We are an international biotechnology company that is focused primarily in the field
of regenerative medicine. We are committed to the discovery and development of
best-in-class
therapies designed to extend and enhance the quality of human life. We have
established a portfolio of therapeutic product development programs to address significant unmet medical needs in multiple disease areas. Our MultiStem
®
cell therapy, a patented and
proprietary allogeneic stem cell product, is our lead platform product with several clinical stage programs. Our most advanced program is for the treatment of ischemic stroke, which is currently being evaluated in a registrational trial in Japan,
and we are preparing to initiate a Phase 3 clinical trial in North America and Europe under a Special Protocol Assessment, or SPA. Our current clinical development programs are focused on treating neurological conditions, cardiovascular disease,
inflammatory and immune disorders, certain pulmonary conditions and other conditions where the current standard of care is limited or inadequate for many patients. These represent major areas of clinical need, as well as substantial commercial
opportunities.
We believe our MultiStem therapy represents a potential breakthrough in the field of regenerative medicine and stem cell therapy and could
be used to treat a range of disease indications. MultiStem treatment has shown the potential to enhance tissue repair and healing in multiple ways, including reducing inflammatory damage, protecting tissue that is at risk following acute or ischemic
injury, and promoting formation of new blood vessels in regions of ischemic injury. These cells appear to be responsive to the environment in which they are administered, by homing to sites of injury and/or organs involved in injury response, and
providing active disease response, while producing proteins that may provide benefit in both acute and chronic conditions. In contrast to traditional pharmaceutical products or biologics that generally act through a single biological mechanism of
action, MultiStem cell therapy may enhance healing and tissue repair through multiple distinct mechanisms acting in parallel, such as by producing a range of therapeutic factors and dynamically responding to the needs of the body, resulting in a
more effective therapeutic response.
We believe the therapeutic and commercial potential for MultiStem cell therapy to be very broad, applying to many
areas of significant unmet medical need, and we are pursuing opportunities in several potential multi-billion dollar markets. While traditional pharmaceuticals and biologic therapies typically may be used to treat only a single disease or a narrowly
defined set of related conditions, MultiStem cell therapy may have far broader potential and could be developed in different formulations and with different delivery approaches to effectively treat a wide range of disease indications.
The MultiStem product under development would be unique among regenerative medicine approaches because it has the potential to be manufactured on a large
scale, may be administered in an
off-the-shelf
manner with minimal processing, and has the potential to augment healing by providing biological potency and
therapeutic effects that other cell therapy approaches may not be able to achieve. Additionally, MultiStem treatment has demonstrated good tolerability in both preclinical and clinical studies. Like conventional drugs and biologics, the product is
cleared from the body over time, enhancing product safety relative to other types of stem cell therapy. While the product does not permanently engraft in the patient, the therapeutic effects of treatment with MultiStem cells appear to be durable
based on prior clinical results.
We have evaluated the use of MultiStem cell therapy as a potential treatment in several disease areas. Working with an
international network of leading investigators and prominent research and clinical institutions, and through our own internal efforts, we have explored the potential for MultiStem therapy to be used as a treatment of acute and chronic forms of
neurological conditions or injury, cardiovascular disease, inflammatory and immune disorders, certain pulmonary conditions and other areas of unmet medical need. At present, we have advanced six MultiStem programs into clinical development,
targeting areas of significant medical need and major commercial market opportunities.
In the neurological area, we evaluated in a completed Phase 2
trial the potential for MultiStem treatment of patients who have suffered neurological damage from an ischemic stroke. The results of this study demonstrated favorable tolerability and safety for MultiStem, consistent with the results from prior
studies. While the study did not achieve the primary and component secondary endpoints for the
intent-to-treat
population, MultiStem treatment was associated with lower
rates of mortality and life threatening adverse events, infections and pulmonary events, and also a reduction in hospitalization and time in the intensive care unit, or ICU. In addition, analyses show that patients who received MultiStem treatment
earlier in the studys treatment window (24 to 36 hours post-stroke, in accordance with the original study protocol) had better recovery in comparison to placebo. Furthermore, analysis of biomarker data obtained from samples of study subjects
indicated that MultiStem treatment reduces post-stroke inflammation compared to placebo, and results suggest that this effect is more pronounced for subjects receiving MultiStem earlier within the treatment window. This effect is consistent with our
hypothesis regarding mechanisms of action and related preclinical data, and with the clinical data suggesting faster and improved recovery for MultiStem-treated patients relative to current standard of care.
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The
one-year
follow-up
data from
the Phase 2 trial demonstrated that MultiStem-treated subjects on average continued to improve through one year and had a significantly higher rate of Excellent Outcome, as defined below, compared to placebo subjects at one year when
evaluating all of the
intent-to-treat
subjects enrolled in the study. Achievement of an Excellent Outcome is important because it means that a patient has substantially
improved (i.e. receiving an Excellent score in each of the three clinical rating scales used to assess patient improvement) and has regained the ability to live and function independently with a high quality of life. The relative
improvement in Excellent Outcome was even more pronounced in the study subjects who received MultiStem treatment within 36 hours of the stroke. If the MultiStem therapy is proven effective in a registrational study and receives a marketing
authorization from the United States Food and Drug Administration, or FDA, this treatment window would make this therapy available to most stroke patients, in contrast to other therapies (e.g., tPA), which have substantially shorter treatment
windows.
In January 2016, we established a collaboration with HEALIOS K.K., or Healios, to develop and commercialize MultiStem for the treatment of
ischemic stroke in Japan. This collaboration may also be expanded to two other indications, including acute respiratory distress syndrome, or ARDS, and another indication. Healios will be responsible for the development and commercialization of
MultiStem for ischemic stroke in Japan on an exclusive basis, and we will receive payments for product supplied to Healios, as well as milestones and tiered double-digit royalties.
In March 2018, we entered into a binding letter of intent (the LOI) with Healios to significantly expand Healios license to develop
MultiStem products. Under the terms of the LOI, we and Healios will work to execute the agreements necessary to expand the existing collaboration by April 30, 2018. If the expansion is consummated, Healios would, among other things, (i) expand its
license in Japan to include ARDS, including idiopathic pulmonary fibrosis (ARDS Field), trauma and use of MultiStem for organ buds for all organ diseases, (ii) obtain a worldwide exclusive license for use of MultiStem product to treat
certain ophthalmological indications, and (iii) obtain an exclusive option to a license to develop and commercialize MultiStem products for ischemic stroke, the ARDS Field and trauma in China. In exchange, we would be entitled to receive payments of
$35 million ($10 million of which is guaranteed to be paid to us), as well as additional possible payments, including milestones and royalties. If the expansion agreements are entered into and, thereafter, Healios elects to exercise its option for
the license in China, Healios would pay us license fees, milestone payments and escalating royalties or profit-sharing for each indication in China.
Also
in March 2018, Healios purchased 12,000,000 shares of our common stock and a warrant to purchase up to an additional 20,000,000 shares of common stock for $21,100,000, or approximately $1.76 per share. The warrant does not become effective until the
expansion agreements are effective, has a term that expires in September 2020 (subject to a potential nine-month extension), includes both fixed and floating exercise price mechanisms, and is capped such that in no event will Healios own more than
19.9% of our common stock. We and Healios have entered into an investor rights agreement that governs certain rights and obligations relating to Healios ownership of our common stock, including rights regarding Board of Director nominees.
Prior to entering into the partnership with Healios, we conducted a series of meetings with PMDA to prepare for subsequent clinical development in Japan.
Since our partnership was established, we have worked closely with Healios to support their development efforts in Japan. In 2016, the PMDA authorized the Clinical Trial Notification, or CTN, for Healios Phase 2/3 trial of MultiStem (HLCM051),
entitled Treatment Evaluation of Acute Stroke for Using in Regenerative Cell Elements, or TREASURE. This clinical trial, which could lead to registration, has since been initiated and is currently enrolling patients. Japans
Regenerative Medicine regulatory framework is designed to enable rapid development of qualified regenerative medicine therapies by providing either conditional or full approval of qualified therapies. Under the new framework, this program has been
awarded the Sakigake designation by PMDA, which is designed to expedite regulatory review and development, and is analogous to Fast Track designation from the FDA.
In addition to the ongoing development in Japan, following the completion of our Phase 2 trial, or
MASTERS-1,
we have
also advanced our development efforts in North America and Europe by engaging in subsequent discussions with the FDA, EMA and other regulators. In September 2016, Athersys received agreement from the FDA under a Special Protocol Assessment, or SPA,
for the design and planned analysis of a pivotal Phase 3 clinical study of MultiStem for ischemic stroke, entitled MultiStem Administration for Stroke Treatment and Enhanced Recovery
Study-2,
or
MASTERS-2.
This program has subsequently received Fast Track designation from the FDA, as well as the Regenerative Medicine Advanced Therapy, or RMAT, designation, which the FDA has described as analogous to
Breakthrough Therapy designation that exists for non-regenerative medicine and advanced therapies. We believe these designations could accelerate the development, regulatory review and subsequent commercialization of products like MultiStem cell
therapy for ischemic stroke, if future clinical evaluation demonstrates appropriate safety and therapeutic effectiveness.
In addition to our program for
ischemic stroke, we are currently enrolling a Phase 2 clinical study in the United States for the administration of MultiStem cell therapy to patients that have suffered an acute myocardial infarction, or AMI, more commonly referred to as a
heart attack. This trial is ongoing, and has been funded in part by a grant from the National Institutes of Health. Previously, we completed a Phase 1 clinical trial involving administration of MultiStem cell therapy to patients that
have suffered an AMI, and the results of this trial demonstrated consistent safety and encouraging evidence of therapeutic benefit among patients with severely compromised heart function.
We are enrolling a clinical study for the treatment of ARDS in the United Kingdom, or UK, and in the United States. ARDS is a serious immunological and
inflammatory condition characterized by widespread inflammation in the lungs. Currently, there are limited interventions and no effective drug treatments for ARDS, which is associated with a high rate of death and disability, making it an area of
high unmet clinical need with high treatment costs. The study is currently enrolling patients and has been supported in part by a grant from Innovate UK.
Additionally, in a completed Phase 1 clinical study, we evaluated the safety, efficacy and potential for MultiStem cell therapy to prevent or reduce
graft-versus-host disease, or GvHD, and other complications, and to provide supportive care to patients undergoing a hematopoietic stem cell transplant to treat leukemia or certain other blood borne cancers. Our MultiStem therapy for GvHD has been
designated an orphan drug by both the FDA and the European Medicines Agency, or EMA, for the prevention of GvHD, which may provide market exclusivity and other substantial potential incentives and benefits. In 2015, the MultiStem product was granted
Fast Track designation by the FDA for prophylaxis therapy against GvHD following hematopoietic cell transplantation.
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Subsequently, our registration study design received a positive opinion from the EMA through the Protocol
Assessment/Scientific Advice procedure. Furthermore, in December 2015, the proposed Phase 2/3 registration study received Special Protocol Assessment or SPA, agreement from the FDA, meaning that the trial is adequately designed to support a Biologic
License Application, or BLA, submission for registration if it is successful. Initiation of this trial will depend on the progress in other clinical trials, the achievement of certain business development and financial objectives, and the
development and success of alternative treatment options for GvHD that would reduce the need for transplant procedures. We may elect to enter into a development and commercialization collaboration to further advance this program.
While development of our clinical programs for human health indications remains our priority, based on our research to date and work performed at our Belgian
subsidiary, ReGenesys BVBA, or ReGenesys, we are evaluating our cell therapy for use in treating disease and conditions in the animal health segment, which is an important and growing area. In January 2017, we entered into an evaluation and option
agreement with a global leader in the animal health business segment to evaluate our cell therapy technology for application in an undisclosed animal health area.
Our development approach has historically involved establishing collaborative relationships with leading research and clinical centers in the United States
and internationally. This has enabled us to methodically advance multiple programs in areas of defined unmet medical need in a resource efficient manner. Furthermore, by emphasizing the potential application of our technologies in areas of
significant clinical need, we believe we are well positioned to utilize recent regulatory initiatives that are designed to promote the rapid and cost effective development of innovative new therapies, and are actively pursuing such initiatives.
These include recent programs in the United States and Europe being implemented by the FDA and the EMA involving existing and potentially broadened application of accelerated review and approval pathways, as well as the new accelerated Regenerative
Medicine regulatory framework in Japan that is designed to enable rapid conditional authorization of qualified regenerative medicine therapies. We believe such initiatives could accelerate the development and commercialization of products like
MultiStem cell therapy, if clinical results demonstrate appropriate safety and therapeutic effectiveness, thereby increasing shareholder value. To date, Japans new Regenerative Medicine regulatory framework that was enacted late in 2014 has
resulted in the commercial approval of two cell therapy products developed by other companies that we are aware of, along with full reimbursement of those products, and we and Healios intend to utilize this framework.
In addition to our MultiStem clinical programs, we have other earlier-stage programs targeted at indications with significant unmet medical needs. We may
elect to enter into partnerships to advance the development of these programs, as well as certain new programs involving MultiStem therapy, and are currently evaluating partnering opportunities related to certain programs. For certain programs we
may elect to fund further development in certain markets in order to maximize value for our shareholders.
We were incorporated in Delaware on
October 24, 1995. On June 8, 2007, we merged with a wholly owned subsidiary of BTHC VI, Inc., a Delaware corporation, and on August 31, 2007, BTHC VI, Inc. changed its name to Athersys, Inc.
Business Strategy
Our principal business objective is to
discover, develop and commercialize novel therapeutic products for disease indications that represent significant areas of clinical need and where we believe there is a substantial commercial opportunity. The key elements of our strategy are
outlined below:
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Advance our Lead Programs through Clinical Development to Registration and Commercialization
. We are focused on the design and execution of late-stage clinical studies (e.g., ischemic stroke) intended to enable
product registration in major markets. We are also engaged in activities intended to enable effective commercialization, e.g., preparation for
scaling-up
manufacturing. We may partner with other companies to
complete such development and preparation, and to market the product upon regulatory approval.
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Efficiently Conduct Clinical Development to Establish Clinical Proof of Concept and Biological Activity for other Product Candidates.
We continue to conduct clinical studies with the intent to establish safety
and efficacy proof of concept and/or evidence of biological activity in a number of important disease areas where our cell therapies would be expected to have benefit including neurological conditions, cardiovascular disease, and inflammatory
and immune system dysfunctions. Our strategy is to conduct well-designed studies beginning early in the clinical development process, thus establishing a robust foundation for later-stage development, partnering activity and expansion into
complementary areas. We are committed to a rigorous clinical and regulatory approach, which we believe has helped us to advance our programs efficiently, providing high quality, transparent communications and regulatory submissions. Our discussions
with the FDA, EMA and PMDA regulatory agencies have resulted in productive interactions and important designations that have helped to advance our programs efficiently.
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Continue to Refine and Improve our Manufacturing and Related Processes and Deepen our Understanding of Therapeutic Mechanisms of Action.
A key aspect of MultiStem cell therapy is the
ex vivo
expansion
capacity of the cells that comprise the product. This enables large-scale production of the clinical product, which is associated with greater consistency, specificity and cost of goods advantages over other cell therapies. We are building on this
intrinsic biological advantage by advancing and optimizing our production and process development approaches, through our internal capabilities and efforts, and working with contract manufacturers, where appropriate. We are focused on development
and optimization of new and proprietary manufacturing techniques and the
pharmacy-to-bedside
approach to support late-stage development and commercialization of the
MultiStem product. Additionally, we will continue to refine our understanding of our products activities and mechanisms of action to prepare the foundation for product enhancements and next generation opportunities.
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Enter into Arrangements with Business Partners to Accelerate Development and Value Creation.
In addition to our internal development efforts, an important part of our strategy is to work with collaborators and
partners to accelerate product development, reduce our development costs, and broaden our commercial access. We have entered into licensing and collaborative arrangements with qualified commercial partners to achieve these objectives. We anticipate
that this strategy will help us to develop a portfolio of high quality product development opportunities, enhance our clinical development and commercialization capabilities, and increase our ability to generate value from our proprietary
technologies. Historically, we entered into technology licensing arrangements with companies such as Healios, Chugai Pharmaceutical Co., Ltd., or Chugai, Pfizer, Bristol-Myers Squibb Company, or Bristol-Myers Squibb, Johnson & Johnson,
Wyeth Pharmaceuticals, Inc., RTI Surgical, Inc., or RTI, and others. Licensing partnerships generate revenue and provide capital that allows us to advance our programs further in development.
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Efficiently Explore New High Potential Therapeutic Applications, Leveraging Third-Party Research Collaborations and our Results from Related Areas.
Our MultiStem product candidate has shown promise in many
disease areas, including in treating neurological conditions and injury, cardiovascular disease, inflammatory and immune disorders, and other areas. We are committed to exploring potential clinical indications where our therapies may achieve
best-in-class
profile, and where we believe we can effectively address significant unmet medical needs. In order to achieve this goal, we established collaborative research
relationships with investigators from many leading research and clinical institutions across the United States and Europe, including the Cleveland Clinic, Case Western Reserve University, University of Minnesota, the Medical College of Georgia at
Augusta University, the University of Oregon Health Sciences Center, the University of Texas Health Science Center at Houston, the University of Pittsburgh Medical Center, the Katholieke Universiteit Leuven, or KUL, University of Regensburg, and
other institutions. Through this network of collaborations, we have evaluated MultiStem therapy in a range of preclinical models that reflect various types of human disease or injury. These collaborative relationships have enabled us to cost
effectively explore where MultiStem cell therapy may have relevance and how it may be utilized to advance treatment over current standard of care. Additionally, we have shown that we can leverage clinical safety data and preclinical results from
some programs to support accelerated clinical development efforts in other areas, saving substantial development time and resources compared to traditional drug development where each program is separately developed.
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Continue to Expand our Intellectual Property Portfolio.
We have a broad intellectual property estate that covers our proprietary products and technologies, as well as methods of production and methods of use. Our
intellectual property is important to our business and we take significant steps to protect its value. We have ongoing research and development efforts, both through internal activities and through collaborative research activities with others,
which aim to develop new intellectual property and enable us to file patent applications that cover new applications of our existing technologies or product candidates, including MultiStem cells and other opportunities. We currently have over 245
patents related to our technologies, providing protection in the United States, Europe, Japan and other areas.
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Our Current Programs
By applying our proprietary MultiStem cell therapy product, we established therapeutic product development programs treating neurological conditions,
cardiovascular disease, inflammatory and immune disorders, and other conditions. Our programs in the clinical development stage include the following:
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Ischemic Stroke
: We completed our Phase 2 study of MultiStem treatment of patients suffering a moderate to severe ischemic stroke and announced the
one-year
follow-up
data and final results from the study in 2016. We are actively engaged in advancing the next stage of clinical development of this program, both independently and with Healios.
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In 2016, we announced that we received agreement from the U.S. Food and Drug
Administration, or FDA, under a Special Protocol Assessment, or SPA, for the design and planned analysis of a pivotal Phase 3 clinical trial of MultiStem cell therapy for the treatment of ischemic stroke, referred to as
MASTERS-2.
The SPA provides agreement from the FDA that the protocol design, clinical endpoints, planned conduct and statistical analyses encompassed in Athersys planned Phase 3 study can address objectives in
support of a regulatory submission for approval of the MultiStem product for treating ischemic stroke patients if the trial is successful. In May 2017, we announced that the FDA granted us Fast Track designation for our clinical product for the
treatment of ischemic stroke. Such designation for a new biologic product means that the FDA will take such actions as are appropriate to expedite the development and review of our application to approve the product, and specifically, under Fast
Track designation, the program becomes eligible for rolling submission, accelerated approval and priority review of the biologics license application, facilitating a timely regulatory review. Also, in August 2017, we announced that the design of
MASTERS-2
received a Final Scientific Advice positive opinion from the European Medicines Agency, or EMA, representing EMAs agreement that successful results from the trial could result in registration and
marketing approval of the MultiStem therapy. This positive opinion provides further alignment among the key regulators regarding potential commercialization of the MultiStem product upon success of this single pivotal trial. In October 2017, we
received the RMAT designation from the FDA, which was established under the 21
st
Century Cures Legislation. The RMAT designation may be obtained for eligible cell therapy and other regenerative
medicine and advanced therapies when the FDA agrees that preliminary clinical evidence indicates that the therapy has demonstrated the potential to address unmet medical needs for a serious or life threatening disease or condition. The RMAT
designation is the equivalent of the Breakthrough Therapy designation that exists for
non-regenerative
medicine products, and designated products benefit from all Breakthrough Therapy features. The designation
enables sponsors to discuss with the FDA multidisciplinary strategic development plans, including expediting manufacturing development plans for commercialization to support priority review and accelerated approval.
In September 2016, we announced the successful completion of the Pharmaceutical and Medical Devices Agency, or PMDA, review of
Healios Clinical Trial Notification, or CTN, allowing Healios to commence its confirmatory clinical trial, TREASURE, evaluating the safety and efficacy of administration of MultiStem cell therapy for the treatment of ischemic stroke in Japan,
which will be evaluated under the new regulatory framework for regenerative medicine therapies. In accordance with the regulatory system in Japan, a CTN is equivalent to an Investigational New Drug, or IND, application under the regulatory system
used in the United States, or U.S. This 220 patient randomized, double blind, placebo controlled clinical trial is being conducted in Japan as part of a partnership and license agreement between Healios and Athersys. This partnership is focused on
the development and commercialization of MultiStem in Japan for the treatment of ischemic stroke, and potentially other indications.
Our
MASTERS-2
clinical trial is a randomized, double-blind, placebo-controlled clinical
trial designed to enroll 300 patients in North America and Europe who have suffered moderate to moderate-severe ischemic stroke. The enrolled subjects will receive either a single intravenous dose of MultiStem cell therapy or placebo, administered
within
18-36
hours of the occurrence of the stroke, in addition to the standard of care. The primary endpoint will evaluate disability using modified Rankin Scale, or mRS, scores at three months, comparing the
distribution, or the shift between the MultiStem treatment and placebo groups. The mRS shift analyzes patient improvement across the full disability spectrum, enabling recognition of improvements in disability and differences in
mortality and other serious outcomes, among strokes of different severities. The study will also assess Excellent Outcome (the achievement of mRS
£
1, NIHSS
£
1,
and Barthel Index
³
95) at three months and one year as key secondary endpoints. Additionally, the study will consider other measures of functional recovery, biomarker data and clinical outcomes, including
hospitalization, mortality and life-threatening adverse events, and post-stroke complications such as infection.
Healios TREASURE study in Japan is being conducted at hospitals in Japan that have extensive experience at providing care
for stroke victims. Based on the experience from our
B01-02
study, subjects enrolled in the trial will receive either a single dose of MultiStem or placebo, administered within 1836 hours of the
occurrence of the stroke, in addition to standard of care. The study will evaluate patient recovery through approximately 90 days following initial treatment based on Excellent Outcome and other neurological, functional and clinical endpoints. The
TREASURE study was initiated earlier in 2017, though interruption in media supply at our contract manufacturer affected manufacturing of the MultiStem product and had slowed the launch of the Japan study. The TREASURE study was reinitiated in
November 2017, following a brief interruption to resupply placebo that was out of specification and is currently enrolling patients. Further interruptions in material supply or product manufacturing could constrain product supply and slow the
progress of the clinical study.
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We are preparing to launch our MASTERS-2 clinical trial, including site
selection and the manufacture of clinical product, and intend to initiate the study in the second quarter of 2018 beginning with specific high-enrolling sites. We look forward to launching the study and using the accelerated pathway afforded to us
by the regulators in the U.S., Europe and Japan upon study completion.
Acute Myocardial Infarction
: We are
conducting an ongoing Phase 2 clinical study in the U.S. for the administration of MultiStem cell therapy to patients that have suffered an acute myocardial infarction, or AMI. In a previously completed Phase 1 clinical study, we evaluated the
administration of MultiStem to patients that suffered an AMI. The results of this study demonstrated a favorable safety profile and encouraging signs of improvement in heart function among patients that exhibited severely compromised heart function
prior to treatment. This data was published in a leading peer reviewed scientific journal, and
one-year
follow-up
data suggested that the benefit observed was sustained
over time. We were awarded a grant in support of the advancement of this clinical program, and we launched a double-blind, sham-controlled Phase 2 clinical study, evaluating the safety and efficacy of MultiStem treatment in subjects who have
experienced a myocardial infarction. The study is currently enrolling patients and is being conducted at leading cardiovascular centers. We continue to take steps to improve enrollment rates that have been below our expectations and will provide
updates regarding the conduct and completion of the study, as appropriate.
Acute Respiratory Distress
Syndrome
: We initiated a clinical study for the treatment of acute respiratory distress syndrome, or ARDS, in the United Kingdom and in the U.S. We were awarded a grant from Innovate UK as partial support of a Phase 1/2 clinical study evaluating
the administration of MultiStem cell therapy to ARDS patients. ARDS is a serious immunological and inflammatory condition characterized by widespread inflammation in the lungs that severely compromises pulmonary function, requiring patients to be
placed on a ventilator and cared for in the ICU. ARDS can be triggered by pneumonia, sepsis, trauma or for other reasons, and represents a major cause of morbidity and mortality in the critical care setting. The Phase 1/2 clinical trial is ongoing,
and our objective is to complete this study in 2018.
Hematopoietic Stem Cell
Transplant / GvHD
: We completed a Phase 1 clinical study of the administration of MultiStem cell therapy to patients suffering from leukemia or certain other blood-borne cancers, in which patients undergo radiation therapy and then receive a
hematopoietic stem cell transplant. Such patients are at significant risk for serious complications, including
graft-vs-host
disease, or GvHD. Data from the study
suggested that the treatment may have a beneficial effect in reducing the incidence and severity of GvHD, as well as providing other benefits. We were granted orphan drug designation by the FDA and the EMA for MultiStem treatment in the prevention
of GvHD, and the MultiStem product was granted Fast Track designation by the FDA for prophylaxis therapy against GvHD following hematopoietic cell transplantation. Subsequently, our registration study design received a positive Scientific Advice
opinion from EMA through the SA procedure, as well as a SPA designation from the FDA. Currently, this program is staged for future registration-directed development dependent on the achievement of certain business development and financial
objectives and the development and success of alternative therapies for treating the underlying conditions leading to transplant.
MultiStem therapy has
been evaluated in other disease areas, such as inflammatory bowel disease with a collaborator, solid organ transplant in an investigator-sponsored study, and a limited number of compassionate use cases.
While development of our clinical programs for human health indications remains our priority, based on our research to date and work performed at our
wholly-owned subsidiary, ReGenesys, we are also evaluating our cell therapy for use in treating diseases and conditions in the animal health area. We have demonstrated in preclinical animal health models that our cell therapy can promote tissue
repair and healing that could provide meaningful benefits to animal patients, including those suffering from conditions with unmet medical need. In January 2017, we entered into an evaluation and option agreement with a global leader in the animal
health business segment to evaluate our cell therapy technology for application in an undisclosed animal health area.
We are engaged in preclinical
development and evaluation of MultiStem therapy in other indications, focusing on the neurological, cardiovascular and inflammatory and immune disease areas, and we conduct such work both through our own internal research efforts and through a broad
global network of collaborators. We also engage in discussions with third parties about collaborating in the development of MultiStem therapy for various programs and may enter into one or more business partnerships to advance these programs over
time.
While the MultiStem product platform continues to advance, we are engaged in process development initiatives intended to increase manufacturing
scale, reduce production costs, and enhance process controls and product quality, among other things. These initiatives are being conducted both internally and outsourced to select contractors, and the related investments are meant to enable us to
meet potential commercial demand in the event of eventual regulatory approval. Until such time as we are able to manufacture products ourselves in accordance with good manufacturing practices, we will continue to rely on third party manufacturers to
make our MultiStem product for clinical trials and eventual commercial sales. These third parties may not deliver sufficient quantities of our MultiStem product, manufacture MultiStem product in accordance with specifications, or comply with
applicable government regulations. From time to time, such third party manufacturers, or their material suppliers, may experience production delays, stoppages or interruptions in supply, which may affect the initiation, execution and timing of
completion of clinical trials or commercial activities.
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In January 2016, we entered into a license agreement with Healios to develop and commercialize MultiStem cell
therapy for ischemic stroke in Japan, and to provide Healios with access to our proprietary technologies for use in Healios proprietary organ bud program, initially for transplantation to treat liver disease or dysfunction. Under
the agreement, Healios also obtained a right to expand the scope of the collaboration to include the exclusive rights to develop and commercialize MultiStem for the treatment of two additional indications in Japan, which include ARDS and another
indication in the orthopedic area, as well as all indications for the organ bud program. Healios is working toward the development and commercialization of the MultiStem product in Japan, and we are providing the manufactured product to
Healios for its clinical studies; provided, that, if we fail to perform our responsibilities to supply clinical trial product to Healios, then under certain circumstances, we may be required to grant Healios a license to make the product solely for
use in the licensed field in Japan.
In March 2018, we entered into the LOI with Healios to significantly expand Healios license to develop
MultiStem products and are working to execute the agreements necessary to expand the existing collaboration by April 30, 2018. If the expansion is consummated, Healios would, among other things, (i) expand its license in Japan to include the ARDS
Field, trauma and use of MultiStem for organ buds for all organ diseases, (ii) obtain a worldwide exclusive license for use of MultiStem product to treat certain ophthalmological indications, and (iii) obtain an exclusive option to a license to
develop and commercialize MultiStem products for ischemic stroke, the ARDS Field and trauma in China.
We also have a collaboration with RTI for the
development of products for certain orthopedic applications using our stem cell technologies in the bone graft substitutes market, and we continue to receive royalty revenue from product sales and may receive other payments from time to time upon
the successful achievement of certain commercial milestones. In 2017, we received a $1.0 million payment associated with achievement of a commercial milestone. Also, in the fourth quarter of 2017, our royalty rate increased as a result of
reaching a milestone for product sales.
We have also developed other earlier stage programs targeted at indications with significant unmet needs. We may
elect to enter into partnerships to advance the development of these programs, or pursue independent development.
Regenerative Medicine Programs
MultiStem A Novel Therapeutic Modality
We are developing our MultiStem therapy, a proprietary
non-embryonic,
allogeneic stem cell product candidate, that we
believe has potential utility for treating a broad range of diseases and could have widespread application in the field of clinical regenerative medicine. Unlike traditional bone marrow transplants or other stem cell therapies, MultiStem cells may
be manufactured on a large scale and may be administered without tissue matching or the need for immune suppression, analogous to type O blood. Potential applications of MultiStem therapy include the treatment of cardiovascular disease, neurological
disease or injury and conditions involving the immune system, including autoimmune disease and other conditions. We believe that the MultiStem therapy represents a significant advancement in the field of stem cell therapy and could have broad
clinical application. We currently have open INDs for the study of MultiStem administration in distinct clinical indications, and several of our programs are in later-stage clinical development.
MultiStem cell therapy is a patented biologic product that is manufactured from human stem cells obtained from adult bone marrow, although these cells may
alternatively be obtained from other tissue sources. The product consists of a special class of human stem cells that have the ability to express a range of therapeutically relevant proteins and other factors, as well as form multiple cell types.
Factors expressed by the cells have the potential to deliver a therapeutic benefit in several ways, such as the reduction of inflammation, regulation of immune system function, protection of damaged or injured tissue, the formation of new blood
vessels in regions of ischemic injury and augmentation of tissue repair and healing in other ways. Like drugs, these cells may be stored for an extended period of time in frozen form and used
off-the-shelf.
Following administration, the cells have been shown to express multiple therapeutically relevant proteins, but unlike a traditional transplant, are subsequently cleared from the body over time,
analogous to a drug or biologic.
We believe that MultiStem represents a potential
best-in-class
stem cell therapy because it exhibits each of the following characteristics based on research and development conducted to date:
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Broad plasticity and multiple potential mechanisms of action.
MultiStem cells have a demonstrated ability in animal models to form a range of cell types and also appear to be able to deliver therapeutic
benefit by producing factors that protect tissues against damage and inflammation, as well as enhancing or playing a direct role in revascularization or tissue regeneration.
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Large-scale production.
Unlike conventional stem cells, such as blood-forming or hematopoietic stem cells, mesenchymal stem cells, or other cell types, MultiStem cells have the potential to be produced on
a large scale, processed, and cryogenically preserved, and then used clinically in a rapid and efficient manner. Material obtained from a single donor may be used to produce hundreds of thousands, or even millions, of individual doses, representing
a yield far greater than we believe other stem cells have been able to achieve.
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Off-the-shelf
utility.
Unlike traditional bone marrow or hematopoietic stem cell transplants that require
extensive genetic matching between donor and recipient, MultiStem administration does not require tissue matching or immune suppressive drugs. The MultiStem product is administered as a cryogenically preserved allogeneic product, meaning that these
cells are not genetically matched between donor and recipient. This feature, combined with the ability to establish large MultiStem banks, could make it practical for clinicians to efficiently deliver stem cell therapy to a large number of patients.
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Safety.
Other stem cell types, such as undifferentiated embryonic stem cells or induced pluripotent stem cells have shown the capacity to form ectopic tissue or teratomas, which are tumor-like growths.
These could pose serious safety risks to patients. In contrast, MultiStem cells have shown a consistent and favorable tolerability profile that has been compiled over several years of preclinical study in a range of animal models by a variety of
investigators and that is supported by clinical data generated to date.
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At each step of the MultiStem production process, cells are
analyzed according to
pre-established
criteria to ensure that a consistent, well characterized product candidate is produced. Cells are harvested from a
pre-qualified,
healthy, consenting donor and these cells are then expanded to form a master cell bank from which we subsequently produce clinical grade material. We demonstrated the ability to harvest cells that meet our rigorous criteria from healthy donors with
a high degree of consistency. Furthermore, in multiple animal models, MultiStem has been shown to be
non-immunogenic,
and is administered without the genetic matching that is typically required for
conventional bone marrow or stem cell transplantation.
The distinctive profile of the MultiStem product allows us to pursue multiple high value
commercial opportunities from a single product platform. Based upon work that we and independent collaborators have conducted over the past several years, we believe that MultiStem cells have the potential to treat a range of distinct disease
indications, including ischemic injury and cardiovascular disease, certain types of neurological conditions or injury, autoimmune disease, transplant support (including in oncology patients and solid organ transplant areas), and a range of orphan
disease indications. As a result, we believe we will be able to leverage our foundation of safety and efficacy data to add clinical indications efficiently, enabling us to reduce development costs and timelines substantially.
MultiStem for Treating Neurological Conditions, Cardiovascular Disease, and Inflammatory and Immune Disorders
Healthcare represents a significant part of the global economy. In the United States, it represented approximately 17.9% of all economic activity in 2016, or
about $3.3 trillion dollars, annually according to the National Health Expenditure Accounts and the Centers for Medicaid and Medicare Services. However, the United States, along with many other nations, is experiencing an unprecedented demographic
shift that is resulting in a significantly expanded population of older individuals. According to United States Census data, in the next few years there will be a dramatic increase in the number of individuals over the age of 65, as this segment of
the population increases from 40.2 million individuals in 2010 to more than 72 million people in 2030, representing an increase of approximately 80%. The aging of the population will create enormous financial pressure on the healthcare
system in the United States and other countries around the world, resulting in significant clinical challenges, but also resulting in substantial commercial opportunities.
Data from the National Center for Health Statistics shows that as people get older, they are more susceptible to a variety of age related conditions,
including heart disease, stroke, certain forms of cancer, diabetes, progressive neurological disorders, various chronic inflammatory and immune conditions, renal disease and a range of others. As a consequence, as people get older they spend far
more on healthcare. On average, they spend four to ten times more on healthcare annually at age 65 or beyond than when they were younger and more healthy. According to the Alliance for Aging Research, 83% of healthcare spending is associated with
chronic conditions, and other research from the Department of Health and Human Services shows that 71% of healthcare spending is associated with multiple chronic conditions. Traditional medical approaches have failed to adequately address this
problem.
We have worked with independent investigators at a number of leading institutions, such as the Cleveland Clinic, Case Western Reserve
University, University of Minnesota, the National Institutes of Health, the Medical College of Georgia at Augusta University, the University of Oregon Health Sciences Center, the University of Texas Health Science Center at Houston, KUL, the
University of Pittsburgh Medical Center, University of Regensburg and other institutions. Through this network of collaborations, we studied the impact of MultiStem cell therapy in a range of preclinical models that reflect various types of human
disease or injury in the neurological, cardiovascular, and immunological areas. To date, we and our collaborators have published research results illustrating the potential benefits of MultiStem cell therapy in a range of indications including
ischemic stroke, traumatic brain injury, or TBI, brain damage due to restricted blood flow in newborns, spinal cord injury, myocardial infarction, vascular disease, acute pulmonary distress, and bone marrow transplant support/GvHD. In addition, we
have explored and intend to further explore MultiStem administration in the treatment of a range of other conditions, including other forms of cardiovascular disease, neurological conditions, and immune related disorders.
10
Based on preclinical results, we have advanced MultiStem therapy to clinical development stage in several
clinical indications or disease areas: treatment for stroke caused by a blockage of blood flow in the brain; treatment of damage caused by myocardial infarction; treatment for ARDS; support in the hematologic malignancy setting to reduce certain
complications associated with traditional bone marrow or hematopoietic stem cell, or HSC, transplantation; and treatment of IBD, initially focused on patients suffering from severe, treatment refractory ulcerative colitis.
We may expand to other clinical indication areas as results warrant and resources permit.
Neurological Injury and Disease MultiStem for Ischemic Stroke
Another focus of our regenerative medicine program is MultiStem administration for the treatment of neurological injury as a result of acute or chronic
conditions. Neurological injury and disease represents an area of significant unmet medical need, a major burden on the healthcare system, and also represents a huge commercial opportunity.
Many neurological conditions require extensive long-term therapy, and many require extended hospitalization and/or institutional care, creating an enormous
quality of life and cost burden. Stroke represents an area where the clinical need is particularly significant, since it represents a leading cause of death and significant long term disability. We have published research with independent
collaborating investigators that demonstrates that MultiStem administration conveys biological benefits in preclinical models of ischemic stroke, as well as other models of neurological damage and injury, including TBI, neonatal hypoxic ischemia (a
cause of neurological damage in infants), and spinal cord injury. We also conducted preclinical work in other neurological areas, and have been awarded grants to support work in areas such as the indications described above and for evaluating the
potential of MultiStem cells to address chronic conditions such as Multiple Sclerosis, or MS, or Parkinsons disease. Our research has shown that MultiStem cells convey benefits through distinct mechanisms, including reducing inflammatory
damage, protecting at risk tissue at the site of injury, and through direct neurotrophic effects that stimulate the recovery of damaged neurons. As a result, we believe that MultiStem therapy may have relevance to multiple forms of neurological
injury and disease.
Our initial clinical focus in the neurological area involves evaluating MultiStem administration to treat ischemic stroke. Currently,
there are approximately 800,000 individuals in the United States that suffer a stroke each year, more than two million stroke victims in the United States, Europe and Japan combined and more than 16.9 million people that suffer a stroke each
year globally. The vast majority of these (approximately 85% to 90%) are ischemic strokes, that are caused by a blockage of blood flow in the brain, that cuts off the supply of oxygen and nutrients, and can result in tissue loss and neurological
damage, as well as long term or permanent disability. The remaining 10% to 15% are hemorrhagic strokes, which occur when a blood vessel bursts and bleeding into the brain ensues.
Despite the fact that ischemic stroke is one of the leading causes of death and disability in the United States, there has been limited progress toward the
development of treatments that improve the prognosis for stroke victims. The only
FDA-approved
drug currently available for ischemic stroke is the anti-clotting factor, tPA. According to current clinical
guidelines, tPA must be administered to stroke patients within several hours after the occurrence of the ischemic stroke to remove the clot. This narrow time window is essential to minimize potential risks to the patient, such as bleeding into the
brain. Administration of tPA after three to four hours is not recommended, since it can cause cerebral bleeding or even death. Recent advancements in the development of clot extraction devices may help additional patients, but such treatments are
limited to certain types of strokes and to an early time window. As a consequence of this limited time window, only a small percentage of stroke victims are treated with the currently available therapymost simply receive supportive or
palliative care. The long-term costs of stroke are substantial, with many patients requiring extended hospitalization, extended physical therapy or rehabilitation (for those patients that are capable of entering such programs), and many
require long-term institutional or family care.
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In preclinical studies conducted by investigators, including at the University of Minnesota, the Medical College
of Georgia at Augusta University, and the University of Texas Health Science Center at Houston, significant functional improvements have been observed in rodents that have undergone an experimentally induced stroke, or that have incurred significant
neurological damage due to similar types of ischemic events or acute injury, such as a result of neonatal hypoxic ischemia or TBI, and then received MultiStem treatment. Published research has demonstrated that MultiStem administration even one week
after a surgically induced stroke results in substantial long-term therapeutic benefit, as evidenced by the improvement of treated animals compared with controls in a battery of tests examining mobility, strength, fine motor skills, and other
aspects of neurological functional improvement. We believe MultiStem treatment conveys significant benefits through several mechanisms, including reduction of inflammation and immune system modulation in the ischemic area, and the protection and
rescue of damaged or injured cells, including neuronal tissue.
Pre-clinical
research results presented at the 2012 American Heart Association International Stroke Conference demonstrated that MultiStem
administration 24 hours following a stroke reduced inflammatory damage in the brain and resulted in significant functional improvement, and that some of these results were achieved by reducing the inflammatory response emanating from the spleen in
animal models. These results confirmed that MultiStem treatment is well tolerated, does not require immunosuppression and results in a robust and durable therapeutic benefit, and are consistent with prior results that show MultiStem can provide
significant benefits even when administered up to one week after the initial stroke event, although earlier treatment (e.g., within 24 hours post stroke) provided more substantial benefits in these preclinical studies.
We completed our first clinical study in stroke,
MASTERS-1,
which was a double-blind, placebo-controlled Phase 2
clinical trial exploring the administration of MultiStem to patients that have suffered an ischemic stroke in the United States and Europe. The results of this study demonstrated favorable safety and tolerability for MultiStem, consistent with prior
clinical studies in other indications. While the study did not achieve the primary and component secondary endpoints for the
intent-to-treat
population, the MultiStem
treatment was associated with lower rates of mortality and life threatening adverse events, infections and pulmonary events, and also a reduction in hospitalization. In addition, analyses show that patients who received MultiStem treatment earlier
in the studys treatment window (i.e., 24 to 36 hours post-stroke, as specified in the original study protocol) had better recovery in comparison to placebo, and this treatment effect appeared to be more pronounced the earlier the MultiStem
administration occurred within this timeframe. Analysis of biomarker data obtained from samples of study subjects indicated that MultiStem treatment reduces post-stroke inflammation compared to placebo. Furthermore, it appears that this effect is
more pronounced for subjects receiving MultiStem earlier than 36 hours post-stroke. This effect is consistent with our hypothesis regarding mechanisms of action and related preclinical data, and with the clinical data suggesting faster recovery for
MultiStem-treated patients.
One-year
follow-up
data demonstrated that MultiStem-treated subjects on average continued to improve through one year post-treatment and
achieved a significantly higher rate of Excellent Outcome compared to placebo subjects in the
intent-to-treat
population. We are focused on advancing this program to the
next stage of clinical development, in our
FDA-approved
MASTERS-2
Phase 3 study, which has been authorized by the FDA (under a SPA) and EMA. If proven effective, this
treatment would make therapy available to most stroke patients, in contrast to other therapies (e.g., tPA), which have substantially shorter treatment windows.
We are also interested in the application of MultiStem for other neurological indications that represent areas of significant unmet medical need, such as TBI,
which represents the leading cause of disability among children and young adults, and a leading cause of death. Approximately 2.8 million cases of TBI are seen in the United States each year. The United States Center for Disease Control and
Prevention, or CDC, estimates that more than 5.3 million individuals are living with a disability and have a long-term or lifelong need for help to perform activities of daily living as a result of a TBI. The CDC also estimates the annual
direct and indirect costs for TBI are approximately $76.5 billion a year. In preclinical studies of TBI, administration of MultiStem dramatically reduced the extent of damage caused by a TBI, and promoted accelerated healing of the blood-brain
barrier. With grant funding from the NIH, we further advanced our MultiStem programs and cell therapy platform, including further development of MultiStem therapy for the treatment of TBI and further development of our cell therapy formulations and
manufacturing capabilities.
We are also conducting preclinical work exploring the application of MultiStem treatment in other neurological indications and
have presented data that demonstrated that intravenous MultiStem administration one day after spinal cord injury, or SCI, results in statistically significant and sustained improvements in gross locomotor function, fine locomotor function and
bladder control compared to control treated animals. In 2015, we published new findings from a peer-reviewed study in Natures
Scientific Reports
that showed that MultiStem cell therapy was effective in improving the health and recovery
of animals following an acute SCI. Intravenous administration of our cells one day after injury prevented loss of spinal cord tissue, resulting in significant improvement of walking function and urinary control. Further, in 2015, we published of an
article in the peer-reviewed
Journal of Neuroinflammation
that provides further evidence that MAPC cells have the potential to provide benefit following hypoxic ischemia, an injury caused by oxygen deprivation to the brain before or during
birth and a leading cause of cerebral palsy. The article also describes the biological mechanisms through which this cell therapy delivers benefit. These findings are consistent with previous findings in related areas, such as ischemic stroke, and
add to the scientific foundation supporting MultiStem cell therapy for the treatment of acute neurological injuries.
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Over the past several years, we have been utilizing grant funding to investigate the potential for MultiStem
treatment for chronic progressive MS based on initial results in preclinical models. Our previous work, supported by Fast Forward and the National Multiple Sclerosis Society, demonstrated the potential benefits of MultiStem therapy for treating MS.
Using several preclinical models of MS, researchers observed that MultiStem cell administration results in sustained behavioral improvements, arrests the demyelination process and supports remyelination of affected axons. More recently, we have
focused on the mechanism of action underlying the enhanced remyelination
in vivo
and shown that MultiStem cells and secreted factors increase differentiation of oligodendrocytes.
Cardiovascular Disease Evaluating MultiStem for Treating Damage from a Heart Attack
Cardiovascular disease is an area of significant clinical need and its prevalence is expected to grow in the years ahead. Despite treatment advances in recent
years, cardiovascular disease remains the leading cause of death and represents one of the leading causes of disability around the world. In the United States, approximately 790,000 people suffer a heart attack each year, and approximately
6.5 million individuals in the United States were suffering from heart failure in 2014, according to the American Heart Association 2017 Statistical Update. Another 8.5 million people suffer from peripheral arterial disease, which is
associated with significant morbidity and mortality. In addition, in 2014 (latest year available), there were approximately 807,775 deaths (or ≈1 of every 3 deaths in the United States) that occurred from all forms of cardiovascular disease,
including approximately 655,000 individuals that died as a result of coronary heart disease or heart failure. According to projections published by the American Heart Association in 2016, aggregate costs for treating heart disease in the United
States are expected to soar in the coming years. In 2016, annual direct costs for treating cardiovascular disease were $555 billion, but by 2035, these are expected to nearly double to a projected $1.1 trillion per year.
In a Phase 1 clinical trial, we explored MultiStem treatment for damage caused by AMI. Myocardial infarction is one of the leading causes of death and
disability in the United States and is caused by the blockage of one or more arteries that supply blood to the heart. Such blockages can be caused, for example, by the rupture of an atherosclerotic plaque deposit. A variety of risk factors are
associated with an elevated risk of myocardial infarction or atherosclerosis, including age, high blood pressure, smoking, sedentary lifestyle and genetics. While advances in the diagnosis, prevention and treatment of heart disease have had a
positive impact, there is clearly room for improvementmyocardial infarction remains a leading cause of death and disability in the United States and the rest of the world.
MultiStem treatment has been studied in validated animal models of AMI, including at both the Cleveland Clinic and the University of Minnesota. Investigators
demonstrated that the administration of allogeneic MultiStem cells into the hearts of animals damaged by experimentally induced heart attacks resulted in significant functional improvement in cardiac output and other functional parameters compared
with animals that received placebo or no treatment. Furthermore, the administration of immunosuppressive drug was not required and provided no additional benefit in this study, and supports the concept of using MultiStem cells as an allogeneic
product. We completed additional preclinical studies in established pig models of AMI using catheter delivery and examining various factors such as the route and method of MultiStem administration, dose ranging, and timing of treatment.
We conducted a multicenter, open-label Phase 1 clinical trial in this indication and the results showed that MultiStem treatment was well-tolerated at all dose
levels, exhibited a favorable safety profile, and that patients who received MultiStem treatment exhibited meaningful improvements in cardiovascular function, including left ventricular ejection fraction, wall motion scores, and other parameters.
These results were published by
Circulation Research
.
We are currently conducting a Phase 2 clinical study for the administration of MultiStem cell
therapy to patients that have suffered an AMI, which has been supported by a grant from the NIH, and we are currently enrolling patients in our Phase 2 study evaluating the safety and efficacy of MultiStem treatment in subjects who have a
non-ST
elevated myocardial infarction. The study is double-blind, sham-controlled and is being conducted at leading cardiovascular centers in the United States.
Immunological Disorders MultiStem for Acute Pulmonary Distress, IBD and HSC Transplant Support
Inflammatory and immune disorders represent a significant burden to society. There are over 80 recognized autoimmune disorders, which are conditions caused by
an acute or chronic imbalance in the immune system. In these conditions, cells of the immune system begin to attack certain tissues or organs in the body, resulting in tissue damage and loss of function. Some inflammatory and immune conditions are
associated with
age-related
conditions (e.g., rheumatoid arthritis), but some are due to other causes that may be genetic, environmental or a combination of both (e.g., Type 1 diabetes, IBD). Still other
conditions may reflect complications associated with the treatment of other conditions (e.g., GvHD, a frequent complication associated with transplant procedures used to treat leukemia or related blood-borne cancers). Each of these conditions shares
certain biological characteristics, in that the immune system imbalance results from the inappropriate activation of certain populations of immune cells that subsequently results in significant tissue damage and destruction. This immune imbalance
may result in a complex cascade of inflammation that can result in pain, progressive tissue deterioration and loss of function. While currently available immunomodulatory drugs have proven to be effective for some patients, they have failed to
adequately address the needs of many other patients that suffer from inflammatory and immune disorders.
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In both preclinical and clinical studies, MultiStem cells have shown potent immunomodulatory properties,
including the ability to reduce active inflammation through various modes of action, stimulate tissue repair and restore immune system balance. Accordingly, we believe that MultiStem therapy could have broad application in the area of treating
immune system disorders, including certain acute inflammatory conditions, autoimmune diseases and other conditions.
In animal models, MultiStem cells
have demonstrated an ability to reduce the severity of pulmonary distress, reduce alveolar edema and return lung endothelial permeability to normal. Intravenous MultiStem treatment early following the onset of the condition may ameliorate the
initial hyper-inflammation and reduce the fibrotic activity that follows, thereby speeding the return to and improving the likelihood of more normal lung function, and helping patient recovery.
ARDS is a serious immunological and inflammatory condition characterized by widespread inflammation in the lungs. ARDS can be triggered by pneumonia, sepsis,
or other trauma and represents a major cause of morbidity and mortality in the critical care setting. It has significant implications, as it prolongs ICU and hospital stays, and requires convalescence in the hospital and rehabilitation. There are
limited interventions and no effective drug treatments for ARDS, making it an area of high unmet clinical need with high treatment costs. Given ARDS high treatment costs, a successful cell therapy could be expected to generate significant
savings for the healthcare system by reducing days on a ventilator, days in the intensive care unit and total days in the hospital, and could reduce mortality and morbidity, as well as improve quality of life for those suffering from the
condition. The medical need for a safe and effective treatment of ARDS is significant due to its high mortality rate, and it affects annually approximately 33,000 patients in the UK and 400,000 to 500,000 patients
in Europe, the U. S. and Japan, alone. We, through our subsidiary, Athersys Limited, are conducting a Phase 1/2 clinical study evaluating the administration of MultiStem cell therapy to ARDS patients, which has been
partially supported by grant funding from Innovate UK. We initiated this study in 2016 in both the UK and the United States, and it is currently enrolling patients. We intend to complete this study in 2018.
Another area of focus is the use of MultiStem cell therapy as adjunctive treatment for HSC/bone marrow transplant used as therapy in hematologic malignancy.
For many types of cancer, such as leukemia or other blood-borne cancers, treatment typically involves radiation therapy or chemotherapy, alone or in combination. Such treatment can substantially deplete the cells of the blood and immune system, by
reducing the number of stem cells in the bone marrow from which they arise. The more intense the radiation treatment or chemotherapy, the more severe the resulting depletion is of the bone marrow, blood, and immune system. Other tissues may also be
affected, such as cells in the digestive tract and in the pulmonary system. The result may be severe anemia, immunodeficiency, substantial reduction in digestive capacity, and other problems that may result in significant disability or death.
One strategy for treating the depletion of bone marrow is to perform a peripheral blood stem cell transplant or a bone marrow transplant. This approach may
augment the patients ability to form new blood and immune cells and provide a significant survival advantage. However, finding a closely matched donor is frequently difficult or even impossible. Even when such a donor is found, in many cases
there are immunological complications, such as GvHD, which may result in serious disability or death.
Working with leading experts in the stem cell and
bone marrow transplantation field, we studied MultiStem in animal models of radiation therapy and GvHD. In multiple animal models, MultiStem cells have been shown to be
non-immunogenic,
even when administered
without the genetic matching that is typically required for conventional bone marrow or stem cell transplantation. Furthermore, in animal model systems testing immune reactivity of
T-cells
against unrelated
donor tissue, MultiStem has been shown to suppress the
T-cell-mediated
immune responses that are an important factor in causing GvHD. MultiStem-treated animals also displayed a significant increase in survival
relative to controls. As a result, we believe that MultiStem administration in conjunction with or following standard HSC transplantation may have the potential to reduce the incidence or severity of complications and may enhance gastrointestinal
function, which is frequently compromised as a result of radiation treatment or chemotherapy.
We completed a Phase 1 clinical trial examining the safety
and tolerability of a single dose or repeat dosing of MultiStem cells administered intravenously to patients receiving a bone marrow or hematopoietic stem cell transplant as part of their treatment of leukemia or other hematological condition. The
trial was an open label, multicenter trial that involved leading experts in the field of bone marrow transplantation and, we announced the results from the trial in 2012. We observed a consistent safety profile in both the single and multiple dose
arms of the study, and at all dose levels tested. Although the trial was not specifically designed to demonstrate efficacy, we also observed clinically meaningful improvement in medically important parameters relative to historical clinical
experience, including reduced incidence and severity of acute GvHD, improved relapse free survival, no graft failures, and enhanced engraftment rates relative to other forms of treatment.
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We were granted orphan drug designation by the FDA and the EMA for MultiStem treatment in the prevention of GvHD,
and in 2015, the MultiStem product was granted Fast Track designation by the FDA for prophylaxis therapy against GvHD following hematopoietic cell transplantation. Subsequently, our registration study design received a positive opinion from the EMA
through the Protocol Assessment/Scientific Advice procedure. Furthermore, in 2015, the proposed registration study received SPA designation from the FDA, meaning that the trial is adequately designed to support a BLA submission for registration if
it is successful.
Other Programs
Animal
Health Care
While development of our clinical programs for human health indications remains our priority, based on our research to date and work
performed at our Belgian subsidiary, ReGenesys BVBA, we have demonstrated in preclinical animal health models that MultiStem cell therapy can promote tissue repair and healing that could provide meaningful benefits to animal patients, including
those suffering from serious conditions with unmet medical need. According to Future Market Insights (FMI) and other analysts, the global animal healthcare market for 2017 to 2027 was estimated to be valued at approximately $55 billion and is
expected to grow at a compound annual growth rate of more than 4.3% during this period. The companion animal segment is a particularly fast growing area, projected to exceed more than $15 billion by 2020. In January 2017, we entered into an
evaluation and option agreement with a global leader in the animal health business segment to evaluate our cell therapy technology for application in an undisclosed animal health area.
Collaborations and Partnerships
Healios
In January 2016, we entered into a license agreement with Healios to develop and commercialize MultiStem cell therapy for ischemic stroke in
Japan, and to provide Healios with access to Athersys proprietary MAPC technology for use in Healios organ bud program, initially for transplantation to treat liver disease or dysfunction. Under the agreement, Healios also
obtained a right to expand the scope of the collaboration to include the exclusive rights to develop and commercialize MultiStem for the treatment of two additional indications in Japan, which include ARDS and another indication in the orthopedic
area, and to include all indications for the organ bud program. Healios is developing and intends to commercialize the MultiStem product in Japan, and we are using commercially reasonable efforts to supply manufactured product to Healios
for its clinical trial. In the event that we determine that we are not able to supply product at a defined price or a price otherwise agreeable to Healios, we may notify Healios and grant it a license to make the product solely for use in the
licensed field in Japan.
Under the terms of the agreement, we received an
up-front
cash payment of
$15 million from Healios, and the collaboration can be expanded at Healios election. If Healios expands the collaboration, we will be entitled to receive a cash payment of $10 million. Healios may exercise its option to expand the
collaboration after it receives the initial results from Athersys ongoing ARDS clinical trial. If Healios exercises the option to expand the collaboration, we would be entitled to receive royalties from product sales and success-based
development, regulatory approval and sales milestones, as well as payments for product supply related to the additional indications covered by the option.
For the ischemic stroke indication, we may receive success-based development and regulatory approval and potential sales milestones aggregating up to
$225 million. We will also receive tiered royalties on product sales, starting in the low double digits and increasing incrementally into the high teens depending on net sales levels. Following the expiration or termination of the Agreement,
Healios shall pay reduced royalties for continued use of our trademarks. Additionally, we will receive payments for product supplied to Healios under a manufacturing supply agreement.
In January 2017, we signed a clinical trial supply agreement, which is consistent with the license agreement, in preparation for delivering the planned
manufacturing services for Healios clinical trial in Japan. The clinical trial supply agreement was amended in July 2017 and clarifies the operational elements, terms and cost-sharing arrangement associated with our supply of clinical material
and related adjustments to certain future milestone payments.
In September 2017, we entered into a services agreement with Healios, in which Healios
provides financial support to establish a contract manufacturer in Japan to produce product for Healios. Also in September 2017, we amended the Healios Agreement to confer to Healios a limited license to manufacture MultiStem in the event that we
are acquired by a third-party.
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In March 2018, we entered into the LOI with Healios to significantly expand Healios license to develop
MultiStem products and are working to execute the agreements necessary to expand the existing collaboration by April 30, 2018. If the expansion is consummated, Healios would, among other things, (i) expand its license in Japan to include the ARDS
Field, trauma and use of MultiStem for organ buds for all organ diseases, (ii) obtain a worldwide exclusive license for use of MultiStem product to treat certain ophthalmological indications, and (iii) obtain an exclusive option to a license to
develop and commercialize MultiStem products for ischemic stroke, the ARDS Field and trauma in China. In exchange, we would be entitled to receive payments of $35 million ($10 million of which is guaranteed to be paid to us), as well as additional
possible payments, including milestones and royalties. If the expansion agreements are entered into and, thereafter, Healios elects to exercise its option for the license in China, Healios would pay us license fees, milestone payments and escalating
royalties or profit-sharing for each indication in China.
Also in March 2018, Healios purchased 12,000,000 shares of our common stock and a warrant to
purchase up to an additional 20,000,000 shares of common stock for $21,100,000, or approximately $1.76 per share. The warrant does not become effective until the expansion agreements are effective.
For the organ bud product, we are entitled to receive a fractional royalty percentage on net sales of the organ bud products and will
receive payments for manufactured product supplied to Healios under a manufacturing supply agreement. Additionally, we have a right of first negotiation for commercialization of an organ bud product in North America, with such right
expiring on the later of (i) the date five years from the effective date of the Agreement and (ii) 30 days after authorization to initiate clinical studies on an organ bud product under the first investigational new drug application
or equivalent in Japan, North America or the European Union.
The agreement will expire automatically when there are no remaining intellectual property
rights subject to the license. Additionally, Healios may terminate the agreement under certain circumstances, including for material breach and without cause upon advance written notice. We may terminate the agreement if there is an uncured material
breach of the agreement by Healios.
Following termination of the agreement, the licenses granted to Healios to develop and commercialize MultiStem in
Japan for ischemic stroke, and if the Expansion Option is exercised, for ARDS and the other indication in the orthopedic area, will terminate. Healios will transfer ownership to Athersys of its documents related to the product, the field and the
Japan territory, such as regulatory filings, correspondence, approvals and documents; investigator brochures clinical data; and information related to the product. Further, the nonexclusive license to intellectual property developed by Healios
during the collaboration shall survive termination and become our confidential information.
RTI
In 2010, we entered into an agreement with RTI to develop and commercialize MAPC technology-based biologic implants for certain orthopedic applications in the
bone graft substitutes market on an exclusive basis and received $5.0 million of license fees. We are eligible to receive an additional $34.5 million in remaining cash payments upon the successful achievement of certain commercial
milestones, after the first commercial milestone payment of $1.0 million occurred in 2017, though there can be no assurance that further milestones will be achieved. In addition, we receive tiered royalties on worldwide commercial sales of
implants using our technologies based on a royalty rate starting in the
mid-single
digits and increasing into the
mid-teens.
We began receiving royalties from RTI in
2014, and in the fourth quarter of 2017, our royalty rate increased as a result of reaching a milestone for product sales, although there can be no assurances that further such milestones resulting in increased royalty rates will be achieved.
Royalties may be subject to a reduction if third-party payments for intellectual property rights are necessary or commercially desirable to permit the manufacture or sale of the product.
The term of the agreement is the longer of (i) five years from the effective date in 2010, (ii) two years after the last sale of a licensed product,
(iii) the last to expire of any past, present or future licensed patent, and (iv) the life of trade secrets applicable to the licensed product. Either party can terminate the agreement upon the other partys bankruptcy or for an
uncured material breach. RTI can terminate the agreement if our rights to our technology expire such that there is a material effect on the development and commercialization of the licensed products. We can terminate the agreement if RTI has not
reached a specified target of sales of the licensed product within five years of the effective date or a specified target of annual sales each year thereafter.
University of Minnesota
In 2003, we acquired the
exclusive rights to the MAPC technology originally developed at the University of Minnesota pursuant to a license agreement with the University. We subsequently further developed this technology, including refining and establishing proprietary
methods related to the manufacturing of the cells for use in ongoing clinical trials and ultimately, commercialization. We refer to this lead product as the MultiStem cell therapy platform. We are obligated to pay the University of Minnesota a
royalty based on worldwide commercial sales of licensed products if covered by a valid licensed patent, as well as sublicensing fees and fees related to manufactured product proceeds, as defined. The low single-digit royalty and sublicense fee rate
may be reduced if third-party payments for intellectual property rights are necessary or commercially desirable to permit the manufacture or sale of the product. The royalty payment obligation and the term of the license agreement expire upon the
last to expire licensed patent. Based on our current patent portfolio, and absent any continuations, renewals or extensions of existing patents, the last licensed patent to expire under the license agreement is currently expected to expire in 2029.
The license agreement does not have a specific termination date, but the University of Minnesota can terminate the license agreement for an uncured event of default, as defined, or upon our bankruptcy and we can terminate the license agreement at
any time.
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Bristol-Myers Squibb
In 2000, we entered into a collaboration with Bristol-Myers Squibb to provide cell lines expressing well validated drug targets produced using our RAGE
technology for compound screening and development. This initial collaboration was expanded in 2002 and again in 2006, and was in its final phase as amended in 2009. Bristol-Myers Squibb uses the cell lines in its internal drug development programs
and, in exchange, we receive license fee and milestone payments and would be entitled to receive royalties on the sale of any approved products. Depending on the use of a cell line by Bristol-Myers Squibb and the progress of drug development
programs benefiting from the use of such a cell line, we could receive as much as approximately $5.5 million per cell line in additional license fees and milestone payments, though we cannot assure you that any further milestones will be
achieved or that we will receive any additional milestone payments. As of December 31, 2017, we have received $9.8 million in license fees since the inception of our collaboration with Bristol-Myers Squibb and an aggregate amount of
$2.7 million in milestone payments, including a $0.6 million payment received in 2016. Bristol-Myers Squibb maintains active programs using our cell lines as of December 31, 2017 that could potentially generate revenue for us in the
future.
The Bristol-Myers Squibb collaboration does not have a specific termination date, but will terminate when Bristol-Myers Squibb no longer has an
obligation to pay us royalties, which obligation generally continues until the later of the expiration of the Bristol-Myers Squibb patent covering an approved product and ten years after commercial sales of that product began. If either party
breaches its material obligations and fails to cure that breach within 60 days after notice from the
non-breaching
party, the
non-breaching
party may terminate the
collaboration.
Manufacturing
We work with third
parties to manufacture our MultiStem product candidates in accordance with good manufacturing practices, or GMP, and until such time as we are able to manufacture products ourselves in accordance with GMP, we will rely on such third-party
manufacturers to make our MultiStem product for clinical trials and eventual commercial sales. These third parties may not deliver sufficient quantities of our MultiStem product, manufacture MultiStem product in accordance with specifications, or
maintain compliance with applicable government regulations. From time to time, such third-party manufacturers, or their material suppliers, may be subject to inspection by the FDA or other regulators, which under certain circumstances could result
in production stoppages and interruptions in supply, affecting the initiation, execution and timing of completion of clinical trials and commercial activities. Furthermore, material supply constraints could result in production delays. We attempt to
mitigate risk to our product supply by careful planning of our production and raw material requirements with sufficient lead times for
ramp-up
by third-party manufacturers. Additionally, we work with and
qualify other third-party manufacturers to provide alternative manufacturing capacity, if needed, due to delays or interruptions in supply, but such alternative manufacturers may be subject to similar constraints or issues.
Importantly, we are engaged in process development initiatives intended to increase manufacturing scale, reduce production costs, and enhance process controls
and product quality, among other things. These initiatives are being conducted both internally and outsourced to select contractors, and the related investments are meant to enable us to meet potential commercial demand in the event of potential
regulatory approval.
Competition
We face
significant competition with respect to the various dimensions of our business. With regard to our efforts to develop MultiStem as a novel stem cell therapy, currently, there are a number of companies that are actively developing stem cell products,
which encompass a range of different cell types, including embryonic stem cells, umbilical cord stem cells, adult-derived stem cells and processed bone marrow derived cells.
Mesoblast Limited, or Mesoblast, is currently engaged in clinical trials evaluating the safety and efficacy of Revascor, an allogeneic stem cell product based
on mesenchymal stem cell precursors that are obtained from healthy consenting donors. These cells also appear to display limited expansion potential and biological plasticity. Additionally, Mesoblast is developing Prochymal, a mesenchymal stem cell
product candidate that it acquired from Osiris Therapeutics, Inc.
Other public companies are developing stem-related therapies, including Stem Cells
Inc., Vericel Corporation, Tigenix NV (recently acquired by Takeda), Caladrius Biosciences, Inc., Johnson & Johnson, Celgene Corporation, or Celgene, CRYO-CELL International, Inc., Pluristem Therapeutics, Inc., or Pluristem, and Cytori
Therapeutics, Inc., or Cytori. In addition, private companies, such as Gamida Cell Ltd., Ocata Therapeutics Inc., Plureon Corporation, and others, are also developing cell therapy related products or capabilities. Given the magnitude of the
potential opportunity for stem cell therapy, we expect competition in this area to intensify in the coming years. In addition, our other earlier-stage programs may face competition, including from larger pharmaceutical and biotechnology companies.
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Many of our competitors may have substantially greater financial, technical, sales, marketing, and human
resources than we do. These companies may succeed in obtaining regulatory approval for competitive products more rapidly than we can for our products. In addition, our competitors may develop technologies and products that are cheaper, safer or more
effective than those being developed by us or that would render our technology obsolete. Furthermore, some of these companies may feel threatened by our activities and attempt to delay or impede our efforts to develop our products or apply our
technologies.
Intellectual Property
We rely on a
combination of patent applications, patents, trademarks, and contractual provisions to protect our proprietary rights. We believe that to have a competitive advantage, we must develop and maintain the proprietary aspects of our technologies.
Currently, we require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers, and other advisors to execute confidentiality agreements in connection with their employment,
consulting, or advisory relationships with us, where appropriate. We also require our employees, consultants, and advisors that we expect to work on our products to agree to disclose and assign to us all inventions conceived during the work day,
developed using our property, or which relate to our business. We currently have over 245 patents for our technologies.
We have a broad patent estate
with claims directed to compositions, methods of production, and methods of use of certain
non-embryonic
stem cells and related technologies. We developed, acquired and exclusively licensed intellectual
property covering our cell therapy product candidates and other applications in the field. Our broad intellectual property portfolio consists of over 220 issued patents (of which 28 are United States patents) and more than 150 global patent
applications around our stem cell technology and MultiStem product platform. This includes 27 United States patents and more than 185 international patents that apply to MAPC and related products, such as MultiStem. The current intellectual property
estate, which incorporates additional filings and may broaden over time, could provide coverage for our stem cell product candidates, manufacturing processes and methods of use through 2034 and beyond. Furthermore, an extended period of market
exclusivity may apply for certain products (e.g., exclusivity periods for orphan drug designation or biologics).
We also have established a broad
intellectual property portfolio related to our small molecule product candidates, functional genomics, and other technologies, with over 25 global patents with claims directed to compositions, methods of making, and methods of using our candidates
and technologies, among other claims.
We have been active in the development, improvement and protection of our intellectual property portfolio through
our prosecution efforts, collaborative research efforts, and
in-licensing,
among other things. From
time-to-time,
we will also
engage in adversarial processes, such as interference or litigation, to protect or advance certain patents or applications. These activities represent an important cost of doing business, and can result in successes and setbacks due to the nature of
the processes. For example, over the past several years, we have been involved in several proceedings in the United States and Europe involving a third partys technology developed after the MAPC technology, which ultimately resulted in a
license agreement favorable to the Company as noted below. Over time, we expect to be involved in similar proceedings with the objective of developing the portfolio to support and protect development and commercialization of our or our
licensees cell therapy products.
In October 2017, we entered into an agreement with Garnet BioTherapeutics, Inc. (Garnet) to settle
longstanding intellectual property disagreements between the parties. Over the past several years, we have been involved in several proceedings in the United States and Europe involving Garnet, focused on stem cell technologies. As part of the
agreement, we have been granted a license to Garnet patents and applications that have been at the core of the intellectual property dispute, for use related to the treatment or prevention of disease or conditions using cells. In return, we have
agreed not to enforce our intellectual property rights against Garnet with respect to therapeutic agents derived from cells (but we fully retain our ability to enforce our rights with respect to cells used as therapy). We also agreed not to further
challenge the patentability or validity of certain Garnet applications or patents (noting that we have been granted a license, as described above). We initially paid Garnet $500,000 and issued 1,000,000 shares of our common stock in connection with
the execution of the agreement, and agreed to pay an additional $250,000 per quarter over one year. Additionally, we will issue 500,000 shares of common stock upon issuance of a patent from the Garnet patent applications at the core of the dispute.
There will be no royalty payments or milestone payments to Garnet associated with the development and commercialization of our cell therapy products or other payments to Garnet related to the settlement agreement.
We believe that we have broad freedom to use and commercially develop our technologies and product candidates. However, in the event that we or our
collaborators are developing, manufacturing, or selling potential products that are claimed to infringe a third partys intellectual property, a loss in litigation may prevent us from commercializing our products, unless that party grants us
rights to use its intellectual property. Further, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on acceptable terms, or at all. Even if we were able to obtain rights to the third
partys intellectual property, these rights may be
non-exclusive,
thereby giving our competitors access to the same intellectual property. Ultimately, we may be unable to commercialize some of our
potential products or may have to cease some of our business operations as a result of patent infringement claims, which could severely harm our business.
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Research and Development
Our research and development costs, which consist primarily of costs associated with external clinical trial costs, preclinical study fees, manufacturing
costs, salaries and related personnel costs, legal expenses resulting from intellectual property application processes, and laboratory supply and reagent costs, were $27.8 million in 2017, $24.8 million in 2016 and $21.3 million in
2015.
Government Regulation
Any products we may
develop and our research and development activities are subject to stringent government regulation in the United States by the FDA and, in many instances, by corresponding foreign and state regulatory agencies. The European Union, or EU, has vested
centralized authority in the EMA and Committee on Proprietary Medicinal Products, or CPMP, to standardize review and approval across EU member nations. In Japan, PDMA, a division of the Ministry of Health, Labour and Welfare, or MHLW, regulates the
development and commercialization of medical therapies. Recently, Japans parliament enacted new legislation to promote the safe and accelerated development of treatments using stem cells. The new regenerative medicine law and revised
pharmaceutical affairs law define products containing stem cells as regenerative medicine products and allow for the conditional approval of such products if safety has been confirmed in clinical trials, even if their efficacy has not been fully
demonstrated. The legislation creates a new, faster pathway for cell therapy product approval, and offers the potential to enable more rapid entry in the Japanese market. The MHLW has been directed to develop and adopt new rules and procedures to
implement this legislation.
These regulatory agencies enforce comprehensive statutes, regulations and guidelines governing the drug development process.
This process involves several steps. Initially, a company must generate preclinical data to show safety before human testing may be initiated. In the United States, a drug company must submit an IND to the FDA prior to securing authorization for
human testing. The IND must contain adequate data on product candidate chemistry, toxicology and metabolism and, where appropriate, animal research testing to support initial safety.
A CTA is the European equivalent of the IND. CTA requirements are issued by each competent authority within the European Union and are enacted by local laws
and Directives.
Any of our product candidates will require regulatory approval and compliance with regulations made by United States and foreign
government agencies prior to commercialization in such countries. The process of obtaining FDA or foreign regulatory agency approval has historically been extremely costly and time consuming. The FDA and equivalent foreign regulatory authorities
(such as the EMA or PMDA) regulate, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale, and distribution of biologics and new drugs.
The standard process required by the FDA before a pharmaceutical agent may be marketed in the United States includes:
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preclinical tests in animals that demonstrate a reasonable likelihood of safety and effectiveness (if possible) in human patients;
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submission to the FDA of an IND, which must become effective before clinical trials in humans can commence. If Phase 1 clinical trials are to be conducted initially outside the United States, a different regulatory
filing is required, depending on the location of the trial;
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adequate and well controlled human clinical trials to establish the safety and efficacy of the drug or biologic product for the intended disease indication;
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for drugs (including biologics), submission of a New Drug Application, or NDA, or a BLA with the FDA; and
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FDA approval of the NDA or BLA before any commercial sale or shipment of the drug.
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Preclinical studies can take several years to complete, and there is no guarantee that an IND based on those
studies will become effective to permit clinical trials to begin. The clinical development phase generally takes ten to fifteen years, or longer, to complete (i.e., from the initiation of Phase 1 through completion of Phase 3 studies), and such
sequential studies may overlap or be combined. After successful completion of clinical trials for a new drug or biologic product, FDA approval of the NDA or BLA must be obtained. This process requires substantial time and effort and there is no
assurance that the FDA will accept the NDA or BLA for filing and, even if filed, that the FDA will grant approval. In the past, the FDAs approval of an NDA or BLA has taken, on average, one to two years, but in some instances may take
substantially longer. If questions regarding safety or efficacy arise, additional studies may be required, followed by a resubmission of the NDA or BLA. Review and approval of an NDA or BLA can take up to several years. The FDA and other Regulatory
agencies such as the EMA and PMDA have regulations that allow for faster approval paths and review cycles that may reduce clinical development phase completion to between five and seven years to commercialization. Such regulations include but
are not limited to accelerated/conditional approval paths and review cycles of between six to ten months (priority/accelerated review cycles). However, there are specific criteria that must be met to qualify for these paths, such as high unmet
medical need, orphan designation, fast track, exceptional circumstances and breakthrough designation.
In addition to obtaining FDA approval for each
product being sold in the United States, each drug manufacturing facility must be inspected and approved by the FDA. All manufacturing establishments are subject to inspections by the FDA and by other federal, state, and local agencies, and must
comply with GMP requirements. We do not currently have any GMP manufacturing capabilities, and will rely on contract manufacturers to produce material for any clinical trials that we conduct.
We must also obtain regulatory approval in other countries in which we intend to market any drug. The requirements governing conduct of clinical trials,
product licensing, pricing, and reimbursement vary widely from country to country. FDA approval does not ensure regulatory approval in other countries. The current approval process varies from country to country, and the time spent in gaining
approval varies from that required for FDA approval. In some countries, the sale price of the drug must also be approved. The pricing review period often begins after market approval is granted. Even if a foreign regulatory authority approves a drug
product, it may not approve satisfactory prices for the product.
In addition to regulations enforced by the FDA and international regulatory agencies, we
are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other present and potential future federal, state, or
local regulations. Our research and development involves the controlled use of hazardous materials, chemicals, biological materials, and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of such
materials currently comply in all material respects with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an
accident, we could be held liable for any damages that result and any such liability could exceed our available resources.
Employees
We believe that our success will be based on, among other things, the quality of our clinical programs, our ability to invent and develop superior and
innovative technologies and products, and our ability to attract and retain capable management and other personnel. We have assembled a high quality team of scientists, clinical development managers, and executives with significant experience in the
biotechnology and pharmaceutical industries.
As of December 31, 2017, we employed 66 full-time employees, including 17 with Ph.D. degrees. In
addition to our employees, we also use the service and support of outside consultants and advisors. None of our employees is represented by a union, and we believe relationships with our employees are good.
Available Information
We use the Investors section of
our web site, www.athersys.com, as a channel for routine distribution of important information, including news releases, analyst presentations and financial information. We post filings as soon as reasonably practicable after they are electronically
filed with, or furnished to, the SEC, including our annual, quarterly, and current reports on Forms
10-K,
10-Q,
and
8-K;
our
proxy statements; and any amendments to those reports or statements. All such postings and filings are available on the Investors section of our web site free of charge. In addition, this web site allows investors and other interested persons to
sign up to automatically receive
e-mail
alerts when we post news releases and financial information on our web site. The SEC also maintains a web site, www.sec.gov, which contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC. The content on any web site referred to in this annual report on Form
10-K
is not incorporated by
reference into this annual report unless expressly noted.
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The statements in this section, as well as statements described elsewhere in this
annual report, or in other SEC filings, describe risks that could materially and adversely affect our business, financial condition and results of operations, which could also cause the trading price of our equity securities to decline. These risks
are not the only risks that we face. Our business, financial condition and results of operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations.
We have incurred losses since inception and we expect to incur significant net losses in the foreseeable future and may never become profitable.
Since our inception in 1995, we incurred significant losses and negative cash flows from operations. We incurred net losses of $32.2 million
in 2017, $15.3 million in 2016 and $16.4 million in 2015. As of December 31, 2017, we had an accumulated deficit of $350.6 million and anticipate incurring additional losses for at least the next several years. We expect to spend
significant resources over the next several years to enhance our technologies and to fund research and development of our pipeline of potential products. To date, substantially all of Athersys revenue has been derived from corporate
collaborations, license agreements and government grants. In order to achieve profitability, we must develop products and technologies that can be commercialized by us or through our existing or future collaborations. Our ability to generate
revenues and become profitable will depend on our ability, alone or with potential collaborators, to timely, efficiently and successfully complete the development of our product candidates. We have never earned revenue from selling a product and we
may never do so, as none of our product candidates have been approved for sale, since they are currently being tested in humans and animal studies. We cannot assure you that we will ever earn sales revenue or that we will ever become profitable. If
we sustain losses over an extended period of time, we may be unable to continue our business.
We will need substantial additional funding to
develop our products and for our future operations. If we are unable to obtain the funds necessary to do so, we may be required to delay, scale back or eliminate our product development activities or may be unable to continue our business.
The development of our product candidates will require a commitment of substantial funds to conduct the costly and time-consuming research, which
may include preclinical and clinical testing, necessary to obtain regulatory approvals and bring our products to market. Net cash used in our operations was $24.0 million in 2017, $10.9 million in 2016 and $13.8 million in 2015.
At December 31, 2017, we had $29.3 million of cash and cash equivalents, and in January and February 2018, we added $5.5 million to our cash
position through the issuance of common stock through our equity purchase arrangement with Aspire Capital Fund, LLC, or Aspire Capital. However, we will need substantially more to advance our product candidates through development. Furthermore, we
will need to add additional capital to fund our operations through the completion of our current clinical trials. Our future capital requirements will depend on many factors, including:
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our ability to raise capital to fund our operations;
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the progress, scope, costs, and results of our clinical and preclinical testing of any current or future product candidates;
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the possibility of delays in, adverse events of, and excessive costs of the development process;
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the cost of manufacturing our product candidates;
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the cost of prosecuting, defending and enforcing patent claims and other intellectual property rights;
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the time and cost involved in obtaining regulatory approvals;
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expenses related to complying with GMP of therapeutic product candidates;
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costs of financing or acquiring additional capital equipment and development technologies;
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competing technological and market developments;
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our ability to establish and maintain collaborative and other arrangements with third parties to assist in bringing our products to market and the cost of such arrangements;
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the amount and timing of payments or equity investments that we receive from collaborators or changes in or terminations of future or existing collaboration and licensing arrangements and the timing and amount of
expenses we incur to supporting these collaborations and license agreements;
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costs associated with the integration of any new operation, including costs relating to future mergers and acquisitions with companies that have complementary capabilities;
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expenses related to the establishment of sales and marketing capabilities for products awaiting approval or products that have been approved;
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the level of our sales and marketing expenses; and
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our ability to introduce and sell new products.
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The extent to which we utilize our existing equity purchase
arrangement with Aspire Capital as a source of funding will depend on a number of factors, including the prevailing market price of our common stock, the volume of trading in our common stock and the extent to which we are able to secure funds from
other sources. The number of shares that we may sell to Aspire Capital under the purchase agreement on any given day and during the term of the agreement is limited. Additionally, we and Aspire Capital may not affect any sales of shares of our
common stock under the purchase agreement during the continuance of an event of default. Even if we are able to access the over $100 million available under the arrangement as of February 28, 2018, we will still need additional capital to
fully implement our business, operating and development plans.
We have secured capital historically from grant revenues, collaboration proceeds, and debt
and equity offerings. We will need to secure substantial additional capital to fund our future operations. We cannot be certain that additional capital will be available on acceptable terms or at all. In recent years, it has been difficult for
companies to raise capital due to a variety of factors, which may or may not continue. To the extent we raise additional capital through the sale of equity securities, including to Aspire Capital, the ownership position of our existing stockholders
could be substantially diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock. Fluctuating interest rates
could also increase the costs of any debt financing we may obtain.
Failure to successfully address ongoing liquidity requirements will have a material
adverse effect on our business. If we are unable to obtain additional capital on acceptable terms when needed, we may be required to take actions that harm our business and our ability to achieve cash flow in the future, including possibly the
surrender of our rights to some technologies or product opportunities, delaying our clinical trials or curtailing or ceasing operations.
We are
heavily dependent on the successful development and commercialization of MultiStem products, and if we encounter delays or difficulties in the development of these product candidates, our business could be harmed.
Our success is heavily dependent upon the successful development of MultiStem products for certain diseases and conditions involving acute or ischemic injury
or immune system dysfunction. Our business could be materially harmed if we encounter difficulties in the development of this product candidate, such as:
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delays in the ability to manufacture the product in quantities or in a form that is suitable for any required preclinical studies or clinical trials;
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an inability to produce the product at an appropriate cost or to scale for commercialization;
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delays in the design, enrollment, implementation or completion of required preclinical studies and clinical trials;
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an inability to follow our current development strategy for obtaining regulatory approval from regulatory authorities because of changes in the regulatory approval process;
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less than desired or complete lack of efficacy or safety in preclinical studies or clinical trials; and
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intellectual property constraints that prevent us from making, using or commercializing the product candidate.
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Our product candidates are currently in the development stage and we have no therapeutic products approved for sale. If we are unable to develop, obtain
regulatory approval or market any of our product candidates, our financial condition will be negatively affected, and we may have to curtail or cease our operations.
Many factors, known and unknown, can adversely affect clinical trials and the ability to evaluate a products efficacy. During the course of treatment,
patients can die or suffer other adverse events for reasons that may or may not be related to the proposed product being tested. Even if unrelated to our product, certain events can nevertheless adversely impact our clinical trials. As a result, our
ability to ultimately develop and market the products and obtain revenues would suffer.
Even promising results in preclinical studies and initial clinical
trials do not ensure successful results in later clinical trials, which test broader human use of our products. Many companies in our industry have suffered significant setbacks in advanced clinical trials, despite promising results in earlier
trials.
We are in the early stage of product development, and we are dependent on the application of our technologies to discover or develop therapeutic
product candidates. We currently do not sell any approved therapeutic products and do not expect to have any products commercially available for several years, if at all. You must evaluate us in light of the uncertainties and complexities affecting
an early stage biotechnology company. Our product candidates require additional research and development, preclinical testing, clinical testing and regulatory review and/or approvals or clearances before marketing. To date, no one to our knowledge
has commercialized any therapeutic products using our technologies and we might never commercialize any product using our technologies and strategy. In addition, we may not succeed in developing new product candidates as an alternative to our
existing portfolio of product candidates. If our current product candidates are delayed or fail, or we fail to successfully develop and commercialize new product candidates, our financial condition may be negatively affected, and we may have to
curtail or cease our operations.
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We may not successfully maintain our existing collaborative and licensing arrangements, or establish new
ones, which could adversely affect our ability to develop and commercialize our product candidates.
A key element of our business strategy is to
commercialize some of our product candidates through collaborations with other companies. Our strategy includes establishing collaborations and licensing agreements with one or more pharmaceutical, biotechnology or device companies, preferably after
we have advanced product candidates through the initial stages of clinical development. However, we may not be able to establish or maintain such licensing and collaboration arrangements necessary to develop and commercialize our product candidates.
Even if we are able to maintain or establish licensing or collaboration arrangements, these arrangements may not be on favorable terms and may contain provisions that will restrict our ability to develop, test and market our product candidates. Any
failure to maintain or establish licensing or collaboration arrangements on favorable terms could adversely affect our business prospects, financial condition or ability to develop and commercialize our product candidates.
Our agreements with our collaborators and licensees may have provisions that give rise to disputes regarding the rights and obligations of the parties. These
and other possible disagreements could lead to termination of the agreement or delays in collaborative research, development, supply, or commercialization of certain product candidates, or could require or result in litigation or arbitration.
Moreover, disagreements could arise with our collaborators over rights to intellectual property or our rights to share in any of the future revenues of products developed by our collaborators. These kinds of disagreements could result in costly and
time-consuming litigation. Any such conflicts with our collaborators could reduce our ability to obtain future collaboration agreements and could have a negative impact on our relationship with existing collaborators.
Currently, our material collaborations and licensing arrangements are our collaborations with Healios to develop and commercialize MultiStem cell therapy for
the treatment of ischemic stroke in Japan and potentially other conditions upon consummation of the proposed expansion announced in March 2018, and RTI to develop and commercialize MAPC technology-based biologic implants for certain orthopedic
applications in the bone graft substitutes market, and our license agreements with third parties pursuant to which we license certain aspects of our technologies. These arrangements may not have specific termination dates; rather, each arrangement
terminates upon the occurrence of certain events.
If our collaborators do not devote sufficient time and resources to successfully carry out their
contracted duties or meet expected deadlines, we may not be able to advance our product candidates in a timely manner or at all.
Our success
depends on the performance by our collaborators of their responsibilities under our collaboration arrangements. Some potential collaborators may not perform their obligations in a timely fashion or in a manner satisfactory to us. Typically, we
cannot control the amount of resources or time our collaborators may devote to our programs or potential products that may be developed in collaboration with us. We are currently involved in multiple research and development collaborations with
academic and research institutions. These collaborators frequently depend on outside sources of funding to conduct or complete research and development, such as grants or other awards. In addition, our academic collaborators may depend on graduate
students, medical students, or research assistants to conduct certain work, and such individuals may not be fully trained or experienced in certain areas, or they may elect to discontinue their participation in a particular research program,
creating an inability to complete ongoing research in a timely and efficient manner. As a result of these uncertainties, we are unable to control the precise timing and execution of any experiments that may be conducted.
Additionally, our current or future corporate collaborators will retain the ability to pursue other research, product development or commercial opportunities
that may be directly competitive with our programs. If these collaborators elect to prioritize or pursue other programs in lieu of ours, we may not be able to advance product development programs in an efficient or effective manner, if at all. If a
collaborator is pursuing a competitive program and encounters unexpected financial or capability limitations, they may be motivated to reduce the priority placed on our programs or delay certain activities related to our programs or be unwilling to
properly fund their share of the development expenses for our programs. Any of these developments could harm our product and technology development efforts, which could seriously harm our business.
We may experience delays in clinical trials and regulatory approval relating to our products that could adversely affect our financial results and our
commercial prospects for our pharmaceutical or stem cell products.
In addition to the regulatory requirements for our pharmaceutical programs, we
will also require regulatory approvals for each distinct application of our stem cell product. In each case, we will be required to conduct clinical trials to demonstrate safety and efficacy of MultiStem, or various products that incorporate or use
MultiStem. For product candidates that advance to clinical testing, we cannot be certain that we or a collaborator will successfully complete the clinical trials necessary to receive regulatory product approvals. This process is lengthy and
expensive.
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We intend to seek approval for our product candidates through the FDA approval process in the United States, and
through other regulatory agencies outside the United States. To obtain regulatory approvals, we must, among other requirements, complete clinical trials showing that our products are safe and effective for a particular indication. Under the approval
process, we must submit clinical and
non-clinical
data to demonstrate the product is safe and effective. For example, we must be able to provide data and information, which may include extended pharmacology,
toxicology, reproductive toxicology, bioavailability and genotoxicity studies, to establish suitability for late stage clinical trials.
All of our
product candidates are in clinical development. As these programs progress through clinical development, or complete additional
non-clinical
testing, an indication of a lack of safety or lack of efficacy may
result in the early termination of an ongoing study, or may cause us or any of our collaborators to forego further development of a particular product candidate or program. The FDA or other regulatory agencies may require extensive clinical trials
or other testing prior to granting approval, which could be costly and time consuming to conduct. Any of these developments could hinder, and potentially prohibit, our ability to commercialize our product candidates. We cannot assure you that
clinical trials will demonstrate that our products are safe and effective.
Additionally, we may not be able to find acceptable patients or may experience
delays in enrolling patients for our currently planned or any future clinical trials. The FDA, international regulatory agencies or we may suspend our clinical trials at any time if it is believed that we are exposing the subjects participating in
the trials to unacceptable health risks. The regulatory authorities or institutional review boards and/or institutional biosafety committees at the medical institutions and healthcare facilities where we seek to sponsor clinical trials may not
permit a trial to proceed or may suspend any trial indefinitely if they find deficiencies in the conduct of the trials.
Product development costs to us
and our potential collaborators will increase if we have delays in testing or approvals or if we need to perform more or larger clinical trials than planned. We expect to continue to rely on third-party clinical investigators at medical institutions
and healthcare facilities to conduct our clinical trials, and, as a result, we may face additional delaying factors outside our control. Significant delays may adversely affect our financial results and the commercial prospects for our product
candidates and delay our ability to become profitable.
The results seen in animal testing of our product candidates may not be replicated in
humans.
Safety and efficacy seen in preclinical testing of our product candidates in animals may not be seen when our product candidates undergo
clinical testing in humans. Preclinical studies and Phase 1 clinical trials are not primarily designed to test the efficacy of a product candidate in humans, but rather to:
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test short-term safety and tolerability;
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study the absorption, distribution, metabolism and elimination of the product candidate;
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study the biochemical and physiological effects of the product candidate and the mechanisms of the drug action and the relationship between drug levels and effect; and
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understand the product candidates side effects at various doses and schedules.
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Success in preclinical
studies or completed clinical trials does not ensure that later studies or trials, including continuing
non-clinical
studies and large-scale clinical trials, will be successful nor does it necessarily predict
future results. The rate of failure in drug development is quite high, and many companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier
trials. Product candidates may fail to show desired safety and efficacy in larger and more diverse patient populations in later stage clinical trials, despite having progressed through early stage trials. Negative or inconclusive results from any of
our ongoing preclinical studies or clinical trials could result in delays, modifications, or abandonment of ongoing or future clinical trials and the termination of our development of a product candidate. Additionally, even if we are able to
successfully complete late stage clinical trials, the regulatory authorities still may not approve our product candidates.
Even if we obtain
regulatory approval of any of our product candidates, the approved products may be subject to post-approval studies and will remain subject to ongoing regulatory requirements. If we fail to comply, or if concerns are identified in subsequent
studies, our approval could be withdrawn and our product sales could be suspended.
If we are successful at obtaining regulatory approval for
MultiStem or any of our other product candidates, regulatory agencies in the United States and other countries where a product will be sold may require extensive additional clinical trials or post-approval clinical studies that are expensive and
time consuming to conduct. In particular, therapeutic products administered for the treatment of persistent or chronic conditions, such as obesity, are likely to require extensive
follow-up
studies and close
monitoring of patients after regulatory approval has been granted, for any signs of adverse effects that occur over a long period of time. These studies may be expensive and time consuming to conduct and may reveal side effects or other harmful
effects in patients that use our therapeutic products after they are on the market, which may result in the limitation or withdrawal of our drugs from the market. Alternatively, we may not be able to conduct such additional trials, which might force
us to abandon our efforts to develop or commercialize certain product candidates. Even if post-approval studies are not requested or required, after our products are approved and on the market, there might be safety issues that emerge over time that
require a change in product labeling or that require withdrawal of the product from the market, which would cause our revenue to decline.
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Additionally, any products that we may successfully develop will be subject to ongoing regulatory requirements
after they are approved. These requirements will govern the manufacturing, packaging, marketing, distribution, and use of our products. If we fail to comply with such regulatory requirements, approval for our products may be withdrawn, and product
sales may be suspended. We may not be able to regain compliance, or we may only be able to regain compliance after a lengthy delay, significant expense, lost revenues and damage to our reputation.
If we inadvertently violate the guidelines pertaining to promotion and advertising of our clinical candidates or approved products, we may be subject to
disciplinary action by the FDAs Division of Drug Marketing, Advertising, and Communications or other regulatory bodies.
The FDAs
Division of Drug Marketing, Advertising, and Communications, or DDMAC, is responsible for reviewing prescription drug advertising and promotional labeling to ensure that the information contained in these materials is not false or misleading. There
are specific disclosure requirements and the applicable regulations mandate that advertisements cannot be false or misleading or omit material facts about the product. Prescription drug promotional materials must present a fair balance between the
drugs effectiveness and the risks associated with its use. Most warning letters from DDMAC cite inadequate disclosure of risk information.
DDMAC
prioritizes its actions based on the degree of risk to the public health, and often focuses on newly introduced drugs and those associated with significant health risks. There are two types of letters that DDMAC typically sends to companies which
violate its drug advertising and promotional guidelines: notice of violation letters, or untitled letters, and warning letters. In the case of an untitled letter, DDMAC typically alerts the drug company of the violation and issues a directive to
refrain from future violations, but does not typically demand other corrective action. A warning letter is typically issued in cases that are more serious or where the company is a repeat offender. Although we have not received any such letters from
DDMAC, we may inadvertently violate DDMACs guidelines in the future and be subject to a DDMAC untitled letter or warning letter, which may have a negative impact on our business.
We rely on third parties to manufacture our MultiStem product candidate.
Our current business strategy relies on third parties to manufacture our MultiStem product candidates in accordance with GMP established by the FDA or similar
regulations in other countries. Reliance on third party manufacturers entails risks to which we would not be subject if we manufactured MultiStem ourselves. Although we are primarily responsible for regulatory compliance with respect to the
manufacture of MultiStem product, we rely on the third party to manufacture the product as cost effectively as possible and to ensure product quality. Additionally, the production of our MultiStem product requires the availability of raw materials
that are sourced through a limited number of suppliers. The failure of third-party manufacturers or suppliers to perform adequately or the termination of our arrangements with any of them may adversely affect our business.
These third parties may not deliver sufficient quantities of our MultiStem product, manufacture MultiStem product in accordance with specifications and cost
expectations, or comply with applicable government regulations. From time to time, such third-party manufacturers, or their material suppliers, may experience production delays, stoppages or interruptions in supply, which may affect the initiation,
execution and timing of completion of clinical trials and commercial activities. Furthermore, our third-party manufacturers may have disruptions in their business operations as a result of business or strategic decisions or due to economic
difficulties facing their businesses and could cease operations entirely. The number of third party manufacturers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant
amount of time to arrange for alternative manufacturing arrangements.
If and until we are able to manufacture our products ourselves, we expect to enter
into additional manufacturing agreements for the production of our products. If any manufacturing agreement is terminated or any third-party collaborator fails to meet our product specifications or experiences a significant problem that could result
in a delay or interruption in the supply of product materials to us, our clinical trials, business and reputation could be severely impacted. We cannot assure you that manufacturers on whom we will depend will be able to successfully produce our
MultiStem product on acceptable terms, or on a timely or cost-effective basis. We cannot assure you that manufacturers will be able to manufacture our products in accordance with our product specifications or will meet regulatory or other
requirements. We must have sufficient and acceptable quantities of our product materials to conduct our clinical trials and ultimately to market our products, if and when such products have been approved for marketing. If we are unable to obtain
sufficient and acceptable quantities of our product, we may be required to delay the clinical testing and marketing of our products.
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If we do not comply with applicable regulatory requirements in the manufacture and distribution of our
product candidates, we may incur penalties that may inhibit our ability to commercialize our products and adversely affect our revenue.
Our
failure or the failure of our potential collaborators or third party manufacturers to comply with applicable FDA or other regulatory requirements including manufacturing, quality control, labeling, safety surveillance, promoting and reporting may
result in criminal prosecution, civil penalties, recall or seizure of our products, total or partial suspension of production or an injunction, as well as other regulatory action against our product candidates or us. Discovery of previously unknown
problems with a product, supplier, manufacturer or facility may result in restrictions on the sale of our products, including a withdrawal of such products from the market. The occurrence of any of these events would negatively impact our business
and results of operations.
If we are unable to attract and retain key personnel and advisors, it may adversely affect our ability to obtain
financing, pursue collaborations or develop our product candidates.
We are highly dependent on our senior executives such as Gil Van Bokkelen,
Ph.D., our Chief Executive Officer, William Lehmann, J.D., M.B.A., President and Chief Operating Officer, John Harrington, Ph.D., Chief Scientific Officer and Executive Vice President, and Laura Campbell, CPA, Senior Vice President of Finance, as
well as other personnel.
These individuals are integral to the development and integration of our technologies and to our present and future scientific
collaborations, including managing the complex research processes and the product development and potential commercialization processes. Given their leadership, extensive technical, scientific and financial expertise and management and operational
experience, these individuals would be difficult to replace. Consequently, the loss of services of one or more of these named individuals could result in product development delays or the failure of our collaborations with current and future
collaborators, which, in turn, may hurt our ability to develop and commercialize products and generate revenues.
Our future success depends on our
ability to attract, retain and motivate highly qualified management and scientific, development and commercial personnel and advisors. If we are unable to attract and retain key personnel and advisors, it may negatively affect our ability to
successfully develop, test and commercialize our product candidates.
Our ability to compete may decline if we are not successful in adequately
protecting our patented and other proprietary technologies.
Our success depends in part on our ability to obtain and maintain intellectual
property that protects our technologies and our products. Patent positions may be highly uncertain and may involve complex legal and factual questions, including the ability to establish patentability of compounds and methods for using them for
which we seek patent protection. We cannot predict the breadth of claims that will ultimately be allowed in our patent applications, if any, including those we have
in-licensed
or the extent to which we may
enforce these claims against our competitors. We have filed multiple patent applications that seek to protect the composition of matter and method of use related to our programs. In addition, we are prosecuting numerous distinct patent families
directed to composition, methods of production, and methods of use of MultiStem and related technologies. If we are unsuccessful in obtaining and maintaining these patents related to products and technologies, we may ultimately be unable to
commercialize products that we are developing or may elect to develop in the future.
The degree of future protection for our proprietary rights is
therefore highly uncertain and we cannot assure you that:
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we were the first to file patent applications or to invent the subject matter claimed in patent applications relating to the technologies or product candidates upon which we rely;
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others will not independently develop similar or alternative technologies or duplicate any of our technologies;
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others did not publicly disclose our claimed technology before we conceived the subject matter included in any of our patent applications;
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any of our pending or future patent applications will result in issued patents;
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any of our patent applications will not result in interferences or disputes with third parties regarding priority of invention;
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any patents that may be issued to us, our collaborators or our licensors will provide a basis for commercially viable products or will provide us with any competitive advantages or will not be challenged by third
parties;
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we will develop additional proprietary technologies that are patentable;
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the patents of others will not have an adverse effect on our ability to do business; or
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new proprietary technologies from third parties, including existing licensors, will be available for licensing to us on reasonable commercial terms, if at all.
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In addition, patent law outside the U.S. is uncertain and in many countries intellectual property laws are
undergoing review and revision. The laws of some countries do not protect intellectual property rights to the same extent as domestic laws. It may be necessary or useful for us to participate in opposition proceedings to determine the validity of
our competitors patents or to defend the validity of any of our or our licensors future patents, which could result in substantial costs and would divert our efforts and attention from other aspects of our business. With respect to
certain of our inventions, we decided not to pursue patent protection outside the United States, both because we do not believe it is cost effective and because of confidentiality concerns. Accordingly, our international competitors could develop
and receive foreign patent protection for gene sequences and functions for which we are seeking United States patent protection, enabling them to sell products that we developed.
Technologies licensed to us by others, or
in-licensed
technologies, are important to our business. The scope of our
rights under our licenses may be subject to dispute by our licensors or third parties. Our rights to use these technologies and to practice the inventions claimed in the licensed patents are subject to our licensors abiding by the terms of those
licenses and not terminating them. In particular, we depend on certain technologies relating to our MultiStem technology licensed from the University of Minnesota, and the termination of this license could result in our loss of some of the rights
that enable us to utilize this technology, and our ability to develop products based on MultiStem could be seriously hampered.
In addition, we may in the
future acquire rights to additional technologies by licensing such rights from existing licensors or from third parties. Such
in-licenses
may be costly. Also, we generally do not control the patent
prosecution, maintenance or enforcement of
in-licensed
technologies. Accordingly, we are unable to exercise the same degree of control over this intellectual property as we do over our internally developed
technologies. Moreover, some of our academic institution licensors, collaborators and scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technologies and other
confidential information in connection with our collaborations, our ability to protect our proprietary information or obtain patent protection in the future may be impaired, which could have a significant adverse effect on our business, financial
condition and results of operations.
We may not have adequate protection for our unpatented proprietary information, which could adversely affect
our competitive position.
In addition to patents, we will substantially rely on trade secrets,
know-how,
continuing technological innovations and licensing opportunities to develop and maintain our competitive position. However, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to
our trade secrets or disclose our technology. To protect our trade secrets, we may enter into confidentiality agreements with employees, consultants and potential collaborators. However, these agreements may not provide meaningful protection of our
trade secrets or adequate remedies in the event of unauthorized use or disclosure of such information. Likewise, our trade secrets or
know-how
may become known through other means or be independently
discovered by our competitors. Any of these events could prevent us from developing or commercializing our product candidates.
We may be sued for
product liability, which could adversely affect our business.
Because our business strategy involves the development and sale by either us or our
collaborators of commercial products, we may be sued for product liability. We may be held liable if any product we develop and commercialize, or any product our collaborators commercialize that incorporates any of our technology, causes injury or
is found otherwise unsuitable during product testing, manufacturing, marketing, sale or consumer use. In addition, the safety studies we must perform and the regulatory approvals required to commercialize our pharmaceutical products, will not
protect us from any such liability.
We carry product liability insurance that includes coverage for human clinical trials. Currently, we insure a total
limit of $15 million per occurrence, $15 million annual aggregate coverage for both our products liability policy and our clinical trials protection. This limit is comprised of both primary and excess coverage. We also intend to seek
product liability insurance for any approved products that we may develop or acquire. However, in the event there are product liability claims against us, our insurance may be insufficient to cover the expense of defending against such claims, or
may be insufficient to pay or settle such claims. Furthermore, we may be unable to obtain adequate product liability insurance coverage for commercial sales of any of our approved products. If such insurance is insufficient to protect us, our
results of operations will suffer. If any product liability claim is made against us, our reputation and future sales will be damaged, even if we have adequate insurance coverage.
Many potential competitors, including those who have greater resources and experience than we do, may develop products or technologies that make ours
obsolete or noncompetitive.
We face significant competition with respect to our product candidates. With regard to our efforts to develop
MultiStem as a novel stem cell therapy, currently, there are a number of companies that are actively developing stem cell products, which encompass a range of different cell types, including embryonic stem cells, adult-derived stem cells, and
processed bone marrow derived cells. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. Technological developments by others may result in our MultiStem product platform and
technologies, as well as our pharmaceutical formulations, becoming obsolete.
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We are subject to significant competition from pharmaceutical, biotechnology and diagnostic companies, academic
and research institutions, and government or other publicly funded agencies that are pursuing or may pursue the development of therapeutic products and technologies that are substantially similar to our proposed therapeutic products and
technologies, or that otherwise address the indications we are pursuing. Our most significant competitors include major pharmaceutical companies such as Pfizer, Roche, Johnson & Johnson, Sanofi and GlaxoSmithKline, as well as smaller
biotechnology or biopharmaceutical companies such as Celgene, Mesoblast, Stem Cells Inc., Cytori and Pluristem. Most of our current and potential competitors have substantially greater research and development capabilities and financial, scientific,
regulatory, manufacturing, marketing, sales, human resources, and experience than we do. Many of our competitors have several therapeutic products that have already been developed, approved and successfully commercialized, or are in the process of
obtaining regulatory approval for their therapeutic products in the United States and internationally.
Many of these companies have substantially greater
capital resources, research and development resources and experience, manufacturing capabilities, regulatory expertise, sales and marketing resources, established relationships with consumer products companies and production facilities.
Universities and public and private research institutions are also potential competitors. While these organizations primarily have educational objectives,
they may develop proprietary technologies related to stem cells or secure patent protection that we may need for the development of our technologies and products. We may attempt to license these proprietary technologies, but these licenses may not
be available to us on acceptable terms, if at all. Our competitors, either alone or with their collaborative partners, may succeed in developing technologies or products that are more effective, safer, more affordable or more easily commercialized
than ours, and our competitors may obtain intellectual property protection or commercialize products sooner than we do. Developments by others may render our product candidates or our technologies obsolete.
Our current product discovery and development collaborators are not prohibited from entering into research and development collaboration agreements with third
parties in any product field. Our failure to compete effectively would have a significant adverse effect on our business, financial condition and results of operations.
The availability, manner, and amount of reimbursement for our product candidates from government and private payers are uncertain, and our inability to
obtain adequate reimbursement for any products could severely limit our product sales.
We expect that many of the patients who seek treatment
with any of our products that are approved for marketing will be eligible for Medicare benefits. Other patients may be covered by private health plans. If we are unable to obtain or retain adequate levels of reimbursement from Medicare or from
private health plans, our ability to sell our products will be severely limited. The application of existing Medicare regulations and interpretive coverage and payment determinations to newly approved products is uncertain and those regulations and
interpretive determinations are subject to change. Medicare may change its reimbursement methodology that reduces the Medicare reimbursement rates for many drugs, which may adversely affect reimbursement for any products we may develop. Medicare
regulations and interpretive determinations also may determine who may be reimbursed for certain services, and may limit the pool of patients our product candidates are being developed to serve.
Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. We anticipate continuing debate in the
foreseeable future over the research and development, marketing, pricing and reimbursement for health care products and services, including those that would affect our current product candidates. For example, Federal, state and foreign governments
continue to propose legislation designed to contain or reduce health care costs. Among other developments, the new United States presidential administration has identified repealing and replacing the Patient Protection and Affordable Care Act (ACA),
enacted in 2010 as a priority. The timing and method of repeal and replacement, should it occur, is uncertain but changes could include the number of patient lives covered, the type of insurance coverage available and patient eligibility.
Legislation and regulations affecting the pricing of products like our potential products may change further or be adopted before any of our potential products are approved for marketing. Cost control initiatives by governments or third-party payers
could decrease the price that we receive for any one or all of our potential products or increase patient coinsurance to a level that make our products under development become unaffordable. In addition, government and private health plans
persistently challenge the price and cost-effectiveness of therapeutic products. Accordingly, these third parties may ultimately not consider any or all of our products under development to be cost effective, which could result in products not being
covered under their health plans or covered only at a lower price. Any of these initiatives or developments could prevent us from successfully marketing and selling any of our products that are approved for commercialization.
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Public perception of ethical and social issues surrounding the use of adult-derived stem cell technology
may limit or discourage the use of our technologies, which may reduce the demand for our therapeutic products and technologies and reduce our revenues.
Our success will depend in part upon our ability to develop therapeutic products incorporating or discovered through our adult-derived stem cell technology.
For social, ethical, or other reasons, governmental authorities in the United States and other countries may call for limits on, or regulation of the use of, adult-derived stem cell technologies. Although we do not use the more controversial stem
cells derived from embryos or fetuses, claims that adult-derived stem cell technologies are ineffective, unethical or pose a danger to the environment may influence public attitudes. The subject of stem cell technologies in general has received
negative publicity and aroused public debate in the United States and some other countries. Ethical and other concerns about our adult-derived stem cell technology could materially hurt the market acceptance of our therapeutic products and
technologies, resulting in diminished sales and use of any products we are able to develop using adult-derived stem cells.
Even if we or our
collaborators receive regulatory approval for our products, those products may never be commercially successful.
Even if we develop
pharmaceuticals or MultiStem-related products that obtain the necessary regulatory approval, and we have access to the necessary manufacturing, sales, marketing and distribution capabilities that we need, our success depends to a significant degree
upon the commercial success of those products. If these products fail to achieve or subsequently maintain market acceptance or commercial viability, our business would be significantly harmed because our future royalty revenue or other revenue would
be dependent upon sales of these products. Many factors may affect the market acceptance and commercial success of any potential products that we may discover, including:
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health concerns, whether actual or perceived, or unfavorable publicity regarding our obesity drugs, stem cell products or those of our competitors;
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the timing of market entry as compared to competitive products;
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the rate of adoption of products by our collaborators and other companies in the industry;
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any product labeling that may be required by the FDA or other United States or foreign regulatory agencies for our products or competing or comparable products;
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convenience and ease of administration;
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perceived efficacy and side effects;
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availability of alternative treatments;
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levels of reimbursement and insurance coverage; and
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activities by our competitors.
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If we are unable to create and maintain sales, marketing and
distribution capabilities or enter into agreements with third parties to perform those functions, we will not be able to commercialize our product candidates.
We currently have no sales, marketing or distribution capabilities. Therefore, to commercialize our product candidates, if and when such products have been
approved and are ready for marketing, we expect to collaborate with third parties to perform these functions. We will either need to share the value generated from the sale of any products and/or pay a fee to the contract sales organization. If we
establish any such relationships, we will be dependent upon the capabilities of our collaborators or contract service providers to effectively market, sell, and distribute our product. If they are ineffective at selling and distributing our product,
or if they choose to emphasize other products over ours, we may not achieve the level of product sales revenues that we would like. If conflicts arise, we may not be able to resolve them easily or effectively, and we may suffer financially as a
result. If we cannot rely on the sales, marketing and distribution capabilities of our collaborators or of contract service providers, we may be forced to establish our own capabilities. We have no experience in developing, training or managing a
sales force and will incur substantial additional expenses if we decide to market any of our future products directly. Developing a marketing and sales force is also time consuming and could delay launch of our future products. In addition, we will
compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies.
We will use hazardous and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could
be time consuming and costly.
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Our products and processes will involve the controlled storage, use and disposal of certain hazardous and
biological materials and waste products. We and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Even if we and
these suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held
liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of any insurance we may obtain and exceed our financial resources. We may not be able to maintain insurance on acceptable terms, or at all. We
may incur significant costs to comply with current or future environmental laws and regulations.
Disputes concerning the infringement or
misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and extremely costly and could delay our research and development efforts.
Our commercial success, if any, will be significantly harmed if we infringe the patent rights of third parties or if we breach any license or other agreements
that we entered into with regard to our technology or business.
We are aware of other companies and academic institutions that have been performing
research in the areas of adult-derived stem cells. In particular, other companies and academic institutions have announced that they have identified nonembryonic stem cells isolated from bone marrow or other tissues that have the ability to form a
range of cell types, or display the property of pluripotency. To the extent any of these companies or academic institutions currently have, or obtain in the future, broad patent claims, such patents could block our ability to use various aspects of
our discovery and development process and might prevent us from developing or commercializing newly discovered applications of our MultiStem technology, or otherwise conducting our business. In addition, it is possible that some of the
pharmaceutical product candidates we are developing may not be patentable or may be covered by intellectual property of third parties. For example, over the past several years, we have been involved in proceedings in the United States and Europe
with a third party focused on a technology developed after the MAPC technology. Ultimately, we reached a settlement agreement with and obtained a license from this third party, positioning us advantageously with respect to the achievement of our
business objectives. Over time, we expect to be involved in similar proceedings with the objective of developing the portfolio to support and protect development and commercialization of our or our licensees cell therapy products.
We are not currently a party to any litigation with regard to our patent or trademark positions. However, the life sciences and other technology industries
are characterized by extensive litigation regarding patents and other intellectual property rights. Many life sciences and other technology companies have employed intellectual property litigation as a way to gain a competitive advantage. To the
extent we are involved in litigation, interference proceedings, oppositions, reexamination, protest or other potentially adverse intellectual property proceedings as a result of alleged infringement by us of the rights of others or as a result of
priority of invention disputes with third parties, we might have to spend significant amounts of money, time and effort defending our position and we may not be successful. In addition, any claims relating to the infringement of third-party
proprietary rights or proprietary determinations, even if not meritorious, could result in costly litigation, lengthy governmental proceedings, divert managements attention and resources, or require us to enter into royalty or license
agreements that are not advantageous to us. If we do not have the financial resources to support such litigation or appeals, we may forfeit or lose certain commercial rights. Even if we have the financial resources to continue such litigation or
appeals, we may lose. In the event that we lose, we may be forced to pay very substantial damages; we may have to obtain costly license rights, which may not be available to us on acceptable terms, if at all; or we may be prohibited from selling
products that are found to infringe the patent rights of others.
Should any person have filed patent applications or obtained patents that claim
inventions also claimed by us, we may have to participate in an interference proceeding declared by the relevant patent regulatory agency to determine priority of invention and, thus, the right to a patent for these inventions in the United States.
Such a proceeding could result in substantial cost to us even if the outcome is favorable. Even if successful on priority grounds, an interference action may result in loss of claims based on patentability grounds raised in the interference action.
Litigation, interference proceedings or other proceedings could divert managements time and efforts. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of managements time and disruption in our
business. Uncertainties resulting from initiation and continuation of any patent proceeding or related litigation could harm our ability to compete and could have a significant adverse effect on our business, financial condition and results of
operations.
An adverse ruling arising out of any intellectual property dispute, including an adverse decision as to the priority of our inventions, could
undercut or invalidate our intellectual property position. An adverse ruling could also subject us to significant liability for damages, including possible treble damages, prevent us from using technologies or developing products, or require us to
negotiate licenses to disputed rights from third parties. Although patent and intellectual property disputes in the technology area are often settled through licensing or similar arrangements, costs associated with these arrangements may be
substantial and could include license fees and ongoing royalties. Furthermore, necessary licenses may not be available to us on satisfactory terms, if at all. Failure to obtain a license in such a case could have a significant adverse effect on our
business, financial condition and results of operations.
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To the extent we enter markets outside of the United States, our business will be subject to political,
economic, legal and social risks in those markets, which could adversely affect our business.
There are significant regulatory and legal barriers
in markets outside the United States that we must overcome to the extent we enter or attempt to enter markets in countries other than the United States. We will be subject to the burden of complying with a wide variety of national and local laws,
including multiple and possibly overlapping and conflicting laws. We also may experience difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would be subject to political,
economic and social uncertainties including, among others:
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changes and limits in import and export controls;
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increases in custom duties and tariffs;
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changes in currency exchange rates;
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economic and political instability;
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changes in government regulations and laws;
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absence in some jurisdictions of effective laws to protect our intellectual property rights; and
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currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits to the United States.
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Any changes related to these and other factors could adversely affect our business to the extent we enter markets outside the United States.
Foreign governments often impose strict price controls on approved products, which may adversely affect our future profitability in those countries, and
the
re-importation
of drugs to the United States from foreign countries that impose price controls may adversely affect our future profitability.
Frequently foreign governments impose strict price controls on newly approved therapeutic products. If we obtain regulatory approval to sell products in
foreign countries, we may be unable to obtain a price that provides an adequate financial return on our investment. Furthermore, legislation in the United States may permit
re-importation
of drugs from foreign
countries into the United States, including
re-importation
from foreign countries where the drugs are sold at lower prices than in the United States due to foreign government-mandated price controls. Such a
practice, especially if it is conducted on a widespread basis, may significantly reduce our potential United States revenues from any drugs that we are able to develop.
If we elect not to sell our products in foreign countries that impose government mandated price controls because we decide it is uneconomical to do so,
a foreign government or patent office may attempt to terminate our intellectual property rights in that country, enabling competitors to make and sell our products.
In some cases we may choose not to sell a product in a foreign country because it is uneconomical to do so under a system of government-imposed price
controls, or because it could severely limit our profitability in the United States or other markets. In such cases, a foreign government or patent office may terminate any intellectual property rights we may obtain with respect to that product.
Such a termination could enable competitors to produce and sell our product in that market. Furthermore, such products may be exported into the United States through legislation that authorizes the importation of drugs from outside the United
States. In such an event, we may have to reduce our prices, or we may be unable to compete with
low-cost
providers of our drugs, and we could be financially harmed as a result.
We may encounter difficulties managing our growth, which could adversely affect our business.
At various times we have experienced periods of rapid growth in our employee numbers as a result of a dramatic increase in activity in technology programs,
genomics programs, collaborative research programs, discovery programs, and scope of operations. At other times, we had to reduce staff in order to bring our expenses in line with our financial resources. Our success will also depend on the ability
of our officers and key employees to continue to improve our operational capabilities and our management information and financial control systems, and to expand, train and manage our work force.
If we acquire products, technologies or other businesses, we will incur a variety of costs, may have integration difficulties and may experience
numerous other risks that could adversely affect our business.
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To remain competitive, we may decide to acquire additional businesses, products and technologies. We currently
have no commitments or agreements with respect to, and are not actively seeking, any material acquisitions. We have limited experience in identifying acquisition targets, successfully acquiring them and integrating them into our current
infrastructure. We may not be able to successfully integrate any businesses, products, technologies or personnel that we might acquire in the future without a significant expenditure of operating, financial and management resources, if at all. In
addition, future acquisitions could require significant capital infusions and could involve many risks, including, but not limited to the following:
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we may have to issue convertible debt or equity securities to complete an acquisition, which would dilute our stockholders and could adversely affect the market price of our common stock;
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an acquisition may negatively impact our results of operations because it may require us to incur large
one-time
charges to earnings, amortize or write down amounts related to
goodwill and other intangible assets, or incur or assume substantial debt or liabilities, or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges;
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we may encounter difficulties in assimilating and integrating the business, technologies, products, personnel or operations of companies that we acquire;
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certain acquisitions may disrupt our relationship with existing collaborators who are competitive to the acquired business;
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acquisitions may require significant capital infusions and the acquired businesses, products or technologies may not generate sufficient revenue to offset acquisition costs;
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an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;
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acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience; and
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key personnel of an acquired company may decide not to work for us.
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Any of the foregoing risks could have a
significant adverse effect on our business, financial condition and results of operations.
Increased information technology security threats and
more sophisticated and targeted computer crime could pose a risk to our systems, networks, and products.
Increased global information technology
security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we attempt to mitigate these risks
by employing a number of measures, including employee refreshers, monitoring of our networks and systems, and maintenance of backup and protective systems, our systems, networks and products remain potentially vulnerable to advanced persistent
threats. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products,
production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations. Furthermore, we are subject to an increasing number of data privacy and data protection laws in both
the U.S. and abroad. Failure to comply with these regulations could result in fines, penalties or significant legal liability.
We may not be able
to utilize a significant portion of our net operating loss or research tax credit carryforwards or other tax attributes, which could harm our profitability.
At December 31, 2017, we had U.S. federal net operating loss and research and development tax credit carryforwards of approximately $136.6 million and
$7.3 million, respectively. Such operating losses and tax credits may be used to reduce future taxable income and tax liabilities and will expire at various dates between 2021 and 2037. We also had foreign net operating loss carryforwards of
approximately $19.9 million. Such foreign net operating loss carryforwards do not expire. We also had state and city net operating loss carryforwards aggregating approximately $69.4 million. Such operating losses may be used to reduce future taxable
income and tax liabilities and will expire at various dates between 2018 and 2037.
Our ability to utilize our U.S. federal net operating loss and tax
credit carryforwards generated prior to October 2012 (the Section 382 Limited Attributes) is substantially limited under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, as a result of our equity
offering that occurred in October 2012. Similar limitations may apply for state and local tax purposes. We generated U.S. federal net operating loss carryforwards of $99.9 million, research and development tax credits of $7.3 million, and state and
local net operating loss carryforwards of $69.4 million since 2012 through December 31, 2017.
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Our ability to utilize tax attributes, including those that are not part of the Section 382 Limited
Attributes may also be limited if we experience an ownership change, for purposes of Section 382 of the Code. A Section 382 ownership change generally occurs if one or more stockholders or groups of stockholders who
own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. Sales of our common stock to Aspire
Capital pursuant to our equity purchase arrangement, in combination with other issuances or sales of our common stock (including any sales of common stock by Aspire Capital and certain transactions involving our common stock that are outside of our
control) could cause an ownership change. If an ownership change occurs, Section 382 of the Code would impose an annual limit on the amount of
pre-ownership
change net operating
loss carryforwards and other tax attributes we can use to reduce our taxable income, potentially increasing and accelerating our liability for income taxes, and also potentially causing those tax attributes to expire unused. It is possible that such
an ownership change could materially reduce our ability to use our net operating loss carryforwards or other tax attributes to offset taxable income, which could harm our profitability. We will update our analysis under Section 382 of the Code
prior to using our tax attributes.
If we do not continue to meet the listing standards established by The NASDAQ Capital Market, the common stock
may not remain listed for trading.
The NASDAQ Capital Market has established certain quantitative criteria and qualitative standards that
companies must meet in order to remain listed for trading on these markets. We cannot guarantee that we will be able to maintain all necessary requirements for listing; therefore, we cannot guarantee that our common stock will remain listed for
trading on The NASDAQ Capital Market or other similar markets.
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