ITEM 1.BUSINESS
THE CORPORATION
OVERVIEW
We are a vaccine company and are focused on developing next
generation vaccines for infectious diseases, with several vaccine
candidates in our pipeline: HIV-1/AIDS, intra nasal influenza,
malaria, Chikungunya, herpes simplex virus (HSV) and the
respiratory syncitial virus (RSV) vaccines. Our core technology and
expertise lays in the use of virosomes, lipid-based carriers
containing functional fusion viral proteins and natural membrane
proteins, in combination with rationally designed antigens. Our
vaccines are designed to induce protection against early
transmission and infection, focusing on the mucosal immune response
as a first-line defense in combination with humoral and cellular
immune responses as a second-line defense, which, for some
pathogens, may be essential for the development of an effective
prophylactic vaccine We believe that virosomes are the most
promising vaccine delivery systems since they do not use live
attenuated or killed pathogens and increase the immunogenicity and
stability of the vaccine.
We currently do not make, market or sell any products, but we
generate some revenue through collaboration projects, grant funding
and R&D services. We believe that our research and development
activities will result in valuable intellectual property and
know-how that can generate significant revenues for us in the
future such as by licensing. Vaccines are one of the fastest
growing markets in the pharmaceutical industry. Vaccines have
evolved from being an exclusively low price sector to one where
substantial prices may be paid for some vaccine products that
address unmet medical needs.
HISTORY AND DEVELOPMENT OF THE COMPANY
We were incorporated in July 1994 pursuant to the laws of the
Commonwealth of Pennsylvania under the name "PDG Remediation, Inc."
In November 1996, we reincorporated under the laws of the State of
Delaware and changed our name to "ICHOR Corporation." In July 2001,
we changed our name to "Mymetics Corporation."
In March 2001, we acquired 99.9% of the outstanding shares of the
French registered company Mymetics S.A. in consideration for shares
of our common stock and shares of Class B Exchangeable Preferential
Non-Voting Stock of 6543 Luxembourg S.A., which were convertible
into shares of our common stock. In 2002, we acquired all but 0.01%
of the remaining outstanding common stock of Mymetics S.A. pursuant
to share exchanges with the remaining stockholders of Mymetics S.A.
The terms of these share exchanges were substantially similar to
the terms of the share exchange that occurred in March 2001. In
2004, all the remaining convertible shares of 6543 Luxembourg S.A.
not already held by Mymetics Corporation were converted into shares
of Mymetics Corporation. On February 7, 2006, the Tribunal de
Commerce in Lyon, France placed the French subsidiary Mymetics
S.A., under receivership ("Redressement Judiciaire") and this
subsidiary was subsequently officially closed by the Tribunal de
Commerce in Lyon on March 21, 2012.
We own all of the outstanding voting stock of: (i) Mymetics S.A., a
company originally organized as Mymetics Management Sаrl in
2007 under the laws of Switzerland, (ii) Bestewil Holding B.V. and
(iii) Bestewil Holding B.V’s subsidiary Mymetics B.V.
(formerly Virosome Biologicals B.V.) both of which are organized
under the laws of The Netherlands and were acquired in 2009. In
this document, unless the context otherwise requires, "Mymetics"
and the "Corporation" refer to Mymetics Corporation and its
subsidiaries.
MYMETICS S.A.
Our Swiss subsidiary Mymetics S.A. was founded in 2007 as Mymetics
Management Sàrl to facilitate the conduct of our business in
Switzerland. This includes managing our staff retirement and social
security contributions, leasing our Swiss premises and other such
local tasks which a U.S. registered company cannot easily conduct
without significant legal and organizational costs. The change in
name and bylaws affected in 2009, from “Société
à Responsabilité Limitée » (SàRL) to
“Société Anonyme” (SA) is indicative of the
transition from a pure service company status of this unit to a
development company in its own rights within Mymetics
Corporation.
BESTEWIL HOLDING B.V. and its subsidiary MYMETICS B.V.
On April 1, 2009 we entered into an agreement with Norwood
Immunology Limited (“NIL”) for the acquisition of
Bestewil Holding B.V. (“Bestewil”) from its parent,
NIL, under a Share Purchase Agreement pursuant to which we agreed
to purchase all issued and outstanding shares of capital stock (the
“Bestewil Shares”) of Bestewil from its parent, NIL,
and all issued and outstanding shares of capital stock of Virosome
Biologicals B.V. which were held by Bestewil. Virosome Biologicals
B.V., the name of which was subsequently changed to Mymetics B.V.,
continues to be engaged in research and development activities in
its own facilities in Leiden (Netherlands) under the management of
its founder, the original inventor of the virosome
technology.
STRATEGY
With
only 26 diseases addressed by vaccines in the world today, it is a
well-known fact that the world needs many more vaccines and focus
on prevention.
Our vvision is to become the market leader in the research and
development of new generation
virosome and membrane protein based
vaccines
for life disabling and
infectious diseases.
By using virosomes as a delivery platform, Mymetics vaccine
candidates do not use live attenuated or killed pathogens, while
increasing the immunogenicity and
stability of the
vaccine.
Moreover,
the company’s vaccines are designed to induce protection
against early transmission and infection, focusing both on the
mucosal immune response as a first-line defense and on the systemic
humoral (blood) immune response, which, for some pathogens, may be
essential for the development of an effective prophylactic
vaccine.
Our strategy is to strengthen our virosome and membrane protein
know how, expertise and intellectual property and extend the
application of our key scientific approaches to new vaccines
by:
●
Leveraging
the effective and safe virosome vaccine technology and
know-how
●
Building
on our leading expertise in membrane proteins and lipid
membranes
●
Leveraging
our expertise in incorporating adjuvants and antigens in the lipid
membranes and on the same particle
●
Advancing
existing vaccine candidates through Phase II clinical trials with
our partners
●
Maintaining
a comprehensive IP portfolio
●
Adopting
a flexible cost model based on a combination of in-house expertise
and best-in-class outsourcing
●
Entering
into strategic partnerships with leading pharmaceutical companies
and research organizations
This
approach has resulted in the development of a rich pipeline of
promising vaccine candidates in either the pre-clinical or Phase I
stage of development and a strong validation through world leading
partnerships.
PRODUCTS UNDER DEVELOPMENT
Our current pipeline has proprietary vaccines in development:
HIV-1, malaria, Chikungunya, herpes simplex virus type I and II
(HSV-1 and HSV-II), respiratory syncytial virus (RSV) and
intra-nasal influenza vaccines. The vaccines in our portfolio are
primarily prophylactic. The current stage of development of these
vaccines is shown in the table below:
|
Vaccine
|
Pre-Clinical
|
Phase
I
|
|
HIV-1
|
|
X
|
|
RSV
|
On hold
|
|
|
HSV
|
On hold
|
|
|
Malaria
|
|
X
|
|
Influenza
|
|
X
|
|
Chikungunya
|
X
|
|
HIV-1 and AIDS
HIV-1 (human immunodeficiency virus type 1) is a retrovirus that
gradually destroys the immune system and ultimately leads to AIDS.
HIV-1 is among the pathogens harboring the highest genetic
variation, leading to millions of variants, each rapidly mutating.
Indeed, HIV-1 exists under many different versions (aka
“clades”), like members of a large family; they are
different from, but related to each other.
Our current prophylactic HIV-1 vaccine candidate is constituted of
virosomes linked to conserved antigens (epitopes) derived from the
HIV-1 gp41 proteins from the clade B, the dominant clade found in
Europe and North America. The vaccine is designed to trigger blood
and mucosal antibodies of both isotype IgG and IgA, for example in
the vaginal and intestinal tracts. The rationale for the design of
the vaccine was based on the observation that certain people who
are repeatedly exposed to HIV-1 do not contract infection; they
were shown to have mucosal antibodies in the semen or vaginal
secretions against the HIV-1 gp41 that apparently protect them. We
intend for our vaccine to imitate “Mother
Nature”.
Key scientific results with the HIV vaccine to date:
2005:
“Proof of
Concept” for inducing mucosal antibodies
. Vaccination of rabbits with virosomes-P1
elicited mucosal antibodies in the vagina and intestinal mucosa. P1
is a synthetic peptide corresponding to the C-terminal end of the
C-helix ectodomain of the gp41. In a laboratory test, these
antibodies strongly inhibited HIV-1 passage through the mucosal
tissues, also called transcytosis, confirming the potential of
developing an HIV-1 vaccine that prevents infection at the mucosal
layer.
2006/2007:
Mucosal antibodies in
monkeys
. Macaque monkeys
(
Macaca
Mulatta),
of Chinese origin,
showed after vaccination with virosomes-P1, specific mucosal
antibodies, which were detected in more than 90% of the animals and
harboring the potential to block
in-vitro
HIV-1 transcytosis, confirming the rabbit
data.
2008:
Full protection of
monkeys against multiple vaginal challenges with live heterologous
clade B virus
. Macaque monkeys
of Chinese origin were vaccinated with both virosomes-modified P1
and virosomes-rgp41 (vaccine MYM-V201). One month after the last
vaccination, animals received multiple intra-vaginal challenges
with the live SHIV
SF162P3
virus. The vaccinated animals that developed
mucosal antibodies with transcytosis inhibition activity were not
infected with the virus, while the placebo vaccinated control group
was fully infected. Results were published in
“Immunity”, February 25, 2011.
Dec 2008:
Approval to start
Phase I clinical trials
. Phase
I study proposal (IMPD, IB, clinical protocol, etc.) was submitted
and approved by the Independent Ethics Committee (IEC) of the Ghent
University Hospital. Mymetics received the approval and
authorization from the Federal Agency for Medicines and Health
Products (FAGG) in Belgium to conduct the clinical trial
MYM-V101-CT08-101 (EudraCT number 2008-007306-10) for testing the
drug product MYM-V101 (virosomes with the modified and lipidated
P1).
Sep.- Oct. 2009:
Production of the
GMP-grade vaccine
(MYMV101:
virosomes-modified P1) for the Phase I clinical trial in Belgium.
GMP-grade products are notoriously more difficult and costly to
produce than GLP-grade ones. Succeeding in the GMP production is
considered a major achievement.
Dec. 2009 - Sep. 2010:
Phase I clinical trial
–“proof of principle”
with the final signed report in July 2011. The
trial demonstrated that virosomes-modified P1 can induce mucosal
antibodies in the genital tract of women, and confirmed the
immunogenicity data previously obtained in monkeys. The drug
product MYMV-101 was used as a vaccine in a double-blind,
placebo-controlled Phase I study at CEVAC (Ghent, Belgium),
involving 24 healthy women randomized in two panels to monitor
safety and mucosal immunogenicity. In each panel, eight subjects
received the vaccine and four subjects received the placebo through
intra-muscular and intra-nasal administrations. The Phase I
clinical trial achieved its primary objective and showed that the
HIV vaccine MYMV101 was safe and well tolerated by healthy women.
The secondary objective was also met as the presence of IgG and IgA
antibodies in the serum of all vaccinated women was detected.
Further, samples showed that mucosal antibodies in the vaginal and
rectal secretions were present. Tested vaginal secretions could
block
in
vitro
the HIV-1 transcytosis,
confirming the previous pre-clinical work. Mymetics could claim a
shelf life of nine months for its MYM-V101 drug product. Results
were published in “PlosOne”,
February 20,
2013
.
Oct. 2014 – to Dec 2017:
Non-human primate
study in collaboration with Texas Biomedical Research
Institute
in San Antonio, Texas
which was funded by the Bill & Melinda Gates Foundation. The
objective of the study: to confirm the results obtained in previous
pre-clinical studies and investigate the role of the two antigens.
On April 11, 2016, the Company announced results that its HIV
vaccine candidate was shown to generate significant protection in
groups of 12 female monkeys against repeated AIDS virus exposures
during part of the preclinical study. During the first part of the
study the Mymetics’ two-component virosome-based HIV vaccine
was able to show significant efficacy of 87% in delaying the time
to persistent infection versus the control group after seven
intravaginal virus challenges. The study aimed to mimic the
exposure of women to semen from HIV-infected men, although the
viral dose of each of these seven animal challenges represented
about 70,000 times the average human HIV dose passed during sexual
intercourse from an HIV-infected male to an uninfected female.
During the second part of the study the animal viral challenge dose
was increased by 50% starting from the 8th challenge onward,
reaching more than 100,000 times the average amount of virus passed
from an infected man to a female partner. At this virus dose, the
vaccine did not show significant protection in the animals as the
immune system was overloaded. The Company continued its
collaboration with the Texas Biomedical Research Institute and
Gates Foundation funded laboratories to analyze the serum and
mucosal samples to better understand the mechanisms of action of
the vaccine and these analyses have not resulted in a significant
correlation between presence and quantity of antibodies and level
of protection.
Next steps:
Mymetics and the Texas Biomedical Research Institute are evaluating
further collaboration opportunities, and we are starting to plan
the clinical trial development for the Mymetics HIV vaccine
candidate, building on the Maciviva project and the previous Phase
I that already showed a good safety and tolerance profile and the
induction of mucosal and humoral antibodies. Funding for the
clinical trial development will be sought from partners and grant
funding organizations. A combined Phase I/II on women and men might
start by the end 2020.
HORIZON 2020-SERI
May 2015 to date: the MACIVIVA project (Manufacturing of Cold-chain
Independent VIrosome Vaccines) as part of the EU Horizon 2020
research and innovation framework program started in May 2015,
Mymetics is leading this consortium project. The consortium
partners, besides Mymetics, are Catalent UK Swindon Zydis Ltd,
Chimera Biotec GmbH (Germany), Upperton Ltd. (UK) and Bachem AG
(Switzerland A total of E8.4 million of grants was approved, of
which E5.3 million is funded as part of Horizon 2020 and up to E3.1
million of funding will be provided by the Swiss State
“Secretariat for Education, Research and Innovation”
(SERI) for the Swiss based consortium partners. The grant funds the
evaluation, development and manufacturing scale-up of thermo-stable
and cold-chain independent nano-pharmaceutical virosome-based
vaccine candidates. Of the total amount, E3.5 million is directly
attributable to Mymetics’ activities, with the remaining
balance going to the consortium partners. The project duration is
42 months and started on May 4, 2015.
In May
2015, the Company received a pre-payment from the two granting
organizations for a total value of E1.5 million. A second
pre-payment of E917 from the EU was received in December 2016, and
E614 from "SERI" was received in April 2017, which was used to
finance the next reporting covering the period of November 2016 to
October 2017. In November 2017, the Company submitted the second
report and a new request for payment, which resulted in another
pre-payment from the EU of E77 received in February 2018. This
brings the total cash received year to date to E3,162, which
represents 82% of the agreed grant amount but the maximum funding
available until the end of the project. The remaining funds
available under the grant will be received after the Company
receives approval for the final report which will be submitted in
November 2018 and approved by the EU and SERI.
The
preliminary results announced in September 2017 are showing that
spray drying and lyophilization may conserve the virosome structure
and antigens during the manufacturing process. Preclinical studies
showed that Mymetics HIV-1 vaccine candidate, after being
downstream processed into different powder solid dosage forms,
could trigger specific antibodies, which were variable depending on
the formulation. Antibodies were quantified in serum, nasal washes,
vaginal washes and feces by the immuno-PCR Imperacer®
assays.
Next Steps:
After
the first preclinical study, the manufacturing process and vaccine
formulations will need optimization prior to moving forward into
GMP development, which is planned to start in the second quarter of
2018.
Respiratory Syncytial Virus (RSV)
Respiratory
syncytial virus (RSV) is a disease that causes infections of the
lower respiratory tract, mainly in infants and young children. The
virus, which belongs to the Paramyxoviridae family, can cause
symptoms similar to the common cold, but can also lead to otitis
media (middle ear infection), pneumonia, and bronchiolitis
(inflammation of the small airways in the lung). Infection with RSV
early in life can increase the chances of developing recurrent
wheezing and asthma. Globally, RSV is responsible for over 30
million new acute lower respiratory infection episodes annually and
up to 199,000 deaths in children under five years old, with 99
percent of these deaths occurring in low-resource countries.
It’s so widespread in the United States that nearly all
children become infected with the virus before their second
birthdays. The elderly population is also at risk of severe RSV
disease.
Approach:
The RSV vaccine
consists of the reconstituted membrane of RSV containing the native
viral proteins, which can be adjuvanted with a lipopeptide or other
adjuvants. In mice, our RSV vaccine was shown to induce cellular
and humoral immunity to the virus, with a balanced Th1/Th2
response, resulting in protection against a live virus challenge,
and without inducing “enhanced disease” (a skewed
Th1/Th2 response being the hallmark of enhanced disease). In cotton
rats, a better model than mice for RSV, the vaccine protected
against a live virus challenge, without inducing enhanced disease.
In a direct comparison with the 1960’s vaccine of another
pharmaceutical company that caused severe safety issues in infants,
another group of cotton rats was immunized with
formaldehyde-inactivated virus, and developed enhanced disease
after vaccination and challenge. Mymetics focuses on developing an
RSV vaccine for elderly followed by a vaccine for
children.
Key Results to date
:
2007: First pre-clinical research on our RSV vaccine.
2008 and 2009: MedImmune repeated key experiments in order to
obtain their own validation of the results. Results were beyond
their expectation but MedImmune decided not to continue the
program.
2010: Conducting additional pre-clinical research and improving the
manufacturing procedure of the RSV virosomes and
publication of Mymetics RSV results in scientific journal
“Vaccine”.
2011: Improved the understanding of the adjuvant ratio in different
formulations and continued further tests on cotton rats and mice at
the University of Groningen, Netherlands, showing that a different
adjuvant ratios still triggered protection and the absence of
enhanced disease and the vaccine could trigger systemic and mucosal
antibodies.
May 2012: Publication of Mymetics RSV vaccine results in scientific
journal “PLOSONE”.
2013: Improved up-scale capabilities and up and down stream process
of vaccine production and tested different
formulations.
March 2013: Publication of Mymetics RSV vaccine results in
scientific journal “Vaccine”.
April 2013: Publication of Mymetics RSV vaccine results in
scientific journal “Influenza Journal”
Dec. 2013: Mymetics signed a License and Collaboration Agreement
with RSV Corporation (RSVC), a dedicated entity specifically set-up
for developing the Mymetics RSV vaccine. Under this
agreement
Astellas Pharma Inc. agreed to fund RSVC’s
development of the virosome vaccine technology, licensed from
Mymetics for the respiratory syncytial virus (RSV) through
completion of a Phase 2b human proof
‐
of
‐
concept study. Based
on the strategic partnership, Astellas received exclusive rights to
acquire RSVC as well as further develop and commercialize the
vaccine product.
We provided research
and development activities for the pre-clinical phases, prepared
for the upscale production and assay developments and provided
further scientific advice on the development of the RSV virosome
vaccine.
Jan.
2016: Mymetics received notice from RSV Corporation (RSVC) that it
would no longer pursue the development of a vaccine technology for
RSV in order to focus on other infectious therapies. The LCA which
was signed on December 27, 2013, between Bestewil Holding BV and
RSVC, was formally terminated as of July 25, 2016. Mymetics
regained all the rights, results and data related to the research,
development and commercialization of this vaccine
candidate.
Next steps
:
Following the termination of the license and collaboration
agreement with RSVC in 2016, Mymetics has currently put the further
development of this vaccine candidate on hold.
Intranasal Influenza
Approach:
The intranasal
influenza vaccine consists of the reconstituted membrane of
influenza virus, also containing a lipopeptide adjuvant. In mice,
intranasal application of virosomes without adjuvant does not
induce immunity to influenza; however, incorporation of the
lipopeptide in the virosomes produces a candidate vaccine that does
induce cellular immunity, as well as serum and mucosal antibodies
to the virus. The vaccine was licensed to Solvay Pharmaceuticals, a
major European pharmaceutical company, which was acquired by Abbott
Laboratories. Since October 2011, Mymetics has been able to reclaim
the intra-nasal influenza vaccine in its portfolio as Abbott
decided not to continue the product due to strategic
decisions.
Key results to date:
2005:
The vaccine completed
pre-clinical trials
. A first
milestone payment was received from Solvay in the same
year.
2006:
Successful completion
of Phase I trial
. The vaccine
was shown to be safe and well tolerated and induced an immune
response which met and exceeded CHMP (European regulatory) criteria
for an off-the-shelf injected vaccine. Subsequent milestone payment
was received.
Dec. 2016:
Research
project with Sanofi Pasteur.
Mymetics B.V., the 100%
subsidiary of Mymetics Corporation, agreed on a research project
with Sanofi Pasteur, the vaccine division of Sanofi (SNY). The
project will investigate the immunogenicity of influenza vaccines
based on Mymetics’ proprietary virosome technology platform
in pre-clinical settings.
Oct:
2017: The Company entered into an Amendment effective October 20,
2017, of the Research Agreement dated December 1, 2016 with Sanofi
Pasteur Biologics, LLC, the vaccine division of Sanofi SA,
(“Sanofi”), to extend the date of the Research
Agreement for an additional year. The initial results of the
recent study did not achieve the expected benefits of
Mymetics’ influenza virosomes and were contrary to earlier
results Mymetics obtained with Solvay in multiple studies.
Mymetics has agreed to pay for a redesigned study, which Mymetics
believes will be approximately $125,000. This study started
in Q1 2018 and we aim to have results at the end of Q2
2018.
Malaria
Malaria
is a life-threatening disease caused by parasites that are
transmitted to people through the bites of infected female
mosquitoes.
About
3.2 billion people – almost half of the world’s
population – are at risk of malaria. Young children, pregnant
women and non-immune travelers from malaria-free areas are
particularly vulnerable to the disease when they become infected.
Malaria is preventable and curable, and increased efforts are
dramatically reducing the malaria burden in many places. Between
2000 and 2015, malaria incidence among populations at risk (the
rate of new cases) fell by 37% globally. In that same period,
malaria death rates among populations at risk fell by 60% globally
among all age groups, and by 65% among children under 5.
Sub-Saharan Africa carries a disproportionately high share of the
global malaria burden. In 2015, the region was home to 88% of
malaria cases and 90% of malaria deaths (Source: WHO).
Malaria
is caused by a parasite called
Plasmodium
, which is transmitted via
the bites of infected mosquitoes. In the human body, the parasites
multiply in the liver, and then infect red blood
cells.
Malaria
being an extremely climate-sensitive disease, a potential risk
exists that Global Warming leads Malaria towards areas in higher
latitudes.
Approach
: The malaria vaccine
design is based on optimized mimicry of the native parasite protein
structure and eliciting antibodies against two stages of the
parasite life cycle, unlike 70% of vaccine candidates, which target
only one or the other parasite. It is today among the rare malaria
vaccine candidates able to also boost existing malaria immune
responses (it has both prophylactic and therapeutic effects) in
subjects that were previously exposed to malaria. A second malaria
vaccine candidate is under development as Mymetics virosome
technology and know-how had been selected to collaborate with
PATH-MVI and the LMIV (NIAID) to develop a transmission blocking
malaria vaccine candidate based on the virosome technology and two
antigens provided by LMIV.
Key results to date:
2007:
Mymetics acquired a
Malaria vaccine project
from
Pevion Biotech (Ittigen, Switzerland). A human clinical trial Phase
Ia for the vaccine with two antigens (AMA-1 and CSP-1) anchored to
virosomes was successfully completed on adults in Switzerland.
Results showed good safety and tolerability, and the induction of
blood antibodies.
2008 - 2009:
Phase Ib in Tanzania
on children and young adults
.
The clinical trial Phase Ib in Tanzania evaluated the safety of the
same antigens with virosomes on children and young adults under
“native” (endemic) conditions. The final report showed
that the vaccine induced specific AMA and CSP antibodies in the
majority of children and the CSP antibodies have remained up 12
months. The overall malaria clinical episodes were reduced by 50%
in vaccinated group compared to the placebo
group.
Nov. 2014:
Transmission blocking
malaria vaccine preclinical study.
Mymetics signed an agreement with PATH Malaria
Vaccine Initiative (MVI) and the Laboratory of Malaria Immunology
and Vaccinology (LMIV) of the National Institute of Allergy and
Infectious Diseases (NIAID), where Mymetics developed and produced
virosome based vaccine formulations for a malaria
transmission-blocking vaccine candidate which was based on two
antigens provided by LMIV. The vaccine formulations were tested in
animal models. PATH MVI funded all activities under this project,
which started in January 2015.
Apr. 2016: The Company announced that the preclinical study funded
by PATH-MVI and in collaboration with LMIV where Mymetics’
virosome based formulations for a malaria transmission-blocking
vaccine candidate were tested and compared with other vaccine
formulations, had been successful. The study showed that the
virosome vaccine candidates, at the highest dose tested, generate
high antibody titers against the required antigens and they were
able to significantly reduce (97-100%) the transmission of the
Plasmodium falciparum parasite. The Company is currently evaluating
funding opportunities for the next steps of
development.
Next steps
:
Mymetics
is currently evaluating possible the further development of a
malaria vaccine in collaboration with PATH-MVI and LMIV. In
parallel, Mymetics is collaboration with the Swiss Tropical and
Public Health Institute to add two important antigens for a
possible malaria vaccine candidate, the RH5 and the CyRPA peptides
and has applied for an EU grant to seek funding for this
development
Herpes Simplex Virus (HSV)
Herpes
simplex viruses (HSV) type 1 and 2 cause lifelong latent infections
that can lead to recurrent painful blisters. HSV-1 is common
(infecting 40-60% of people) and predominantly induces lip, mouth
and facial blisters, or the genitalia. HSV-2 is more usually
sexually transmitted and affects the genitalia in about 20% of the
population, but can also infect the oral mucosa. Although the
disease is more a social burden than a serious disease, primary
herpes infection can be devastating for babies, and HSV can cause
serious complications in immune-compromised individuals, especially
HIV/AIDS patients.
Both
viruses are closely related immunologically and infection with one
type partially protects against the other.
Infection
leads to life-long latency and periodic reactivations occur that
can lead to the shedding of live virus. Although therapeutic drugs
are available, their efficacy is limited and there is not currently
a vaccine against these viruses.
Approach
: The current HSV
vaccine candidate consists of the reconstituted membrane of HSV-1
or HSV-2, also containing a lipopeptide, or other adjuvant. In
mice, the virosome vaccine induces better immunity than repeated
near-lethal live virus infections, resulting in the induction of
neutralizing antibodies, with predominantly a Th1 profile, cellular
immunity, and vaginal IgA. Different routes of application are
possible (intranasal, intramuscular).
Next steps:
Mymetics is seeking partners to further advance this vaccine
candidate.
Chikungunya virus (CHIKV):
Chikungunya
is a mosquito-borne, single-stranded,
positive-sense RNA virus (family
Togaviridae
, genus
Alphavirus
) that has caused sporadic
outbreaks every 2-50 years of predominantly rheumatic disease,
primarily in Africa and Asia. CHIKV recently (2004-2016) produced
the largest epidemic recorded for an alphavirus with an estimated
1.4 to 6 million patients, and imported cases reported in nearly 40
countries including Europe, Japan and the Americas (since 2013).
The first autochthonous CHIKV infections in Europe (Italy in 2007
and France in 2010) were also seen during this epidemic. Although
Aedes aegypti
is the
traditional vector for CHIKV, the recent outbreak was associated
with the emergence of a new clade of CHIKV viruses, which were
efficiently transmitted by
Aedes
albopictus
mosquitoes, a vector that has seen a dramatic
global expansion in its geographic distribution
is a viral disease transmitted to humans by
infected mosquitoes, of the type aug (same type as Zika and
Dengue). It causes fever and severe joint pain. Other symptoms
include muscle pain, headache, nausea, fatigue and rash. Joint pain
is often debilitating and can vary in duration.
Approach:
There are no vaccines
available for Chikungunya although there are several in
development, of which one is in a clinical trial Phase II.
Mymetics
novel approach in CHIKV vaccine development is the
generation of virosomal vaccines using the CHIKV envelope
glycoproteins produced in insect cells. Virosomes are reconstituted
viral envelopes, consisting of membrane lipids and viral spike
glycoproteins. The external surface of the virosome resembles that
of a virus particle, with spike (glyco) proteins protruding from
the lipid membrane. Virosomes lack viral genetic material. The
advantage is that highly purified CHIKV spikes (expressed in insect
cells) will be used to constitute the virosomes. Thus, insect cell
material (DNA, proteins) will be completely absent from the
virosomal vaccine material. CHIKV spikes can be obtained from
different sources: VLPs, from baculovirus virions or from the
plasma membrane of insect cells.
Jan.
2016 to date: Mymetics has started the discovery phase of this
project where we are assessing the overall CHIKV glycoprotein
yields in scale up insect cell culture. In this project we are
working together with the University of Wageningen in the
Netherlands that has extensive expertise in this field. The
objective is to start preclinical animal studies by
mid-2018.
MATERIAL THIRD PARTY AGREEMENTS
For the development of its vaccines the Company has entered into
several agreements in the form of license agreements, exploitation
agreements or co-ownership agreements with third parties. These
third parties provide specific experience and capabilities or
provide access to specific know how, which are not the core
competence of Mymetics. The Company believes that the following
third party agreements are material. The following summaries of
their material terms are qualified in their entirety by reference
to the agreements filed as exhibits to prior SEC filings by the
Company as set forth under Item 15 (Exhibits and Financial
Statement Schedules).
INSERM
The Co-Ownership Agreement dated January 8, 2008 for two patents
PCT IB2005/001180 and PCT IB2005/001182, has been cancelled by
Mymetics as it does not fit the strategic direction of the
Company.
Exploitation Agreement dated January 8, 2008 that allows Mymetics
to have global rights to develop, promote, produce, co-produce,
sell and distribute HIV products based on any of the following
three patents: PCT IB2005/001180, PCT IB2005/001182 and PCT IB
2006/000466 has been amended on August 4, 2011 and now only
includes the PCT IB 2006/000466 patent. On October 9, 2013 this
agreement was renegotiated and amended to link the progress of the
related technology to milestones, which was reflected in the
following financial considerations:
Milestone
payments:
By
December 2013: E100,000 (paid in February 2014)
Start
of a second phase I: E50,000
Positive
results of second phase I: E100,000
Positive
results of phase II: E310,000
Start
of phase III: E1,000,000
Positive
results of phase III: E740,000
Receipt
of BLA Authorization: E1,000,000
Royalty payments in case of direct or indirect
commercialization:
For
sales below E250,000,000: 1%
For
sales between E250,000,000 and E500,000,000: 2%
For
sales more than E500,000,000: 3%
The Exploitation Agreement terminates upon the later of: the
expiration date of the longest-lived patent, or, 10 years after the
first date of commercialization of the product, unless terminated
by INSERM following market approval of the HIV products in the
event (i)Mymetics does not develop the product for a period more
than six months, (ii) the exploitation of the product is
interrupted for a period of more than twelve months, or (iii) there
is an absence of sales for twelve months starting from the date of
market approval.
RSV CORPORATION
On December 27, 2013 Mymetics signed a License and Collaboration
Agreement with RSV Corporation (RSVC), a dedicated entity
specifically set-up for developing the Mymetics RSV vaccine. Under
this agreement
Astellas Pharma Inc. will fund RSVC’s
development of the virosome vaccine technology, licensed from
Mymetics for the respiratory syncytial virus (RSV) through
completion of a Phase 2b human proof
‐
of
‐
concept study. Based
on the strategic partnership, Astellas received exclusive rights to
acquire RSVC as well as further develop and commercialize the
vaccine product.
We continued to
provide research and development activities for the pre-clinical
phases and prepared for the upscale production, assay developments
and provided further scientific advice on the development of the
RSV virosome vaccine.
On
January 25, 2016 Mymetics received notice from (RSVC) that it will
no longer pursue the development of a vaccine technology for RSV in
order to focus on other infectious therapies. The LCA which was
signed on December 27, 2013, between Bestewil Holding BV and RSVC,
has formally terminated as of July 25, 2016. Mymetics has regained
all the rights, results and data related to the research,
development and commercialization of the RSV vaccine
candidate.
SANOFI PASTEUR BIOLOGICS
On December 1, 2016, Mymetics Corporation entered into a material
definitive Research Agreement with Sanofi Pasteur Biologics, LLC,
the vaccine division of Sanofi (SNY). The project was established
to investigate the immunogenicity of influenza vaccines based on
Mymetics’ proprietary virosome technology platform in
pre-clinical settings. If this project is successful it could
result in a further and more extensive collaboration between the
two companies.
The project
duration was 12 months and started in January
2017.
On October 20, 2017, the Company entered into an Amendment of the
Research Agreement dated December 1, 2016 with Sanofi Pasteur
Biologics, LLC, the vaccine division of Sanofi SA,
(“Sanofi”), to extend the date of the Research
Agreement for an additional year. Under the terms of the Research
Agreement Sanofi wanted to compare the immunogenicity of
Mymetics’ influenza virosomes compared to Sanofi
Pasteur’s egg-based split vaccine. The interest of Sanofi in
a collaboration with Mymetics was based on the results of
preclinical and clinical studies a few years ago with Solvay
Pharmaceuticals that was acquired by Abbott in 2013. The initial
results of the recent study did not achieve the expected benefits
of Mymetics’ influenza virosomes and were contrary to earlier
results Mymetics obtained with Solvay in multiple studies. Mymetics
believes that there was an issue with the influenza virosome
formulations that were produced. Mymetics has agreed to pay for a
redesigned study, which Mymetics believes will cost approximately
$125,000. Following the new study in the coming months, Mymetics
will review the outcomes with Sanofi and determine next
steps.
INTELLECTUAL PROPERTY
|
–
|
WO/1999/025377
|
GP41 mutee
|
Mymetics Corporation
|
Expiration date: November 16,
2018
|
|
|
Method for obtaining vaccines for preventing the pathogenic effects
related to a retroviral
infection
|
|
|
|
|
|
|
|
–
|
WO/2004/071492
|
DCPC
|
Bestewil BV
|
Expiration date: February 14,
2023
|
|
|
Virosome-like
particles
|
|
|
|
|
|
|
|
–
|
WO/2004/045641
|
APRECS
|
Bestewil BV
|
Expiration date: November 19,
2023
|
|
|
Antigen-complexes
|
|
|
|
|
|
|
|
–
|
WO/2004/078099
|
AMA49
|
Mymetics Corporation
|
Expiration date: March 2, 2024
|
|
|
Compositions and methods for the generation of immune response
against
Malaria
|
|
|
|
|
|
|
|
–
|
WO/2004/106366
|
UK39
|
Mymetics Corporation
|
Expiration date: June 1, 2024
|
|
|
Methods
for synthetizing conformationally constrained peptides,
peptidomimetics and use of such peptidomimetics as synthetic
vaccines;
|
|
|
|
|
|
|
|
–
|
WO/2004/110486
|
Lipopeptide
|
Bestewil BV
|
Expiration date: June 17, 2024
|
|
|
Functionally
reconstituted viral membranes containing
adjuvant;
|
|
|
|
|
|
|
|
–
|
WO/2007/099446
|
Virosome-P1
|
Mymetics
Corp/Inserm/Pevion
|
Expiration date: March 2, 2027
|
|
|
Virosome-like vesicles comprising gp41 - derived
antigens
|
|
|
|
|
|
|
|
–
|
US/2009/0202215
|
GP41 4th gen
|
Mymetics Corporation
|
Expiration date: February 8,
2029
|
|
|
|
|
|
|
|
–
|
US/2009/0202219
|
Splitting GP41
|
Mymetics Corporation
|
Expiration date: February 8,
2029
|
|
|
|
|
|
|
|
–
|
WO/2016/039619
|
Virosome
|
Bestewil BV
|
Expiration date: September 12,
2034
|
|
|
Methods for providing adjuvanted virosomes and adjuvanted virosomes
obtainable
thereby
|
COMPETITION
We have not yet developed an actual product. Our future competitive
position depends on our ability to successfully develop our
intellectual property, and to license or sell such intellectual
property to third parties on financially favorable terms. Although
we believe that the results of our research and development
activities have been favorable, there are numerous entities and
individuals conducting research and development activities in the
area of human biology and medicine, all of which could be
considered competitors.
The worldwide vaccine market is dominated by five large
multinational companies: Sanofi Pasteur S.A., Merck & Co.,
GlaxoSmithKline Plc, Pfizer and Seqirus - CSL. Smaller and mid-size
companies such as Crucell (acquired by Johnson & Johnson) and
Novavax and PaxVax are developing vaccines in the same area as
Mymetics.
While many of these entities have greater financial and scientific
capabilities, and greater experience in conducting pre-clinical and
clinical trials, the Company believes that its innovative approach
to vaccine development is very competitive.
GOVERNMENTAL REGULATION
Our strategy was crafted in part to minimize the risks usually
associated with Phase III clinical trials, regulatory approvals and
marketing, which are expected to be borne by one or more future
partners.
We contract with third parties to perform research projects related
to our business. These third parties are located in various
countries and are subject to the applicable laws and regulations of
their respective countries. Accordingly, regulation by government
authorities in the United States, the European Union and other
foreign countries is a significant factor in the development,
manufacture and marketing of our proposed products by our future
partners and therefore has a direct impact on our ongoing research
and product development activities.
Any products that will be developed by our future partners based on
our technology will require regulatory approval by government
agencies prior to commercialization. In particular, like human
therapeutic products, vaccines are subject to rigorous pre-clinical
studies and clinical trials and other approval procedures of the
FDA and similar regulatory authorities in foreign countries. In
addition, various federal and state statutes and regulations will
also govern, or influence testing, manufacturing, safety, labeling,
storage and record keeping related to such products and their
marketing. The process of obtaining these approvals and the
subsequent substantial compliance with appropriate federal and
state statutes and regulations require the expenditure of
substantial time and financial resources. Obtaining royalties in
the future will depend on our future partners' ability to obtain
and maintain the necessary regulatory approvals.
Pre-clinical studies are generally conducted on laboratory animals
to evaluate the immunogenicity (induction of antibodies of the
cellular response), first proof of potential efficacy and safety of
a product. In light of our limited financial resources, clinical
trials of our vaccines are conducted first in Europe under the
European Union (“EU”) guidelines, a quicker and less
expensive approach than seeking FDA approval, which we intend to do
after EU approval is granted and we expect our financial resources
to be greater. There is however no certainty that such EU approval
will be granted. The Phase I, II and III EU clinical trials are
similar to those required for FDA approval. The FDA requirements
are addressed in this discussion.
The process which is described below is therefore to be considered
as generic background information which is relevant to the industry
as a whole. As such process applies to drugs as well as vaccines,
the term “drugs” as used hereafter refers also to
vaccines.
In the United States, any company developing new drugs must submit
the results of pre-clinical studies to the FDA as a part of an
investigational new drug application, or IND, which application
must become effective before it can begin clinical trials in the
United States. An IND becomes effective 30 days after receipt by
the FDA unless the FDA objects to it and the IND must be annually
updated. Typically, clinical evaluation involves a time-consuming
and costly three-phase process.
Phase I refers typically to closely monitored clinical trials and
includes the initial introduction of an investigational new drug
into human patients or normal healthy volunteer subjects. Phase I
clinical trials are designed to determine the safety (metabolic and
pharmacologic actions of a drug in humans), the side effects
associated with increasing drug doses and, if possible, to gain
early evidence on effectiveness (inductions of antibodies in our
case). Phase I trials also include the study of structure-activity
relationships and mechanism of action in humans, as well as studies
in which investigational drugs are used as research tools to
explore biological phenomena or disease processes. During Phase I
clinical trials, sufficient information about a drug's
pharmacokinetics and pharmacological effects should be obtained to
permit the design of well-controlled, scientifically valid, Phase
II studies. The total number of subjects and patients included in
Phase I clinical trials varies but is generally in the range of 20
to 80 people. Bioanalyses on the clinical trial samples in
different
in vitro
assays must be conducted under good laboratory
practice (GLP). At this stage, all techniques must be qualified
according to standard operating procedures (SOPs) but it is not
required to have the assays validated. Validating an assay consists
of analyzing or verifying the 8 or 9 assay parameters as described
in the US pharmacopeia or the ICH guidelines: 1) accuracy; 2)
precision; 3) limit of detection; 4) limit of qualification; 5)
specificity; 6) linearity and range; 7) robustness; and 8) system
suitability.
Phase II refers to controlled clinical trials conducted to evaluate
the safety and effectiveness of a drug for a particular indication
or indications in patients with a disease or condition under study
and to determine the common short-term side effects and risks
associated with the drug. These clinical trials are typically
well-controlled, closely monitored and conducted in a relatively
small number of patients, usually involving no more than several
hundred subjects. For prophylactic vaccines, a fraction of the
enrolled subjects for the Phase II trials should ideally correspond
to people at higher risk to contract the infection due to their
social and/or sexual behaviors. At this stage, all identified and
relevant techniques must be qualified and validation should be
initiated prior starting the phase II and full validation must be
achieved at the end of the phase II, prior launching Phase III.
Completion of Phase II trials generally corresponds to the
“stage of development” where big Pharma have a high
interest for the drug product.
Phase III refers to expanded controlled clinical trials, which many
times are designated as "pivotal trials" designed to reach end
points that the FDA has agreed in advance, if met, would allow
approval for marketing. These clinical trials are performed after
preliminary evidence suggesting effectiveness of a drug has been
obtained. Meanwhile, prophylactic vaccines are different because
the true evidence of effectiveness is obtained during the Phase III
trials involving an important fraction of the enrolled subjects
with high risk of contracting the pathogen, providing more
statistical power. Depending on the vaccine tested, vaccinated
subjects are monitored over a period of few months to several years
and the infection rate (protection) of this group is compared to
the placebo treated group. Phase III trials are intended to gather
additional information about the effectiveness and safety that is
needed to evaluate the overall benefit-risk relationship of the
drug and to provide an adequate basis for physician labeling. Phase
III clinical trials can include from several hundred to tens of
thousands of subjects depending on the specific indication being
tested.
The FDA closely monitors the progress of each of the three phases
of clinical trials that are conducted in the United States and may,
at its discretion, re-evaluate, alter, suspend or terminate the
testing based upon the data accumulated to that point and the FDA's
assessment of the risk/benefit ratio to the patient. Once Phase III
trials are completed, drug developers submit the results of
pre-clinical studies and clinical trials to the FDA, in the form of
a new drug application, or NDA, for approval to commence commercial
sales. In response, the FDA may grant marketing approval, request
additional information or deny the application if the FDA
determines that the application does not meet the predetermined
study goals and other regulatory approval criteria.
Furthermore, the FDA may prevent a drug developer from marketing a
product under a label for its desired indications, which may impair
commercialization of the product.
If the FDA approves the new drug application, the drug becomes
available for physicians to prescribe in the United States. After
approval, the drug developer must submit periodic reports to the
FDA, including descriptions of any adverse reactions reported. The
FDA may request additional studies, known as Phase IV clinical
trials to evaluate long-term effects.
We will be required to comply with similar regulatory procedures in
countries other than the United States.
In addition to studies requested by the FDA after approval, a drug
developer may conduct other trials and studies to explore use of
the approved compound for treatment of new indications. The purpose
of these trials and studies and related publications is to broaden
the application and use of the drug and its acceptance in the
medical community.
At this time, neither we nor any of our partners have submitted any
of its pre-clinical results to the FDA.
Our partners and future partner(s) will have to
complete an approval process, similar to the one required in the
United States, in virtually every foreign target market in order to
commercialize product candidates based on our technology in those
countries. The approval procedure and the time required for
approval vary from country to country and may involve additional
testing. Approvals (both foreign and in the United States) may not
be granted on a timely basis, or at all. In addition, regulatory
approval of prices is required in most countries other than the
United States. We face the risk that the resulting prices would be
insufficient to generate an acceptable return to our
partner(s).
EMPLOYEES
Ronald
Kempers is our President and Chief Executive Officer.
Our Swiss subsidiary, Mymetics S.A., has on its payroll, besides
the CEO, three employees: the Company’s Chief Scientific
Officer, the Director of Finance and the Head of Manufacturing and
Quality.
Mymetics B.V. has one full time executive officer (CSO), one part
time Admin assistant and three technicians.
WWW.MYMETICS.COM
News and information about Mymetics Corporation are available on
our web site, www.mymetics.com.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together
with all of the other information included in this report on Form
10-K. An investment in our common stock is risky. If any of the
following risks materialize, our business, financial condition or
results of operations could be adversely affected. In such an
event, the trading price of our common stock could decline, and you
may lose part or all of your investment. When used in these risk
factors, the terms "we" or "our" refer to Mymetics Corporation and
its subsidiaries.
We are a company engaged exclusively in research and development
activities, focusing primarily on vaccine development. Our strategy
was crafted in part to minimize the risks usually associated with
clinical trials, regulatory approvals and marketing, which we would
expect to be borne by our future partner(s).
Risks Related to Our Financial Position and Capital
Needs
We have incurred significant losses since our inception and
anticipate that we will continue to incur losses in the
future.
We
historically have incurred net losses. In the years ended December
31, 2017, and December 31, 2016, we sustained net loss of
approximately E4,112,000 and E5,964,000, respectively. At December
31, 2017, we had an accumulated deficit of approximately
E80,500,000.
The
amount of these losses may vary significantly from year-to-year and
quarter-to-quarter and will depend on, among other
factors:
- the
timing and cost of product development;
- the
progress and cost of preclinical and clinical development
programs;
- the
timing and cost of obtaining necessary regulatory
approvals;
- the
timing and cost of sales and marketing activities for future
products; and
- the
costs of pending and any future litigation of which we may be
subject.
We
currently are engaged in research and development activities and do
not have any commercially marketable products. The research and
development process requires significant capital
expenditures.
The RSV
vaccine activities were funded through incoming revenue from RSV
Corporation and were formally terminated as of July 25, 2016. We
also have attracted funding from PATH-MVI for our malaria vaccine
development and from the Bill & Melinda Gates Foundation for
the non-human primate study for our HIV vaccine candidate at Texas
Biomedical Research Institute. In April 2015, Mymetics announced
that it was leading a consortium of companies that have received a
grant worth a total of E8.4 million. The grant will fund the
evaluation, development and manufacturing scale-up of
thermos-stable and cold-chain independent nano-pharmaceutical
virosome-based vaccine candidates. These revenue streams and funds
are not fully covering the costs of all our
activities.
Accordingly,
we expect to generate additional operating losses at least until
such time as we are able to generate significant
revenues.
To
become profitable, we will need to generate revenues to offset our
operating costs, including our general and administrative expenses.
We may not achieve or, if achieved, sustain our revenue or profit
objectives, and our losses may increase in the future, and,
ultimately, we may have to cease operations.
In
order to generate new and significant revenues, we must
successfully develop and commercialize our proposed products or
enter into collaborative agreements with others who can
successfully develop and commercialize them. Our business plan is
predicated on commercializing our products in collaboration with
others. Even if our proposed products are commercially introduced,
they may never achieve market acceptance and we may never generate
significant revenues or achieve profitability.
We will require additional capital to fund our operations, and if
we fail to obtain necessary financing, we will be unable to
complete the development and potential commercialization of our
product candidates.
Our
operations have consumed substantial amounts of cash since
inception. We expect to continue to spend substantial amounts to
launch and commercialize our vaccine product candidates, if we
receive regulatory approval. We will require additional capital for
the further development and potential commercialization of our
vaccine product candidates. If we are unable to raise capital when
needed or on acceptable terms, we could be forced to delay, reduce
or eliminate our research and development programs or any future
commercialization efforts. Our future funding requirements, both
near and long-term, will depend on many factors, including, but not
limited to the:
-
initiation,
progress, timing, costs and results of pre-clinical studies and
clinical trials, including patient enrolment in such trials, for
our product candidates or any other future product
candidates;
-
clinical
development plans we establish for our current product candidates
and any other future vaccine product candidates;
-
number and
characteristics of vaccine product candidates that we develop or
in-license;
-
outcome, timing and
cost of regulatory review by the Food and Drug Administration, or
FDA, and comparable foreign regulatory authorities, including the
potential for the FDA or comparable foreign regulatory authorities
to require that we perform more studies than those that we
currently expect;
-
costs of filing,
prosecuting, defending and enforcing any patent claims and
maintaining and enforcing other intellectual property
rights;
-
effects of
competing technological and market developments;
-
costs and timing of
the implementation of commercial-scale manufacturing activities;
and
-
costs and timing of
establishing sales, marketing and distribution capabilities for any
product candidates for which we may receive regulatory
approval.
-
If we are unable to
expand our operations or otherwise capitalize on our business
opportunities due to a lack of capital, our ability to become
profitable will be compromised.
Raising additional capital may cause dilution to our existing
stockholders, restrict our operations or require us to relinquish
rights to product candidates.
Until
we can generate substantial revenue from product sales, if ever, we
expect to seek additional capital through a combination of private
and public equity offerings, debt financings, strategic
collaborations, alliances and licensing arrangements. To the extent
that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interests of existing
stockholders will be diluted, and the terms may include liquidation
or other preferences that adversely affect the rights of existing
stockholders. Debt financing, if available, may involve agreements
that include liens or other restrictive covenants limiting our
ability to take important actions, such as incurring additional
debt, making capital expenditures or declaring dividends, or
issuing warrants that if exercised could be dilutive to our
stockholders. If we raise additional funds through strategic
collaborations and alliances or licensing arrangements with third
parties, we may have to relinquish valuable rights to our product
candidates or any other future product candidates in particular
countries, or grant licenses on terms that are not favorable to us.
If we are unable to raise additional funds through equity or debt
financing when needed, we may be required to delay, limit, reduce
or terminate our product development or commercialization efforts
or grant third parties rights to develop and market product
candidates that we would otherwise prefer to develop and market
ourselves.
We have not generated any revenues to date from vaccine product
sales. We may never achieve or sustain profitability, which could
depress the market price of our securities, and could cause you to
lose all or a part of your investment.
To
date, we have no vaccine products approved for commercial sale and
have not generated any revenues from sales of any vaccine product
candidate. We do not know when, or if, we will generate any
revenues in the future. Our ability to generate revenue from
product sales and achieve profitability will depend upon our
ability to successfully gain regulatory approval and commercialize
our current or future vaccine product candidates. Even if we are
able to successfully achieve regulatory approval for any of our
vaccine product candidates, we do not know when they will generate
revenue from product sales for us, if at all. Our ability to
generate revenue from product sales from our current or future
product candidates also depends on a number of additional factors,
including our ability to:
-
successfully
complete development activities, including enrolment of study
participants and completion of the necessary clinical
trials;
-
complete and submit
new drug applications, or NDAs, to the FDA, and obtain regulatory
approval for indications for which there is a commercial
market;
-
complete and submit
applications to, and obtain regulatory approval from, foreign
regulatory authorities;
-
make or have made
commercial quantities of our products at acceptable cost
levels;
-
develop a
commercial organization capable of manufacturing, selling,
marketing and distributing any products we intend to sell
ourselves;
-
find suitable
partners to help us market, sell and distribute our approved
products in markets other than the markets in which we choose to
commercialize on our own; and
-
obtain adequate
pricing, coverage and reimbursement from third parties, including
government and private payers.
In
addition, because of the numerous risks and uncertainties
associated with product development, including that our product
candidates may not advance through development or achieve the
endpoints of applicable clinical trials, we are unable to predict
the timing or amount of increased expenses, or when or if we will
be able to achieve or maintain profitability. Even if we are able
to complete the development and regulatory process for our product
candidates, we anticipate incurring significant costs associated
with commercializing our product candidates.
If we
fail to become profitable or are unable to sustain profitability on
a continuing basis then we may be unable to continue our operations
at planned levels, which would depress the market price of our
securities.
Our existing and any future indebtedness could adversely affect our
ability to operate our business.
Two of
our major shareholders, Round Enterprises and Eardley Holding, have
been issued secured convertible notes, short term convertible notes
and short term promissory notes, which have a total carrying amount
of E50,041, including currently due interest. Under the terms of
the convertible notes both Round Enterprises and Eardley Holding
have the right to demand repayment at the end of the quarter
following the repayment request of those convertible notes and
exercise their rights as secured creditors under the terms of these
notes, and we are required to repay the other notes unless Round
Enterprises and Eardley Holding elect to convert the notes. We
could in the future incur additional indebtedness beyond our
borrowings under the outstanding secured convertible
notes.
Our
outstanding indebtedness combined with our other financial
obligations and contractual commitments, including any additional
indebtedness beyond our borrowings under our secured convertible
notes issued to Round Enterprises and Eardley Holding, could have
significant adverse consequences, including:
-
requiring us to
dedicate a portion of our cash resources to the payment of interest
and principal, and prepayment and repayment fees and penalties,
thereby reducing money available to fund working capital, capital
expenditures, product development and other general corporate
purposes;
-
increasing our
vulnerability to adverse changes in general economic, industry and
market conditions;
-
subjecting us to
restrictive covenants that may reduce our ability to take certain
corporate actions or obtain further debt or equity
financing;
-
limiting our
flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
-
placing us at a
competitive disadvantage compared to our competitors that have less
debt or better debt servicing options.
We may
not have sufficient funds, and may be unable to arrange for
additional financing, to pay the amounts due under our existing
debt. Failure to make payments or comply with other covenants under
our existing debt instruments could result in an event of default
and acceleration of amounts due. If an event of default occurs and
the lenders accelerate the amounts due, we may not be able to make
accelerated payments, and the lenders could seek to enforce
security interests in the collateral securing such indebtedness,
which includes substantially all of our assets, including our
intellectual property.
We might not be able to utilize a significant portion of our net
operating loss carryforwards and research and development tax
credit carryforwards.
As of
December 31, 2017, we had federal net operating loss carryforwards
in the U.S. of E70 million which if not utilized will expire
in years 2018-2037 and federal research and development tax credit
carryforwards of E213 which if not utilized will begin to expire in
2028. These net operating loss and tax credit carryforwards could
expire unused and be unavailable to offset our future income tax
liabilities. In addition, under Section 382 of the Internal
Revenue Code of 1986, as amended, if a corporation undergoes an
“ownership change,” which is generally defined as a
greater than 50% change, by value, in its equity ownership over a
three-year period, the corporation’s ability to use its
pre-change net operating loss carryforwards and other pre-change
tax attributes to offset its post-change income may be limited. We
have not determined if we have experienced Section 382
ownership changes in the past and if a portion of our net operating
loss and tax credit carryforwards are subject to an annual
limitation under Section 382. In addition, we may experience
ownership changes in the future as a result of subsequent shifts in
our stock ownership, including this offering, some of which may be
outside of our control. If we determine that an ownership change
has occurred and our ability to use our historical net operating
loss and tax credit carryforwards is materially limited, it would
harm our future operating results by effectively increasing our
future tax obligations.
We might not be able to continue as a going concern.
Our
cash balances, recurring losses, negative cash flows from
operations, and debt outstanding as of December 31, 2017 and our
projected spending in 2018, raise substantial doubt about our
ability to continue as a going concern, and our independent
registered public accounting firm has included an explanatory
paragraph in its report on our financial statements as of and for
the year ended December 31, 2017 regarding this uncertainty. If we
are unable to continue as a going concern, we might have to
liquidate our assets and the values we receive for our assets in
liquidation or dissolution could be significantly lower than the
values reflected in our financial statements. In addition, the
inclusion of a going concern statement by our auditors, our lack of
cash resources and our potential inability to continue as a going
concern may materially adversely affect the price of our securities
and our ability to raise new capital or to enter into critical
contractual relations with third parties.
Risks Related to Our Business and Development of Our
Products
Our future success is dependent on the successful clinical
development, regulatory approval and commercialization of our
vaccine product candidates, which will require significant capital
resources and years of additional clinical development
effort.
We do
not have any products that have regulatory approval. Currently, our
vaccine product candidates are in varying stages of development. As
a result, our business is dependent on our ability to successfully
complete clinical development of, obtain regulatory approval for,
and, if approved, successfully commercialize our product candidates
in a timely manner. We cannot commercialize our product candidates
in the United States without first obtaining regulatory approval
from the FDA; similarly, we cannot commercialize our product
candidates outside of the United States without obtaining
regulatory approval from comparable foreign regulatory authorities.
Before obtaining regulatory approvals for the commercial sale of
our product candidates for a target indication, we must demonstrate
with substantial evidence gathered in pre-clinical studies and
well-controlled clinical trials, generally including
well-controlled Phase III studies to the satisfaction of applicable
regulators, that our product candidates are safe and effective for
use for the target indication and that the manufacturing
facilities, processes and controls are adequate. Even if our
product candidates were to successfully obtain approval from the
FDA and comparable foreign regulatory authorities, any approval
might contain significant limitations related to use restrictions
for specified age groups, warnings, precautions or
contraindications, or may be subject to burdensome post-approval
study or risk management requirements. If we are unable to obtain
regulatory approval for our product candidates in one or more
jurisdictions, or any approval contains significant limitations, we
may not be able to obtain sufficient funding or generate sufficient
revenue to continue the development of any of our product
candidates. Furthermore, even if we obtain regulatory approval for
our product candidates, we will still need to develop a commercial
organization, establish commercially viable pricing and obtain
approval for adequate reimbursement from third party and government
payers. If we are unable to successfully commercialize our product
candidates, we may not be able to earn sufficient revenues to
continue our business.
Because the results of pre-clinical studies or earlier clinical
trials are not necessarily predictive of future results, our
product candidates may not have favorable results in later clinical
trials or receive regulatory approval.
Success
in pre-clinical studies and early clinical trials does not ensure
that later clinical trials will generate adequate data to
demonstrate the efficacy and safety of our product candidates. A
number of companies in the pharmaceutical and biotechnology
industries, including those with greater resources and experience,
have suffered significant setbacks in clinical trials, even after
seeing promising results in earlier clinical trials. Despite the
results reported in earlier pre-clinical studies and clinical
trials for our HIV vaccine, we do not know whether the clinical
trials we may conduct in the future will demonstrate adequate
efficacy and safety to result in regulatory approval to market our
product candidates in any particular jurisdiction. If later-stage
clinical trials do not produce favorable results, our ability to
achieve regulatory approval for our product candidates may be
adversely impacted.
The therapeutic efficacy of our HIV and our other product
candidates is unproven and we may not be able to successfully
develop and commercialize our product candidates.
Our
ability to generate revenues from our HIV and our other vaccine
product candidates, which we do not expect will occur for at least
the next several years, if ever, will depend heavily on our
successful development and commercialization after regulatory
approval, if achieved, which is subject to many potential risks.
For example, our HIV vaccine may not demonstrate in study subjects
any or all of the results that may have been demonstrated in
pre-clinical studies and earlier clinical trials. Our product
candidates may interact with human biological systems in
unforeseen, ineffective or harmful ways. If our product candidates
are associated with undesirable side effects or have
characteristics that are unexpected, we may need to abandon their
development or limit development to certain uses or subpopulations
in which the undesirable side effects or other characteristics are
less prevalent, less severe or more acceptable from a risk-benefit
perspective. Many compounds that initially showed promise in early
stage testing for treating certain diseases that our product
candidates are intended to address have later been found to cause
side effects that prevented further development of the products. As
a result of these and other risks described herein that are
inherent in the development of novel therapeutic agents, we may
never successfully develop, enter into or maintain third party
licensing or collaboration transactions with respect to, or
successfully commercialize, our product candidates, in which case
we will not achieve profitability and the value of our stock may
decline.
Clinical development of product candidates involves a lengthy and
expensive process with an uncertain outcome.
Clinical
testing is expensive, can take many years to complete, and its
outcome is inherently uncertain. Failure can occur at any time
during the clinical trial process. Study subject enrollment, a
significant factor in the timing of clinical trials, is affected by
many factors including the size and nature of the subject
population, the proximity of subjects to clinical sites,
seasonality, the eligibility criteria for the trial, the design of
the clinical trial, ability to obtain and maintain subject
consents, risk that enrolled subjects will drop out before
completion, competing clinical trials and clinicians' and subjects'
perceptions as to the potential advantages of the product candidate
being studied in relation to other available therapies, including
any new vaccines that may be approved or product candidates that
may be studied in competing clinical trials for the diseases we are
investigating.
Clinical
trials may be delayed, suspended or prematurely terminated for a
variety of other reasons, such as:
-
delay or failure in
reaching agreement with the FDA or a comparable foreign regulatory
authority on a trial design that we are able to
execute;
-
delay or failure in
obtaining authorization to commence a trial or inability to comply
with conditions imposed by a regulatory authority regarding the
scope or design of a clinical trial;
-
delay or failure in
reaching agreement on acceptable terms with prospective clinical
research organizations, or CROs, and clinical trial sites, the
terms of which can be subject to extensive negotiation and may vary
significantly among different CROs and trial sites;
-
delay or failure in
obtaining institutional review board, or IRB, approval or the
approval of other reviewing entities, including comparable foreign
regulatory authorities, to conduct a clinical trial at each
site;
-
withdrawal of
clinical trial sites from our clinical trials as a result of
changing standards of care or the ineligibility of a site to
participate in our clinical trials;
-
delay or failure in
recruiting and enrolling suitable study subjects to participate in
a trial;
-
delay or failure in
study subjects completing a trial or returning for post-treatment
follow-up;
-
clinical sites and
investigators deviating from a trial protocol, failing to conduct
the trial in accordance with regulatory requirements, or dropping
out of a trial;
-
inability to
identify and maintain a sufficient number of trial sites, many of
which may already be engaged in other clinical trial programs,
including some that may be for competing product candidates with
the same or similar indication;
-
failure of our
third party clinical trial managers to satisfy their contractual
duties or meet expected deadlines;
-
delay or failure in
adding new clinical trial sites;
-
ambiguous or
negative interim results or results that are inconsistent with
earlier results;
-
feedback from the
FDA, the IRB, data safety monitoring boards, or a comparable
foreign regulatory authority, or results from earlier stage or
concurrent pre-clinical studies and clinical trials, that might
require modification to the protocol for the trial;
-
decision by the
FDA, the IRB, a comparable foreign regulatory authority, or us, or
recommendation by a data safety monitoring board or comparable
foreign regulatory authority, to suspend or terminate clinical
trials at any time for safety issues or for any other
reason;
-
unacceptable
risk-benefit profile, unforeseen safety issues or adverse side
effects or adverse events;
-
failure of a
product candidate to demonstrate any benefit;
-
difficulties in
manufacturing sufficient quantities of a product candidate for use
in clinical trials;
-
lack of adequate
funding to continue the clinical trial, including the incurrence of
unforeseen costs due to enrolment delays, requirements to conduct
additional clinical trials or increased expenses associated with
the services of our CROs, clinical trial sites and other third
parties; or
-
changes in
governmental regulations or administrative actions.
If we
experience delays in the completion of any clinical trial of our
product candidates, the commercial prospects of our product
candidates may be harmed, and our ability to generate product
revenues from our product candidates, if approved, will be delayed.
In addition, any delays in completing our clinical trials will
increase our costs, slow down our development and approval process
for our product candidates and jeopardize our ability to commence
product sales and generate revenues. In addition, many of the
factors that could cause a delay in the commencement or completion
of clinical trials may also ultimately lead to the denial of
regulatory approval of our product candidates.
Our product candidates may cause undesirable side effects or have
other properties that could delay or prevent their regulatory
approval, limit the commercial profile of an approved label, or
result in significant negative consequences following any marketing
approval.
Undesirable
side effects caused by our vaccine product candidates could cause
us or regulatory authorities to interrupt, delay or halt clinical
trials and could result in the delay or denial of regulatory
approval by the FDA or other comparable foreign regulatory
authority or restrictive label requirements. If such side effects
or other safety or toxicity issues are reported in our future
clinical trials, we may not receive approval to market those
products which could prevent us from ever generating revenues or
achieving profitability. Results of our clinical trials could
reveal an unacceptably high prevalence and severity of side
effects. In such an event, our clinical trials could be suspended
or terminated and the FDA or comparable foreign regulatory
authorities could order us to cease further development, or deny
approval, of our product candidates for any or all targeted
indications. Drug-related side effects could affect study subject
recruitment, affect the ability of enrolled subjects to complete
our future clinical trials and may result in potential product
liability claims.
Additionally,
if any of our product candidates receive marketing approval, and we
or others later identify undesirable side effects caused by such
product, a number of potentially significant negative consequences
could result, including:
-
we may be forced to
suspend marketing of the product;
-
regulatory
authorities may withdraw their approvals of the
product;
-
regulatory
authorities may require additional warnings on the label that could
diminish the usage or otherwise limit the commercial success of the
product;
-
we may be required
to conduct post-market studies;
-
we could be sued,
could incur substantial litigation expenses and may be held liable
for harm caused to subjects or patients; and
-
our reputation may
suffer.
Any of
these events could prevent us from achieving or maintaining market
acceptance of our product candidates, if approved, and materially
adversely impact the market price of our securities.
Even if one or more of our product candidates receive regulatory
approval, we may still face future development and regulatory
difficulties.
Even if
we obtain regulatory approval for one or more of our product
candidates, they would be subject to ongoing requirements by the
FDA and comparable foreign regulatory authorities governing
manufacturing, quality control, further development, labeling,
packaging, storage, distribution, safety surveillance, import,
export, advertising, promotion, recordkeeping and reporting of
safety and other post-market information. The safety profile of our
product candidates will continue to be closely monitored by the FDA
and comparable foreign regulatory authorities after approval. If
new safety information becomes available after approval of our
product candidates, the FDA or comparable foreign regulatory
authorities may require labeling changes or establishment of a Risk
Evaluation and Mitigation Strategy, or REMS, or similar strategy,
impose significant restrictions on our product candidates,
indicated uses or marketing, or impose ongoing requirements for
potentially costly post-approval studies or post-market
surveillance.
In
addition, manufacturers of drug products and their facilities are
subject to continual review and periodic inspections by the FDA and
other regulatory authorities for compliance with current good
manufacturing practices, or GMP, and other regulations. If we or a
regulatory authority discover previously unknown problems with a
product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is
manufactured, a regulatory authority may impose restrictions on
that product, the manufacturing facility or us, including requiring
recall or withdrawal of the product from the market or suspension
of manufacturing. If we, our products or the manufacturing
facilities for our products fail to comply with applicable
regulatory requirements, a regulatory authority may:
-
issue warning
letters or untitled letters;
-
mandate
modifications to promotional materials or require us to provide
corrective information to healthcare practitioners;
-
require us to enter
into a consent decree, which can include imposition of various
fines, reimbursements for inspection costs, required due dates for
specific actions and penalties for noncompliance;
-
seek an injunction
or impose civil or criminal penalties or monetary
fines;
-
suspend or withdraw
regulatory approval;
-
suspend any ongoing
clinical trials;
-
refuse to approve
pending applications or supplements to applications filed by
us;
-
suspend or impose
restrictions on operations, including costly new manufacturing
requirements; or
-
seize or detain products, refuse to permit the
import or export of products, or require us to initiate a product
recall
.
The
occurrence of any event or penalty described above may inhibit or
preclude our ability to commercialize our product candidates and
generate revenue.
Changes in regulatory requirements and guidance may also occur and
we may need to amend clinical trial protocols submitted to
applicable regulatory authorities to reflect these changes.
Amendments may require us to resubmit clinical trial protocols to
IRBs for re-examination, which may impact the costs, timing or
successful completion of a clinical trial.
The
FDA's and other regulatory authorities' policies may change, and
additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product
candidates. We cannot predict the likelihood, nature or extent of
government regulation that may arise from future legislation or
administrative action, either in the United States or abroad. If we
are slow or unable to adapt to changes in existing requirements or
the adoption of new requirements or policies, or if we are not able
to maintain regulatory compliance, we may lose any marketing
approval that we may have obtained, and we may not achieve or
sustain profitability, which would adversely affect our business,
prospects, financial condition and results of
operations.
Additionally,
if we are required to conduct additional clinical trials or other
studies with respect to any of our product candidates beyond those
that we currently contemplate or if we are unable to successfully
complete our clinical trials or other studies, we may be delayed in
obtaining regulatory approval for our product candidates, we may
not be able to obtain regulatory approval at all or we may obtain
approval for indications that are not as broad as intended. Our
product development costs will also increase if we experience
delays in testing or approvals and we may not have sufficient
funding to complete the testing and approval process for any of our
product candidates. Significant clinical trial delays could allow
our competitors to bring products to market before we do and impair
our ability to commercialize our products if and when approved. If
any of this occurs, our business will be materially
harmed.
Even if we obtain regulatory approval for a product candidate, our
products will remain subject to ongoing regulatory
oversight.
Even if
we obtain any regulatory approval for our product candidates, they
will be subject to ongoing regulatory requirements for
manufacturing, labeling, packaging, storage, advertising,
promotion, sampling, record-keeping and submission of safety and
other post-market information. Any regulatory approvals that we
receive for our product candidates also may be subject to a Risk
Evaluation and Mitigation Strategy, or REMS, limitations on the
approved indicated uses for which the product may be marketed or to
the conditions of approval, or contain requirements for potentially
costly post-marketing testing, including Phase 4 clinical trials,
and surveillance to monitor the quality, safety and efficacy of the
product. For example, the holder of an approved Biologics License
Application (“BLA”) is obligated to monitor and report
adverse events and any failure of a product to meet the
specifications in the BLA. The holder of an approved BLA also must
submit new or supplemental applications and obtain FDA approval for
certain changes to the approved product, product labeling or
manufacturing process. Advertising and promotional materials must
comply with FDA rules and are subject to FDA review, in addition to
other applicable federal and state laws.
In
addition, product manufacturers and their facilities are subject to
payment of user fees and continual review and periodic inspections
by the FDA and other regulatory authorities for compliance with
current good manufacturing practices, or cGMP, requirements and
adherence to commitments made in the BLA or foreign marketing
application. If we, or a regulatory authority, discover previously
unknown problems with a product, such as adverse events of
unanticipated severity or frequency, or problems with the facility
where the product is manufactured or disagrees with the promotion,
marketing or labeling of that product, a regulatory authority may
impose restrictions relative to that product, the manufacturing
facility or us, including requiring recall or withdrawal of the
product from the market or suspension of
manufacturing.
If we
fail to comply with applicable regulatory requirements following
approval of any of our product candidates, a regulatory authority
may:
-
issue a warning
letter asserting that we are in violation of the law;
-
seek an injunction
or impose administrative, civil or criminal penalties or monetary
fines;
-
suspend or withdraw
regulatory approval;
-
suspend any ongoing
clinical trials;
-
refuse to approve a
pending BLA or comparable foreign marketing application (or any
supplements thereto) submitted by us or our strategic
partners;
-
restrict the
marketing, manufacturing or distribution of the
product;
-
seize or detain the
product or otherwise require the withdrawal of the product from the
market;
-
refuse to permit
the import or export of products; or
-
refuse to allow us
to enter into supply contracts, including government
contracts.
Any
government investigation of alleged violations of law could require
us to expend significant time and resources in response and could
generate negative publicity. The occurrence of any event or penalty
described above may inhibit our ability to commercialize our
product candidates and adversely affect our business, financial
condition, results of operations and prospects.
In
addition, the FDA’s policies, and those of equivalent foreign
regulatory agencies, may change and additional government
regulations may be enacted that could prevent, limit or delay
regulatory approval of our product candidates. We cannot predict
the likelihood, nature or extent of government regulation that may
arise from future legislation or administrative action, either in
the United States or abroad. If we are slow or unable to adapt to
changes in existing requirements or the adoption of new
requirements or policies, or if we are not able to maintain
regulatory compliance, we may lose any marketing approval that we
may have obtained, and we may not achieve or sustain profitability,
which would materially and adversely affect our business, financial
condition, results of operations and prospects.
Failure to obtain regulatory approval in international
jurisdictions would prevent our product candidates from being
marketed abroad.
In
order to market and sell our products in the European Union and
many other jurisdictions, including China, Japan and South Korea,
we must obtain separate marketing approvals and comply with
numerous and varying regulatory requirements. The approval
procedure varies among countries and can involve additional
testing. The time required to obtain approval may differ
substantially from that required to obtain FDA approval. The
regulatory approval process outside the United States generally
includes all of the risks associated with obtaining FDA approval.
In addition, in many countries outside the United States, it is
required that the product be approved for reimbursement before the
product can be approved for sale in that country. We may not obtain
approvals from regulatory authorities outside the United States on
a timely basis, if at all. Approval by the FDA does not ensure
approval by regulatory authorities in other countries or
jurisdictions, and approval by one regulatory authority outside the
United States does not ensure approval by regulatory authorities in
other countries or jurisdictions or by the FDA. We may not be able
to file for marketing approvals and may not receive necessary
approvals to commercialize our products in any market. If we are
unable to obtain approval of our product candidates by regulatory
authorities in the European Union, China, Japan, South Korea or
another country or jurisdiction, the commercial prospects of our
product candidates may be significantly diminished and our business
prospects could decline.
Risks Related to the Commercialization of Our Products
Our commercial success depends upon attaining significant market
acceptance of our product candidates, if approved, among
physicians, patients, government and private payers and others in
the medical community.
Even if
our product candidates receive regulatory approval, they may not
gain market acceptance among physicians, patients, government and
private payers, or others in the medical community. Market
acceptance of our product candidates, if we receive approval,
depends on a number of factors, including the:
-
efficacy and safety
of our product candidates, or our product candidates administered
with other drugs, each as demonstrated in clinical trials and
post-marketing experience;
-
clinical
indications for which our product candidates are
approved;
-
recommendation of
physicians and patients of our product candidates as safe and
effective treatments;
-
potential and
perceived advantages of our product candidates over alternative
treatments;
-
prevalence and
severity of any side effects;
-
product labeling or
product insert requirements of the FDA or other regulatory
authorities;
-
timing of market
introduction of our product candidates as well as competitive
products;
-
cost of treatment
in relation to any alternative treatments available;
-
availability of
coverage and adequate reimbursement and pricing by government and
private payers;
-
relative
convenience and ease of administration; and
-
effectiveness of
our sales and marketing efforts.
Moreover,
if our product candidates are approved but fail to achieve market
acceptance in the medical community, or our products are
restricted, withdrawn or recalled, or fail to be approved, as the
case may be, we may not be able to generate significant revenues,
which would compromise our ability to become
profitable.
If we are unable to establish sales and marketing capabilities or
enter into agreements with third parties to market and sell our
product candidates, we may be unable to generate any
revenue.
We do
not currently have an organization for the sale, marketing and
distribution of any approved products and the cost of establishing
and maintaining such an organization may exceed the
cost-effectiveness of doing so. In order to market any approved
products, we must build our sales, marketing, managerial and other
non-technical capabilities or make arrangements with third parties
to perform these services. If we are unable to establish adequate
sales, marketing and distribution capabilities, whether
independently or with third parties, we may not be able to generate
product revenue and may not become profitable. By the time that any
of our product candidates are available for sale, we may be
competing with other companies that have more extensive sales and
marketing operations. Without an internal commercial organization
or the support of third party sales and marketing functions, we may
be unable to compete successfully against these more established
companies. To the extent we rely on third parties to commercialize
our product candidates, if approved, our revenues from product
sales may be lower than if we had commercialized our product
candidates ourselves, impacting how quickly we may reach
profitability, if at all.
A variety of risks associated with marketing our product candidates
internationally could materially adversely affect our
business.
We plan
to seek regulatory approval for our product candidates outside of
the United States, and accordingly, we expect that we will be
subject to additional risks related to operating in foreign
countries if we obtain the necessary approvals, including but not
limited to:
-
differing
regulatory requirements in foreign countries;
-
the potential local
sellers importing goods from a foreign market with low or lower
prices rather than buying them locally from us;
-
unexpected changes
in tariffs, trade barriers, price and exchange controls and other
regulatory requirements;
-
economic weakness,
including inflation, or political instability in particular foreign
economies and markets;
-
costs of compliance
with tax, employment, immigration and labor laws for employees
living or traveling abroad;
-
foreign taxes,
including withholding of payroll taxes;
-
foreign currency
fluctuations, which could result in increased operating expenses
and reduced revenues;
-
difficulties
staffing and managing foreign operations;
-
workforce
uncertainty in countries where labor unrest is more common than in
the United States;
-
challenges
enforcing our contractual and intellectual property rights,
especially in those foreign countries that do not respect and
protect intellectual property rights to the same extent as the
United States;
-
production
shortages resulting from any events affecting raw material supply
or manufacturing capabilities abroad; and
-
business
interruptions resulting from geo-political actions, including war
and terrorism.
These
and other risks associated with our future international operations
may materially adversely affect our ability to attain or maintain
profitable operations.
Our vaccine product candidates may not receive coverage and
adequate reimbursement from third party payers, which could harm
our financial performance.
Our
ability to commercialize our vaccine product candidates
successfully will depend, in part, on the extent to which coverage
and adequate reimbursement for our product candidates and related
treatments will be available from government health administration
authorities, private health insurers and other organizations.
Government authorities and third party payers, such as private
health insurers and health maintenance organizations, determine
which medications they will cover and establish reimbursement
levels. A primary trend in the healthcare industry worldwide is
cost containment through limited coverage and reimbursement.
Reimbursement rates may vary according to the use of the vaccine
and the clinical setting in which it is used, may be based on
reimbursement levels already set for lower cost vaccines and may be
incorporated into existing payments for other services. Net prices
for vaccines may be reduced by mandatory discounts or rebates
required by government healthcare programs or private payers and by
any future relaxation of laws that presently restrict imports of
drugs from countries where they may be sold at lower prices than in
the United States. Third party payers often rely upon government
healthcare program coverage policy and payment limitations in
setting their own reimbursement policies. Increasingly, third party
payers are requiring that vaccine companies provide them with
predetermined discounts from list prices and are challenging the
prices charged for vaccines. Third party payers may also seek
additional clinical evidence, beyond the data required to obtain
marketing approval, demonstrating clinical benefits and value in
specific patient populations before covering our product candidates
for those patients.
We
cannot be sure that coverage and adequate reimbursement will be
available for our product candidates and, if reimbursement is
available, what the level of reimbursement will be. Coverage and
reimbursement may impact the demand for, and the price of, any
approved products. If reimbursement is not available or is
available only at limited levels, we may not be able to
successfully commercialize any approved products. There also may be
significant delays in obtaining coverage and reimbursement for
newly approved vaccines, and coverage may be more limited than the
purposes for which the drug is approved by the relevant regulatory
authorities. Moreover, eligibility for coverage and reimbursement
does not imply that any vaccine will be paid for in all cases or at
a rate that covers our costs, including research, development,
manufacture, sale and distribution. Interim reimbursement levels
for new vaccines, if applicable, may also not be sufficient to
cover our costs and may only be temporary. Reimbursement policies
may change and new policies may be adopted, and we cannot predict
the likelihood, nature or extent of such changes or new policies,
either in the United States or abroad. Our inability to obtain
coverage and profitable reimbursement rates from both
government-funded and private payers for any approved products that
we develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize
products and our overall financial condition.
We face substantial competition, which may result in others
discovering, developing or commercializing products before or more
successfully than we do.
The
development and commercialization of new vaccine products is highly
competitive. We face competition with respect to our product
candidates from major pharmaceutical companies, specialty
pharmaceutical companies and biotechnology companies worldwide.
There are other pharmaceutical and biotechnology companies that
currently are pursuing the development of products for the
treatment of HIV, RSV, and other indications for which we are
developing product candidates. Some of these products and therapies
are based on scientific approaches that are similar to our
approach, and others are based on entirely different approaches.
Potential competitors also include academic institutions, foreign
government agencies and other public and private research
organizations that conduct research, seek patent protection and
establish collaborative arrangements for research, development,
manufacturing and commercialization.
Compared
to us, many of our potential competitors may have significantly
greater financial, technical and human resources providing a
comparative advantage. As a result of these factors, our
competitors may obtain regulatory approval of their products before
we are able to, which may limit our ability to gain a share of the
market for our product candidates, if approved. Our competitors may
also develop vaccines that are safer, more effective, more widely
used and cheaper than ours, and may also be more successful than us
in manufacturing and marketing their products. These appreciable
advantages could render our product candidates obsolete or
non-competitive before we can recover the expenses of our product
candidates' development and commercialization.
Mergers
and acquisitions in the pharmaceutical and biotechnology industries
may result in even more resources being concentrated among a
smaller number of our competitors and fewer potential acquirers or
collaboration partners, especially if potential acquirers or
collaborators acquire companies with competitive products. Smaller
and other early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with
large and established companies. These third parties compete with
us in recruiting and retaining qualified scientific, management and
commercial personnel, establishing clinical trial sites and subject
registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, our
programs.
Product liability lawsuits against us could cause us to incur
substantial liabilities and materially adversely impact our
operations.
We face
an inherent risk of product liability exposure related to the
testing of our vaccine product candidates by us or our
investigators in human clinical trials. We will face an even
greater risk if one or more of our product candidates receives
regulatory approval and we commercially sell our products. Product
liability claims may be brought against us by study subjects
enrolled in our clinical trials, patients, healthcare providers or
others using, administering or selling our product candidates or
approved products. If we cannot successfully defend ourselves
against claims that our product candidates or approved products
caused injuries, we could incur substantial liabilities. Regardless
of merit or eventual outcome, liability claims may result in, for
example:
-
decreased demand
for our product candidates and/or approved products;
-
termination of
clinical trial sites or entire trial programs;
-
injury to our
reputation and significant negative media attention;
-
withdrawal of
clinical trial subjects;
-
significant costs
to defend the related litigation;
-
substantial
monetary awards to clinical trial subjects or
patients;
-
diversion of
management and scientific resources from our business
operations;
-
the inability to
commercialize our product candidates; and
-
increased scrutiny
and potential investigation by, among others, the FDA, the DOJ, the
Office of Inspector General of the HHS, state attorneys general,
members of Congress and the public.
Our
inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of product candidates. Although we maintain such
insurance, any claim that may be brought against us could result in
a court judgment or settlement in an amount that is not covered, in
whole or in part, by our insurance or that is in excess of the
limits of our insurance coverage. Our insurance policies also have
various exclusions, and we may be subject to a product liability
claim for which we have no coverage. We may have to pay any amounts
awarded by a court or negotiated in a settlement that exceed our
coverage limitations or that are not covered by our insurance, and
we may not have, or be able to obtain, sufficient capital to pay
such amounts.
Our product liability insurance coverage may not be adequate to
cover any and all liabilities that we may incur.
Product
liability insurance coverage is increasingly expensive. We may not
be able to maintain insurance coverage at a reasonable cost or in
an amount adequate to satisfy any liability that may arise. We
intend to expand our product liability insurance coverage to
include the sale of commercial products if we obtain marketing
approval for any of our product candidates, but we may be unable to
obtain commercially reasonable product liability insurance for our
product candidates, if approved for marketing. Large judgments have
been awarded in class action lawsuits based on drugs that had
unanticipated side effects. A successful product liability claim or
series of claims brought against us, particularly if judgments
exceed our insurance coverage, could decrease our cash and
adversely affect our business.
Additionally,
if any claims are brought against us, even if we are fully covered
by insurance, we may suffer harm such as adverse publicity. We also
could suffer diversion of attention of technical and management
personnel and incur substantial costs in resolving disputes,
including litigation, with our insurance provider regarding
coverage.
Risks Related to Our Dependence on Third Parties
We rely, and will rely in the future, on third parties to conduct
our pre-clinical studies and clinical trials. If these third
parties do not appropriately carry out their contractual duties or
meet expected deadlines, we may not be able to obtain regulatory
approval for or commercialize our product candidates.
We rely
on third parties to monitor, manage data for, and execute our
pre-clinical and clinical programs, and we control only some
aspects of their activities. Because we have relied on third
parties, our internal capacity to perform these functions is
limited. We currently have a small number of employees, which
limits the internal resources we have available to identify and
monitor our third party providers. Nevertheless, we are responsible
for ensuring that each of our pre-clinical studies and clinical
trials are conducted in accordance with the applicable protocol and
legal, regulatory and scientific requirements and standards,
including, for example, Good Laboratory Practices, or GLP, the
Animal Welfare Act and Good Clinical Practices, or GCP. Our
reliance on third parties does not relieve us of our regulatory
responsibilities. Regulatory authorities enforce GCP through
periodic inspections of trial sponsors, principal investigators and
trial sites. If we or any of these third parties fail to comply
with applicable GCP, the clinical data generated in our clinical
trials may be deemed unreliable and the relevant regulatory
authorities may require us to perform additional clinical trials in
support of our marketing applications. We cannot assure you that
upon inspection by a given regulatory authority, such regulatory
authority will determine that any of our clinical trials comply
with GCP requirements. Failure to comply with these regulations may
require us to repeat pre-clinical studies and clinical trials,
which would delay the regulatory approval process.
The
third parties conducting our pre-clinical studies and clinical
trials are not our employees, and, we cannot control whether or not
they devote sufficient time and resources to our ongoing clinical,
nonclinical and pre-clinical programs. To the extent we are unable
to identify and successfully manage the performance of third party
service providers in the future, our business may be adversely
affected. If these third parties do not successfully carry out
their contractual duties or obligations or meet expected deadlines,
or if the quality or accuracy of the data they obtain is
compromised due to the failure to adhere to our protocols,
regulatory requirements or for other reasons, our pre-clinical
studies and clinical trials may be extended, delayed or terminated
and we may not be able to obtain regulatory approval for or
successfully commercialize our product candidates. As a result, our
results of operations and the commercial prospects for our product
candidates would be harmed, our costs could increase and our
ability to generate revenues could be delayed.
If we lose our relationships with the third parties conducting our
pre-clinical studies and clinical trials or providing other
services to us, our vaccine development efforts could be
delayed.
We rely
on third parties for pre-clinical studies and clinical trials
related to our vaccine development efforts. Our third party service
providers conducting our pre-clinical studies and clinical trials
generally have the right to terminate their agreements with us upon
90 days' notice for any reason and other service providers may
terminate their agreement with us upon shorter notice. Generally,
these agreements may also be terminated if we breach the agreement
and such breach remains uncured, make a general assignment for the
benefit of our creditors or if we are liquidated. Switching or
adding additional third party service providers would involve
additional cost and requires management time and focus. In
addition, there is a natural transition period when a new service
provider commences work and the new service provider may not
provide the same type or level of services as the original
provider. If any of our relationships with our third party service
providers terminate, we may not be able to enter into arrangements
with alternative service providers or to do so on commercially
reasonable terms. Such transactions, if possible, may adversely
impact our operations and financial performance.
We have no experience manufacturing our product candidates and have
no manufacturing facility. We are dependent on third party
manufacturers for the manufacture of our product candidates as well
as on third parties for our supply chain, and if we experience
problems with any such third parties, the manufacturing of our
product candidates could be delayed.
We do
not own or operate facilities for the manufacture of our product
candidates. We currently have no plans to build our own clinical or
commercial scale manufacturing capabilities. We currently rely on
contract manufacturing organizations, or CMOs, for the manufacture
and supply of our product candidates. To meet our projected needs
for pre-clinical and clinical supplies to support our activities
through regulatory approval and commercial manufacturing, the CMOs
with whom we may work may need to increase the scale of production.
If such CMOs are unable to satisfy our production needs, we will
need to identify additional CMOs for continued production of supply
for our product candidates. Although alternative third party
suppliers with the necessary manufacturing and regulatory expertise
and facilities exist, it could be expensive and take a significant
amount of time to arrange for alternative suppliers. If we are
unable to arrange for alternative third party manufacturing sources
on commercially reasonable terms, in a timely manner or at all, we
may not be able to complete development of our product candidates,
or market or distribute our product candidates.
We are
also reliant on the third party manufacturers for regulatory
compliance, quality assurance and know-how. Certain components or
know-how obtained from partners such as PX Therapeutics, supplier
of GMP grade engineered mutated gp41 protein, are key components of
our vaccines currently under development. Accordingly, the loss of
any of these components or know-how might prevent us from achieving
our business plan, despite the fact that contractual safeguards are
in place. In addition a failure to synthesize and manufacture our
product candidates or products eventually approved, if any, in
accordance with our specifications, or the possibility of
termination or nonrenewal of the agreement by the third party would
be costly or damaging to us. Further, the FDA and other regulatory
authorities would require that our product candidates and any
products that we may eventually commercialize be manufactured
according to cGMP and similar foreign standards. Any failure by our
third party manufacturers to comply with cGMP or failure to scale
up manufacturing processes, including any failure to deliver
sufficient quantities of our product candidates in a timely manner,
could lead to a delay in, or failure to obtain, regulatory approval
of our product candidates. In addition, such failure could be the
basis for the FDA to issue a warning letter, withdraw approvals for
our product candidates previously granted to us, or take other
regulatory or legal action, including recall or seizure of outside
supplies of our product candidates, total or partial suspension of
production, suspension of ongoing clinical trials, refusal to
approve pending applications or supplemental applications,
detention of product, refusal to permit the import or export of
products, injunction, or imposing civil and criminal
penalties.
Disruptions or delays in the supply of our vaccine product
candidates would delay development of our product candidates and
impair our ability to generate revenues from the sale of our
products, if approved.
Any
significant disruption in our supplier relationships could harm our
business. Any significant delay in the supply of our vaccine
product candidates or its key materials for an ongoing pre-clinical
study or clinical trial could considerably delay completion of our
pre-clinical study or clinical trial, product testing and potential
regulatory approval of our product candidates. If our manufacturers
or we are unable to purchase these key materials after regulatory
approval has been obtained for our product candidates, the
commercial launch of our product candidates would be delayed or
there would be a shortage in supply, which would impair our ability
to generate revenues from the sale of our product
candidates.
We may elect to enter into licensing or collaboration agreements
with respect to some or all of our vaccine product candidates in
certain territories. Our dependence on such relationships may
adversely affect our business.
Because
we have limited resources, we may seek to enter into collaboration
agreements with other pharmaceutical or biotechnology companies
such as we have recently done with Astellas Pharma Inc. and our RSV
vaccine and that we may do with Sanofi Pasteur Biologics, LLC
("Sanofi"), the vaccine division of Sanofi SA, based on their
evaluation of the immunogenicity of influenza vaccines using our
proprietary virosome technology . Our commercialization strategy
for our product candidates may depend on our ability to enter into
agreements with other collaborators to obtain assistance and
funding for the development and potential commercialization of our
product candidates in the territories in which we seek to partner.
Despite our efforts, we may be unable to secure other collaborative
licensing or other arrangements that are necessary for us to
further develop and commercialize our product candidates.
Supporting diligence activities conducted by potential
collaborators and negotiating the financial and other terms of a
collaboration agreement are long and complex processes with
uncertain results. Even if we are successful in entering into
collaboration agreements, collaborations may involve greater
uncertainty for us, as we have less control over certain aspects of
our collaborative programs than we do over our proprietary
development and commercialization programs.
Any
failure by our partners to perform their obligations or any
decision by our partners to terminate these agreements could
negatively impact our ability to successfully develop, obtain
regulatory approvals for and commercialize our product candidates.
In the event we grant exclusive rights to such partners, we could
be precluded from potential commercialization of our product
candidates within the territories in which we have a partner. In
addition, any termination of our collaboration agreements will
terminate any funding we may receive under the relevant
collaboration agreement and may impair our ability to fund further
development efforts and our progress in our development
programs.
Further,
our other potential future collaborators may develop alternative
products or pursue alternative technologies either on their own or
in collaboration with others, including our competitors, and the
priorities or focus of our collaborators may shift such that our
product candidates receives less attention or resources than we
would like, or they may be terminated altogether. Any such actions
by our potential future collaborators may adversely affect our
business prospects and ability to earn revenues. In addition, we
could have disputes with our potential future collaborators, such
as the interpretation of terms in our agreements. Any such
disagreements could lead to delays in the development or
commercialization of our product candidates or could result in
time-consuming and expensive litigation or arbitration, which may
not be resolved in our favor.
If our third party manufacturers use hazardous and biological
materials in a manner that causes injury or violates applicable
law, we may be liable for damages.
Our
research and development activities involve the controlled use of
potentially hazardous substances, including chemical and biological
materials by our third party manufacturers. Our manufacturers are
subject to federal, state and local laws and regulations in the
United States governing medical, radioactive and hazardous
materials. Although we believe that our manufacturers' procedures
for using, handling, storing and disposing of these materials
comply with legally prescribed standards, we cannot completely
eliminate the risk of contamination or injury resulting from such
materials. As a result of any such contamination or injury we may
incur liability or local, city, state or federal authorities may
curtail the use of these materials, interrupting our business
operations. In the event of an accident, we could be held liable
for damages or penalized with fines, and the liability could exceed
our resources. Compliance with applicable environmental laws and
regulations is expensive, and current or future environmental
regulations may impair our research, development and production
efforts, which could harm our business, prospects, financial
condition or results of operations.
Risks Related to Our Industry
Recently enacted and future legislation, including potentially
unfavorable pricing regulations or other healthcare reform
initiatives, may increase the difficulty and cost for us to obtain
marketing approval of and commercialize our product candidates and
affect the prices we may obtain.
The
regulations that govern, among other things, marketing approvals,
coverage, pricing and reimbursement for new vaccine and drug
products vary widely from country to country. In the United States
and some foreign jurisdictions, there have been a number of
legislative and regulatory changes and proposed changes regarding
the healthcare system that could prevent or delay marketing
approval of our product candidates, restrict or regulate
post-approval activities and affect our ability to successfully
sell our product candidates, if we obtain marketing
approval.
Cost
reduction initiatives and changes in coverage implemented through
legislation or regulation could decrease utilization of and
reimbursement for any approved products, which in turn would affect
the price we can receive for those products. While the legislation
and Medicare regulations apply only to drug benefits for Medicare
beneficiaries, private payers often follow Medicare coverage policy
and payment limitations in setting their own reimbursement rates.
Therefore, any reduction in reimbursement that results from federal
legislation or regulation may result in a similar reduction in
payments from private payers. In March 2010, President Obama signed
into law the Patient Protection and Affordable Care Act and the
Health Care and Education Affordability Reconciliation Act of 2010,
or the Affordable Care Act. These new laws and subsequent
legislation may result in additional reductions in Medicare and
other healthcare funding.
In the
United States, the European Union and other potentially significant
markets for our product candidates, government authorities and
third party payers are increasingly attempting to limit or regulate
the price of medical products and services, particularly for new
and innovative products and therapies, which has resulted in lower
average selling prices. Furthermore, the increased emphasis on
managed healthcare in the United States and on country and regional
pricing and reimbursement controls in the European Union will put
additional pressure on product pricing, reimbursement and usage,
which may adversely affect our future product sales and results of
operations. These pressures can arise from rules and practices of
managed care groups, judicial decisions and governmental laws and
regulations related to Medicare, Medicaid and healthcare reform,
pharmaceutical reimbursement policies and pricing in
general.
Some
countries require approval of the sale price of a vaccine or drug
before it can be marketed. In many countries, the pricing review
period begins after marketing or product licensing approval is
granted. In some foreign markets, prescription pharmaceutical
pricing remains subject to continuing governmental control even
after initial approval is granted. As a result, we might obtain
marketing approval for our product candidates in a particular
country, but then be subject to price regulations that delay our
commercial launch of the product, possibly for lengthy time
periods, which could negatively impact the revenues we are able to
generate from the sale of the product in that particular country.
Adverse pricing limitations may hinder our ability to recoup our
investment in our product candidates even if our product candidates
obtain marketing approval. Lower pricing in one territory may cause
other territories to lower their prices, and so negatively impact
our revenue and our ability to recoup our investments in product
candidates.
In
addition, legislative and regulatory proposals have been made to
expand post-approval requirements and restrict sales and
promotional activities for pharmaceutical products and may increase
our regulatory burdens and operating costs. We cannot be sure
whether additional legislative changes will be enacted, or whether
FDA regulations, guidance or interpretations will be changed, or
what the impact of such changes on the marketing approvals of our
product candidates may be.
Laws and regulations governing conduct of international operations
may preclude us from developing, manufacturing and selling products
outside of the United States and require us to develop and
implement costly compliance programs.
As we
seek to expand our operations outside of the United States, we must
comply with numerous laws and regulations in each jurisdiction in
which we plan to operate. The creation and implementation of
international business practices compliance programs is costly and
such programs are difficult to enforce, particularly where we must
rely on third parties.
The
Foreign Corrupt Practices Act, or FCPA, prohibits any United States
individual or business from paying, offering, authorizing payment
or offering of anything of value, directly or indirectly, to any
foreign official, political party or candidate for the purpose of
influencing any act or decision of the foreign entity in order to
assist the individual or business in obtaining or retaining
business. The FCPA also obligates companies whose securities are
listed in the United States to comply with certain accounting
provisions requiring such companies to maintain books and records
that accurately and fairly reflect all transactions of the
corporation, including international subsidiaries, and to devise
and maintain an adequate system of internal accounting controls for
international operations. The anti-bribery provisions of the FCPA
are enforced primarily by the DOJ. The Securities and Exchange
Commission, or SEC, is involved with enforcement of the books and
records provisions of the FCPA.
Compliance
with the FCPA is expensive and difficult, particularly in countries
in which corruption is a recognized problem. In addition, the FCPA
presents particular challenges in the pharmaceutical industry,
because, in many countries, hospitals are operated by the
government, and doctors and other hospital employees are considered
foreign officials. Certain payments to hospitals in connection with
clinical trials and other work have been deemed to be improper
payments to government officials and have led to FCPA enforcement
actions.
Various
laws, regulations and executive orders also restrict the use and
dissemination outside of the United States, or the sharing with
certain foreign nationals, of information classified for national
security purposes, as well as certain products and technical data
relating to those products. Our expanding presence outside of the
United States will require us to dedicate additional resources to
comply with these laws, and these laws may preclude us from
developing, manufacturing, or selling our product candidates
outside of the United States, which could limit our growth
potential and increase our development costs.
The
failure to comply with laws governing international business
practices may result in substantial penalties, including suspension
or debarment from government contracting. Violation of the FCPA can
result in significant civil and criminal penalties. Indictment
alone under the FCPA can lead to suspension of the right to do
business with the United States government until the pending claims
are resolved. Conviction of a violation of the FCPA can result in
long-term disqualification as a government contractor. The
termination of a government contract or relationship as a result of
our failure to satisfy any of our obligations under laws governing
international business practices would have a negative impact on
our operations and harm our reputation and ability to procure
government contracts. Additionally, the SEC also may suspend or bar
issuers from trading securities on United States exchanges for
violations of the FCPA's accounting provisions.
Our relationships with customers and third party payers will be
subject to applicable anti-kickback, fraud and abuse and other
healthcare laws and regulations, which could expose us to criminal
sanctions, civil penalties, contractual damages, reputational harm
and diminished profits and future earnings.
Healthcare
providers, physicians and third party payers will play a primary
role in the recommendation and prescription of any product
candidates for which we obtain marketing approval. Our future
arrangements with third party payers and customers may expose us to
broadly applicable fraud and abuse and other healthcare laws and
regulations that may affect the business or financial arrangements
and relationships through which we would market, sell and
distribute our products. Even though we do not and will not control
referrals of healthcare services or bill directly to Medicare,
Medicaid or other third party payers, federal and state healthcare
laws and regulations pertaining to fraud and abuse and patients'
rights are and will be applicable to our business. Restrictions
under applicable federal and state healthcare laws and regulations
that may affect our operations and expose us to areas of risk
including the following:
-
the federal
Anti-Kickback Statute, which prohibits, among other things, persons
from knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in kind,
to induce or reward, or in return for, either the referral of an
individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made under a federal
healthcare program such as Medicare and Medicaid;
-
federal civil and
criminal false claims laws and civil monetary penalty laws, which
impose criminal and civil penalties, including through civil
whistleblower or qui tam actions, against individuals or entities
for knowingly presenting, or causing to be presented, to the
federal government, including the Medicare and Medicaid programs,
claims for payment that are false or fraudulent or making a false
statement to avoid, decrease or conceal an obligation to pay money
to the federal government;
-
the federal Health
Insurance Portability and Accountability Act of 1996, or HIPAA,
which imposes criminal and civil liability for executing a scheme
to defraud any healthcare benefit program and also created federal
criminal laws that prohibit knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially
false statements in connection with the delivery of or payment for
healthcare benefits, items or services;
-
HIPAA, as amended
by the Health Information Technology for Economic and Clinical
Health Act, which also imposes obligations, including mandatory
contractual terms, with respect to safeguarding the privacy,
security and transmission of individually identifiable health
information;
-
the Affordable Care
Act, which requires manufacturers of vaccines, drugs, devices,
biologics and medical supplies that are reimbursable under
Medicare, Medicaid or Children's Health Insurance Program to report
annually to HHS information related to payments and other transfers
of value to physicians and teaching hospitals, and ownership and
investment interests held by physicians and their immediate family
members and applicable group purchasing organizations;
and
-
analogous state and
foreign laws and regulations, such as state anti-kickback and false
claims laws, which may apply to sales or marketing arrangements and
claims involving healthcare items or services reimbursed by
non-governmental third party payers, including private insurers;
some state laws require pharmaceutical companies to comply with the
pharmaceutical industry's voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government
and may require vaccine and drug manufacturers to report
information related to payments and other transfers of value to
physicians and other healthcare providers or marketing
expenditures; and state and foreign laws govern the privacy and
security of health information in specified circumstances, many of
which differ from each other in significant ways and often are not
preempted by HIPAA, thus complicating compliance
efforts.
Efforts
to ensure that our business arrangements with third parties are
compliant with applicable healthcare laws and regulations will
involve the expenditure of appropriate, and possibly significant,
resources. Nonetheless, it is possible that governmental
authorities will conclude that our business practices may not
comply with current or future statutes, regulations or case law
involving applicable fraud and abuse or other healthcare laws and
regulations. If our operations are found to be in violation of any
of these laws or any other governmental regulations that may apply
to us, we may be subject to significant civil, criminal and
administrative penalties, damages, fines, imprisonment, exclusion
from government funded healthcare programs, such as Medicare and
Medicaid, and the curtailment or restructuring of our operations.
If any physicians or other healthcare providers or entities with
whom we expect to do business are found to not be in compliance
with applicable laws, they may be subject to criminal, civil or
administrative sanctions, including exclusions from government
funded healthcare programs.
Risks Related to Our Intellectual Property
If we are unable to protect our intellectual property rights or if
our intellectual property rights are inadequate for our technology
and vaccine product candidates, our competitive position could be
harmed.
Our
commercial success will depend in large part on our ability to
obtain and maintain patent and other intellectual property
protection in the United States and other countries with respect to
our proprietary technology and vaccine products. We rely on trade
secret, patent, copyright and trademark laws, and confidentiality
and other agreements with employees and third parties, all of which
offer only limited protection. Our strategy is to obtain patent
protection for chemical structures, pharmacokinetic profiles,
timing of administration, dose strengths and drug combinations and
secondarily seek to protect specific formulations, uses and
administration regimens relating to our product
candidates
.
The
patent positions of biotechnology and pharmaceutical companies
generally are highly uncertain, involve complex legal and factual
questions and have in recent years been the subject of much
litigation. As a result, the issuance, scope, validity,
enforceability and commercial value of any patents that issue, are
highly uncertain. The steps we have taken to protect our
proprietary rights may not be adequate to preclude misappropriation
of our proprietary information or infringement of our intellectual
property rights, both inside and outside the United States.
Further, the examination process may require us to narrow the
claims of our pending patent application, which may limit the scope
of patent protection that may be obtained if these applications
issue. The rights that may be granted under future issued patents
may not provide us with the proprietary protection or competitive
advantages we are seeking. If we are unable to obtain and maintain
patent protection for our technology and products, or if the scope
of the patent protection obtained is not sufficient, our
competitors could develop and commercialize technology and products
similar or superior to ours, and our ability to successfully
commercialize our technology and products may be adversely
affected. It is also possible that we will fail to identify
patentable aspects of inventions made in the course of our
development and commercialization activities before it is too late
to obtain patent protection on them.
With
respect to patent rights, we do not know whether any of our patent
applications will result in patents that effectively prevent others
from commercializing competitive technologies and products.
Publications of discoveries in the scientific literature often lag
behind the actual discoveries, and patent applications in the
United States and other jurisdictions are typically not published
until 18 months after filing or in some cases not at all,
until they are issued as a patent. Therefore we cannot be certain
that we were the first to make the inventions claimed in our
pending patent applications or that we were the first to file for
patent protection of such inventions.
Our intellectual property portfolio has certain pending patent
applications. If our pending patent applications fail to issue or
fail to issue with a scope that is meaningful to our product
candidates, or if issued, if our patents are found to be invalid,
not enforceable or not infringed by competitor products, our
business will be adversely affected.
Our
pending patent applications may not result in issued patents in the
United States or foreign jurisdictions in which such applications
are pending. Our pending applications cannot be enforced against
third parties practicing the technology claimed in such
applications unless and until a patent issues from such
applications. Even if a patent issues, it still may be challenged
as to its inventorship, scope, validity or enforceability in the
courts or patent offices in the United States and abroad. Such
challenges may result in the loss of patent protection, the
narrowing of claims in such patents or the invalidity or
unenforceability of such patents, which could limit our ability to
stop others from using or commercializing similar or identical
technology and products, or limit the duration of the patent
protection for our technology and products. Protecting against the
unauthorized use of our technology and other intellectual property
rights is expensive, difficult and may in some cases not be
possible. In some cases, it may be difficult or impossible to
detect third party infringement or misappropriation of our
intellectual property rights, even in relation to issued patent
claims, and proving any such infringement may be even more
difficult.
Third parties may initiate legal proceedings alleging that we are
infringing their intellectual property rights, the outcome of which
would be uncertain and could harm our business.
While
certain of our vaccine product candidates are in pre-clinical
studies, we believe that the use of our product candidates in these
pre-clinical studies falls within the scope of the exemptions
provided by 35 U.S.C. Section 271(e) in the United States,
which exempts from patent infringement liability activities
reasonably related to the development and submission of information
to the FDA. As our product candidates progress toward
commercialization, the possibility of a patent infringement claim
against us increases. There can be no assurance that our product
candidates do not infringe other parties' patents or other
proprietary rights, however, and competitors or other parties may
assert that we infringe their proprietary rights in any event. We
may become party to, or threatened with, future adversarial
proceedings or litigation regarding intellectual property rights
with respect to our product candidates, including interference or
derivation proceedings before the United States Patent and
Trademark Office, or USPTO. Third parties may assert infringement
claims against us based on existing patents or patents that may be
granted in the future. If we are found to infringe a third party's
intellectual property rights, we could be required to obtain a
license from such third party to continue commercializing our
product candidates. However, we may not be able to obtain any
required license on commercially reasonable terms or at all. Under
certain circumstances, we could be forced, including by court
order, to cease commercializing our product candidates. In
addition, in any such proceeding or litigation, we could be found
liable for monetary damages. A finding of infringement could
prevent us from commercializing our product candidates or force us
to cease some of our business operations, which could materially
harm our business. Any claims by third parties that we have
misappropriated their confidential information or trade secrets
could have a similar negative impact on our business.
We may not be able to protect our intellectual property rights
throughout the world.
Filing,
prosecuting and defending patents on our current product candidates
throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the United
States can be less extensive than those in the United States. In
addition, the laws and practices of some foreign countries do not
protect intellectual property rights to the same extent as federal
and state laws in the United States. For example, novel
formulations of existing drugs and manufacturing processes may not
be patentable in certain jurisdictions, and the requirements for
patentability may in certain countries, particularly developing
countries. Consequently, we may not be able to prevent third
parties from practicing our inventions in all countries outside the
United States, or from selling or importing products made using our
inventions into or within the United States or other jurisdictions.
Competitors may use our technologies in jurisdictions where we have
not obtained patent protection to develop their own products, and
may export otherwise infringing products to territories where we
have patent protection, but where enforcement is not as strong as
that in the United States. These products may compete with our
products in jurisdictions where we do not have any issued patents
and our patent claims or other intellectual property rights may not
be effective or sufficient to prevent them from competing with us
in these jurisdictions.
Our competitors may be able to circumvent our patents by developing
similar or alternative technologies or products in a non-infringing
manner.
Our
competitors may seek to market generic versions of any approved
products by submitting abbreviated new drug applications to the FDA
in which our competitors claim that our patents are invalid,
unenforceable or not infringed. Alternatively, our competitors may
seek approval to market their own products that are the same as,
similar to or otherwise competitive with our product candidates. In
these circumstances, we may need to defend or assert our patents,
by means including filing lawsuits alleging patent infringement
requiring us to engage in complex, lengthy and costly litigation or
other proceedings. In any of these types of proceedings, a court or
government agency with jurisdiction may find our patents invalid,
unenforceable or not infringed. We may also fail to identify
patentable aspects of our research and development before it is too
late to obtain patent protection. Even if we have valid and
enforceable patents, these patents still may not provide protection
against competing products or processes sufficient to achieve our
business objectives.
Changes in patent laws, including recent patent reform legislation,
could increase the uncertainties and costs surrounding the
prosecution of our patent applications and the enforcement or
defense of our issued patents.
Obtaining
and enforcing patents in the pharmaceutical industry involve
technological and legal complexity, and obtaining and enforcing
pharmaceutical patents is costly, time-consuming, and inherently
uncertain. Changes in either the patent laws or interpretation of
the patent laws in the United States and other countries may
diminish the value of our patents or narrow the scope of our patent
protection. For example, the United States Supreme Court has ruled
on several patent cases in recent years, either narrowing the scope
of patent protection available in certain circumstances or
weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our ability to
obtain patents in the future, this combination of events has
created uncertainty with respect to the value of patents, once
obtained. Depending on decisions by Congress, the federal courts,
and the USPTO, the laws and regulations governing patents could
change in unpredictable ways that would weaken our ability to
obtain new patents or to enforce patents we may obtain in the
future. Recent patent reform legislation could increase the
uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of our patents once
issued.
The
Leahy-Smith America Invents Act, or the Leahy-Smith Act, as adopted
in September 2011, includes provisions that affect the way patent
applications will be prosecuted and that may also affect patent
litigation. In particular, under the Leahy-Smith Act, the United
States transitioned in March 2013 from a "first to invent" system
to a "first to file" system in which the first inventor to
file a patent application will be entitled to the patent.
Third parties are allowed to submit prior art before the issuance
of a patent by the USPTO and may become involved in opposition,
derivation, reexamination, inter-parties review or interference
proceedings challenging our patent rights. An adverse determination
in any such submission, proceeding or litigation could reduce the
scope of, or invalidate patent rights, which could adversely affect
our competitive position.
The
USPTO recently has developed regulations and procedures
to govern administration of the
Leahy-Smith Act, and many of the substantive changes to patent law
associated with the Leahy-Smith Act, and in particular, the first
to file provisions, did not become effective until March 16,
2013. Accordingly, it is not clear what, if any, impact the
Leahy-Smith Act will have on the operation of our business.
However, the Leahy-Smith Act and its implementation could increase
the uncertainties and costs surrounding the prosecution of our
patent applications and the enforcement or defense of our issued
patents.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submissions, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
Periodic
maintenance fees on any issued patent are due to be paid to the
USPTO and foreign patent agencies in several stages over the
lifetime of the patent. The USPTO and various foreign governmental
patent agencies require compliance with a number of procedural,
documentary, fee payment and other similar provisions during the
patent application process. There are some situations in which
noncompliance cannot be cured and result in abandonment or lapse of
the patent or patent application, resulting in partial or complete
loss of patent rights in the relevant jurisdiction, including, but
are not limited to, any failure to respond to official actions
within prescribed time limits, non-payment of fees and failure to
properly legalize and submit formal documents. If we fail to
maintain the patent applications and patents, if issued, covering
our product candidates, our competitive position would be adversely
affected.
We may become involved in lawsuits to protect or enforce our
intellectual property, which could be expensive, time consuming and
unsuccessful and have a material adverse effect on the success of
our business.
Competitors
may infringe our patents, once issued, or misappropriate or
otherwise violate our intellectual property rights. To counter
infringement or unauthorized use, litigation may be necessary in
the future to enforce or defend our intellectual property rights,
to protect our trade secrets or to determine the validity and scope
of our own intellectual property rights or the proprietary rights
of others. Also, third parties may initiate legal proceedings
against us to challenge the validity or scope of intellectual
property rights we own or control. These proceedings can be
expensive and time consuming. Many of our potential competitors
have the ability to dedicate substantially greater resources to
defend their intellectual property rights than we can. Litigation
could result in substantial costs and diversion of management
resources, which could harm our business and financial results. In
addition, in an infringement proceeding, a court may decide that a
patent owned or controlled by us is invalid or unenforceable, or
may refuse to stop the other party from using the technology at
issue on the grounds that our patents do not cover the technology
in question. An adverse result in any litigation proceeding could
put one or more of our patents at risk of being invalidated, held
unenforceable or interpreted narrowly. Furthermore, because of the
substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our
confidential information could be compromised by disclosure during
this type of litigation. There could also be public announcements
of the results of hearings, motions or other interim proceedings or
developments. If securities analysts or investors perceive these
results to be negative, it could have a material adverse effect on
the price of our securities.
We may be subject to claims by third parties asserting that we have
misappropriated their intellectual property through our employees
and advisory board members.
Some of
our employees and advisory board members are or were previously
employed or affiliated with universities or at other biotechnology
or pharmaceutical companies, including our potential competitors.
Some of these employees and advisory board members executed
proprietary rights, non-disclosure and non-competition agreements,
or similar agreements, in connection with such previous employment
or affiliation. Although we try to ensure that our employees and
advisory board members do not use the proprietary information or
know-how of others in their work for us, we may be subject to
claims that we or these employees or advisory board members have
used or disclosed intellectual property, including trade secrets or
other proprietary information, of any such third party. Litigation
may be necessary to defend against such claims. If we fail in
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights or personnel or
sustain damages. Such intellectual property rights could be awarded
to a third party, and we could be required to obtain a license from
such third party to commercialize our technology or products. Such
a license may not be available on commercially reasonable terms or
at all. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction
to management.
Intellectual property rights do not necessarily address all
potential threats to our competitive advantage.
The
degree of future protection afforded by our intellectual property
rights is uncertain because intellectual property rights have
limitations, and may not adequately protect our business, or permit
us to maintain our competitive advantage. The following examples
are illustrative:
-
others may be able
to make compounds or formulations of our product candidates that
are similar to our product candidates' formulations but that are
not covered by the claims of the patents that we own or
control;
-
others may
independently develop similar or alternative technologies or
duplicate any of our technologies without infringing our
intellectual property rights;
-
our competitors
might conduct research and development activities in the United
States and other countries that provide a safe harbor from patent
infringement claims for certain research and development
activities, as well as in countries where we do not have patent
rights and then use the information learned from such activities to
develop competitive products for sale in our major commercial
markets; and
-
we may not develop
additional proprietary technologies that are
patentable.
Risks Related to Employee Matters, Managing Growth
Our employees may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and
requirements, which could cause significant liability for us and
harm our reputation.
We are
exposed to the risk of employee fraud or other misconduct,
including intentional failures to comply with FDA regulations or
similar regulations of comparable foreign regulatory authorities,
to provide accurate information to the FDA or comparable foreign
regulatory authorities, to comply with manufacturing standards we
have established, to comply with federal and state healthcare fraud
and abuse laws and regulations and similar laws and regulations
established and enforced by comparable foreign regulatory
authorities, and to report financial information or data accurately
or disclose unauthorized activities to us. Employee misconduct
could also involve the improper use of information obtained in the
course of clinical trials, which could result in regulatory
sanctions and serious harm to our reputation. We have a code of
conduct and ethics for our directors, officers and employees, but
it is not always possible to identify and deter employee
misconduct, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged
risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure
to be in compliance with such laws or regulations. If any such
actions are instituted against us, and we are not successful in
defending ourselves or asserting our rights, those actions could
have a significant impact on our business and results of
operations, including the imposition of significant fines or other
sanctions.
We will need to grow the size of our organization, and we may
experience difficulties in managing this growth.
As of
December 31, 2017, we had eight full-time employees, including
those in our two subsidiaries. As our development and
commercialization plans and strategies develop, or as a result of
any future acquisitions, we will need additional managerial,
operational, sales, marketing, financial and other resources. In
addition, it may become more cost effective to bring in house
certain resources currently outsourced to consultants and other
third parties. Our management, personnel and systems currently in
place may not be adequate to support our future growth. Future
growth would impose significant added responsibilities on members
of management, including:
-
managing our
clinical trials effectively;
-
identifying,
recruiting, maintaining, motivating and integrating additional
employees;
-
managing our
internal development efforts effectively while complying with our
contractual obligations to any licensors, licensees, contractors
and other third parties;
-
improving our
managerial, development, operational and finance systems;
and
-
expanding our
facilities.
As our
operations expand, we will need to manage additional relationships
with various strategic partners, suppliers and other third parties.
Our future financial performance and our ability to commercialize
our product candidates, if approved, and to compete effectively
will depend, in part, on our ability to manage any future growth
effectively. To that end, we must be able to manage our development
efforts and clinical trials effectively and hire, train and
integrate additional management, administrative and sales and
marketing personnel. Our failure to accomplish any of these tasks
could prevent us from successfully growing our
company.
Our future success depends on our ability to retain our executive
officers and to attract, retain and motivate qualified
personnel.
We are
highly dependent upon. Ronald Kempers, our President, CEO and CFO,
and our two CSOs. The employment agreements we have with the
persons named above do not prevent such persons from terminating
their employment with us at any time. Although we currently do not
maintain "key person" insurance for any of our executives or other
employees, we intend to obtain this insurance following this
offering. The loss of the services of any of these persons could
impede the achievement of our research, development and
commercialization objectives.
If we are unable to attract and retain highly qualified employees,
and other personnel, advisors and consultants with scientific,
technical and managerial expertise, we may not be able to grow
effectively.
Our
future growth and success depend on our ability to recruit, retain,
manage and motivate our employees, consultants and other third
parties. The loss of any member of our senior management team or
the inability to hire or retain experienced management personnel
could compromise our ability to execute our business plan and harm
our operating results.
Because
of the specialized scientific and managerial nature of our
business, we rely heavily on our ability to attract and retain
qualified scientific, technical and managerial personnel, advisors
and consultants. The competition for qualified personnel in the
pharmaceutical field is intense and as a result, we may be unable
to continue to attract and retain qualified personnel necessary for
the development of our business.
We may acquire other assets or businesses, or form collaborations
or make investments in other companies or technologies that could
harm our operating results, dilute our stockholders' ownership,
increase our debt or cause us to incur significant
expense.
As part
of our business strategy, we may pursue acquisitions of assets,
including pre-clinical, clinical or commercial stage products or
product candidates, or businesses, or strategic alliances and
collaborations, to expand our existing technologies and operations.
We may not identify or complete these transactions in a timely
manner, on a cost-effective basis, or at all, and we may not
realize the anticipated benefits of any such transaction, any of
which could have a detrimental effect on our financial condition,
results of operations and cash flows. We have limited experience
with acquiring other companies, products or product candidates, and
limited experience with forming strategic alliances and
collaborations. We may not be able to find suitable acquisition
candidates, and if we make any acquisitions, we may not be able to
integrate these acquisitions successfully into our existing
business and we may incur additional debt or assume unknown or
contingent liabilities in connection therewith. Integration of an
acquired company or assets may also disrupt ongoing operations,
require the hiring of additional personnel and the implementation
of additional internal systems and infrastructure, especially the
acquisition of commercial assets, and require management resources
that would otherwise focus on developing our existing business. We
may not be able to find suitable strategic alliance or
collaboration partners or identify other investment opportunities,
and we may experience losses related to any such
investments.
To
finance any acquisitions or collaborations, we may choose to issue
debt or equity securities as consideration. Any such issuance of
securities would dilute the ownership of our stockholders. If the
price of our common stock is low or volatile, we may not be able to
acquire other assets or companies or fund a transaction using our
stock as consideration. Alternatively, it may be necessary for us
to raise additional funds for acquisitions through public or
private financings. Additional funds may not be available on terms
that are favorable to us, or at all.
Our business and operations would suffer in the event of computer
system failures.
Despite
the implementation of security measures, our internal computer
systems, and those of third parties on which we rely, are
vulnerable to damage from computer viruses, unauthorized access,
natural disasters, fire, terrorism, war and telecommunication and
electrical failures. In addition, our systems safeguard important
confidential personal data regarding subjects enrolled in our
clinical trials. If a disruption event were to occur and cause
interruptions in our operations, it could result in a material
disruption of our drug development programs. For example, the loss
of clinical trial data from completed, ongoing or planned clinical
trials could result in delays in our regulatory approval efforts
and significantly increase our costs to recover or reproduce the
data. To the extent that any disruption or security breach results
in a loss of or damage to our data or applications, or
inappropriate disclosure of confidential or proprietary
information, we could incur liability and the further development
of our product candidates could be delayed.
Business disruptions could seriously harm our future revenues and
financial condition and increase our costs and
expenses.
Our
operations could be subject to earthquakes, power shortages,
telecommunications failures, water shortages, floods, hurricanes,
typhoons, fires, extreme weather conditions, medical epidemics and
other natural or man-made disasters or business interruptions. The
occurrence of any of these business disruptions could seriously
harm our operations and financial condition and increase our costs
and expenses. We rely on third party manufacturers to produce our
product candidates. Our ability to obtain clinical supplies of our
product candidates could be disrupted if the operations of these
suppliers are affected by a man-made or natural disaster or other
business interruption, as we do not carry insurance to cover such
risks.
Risks Related to Ownership of Our Securities
We do not know whether an active, liquid and orderly trading market
will develop for our securities or what the market price of our
securities will be and as a result it may be difficult for you to
sell your shares of common stock.
There
is currently an illiquid market for our securities. The lack of an
active market may impair your ability to sell those securities at
the time you wish to sell them or at a price that you consider
reasonable. The lack of an active market may also reduce the fair
market value of your securities. Further, an inactive market may
also impair our ability to raise capital by selling securities and
may impair our ability to enter into collaborations or acquire
companies or products by using our securities as
consideration.
Insiders have substantial influence over us and could delay or
prevent a change in corporate control.
Our
executive officers, directors and our largest shareholder whose
representative serves on the Board of Directors collectively owned
approximately 54% of our outstanding voting stock. This
concentration of ownership could harm the market price of our
securities by:
-
limiting the volume
of active trading;
-
delaying, deferring
or preventing a change in control of our company;
-
impeding a merger,
consolidation, takeover or other business combination involving our
company; or
-
discouraging a
potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
The
interests of this group of stockholders may not always coincide
with your interests or the interests of other stockholders and they
may act in a manner that advances their best interests and not
necessarily those of other stockholders, including seeking a
premium value for their securities, and might negatively affect the
prevailing market price for our securities.
If we do not meet the listing standards of a national securities
exchange our investors’ ability to make transactions in our
securities will be limited and we will be subject us to additional
trading restrictions.
Our
securities currently are traded over-the-counter on the OTCQB
market and are not qualified to be listed on a national securities
exchange, such as NASDAQ. Accordingly, we face significant material
adverse consequences, including:
-
a limited
availability of market quotations for our securities;
-
reduced liquidity
with respect to our securities;
-
our shares of
common stock are currently classified as “penny stock”
which requires brokers trading in our shares of common stock to
adhere to more stringent rules, resulting in a reduced level of
trading activity in the secondary trading market for our shares of
common stock;
-
a limited amount of
news and analyst coverage for our company; and
-
a decreased ability
to issue additional securities or obtain additional financing in
the future.
The
National Securities Markets Improvement Act of 1996, which is a
federal statute, prevents or preempts the states from regulating
the sale of certain securities, which are referred to as
“covered securities.” Since our common stock is traded
on the OTCQB, our common stock is a covered security. Although the
states are preempted from regulating the sale of our securities,
the federal statute allows the states to investigate companies if
there is a suspicion of fraud, and, if there is a finding of
fraudulent activity, then the states can regulate or bar the sale
of covered securities in a particular case. Further, if we were no
longer traded over-the-counter, our common stock would not be a
covered security and we would be subject to regulation in each
state in which we offer our securities.
If we fail to maintain an effective system of internal control over
financial reporting in the future, we may not be able to accurately
report our financial condition, results of operations or cash
flows, which may adversely affect investor confidence in us and, as
a result, the value of our securities.
The
Sarbanes-Oxley Act requires, among other things, that we maintain
effective internal controls for financial reporting and disclosure
controls and procedures. In our annual reports on Form 10-K, we are
required, under Section 404(a) of the Sarbanes-Oxley Act, to
furnish a report by management on, among other things, the
effectiveness of our internal control over financial reporting.
This assessment needed to include disclosure of any material
weaknesses identified by our management in our internal control
over financial reporting. A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial
reporting that results in more than a reasonable possibility that a
material misstatement of annual or interim financial statements
will not be prevented or detected on a timely basis.
Section 404(b) of the Sarbanes-Oxley Act also generally
requires an attestation from our independent registered public
accounting firm on the effectiveness of our internal control over
financial reporting.
Our
compliance with Section 404 of the Sarbanes-Oxley Act requires that
we incur substantial accounting expense and expend significant
management efforts. We currently do not have an internal audit
group, and we will need to hire additional accounting and financial
staff with appropriate public company experience and technical
accounting knowledge, and compile the system and process
documentation necessary to perform the evaluation needed to comply
with Section 404. We may not be able to complete our
evaluation, testing and any required remediation in a timely
fashion. During the evaluation and testing process, if we identify
one or more material weaknesses in our internal control over
financial reporting, we will be unable to assert that our internal
control over financial reporting is effective. We cannot assure you
that there will not be material weaknesses or significant
deficiencies in our internal control over financial reporting in
the future. Any failure to maintain internal control over financial
reporting could severely inhibit our ability to accurately report
our financial condition, results of operations or cash flows. If we
are unable to conclude that our internal control over financial
reporting is effective, or if our independent registered public
accounting firm determines we have a material weakness or
significant deficiency in our internal control over financial
reporting, we could lose investor confidence in the accuracy and
completeness of our financial reports, the market price of our
securities could decline, and we could be subject to sanctions or
investigations by the SEC or other regulatory authorities. Failure
to remedy any material weakness in our internal control over
financial reporting, or to implement or maintain other effective
control systems required of public companies, could also restrict
our future access to the capital markets.
Our disclosure controls and procedures may not prevent or detect
all errors or acts of fraud.
Our
disclosure controls and procedures are designed to reasonably
assure that information required to be disclosed by us in reports
we file or submit under the Exchange Act is accumulated and
communicated to management, recorded, processed, summarized and
reported within the time periods specified in the rules and forms
of the SEC. We believe that any disclosure controls and procedures
or internal controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.
These
inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion
of two or more people or by an unauthorized override of the
controls. Accordingly, because of the inherent limitations in our
control system, misstatements or insufficient disclosures due to
error or fraud may occur and not be detected.
Because we do not anticipate paying any cash dividends on our
capital stock in the foreseeable future, capital appreciation, if
any, will be your sole source of gain.
We have
never declared or paid cash dividends on our capital stock. We
currently intend to retain all of our future earnings, if any, to
finance the growth and development of our business. In addition,
the terms of any future debt agreements may preclude us from paying
dividends. As a result, capital appreciation, if any, of our
securities will be your sole source of gain for the foreseeable
future.
Future sales and issuances of our common stock or rights to
purchase common stock, including pursuant to our equity incentive
plans, will result in additional dilution of the percentage
ownership of our stockholders and could cause our trading price to
fall.
We
expect that significant additional capital will be needed in the
future to continue our planned operations. To raise capital, we may
sell substantial amounts of common stock or securities convertible
into or exchangeable for common stock. These future issuances of
equity or equity-linked securities, together with the exercise of
stock options and warrants granted in the future and any additional
shares issued in connection with acquisitions, if any, may result
in material dilution to our investors. Such sales may also result
in material dilution to our existing stockholders, and new
investors could gain rights, preferences and privileges senior to
those of holders of our common stock.
Our
Board of Directors and stockholders also has adopted a
2013 Stock Incentive Plan
reserving for issuance 30 million shares of our common stock.
Future equity incentive grants and issuances of common stock under
our equity incentive plans may have an adverse effect on the market
price of our securities.
If
there is significant downward pressure on the price of our common
stock, it may encourage shareholders to sell shares by means of
short sales or otherwise. Short sales involve the sale, usually
with a future delivery date, of common stock the seller does not
own. Covered short sales are sales made in an amount not greater
than the number of shares subject to the short seller's right to
acquire common stock, such as upon exercise of warrants. A holder
of warrants may close out any covered short position by exercising
all, or a portion, of its warrants, or by purchasing shares in the
open market. In determining the source of shares to close out the
covered short position, a holder of warrants will likely consider,
among other things, the price of common stock available for
purchase in the open market as compared to the exercise price of
the warrants. The existence of a significant number of short sales
generally causes the price of common stock to decline, in part
because it indicates that a number of market participants are
taking a position that will be profitable only if the price of the
common stock declines.
Some provisions of our charter documents and Delaware law may have
anti-takeover effects that could discourage an acquisition of us by
others, even if an acquisition would be beneficial to our
stockholders and may prevent attempts by our stockholders to
replace or remove our current management.
Provisions
in our certificate of incorporation and bylaws that will become
effective in connection with consummation of this offering, as well
as provisions of Delaware law, could make it more difficult for a
third party to acquire us or increase the cost of acquiring us,
even if doing so would benefit our stockholders, or remove our
current management. These include provisions that:
-
permit our Board of
Directors to issue up to ten million shares of preferred stock,
with any rights, preferences and privileges as it may
designate;
-
provide that all
vacancies on our Board of Directors, including as a result of newly
created directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then in
office, even if less than a quorum;
-
establish a
classified Board of Directors such that only one of three classes
of directors is elected each year;
-
not provide for
cumulative voting rights, thereby allowing the holders of a
majority of the shares of common stock entitled to vote in any
election of directors to elect all of the directors standing for
election;
-
provide that
special meetings of our stockholders may be called by a majority of
the Board of Directors;
-
provide that our
board of directors is expressly authorized to make, alter or repeal
the bylaws.
These
provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making
it more difficult for stockholders to replace members of our Board
of Directors, who are responsible for appointing the members of our
management. Because we are incorporated in Delaware, we are
governed by the provisions of Section 203 of the Delaware General
Corporation Law, which may discourage, delay or prevent someone
from acquiring us or merging with us whether or not it is desired
by or beneficial to our stockholders. Under Delaware law, a
corporation may not, in general, engage in a business combination
with any holder of 15% or more of its capital stock unless the
holder has held the stock for three years or, among other things,
the Board of Directors has approved the transaction. Any provision
of our certificate of incorporation or bylaws or Delaware law that
has the effect of delaying or deterring a change in control could
limit the opportunity for our stockholders to receive a premium for
their shares of our common stock, and could also affect the price
that some investors are willing to pay for our common
stock.
Our management and Board of
Directors control a substantial percentage of our stock and
therefore have the ability to exercise substantial control over our
affairs
.
As of
the date of this Annual Report on Form 10-K, our directors,
executive officers and our largest shareholder whose representative
serves on our Board of Directors owned approximately 54% of our
outstanding common stock in the aggregate. Because of the large
percentage of stock held by our directors, executive officers and
our largest shareholder whose representative serves on our Board of
Directors, these persons could influence the outcome of any matter
submitted to a vote of our stockholders.