Liquidity
and Capital Resources
Liquidity
We
measure our liquidity in a number of ways, including the following:
|
|
December
31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
31,822
|
|
|
$
|
166,555
|
|
|
|
|
|
|
|
|
|
|
Working Capital
Deficiency
|
|
$
|
(5,783,184
|
)
|
|
$
|
(5,323,179
|
)
|
|
|
|
|
|
|
|
|
|
Notes Payable
(Gross)
|
|
$
|
2,336,565
|
|
|
$
|
1,470,083
|
|
Availability
of Additional Funds
Based
upon our working capital and stockholders’ deficiency of $5,783,184 and $5,000,282, respectively, as of December
31, 2016, we require additional equity and/or debt financing to continue our operations. These conditions indicate that there
is substantial doubt about our ability to continue as a going concern within the next twelve months from the date of this
filing.
As of December 31, 2016,
our outstanding debt of $2,336,565, together with interest at rates ranging between 0% and 15% per annum, was due on various dates
through October 2017. Subsequent to December 31, 2016 and through March 15, 2017, we have received aggregate equity proceeds
(including proceeds from the exercise of common stock purchase warrants) and debt proceeds of $945,000 and $200,000,
respectively, debt and accrued interest of $325,000 and $9,679, respectively, has been converted into or exchanged
for common stock, $89,000 of debt and net short-term advances have been repaid and the due date for the repayment
of $322,000 of debt has been extended through April 2017. Giving effect to the above actions, we currently have notes payable
aggregating $427,500 which are past due. As of the date of filing, our outstanding debt was as follows:
|
|
Principal
|
|
Maturity
Date
|
|
Amount
|
|
|
|
|
|
Past Due
|
|
$
|
427,500
|
|
QE 3/31/2017
|
|
|
20,000
|
|
QE 6/30/2017
|
|
|
428,000
|
|
QE 9/30/2017
|
|
|
867,000
|
|
QE 12/31/2017
|
|
|
437,063
|
|
|
|
$
|
2,179,563
|
|
Based
upon our working capital deficiency, outstanding debt and forecast for continued operating losses we expect that the cash we currently
have available will fund our operations through April 2017. Thereafter, we will need to raise further capital, through the sale
of additional equity or debt securities, to support our future operations and to repay our debt (unless, if requested, the debt
holders agree to convert their notes into equity or extend the maturity dates of their notes). Our operating needs include the
planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future
capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully
commercialize our products and services, competing technological and market developments, and the need to enter into collaborations
with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.
We
may be unable to raise sufficient additional capital when we need it or raise capital on favorable terms. Debt financing may require
us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further
indebtedness, and may contain other terms that are not favorable to our stockholders or us. If we are unable to obtain adequate
funds on reasonable terms, we may be required to significantly curtail or discontinue operations or obtain funds by entering into
financing agreements on unattractive terms.
Our
consolidated financial statements included elsewhere in this Annual Report on Form 10-K have been prepared in conformity with
accounting principles generally accepted in the United States of America, or GAAP, which contemplate our continuation as a going
concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of
assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement
values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
During
the year ended December 31, 2016, our sources and uses of cash were as follows:
Net
Cash Used in Operating Activities
We
experienced negative cash flow from operating activities for the years ended December 31, 2016 and 2015 in the amounts of $5,002,675
and $3,122,063, respectively. The net cash used in operating activities for the year ended December 31, 2016 was primarily due
to cash used to fund a net loss of $8,636,292, adjusted for non-cash expenses in the aggregate amount of $3,464,871, partially
offset by $168,745 of cash provided by changes in the levels of operating assets and liabilities, primarily as a result of increases
in accrued expenses and other liabilities, due to cash constraints during the period. The net cash used in operating activities
for the year ended December 31, 2015 was primarily due to cash used to fund a net loss of $7,923,480, adjusted for non-cash expenses
in the aggregate amount of $2,743,141, partially offset by $2,058,276 of cash provided by changes in the levels of operating assets
and liabilities, primarily as a result of increases in accounts payable plus accrued expenses and other liabilities, due to cash
constraints during the period.
Net
Cash Used in Investing Activities
During
the year ended December 31, 2016, net cash used in investing activities was $188,764 used for the purchase of medical equipment.
During the year ended December 31, 2015, net cash used in investing activities was $483,069 due to $408,069 used for the purchase
of medical equipment, leasehold improvements and computer equipment plus $75,000 used to retain the exclusivity of our disc/spine
license.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities during the years ended December 31, 2016 and 2015 was $5,056,706 and $3,679,889, respectively.
During the year ended December 31, 2016, $1,345,471 of net proceeds were from debt financings and $3,711,236 of proceeds were
from equity financings (including proceeds received in connection with the exercise of common stock purchase warrants). During
the year ended December 31, 2015, $1,382,045 of net proceeds were from debt financings and $2,297,844 of proceeds were from equity
financings (including proceeds received in connection with the exercise of common stock purchase warrants).
Critical
Accounting Policies and Estimates
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the financial statements and
the reported amounts of revenue and expenses during the periods. Our significant estimates and assumptions include the recoverability
and useful lives of long-lived assets, the fair value of our equity securities and the valuation allowance related to our deferred
tax assets. Certain of our estimates, including the carrying amount of the intangible assets, could be affected by external conditions,
including those unique to us and general economic conditions. It is reasonably possible that these external factors could have
an effect on our estimates and could cause actual results to differ from those estimates.
Intangible
Assets
Intangible
assets are comprised of trademarks and licenses with original estimated useful lives of 10 and 17.7 years, respectively. Once
placed into service, we amortize the cost of the intangible assets over their estimated useful lives on a straight-line basis.
Impairment
of Long-lived Assets
We review for the impairment
of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual
disposition are less than its carrying amount. While our near term liquidity is tight, historically we have been successful
in raising capital as needed (although there can be no assurance that we will continue to be successful in raising capital as
needed). We continue to progress our scientific agenda and meet related milestones. We have not identified any impairment losses.
Income
Taxes
We
recognize deferred tax assets and liabilities for the expected future tax consequences of items that have been included or excluded
in our financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference
between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”)
at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
We
adopted the provisions of Accounting Standards Codification (“ASC”) Topic 740-10, which prescribes a recognition threshold
and measurement process for financial statements recognition and measurement of a tax position taken or expected to be taken in
a tax return.
Stock-Based
Compensation
We
measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For
employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the
award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The
fair value amount is then recognized over the period during which services are required to be provided in exchange for the award,
usually the vesting period. Since the shares underlying our 2010 Equity Participation Plan, or the Plan, were registered on May
27, 2014, we estimate the fair value of the awards granted under the Plan based on the market value of our freely tradable common
stock as reported on the OTCQB market. The fair value of our restricted equity instruments was estimated by management based on
observations of the cash sales prices of both restricted shares and freely tradable shares. Awards granted to directors are treated
on the same basis as awards granted to employees.
Recently
Issued Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue
recognition requirements in ASC 605 - Revenue Recognition and most industry-specific guidance throughout the ASC. The standard
requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 should
be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially
applying ASU 2014-09 recognized at the date of initial application. To allow entities additional time to implement systems, gather
data and resolve implementation questions, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date, in August 2015, to defer the effective date of ASU No. 2014-09 for one year, which is fiscal years
beginning after December 15, 2017. We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial
statements or disclosures.
In
August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”).
ASU 2014-15 explicitly requires management to evaluate, at each annual or interim reporting period, whether there are conditions
or events that exist which raise substantial doubt about an entity’s ability to continue as a going concern and to provide
related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and annual and interim periods
thereafter, with early adoption permitted. The adoption of this standard did not have a material impact on our financial statement
disclosures.
In
April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs”, or ASU 2015-03. ASU 2015-03 amends the existing guidance to require that debt issuance costs be
presented in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred
charge. ASU 2015-03 is effective on a retrospective basis for annual and interim reporting periods beginning after December 15,
2015; earlier adoption is permitted. Additionally, in August 2015, the FASB issued guidance expanding the April 2015 update (ASU
No. 2015-15). It states that, given the absence of authoritative guidance within the update, the SEC staff would not object to
an entity deferring and presenting debt issuance costs as an asset for revolving lines of credit and subsequently amortizing the
deferred debt issuance costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings
on the line of credit. This guidance is effective for financial statements issued for fiscal years beginning after December 15,
2015, and interim periods within those fiscal years, with early adoption permitted for financial statements that have not been
previously issued. Full retrospective application is required. The adoption of this standard did not have a material impact on
our consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires
an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also
require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the
amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December
15, 2018, with early adoption permitted. We are currently evaluating ASU 2016-02 and its impact on our consolidated financial
statements.
In
March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”).
ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. We are currently
evaluating ASU 2016-09 and its impact on our consolidated financial statements or disclosures.
In
April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing” (“ASU 2016-10”). The amendments in this update clarify the following two aspects to Topic 606:
identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those
areas. The entity first identifies the promised goods or services in the contract and reduces the cost and complexity. An entity
evaluates whether promised goods and services are distinct. Topic 606 includes implementation guidance on determining whether
an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property
(which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over
time). ASU 2016-10 is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within
that reporting period. We are currently evaluating ASU 2016-10 and its impact on our consolidated financial statements or disclosures.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and
Cash Payments” (“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash
payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning
after December 15, 2017. We will require adoption on a retrospective basis unless it is impracticable to apply, in which case
we would be required to apply the amendments prospectively as of the earliest date practicable. We are currently evaluating ASU
2016-15 and its impact on our consolidated financial statements or disclosures.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Factors
That May Affect Future Results and Financial Condition
The
risk factors listed in this section provide examples of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements. Readers should be aware that the occurrence of
any of the events described in these risk factors could have a material adverse effect on our business, results of operations
and financial condition. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise.
Risks
Related to Our Business Generally
We
have a limited operating history; we have incurred substantial losses since inception; we expect to continue to incur losses for
the near term; we have a substantial working capital deficiency and a stockholders’ deficiency; we believe these conditions
indicate that there is substantial doubt about our ability to continue as a going concern within the next twelve months
from the date of this filing; the report of our independent registered public accounting firm contains an explanatory paragraph
that expresses substantial doubt about our ability to continue as a going concern.
We
have a limited operating history. Since our inception, we have incurred net losses. As of December 31, 2016, we had a working
capital deficiency of $5,783,184 and stockholders’ deficiency of $5,000,282. We believe these conditions indicate
that there is substantial doubt about our ability to continue as a going concern within the next twelve months from the
date of this filing. The report of our independent registered public accounting firm with respect to our financial statements
as of December 31, 2016 and 2015 and for the years then ended indicates that our financial statements have been prepared assuming
that we will continue as a going concern. The report states that, since we have incurred net losses since inception and we need
to raise additional funds to meet our obligations and sustain our operations, there is substantial doubt about our ability to
continue as a going concern. Our plans in regard to these matters are described in footnote 2 to our audited financial statements
as of December 31, 2016 and 2015 and for the years then ended, which are included following Item 16 (“Form 10-K Summary”).
Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We
will need to obtain a significant amount of financing to initiate and complete our clinical trials and implement our business
plan.
Since our inception, we
have not generated significant revenues from our operations and have funded our operations through the sale of our equity securities
(approximately $14,000,000) and debt securities (approximately $12,000,000). The implementation of our business plan, as discussed
in Item 1 (“Business”), will require the receipt of sufficient equity and/or debt financing to purchase necessary
equipment, technology and materials, fund our research and development efforts, retire our outstanding debt and otherwise fund
our operations. We anticipate that we will require between $8,000,000 and $10,000,000 in financing to commence and complete a
Phase 2 clinical trial with regard to our
Disc/Spine Program.
We anticipate that we will require between $20,000,000 and
$30,000,000 in further additional funding to complete our clinical trials using
BRTX-100
. We will also require a
substantial amount of additional funding if we determine to establish a manufacturing operation with regard to our
Disc/Spine
Program
(as opposed to utilizing a third party manufacturer) and to implement our other programs discussed in Item 1 (“Business”),
including our metabolic
ThermoStem Program
. No assurance can be given that the anticipated amounts of required funding
are correct or that we will be able to accomplish our goals within the timeframes projected. In addition, no assurance can be
given that we will be able to obtain any required financing on commercially reasonable terms or otherwise. In the event we do
not obtain the financing required for the above purposes, we may have to curtail our development, marketing and promotional activities,
which would have a material adverse effect on our business, financial condition and results of operations, and ultimately we could
be forced to discontinue our operations and liquidate.
We
will need to obtain additional financing to satisfy debt obligations.
As described in Item 7
(“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital
Resources – Availability of Additional Funds”), as of December 31, 2016, our outstanding debt of $2,336,565, together
with interest at rates ranging between 0% and 15% per annum, are due on various dates through October 2017. Subsequent to December
31, 2016 and through March 15, 2017, we have received aggregate equity proceeds (including proceeds received from the exercise
of common stock purchase warrants) and debt proceeds of $945,000 and $200,000, respectively, debt and accrued interest of $325,000
and $9,679, respectively, has been converted into or exchanged for common stock, $89,000 of debt and short-term
advance have been repaid and the due date for the repayment of $322,000 of debt has been extended through April 2017. Giving effect
to the above actions, we currently have notes payable aggregating $427,500 which are past due. As of March 15, 2017, the outstanding
balance of our debt of $2,179,563, together with accrued interest, was due and payable between on demand and October 2017. Unless
we obtain additional financing or, upon our request, the debt holders agree to convert their debt into equity or extend the maturity
dates of the debt, we will not be able to repay such debt. Based upon our working capital deficiency and outstanding debt, we
expect to be able to fund our operations through April 2017. Even if we are able to satisfy our debt obligations, our cash balance
and the revenues for the foreseeable future from our anticipated operations will not be sufficient to fund the development of
our business plan.
Our business strategy is high-risk.
We
are focusing our resources and efforts primarily on the development of cellular-based products and services which will require
extensive cash for research, development and commercialization activities. This is a high-risk strategy because there is no assurance
that our products and services, including our
Disc/Spine Program
and our
ThermoStem
metabolic brown fat research
initiative, will ever become commercially viable (commercial risk), that we will prevent other companies from depriving us of
market share and profit margins by offering services and products based on our inventions and developments (legal risk), that
we will successfully manage a company in a new area of business, regenerative medicine, and on a different scale than we have
operated in the past (operational risk), that we will be able to achieve the desired therapeutic results using stem and regenerative
cells (scientific risk), or that our cash resources will be adequate to develop our products and services until we become profitable,
if ever (financial risk). We are using our cash in one of the riskiest industries in the economy (strategic risk). This may make
our stock an unsuitable investment for many investors.
We
will need to enter into agreements in order to implement our business strategy.
Except
for certain license and research and development agreements described in Item 1 (“Business”), we do not have any material
agreements or understandings in place with respect to the implementation of our business strategy. No assurances can be given
that we will be able to enter into any necessary agreements with respect to the development of our business. Our inability to
enter into any such agreements would have a material adverse effect on our results of operations and financial condition.
We
depend on our executive officers and on our ability to attract and retain additional qualified personnel; we do not currently
have a Chief Financial Officer.
Our
performance is substantially dependent on the performance of Mark Weinreb, our Chief Executive Officer. We rely upon him for strategic
business decisions and guidance. Mr. Weinreb is subject to an employment agreement with us that is scheduled to expire in December
2017. We are also dependent on the performance of Edward Field, President of our Disc/Spine Division, and Francisco Silva, our
Vice President of Research and Development, in establishing and developing our products and operations. Mr. Field and Mr. Silva
are also subject to employment agreements with us. We do not have any key-man insurance policies on the lives of any of our executive
officers. We do not currently have a Chief Financial Officer. Pending the hiring of a Chief Financial Officer, we are utilizing
financial consultants with regard to the preparation of our financial statements. We believe that our future success in developing
marketable products and services and achieving a competitive position will depend in large part upon whether we can attract and
retain additional qualified management and scientific personnel, including a Chief Financial Officer. Competition for such personnel
is intense, and there can be no assurance that we will be able to attract and retain such personnel. The loss of the services
of Mr. Weinreb, Mr. Field and/or Mr. Silva or the inability to attract and retain additional personnel, including a Chief Financial
Officer, and develop expertise as needed would have a substantial negative effect on our results of operations and financial condition.
Continued
turmoil in the economy could harm our business.
Negative
trends in the general economy, including, but not limited to, trends resulting from an actual or perceived recession, tightening
credit markets, increased cost of commodities, actual or threatened military action by the United States and threats of terrorist
attacks in the United States and abroad, could cause a reduction of investment in and available funding for companies in certain
industries, including ours. Our ability to raise capital has been and may in the future be adversely affected by downturns in
current credit conditions, financial markets and the global economy.
Risks
Related to Our Cell Therapy Product Development Efforts
Our
future success is significantly dependent on the timely and successful development and commercialization of BRTX-100, our lead
product candidate for the treatment of chronic lumbar disc disease; if we encounter delays or difficulties in the development
of this product candidate, as well as any other product candidates, our business prospects would be significantly harmed.
We
are dependent upon the successful development, approval and commercialization of our product candidates. Before we are able to
seek regulatory approval of our product candidates, we must conduct and complete extensive clinical trials to demonstrate their
safety and efficacy in humans. Our lead product candidate,
BRTX-100
, is in early stages of development and we only recently
received FDA clearance to commence a Phase 2 clinical trial using
BRTX-100
to treat chronic lower back pain due to degenerative
disc disease related to protruding/bulging discs.
Clinical
testing is expensive, difficult to design and implement, and can take many years to complete. Importantly, a failure of one or
more of these or any other clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during,
or as a result of, clinical trials that could delay or prevent our ability to complete our clinical studies, receive regulatory
approval or commercialize our cell therapy product candidates, including the following:
|
●
|
suspensions,
delays or changes in the design, initiation, enrollment, implementation or completion of required clinical trials; adverse
changes in our financial position or significant and unexpected increases in the cost of our clinical development program;
changes or uncertainties in, or additions to, the regulatory approval process that require us to alter our current development
strategy; clinical trial results that are negative, inconclusive or less than desired as to safety and/or efficacy, which
could result in the need for additional clinical studies or the termination of the product’s development; delays in
our ability to manufacture the product in quantities or in a form that is suitable for any required clinical trials;
|
|
|
|
|
●
|
intellectual
property constraints that prevent us from making, using, or commercializing any of our cell therapy product candidates;
|
|
|
|
|
●
|
the
supply or quality of our product candidates or other materials necessary to conduct clinical trials of these product candidates
may be insufficient or inadequate; inability to generate sufficient pre-clinical, toxicology, or other
in vivo
or
in
vitro
data to support the initiation of clinical studies;
|
|
●
|
delays
in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical study sites,
the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study
sites;
|
|
|
|
|
●
|
delays
in obtaining required Institutional Review Board, or IRB, approval at each clinical study site;
|
|
|
|
|
●
|
imposition
of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND
application or amendment, or equivalent application or amendment; as a result of a new safety finding that presents unreasonable
risk to clinical trial participants; a negative finding from an inspection of our clinical study operations or study sites;
developments on trials conducted by competitors or approved products post-market for related technology that raises FDA concerns
about risk to patients of the technology broadly; or if the FDA finds that the investigational protocol or plan is clearly
deficient to meet its stated objectives;
|
|
|
|
|
●
|
difficulty
collaborating with patient groups and investigators;
|
|
|
|
|
●
|
failure
by our CROs, other third parties, or us to adhere to clinical study requirements;
|
|
|
|
|
●
|
failure
to perform in accordance with the FDA’s current Good Clinical Practices, or cGCP, requirements, or applicable regulatory
guidelines in other countries;
|
|
|
|
|
●
|
delays
in having patients qualify for or complete participation in a study or return for post-treatment follow-up;
|
|
|
|
|
●
|
patients
dropping out of a study;
|
|
|
|
|
●
|
occurrence
of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
|
|
|
|
|
●
|
changes
in the standard of care on which a clinical development plan was based, which may require new or additional trials;
|
|
|
|
|
●
|
the
requirement by the FDA that we conduct additional research or studies, and/or to provide additional
preclinical data, prior to or in connection with our clinical trials;
|
|
|
|
|
●
|
transfer
of manufacturing processes from our academic collaborators to larger-scale facilities operated by either a contract manufacturing
organization, or CMO, or by us, and delays or failure by our CMOs or us to make any necessary changes to such manufacturing
process;
|
|
|
|
|
●
|
delays
in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates
for use in clinical studies or the inability to do any of the foregoing; and
|
|
|
|
|
●
|
the
FDA may not accept clinical data from trials that are conducted at clinical sites in countries where the standard of care
is potentially different from the United States.
|
Any
inability to successfully complete pre-clinical and clinical development could result in additional costs to us or impair our
ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be
required to, or we may elect to, conduct additional studies to bridge our modified product candidates to earlier versions. Clinical
study delays could also shorten any periods during which our products have patent protection and may allow our competitors to
bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and
may harm our business and results of operations.
Even
if we are able to successfully complete our clinical development program for our product candidates, and ultimately receive regulatory
approval to market one or more of the products, we may, among other things:
|
●
|
obtain
approval for indications that are not as broad as the indications we sought;
|
|
|
|
|
●
|
have
the product removed from the market after obtaining marketing approval;
|
|
|
|
|
●
|
encounter
issues with respect to the manufacturing of commercial supplies;
|
|
|
|
|
●
|
be
subject to additional post-marketing testing requirements; and/or
|
|
|
|
|
●
|
be
subject to restrictions on how the product is distributed or used.
|
We
anticipate that we will not be able to commercialize our
BRTX-100
product for at least five years.
We
may experience delays and other difficulties in enrolling a sufficient number of patients in our clinical trials which could delay
or prevent the receipt of necessary regulatory approvals.
We
may not be able to initiate or complete as planned any clinical trials if we are unable to identify and enroll a sufficient number
of eligible patients to participate in the clinical trials required by the FDA or other regulatory authorities. We also may be
unable to engage a sufficient number of clinical trial sites to conduct our trials.
We
may face challenges in enrolling patients to participate in our clinical trials due to the novelty of our cell-based therapies,
the size of the patient populations and the eligibility criteria for enrollment in the trial. In addition, some patients may have
concerns regarding cell therapy that may negatively affect their perception of therapies under development and their decision
to enroll in the trials. Furthermore, patients suffering from diseases within target indications may enroll in competing clinical
trials, which could negatively affect our ability to complete enrollment of our trials. Enrollment challenges in clinical trials
often result in increased development costs for a product candidate, significant delays and potentially the abandonment of the
clinical trial.
We
may have other delays in completing our clinical trials and we may not complete them at all.
We
have not commenced the clinical trials necessary to obtain FDA approval to market
BRTX-100
or any of our other products
in development. Our management lacks significant experience in completing clinical trials and bringing a drug through commercialization.
Clinical trials for
BRTX-100
and other products in development may be delayed or terminated as a result of many factors,
including the following:
|
●
|
patients
failing to complete clinical trials due to dissatisfaction with the treatment, side effects or other reasons;
|
|
|
|
|
●
|
failure
by regulators to authorize us to commence a clinical trial;
|
|
|
|
|
●
|
suspension
or termination by regulators of clinical research for many reasons, including concerns about patient safety or our failure,
or the failure of our contract manufacturers, to comply with current Good Manufacturing Practices, or cGMP, requirements;
|
|
|
|
|
●
|
delays
or failure to obtain clinical supply for our products necessary to conduct clinical trials from contract manufacturers;
|
|
|
|
|
●
|
treatment
candidates demonstrating a lack of efficacy during clinical trials;
|
|
|
|
|
●
|
inability
to continue to fund clinical trials or to find a partner to fund the clinical trials;
|
|
|
|
|
●
|
competition
with ongoing clinical trials and scheduling conflicts with participating clinicians; and
|
|
|
|
|
●
|
delays
in completing data collection and analysis for clinical trials.
|
Any
delay or failure to complete clinical trials and obtain FDA approval for our product candidates could have a material adverse
effect on our cost to develop and commercialize, and our ability to generate revenue from, a particular product candidate.
The
development of our cell therapy product candidates is subject to uncertainty because autologous cell therapy is inherently variable.
When
manufacturing an autologous cell therapy, the number and the composition of the cell population varies from patient to patient.
Such variability in the number and composition of these cells could adversely affect our ability to manufacture autologous cell
therapies in a cost-effective or profitable manner and meet acceptable product release specifications for use in a clinical trial
or, if approved, for commercial sale. As a consequence, the development and regulatory approval process for autologous cell therapy
products could be delayed or may never be completed.
Any
disruption to our access to the media (including cell culture media) and reagents we are using in the clinical development of
our cell therapy product candidates could adversely affect our ability to perform clinical trials and seek future regulatory submissions.
Certain
media (including cell culture media) and reagents, as well as devices, materials and systems, that we intend to use in our planned
clinical trials, and that we may need or use in commercial production, are provided by unaffiliated third parties. Any lack of
continued availability of these media, reagents, devices, materials and systems for any reason would have a material adverse effect
on our ability to complete these studies and could adversely impact our ability to achieve commercial manufacture of our planned
therapeutic products. Although other available sources for these media, reagents, devices, materials and systems may exist in
the marketplace, we have not evaluated their cost, effectiveness, or intellectual property foundation and therefore cannot guarantee
the suitability or availability of such other potential sources.
Products
that appear promising in research and development may be delayed or may fail to reach later stages of clinical development.
The
successful development of cellular based products is highly uncertain. Product candidates that appear promising in research and
development may be delayed or fail to reach later stages of development. Decisions regarding the further development of product
candidates must be made with limited and incomplete data, which makes it difficult to ensure or even accurately predict whether
the allocation of limited resources and the expenditure of additional capital on specific product candidates will result in desired
outcomes. Pre-clinical and clinical data can be interpreted in different ways, and negative or inconclusive results or adverse
events during a clinical trial could delay, limit or prevent the development of a product candidate.
Our
clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay
regulatory approval and commercialization.
The
clinical trials of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive
and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend
to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product
candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product
candidates are both safe and effective for use in each target indication. In particular, because our product candidates are subject
to regulation as biological drug products, we will need to demonstrate that they are safe, pure, and potent for use in their target
indications. Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population
and for its intended use. The risk/benefit profile required for product licensure will vary depending on these factors and may
include decrease or elimination of pain, adequate duration of response, a delay in the progression of the disease, an improvement
in function and/or decrease in disability.
In
addition, even if such trials are successfully completed, we cannot guarantee that the FDA will interpret the results as we do,
and more trials could be required before we submit our product candidates for approval. To the extent that the results of the
trials are not satisfactory to the FDA for support of a marketing application, we may be required to expend significant resources,
which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
We
presently lack manufacturing capabilities to produce our product candidates at commercial scale quantities and do not have an
alternate manufacturing supply, which could negatively impact our ability to meet any future demand for the products.
Currently, we expect our
laboratory (or a contract laboratory) to provide the cell processing services necessary for clinical production of
BRTX-100
for our disc clinical trial. To date, we have not produced any products at our laboratory. We expect that we would need to
significantly expand our manufacturing capabilities to meet potential commercial demand for
BRTX-100
and any other of our
product candidates, if approved, as well as any of our other product candidates that might attain regulatory approval. Such expansion
would require additional regulatory approvals. Even if we increase our manufacturing capabilities, it is possible that we may
still lack sufficient capacity to meet demand. Ultimately, if we are unable to supply our products to meet commercial demand,
whether because of processing constraints or other disruptions, delays or difficulties that we experience, sales of the products
and their long-term commercial prospects could be significantly damaged.
We
do not presently have a third-party manufacturer for
BRTX-100
or any of our other product candidates. If our facilities
at which these product candidates would be manufactured or our equipment were significantly damaged or destroyed, or if there
were other disruptions, delays or difficulties affecting manufacturing capacity, our planned and future clinical studies and commercial
production for these product candidates would likely be significantly disrupted and delayed. It would be both time consuming and
expensive to replace this capacity with third parties, particularly since any new facility would need to comply with the regulatory
requirements.
Ultimately,
if we are unable to supply our cell therapy product candidates to meet commercial demand (assuming commercial approval is obtained),
whether because of processing constraints or other disruptions, delays or difficulties that we experience, our production costs
could dramatically increase and sales of the product and its long-term commercial prospects could be significantly damaged.
The
commercial potential and profitability of our products are unknown and subject to significant risk and uncertainty.
Even
if we successfully develop and obtain regulatory approval for our cell therapy product candidates, the market may not understand
or accept the products, which could adversely affect both the timing and level of future sales. Ultimately, the degree of market
acceptance of our product candidates (or any of our future product candidates) will depend on a number of factors, including:
|
●
|
the
clinical effectiveness, safety and convenience of the product particularly in relation to alternative treatments;
|
|
|
|
|
●
|
our
ability to distinguish our products (which involve adult cells) from any ethical and political controversies associated with
stem cell products derived from human embryonic or fetal tissue; and
|
|
|
|
|
●
|
the
cost of the product, the reimbursement policies of government and third-party payors and our ability to obtain sufficient
third-party coverage or reimbursement.
|
Even
if we are successful in achieving sales of our product candidates, it is not clear to what extent, if any, the products will be
profitable. The costs of goods associated with production of cell therapy products are significant. In addition, some changes
in manufacturing processes or procedures generally require FDA or foreign regulatory authority review and approval prior to implementation.
We may need to conduct additional pre-clinical studies and clinical trials to support approval of any such changes. Furthermore,
this review process could be costly and time-consuming and could delay or prevent the commercialization of product candidates.
We
may have difficulties in sourcing brown adipose (fat) tissue.
Our
research agreement with the University of Utah (which expired in June 2015) provided an opportunity for us to obtain brown adipose
(fat) tissue that we use to identify and characterize brown adipose derived stem cells for use in our pre-clinical
ThermoStem
Program.
There is no certainty that we will be able to continue to collect brown adipose samples through relationships that
we may establish with other potential sources of brown adipose tissue. The loss of brown tissue procurement would have a material
adverse effect upon our ability to advance the
ThermoStem Program.
We
are required to complete a certain milestone or pay a certain royalty amount to maintain our exclusive license rights with regard
to the disc/spine technology. The loss of such exclusive rights would have a material adverse effect upon us.
Pursuant
to our license agreement with Regenerative Sciences, LLC, we must complete a certain milestone or pay a certain royalty amount
in order to maintain our exclusive rights with regard to the disc/spine technology. No assurances can be given that we will achieve
such milestone or have the funds, if necessary, to pay such royalty amount. Any loss of such exclusive rights would have a material
adverse effect upon our business, results of operations and financial condition.
See Item 1 (“Business - (b) Business
- Disc/Spine Program-License").
If
safety problems are encountered by us or others developing new stem cell-based therapies, our stem cell initiatives could be materially
and adversely affected.
The
use of stem cells for therapeutic indications is still in the very early stages of development. If an adverse event occurs during
clinical trials related to one of our proposed products and/or services or those of others, the FDA and other regulatory authorities
may halt clinical trials or require additional studies. The occurrence of any of these events would delay, and increase the cost
of, our development efforts and may render the commercialization of our proposed products and/or services impractical or impossible.
Ethical
and other concerns surrounding the use of stem cell therapy may negatively impact the public perception of our stem cell products
and/or services, thereby suppressing demand for our products and/or services.
Although
our contemplated stem cell business pertains to adult stem cells only, and does not involve the more controversial use of embryonic
stem cells, the use of adult human stem cells for therapy could give rise to similar ethical, legal and social issues as those
associated with embryonic stem cells, which could adversely affect its acceptance by consumers and medical practitioners. Additionally,
it is possible that our business could be negatively impacted by any stigma associated with the use of embryonic stem cells if
the public fails to appreciate the distinction between adult and embryonic stem cells. Delays in achieving public acceptance may
materially and adversely affect the results of our operations and profitability.
We
are vulnerable to competition and technological change, and also to physicians’ inertia.
We
will compete with many domestic and foreign companies in developing our technology and products, including biotechnology, medical
device and pharmaceutical companies. Many current and potential competitors have substantially greater financial, technological,
research and development, marketing, and personnel resources. There is no assurance that our competitors will not succeed in developing
alternative products and/or services that are more effective, easier to use, or more economical than those which we may develop,
or that would render our products and/or services obsolete and non-competitive. In general, we may not be able to prevent others
from developing and marketing competitive products and/or services similar to ours or which perform similar functions or which
are marketed before ours.
Competitors
may have greater experience in developing products, therapies or devices, conducting clinical trials, obtaining regulatory clearances
or approvals, manufacturing and commercialization. It is possible that competitors may obtain patent protection, approval, or
clearance from the FDA or achieve commercialization earlier than we can, any of which could have a substantial negative effect
on our business.
We
will compete against cell-based therapies derived from alternate sources, such as bone marrow, adipose tissue, umbilical cord
blood and potentially embryos. Doctors historically are slow to adopt new technologies like ours, whatever the merits, when older
technologies continue to be supported by established providers. Overcoming such inertia often requires very significant marketing
expenditures or definitive product performance and/or pricing superiority.
We
expect that physicians’ inertia and skepticism will also be a significant barrier as we attempt to gain market penetration
with our future products and services. We may need to finance lengthy time-consuming clinical studies (so as to provide convincing
evidence of the medical benefit) in order to overcome this inertia and skepticism.
We
may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may
not realize the benefits of such alliances or licensing arrangements.
We
may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements
with third parties that we believe will complement or augment our development and commercialization efforts with respect to our
product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring
and other charges, increase our near and long-term expenditures, issue securities that dilute the shares of our existing stockholders,
or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners
and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic
partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage
of development for collaborative effort and third parties may not view our product candidates as having the requisite potential
to demonstrate safety and efficacy.
Further,
collaborations involving our product candidates, such as our collaborations with third-party research institutions, are subject
to numerous risks, which may include the following:
|
●
|
collaborators
have significant discretion in determining the efforts and resources that they will apply to a collaboration;
|
|
|
|
|
●
|
collaborators
may not pursue development and commercialization of our product candidates or may elect not to continue or renew development
or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of
competitive products, availability of funding, or other external factors, such as a business combination that diverts resources
or creates competing priorities;
|
|
|
|
|
●
|
collaborators
may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate,
repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;
|
|
|
|
|
●
|
collaborators
could independently develop, or develop with third parties, products that compete directly or indirectly with our products
or product candidates;
|
|
|
|
|
●
|
a
collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing
and distribution;
|
|
|
|
|
●
|
collaborators
may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information
in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property
or proprietary information or expose us to potential liability;
|
|
|
|
|
●
|
disputes
may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization
of our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;
|
|
|
|
|
●
|
collaborations
may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization
of the applicable product candidates; and
|
|
|
|
|
●
|
collaborators
may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases,
we would not have the exclusive right to commercialize such intellectual property.
|
As
a result, if we enter into collaboration agreements and strategic partnerships or license our products or businesses, we may not
be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations
and company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that,
following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction.
Any delays in entering into new collaborations or strategic partnership agreements related to our product candidates could delay
the development and commercialization of our product candidates in certain geographies for certain indications, which would harm
our business prospects, financial condition, and results of operations.
We have limited experience in the development
and marketing of cell therapies and may be unsuccessful in our efforts to establish a profitable business.
Over
the past six years, our business plan has been focused on capturing a piece of the burgeoning field of cell therapy. We have limited
experience in the areas of cell therapy product development and marketing, and in the related regulatory issues and processes.
Although we have recruited a team that has experience with designing and conducting clinical trials, as a company, we have limited
experience in conducting clinical trials and no experience in conducting clinical trials through to regulatory approval of any
product candidate. In part because of this lack of experience, we cannot be certain that planned clinical trials will begin or
be completed on time, if at all. We cannot assure that we will successfully achieve our clinical development goals or fulfill
our plans to capture a piece of the cell therapy market.
Our
cell therapy business is based on novel technologies that are inherently expensive, risky and may not be understood by or accepted
in the marketplace, which could adversely affect our future value.
The
clinical development, commercialization and marketing of cell and tissue-based therapies are at an early-stage, substantially
research-oriented, and financially speculative. To date, very few companies have been successful in their efforts to develop and
commercialize a cell therapy product. In general, cell-based or tissue-based products may be susceptible to various risks, including
undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy, or other characteristics
that may prevent or limit their approval or commercial use. In addition,
BRTX-100
is a cell-based candidate that is produced
by using a patient’s own stem cells derived from bone marrow. Regulatory approval of novel product candidates such as
BRTX-100
,
which is manufactured using novel manufacturing processes, can be more complex and expensive and take longer than other, more
well-known or extensively studied pharmaceutical or biopharmaceutical products, due to the FDA’s lack of experience with
them. To our knowledge, the FDA has not yet approved a disc related stem cell therapy product. This lack of experience may lengthen
the regulatory review process, require us to conduct additional studies or clinical trials, which would increase our development
costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these product
candidates or lead to significant post-approval limitations or restrictions. Furthermore, the number of people who may use cell
or tissue-based therapies is difficult to forecast with accuracy. Our future success is dependent on the establishment of a large
global market for cell- and tissue-based therapies and our ability to capture a share of this market with our product candidates.
Our
cell therapy product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
With
the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, an abbreviated pathway for the approval
of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority
for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable”
based on its similarity to an existing reference product. Under the BPCIA, an application for a biosimilar product cannot be approved
by the FDA until 12 years after the original branded product is approved under a biologics license application, or BLA. Although
the FDA has approved several biosimilar products, complex provisions of the law are still being implemented by the FDA and interpreted
by the federal courts. As a result, the ultimate impact, implementation, and meaning of the BPCIA are still subject to some uncertainty
and FDA actions and court decisions concerning the law could have a material adverse effect on the future commercial prospects
for our biological products.
We
believe that, if any of our product candidates are approved as a biological product under a BLA, it should qualify for the 12-year
period of exclusivity. However, there is a risk that the FDA could permit biosimilar applicants to reference approved biologics
other than our therapeutic candidates, thus circumventing our exclusivity and potentially creating the opportunity for competition
sooner than anticipated. Additionally, this period of regulatory exclusivity does not apply to companies pursuing regulatory approval
via their own traditional BLA, rather than via the abbreviated pathway. Moreover, the extent to which a biosimilar, once approved,
will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
We
may be subject to significant product liability claims and litigation, including potential exposure from the use of our product
candidates in human subjects, and our insurance may be inadequate to cover claims that may arise.
Our
business exposes us to potential product liability risks inherent in the testing, processing and marketing of cell therapy products.
Such liability claims may be expensive to defend and result in large judgments against us. We face an inherent risk of product
liability exposure related to the testing of our current and any future product candidates in human clinical trials and will face
an even greater risk with respect to any commercial sales of our products should they be approved. No product candidate has been
widely used over an extended period of time, and therefore safety data is limited. Cell therapy companies derive the raw materials
for manufacturing of product candidates from human cell sources, and therefore the manufacturing process and handling requirements
are extensive, which increases the risk of quality failures and subsequent product liability claims.
We
will need to maintain insurance coverage adequate to cover our clinical trials and increase that coverage before commercializing
product candidates, if ever. At any time during our clinical trials or after commercialization, if that occurs, we may not be
able to obtain or maintain product liability insurance on acceptable terms with adequate coverage or at all, or if claims against
us substantially exceed our coverage, then our financial position could be significantly impaired.
Whether
or not we are ultimately successful in any product liability litigation that may arise, such litigation could consume substantial
amounts of our financial and managerial resources, result in decreased demand for our products and injure our reputation.
We
seek to maintain errors and omissions, directors and officers, workers’ compensation and other insurance at levels we believe
to be appropriate to our business activities. If, however, we were subject to a claim in excess of this coverage or to a claim
not covered by our insurance and the claim succeeded, we would be required to pay the claim from our own limited resources, which
could have a material adverse effect on our financial condition, results of operations and business. Additionally, liability or
alleged liability could harm our business by diverting the attention and resources of our management and damaging our reputation.
Our
internal computer systems, or those that are expected to be used by our clinical investigators, clinical research organizations
or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of development
programs for our product candidates.
We
rely on information technology systems to keep financial records, maintain laboratory and corporate records, communicate with
staff and external parties and operate other critical functions. Any significant degradation or failure of these computer systems
could cause us to inaccurately calculate or lose data. Despite the implementation of security measures, these internal computer
systems and those used by our clinical investigators, clinical research organizations, and other contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and
electrical failures. The techniques that could be used by criminal elements or foreign governments to attack these computer systems
are sophisticated, change frequently and may originate from less regulated and remote areas of the world. While we have not experienced
any such system failure, theft of information, accident or security breach to date, if such an event were to occur and cause interruptions
in our operations, it could result in a material disruption of our clinical development activities. For example, the loss of clinical
trial data from historical or future clinical trials could result in delays in regulatory approval efforts and significantly increase
costs to recover or reproduce the data. To the extent that any disruption, theft of information, or security breach were to result
in a loss of or damage to data or applications, or inappropriate disclosure of confidential or proprietary information, we could
incur liability and the clinical development and the future development of our product candidates could be delayed.
To
operate and sell in international markets carries great risk.
We
intend to market our products and services both domestically and in foreign markets. A number of risks are inherent in international
transactions. In order for us to market our products and services in non-U.S. jurisdictions, we need to obtain and maintain required
regulatory approvals or clearances in these countries and must comply with the country specific regulations regarding safety,
manufacturing processes and quality. These regulations, including the requirements for approvals or clearances to market, may
differ from the FDA regulatory scheme. International operations and sales also may be limited or disrupted by political instability,
price controls, trade restrictions and changes in tariffs. Additionally, fluctuations in currency exchange rates may adversely
affect demand for our services and products by increasing the price of our products and services in the currency of the countries
in which the products and services are offered.
There
can be no assurance that we will obtain regulatory approvals or clearances in all of the countries where we intend to market our
products and services, or that we will not incur significant costs in obtaining or maintaining foreign regulatory approvals or
clearances, or that we will be able to successfully commercialize our products and services in various foreign markets. Delays
in receipt of approvals or clearances to market our products and services in foreign countries, failure to receive such approvals
or clearances or the future loss of previously received approvals or clearances could have a substantial negative effect on our
results of operations and financial condition.
Our
inability to obtain reimbursement for our products and services from private and governmental insurers could negatively impact
demand for our products and services.
Successful
sales of health care products and services generally depends, in part, upon the availability and amounts of reimbursement from
third party healthcare payor organizations, including government agencies, private healthcare insurers and other healthcare payors,
such as health maintenance organizations and self-insured employee plans. Uncertainty exists as to the availability of reimbursement
for such new therapies as stem cell-based therapies. There can be no assurance that such reimbursement will be available in the
future at all or without substantial delay or, if such reimbursement is provided, that the approved reimbursement amounts will
be sufficient to support demand for our products and services at a level that will be profitable.
Risks
Related to Our Intellectual Property
We
may not be able to protect our proprietary rights.
Our
commercial success will depend in large part upon our ability to protect our proprietary rights. There is no assurance, for example,
that any additional patents will be issued to us or, if issued, that such patents will not become the subject of a re-examination,
will provide us with competitive advantages, will not be challenged by any third parties, or that the patents of others will not
prevent the commercialization of products and services incorporating our technology. Furthermore, there can be no guarantee that
others will not independently develop similar products and services, duplicate any of our products and services, or design around
any patents we obtain.
Our
commercial success will also depend upon our ability to avoid infringing patents issued to others. If we were judicially determined
to be infringing on any third-party patent, we could be required to pay damages, alter our products, services or processes, obtain
licenses, or cease certain activities. If we are required in the future to obtain any licenses from third parties for some of
our products and/or services, there can be no guarantee that we would be able to do so on commercially favorable terms, if at
all. United States and foreign patent applications are not immediately made public, so we might be surprised by the grant to someone
else of a patent on a technology we are actively using. Although we conducted a freedom to operate, or FTO, search on the licensed
technology associated with our
Disc/Spine Program
, modifications made, and/or further developments that may be made, to
that technology may not be covered by the initial FTO. No FTO has been undertaken with respect to our
ThermoStem
brown
fat initiative.
Litigation,
which would result in substantial costs to us and the diversion of effort on our part, may be necessary to enforce or confirm
the ownership of any patents issued or licensed to us, or to determine the scope and validity of third-party proprietary rights.
If our competitors claim technology also claimed by us and prepare and file patent applications in the United States, we may have
to participate in interference proceedings declared by the U.S. Patent and Trademark Office, or the Patent Office, or a foreign
patent office to determine priority of invention, which could result in substantial costs and diversion of effort, even if the
eventual outcome is favorable to us. Any such litigation or interference proceeding, regardless of outcome, could be expensive
and time-consuming.
Successful
challenges to our patents through oppositions, re-examination proceedings or interference proceedings could result in a loss of
patent rights in the relevant jurisdiction. If we are unsuccessful in actions we bring against the patents of other parties, and
it is determined that we infringe upon the patents of third parties, we may be subject to litigation, or otherwise prevented from
commercializing potential products and/or services in the relevant jurisdiction, or may be required to obtain licenses to those
patents or develop or obtain alternative technologies, any of which could harm our business. Furthermore, if such challenges to
our patent rights are not resolved in our favor, we could be delayed or prevented from entering into new collaborations or from
commercializing certain products and/or services, which could adversely affect our business and results of operations.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition,
during the course of litigation there could be public announcements of the results of hearings, motions or other interim proceedings
or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse
effect on the price of our common stock.
In
addition to patents, we intend to also rely on unpatented trade secrets and proprietary technological expertise. Some of our intended
future cell-related therapeutic products and/or services may fit into this category. We intend to rely, in part, on confidentiality
agreements with our partners, employees, advisors, vendors, and consultants to protect our trade secrets and proprietary technological
expertise. There can be no guarantee that these agreements will not be breached, or that we will have adequate remedies for any
breach, or that our unpatented trade secrets and proprietary technological expertise will not otherwise become known or be independently
discovered by competitors.
Failure
to obtain or maintain patent protection, failure to protect trade secrets, third-party claims against our patents, trade secrets,
or proprietary rights or our involvement in disputes over our patents, trade secrets, or proprietary rights, including involvement
in litigation, could divert our efforts and attention from other aspects of our business and have a substantial negative effect
on our results of operations and financial condition.
We
may not be able to protect our intellectual property in countries outside of the United States.
Intellectual
property law outside the United States is uncertain and, in many countries, is currently undergoing review and revisions. The
laws of some countries do not protect our patent and other intellectual property rights to the same extent as United States laws.
Third parties may attempt to oppose the issuance of patents to us in foreign countries by initiating opposition proceedings. Opposition
proceedings against any of our patent filings in a foreign country could have an adverse effect on our corresponding patents that
are issued or pending in the United States. It may be necessary or useful for us to participate in proceedings to determine the
validity of our patents or our competitors’ patents that have been issued in countries other than the United States. This
could result in substantial costs, divert our efforts and attention from other aspects of our business, and could have a material
adverse effect on our results of operations and financial condition.
Changes
to United States patent law may have a material adverse effect on our intellectual property rights.
The
Leahy-Smith America Invents Act, or AIA, which was signed into law in 2011, significantly changes United States patent law. It
may take some time to establish what the law means, since it is just being interpreted by the lower courts, Federal Circuit Courts
of Appeal, and the Supreme Court. The effects of these decisions are still not known. The first major change is that AIA switches
the United States patent system from a “first to invent” system to a “first to file” system. Now that
the first to file system is in effect, there is a risk that another company may independently develop identical or similar patents
at approximately the same time, and be awarded the patents instead of us. Further, for the second major change, AIA abolished
interference proceedings, and establishes derivation proceedings to replace interference proceedings in all cases in which the
time period for instituting an interference proceeding has not lapsed where an inventor named in an earlier application derived
the claimed invention from a named inventor. Now that the derivation proceedings are in effect, there is a risk that the inventorship
of any pending patent application can be challenged for reasons of derivation. The third major change is that AIA established
post-grant opposition proceedings that will apply only to patent applications filed after “first to file” became effective.
Post-grant opposition will enable a person who is not the patent owner to initiate proceedings in the Patent Office within nine
months after the grant of a patent that can result in cancellation of a patent as invalid. In addition to AIA, recent court decisions
have created uncertainty with regard to our ability to obtain and maintain patents. Therefore there is a risk that any of our
patents once granted may be subject to post-grant opposition, which will increase uncertainty on the validity of any newly granted
patent or may ultimately result in cancellation of the patent.
In
addition the Supreme Court has recently taken more limiting positions as to what constitutes patentable subject matter. As a result,
many patents covering what were previously patentable inventions are now determined to cover inventions which are deemed non-statutory
subject matter and are now invalid. As a result of this and subsequent opinions by the Court of Appeals for the Federal Circuit,
the Patent Office is now applying more stringent limitations to claims in patent applications and is refusing to grant patents
in areas of technology where patents were previously deemed available. Therefore there is a risk that we will be unable to acquire
patents to cover our products and if such patents are granted they may subsequently be found to be invalid.
In
certain countries, patent holders may be required to grant compulsory licenses, which would likely have a significant and detrimental
effect on any future revenues in such country.
Many
countries, including some countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant
licenses to third parties. In addition, most countries limit the enforceability of patents against government agencies or government
contractors. In these countries, the patent owner may be limited to monetary relief and may be unable to enjoin infringement,
which could materially diminish the value of the patent. Compulsory licensing of life-saving products is also becoming increasingly
common in developing countries, either through direct legislation or international initiatives. Such compulsory licenses could
be extended to our product candidates, which may limit our potential revenue opportunities, including with respect to any future
revenues that may result from our product candidates.
Risks
Related to Government Regulation
We
operate in a highly-regulated environment and may be unable to comply with applicable federal, state, local, and international
requirements. Failure to comply with applicable government regulation may result in a loss of licensure, registration, and approval
or other government enforcement actions.
We
intend to develop stem cell based therapeutic products and related device accessories. These products and operations are subject
to regulation in the United States by the FDA, the FTC the CMS, state authorities and comparable authorities in foreign jurisdictions.
Government regulation is a significant factor affecting the research, development, formulation, manufacture, and marketing of
our products. If we fail to comply with applicable regulations, we may be subject to, among other things, fines, suspension or
withdrawal of regulatory approvals, product recalls, operating restrictions and criminal prosecution.
The
FDA requires facilities that are engaged in the recovery, processing, storage, labeling, packaging, or distribution of human cells,
tissues, cellular and tissue-based products, or HCT/Ps, or in the screening or testing of donors of HCT/Ps to register and list
the HCT/Ps that it manufactures, comply with current Good Tissue Practices, or cGTPs, and other procedures to prevent the introduction,
transmission, and spread of communicable diseases. Our New York-based laboratory and any treatment centers we may open in the
United States may be required to comply with the HCT/P regulations. In addition, any third party retained by us that engages in
the manufacture of an HCT/P on our behalf must also comply with the HCT/P regulations. If we or our third-party contractors fail
to register, update registration information, or comply with any HCT/P regulation, we will be out of compliance with FDA regulations,
which could adversely affect our business. Furthermore, adverse events in the field of stem cell therapy may result in greater
governmental regulation, which could create increased expenses, potential delays, or otherwise affect our business.
We
believe that some of our products and services may be regulated solely as HCT/Ps; however, it is possible that some or all of
our products may be regulated as drugs, medical devices, and/or biological products and therefore will likely require FDA regulatory
approval or clearance prior to being marketed in the United States. The FDA approval process can be lengthy, expensive, and uncertain
and there is no guarantee of ultimate approval or clearance. Even if our products are approved, FDA regulation of promotional
and manufacturing activities can affect our ability to market a drug, biologic or medical device. These products must comply with
the applicable current Good Manufacturing Practices (for drug products), Quality System Regulations (for medical devices), or
General Biological Product Standards (for biological products) as set forth in Title 21 of the Code of Federal Regulations. These
regulations govern the manufacture, processing, packaging, and holding of the products. The FDA conducts inspections to enforce
compliance with these regulations. We and any third-party contractor that manufactures these products on our behalf must comply
with the applicable regulations. If we or any third party retained by us that engages in the manufacture of a drug, medical device,
or biological product fails to comply with the applicable regulations, we will be out of compliance with FDA regulations, which
could adversely affect our business. Discovery after FDA approval of previously unknown problems with a product, manufacturer
or manufacturing process, or a failure to comply with regulatory requirements, may result in actions such as:
|
●
|
warning
letters or untitled letters or other actions requiring changes in product manufacturing processes or restrictions on product
marketing or distribution;
|
|
|
|
|
●
|
product
recalls or seizures or the temporary or permanent withdrawal of a product from the market; and
|
|
|
|
|
●
|
fines,
restitution or disgorgement of profits or revenue, the imposition of civil penalties or criminal prosecution.
|
In
addition, the FDA regulates and prescribes good laboratory practices, or GLPs, for conducting nonclinical laboratory studies that
support applications for research or marketing permits for products regulated by the FDA. GLPs provide requirements for organization,
personnel, facilities, equipment, testing, facilities operation, test and control articles, protocol for nonclinical laboratory
study, records, reports, and disqualification by the FDA to ensure the quality and integrity of the safety data filed in research
and marketing permits. Failure to comply with the GLPs could adversely affect our business.
The
FTC regulates and polices advertising in the United States of medical treatments, procedures, and regimens that take place inside
and outside of the United States. FTC regulations are designed to prevent unfair and deceptive practices and false advertising.
The FTC requires advertisers and promoters to have a reasonable basis to substantiate and support claims. Failure to sufficiently
substantiate and support claims can lead to enforcement action by the FTC, such as a disgorgement order of any profits made from
the promoted business or an injunction from further violative promotion. Such enforcement actions could have an adverse effect
on our business.
State
and local governments impose additional licensing and other requirements for clinical laboratories and facilities that collect,
process, and administer stem cells. Our laboratory and any future treatment facilities that we may operate in the United States
must comply with these additional licensing and other requirements. The licensing regulations require personnel with specific
education, experience, training, and other credentials. There can be no assurance that these individuals can be retained or will
remain retained or that the cost of retaining such individuals will not materially and adversely affect our ability to operate
our business profitably. There can be no assurance that we can obtain the necessary licensure required to conduct business in
any state or that the cost of compliance will not adversely affect our ability to operate our business profitably.
CMS
has authority to implement the Clinical Laboratories Improvement Amendments, or CLIA, program. When we begin laboratory operations
in the United States, we will need to comply with the CLIA program standards. CLIA is designed to establish quality laboratory
testing by ensuring the accuracy, reliability, and timeliness of patient test results. Laboratories that handle stem cells and
other biologic matter are included under the CLIA program. Under the CLIA program, laboratories must be certified by the government,
satisfy governmental quality and personnel standards, undergo proficiency testing, be subject to inspections, and pay fees. The
failure to comply with CLIA standards could result in suspension, revocation, or limitation of a laboratory’s CLIA certificate.
In addition, fines or criminal penalties could also be levied. To the extent that our business activities require CLIA certification,
we intend to obtain and maintain such certification. There is no guarantee that we will be able to gain CLIA certification. Failure
to gain CLIA certification or comply with the CLIA requirements will adversely affect our business.
The
Department of Health and Human Services, or HHS, published the
Standards for Privacy of Individually Identifiable Health Information,
or the Privacy Rule, and the
Security Standards for the Protection of Electronic Protected Health Information
, or the
Security Rule, pursuant to the Health Insurance Portability and Accountability Act, or HIPAA. The Privacy Rule specifies the required,
permitted and prohibited uses and disclosures of an individual’s protected health information by health plans, health care
clearinghouses, and any health care provider that transmits health information in electronic format (referred to as covered entities).
The Security Rule establishes a national security standard for safeguarding protected health information that is held or transferred
in electronic form (referred to as electronic protected health information). The Security Rule addresses the technical and non-technical
safeguards that covered entities must implement to secure individuals’ electronic protected health information.
In
addition to covered entities, the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, made
certain provisions of the Security Rule, as well as the additional requirements the HITECH Act imposed that relate to security
and privacy and that are imposed on covered entities, directly applicable as a matter of law to individuals and entities that
perform permitted functions on behalf of covered entities when those functions involve the use or disclosure of protected health
information. These individuals and entities are referred to as business associates. Covered entities are required to enter into
a contract with business associates, called a business associate agreement, that also imposes many of the Privacy Rule requirements
on business associates as a matter of contract.
Regulations
implementing the majority of the requirements created by the HITECH Act were issued in January 2013 (we refer to these regulations
as the Final Rule). Among other things, the Final Rule broadened the definition of business associate to include subcontractors.
As a result, a subcontractor who performs tasks involving the use or disclosure of protected health information on behalf of a
business associate must likewise comply with the same obligations as the business associate.
The
HITECH Act also established notification requirements in the event that a breach of the protected health information occurs at
a covered entity or business associate. These notification obligations mandate that each affected individual whose protected health
information was impermissibly accessed receive written notification mailed to his residence of record and that the Secretary of
HHS and potentially the media also be notified. HHS, through its Office for Civil Rights, investigates breach reports and determines
whether administrative or technical modifications are required and whether civil or criminal sanctions should be imposed. Companies
failing to comply with HIPAA and the implementing regulations may also be subject to civil money penalties or in the case of knowing
violations, potential criminal penalties, including monetary fines, imprisonment, or both. In some cases, the State Attorneys
General may seek enforcement and appropriate sanctions in federal court.
To
the extent that our business requires compliance with HIPAA, we intend to fully comply with all requirements as well as to other
additional federal or state privacy laws and regulations that may apply to us. As HIPAA is amended and changed, we will incur
additional compliance burdens. We may be required to spend substantial time and money to ensure compliance with ever-changing
federal and state standards as electronic and other means of transmitting protected health information evolve.
In
addition to the above-described regulation by United States federal and state government, the following are other federal and
state laws and regulations that could directly or indirectly affect our ability to operate the business:
|
●
|
state
and local licensure, registration, and regulation of the development of pharmaceuticals and biologics;
|
|
|
|
|
●
|
state
and local licensure of medical professionals;
|
|
|
|
|
●
|
state
statutes and regulations related to the corporate practice of medicine;
|
|
|
|
|
●
|
laws
and regulations administered by U.S. Customs and Border Protection related to the importation of biological material into
the United States;
|
|
|
|
|
●
|
other
laws and regulations administered by the FDA;
|
|
|
|
|
●
|
other
laws and regulations administered by HHS;
|
|
|
|
|
●
|
state
and local laws and regulations governing human subject research and clinical trials;
|
|
|
|
|
●
|
the
federal physician self-referral prohibition, also known as Stark Law, and any state equivalents to Stark Law;
|
|
|
|
|
●
|
the
federal Anti-Kickback Statute and any state equivalent statutes and regulations;
|
|
|
|
|
●
|
federal
and state coverage and reimbursement laws and regulations;
|
|
|
|
|
●
|
state
and local laws and regulations for the disposal and handling of medical waste and biohazardous material;
|
|
|
|
|
●
|
Occupational
Safety and Health Administration, or OSHA, regulations and requirements;
|
|
|
|
|
●
|
the
Intermediate Sanctions rules of the IRS providing for potential financial sanctions with respect to “excess benefit
transactions” with tax-exempt organizations;
|
|
|
|
|
●
|
the
Physician Payments Sunshine Act (in the event that our products are classified as drugs, biologics, devices or medical supplies
and are reimbursed by Medicare, Medicaid or the Children’s Health Insurance Program); and
|
|
|
|
|
●
|
state
and other federal laws governing the privacy of health information.
|
Any
violation of these laws could result in a material adverse effect on our business.
In
the event we determine to operate in foreign jurisdictions, we will need to comply with the government regulations of each individual
country in which any therapy centers that we may establish are located and products are to be distributed and sold. These regulations
vary in complexity and can be as stringent, and on occasion even more stringent, than FDA regulations in the United States. Due
to the fact that there are new and emerging cell therapy and cell banking regulations that have recently been drafted and/or implemented
in various countries around the world, the application and subsequent implementation of these new and emerging regulations have
little to no precedence. Therefore, the level of complexity and stringency is not always precisely understood today for each country,
creating greater uncertainty for the international regulatory process. Furthermore, government regulations can change with little
to no notice and may result in up-regulation of our products, thereby creating a greater regulatory burden for our cell processing
technology products. We have not yet thoroughly explored the applicable laws and regulations that we will need to comply with
in foreign jurisdictions. It is possible that we may not be permitted to expand our business into one or more foreign jurisdictions.
We
intend to conduct our business in full compliance with all applicable federal, state and local, and foreign laws and regulations.
However, the laws and regulations affecting our business are complex, often are not contemplated by existing legal régimes,
and are subject to change without notice. As a result, the laws and regulations affecting our business are uncertain and have
not been the subject of judicial or regulatory interpretation. Furthermore, stem cells and cell therapy are topics of interest
in the government and public arenas. There can be no guarantee that laws and regulations will not be implemented, amended and/or
reinterpreted in a way that will negatively affect our business. Likewise, there can be no assurance that we will be able, or
will have the resources, to maintain compliance with all such healthcare laws and regulations. Failure to comply with such healthcare
laws and regulations, as well as the costs associated with such compliance or with enforcement of such healthcare laws and regulations,
may have a material adverse effect on our operations or may require restructuring of our operations or impair our ability to operate
profitably.
The
failure to receive regulatory approvals for our cell therapy product candidates would likely have a material and adverse effect
on our business and prospects.
To
date, we have not received regulatory approval to market any of our product candidates in any jurisdiction. If we seek approval
of any of our cell therapy product candidates, we will be required to submit to the FDA and potentially other regulatory authorities
extensive pre-clinical and clinical data supporting its safety and efficacy, as well as information about the manufacturing process
and to undergo inspection of our manufacturing facility or other contract manufacturing facilities, among other things. The process
of obtaining FDA and other regulatory approvals is expensive, generally takes many years and is subject to numerous risks and
uncertainties, particularly with complex and/or novel product candidates such as our cell-based product candidates. Changes in
regulatory approval requirements or policies may cause delays in the approval or rejection of an application or may make it easier
for our competitors to gain regulatory approval to enter the marketplace. Ultimately, the FDA and other regulatory agencies have
substantial discretion in the approval process and may refuse to accept any application or may decide that our product candidate
data are insufficient for approval without the submission of additional preclinical, clinical or other studies. In addition, varying
agency interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval
of a product candidate. Any difficulties or failures that we encounter in securing regulatory approval for our product candidates
would likely have a substantial adverse impact on our ability to generate product sales, and could make any search for a collaborative
partner more difficult. Similarly, any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval
commitments that render the approved product not commercially viable.
If
we are unable to conduct clinical studies in accordance with regulations and accepted standards, we may be delayed in receiving,
or may never receive, regulatory approvals of our product candidates from the FDA and other regulatory authorities.
To
obtain marketing approvals for our product candidates in the United States and abroad, we must, among other requirements, complete
adequate and well-controlled clinical trials sufficient to demonstrate to the FDA and other regulatory bodies that the product
candidate is safe and effective for each indication for which approval is sought. If the FDA finds that patients enrolled in the
trial are or would be exposed to an unreasonable and significant risk of illness or injury, due to, among other things, occurrence
of a serious adverse event in an ongoing clinical trial, the FDA can place one or more of our clinical trials on hold. If safety
concerns develop, we may, or the FDA or an institutional review board may require us to, stop the affected trials before completion.
The
completion of our clinical trials also may be delayed or terminated for a number of other reasons, including if:
|
●
|
third-party
clinical investigators do not perform the clinical trials on the anticipated schedule or consistent with the clinical trial
protocol, good clinical practices required by the FDA and other regulatory requirements, or other third parties do not perform
data collection and analysis in a timely or accurate manner;
|
|
|
|
|
●
|
inspections
of clinical trial sites by the FDA or other regulatory authorities reveal violations that require us to undertake corrective
action, suspend or terminate one or more sites, or prohibit use of some or all of the data in support of marketing applications;
or
|
|
|
|
|
●
|
the
FDA or one or more institutional review boards suspends or terminates the trial at an investigational site, or precludes enrollment
of additional subjects.
|
Our
development costs will increase if there are material delays in our clinical trials, or if we are required to modify, suspend,
terminate or repeat a clinical trial. If we are unable to conduct our clinical trials properly, we may never receive regulatory
approval to market our product candidates.
Health
care companies have been the subjects of federal and state investigations, and we could become subject to investigations in the
future.
Both
federal and state government agencies have heightened civil and criminal enforcement efforts. There are numerous ongoing investigations
of health care companies, as well as their executives and managers. In addition, amendments to the federal False Claims Act, or
FCA, including under healthcare reform legislation, have made it easier for private parties to bring “
qui tam
”
(or whistleblower) lawsuits against companies under which the whistleblower may be entitled to receive a percentage of any money
paid to the government. The FCA provides, in part, that an action can be brought against any person or entity that has knowingly
presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or who has made a
false statement or used a false record to get a claim approved. The government has taken the position that claims presented in
violation of the federal anti-kickback law, Stark Law or other healthcare-related laws, including laws enforced by the FDA, may
be considered a violation of the FCA. Penalties include substantial fines for each false claim, plus three times the amount of
damages that the federal government sustained because of the act of that person or entity and/or exclusion from the Medicare program.
In addition, a majority of states have adopted similar state whistleblower and false claims provisions.
We
are not aware of any government investigations involving any of our facilities or management. While we believe that we are in
material compliance with applicable governmental healthcare laws and regulations, any future investigations of our business or
executives could cause us to incur substantial costs, and result in significant liabilities or penalties, as well as damage to
our reputation.
It
is uncertain to what extent the government, private health insurers and third-party payors will approve coverage or provide reimbursement
for the therapies and products to which our services relate. Availability for such reimbursement may be further limited by reductions
in Medicare and Medicaid funding in the United States.
To
the extent that health care providers cannot obtain coverage or reimbursement for our products and therapies, they may elect not
to provide such products and therapies to their patients and, thus, may not need our services. Further, as cost containment pressures
are increasing in the health care industry, government and private payors may adopt strategies designed to limit the amount of
reimbursement paid to health care providers.
Similarly,
the trend toward managed health care and bundled pricing for health care services in the United States, could significantly influence
the purchase of healthcare products and services, resulting in lower prices and reduced demand for our therapeutic products under
development.
We
may receive a portion of our revenues from services rendered to patients enrolled in federal health care programs, such as Medicare,
and we may also directly or indirectly receive revenues from federal health care programs. Federal health care programs are subject
to changes in coverage and reimbursement rules and procedures, including retroactive rate adjustments. These contingencies could
materially decrease the range of services covered by such programs or the reimbursement rates paid directly or indirectly for
our products and services. To the extent that any health care reform favors the reimbursement of other therapies over our therapeutic
products under development, such reform could affect our ability to sell our services, which may have a material adverse effect
on our revenues.
The
limitation on reimbursement available from private and government payors may reduce the demand for, or the price of, our products
and services, which could have a material adverse effect on our revenues. Additional legislation or regulation relating to the
health care industry or third-party coverage and reimbursement may be enacted in the future which could adversely affect the revenues
generated from the sale of our products and services.
Furthermore,
there has been a trend in recent years towards reductions in overall funding for Medicare and Medicaid. There has also been an
increase in the number of people who are not eligible for or enrolled in Medicare, Medicaid or other governmental programs. The
reduced funding of governmental programs could have a negative impact on the demand for our services to the extent it relates
to products and services which are reimbursed by government and private payors.
Unintended
consequences of healthcare reform legislation in the United States may adversely affect our business.
The
healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences. In the United
States, comprehensive programs are under consideration that seek to, among other things, increase access to healthcare for the
uninsured and control the escalation of healthcare expenditures within the economy. In 2010, healthcare reform legislation was
signed into law. While we do not believe this legislation will have a direct impact on our business, the legislation requires
the adoption of implementing regulations, which may have unintended consequences or indirectly impact our business. For instance,
the scope and implications of the amendments pursuant to the Fraud Enforcement and Recovery Act of 2009, or FERA, have yet to
be fully determined or adjudicated and as a result it is difficult to predict how future enforcement initiatives may impact our
business. If the legislation causes such unintended consequences or indirect impact, it could have a material adverse effect on
our business, financial condition and results of operations.
Competitor
companies or hospitals may be able to take advantage of European Union, or EU, rules permitting sales of unlicensed medicines
for individual patients to sell competing products without a marketing authorization.
The
EU medicines rules allow individual member states to permit the supply of a medicinal product without a marketing authorization
to fulfill special needs, where the product is supplied in response to a bona fide unsolicited order, formulated in accordance
with the specifications of a healthcare professional and for use by an individual patient under his direct personal responsibility.
This may in certain countries also apply to products manufactured in a country outside the EU and imported to treat specific patients
or small groups of patients. In addition, advanced therapy medicinal products do not need a marketing authorization if they are
prepared on a non-routine basis and are used within the same EU member state in a hospital in accordance with a medical prescription
for an individual patient.
These
exemptions could allow our competitors to make sales in the EU without having obtained a marketing authorization and without undergoing
the expense of clinical trials, especially if those competitors have cell processing facilities in the relevant EU member state.
Similarly, certain hospitals may be able to compete with us on the basis of these rules.
Risks
Related to Our Common Stock
We
pay no dividends.
We
have never paid cash dividends in the past, and currently do not intend to pay any cash dividends in the foreseeable future.
There
is at present only a limited market for our common stock and there is no assurance that an active trading market for our common
stock will develop.
Although
our common stock is quoted on the OTCQB market from time to time, the market for our common stock is extremely limited. Trading
prices and volumes on the OTCQB market are thin and erratic. We cannot predict at what price our shares will trade and there can
be no assurance that an active market for our shares will develop or, if developed, will be sustained. The volume traded at any
one time can be limited, and as a result, there may not be a liquid trading market for our shares. In addition, although there
have been market makers in our shares, we cannot assure that these market makers will continue to make a market in our shares
or that other factors outside of our control will not cause them to stop market making in our shares. Making a market in shares
involves maintaining bid and ask quotations and being able to effect transactions in reasonable quantities at those quoted prices,
subject to various securities laws and other regulatory requirements. Furthermore, the development and maintenance of a public
trading market depends upon the existence of willing buyers and sellers, the presence of which is not within our control or that
of any market maker. Market makers are not required to maintain a continuous two-sided market, are required to honor firm quotations
for only a limited number of shares, and are free to withdraw firm quotations at any time. Even with a market maker, factors such
as our past losses from operations and the small size of our company mean that there can be no assurance of an active and liquid
market for our shares developing in the foreseeable future. Even if a market develops, we cannot assure that a market will continue,
or that stockholders will be able to resell their shares at any price.
Our
common stock is classified as a “penny stock”; the restrictions of the penny stock regulations of the Securities and
Exchange Commission, or SEC, may result in less liquidity for our common stock.
The SEC has adopted regulations
which define a “penny stock” to be any equity security that has a market price (as therein defined) of less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Based upon the last reported
sale price of our common stock on the OTCQB market on March 15, 2017, as of such date, our common stock was a “penny stock”.
For any transactions involving a penny stock, unless exempt, the rules require the delivery, prior to any transaction involving
a penny stock by a retail customer, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure
is also required to be made about commissions payable to both the broker/dealer and the registered representative and current quotations
for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny stocks. If the market price for shares
of our common stock remains below $5.00, and we do not satisfy any of the exceptions to the SEC’s definition of penny stock,
our common stock will continue to be classified as a penny stock. If such classification should remain in place, as
a result of the penny stock restrictions, brokers or potential investors may be reluctant to trade in our securities, which may
result in less liquidity for our common stock.
Because
state securities laws may limit secondary trading, stockholders may be restricted as to the states in which they can sell their
shares.
Because
state securities laws may limit secondary trading, stockholders may be restricted as to the states in which they can sell their
shares. Stockholders may not be able to resell them in any state unless and until the shares are qualified for secondary trading
under the applicable securities laws of such state or there is confirmation that an exemption, such as listing in certain recognized
securities manuals, is available for secondary trading in such state. There can be no assurance that we will be successful in
registering or qualifying our shares for secondary trading, or identifying an available exemption for secondary trading in such
shares in every state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, our
shares in any particular state, the shares could not be offered or sold to, or purchased by, a resident of that state. In the
event that a significant number of states refuse to permit secondary trading in our shares, the market for the shares will be
limited, which could drive down the market price of the shares and reduce the liquidity of the shares and a stockholder’s
ability to resell the shares at all or at current market prices.
Stockholders
who hold unregistered shares of our common stock are subject to resale restrictions pursuant to Rule 144 due to our former status
as a “shell company”.
We
previously were a “shell company” pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended,
or Rule 144, and, as such, sales of our securities pursuant to Rule 144 cannot be made unless, among other things, we continue
to remain subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, and we file all of our required
periodic reports with the SEC under the Exchange Act. Because our unregistered securities cannot be sold pursuant to Rule 144
unless we continue to meet such requirements, any unregistered securities we sell in the future or issue to consultants or employees,
in consideration for services rendered or for any other purpose, will have no liquidity unless we continue to comply with such
requirements. As a result, it may be more difficult for us to obtain financing to fund our operations and pay our consultants
and employees with our securities instead of cash.
We
have incurred, and will continue to incur, increased costs as a result of being an SEC reporting company.
The
Sarbanes-Oxley Act of 2002, as well as a variety of related rules implemented by the SEC, have required changes in corporate governance
practices and generally increased the disclosure requirements of public companies. As a reporting company, we incur significant
legal, accounting and other expenses in connection with our public disclosure and other obligations. Based upon SEC regulations
currently in effect, we are required to establish, evaluate and report on our internal control over financial reporting. We believe
that compliance with the myriad of rules and regulations applicable to reporting companies and related compliance issues will
require a significant amount of time and attention from our management.
Our
stock price may fluctuate significantly and be highly volatile and this may make it difficult for a stockholder to resell shares
of our common stock at the volume, prices and times the stockholder finds attractive.
The
market price of our common stock could be subject to significant fluctuations and be highly volatile, which may make it difficult
for a stockholder to resell shares of our common stock at the volume, prices and times the stockholder finds attractive. There
are many factors that will impact our stock price and trading volume, including, but not limited to, the factors listed above
under “Risks Related to Our Business Generally”, “Risks Related to Our Cell Therapy Product Development Efforts”,
“Risks Related to Our Intellectual Property”, “Risks Related to Government Regulation”, and “Risks
Related to Our Common Stock.”
Stock
markets, in general, experience significant price and volume volatility, and the market price of our common stock may continue
to be subject to such market fluctuations that may be unrelated to our operating performance and prospects. Increased market volatility
and fluctuations could result in a substantial decline in the market price of our common stock.
There
may be future issuances or resales of our common stock which may materially and adversely dilute stockholders’ ownership
interest and affect the market price of our common stock.
We
are not restricted from issuing additional shares of our common stock in the future, including securities convertible into, or
exchangeable or exercisable for, shares of our common stock. Our issuance of additional shares of common stock in the future will
dilute the ownership interests of our then existing stockholders.
We have effective registration
statements on Form S-8 under the Securities Act registering an aggregate of 4,250,000 shares of our common stock issuable under
our 2010 Equity Participation Plan. Options to purchase 2,168,950 shares of our common stock are outstanding under the
plan. In addition, 45,000 shares of common stock were issued as restricted stock grant pursuant to the plan. 2,036,050
shares are reserved for future grants under the plan. The shares issuable pursuant to the registration statements on Form S-8
will be freely tradable in the public market, except for shares held by affiliates.
The
sale of a substantial number of shares of our common stock or securities convertible into, or exchangeable or exercisable for,
shares of our common stock, whether directly by us in this offering or future offerings or by our existing stockholders in the
secondary market, the perception that such issuances or resales could occur or the availability for future issuances or resale
of shares of our common stock or securities convertible into, or exchangeable or exercisable for, shares of our common stock could
materially and adversely affect the market price of our common stock and our ability to raise capital through future offerings
of equity or equity-related securities on attractive terms or at all.
In
addition, our Board of Directors is authorized to designate and issue preferred stock without further stockholder approval, and
we may issue other equity and equity-related securities that are senior to our common stock in the future for a number of reasons,
including, without limitation, to support operations and growth, and to comply with any future changes in regulatory standards.
Anti-takeover
provisions and the regulations to which we may be subject may make it more difficult for a third party to acquire control of us,
even if the change in control would be beneficial to our stockholders.
We
are incorporated in Delaware. Anti-takeover provisions in Delaware law and our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire control of us and may prevent stockholders from receiving a premium for their shares
of common stock. Our certificate of incorporation provides that our Board of Directors may issue up to 5,000,000 shares of preferred
stock, in one or more series, without stockholder approval and with such terms, preferences, rights and privileges as the Board
of Directors may deem appropriate. These provisions and other factors may hinder or prevent a change in control, even if the change
in control would be beneficial to, or sought by, our stockholders.
Although
we believe that we have complied with state securities laws in all material respects, claims may be made that certain of our securities
may have been issued in violation of such laws.
Since
our inception, we have not generated significant revenues from our operations and have funded our operations through the sale
of our equity securities and debt securities. These securities were issued by us in isolated transactions not involving a public
offering. For each of these transactions, we relied on specific exemptions and safe harbors from the registration requirements
of the Securities Act in connection with the offer and sale of such securities under the SEC’s rules and regulations, including
Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering, Section 3(a)(9) of the Securities
Act as securities exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration
was paid or given directly or indirectly for soliciting such exchange, and/or Rule 506 of Regulation D of the Securities Act as
transactions not involving any public offering. For each such transaction, we did not engage in any general solicitation or advertising
to offer or sell any of the securities, the securities were offered by us to a limited number of persons, the investors had access
to information regarding us (including information contained in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K filed with the SEC, and press releases made by us), and we disclosed to prospective investors
that we were available to answer questions prior to any purchase. Each investor represented to us that, at the time of its acquisition
of its securities from us, it was an accredited investor, as such term is defined under the Securities Act. Accordingly, we believe
that the issuances of our securities was not subject to any filing, qualification and/or registration requirements of any state
blue sky securities commissions (other than pursuant to certain notification and filing fee requirements). We may have not complied
with certain of such notification and filing fee requirements with regard to a substantial portion of the sales of our securities
made by us. In addition, certain state securities commissions may claim that we were subject to filing requirements (in addition
to the notification and filing fee requirements referred to above) with regard to a substantial portion of the sales of our securities
made by us. Although we do not believe that our failure to file notifications or pay fees to or with certain state securities
commissions will result in an obligation to offer rescission rights to any such purchaser, and we believe that filing, registration
and/or qualification requirements (in addition to the notification and filing fee requirements set forth above) do not apply,
claims to such effect may be made by state blue sky regulators and/or individual purchasers. These claims could result in state
blue sky regulators commencing enforcement actions against us and/or seeking monetary damages in addition to rescission rights,
or individual investors seeking rescission rights and/or additional damages. If we are required to offer rescission rights, in
addition to the requirement to offer to repurchase securities for the purchase price paid for such securities by investors, we
also could be required to pay interest from the date of issuance, other expenses, penalties and/or other amounts. Moreover, if
we were required to offer rescission rights, we may not have sufficient funds to repurchase the securities that are the subject
of the rescission offer. Any such claims (whether by state blue sky securities regulators and/or individual purchasers) may result
in substantial costs to us including, but not limited to, legal fees and expenses and the diversion of management efforts on our
part.
In
the event that a significant amount of our outstanding debt is converted into equity, the percentage ownership of existing stockholders
will be substantially diluted.
As of March 15, 2017, we had outstanding indebtedness in the amount of $2,179,563. We intend to seek to have
the debtholders convert all or a significant amount of such debt into equity. In the event of any such conversion, the percentage
ownership of existing stockholders will be substantially diluted.