Item
1. Business.
Overview
We
are a biotech innovation company with a mission of prolonging life and enhancing its quality by improving the health of the immune
system.
We
are developing biotechnologies specifically focused on improving the health of the immune system through immune reprogramming
and monitoring. Our immune reprogramming technologies are currently at the pre-clinical stage and are designed to retrain the
immune system to induce tolerance with an objective of addressing rejection of transplanted organs, autoimmune diseases, and allergies.
Our immune monitoring technologies are designed to provide a personalized comprehensive profile of the immune system and we plan
to utilize them in our upcoming reprogramming clinical trials to monitor subjects’ immune response before, during and after
drug administration.
Immune
Reprogramming
The
discovery of immunosuppressive (anti-rejection and monoclonal) drugs over 40 years ago has made possible life-saving organ transplantation
procedures and blocking of unwanted immune responses in autoimmune diseases. However, immune suppression leads to significant
undesirable side effects, such as increased susceptibility to life-threatening infections and cancers, because it indiscriminately
and broadly suppresses immune function throughout the body. While the use of these drugs has been justifiable because they prevent
or delay organ rejection, their use for treatment of autoimmune diseases and allergies may not be acceptable because of the above-mentioned
side effects. Furthermore, transplanted organs often ultimately fail despite the use of immune suppression, and about 40% of transplanted
organs survive no more than 5 years.
New,
focused therapeutic approaches are needed that modulate only the small portion of immune cells that are involved in rejection
of the transplanted organ, as this approach can be safer for patients than indiscriminate immune suppression. Such approaches
are referred to as immune tolerance, and when therapeutically induced, may be safer for patients and also potentially allow long-term
survival of transplanted tissues and organs.
In
the late 1990s, academic research on these approaches was conducted at the Transplant Center at Loma Linda University in connection
with a project that secured initial grant funding from the U.S. Department of Defense. The focus of that project was for
skin grafting for burn victims. Twenty years of research at LLU and an affiliated incubator led to a series of discoveries
that have been translated into a large patent portfolio of therapeutic approaches that may be applied to the modulation of the
immune system in order to induce tolerance to self and transplanted organs.
We
have an exclusive worldwide license from LLU for commercializing this nucleic acid-based technology (which is currently at the
pre-clinical stage), called Apoptotic DNA Immunotherapy™ (ADi™), which utilizes a novel approach that mimics the way
our bodies naturally induce tolerance to our own tissues (“therapeutically induced immune tolerance”). While immune
suppression requires continuous administration to prevent rejection of a transplanted organ, induction of tolerance has the potential
to retrain the immune system to accept the organ for longer periods of time. Thus, ADi™ may allow patients to live with
transplanted organs with significantly reduced immune suppression. ADi™ is a technology platform, which we believe can be
engineered to address a wide variety of indications.
We
are developing ADi™ products for organ transplantation including skin grafting, autoimmune diseases, and allergies, with the initial
focus on skin allografts and psoriasis, as we believe these indications will be most efficient in providing safety and efficacy data
in clinical trials. To submit a Biologics License Application (“BLA”) for a biopharmaceutical product, clinical safety and
efficacy must be demonstrated in a series of clinical studies conducted with human subjects. For products in our class of drugs, the
first-in-human trials will be a combination of Phase I (safety/tolerability) and Phase II (efficacy) in affected subjects. To obtain
approval to initiate the Phase I/IIa studies, an Investigational New Drug Application will be submitted to compile non-clinical efficacy
data as well as manufacturing and pre-clinical safety/toxicology data. To date, we have conducted non-clinical studies in a stringent
model of skin transplantation using genetically mismatched donor and recipient animals demonstrating a 3-fold increase in the survival
of the skin graft in animals that were tolerized with ADi™ compared to animals that receive immune suppression alone. Prolongation
of graft life was observed despite discontinuation of immune suppression after the first 5 weeks. Additionally, in an induced non-clinical
model for psoriasis, ADi™ treatment resulted in a 69% reduction in skin thickness and a 38% decrease in skin flaking (two clinical
parameters for assessment of psoriasis skin lesions). The Phase I/IIa studies in psoriasis will evaluate the safety/tolerability of ADi™
in patients diagnosed with psoriasis. Since the drug will be administered in subjects diagnosed with psoriasis, effectiveness of the
drug to improve psoriatic lesions will also be evaluated. In another Phase I/IIa study, patients requiring skin allografts will receive
weekly intra-dermal injections of ADi™ in combination with standard immune suppression to assess safety/tolerability and possibility
of reducing levels of immunosuppressive drugs as well as prolongation of graft life. Later phase trials are planned after successful
completion of these studies in preparation for submission for a BLA to regulatory agencies.
ADi™
Advantages
ADi™
is a nucleic acid-based technology (e.g., plasmid DNA-based) which we believe selectively suppresses only those immune
cells involved in the rejection of tissue and organ transplants. It does so by tapping into the body’s natural process of
cell death (apoptosis) to reprogram the immune system to stop unwanted attacks on self or transplanted tissues. Apoptosis is a
natural process of “immune tolerance” used by the body to clear dying cells and to allow recognition and tolerance
to self-tissue. ADi™ triggers this process enabling the natural immune system cells to recognize the targeted tissues as
“self”. Conceptually, it is designed to retrain the immune system to become accepting of the organ similar to how
natural apoptosis reminds our immune system to be tolerant to our own “self” tissues.
While
efforts have been made by various groups to promote tolerance through cell therapies and ex vivo manipulation
of patient cells (takes place outside the body typically requiring hospitalization), to our knowledge, we will be unique in our
approach of using in-body induction of apoptosis to promote tolerance to specific tissues. In addition, ADi™ treatment
itself will not require hospitalization, only an injection in minute amounts into the skin.
Reduce
Chronic Rejection
While
immunosuppressants control acute rejection during the early time-period after receiving an organ, chronic rejection of the organ
that occurs one or more years after the transplant procedure continues to pose a major challenge for organ recipients.
Chronic
rejection has been likened to autoimmunity (a misdirected immune response that occurs when the immune system goes awry), where
specific tissues in the transplanted organ are attacked by the immune system. In other words, chronic rejection may not be
caused just by differences between the donor and the recipient, but rather by an immune response by the recipient to specific
tissues in the organ. Our pre-clinical studies suggest that ADi™ has the ability to tolerize to specific tissues in
a transplanted organ, and conceivably, reducing incidences of chronic rejection.
Moreover,
preclinical studies have demonstrated that ADi™ treatment significantly and substantially prolongs graft survival, in addition
to successfully “reversing” other established immune-mediated inflammatory processes.
Reduce
immune suppression
Studies
in animal models have shown that conditioning/desensitizing the animals to receive the transplant, prolongs the survival of the
transplanted tissue or organ. These studies have used repeated exposure to low doses of protein components in specific organs
to reduce immunologic recognition and attack on the transplanted organ.
Based
on some of our data, we believe that with ADi™ treatment, recipients can be conditioned/desensitized ahead of transplantation,
thereby retraining the immune system to more readily accept the organ and also reduce the levels of immunosuppressive drugs needed
post-transplantation.
Preformed
Antibodies
Studies
have shown that presence of preformed antibodies prior to transplantation procedures increases the rate of organ rejection. Preformed
antibodies can develop in previously transplanted patients, patients who have given birth, and patients who have previously received
blood transfusions. With more than 113,000 patients on transplant waiting lists in the U.S. alone, patients with pre-existing
antibodies have much lower chances at qualifying to receive organs due to their increased risk of rejection – even with
immune suppression.
Sadly,
transplanted patients have a probability of needing re-transplantation at some point due to eventual chronic rejection of their
transplanted organ, with the possible exception of some newborn recipients. With increased incidence of preformed antibodies,
these patients may never have the opportunity to receive another organ. Based on experimental data, we believe that ADi™
may have the potential to address this issue providing these individuals better opportunities at receiving an organ transplantation.
ADi™
Key Differentiators
Ease
of Delivery
Therapeutic
products are typically administered systemically (i.e., by mouth in pill form or injected intramuscularly/intravenously). This
requires repeated large doses of the drug to allow sufficient concentrations to reach the affected sites. ADi™ is a DNA-based
product that can be injected directly into the skin where the target cells of the immune system reside, thereby significantly
simplifying the delivery of the product and reducing the amount of product needed.
Repeat
Dosing
DNA-based
products are less likely to result in formation of neutralizing antibodies, which lend themselves to repeat dosing as may be required
by ADi™ products.
Cost
of Goods Advantage
ADi™
products are DNA-based and cost-effective to manufacture. Furthermore, DNA-based products are very stable and do not require adherence
to cold chain (temperature-controlled) protocols for shipping. This also makes the product ideal for global distribution.
Simplified
Therapy Delivery System
We
believe that tolerance induction using ADi™ may potentially obviate the need for hospitalization because it can simply be
injected into the skin. This approach reduces treatment costs and complexities in treatment delivery. The anticipated administration
of ADi™ will include an initial priming regimen that will require injections administered once a week for several weeks. Thereafter,
booster or maintenance doses will be provided on an individual basis as determined by immune and inflammation testing. ADi™
treatments will be significantly more convenient and comfortable for patients because they do not require removal of patient cells
for ex vivo manipulation.
ADi™
Technology Platform
ADi™
utilizes a novel approach that mimics the way our bodies naturally induce tolerance to our own tissues. It is a technology
platform which we believe can be engineered to address a wide variety of indications. ADi™ includes two DNA molecules which
are designed to deliver signals to induce tolerance. The first DNA molecule encodes a pro-apoptotic protein, which induces
‘programmed’ cell death. This is a core component of the technology because it is intended to greatly increase
the recruitment of dendritic cells, which are implicated in regulating the immune system. The second DNA molecule encodes
the protein of interest (guiding antigen), which is modified to promote a path of tolerance. The guiding antigen is intended
to result in tolerance induction specific to the tissue where the protein is found.
ADi™
has been successfully tested in several preclinical models (skin grafting, psoriaris, type 1 diabetes, alopecia areata) and its
efficacy can be attributed to multiple factors:
|
1.
|
ADi™
does not rely on a single mechanistic approach. It has multiple components (interchangeable target antigen, apoptosis,
methylated plasmid DNA) that affect different arms of the immune system, which can be manipulated.
|
|
2.
|
ADi™
activates key immune cells known to maintain tolerance in test animals and humans.
|
|
3.
|
ADi™
has been successfully applied to a stringent transplantation model.
|
|
4.
|
ADi™
lends itself to repeat dosing, which may be required to achieve its full potential therapeutic effect.
|
Proof
of Concept: Skin Grafting
Results
shown are 5 weeks post-transplantation
The
proof of concept experiment performed in transplantation was a skin allograft transplantation procedure in which the donor skin
was obtained from white BALB/c mice and transplanted to black C57BL/6 mice. The experiment was designed to address a more challenging
scenario where the donor tissue was obtained from a donor which is genetically mismatched with the recipient. This is unlike clinical
scenarios where the donor and recipient are genetically matched as much as possible. While these experiments were repeated in
several separate experiments, the results shown here were obtained from a study conducted with 14 mice in the ADi™ treatment
group and 7 mice in the control group. Prior to submission of an Investigational New Drug Application, additional non-clinical
studies will be conducted in a pig model to establish the precise protocol (e.g. timing of vaccine administration, dosing, and
appropriate immunosuppressive agents that will be used in combination with ADi™) that will be used in the clinical trials.
In addition, IND-enabling safety/toxicology studies will be conducted by a GLP lab to ensure product safety for clinical testing.
Proof
of Concept: Psoriasis
|
●
|
Psoriasis
causes increased skin thickness and scaling in an established 10-day psoriasis model
|
|
●
|
ADi™
treatment resulted in a 69% reduction in skin thickening and 38% reduction in scaling over the 10-day study period
|
Proof
of Concept: Type 1 Diabetes
90%
of female NOD mice developed spontaneous autoimmune diabetes. Disease progression may be different for individual animals.
ADi™
was administered once a week for 8 weeks after each animal developed hyperglycemia. All animals responded with 80% showing durable
response for the entire 40-week study period.
|
●
|
Type
1 or autoimmune diabetes is a condition where the body’s immune system mistakenly attacks cells in the pancreas resulting
in diminished production of insulin
|
|
●
|
ADi™
incorporates an antigen (GAD) expressed in the pancreas
|
|
●
|
Administration
of ADi™ using GAD as the antigen over an 8-week period in animals with T1D restores insulin production and reverses hyperglycemia
|
Proof
of Concept: Alopecia Areata
ADi™
protects hair follicles from autoimmune attack
Immune
Monitoring
We
believe that understanding the status of an individual’s immune system is key to developing and administering immunotherapies
such as ADi™. We have secured an exclusive worldwide license for commercializing a technology platform which provides a
personalized comprehensive profile of the immune system. It is intended to be informative for individual immune responses to viruses,
bacterial antigens, peptides, drugs, bone marrow and solid organ transplants, and cancer. It has broad applicability to many other
agents of clinical interest impacting the immune system, including those not yet identified such as future infectious agents.
We plan to brand this technology, and other future licensed and/or in-house developed monitoring technologies collectively as
AditxtScore™.
AditxtScore™
is being designed to allow individuals to understand, manage and monitor their immune profiles in order to be informed about attacks
on or by their immune system. We believe AditxtScore™ can also assist the medical community in anticipating possible immune
responses and reactions to viruses, bacteria, allergens and transplanted organs. It can be useful in anticipating attacks on the
body by having the ability to determine its potential response and for developing a plan to deal with an undesirable reaction
by the immune system. Its advantages include the ability to provide a simple, rapid, accurate, high throughput, single platform
assay that can be multiplexed to determine the immune status with respect to several factors simultaneously, in 3-16 hours, as
well as detect antigen and antibody in a single test (i.e. infectious, recovered, immune). In addition, it can determine and differentiate
between various types of cellular and humoral immune responses (T and B cells). It also provides for simultaneous monitoring of
cell activation and levels of cytokine release (i.e., cytokine storms).
We
plan to utilize AditxtScore™ in our upcoming clinical trials to monitor subjects’ immune response before, during and
after ADi™ drug administration. We are working with regulatory consultants with the objective to obtain FDA approval for
AditxtScore™ as a clinical assay. We are currently securing marketing and distribution partnerships for application of AditxtScore™
in the infectious diseases market. To obtain FDA approval to use AditxtScore™ as a clinical assay, we are performing validation
studies to demonstrate AditxtScore™’s utility to evaluate various components of the immune system reproducibly. We
believe that these data will show AditxtScore™’s ability to measure various components of the immune system (e.g.
humoral and cell-mediated immune responses) to provide a broader view of the immune system and its status in health and disease.
Our plan is to submit a 510(K) application to the FDA after compilation of these data. Beyond infectious diseases, we plan to
develop AditxtScore™ for applications in additional markets such as organ rejection, allergies, drug/vaccine response, and
disease susceptibility. The following are further descriptions of the applications of AditxtScoreTM:
(1) Organ
Rejection
Typically,
by the time a transplanted or a native organ shows signs of failure, the damage is already done, and reversal of the tissue injury
becomes challenging. Access to early warning signs of damage would be invaluable to reverse or even prevent the damage. There
are currently no practical, efficient assays available to measure cellular immune responses and available tools do not provide
timely information for patients. AditxtScore™ can be used to provide a sensitive and rapid tool to determine T cell response
and to differentiate between various types of cellular immune responses. It can be multiplexed providing information about the
number of cells responding as well as quantifying the amounts of various cytokines released by the cells in a single assay. Determination
of cellular response has valuable applications for prediction, monitoring, early detection, and treatment of disease, including
organ failure/rejection, as well as treatment efficacy. It can also reveal dysfunction of the immune system potentially contributing
to more severe disease.
(2)
Allergies
Our
immune system protects us by acting as a barrier against foreign substances and by eliminating them when they penetrate our bodies.
Once the initial exposure has occurred, memory cells develop to prepare the body against a future exposure. This process
is called immunity. In certain situations, however, instead of immunity, the immune system develops memory cells that result
in a more severe reaction during a future exposure to the same substance. This type of response is called a hypersensitivity
response, commonly known as an allergic response. AditxtScore™ can be used to develop multiplex assays each designed to
test and monitor immune response to allergens. Based on the ability of this technology to run multiple tests in a single assay,
100 or more substances can potentially be tested for simultaneously.
(3)
Drug/Vaccine Response
There
are currently no effective assays to predict and easily assess responses to vaccination. To determine whether an individual has
responded to a particular vaccine, antibody titers are measured. This process may take several days. Furthermore, for vaccines
that require a series of injections, titers are not measured between injections and may not be known for months. AditxtScore™
can be used to determine whether a patient is a responder or non-responder. It can provide an effective and rapid tool for potentially
determining beneficial responses to a vaccine and can be used to monitor titer development post vaccination. It can allow evaluation
of multiple vaccines in a single test (for memory B cell detection). This application can be useful for vaccines, cancer therapeutics
anti-rejection drugs, anti-viral drugs, among others.
(4)
Disease Susceptibility
Disease
susceptibility can vary from one individual to another and it can be a function of various factors, including genetic variability
and differences in human leukocyte antigens (HLA) encoded by major histocompatibility complex (MHC) and responsible for regulation
of the immune system in humans. People with certain HLA types may have higher or lower susceptibility to diseases. AditxtScore™
can be used to develop assays to evaluate differences in HLA types in individuals to help elucidate the relationship between certain
HLA types and susceptibility to various diseases.
(5)
Infectious Diseases
Infectious
diseases can cause a major predicament for scientific and medical professionals, epidemiologists, and infectious disease specialists,
among others, who need to determine how to treat patients in real time while efficacious therapies are still being developed.
Proper decision making requires understanding why some affected individuals show minor or no symptoms, some recover, and others
die. This is fundamental to creating effective targeted therapeutics which may differ depending on the underlying profile of the
individual at risk for, or with, disease. The immune system plays a major role in how any given individual responds to the infectious
agent. This response can be inadequate or too robust or appropriately effective. Regardless, the kinetics of the response by the
cellular and humoral (antibody) immune systems to the infectious agent are often unknown. A basic critical question, then, is
what do the dynamics of the immune response look like from exposure to and through the disease period and during convalescence
for those who survive and those who don’t; and how might vaccines and therapies alter these profiles such that predictions
of vaccine/drug efficacy could be inferred prior to vaccination/treatment and/or disease severity or progression be prognosticated.
AditxtScore™ can be used to help address these questions with multiplex assays each designed to test and monitor the immune
response to infectious agents. Based on the ability to run multiple tests in a single assay, 100 or more agents can potentially
be tested for simultaneously.
License
Agreement with Loma Linda University
On
March 8, 2018, we entered into an Assignment Agreement (the “Assignment Agreement”) with Sekris Biomedical, Inc. (“Sekris”).
Sekris was a party to a License Agreement with Loma Linda University (“LLU”), entered into and made effective on May
25, 2011, and amended on June 24, 2011, July 16, 2012 and December 27, 2012 (the “Original Agreement,” and together
with the Assignment Agreement, the “Sekris Agreements”). Pursuant to the Assignment Agreement, Sekris transferred
and assigned all of its rights and obligations in and to and liabilities under the Original Agreement, of whatever kind or nature,
to us. In exchange, on March 8, 2018, we issued a warrant to Sekris to purchase up to 500,000 shares of our common stock (the
“Sekris Warrant”). The warrant was immediately exercisable and has an exercise price of $4.00 per share. The expiration
date of the warrant is March 8, 2023. On March 15, 2018, as amended on July 1, 2020, we entered into a LLU License Agreement directly
with Loma Linda University, which amends and restates the Sekris Agreements.
Pursuant
to the LLU License Agreement, we obtained the exclusive royalty-bearing worldwide license in and to all intellectual property,
including patents, technical information, trade secrets, proprietary rights, technology, know-how, data, formulas, drawings, and
specifications, owned or controlled by LLU and/or any of its affiliates (the “LLU Patent and Technology Rights”) and
related to therapy for immune-mediated inflammatory diseases (the ADi™ technology). In consideration for the LLU License
Agreement, we issued 25,000 shares of common stock to LLU.
Pursuant
to the LLU License Agreement, we are required to pay an annual license fee to LLU. Also, we paid LLU $455,000 in July
2020 for outstanding milestone payments and license fees. We are also required to pay to LLU milestone payments in connection
with certain development milestones. Specifically, we are required to make the following milestone payments: $175,000 on March
31, 2022; $100,000 on March 31, 2024; $500,000 on March 31, 2026; and $500,000 on March 31, 2027. Additionally, as consideration
for prior expenses incurred by LLU to prosecute, maintain and defend the LLU Patent and Technology Rights, we made the following
payments to LLU:, $70,000 due at the end of December 2018, and a final payment of $60,000 due at the end of March 2019. We are
required to defend the LLU Patent and Technology Rights during the term of the LLU License Agreement. Additionally, we will owe
royalty payments of (i) 1.5% of Net Product Sales and Net Service Sales on any Licensed Products (defined as any finished pharmaceutical
products which utilizes the LLU Patent and Technology Rights in its development, manufacture or supply), and (ii) 0.75% of Net
Product Sales and Net Service Sales for Licensed Products and Licensed Services not covered by a valid patent claim for technology
rights and know-how for a three (3) year period beyond the expiration of all valid patent claims. We also are required to produce
a written progress report to LLU, discussing our development and commercialization efforts, within 45 days following the end of
each year. All intellectual property rights in and to LLU Patent and Technology Rights shall remain with LLU (other than improvements
developed by or on our behalf).
The
LLU License Agreement shall terminate on the last day that a patent granted to us by LLU is valid and enforceable or the day
that the last patent application licensed to us is abandoned. The LLU License Agreement may be terminated by mutual agreement
or by us upon 90 days written notice to LLU. LLU may terminate the LLU License Agreement in the event of (i) non-payments or late
payments of royalty, milestone and license maintenance fees not cured within 90 days after delivery of written notice by LLU,
(ii) a breach of any non-payment provision (including the provision that requires us to meet certain deadlines for milestone events
(each, a “Milestone Deadline”)) not cured within 90 days after delivery of written notice by LLU and (iii) LLU delivers
notice to us of three or more actual breaches of the LLU License Agreement by us in any 12-month period. Additional Milestone
Deadlines include: (i) the requirement to have regulatory approval of an IND application to initiate a first-in-human clinical
trials on or before March 31, 2022, (ii) the completion of first-in-human (phase I/II) clinical trials by March 31, 2024, (iii)
the completion of Phase III clinical trials by March 31, 2026 and (iv) biologic licensing approval by the FDA by March 31, 2027.
License
Agreement with Leland Stanford Junior University (“Stanford”)
On
February 3, 2020, we entered into an exclusive license agreement (the “February 2020 License Agreement”) with Stanford
with regard to a patent concerning a method for detection and measurement of specific cellular responses. Pursuant to the February
2020 License Agreement, we received an exclusive worldwide license to Stanford’s patent with regard to use, import, offer,
and sale of Licensed Products (as defined in the agreement). The license to the patented technology is exclusive, including the
right to sublicense, beginning on the effective date of the agreement and ending when the patent expires. Under the exclusivity
agreement, we acknowledged that Stanford had already granted a non-exclusive license in the Nonexclusive Field of Use, under the
Licensed Patents in the Licensed Field of Use in the Licensed Territory (as those terms are defined in the February 2020 License
Agreement”). However, Stanford agreed to not grant further licenses under the Licensed Patents in the Licensed Field of
Use in the Licensed Territory.
We
were obligated to pay and paid a fee of $25,000 to Stanford within 60 days of February 3, 2020. We also issued 18,750 shares of the Company’s
common stock to Stanford. An annual licensing maintenance fee is payable by us on the first anniversary of the February 2020 License
Agreement in the amount of $40,000 for 2021 through 2024 and $60,000 starting in 2025 until the license expires upon the expiration of
the patent. The Company is required to pay and has paid $25,000 for the issuances of certain patents. The Company will pay milestone
fees of $50,000 on the first commercial sales of a licensed product and $25,000 at the beginning of any clinical study for regulatory
clearance of an in vitro diagnostic product developed and a potential licensed product. We are also required to: (i) provide a listing
of the management team or a schedule for the recruitment of key management positions by March 31, 2020 (which has been completed), (ii)
provide a business plan covering projected product development, markets and sales forecasts, manufacturing and operations, and financial
forecasts until at least $10,000,000 in revenue by June 30, 2020 (which has been completed), (iii) conduct validation studies by September
30, 2020 (which has been completed), (iv) hold a pre-submission meeting with the FDA by September 30, 2020 (which has been completed),
(v) submit a 510(k) application to the FDA, Emergency Use Authorization (“EUA”), or a Laboratory Developed Test (“LDT”)
by March 31, 2021, (vi) obtain FDA approval by December 31, 2021, (vii) complete a prototype assay kit by December 31, 2021 and (viii)
have a written agreement with Stanford on further development and commercialization milestones for specific fields of use by December
31, 2021.
In
addition to the annual license maintenance fees outlined above, we will pay Stanford royalties on Net Sales (as such term is defined
in the February 2020 License Agreement) during the of the term of the agreement as follows: 4% when Net Sales are below or equal
to $5 million annually or 6% when Net Sales are above $5 million annually. The February 2020 License Agreement may be terminated
upon our election on at least 30 days advance notice to Stanford, or by Stanford if we: (i) are delinquent on any report or payment;
(ii) are not diligently developing and commercializing Licensed Product; (iii) miss certain performance milestones; (iv) are in
breach of any provision of the February 2020 License Agreement; or (v) provide any false report to Stanford. Should any events
in the preceding sentence occur, we have a thirty (30) day cure period to remedy such violation.
Plan
of Operations – Immune Reprogramming
High-level
objectives for skin allograft clinical program:
|
●
|
Dose
optimization to determine optimum dose/ratio of product candidate in human subjects requiring skin and other organ and/or
tissue allografts
|
|
|
|
|
●
|
Clinical Phase I/IIa
First-In-Human (FIH) Study to demonstrate safety and clinical proof-of-concept in human subjects requiring skin allografts
|
Our
FIH clinical studies will combine Phase I (designed to test clinical safety) and Phase IIa (designed to obtain proof of effectiveness
in human subjects), in subjects requiring skin and other organ and/or tissue allografts. We have selected this indication for
several reasons, including:
|
1.
|
Our
existing preclinical data has shown promising results of ADi™ in prolonging skin allografts;
|
|
2.
|
The
relative ease of visualization of the graft without the need for biopsies; and
|
|
3.
|
The
need for therapies that allow reduction of levels of immune suppression that are currently used for skin allografts to prevent
rejection of skin, which is highly antigenic.
|
We
have already identified a clinical trial center with adequate patients, which we believe will simplify and reduce the time required
for patient recruitment. Upon approval by the FDA and/or the applicable regulatory agency, and once the exact protocol has been
determined in the preclinical studies, clinical trials will be initiated.
High-level
objectives for psoriasis clinical program:
|
●
|
Dose
optimization to determine optimum dose of product candidate in psoriasis subjects
|
|
|
|
|
●
|
Clinical Phase I/IIa
FIH Study to demonstrate safety and clinical proof-of-concept in psoriasis
|
Our
FIH clinical studies will combine Phase I (designed to test clinical safety) and Phase IIa (designed to obtain proof of effectiveness
in human subjects), in psoriasis patients. We have selected this indication for several reasons, including:
|
1.
|
Our
existing preclinical data has shown promising results of ADi™ in reducing scaling and skin thickness in the mouse model;
and
|
|
|
|
|
2.
|
The relative ease
of visualization of the lesions to determine clinical effectiveness of the test article.
|
We
will be identifying clinical trial centers with adequate patients. Upon approval by the FDA and/or the applicable regulatory agency
clinical trials will be initiated.
We
are developing our immune monitoring platforms with the objective of utilizing them as clinical assays in pre-clinical and clinical
studies. The multiplex technologies could potentially allow evaluation of more analytes with less tissue samples.
Drug
Approval Process
In
the United States, FDA approval is required before any new drugs can be introduced to the market. We currently have a product
candidate for our first-in-human studies, but as of the date of report, we have not submitted an application to the regulatory
agencies for approval.
We
are working with a contract manufacturer who has the know-how, product ingredients including plasmid DNA molecules, and our patent-pending
bacterial strain. Several batch runs have been successfully completed to demonstrate our ability to produce the DNA plasmids
in a GMP facility. Based on validation studies, we are reasonably confident in our ability to produce clinical grade product candidates
at larger scales. The contract manufacturer has provided a proposal for manufacturing of our clinical grade material, which will
be signed and accepted once we are ready to initiate GMP manufacturing. We are not currently party to an agreement with this contract
manufacturer.
The
product candidate selected for clinical trials must be subjected to pre-clinical safety/toxicology studies by an independent GLP
(Good Laboratory Practice) laboratory to demonstrate its suitability for clinical testing in human patients. Upon completion
of manufacturing and safety/toxicology testing, an Investigational New Drug (IND) application will be prepared for submission to
the regulatory agencies.
Upon
receipt of clearance to initiate clinical testing, the ADi™ product can be tested in human patients. Our product will
be tested in clinical trials, one in patients with psoriasis and one in patients who require skin allografting. Therefore, our
first-in-human studies will be combined Phase I/Phase IIa studies in which safety and efficacy data will be obtained. We
plan to start with in skin indications (psoriasis and skin allografting) because we believe these indications will be most efficient
in providing safety and efficacy data in clinical trials. In parallel, we will continue to develop additional product formulations
for other indications.
We
are developing our immune monitoring platforms with the objective of utilizing them as clinical assays in pre-clinical and clinical
studies. The multiplex technologies could potentially allow evaluation of more analytes with less tissue samples. In the
U.S., FDA approval is required before any In Vitro Diagnostic (“IVD”) device can be introduced to the market for clinical
use (excluding research purposes). This process does not require clinical trials, but it does require validation data demonstrating
accuracy of the device.
Target
Market
In
the U.S. alone, there are over 36,000 patients who receive organ transplantations each year, with more than 113,000 on transplant
waiting lists.
The
field of organ transplantation has been made possible and continues to rely on broad-acting immunosuppressive drugs, high levels
of which can result in a compromised immune system that renders organ recipients susceptible to cancer and potentially life-threatening
infections including re-activation of latent viruses.
In
addition, immunosuppressants control acute rejection during the early time-period after receiving an organ but chronic rejection
of the organ remains an unmet challenge for surgeons and transplant recipients.
While
efforts have been made by various groups to promote tolerance through cell therapies and ex vivo manipulation
of patient cells, these procedures take place outside the body and typically require hospitalization.
Moreover,
transplanted patients will need re-transplantation at some point, with the possible exception of some newborn recipients. With
increased incidence of preformed antibodies, these patients may never have the opportunity to receive another organ. Preformed
antibodies can develop in previously transplanted patients, patients who have given birth, and patients who have previously received
blood transfusions. These patients have much lower chances at qualifying to receive organs due to their increased risk of
rejection – even with immune suppression. The potential to reduce formation of preformed antibodies in these patients
will provide better opportunities for them to receive another transplanted organ.
There
are gaps between current approaches and what the market needs. We believe that ADi™ addresses these gaps. ADi™
is easy to administer (does not require ex-vivo treatment of patient cells), it does not appear to suppress the
immune system, it may allow patients to live with transplanted organs with significantly reduced immune suppression, it may provide
for long-term survival of transplanted tissues and organs, may be more effective because it does not rely on a single immune pathway/mechanism,
and potentially provides patients with pre-existing antibodies a chance to qualify to receive organs.
While
these advantages present opportunities for unmet medical needs in the field of organ transplantation, the industry in which we
operate is highly competitive. A small company such as us will meet significant challenges including regulatory requirements for
approval of a new class of therapeutic agents, challenges in large scale manufacturing and marketing, cost of developing a novel
therapeutic agent, which may require co-development partners who may or may not be willing to work with us, and the willingness
of transplant surgeons to adopt our therapeutic vaccines in their existing immune suppression protocols. These challenges pose
risks that we may not be able to overcome.
Operational
Advantages
Location
We
lease laboratory space in Mountain View, CA, located near resources including Stanford University (“Stanford”).
Strategic
Partners
Our
plan is to work with strategic partners to leverage common resources to accomplish milestones over the next 3 years and potentially
get access to expertise, materials, and infrastructure (such as laboratory space) which we believe can be advantageous to our
development. We hope that this strategy will reduce costs by obviating the need to duplicate resources.
Intellectual
Property (IP)
We
strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to our
business, including seeking, maintaining and defending patent rights, whether developed internally or licensed from third parties.
Our policy is to seek to protect our proprietary position by, among other methods, filing patent applications in the United States
and in jurisdictions outside of the United States, to protect our proprietary technology, inventions, improvements and product
candidates that are important to the development and implementation of our business. We also rely on trade secrets and know-how
relating to our proprietary technology and product candidates, continuing innovation, and in-licensing opportunities to develop,
strengthen and maintain our proprietary position in the field of immuno-therapy. We also plan to rely on data exclusivity, market
exclusivity, and patent term extensions when available. Our commercial success will depend in part on our ability to obtain and
maintain patent and other proprietary protection for our technology, inventions, and improvements; to preserve the confidentiality
of our trade secrets; to obtain and maintain licenses to use intellectual property owned by third parties; to defend and enforce
our proprietary rights, including any patents that we may own in the future; and to operate without infringing on the valid and
enforceable patents and other proprietary rights of third parties.
The
ADi™ technology and its various components are protected by multiple families of patents and patent applications, including
several U.S. and non-U.S. issued patents. As of the date of this report, our patent portfolio licensed from LLU includes 8 U.S.
patents, 3 U.S. pending patent applications, 87 foreign patents, and 14 foreign pending patent applications directed to ADi™
and related technologies. The ADi™ patents are broadly categorized into three groups, one for autoimmune diseases and type
1 diabetes; one for organ transplantation and a method of producing plasmid DNA that is mammalian-like to prevent immune activation;
and one providing patent protection for a composition of matter for a tolerance delivery system for antigens of interest that
would be relevant for various given indications. The third group is the basis for a platform allowing development of a new class
of immunotherapeutics for various indications. The projected expiration dates for these ADi™ patents ranges from 2021 to
2034. The AditxtScore™ technology licensed from Stanford is protected by a U.S. patent which encompasses methods, systems
and kits for detection and measurement of specific immune responses. The patent has been issued by the USPTO and expires on December
28, 2037. We also possess and/or in-license substantial know-how and trade secrets relating to the development and commercialization
of our product candidates, including related manufacturing processes and technology. We plan to continue expanding and strengthening
our IP portfolio with additional patent applications in the future.
In
March 2021, Aditxt has signed an agreement with a regulatory consultant based in Munich, Germany, which will play a central
role in navigating the first AditxtReprogrammingTM therapeutic program through the clinical trial and regulatory
process. The firm will work with the Aditxt's AditxtReprogrammingTM team to submit an Investigational New Drug
application (IND) to the regulatory agency in Germany. Psoriasis is the first indication being targeted for clinical trial in
the AditxtReprogrammingTM therapeutics pipeline. Other candidates that are advancing toward clinical trials include
ADi™ for type 1 diabetes and skin allografting.
Plan of Operations – Immune Monitoring
As previously announced
on August 6, 2020, the initial application of the platform will be AditxtScore™ for COVID-19 which has been designed to provide
a more complete assessment of an individual’s infection and immunity status with respect to the SARS-CoV-2 virus. Infection
status will be determined by evaluating the presence or absence of the virus, and immunity status by measuring levels of antibodies
against viral antigens and their ability to neutralize the virus. We will soon be expanding the panel to measure other components
of the immune response such as cellular immunity.
In
August 2020, we filed for an Emergency Use Authorization (EUA) with the FDA with the ultimate objective of filing a 510(K) application.
We are in the process of filing an amended application to incorporate additional data and information about the use of the assay. In
the meantime, we are providing AditxtScore™ as a service as a Laboratory Developed Test (LDT) to assess immunity status to COVID-19.
In early 2021, we established
our AditxtScore™ Immune Monitoring Center in Richmond, Virginia (the “Center”). The Center operates as a Clinical Laboratory
Improvement Amendments (CLIA) certified facility for the processing of our AditxtScore™ for COVID-19 Lab Developed Test (LDT) for
our prospective channel partners, including labs and hospitals.
Employees
We have forty-three (43)
full time employees. We consider the relations with our employees to be good.
Item
1A. Risk Factors.
You
should carefully consider the risks described below, as well as general economic and business risks and the other information
in this Annual Report on Form 10-K. The occurrence of any of the events or circumstances described below or other adverse
events could have a material adverse effect on our business, results of operations and financial condition and could cause the
trading price of our common stock to decline. Additional risks or uncertainties not presently known to us or that we currently
deem immaterial may also harm our business.
Risks
Related to Our Financial Position and Need for Capital
We
have generated no revenue from commercial sales to date and our future profitability is uncertain.
We
were incorporated in September 2017 and have a limited operating history and our business is subject to all of the risks inherent
in the establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with development and expansion of a new business enterprise.
Since inception, we have incurred losses and expect to continue to operate at a net loss for at least the next several years as
we commence our research and development efforts, conduct clinical trials and develop manufacturing, sales, marketing and distribution
capabilities. Our net loss for the years ended December 31, 2020 and 2019 was $9,149,227 and $5,827,728, respectively, and our
accumulated deficit as of December 31, 2020 was $20,879,178. There can be no assurance that the products under development by
us will be approved for sale in the U.S. or elsewhere. Furthermore, there can be no assurance that if such products are approved,
they will be successfully commercialized, and the extent of our future losses and the timing of our profitability are highly uncertain.
If we are unable to achieve profitability, we may be unable to continue our operations.
If
we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development
and you will likely lose your entire investment.
We
will need to continue to seek capital from time to time to continue development of our lead drug candidate beyond our initial
combined Phase I/IIa clinical trial and to acquire and develop other product candidates. Once approved for commercialization,
we cannot provide any assurances that any revenues it may generate in the future will be sufficient to fund our ongoing operations.
Our current cash position, we expect to be sufficient to satisfy our capital requirements sufficient to fund our operations
for the foreseeable future.
Our
business or operations may change in a manner that would consume available funds more rapidly than anticipated and substantial
additional funding may be required to maintain operations, fund expansion, develop new or enhance products, acquire complementary
products, business or technologies or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory
environment or a change in preferred treatment modalities. In addition, we may need to accelerate the growth of our sales capabilities
and distribution beyond what is currently envisioned, and this would require additional capital. However, we may not be able to
secure funding when we need it or on favorable terms We may not be able to raise sufficient funds to commercialize the product
candidates we intend to develop.
If
we cannot raise adequate funds to satisfy our capital requirements, we will have to delay, scale back or eliminate our research
and development activities, clinical studies or future operations. We may also be required to obtain funds through arrangements
with collaborators, which arrangements may require us to relinquish rights to certain technologies or products that we otherwise
would not consider relinquishing, including rights to future product candidates or certain major geographic markets. This could
result in sharing revenues which we might otherwise retain for ourselves. Any of these actions may harm our business, financial
condition and results of operations.
The
amount of capital we may need depends on many factors, including the progress, timing and scope of our product development programs;
the progress, timing and scope of our preclinical studies and clinical trials; the time and cost necessary to obtain regulatory
approvals; the time and cost necessary to further develop manufacturing processes and arrange for contract manufacturing; our
ability to enter into and maintain collaborative, licensing and other commercial relationships; and our partners’ commitment
of time and resources to the development and commercialization of our products.
Our
financial situation creates doubt whether we will continue as a going concern.
The
Company was incorporated on September 28, 2017 and through the date of this report has generated no revenues. For the years ended
December 31, 2020 and 2019, the Company had a net loss of $9,149,227 and $5,827,728, respectively. There can be no assurances
that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or additional financing
through private placements, public offerings and/or bank financing necessary to support our working capital requirements. To the
extent that funds generated from any private placements, public offerings and/or bank financing are insufficient, we will have
to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will
be on acceptable terms. These conditions raise substantial doubt about our ability to continue as a going concern. If adequate
working capital is not available, we may be forced to discontinue operations, which would cause investors to lose their entire
investment.
We
may need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary
capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
We
expect that our current cash position will be sufficient to fund our current operations for at least the next 18 months.
However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional
funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing
and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these
approaches. In any event, we will require additional capital to obtain regulatory approval for, and to commercialize, our product
candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe we have sufficient
funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have
specific strategic considerations.
Any
additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability
to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available
in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings
or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility
of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities
may dilute our existing stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and we
may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations
on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely
impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners
or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our
technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect
on our business, operating results and prospects.
If
we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more
of our research or development programs or the commercialization of any product candidate or be unable to expand our operations
or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition
and results of operations.
Even
if we can raise additional funding, we may be required to do so on terms that are dilutive to you.
The
capital markets have been unpredictable in the past for unprofitable companies such as ours. In addition, it is generally difficult
for development stage companies to raise capital under current market conditions. The amount of capital that a company such as
ours is able to raise often depends on variables that are beyond our control. As a result, we may not be able to secure financing
on terms attractive to us, or at all. If we are able to consummate a financing arrangement, the amount raised may not be sufficient
to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, including our results
of operations, financial condition and our continued viability will be materially adversely affected.
Risks
Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
The
regulatory approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization
of our future product candidates, if any.
We
will not be permitted to market our product candidates in the United States until we receive approval from the FDA, or in any
foreign countries until we receive the requisite approval from corresponding agencies in such countries. The testing, manufacturing,
labeling, approval, selling, marketing and distribution of health- and life science-related products are subject to extensive
regulation, which regulations differ from country to country.
Successfully
completing our clinical program and obtaining approval of a Biologics License Application (“BLA”) is a complex, lengthy,
expensive and uncertain process, and the FDA or other applicable foreign regulator may delay, limit or deny approval of our product
candidates for many reasons, including, among others, because:
|
●
|
we
may not be able to demonstrate that our product candidates are safe and effective in treating patients to the satisfaction
of the FDA or foreign regulator;
|
|
●
|
the
results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or foreign
regulator for marketing approval;
|
|
●
|
the
FDA or foreign regulator may disagree with the number, design, size, conduct or implementation of our clinical trials;
|
|
●
|
the
FDA or foreign regulator may require that we conduct additional clinical trials;
|
|
●
|
the
FDA or foreign regulator may not approve the formulation, labeling or specifications of our product candidates;
|
|
●
|
the
contract research organizations (CROs) and other contractors that we may retain to conduct our clinical trials may take actions
outside of our control that materially adversely impact our clinical trials;
|
|
●
|
the
FDA or foreign regulator may find the data from preclinical studies and clinical trials insufficient to demonstrate that our
product candidate(s) are safe and effective for their proposed indications;
|
|
●
|
the
FDA or foreign regulator may disagree with our interpretation of data from our preclinical studies and clinical trials;
|
|
●
|
the
FDA or foreign regulator may not accept data generated at our clinical trial sites or may disagree with us over whether to
accept efficacy results from clinical trial sites outside the United States or outside the EU, as applicable, where the standard
of care is potentially different from that in the United States or in the EU, as applicable;
|
|
●
|
if
and when our BLAs or foreign equivalents are submitted to the applicable regulatory authorities, such agencies may have difficulties
scheduling the necessary review meetings in a timely manner, may recommend against approval of our application or may recommend
or require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling
or distribution and use restrictions;
|
|
●
|
the
FDA or foreign regulator may require development of a Risk Evaluation and Mitigation Strategy (REMS), which would use risk
minimization strategies to ensure that the benefits of certain prescription drugs outweigh their risks, as a condition of
approval or post-approval;
|
|
●
|
the
FDA or other applicable foreign regulatory agencies may not approve the manufacturing processes or facilities of third-party
manufacturers with which we contract; or
|
|
●
|
the
FDA or the other applicable foreign regulatory agencies may change their approval policies or adopt new regulations.
|
We
may encounter substantial delays in completing our clinical studies which in turn will require additional costs, or we may fail
to demonstrate adequate safety and efficacy to the satisfaction of applicable regulatory authorities.
It
is difficult to predict if or when any of our product candidates, will prove safe or effective in humans or will receive
regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we
must conduct extensive clinical studies to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing
is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical studies will be conducted as planned
or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of testing. Events that
may prevent successful or timely completion of clinical development include:
|
●
|
delays
in reaching, or failing to reach, a consensus with regulatory agencies on study design;
|
|
●
|
delays
in reaching, or failing to reach, agreement on acceptable terms with a sufficient number of prospective contract research
organizations (“CROs”) and clinical study sites, the terms of which can be subject to extensive negotiation and
may vary significantly among different CROs and trial sites;
|
|
|
|
|
●
|
delays
in obtaining required Institutional Review Board (“IRB”) or Ethics Committee (“EC”) approval at each
clinical study site;
|
|
|
|
|
●
|
delays
in recruiting a sufficient number of suitable patients to participate in our clinical studies;
|
|
|
|
|
●
|
imposition
of a clinical hold by regulatory agencies, after an inspection of our clinical study operations or study sites;
|
|
●
|
failure
by our CROs, other third parties or us to adhere to the clinical study, regulatory or legal requirements;
|
|
|
|
|
●
|
failure
to perform in accordance with the FDA’s good clinical practices (“GCP”) or applicable regulatory guidelines
in other countries;
|
|
●
|
delays
in the testing, validation, manufacturing and delivery of sufficient quantities of our product candidates to the clinical
sites;
|
|
|
|
|
●
|
delays
in having patients’ complete participation in a study or return for post-treatment follow-up;
|
|
|
|
|
●
|
clinical
study sites or patients dropping out of a study;
|
|
|
|
|
●
|
delay
or failure to address any patient safety concerns that arise during the course of a trial;
|
|
|
|
|
●
|
unanticipated
costs or increases in costs of clinical trials of our product candidates;
|
|
|
|
|
●
|
occurrence
of serious adverse events associated with the product candidates that are viewed to outweigh their potential benefits; or
|
|
|
|
|
●
|
changes
in regulatory requirements and guidance that require amending or submitting new clinical protocols.
|
We
could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or ECs of the institutions in which
such trials are being conducted, by an independent Safety Review Board (“SRB”) for such trial or by the FDA, European
Medicines Agency (“EMA”), or other regulatory authorities. Such authorities may suspend or terminate a clinical
trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or
our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA, or other regulatory authorities
resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit
from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial.
Any
inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability
to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if we make manufacturing
or formulation changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates
to earlier versions.
Clinical
study delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates
or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize
our product candidates. In addition, any delays in completing our clinical trials will increase our costs, slow down our product
candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of
these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that
cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory
approval of our product candidates.
The
outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim
results of a clinical trial do not necessarily predict final results. Further, preclinical and clinical data are often susceptible
to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily
in preclinical studies and clinical trials have, nonetheless, failed to obtain marketing approval. If the results of our
clinical studies are inconclusive or if there are safety concerns or adverse events associated with our other product candidates,
we may:
|
●
|
be
delayed in obtaining marketing approval for our product candidates, if approved at all;
|
|
●
|
obtain
approval for indications or patient populations that are not as broad as intended or desired;
|
|
|
|
|
●
|
obtain
approval with labeling that includes significant use or distribution restrictions or safety warnings;
|
|
●
|
be
required to change the way the product is administered;
|
|
|
|
|
●
|
be
required to perform additional clinical studies to support approval or be subject to additional post-marketing testing requirements;
|
|
|
|
|
●
|
have
regulatory authorities withdraw their approval of a product or impose restrictions on its distribution in the form of a modified
risk evaluation and mitigation strategy;
|
|
|
|
|
●
|
be
sued; or
|
|
|
|
|
●
|
experience
damage to our reputation.
|
Additionally,
our product candidates could potentially cause other adverse events that have not yet been predicted. The inclusion of ill patients
in our clinical studies may result in deaths or other adverse medical events due to other therapies or medications that such patients
may be using. As described above, any of these events could prevent us from achieving or maintaining market acceptance of our
product candidates and impair our ability to commercialize our products.
If
our future pre-clinical development and future clinical Phase I/II studies are unsuccessful, we may be unable to obtain regulatory
approval of, or commercialize, our product candidates on a timely basis or at all.
The
successful completion of pre-clinical development and multiple clinical trials is critical to the success of our future products.
If the pre-clinical development and clinical trials are unsuccessful or produce inconsistent results or unanticipated adverse
side effects, or if we are unable to collect reliable data, regulatory approval of our products could be delayed or not given
and as a result we may be unable to commercialize our products. Generally, we expect to engage third parties such as consultants,
universities or other collaboration partners to conduct clinical trials on our behalf. Incompatible practices or misapplication
of our products by these third parties could impair the success of our clinical trials.
Even
if we receive regulatory approval for any of our product candidates, we may not be able to successfully commercialize the product
and the revenue that we generate from their sales, if any, may be limited.
If
approved for marketing, the commercial success of our product candidates will depend upon each product’s acceptance by the
medical community, including physicians, patients and health care payors. The degree of market acceptance for any of our product
candidates will depend on a number of factors, including:
|
●
|
demonstration
of clinical safety and efficacy;
|
|
|
|
|
●
|
relative
convenience, dosing burden and ease of administration;
|
|
|
|
|
●
|
the
prevalence and severity of any adverse effects;
|
|
|
|
|
●
|
the
willingness of physicians to prescribe our product candidates, and the target patient population to try new therapies;
|
|
●
|
efficacy
of our product candidates compared to competing products;
|
|
|
|
|
●
|
the
introduction of any new products that may in the future become available targeting indications for which our product candidates
may be approved;
|
|
|
|
|
●
|
new
procedures or therapies that may reduce the incidences of any of the indications in which our product candidates may show
utility;
|
|
●
|
pricing
and cost-effectiveness;
|
|
|
|
|
●
|
the
inclusion or omission of our product candidates in applicable therapeutic and vaccine guidelines;
|
|
|
|
|
●
|
the
effectiveness of our own or any future collaborators’ sales and marketing strategies;
|
|
●
|
limitations
or warnings contained in approved labeling from regulatory authorities;
|
|
|
|
|
●
|
our
ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including
Medicare and Medicaid, private health insurers and other third-party payors or to receive the necessary pricing approvals
from government bodies regulating the pricing and usage of therapeutics; and
|
|
|
|
|
●
|
the
willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement or government pricing
approvals.
|
If
any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, health care payors,
and patients, we may not generate sufficient revenues and we may not be able to achieve or sustain profitability. Our efforts
to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources
and may never be successful.
In
addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize
our product candidates successfully. For example, if the approval process takes too long, we may miss market opportunities and
give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render our product candidates not commercially
viable. For example, regulatory authorities may approve any of our product candidates for fewer or more limited indications than
we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve any of our
product candidates with a label that does not include the labeling claims necessary or desirable for the successful commercialization
for that indication. Further, the FDA or comparable foreign regulatory authorities may place conditions on approvals or require
risk management plans or a Risk Evaluation and Mitigation Strategy (“REMS”) to assure the safe use of the drug. If
the FDA or applicable foreign regulatory agency concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS;
the regulatory agencies will not approve the BLA without an approved REMS, if required. A REMS could include medication guides,
physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and
other risk minimization tools. The regulatory agencies may also require a REMS for an approved product when new safety information
emerges. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription
or dispensing of our product candidates. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards
or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the
commercial success of our product candidates.
Adverse
events involving our products may lead the FDA or applicable foreign regulatory agency to delay or deny clearance for our products
or result in product recalls that could harm our reputation, business and financial results.
Once
a product receives regulatory clearance or approval, the agency has the authority to require the recall of commercialized products
in the event of adverse side effects, material deficiencies or defects in design or manufacture. The authority to require a recall
must be based on a regulatory finding that there is a reasonable probability that the product would cause serious injury or death.
Manufacturers may, under their own initiative, recall a product if any material deficiency in a product is found. A government-mandated
or voluntary recall by us or one of our distributors could occur as a result of adverse side effects, impurities or other product
contamination, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products
would divert managerial and financial resources and have an adverse effect on our financial condition and results of operations.
The regulatory agencies require that certain classifications of recalls be reported to them within ten (10) working days after
the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the
regulatory agency. We may initiate voluntary recalls involving our products in the future that we determine do not require notification
of the regulatory agencies. If the regulatory agency disagrees with our determinations, they could require us to report those
actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In
addition, the regulatory agency could take enforcement action for failing to report the recalls when they were conducted.
The
in-licensing of technologies and the successful testing and early development of technologies in the laboratory may not be indicative
of future results and may not result in commercially viable technologies or products. Further, our future products may have to
be modified from their originally conceived versions in order to reach or be successful in the market.
Positive
results from laboratory testing and early developmental successes, may not be predictive of future successful development, commercialization
and sales results and should not be relied upon as evidence that products developed from our technologies will become commercially
viable and successful. Further, the products we plan to develop in the future may have to be significantly modified from their
originally conceived versions in order for us to control costs, compete with similar products, receive market acceptance, meet
specific development and commercialization timeframes, avoid potential infringement of the proprietary rights of others, or otherwise
succeed in developing our business and earning ongoing revenues. This can be a costly and resource draining activity. What appear
to be promising technologies when we license them may not lead to viable technologies or products, or to commercial success.
Complying with numerous regulations pertaining
to our business is an expensive and time-consuming process, and any failure to comply could result in substantial penalties.
We are subject to the Clinical
Laboratory Improvement Amendment of 1988, or CLIA, which is a federal law regulating clinical laboratories that perform testing on specimens
derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. Our clinical laboratory
is located in Richmond, Virginia and must be certified under CLIA in order for us to perform testing on human specimens. CLIA is intended
to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel
qualifications, administration, and participation in proficiency testing, patient test management, quality control, quality assurance
and inspections. We currently hold a CLIA certificate to perform high-complexity testing. Laboratories performing high complexity testing
are required to meet more stringent requirements than laboratories performing less complex tests. CLIA regulations require clinical laboratories
like ours to comply with various operational, personnel, facilities administration, quality, and proficiency testing requirements intended
to ensure that testing services are accurate, reliable and timely. CLIA certification is a prerequisite for reimbursement eligibility
for services provided to state and federal health care program beneficiaries. CLIA is user-fee funded. Therefore, all costs of administering
the program must be covered by the regulated facilities, including certification and survey costs. To renew this certificate, we are
subject to survey and inspection every two years. Moreover, CLIA inspectors may make periodic inspections of our clinical laboratory
outside of the renewal process. The failure to comply with CLIA requirements can result in enforcement actions, including the revocation,
suspension, or limitation of our CLIA certificate of compliance, as well as a directed plan of correction, state on-site monitoring,
civil money penalties, civil injunctive suit and/or criminal penalties. We must maintain CLIA compliance and certification to be eligible
to bill for assays provided to Medicare beneficiaries. If we were to be found out of compliance with CLIA program requirements and subjected
to sanctions, our business and reputation could be harmed. Even if it were possible for us to bring our laboratory back into compliance,
we could incur significant expenses and potentially lose revenue in doing so.
Additionally, certain states
require laboratory licenses in order to test specimens from patients in those states or received from ordering physicians in those
states. We may also be subject to regulation in foreign jurisdictions if we seek to expand international distribution of our assays
outside the United States.
If we were to lose our
CLIA certification or state laboratory licenses, whether as a result of a revocation, suspension or limitation, we would no longer
be able to offer our assays (including our AditxtScore™ platform), which would limit our revenues and harm our business.
If we were to lose, or fail to obtain, a license in any other state where we are required to hold a license, we would not be able
to test specimens from those states.
Risks
Related to the Company and our Business
Our
technology is subject to licenses from LLU and Stanford, each of which are revocable in certain circumstances, including in the
event we do not achieve certain payments and milestone deadlines. Without these licenses, we may not be able to continue to develop
our product candidates.
The
LLU License Agreement may be terminated by LLU in the event of a breach by us of any non-payment provision (including the provision that
requires us to meet certain deadlines for milestone events (each, a “Milestone Deadline”)) not cured within 90 days after
delivery of written notice by LLU. Additional Milestone Deadlines include: (i) the requirement to have regulatory approval of an IND
application to initiate first-in-human clinical trials on or before March 31, 2022, (ii) the completion of first-in-human (phase I/II)
clinical trials by March 31, 2024, (iii) the completion of Phase III clinical trials by March 31, 2026 and (iv) biologic licensing approval
(BLA) by the FDA by March 31, 2027. If the LLU License Agreement were to be terminated by LLU, we would lose our most significant asset
and may no longer be able to develop our product candidates, which would have a material adverse effect on our operations.
The
February 2020 License Agreement with Stanford may be terminated by Stanford if we (i) are delinquent on any report or payments;
(ii) are not diligently developing and commercializing Licensed Product (as defined in the February 2020 License Agreement); (iii)
miss a milestone described in the agreement; (iv) are in breach of any other provision of the agreement; or (v) if we provide
a false report to Stanford. The Termination discussed above will take effect only upon 30 days written notice by Stanford unless
we remedy the breach within a 30 day cure period. If the February 2020 License Agreement were to be terminated by Stanford, we
would lose a significant asset and may no longer be able to develop our product candidates, which would have a material adverse
effect on our operations.
Our
results of operations will be affected by the level of royalty and milestone payments that we are required to pay to third parties.
The
LLU License Agreement and February 2020 License Agreement with Stanford each require us to remit royalty payments and meet certain
performance milestones related to in-licensed intellectual property. Any failure on our part to pay royalties owed or meet milestones
could lead to us losing rights under our licenses and could thereby adversely affect our business. As our product sales increase,
we may, from time-to-time, disagree with our third-party collaborators as to the appropriate royalties owed and the resolution
of such disputes may be costly and may consume management’s time. Furthermore, we may enter into additional license agreements
in the future, which may also include royalty payments.
We
face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully
than we do.
The
development and commercialization of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies
and specialized biotechnology companies, as well as products and processes being developed at universities and other research
institutions. Our competitors have developed, are developing or will develop product candidates and processes competitive with
our product candidates. Competitive therapeutic treatments include those that have already been approved and accepted by the medical
community and any new treatments that may enter the market. We believe that a significant number of products are currently available,
under development, and may become commercially available in the future, for the treatment of indications for which we may try
to develop product candidates.
More
established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience.
Compared to us, many of our competitors may have significantly greater financial, technical and human resources. As a result of
these factors, our competitors may have an advantage in marketing their approved products and may obtain regulatory approval of
their product candidates before we are able to, which may limit our ability to develop or commercialize our product candidates.
Our competitors may also develop drugs that are safer, more effective, more widely used and less expensive than ours, and may
also be more successful than us in manufacturing and marketing their products.
Mergers
and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among
a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly
through collaborative arrangements with large and established companies. These companies compete with us in recruiting and retaining
qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical
trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Our
technologies and products under development, and our business, may fail if we are not able to successfully commercialize them
and ultimately generate significant revenues as a result.
Successful
development of technologies and our product candidates will require significant additional investment, including costs associated
with additional development, completing trials and obtaining regulatory approval, as well as the ability to manufacture or have
others manufacture our products in sufficient quantities at acceptable costs while also preserving product quality. Difficulties
often encountered in scaling up production include problems involving production yields, quality control and assurance, shortage
of qualified personnel, production costs and process controls. In addition, we are subject to inherent risks associated with new
technologies and products. These risks include the possibility that any of our technologies or future products may:
|
●
|
be
ineffective or less effective than anticipated;
|
|
●
|
fail
to receive necessary regulatory approvals;
|
|
●
|
be
difficult to competitively price relative to alternative solutions;
|
|
●
|
be
harmful to consumers or the environment;
|
|
●
|
be
difficult to manufacture on an economically viable scale;
|
|
●
|
be
subject to supply chain constraints for raw materials;
|
|
●
|
fail
to be developed and accepted by the market prior to the successful marketing of alternative products by competitors;
|
|
●
|
be
difficult to market because of infringement on the proprietary rights of third parties; or
|
|
●
|
be
too expensive for commercial use.
|
Furthermore,
we may be faced with lengthy market partner or distributor evaluation and approval processes. Consequently, we may incur substantial
expenses and devote significant management effort in order to customize products for market partner or distributor acceptance,
though there can be no assurance of such acceptance. As a result, we cannot accurately predict the volume or timing of any future
sales.
Customers
may not adopt our products quickly, or at all.
Customers in the sector in which we operate can be generally cautious
in their adoption of new products and technologies. In addition, given the relative novelty of our future planned products (including
our AditxtScore™ platform), customers of those products may require education regarding their utility and use, which may
delay their adoption. There can be no assurance that customers will adopt our products quickly, or at all.
The
significant level of competition in the markets for our products developed in the future may result in pricing pressure, reduced
margins or the inability of our future products to achieve market acceptance.
The
markets for our future products are intensely competitive and rapidly changing. We may be unable to compete successfully, which
may result in price reductions, reduced margins and the inability to achieve market acceptance for our products.
Our
competitors may have longer operating histories, significantly greater resources, greater brand recognition and large customer
bases than we do. As a result, they may be able to devote greater resources to the manufacture, promotion or sale of their products,
receive greater resources and support from market partners and independent distributors, initiate or withstand substantial price
competition or more readily take advantage of acquisition or other opportunities.
We rely on third parties for the distribution
of our current and future products, including our AditxtScore™ platform. If these parties do not distribute our products
in a satisfactory or timely manner, in sufficient quantities or at an acceptable cost, our sales and development efforts could
be delayed or otherwise negatively affected.
We rely on third parties
for the distribution of our current and future products, including our AditxtScore™ platform. Our reliance on third parties
to distribute products may present significant risks to us, including the risk that should any of these third parties fail to adequately
distribute our products and services to end consumers and other market participants, our business may be materially harmed. Additionally,
if we need to enter into agreements for the distribution of our future products with other third parties, there can be no assurance
we will be able to do so on favorable terms, if at all.
We may rely on third parties for the
production of our future products. If these parties do not produce our products at a satisfactory quality, in a timely manner,
in sufficient quantities or at an acceptable cost, our sales and development efforts could be delayed or otherwise negatively affected.
We may rely on third parties
for the manufacture of our future products. Our reliance on third parties to manufacture our future products may present significant
risks to us, including the following:
|
●
|
reduced control over delivery schedules, yields and product reliability;
|
|
●
|
manufacturing deviations from internal and regulatory specifications;
|
|
●
|
the failure of a key manufacturer to perform as we require for technical, market or other reasons;
|
|
●
|
difficulties in establishing additional manufacturer relationships if we are presented with the need to transfer our manufacturing process technologies to them;
|
|
●
|
misappropriation of our intellectual property; and
|
|
●
|
other risks in potentially meeting our product development schedule or satisfying the requirements of our market partners, distributors, direct customers and end users.
|
If we need to enter into
agreements for the manufacturing of our future products, there can be no assurance we will be able to do so on favorable terms,
if at all.
If
we are unable to establish successful relations with third-party market partners or distributors, or these market partners or
distributors do not focus adequate resources on selling our products or are otherwise unsuccessful in selling them, sales of our
products may not develop.
We
anticipate relying on independent market partners and distributors to distribute and assist us with the marketing and sale of
our products. Our future revenue generation and growth will depend in large part on our success in establishing and maintaining
this sales and distribution channel. If our market partners and distributors are unable to sell our products, or receive negative
feedback from end users, they may not continue to purchase or market our products. In addition, there can be no assurance that
our market partners and distributors will focus adequate resources on selling our products to end users or will be successful
in selling them. Many of our potential market partners and distributors are in the business of distributing and sometimes manufacturing
other, possibly competing, products. As a result, these market partners and distributors may perceive our products as a threat
to various product lines currently being distributed or manufactured by them. In addition, these market partners and distributors
may earn higher margins by selling competing products or combinations of competing products. If we are unable to establish successful
relationships with independent market partners and distributors, we will need to further develop our own sales and distribution
capabilities, which would be expensive and time-consuming and might not be successful.
If
we are not able to attract and retain highly skilled employees and contractors, we may not be able to implement our business model
successfully.
We
will rely upon employees and third-party consultant/contractors to effectively establish, manage and grow our business. Consequently,
we believe that our future viability will depend largely on our ability to attract and retain highly skilled personnel. In
order to do so, we may need to pay higher compensation, fees, and/or other incentives to our employees or consultants than we
currently expect, and such higher compensation payments would have a negative effect on our operating results. Competition for
experienced, high-quality employees, consultants and contractors is intense and we cannot assure that we will be able to recruit
and retain such personnel. We may not be able to hire or retain the necessary personnel to implement our business strategy. Our
failure to hire and retain such personnel could impair our ability to develop new products and manage our business effectively.
The
loss of our management team or other key personnel would have an adverse impact on our future development and impair our ability
to succeed.
In
the early stages of development, our business will be significantly dependent on the Company’s management team and other
key personnel. Our success will be particularly dependent upon Mr. Amro Albanna and Dr. Shahrokh Shabahang. The loss of any one
of these individuals or any other future key personnel could have a material adverse effect on the Company and our ability to
further execute our intended business.
The
use of our products may be limited by regulations, and we may be exposed to product liability and remediation claims.
The
use of our planned products may be regulated by various local, state, federal and foreign regulators. Even if we are able
to comply with all such regulations and obtain all necessary registrations, we cannot provide assurance that our future products
will not cause injury to the environment, people, or animals and/or otherwise have unintended adverse consequences, under all
circumstances. For example, our products may be improperly combined with other chemicals or, even when properly combined, our
products may be blamed for damage caused by those other chemicals. The costs of remediation or products liability could materially
adversely affect our results, financial condition and operations.
We
may be held liable for, or incur costs to settle, liability and remediation claims if any products we develop, or any products
that use or incorporate any of our technologies, cause injury or are found unsuitable during product testing, manufacturing, marketing,
sale or use. These risks exist even with respect to products that have received, or may in the future receive, regulatory approval,
registration or clearance for commercial use. We cannot guarantee that we will be able to avoid product liability exposure.
At
the stage customary to do so, we expect to maintain product liability insurance at levels we believe are sufficient and consistent
with industry standards for like companies and products. However, we cannot guarantee that our product liability insurance will
be sufficient to help us avoid product liability-related losses. In the future, it is possible that meaningful insurance coverage
may not be available on commercially reasonable terms or at all. In addition, a product liability claim could result in liability
to us greater than our assets or insurance coverage. Moreover, even if we have adequate insurance coverage, product liability
claims or recalls could result in negative publicity or force us to devote significant time and attention to these matters, which
could harm our business.
There
may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud
may materially harm our Company.
We
do not expect that internal control over financial accounting and disclosure, even if timely and well established, will prevent
all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely affect
our business.
COVID-19
may impact our operations.
On
January 30, 2020 the World Health Organization declared the COVID-19 coronavirus outbreak a “Public Health Emergency of
International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate
the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain
types of public places and businesses. The COVID-19 coronavirus and actions taken to mitigate it have had and are expected to
continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in
which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will
be to the Company, capital raise efforts and additional development of our technologies may be negatively affected.
Risks
Relating to Our Intellectual Property Rights
The
failure to obtain or maintain patents, licensing agreements and other intellectual property could materially impact our ability
to compete effectively.
In
order for our business to be viable and to compete effectively, we need to develop and maintain, and we will heavily rely on,
a proprietary position with respect to our technologies and intellectual property. However, there are significant risks associated
with our actual or proposed intellectual property. The risks and uncertainties that we face with respect to our rights principally
include the following:
|
●
|
pending
patent applications we have filed or will file may not result in issued patents or may take longer than we expect to result
in issued patents;
|
|
●
|
we
may be subject to interference proceedings;
|
|
●
|
we
may be subject to reexamination proceedings;
|
|
●
|
we
may be subject to post grant review proceedings;
|
|
●
|
we
may be subject to inter partes review proceedings;
|
|
●
|
we
may be subject to derivation proceedings;
|
|
●
|
we
may be subject to opposition proceedings in the U.S. or in foreign countries;
|
|
●
|
any
patents that are issued to us may not provide meaningful protection;
|
|
●
|
we
may not be able to develop additional proprietary technologies that are patentable;
|
|
●
|
other
companies may challenge patents licensed or issued to us;
|
|
●
|
other
companies may have independently developed and patented (or may in the future independently develop and patent) similar or
alternative technologies, or duplicate our technologies;
|
|
●
|
other
companies may design around technologies we have licensed or developed;
|
|
●
|
enforcement
of patents is complex, uncertain and very expensive and we may not be able to secure, enforce and defend our patents;
and
|
|
●
|
in
the event that we were to ever seek to enforce our patents in ligation, there is some risk that they could be deemed invalid,
not infringed, or unenforceable.
|
We
cannot be certain that any patents will be issued as a result of any pending or future applications, or that any patents, once
issued, will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged,
declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific or patent
literature often lags behind actual discoveries, we cannot be certain that we or our licensors were the first to invent or to
file patent applications covering them.
It
is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or
require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business.
There is no guarantee that such licenses will be available based on commercially reasonable terms. As to those patents that we
have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we
may be unable to do so.
If
we are unable to obtain and maintain patent protection for our products, or if the scope of the patent protection obtained is
not sufficiently broad, competitors could develop and commercialize products similar or identical to ours, and our ability to
successfully commercialize our products could be impaired.
The
patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable
patent applications at a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to
identify patentable aspects of our development output before it is too late to obtain patent protection.
The
patent position of life science companies generally is highly uncertain, involves complex legal and factual questions and has
in past years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the
same extent as the laws of the United States and we may fail to seek or obtain patent protection in all major markets. For example,
unlike the U.S., European patent law restricts the patentability of methods of treatment of the human body. Our pending and future
patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which
effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation
of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent
protection, even post-grant.
Recent
patent reform legislation has increased the uncertainties and costs surrounding the prosecution of patent applications and the
enforcement or defense of issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act,
was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions
that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent and Trademark Office,
or USPTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive
changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective
on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business.
However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of
our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect
on our business and financial condition.
Moreover,
we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation,
reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights
(whether licensed or otherwise held) or the patent rights of others. An adverse determination in any such submission, proceeding
or litigation could reduce the scope of, or invalidate, our patent rights (whether licensed or otherwise held), allow third parties
to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to
manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of
protection provided by our patents and patent applications (whether licensed or otherwise held) is threatened, it could dissuade
companies from collaborating with us to license, develop or commercialize current or future product candidates.
Even
if our patent applications (whether licensed or otherwise held) result in the issuance of patents, they may not issue in a form
that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any
competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative
technologies or products in a non-infringing manner.
The
issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our licensed or owned patents
may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity
or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could
limit our ability to stop others from using or commercializing similar or identical products, or limit the duration of the patent
protection of our products. Given the amount of time required for the development, testing and regulatory review of new life science
product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.
As a result, our intellectual property rights portfolio may not provide us with sufficient rights to exclude others from commercializing
products similar or identical to ours.
We
may become involved in lawsuits to protect or enforce our intellectual property rights, which could be expensive, time-consuming
and ultimately unsuccessful.
Competitors
may infringe our intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims,
which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert
counterclaims against us alleging that we infringe their intellectual property or that our intellectual property is invalid or
unenforceable. In addition, in a patent infringement proceeding, a court may decide that a licensed or owned patent of ours is
invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from
using the technology at issue on the grounds that our patents do not cover that technology. Moreover, lawsuits to protect or enforce
our intellectual property rights could be expensive, time-consuming and ultimately unsuccessful.
Third
parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which
would be uncertain.
Our
commercial success depends upon our ability to develop, manufacture, market and sell our product candidates without infringing
the proprietary rights of third parties. There is considerable intellectual property litigation in the life sciences industry.
We cannot guarantee that our product candidates will not infringe third-party patents or other proprietary rights. We may become
party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect
to our products and technology, including inter partes review, interference, or derivation proceedings before
the USPTO and similar bodies in other countries. Third parties may assert infringement claims against us based on existing intellectual
property rights and intellectual property rights that may be granted in the future.
If
we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such
third party to continue developing and marketing our products. However, we may not be able to obtain any required license on commercially
reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors
access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing
technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’
fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our
product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that
we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on
our business.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other
requirements imposed by governmental patent agencies, and our own patent protection could be reduced or eliminated for noncompliance
with these requirements.
Periodic
maintenance fees and annuities on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages
over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of
procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent
lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are
situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial
or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse
of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time
limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might
be able to enter our markets, which could have a material adverse effect on our business.
We
may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property
or claiming ownership of what we regard as our own intellectual property.
Certain
of our employees and contractors were previously employed at universities or other companies, including potential competitors.
Although we try to ensure that our employees and contractors do not use the proprietary information or know-how of others in their
work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade
secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend
against these claims, and any such litigation could have an unfavorable outcome.
In
addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement
with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may
not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may
bring against us, to determine the ownership of what we regard as our intellectual property.
If
we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result
in substantial costs and adverse results, and be a distraction to management.
Some
intellectual property which we own or have licensed may have been discovered through government funded programs such as, for example,
the government funded programs referenced in intellectual property licensed under the LLU License Agreement, and thus may be subject
to federal regulations such as “march-in” rights, certain reporting requirements, and a preference for United States
industry. Compliance with such regulations may limit our exclusive rights, subject us to expenditure of resources with respect
to reporting requirements, and limit our ability to contract with non-U.S. manufacturers.
Some
of the intellectual property rights we own or have licensed have been generated through the use of United States government funding
and may therefore be subject to certain federal regulations. As a result, the United States government may have certain rights
to intellectual property embodied in our current or future products and product candidates pursuant to the Bayh-Dole Act of 1980.
These United States government rights in certain inventions developed under a government-funded program include a non-exclusive,
non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the United States
government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions
to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government
action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for
public use under federal regulations (also referred to as “march-in rights”). The United States government also has
the right to take title to these inventions if we fail to disclose the invention to the government and fail to file an application
to register the intellectual property within specified time limits. In addition, the United States government may acquire title
to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual property
generated under a government funded program is also subject to certain reporting requirements, compliance with which may require
us to expend substantial resources. In addition, the United States government requires that any products embodying the subject
invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing
preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts
have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in
the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for United
States manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual
property. Any exercise by the government of any of the foregoing rights could harm our competitive position, business, financial
condition, results of operations and prospects.
Intellectual
property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Even
if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur
significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition,
there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities
analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock.
Such litigation or proceedings could increase our operating losses and reduce the resources available for development activities
or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct
such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could compromise our ability to compete in the marketplace.
We
may spend considerable resources developing and maintaining patents, licensing agreements and other intellectual property that
may later be abandoned or may otherwise never result in products brought to market.
Not
all technologies and candidate products that initially show potential as the basis for future products ultimately meet the rigors
of our development process and as a result may be abandoned and/or never otherwise result in products brought to market. In
some cases, prior to abandonment we may be required to incur significant costs developing and maintaining intellectual property
and/or maintaining license agreements and our business could be harmed by such costs.
We
rely on information technology, and if we are unable to protect against service interruptions, data corruption, cyber-based attacks
or network security breaches, our operations could be disrupted, and our business could be negatively affected.
We
rely on information technology networks and systems to process, transmit and store electronic and financial information; to coordinate
our business; and to communicate within our Company and with customers, suppliers, partners and other third-parties. These information
technology systems may be susceptible to damage, disruptions or shutdowns, hardware or software failures, power outages, computer
viruses, cyber-attacks, telecommunication failures, user errors or catastrophic events. If our information technology systems
suffer severe damage, disruption or shutdown, and our business continuity plans do not effectively resolve the issues in a timely
manner, our operations could be disrupted, and our business could be negatively affected. In addition, cyber-attacks could lead
to potential unauthorized access and disclosure of confidential information, and data loss and corruption. There is no assurance
that we will not experience these service interruptions or cyber-attacks in the future.
Risks
Related to Our Common Stock
We
are currently listed on The Nasdaq Capital Market. If we are unable to maintain listing of our securities on Nasdaq or any stock
exchange, our stock price could be adversely affected and the liquidity of our stock and our ability to obtain financing could
be impaired and it may be more difficult for our stockholders to sell their securities.
Although
our common stock is currently listed on The Nasdaq Capital Market, we may not be able to continue to meet the exchange’s
minimum listing requirements or those of any other national exchange. If we are unable to maintain listing on Nasdaq or if a liquid
market for our common stock does not develop or is sustained, our common stock may remain thinly traded.
The
listing rules of Nasdaq require listing issuers to comply with certain standards in order to remain listed on its exchange. If,
for any reason, we should fail to maintain compliance with these listing standards and Nasdaq should delist our securities from
trading on its exchange and we are unable to obtain listing on another national securities exchange, a reduction in some or all
of the following may occur, each of which could have a material adverse effect on our stockholders:
|
●
|
the
liquidity of our common stock;
|
|
●
|
the
market price of our common stock;
|
|
●
|
our
ability to obtain financing for the continuation of our operations;
|
|
●
|
the
number of institutional and general investors that will consider investing in our common stock;
|
|
●
|
the
number of investors in general that will consider investing in our common stock;
|
|
●
|
the
number of market makers in our common stock;
|
|
●
|
the
availability of information concerning the trading prices and volume of our common stock; and
|
|
●
|
the
number of broker-dealers willing to execute trades in shares of our common stock.
|
We
do not expect to pay dividends in the foreseeable future.
We
do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any and all future earnings
in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their securities,
and holders may be unable to sell their securities on favorable terms or at all. We cannot assure you of a positive return on
your investment or that you will not lose the entire amount of your investment.
Upon
dissolution of our Company, you may not recoup all or any portion of your investment.
In
the event of a liquidation, dissolution or winding-up of our Company, whether voluntary or involuntary, our assets would be used
to pay all of our debts and liabilities, and only thereafter would any remaining assets be distributed to our stockholders, subject
to rights of the holders of the Preferred Stock, if any, on a pro rata basis. There can be no assurance that
we will have assets available from which to pay any amounts to our stockholders upon such a liquidation, dissolution or winding-up.
In such an event, you would lose all of your investment.
Limitation
of Liability and Indemnification of Management.
The
Delaware General Corporation Law and the Company’s Amended and Restated Certificate of Incorporation provide for the limitation
of the liability of directors for monetary damages. Such provisions may discourage shareholders from bringing a lawsuit against
directors for breaches of fiduciary duty and may also have the effect of reducing the likelihood of derivative litigation against
directors and officers even though such action, if successful, might otherwise be a benefit to the Company’s shareholders. In
addition, a shareholder’s investment in the Company may be adversely affected to the extent that costs of settlement and
damage awards against the Company’s officers or directors are paid by the Company pursuant to such provisions. Additionally,
in accordance with Delaware law and the Company’s Amended and Restated Certificate of Incorporation, the Company shall indemnify,
hold harmless and provide advancement of expenses, to the fullest extent permitted by applicable law, directors, officers, employees,
and agents that are made a party or threatened to be made a party to legal proceedings by reason of the fact that such parties
were working at the request of the Company. We direct you to the Company’s Amended and Restated Certificate of Incorporation
for more information.
Anti-takeover
provisions under Delaware law could discourage, delay or prevent a change in control of our Company and could affect the trading
price of our securities.
We
are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent
a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three
years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders.
Our
management team is required to devote substantial time to public company compliance initiatives.
As
a publicly reporting company, we incur significant legal, accounting and other expenses. Our management and other personnel devote
a substantial amount of time to comply with our reporting obligations. Moreover, these reporting obligations increase our legal
and financial compliance costs and make some activities more time-consuming and costly.
Failure
to develop our internal controls over financial reporting as we grow could have an adverse impact on us.
As
our Company matures, we will need to develop our current internal control systems and procedures to manage our growth. We are
required to establish and maintain appropriate internal controls over financial reporting. Failure to establish appropriate controls,
or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial
condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may
identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters
that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal
control over financial reporting, disclosure of management’s assessment of our internal controls over financial reporting
or disclosure of our public accounting firm’s attestation to or report on management’s assessment of our internal
controls over financial reporting may have an adverse impact on the price of our common stock.
We
could issue “blank check” preferred stock without stockholder approval with the effect of diluting interests
of then-current stockholders and impairing their voting rights, and provisions in our charter documents and under Delaware law
could discourage a takeover that stockholders may consider favorable.
Our
Amended and Restated Certificate of Incorporation provides for the authorization to issue up to 3,000,000 shares of “blank
check” preferred stock with designations, rights and preferences as may be determined from time to time by our
board of directors. Our board of directors is empowered, without stockholder approval, to issue one or more series of preferred
stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting
power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying
or preventing a change in control. For example, it would be possible for our board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any attempt to change control of our company. In addition,
advanced notice is required prior to stockholder proposals, which might further delay a change of control.
Our
Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the sole
and exclusive forum for substantially all disputes between the Company and its stockholders, which could limit stockholders’
ability to obtain a favorable judicial forum for disputes with the Company or its directors, officers or employees.
Our
Amended and Restated Certificate of Incorporation provides that unless the Company consents in writing to the selection of an
alternative forum, the State of Delaware is the sole and exclusive forum for: (i) any derivative action or proceeding brought
on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other
employee of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim against the Company,
its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law (the
“DGCL”) or our Amended and Restated Certificate of Incorporation or the Company’s Amended and Restated Bylaws,
or (iv) any action asserting a claim against the Company, its directors, officers, employees or agents governed by the internal
affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that
there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not
consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in
the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have
subject matter jurisdiction. This exclusive forum provision would not apply to suits brought to enforce any liability or duty
created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal
jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations
thereunder.
Section
22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty
or liability created by the Securities Act or the rules and regulations thereunder. However, our Amended and Restated Bylaws contain
a federal forum provision which provides that unless the Company consents in writing to the selection of an alternative forum,
the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting
a cause of action arising under the Securities Act. Any person or entity purchasing or otherwise acquiring any interest in shares
of capital stock of the Corporation are deemed to have notice of and consented to this provision. The Supreme Court of Delaware
has held that this type of exclusive federal forum provision is enforceable. There may be uncertainty, however, as to whether
courts of other jurisdictions would enforce such a provision, if applicable.
These
choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable
for disputes with the Company or its directors, officers or other employees, which may discourage such lawsuits against us and
our directors, officers and other employees. Alternatively, if a court were to find our choice of forum provisions contained in
either our Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws to be inapplicable or unenforceable
in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our
business, results of operations, and financial condition.
We
are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable
to emerging growth companies, which could make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not “emerging growth companies” including not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. In addition, pursuant to Section 107
of the JOBS Act, as an “emerging growth company” we intend to take advantage of the extended transition period provided
in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging
growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private
companies. As a result, our financial statements may not be comparable to those of companies that comply with public company effective
dates for complying with new or revised accounting standards.
We
cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors
find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock
price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth
company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal
year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following
the fifth anniversary of the date of the completion of our initial public offering; (iii) the date on which we have issued
more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed
to be a large accelerated filer under the rules of the SEC.