, investor confidence and share value may be
negatively impacted.
We do not expect
to pay cash dividends in the foreseeable future.
We have
not paid cash dividends on our stock and we do not plan to pay cash dividends on
our stock in the foreseeable future.