Investing in our securities involves a high degree of risk. You
should consider carefully the risks and uncertainties described
below, together with all of the other information in this Quarterly
Report on Form 10-Q (Report) and in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the fiscal
year ended March 31, 2017 before investing in our securities. The
risks described below are not the only risks facing our
Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also materially adversely affect our business, financial
condition and/or operating results. If any of the following
risks are realized, our business, financial condition and
results of operations could be materially and adversely
affected.
Risks Related to Product Development, Regulatory Approval and
Commercialization
We depend heavily on the success of AV-101. We cannot be certain
that we will be able to obtain regulatory approval for, or
successfully commercialize AV-101, or any product
candidate.
We currently have no drug products for sale and may never be able
to develop and commercialize marketable drug products. Our business
depends heavily on the successful development, regulatory approval
and commercialization of AV-101 for depression, including for MDD,
and, potentially, various other diseases and disorders involving
the CNS, as well as, but to a more limited extent, our ability to
produce, develop and commercialize NCEs from our drug rescue
programs. AV-101 will require substantial additional nonclinical
and clinical testing and regulatory approval before it may be
commercialized. It is unlikely to achieve regulatory approval, if
at all, until at least 2021. Each drug rescue NCE will require
substantial nonclinical development, all phases of clinical
development, and regulatory approval before it may be
commercialized. The nonclinical and clinical development of our
product candidates are, and the manufacturing and marketing of our
product candidates 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,
if approved, market any product candidate. Before obtaining
regulatory approvals for the commercial sale of any product
candidate, we must demonstrate through numerous nonclinical and
clinical studies that the product candidate is safe and effective
for use in each target indication. Drug development is a long,
expensive and uncertain process, and delay or failure can occur at
any stage of any of our nonclinical or clinical studies. This
process takes many years and may also include post-marketing
studies and surveillance obligations, which would require the
expenditure of substantial resources beyond the proceeds we have
raised to date. Of the large number of drugs in development in the
United States, only a small percentage will successfully complete
the FDA regulatory approval process and will be commercialized.
Accordingly, we cannot assure you that AV-101, any drug rescue NCE,
or any other future product candidate will be successfully
developed or commercialized.
We are not permitted to market our product candidates in the United
States until we receive approval of a New Drug Application
(
NDA
) from the FDA, or in any foreign countries until
we receive the requisite approval from such countries. We expect
the FDA to require us to complete the planned AV-101 MDD Phase 2
Adjunctive Treatment Study and at least two pivotal Phase 3
clinical trials in order to submit an NDA for AV-101 as an
adjunctive treatment for MDD patients with an inadequate response
to standard, FDA-approved antidepressants. Also, we anticipate that
the FDA will require that we conduct additional toxicology
studies, additional nonclinical and certain small clinical studies
before submitting an NDA for AV-101. The results of all of these
studies are not known until after the studies are
concluded.
Obtaining FDA approval of an NDA is a complex, lengthy, expensive
and uncertain process, and the FDA may delay, limit or deny
approval of AV-101 or any other product candidate we may seek to
develop for many reasons, including, among others:
●
if we submit an NDA and it is reviewed by an advisory committee,
the FDA may have difficulties scheduling an advisory committee
meeting in a timely manner or the advisory committee may recommend
against approval of our application or may recommend that the FDA
require, as a condition of approval, additional non-clinical or
clinical studies, limitations on approved labeling or distribution
and use restrictions;
●
the FDA may require development of a Risk
Evaluation and Mitigation Strategy (
REMS
) as a condition of approval or
post-approval;
●
the FDA or the applicable foreign regulatory
agency may determine that the manufacturing processes or facilities
of third-party contract manufacturers with which we contract do not
conform to applicable requirements, including current Good
Manufacturing Practices (
cGMPs
); or
●
the FDA or applicable foreign regulatory agency may change its
approval policies or adopt new regulations.
Any of these factors, many of which are beyond our control, could
jeopardize our ability to obtain regulatory approval for and
successfully commercialize AV-101 or any other product candidate we
may develop, including drug rescue NCEs. Any such setback in our
pursuit of regulatory approval for any product candidate would have
a material adverse effect on our business and
prospects.
We have applied for, and have been granted Fast Track designation
from the FDA for AV-101 for the treatment of MDD. However, this
designation may not actually lead to a faster development or
regulatory review or approval process for AV-101. Further, there is
no guarantee the FDA will grant Fast Track designation for AV-101
as a treatment option for other CNS indications or for other
product candidates in the future.
The Fast Track designation is a program offered by the FDA pursuant
to certain mandates under the FDA Modernization Act of 1997,
designed to facilitate drug development and to expedite the review
of new drugs that are intended to treat serious or life threatening
conditions. Compounds selected must demonstrate the potential to
address unmet medical needs. The Fast Track designation allows for
close and frequent interaction with the FDA. A designated Fast
Track drug may also be considered for priority review with a
shortened review time, rolling submission, and accelerated approval
if applicable. The designation does not, however, guarantee
approval or expedited approval of any application for the
product.
In October 2017 we applied for FDA Fast Track designation for
AV-101, and in December 2017 the FDA granted Fast Track designation
for AV-101 for the treatment of MDD. However, this designation may
not lead to a faster development or regulatory review or approval
process for AV-101 and the FDA may withdraw Fast Track designation
of AV-101 if it believes that the designation is no longer
supported by data from our clinical development
programs.
In addition, we may apply for Fast Track designation for AV-101 as
a treatment option for other CNS indications, as well as for other
product candidates. The FDA has broad discretion whether or not to
grant a Fast Track designation, and even if we believe AV-101 and
other product candidates are eligible for this designation, we
cannot be sure that the review or approval will compare to
conventional FDA procedures.
Results of earlier clinical trials may not be predictive of the
results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of
AV-101 and/or other product candidates, including positive results,
may not be predictive of the results of later-stage clinical
trials. AV-101 or other product candidates in later stages of
clinical trials may fail to show the desired safety and efficacy
results despite having progressed through preclinical studies and
initial clinical trials. Many companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical
trials due to adverse safety profiles or lack of efficacy,
notwithstanding promising results in earlier studies. Similarly,
our future clinical trial results may not be successful for these
or other reasons.
Moreover, preclinical and clinical data are often susceptible to
varying interpretations and analyses, and many companies that
believed their product candidates performed satisfactorily in
preclinical studies and clinical trials nonetheless failed to
obtain FDA approval. We have not yet completed a Phase 2 clinical
trial for AV-101, and if the NIMH AV-101 MDD Phase 2 Monotherapy
Study and/or our AV-101 MDD Phase 2 Adjunctive Treatment Study
fail(s) to produce positive results, the development timeline and
regulatory approval and commercialization prospects for AV-101 and,
correspondingly, our business and financial prospects, could be
materially adversely affected.
This drug candidate development risk is heightened by any changes
in planned timing or nature of clinical trials compared to
completed clinical trials. As product candidates are developed
through preclinical to early and late stage clinical trials towards
approval and commercialization, it is customary that various
aspects of the development program, such as manufacturing and
methods of administration, are altered along the way in an effort
to optimize processes and results. While these types of changes are
common and are intended to optimize the product candidates for
later stage clinical trials, approval and commercialization, such
changes do carry the risk that they will not achieve these intended
objectives.
For example, the results of planned clinical trials may be
adversely affected if we or our collaborator seek to optimize and
scale-up production of a product candidate. In such case, we will
need to demonstrate comparability between the newly manufactured
drug substance and/or drug product relative to the previously
manufactured drug substance and/or drug product. Demonstrating
comparability may cause us to incur additional costs or delay
initiation or completion of our clinical trials, including the need
to initiate a dose escalation study and, if unsuccessful, could
require us to complete additional nonclinical or clinical studies
of our product candidates.
If serious adverse events or other undesirable side effects or
safety concerns are identified during the use of AV-101 in
investigator-sponsored clinical trials or in our clinical trials of
AV-101, it may adversely affect or delay our clinical development
of AV-101 for MDD and other CNS indications.
AV-101 as a monotherapy is currently being tested by the NIMH in
the NIMH AV-101 MDD Phase 2 Monotherapy Study and may be subjected
to testing in the future for other CNS indications in additional
investigator sponsored clinical trials. If serious adverse events
or other undesirable side effects or safety concerns, or unexpected
characteristics of AV-101 are observed in investigator-sponsored
clinical trials of AV-101 or in our clinical trials of AV-101, it
may adversely affect or delay our clinical development of AV-101,
and the occurrence of these events would have a material adverse
effect on our business and financial prospects.
Failures or delays in the commencement or completion of our planned
clinical trials and nonclinical studies of AV-101 or other our
product candidates could result in increased costs to us and could
delay, prevent or limit our ability to generate revenue and
continue our business.
Under our CRADA with the NIMH, the NIMH is conducting and funding
the NIMH AV-101 MDD Phase 2 Monotherapy Study. We will need to
complete the planned AV-101 MDD Phase 2 Adjunctive Treatment Study,
at least two additional large Phase 3 pivotal clinical trials,
additional toxicology and other nonclinical studies and certain
smaller clinical studies prior to the submission of an NDA for
AV-101 as a new generation adjunctive treatment for MDD. Successful
completion of our nonclinical and clinical trials is a prerequisite
to submitting an NDA to the FDA and, consequently, the ultimate
approval required before commercial marketing of AV-101 for MDD and
any other product candidates we may develop. Except as disclosed
herein, we do not know whether the NIMH AV-101 MDD Phase 2
Monotherapy Study, our AV-101 MDD Phase 2 Adjunctive Treatment
Study or any of our future-planned nonclinical and clinical trials
will be completed on schedule, if at all, as the commencement and
completion of nonclinical and clinical trials can be delayed or
prevented for a number of reasons, including, among
others:
●
the FDA may deny permission to proceed with our planned clinical
trials or any other clinical trials we may initiate, or may place a
planned or ongoing clinical trial on hold;
●
delays in filing or receiving approvals of additional INDs that may
be required;
●
negative results from our ongoing nonclinical studies;
●
delays in reaching or failing to reach agreement on acceptable
terms with prospective CROs, investigators and clinical trial
sites, the terms of which can be subject to extensive negotiation
and may vary significantly among different CROs, investigators and
clinical trial sites;
●
delays in the manufacturing of, or insufficient supply of, AV-101
or other product candidates necessary to conduct nonclinical or
clinical trials, including delays in the manufacturing of
sufficient supply or finished drug product resulting from our new
manufacturing process for AV-101;
●
inability to manufacture or obtain clinical supplies of a product
candidate meeting required quality standards;
●
difficulties obtaining Institutional Review
Board (
IRB
) approval to conduct a clinical trial at a
prospective clinical site or sites;
●
challenges in recruiting and enrolling patients to participate in
clinical trials, including the proximity of patients to clinical
trial sites;
●
eligibility criteria for a clinical trial, the nature of a clinical
trial protocol, the availability of approved effective treatments
for the relevant disease and competition from other clinical trial
programs for similar indications;
●
severe or unexpected drug-related side effects experienced by
patients in a clinical trial;
●
delays in validating any endpoints utilized in a clinical
trial;
●
the FDA may disagree with our clinical trial design and our
interpretation of data from prior nonclinical studies or clinical
trials, or may change the requirements for approval even after it
has reviewed and commented on the design for our clinical
trials;
●
reports from nonclinical or clinical testing of other CNS
indications or therapies that raise safety or efficacy concerns;
and
●
difficulties retaining patients who have enrolled in a clinical
trial but may be prone to withdraw due to rigors of the clinical
trial, lack of efficacy, side effects, personal issues or loss of
interest.
Clinical trials may also be delayed or terminated prior to
completion as a result of ambiguous or negative interim results. In
addition, a clinical trial may be suspended or terminated by us,
the FDA, the IRBs at the sites where the IRBs are overseeing a
clinical trial, a data and safety monitoring board
(
DSMB
), overseeing the clinical trial at issue or other
regulatory authorities due to a number of factors, including, among
others:
●
failure to conduct the clinical trial in accordance with regulatory
requirements or approved clinical protocols;
●
inspection of the clinical trial operations or trial sites by the
FDA or other regulatory authorities that reveals deficiencies or
violations that require us to undertake corrective action,
including the imposition of a clinical hold;
●
unforeseen safety issues, including any that could be identified in
our ongoing nonclinical carcinogenicity studies, adverse side
effects or lack of effectiveness;
●
changes in government regulations or administrative
actions;
●
problems with clinical supply materials that may lead to regulatory
actions; and
●
lack of adequate funding to continue nonclinical or clinical
studies.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our nonclinical studies and clinical trials of AV-101
or other product candidates may occur, which may result in changes
to nonclinical studies and clinical trial protocols or additional
nonclinical studies and clinical trial requirements, which could
result in increased costs to us and could delay our development
timeline.
Changes in regulatory requirements, FDA guidance or unanticipated
events during our nonclinical studies and clinical trials of AV-101
or other product candidates may force us to amend nonclinical
studies and clinical trial protocols or the FDA may impose
additional nonclinical studies and clinical trial requirements.
Amendments or changes to our clinical trial protocols would require
resubmission to the FDA and IRBs for review and approval, which may
adversely impact the cost, timing or successful completion of
clinical trials. Similarly, amendments to our nonclinical studies
may adversely impact the cost, timing, or successful completion of
those non-clinical studies. If we experience delays completing, or
if we terminate, any of our nonclinical studies or clinical trials,
or if we are required to conduct additional nonclinical studies or
clinical trials, the commercial prospects for AV-101 or other
product candidates may be harmed and our ability to generate
product revenue will be delayed.
We rely, and expect that we will continue to rely, on third parties
to conduct nonclinical and clinical trials of AV-101 and any other
product candidates. If these third parties do not successfully
carry out their contractual duties or meet expected deadlines,
completion of nonclinical and clinical trials and development of
AV-101 and other product candidates may be delayed and we may not
be able to obtain regulatory approval for or commercialize AV-101
or other product candidates and our business could be substantially
harmed.
We do not have the internal staff resources to independently
conduct nonclinical and clinical trials completely on our own. We
rely on our network of strategic relationships with various medical
institutions, nonclinical and clinical investigators, contract
laboratories and other third parties, such as contract research and
development organizations (
CROs
), to conduct nonclinical and clinical trials of
our product candidates. We enter into agreements with third-party
CROs to provide monitors for and to manage data for our clinical
trials, as well as provide other services necessary to prepare for,
conduct and complete clinical trials. We rely heavily on these and
other third-parties for execution of nonclinical and clinical
trials for our product candidates and control only certain aspects
of their activities. As a result, we have less direct control over
the conduct, timing and completion of these nonclinical and
clinical trials and the management of data developed through
nonclinical and clinical trials than would be the case if we were
relying entirely upon our own staff. Communicating with outside
parties can also be challenging, potentially leading to mistakes as
well as difficulties in coordinating activities. Outside parties
may:
●
have staffing difficulties and/or undertake obligations beyond
their anticipated capabilities and resources;
●
fail to comply with contractual obligations;
●
experience regulatory compliance issues;
●
undergo changes in priorities or become financially distressed;
or
●
form relationships with other entities, some of which may be our
competitors.
These factors may materially adversely affect the willingness or
ability of third parties to conduct our nonclinical and clinical
trials and may subject us to unexpected cost increases that are
beyond our control. Nevertheless, we are responsible for ensuring
that each of our nonclinical studies and clinical trials is
conducted in accordance with the applicable protocol, legal,
regulatory and scientific requirements and standards, and our
reliance on CROs or the NIH does not relieve us of our regulatory
responsibilities. We and our CROs, the NIMH and any investigator in
an investigator-sponsored study are required to comply with
regulations and guidelines, including current cGCPs for conducting,
monitoring, recording and reporting the results of clinical trials
to ensure that the data and results are scientifically credible and
accurate, and that the trial patients are adequately informed of
the potential risks of participating in clinical trials. These
regulations are enforced by the FDA, the Competent Authorities of
the Member States of the European Economic Area and comparable
foreign regulatory authorities for any products in clinical
development. The FDA enforces cGCP regulations through periodic
inspections of clinical trial sponsors, principal investigators and
trial sites. If we or any of our CROs fail to comply with
applicable cGCPs, the clinical data generated in our clinical
trials may be deemed unreliable and the FDA or comparable foreign
regulatory authorities may require us to perform additional
clinical trials before approving our marketing applications. We
cannot assure you that, upon inspection, the FDA will determine
that any of our clinical trials comply with cGCPs. In addition, our
clinical trials must be conducted with product candidates produced
under cGMPs regulations and will require a large number of test
patients. Our failure or the failure of our CROs to comply with
these regulations may require us to repeat clinical trials, which
would delay the regulatory approval process and could also subject
us to enforcement action up to and including civil and criminal
penalties.
Although we design our clinical trials for our product candidates,
we plan to have CROs, and in the case of the NIMH AV-101 MDD Phase
2 Monotherapy Study, the NIMH, conduct the AV-101 Phase 2 and Phase
3 clinical trials. As a result, many important aspects of our drug
development programs are outside of our direct control. In
addition, the CROs or the NIMH, as the case may be, may not perform
all of their obligations under arrangements with us or in
compliance with regulatory requirements, but we remain responsible
and are subject to enforcement action that may include civil
penalties up to and including criminal prosecution for any
violations of FDA laws and regulations during the conduct of our
clinical trials. If the NIMH or CROs do not perform clinical trials
in a satisfactory manner, breach their obligations to us or fail to
comply with regulatory requirements, the development and
commercialization of AV-101 and other product candidates may be
delayed or our development program materially and irreversibly
harmed. We cannot control the amount and timing of resources these
CROs or the NIMH devote to our program or our clinical products. If
we are unable to rely on nonclinical and clinical data collected by
our CROs or the NIMH, we could be required to repeat, extend the
duration of, or increase the size of our clinical trials and this
could significantly delay commercialization and require
significantly greater expenditures.
If any of our relationships with these third-party CROs or the NIMH
terminate, we may not be able to enter into arrangements with
alternative CROs or collaborators. If CROs or the NIMH
do not successfully carry out their contractual duties or
obligations or meet expected deadlines, if they need to be replaced
or if the quality or accuracy of the clinical data they obtain is
compromised due to the failure to adhere to our clinical protocols,
regulatory requirements or for other reasons, any clinical trials
that such CROs or the NIMH are associated with may be extended,
delayed or terminated, and we may not be able to obtain regulatory
approval for or successfully develop and commercialize our product
candidates. As a result, we believe that our financial results and
the commercial prospects for our product candidates in the subject
indication would be harmed, our costs would increase and our
ability to generate revenue would be delayed.
We rely completely on third-parties to manufacture and prepare
supplies of AV-101 for all nonclinical and clinical studies of
AV-101, and we intend to continue to rely on third parties to
produce all nonclinical, clinical and commercial supplies of AV-101
in the future.
We do not currently have, nor do we
plan to acquire or develop, the necessary infrastructure internal
resources or technical capabilities to manufacture and prepare
supplies of AV-101, or any future product candidates, for use in
nonclinical and clinical studies, and we lack the internal
resources and the capability to manufacture any product candidate
on a clinical or commercial scale. As a result, we rely
completely on third party contract manufacturing organizations
(
CMO
s) to manufacture AV-101 active pharmaceutical
ingredient (
API
) and prepare AV-101 final drug product. The
facilities used by our CMOs to manufacture AV-101 API and final
drug product are subject to a pre-approval inspection by the FDA to
assess compliance with applicable requirements, including cGMPs,
and may be required to undergo similar inspections by the FDA or
other comparable foreign regulatory agencies after we submit INDs,
NDAs or relevant foreign regulatory submission equivalent to the
applicable regulatory agency.
We do not directly control either the supply or quality of
materials used in the manufacturing and preparation of AV-101 or
the AV-101 manufacturing process, and we are completely dependent
on our CMOs to comply with all cGMPs for manufacture of both AV-101
API and AV-101 finished drug product. If our CMOs cannot secure
adequate supplies of suitable raw materials or successfully
manufacture AV-101 API that conforms to our specifications and the
strict regulatory requirements of the FDA or applicable foreign
regulatory agencies, production of sufficient supplies of AV-101
API and finished drug product may be delayed and our CMOs may not
be able to secure and/or maintain regulatory approval for their
manufacturing facilities, or the FDA may take other actions,
including the imposition of a clinical hold. In addition, we have
no direct control over our CMOs’ ability to maintain adequate
quality control, quality assurance and qualified personnel. All of
our CMOs are engaged with other companies to supply and/or
manufacture materials or products for such other companies, which
exposes our CMOs to regulatory risks for the production of such
materials and products. As a result, failure to satisfy the
regulatory requirements for the production of those materials and
products may affect the regulatory clearance of our CMO’s
facilities generally or affect the timing of manufacture of AV-101
for required or planned nonclinical and/or clinical studies of
AV-101. If the FDA or an applicable foreign regulatory agency
determines now or in the future that our CMOs’ facilities are
noncompliant, we may need to find alternative manufacturing
facilities, which would adversely impact our ability to develop,
obtain regulatory approval for or market AV-101. Our reliance on
CMOs also exposes us to the possibility that they, or third parties
with access to their facilities, will have access to and may
appropriate our trade secrets or other proprietary
information.
We do not yet have long-term AV-101 supply agreements in place with
our CMOs and each batch of AV-101 is individually contracted under
a separate supply agreement. If we engage new CMOs, such
contractors must complete an inspection by the FDA and other
applicable foreign regulatory agencies. We plan to continue to rely
upon CMOs and, potentially, collaboration partners, to manufacture
research, development and, if approved, commercial quantities of
AV-101 and any other product candidates we may seek to develop in
the future. Although we believe our current scale of manufacturing
for AV-101 and current and projected supply of AV-101 API and
finished drug product will be adequate to support our planned
nonclinical and clinical studies of AV-101, no assurance can be
given that unanticipated AV-101 supply shortages, CMO-related
delays in manufacture and production of AV-101 API and finished
drug product will not occur in the future.
Even if we receive marketing approval for AV-101 or any other
product candidate in the United States, we may never receive
regulatory approval to market AV-101 or any other product candidate
outside of the United States.
We have not yet selected any markets outside of the United States
where we intend to seek regulatory approval to market our product
candidates. In order to market any product outside of the United
States, however, we must establish and comply with the numerous and
varying safety, efficacy and other regulatory requirements of other
countries. Approval procedures vary among countries and can involve
additional product candidate testing and additional administrative
review periods. The time required to obtain approvals in other
countries might differ from that required to obtain FDA approval.
The marketing approval processes in other countries may implicate
all of the risks detailed above regarding FDA approval in the
United States as well as other risks. In particular, in many
countries outside of the United States, products must receive
pricing and reimbursement approval before the product can be
commercialized. Obtaining this approval can result in substantial
delays in bringing products to market in such countries. Marketing
approval in one country does not ensure marketing approval in
another, but a failure or delay in obtaining marketing approval in
one country may have a negative effect on the regulatory process in
others. Failure to obtain marketing approval in other countries or
any delay or other setback in obtaining such approval would impair
our ability to market our product candidates in such foreign
markets. Any such impairment would reduce the size of our potential
market, which could have a material adverse impact on our business,
results of operations and prospects.
If any of our product candidates are ultimately regulated as
controlled substances, we, our CMOs, as well as future
distributors, prescribers, and dispensers will be required to
comply with additional regulatory requirements which could delay
the marketing of our product candidates, and increase the cost and
burden of manufacturing, distributing, dispensing, and prescribing
our product candidates.
Before we can commercialize our product candidates, the United
States Drug Enforcement Administration (
DEA
) may need to determine the controlled substance
schedule, taking into account the recommendation of the FDA. This
may be a lengthy process that could delay our marketing of a
product candidate and could potentially diminish any regulatory
exclusivity periods for which we may be eligible, which would
increase the cost associated with commercializing such products
and, in turn, may have an adverse impact on our results of
operations. While we currently do not know whether any of our
product candidates will be considered to be controlled substances,
certain of our product candidates, including AV-101, may be
regulated as controlled substances.
If any of our product candidates are regulated as controlled
substances, depending on the controlled substance schedule in which
the product candidates are placed, we, our contract manufacturers,
and any future distributers, prescribers, and dispensers of the
scheduled product candidates may be subject to significant
regulatory requirements, such as registration, security,
recordkeeping, reporting, storage, distribution, importation,
exportation, inventory, quota and other requirements administered
by the DEA. Moreover, if any of our product candidates are
regulated as controlled substances, we and our CMOs would be
subject to initial and periodic DEA inspection.If we or our
contract manufacturers are not able to obtain or maintain any
necessary DEA registrations, we may not be able to commercialize
any product candidates that are deemed to be controlled substances
or we may need to find alternative CMOs, which would take time and
cause us to incur additional costs, delaying or limit our
commercialization efforts.
Because of their restrictive nature, these laws and regulations
could limit commercialization of our product candidates, should
they be deemed to contain controlled substances. Failure to comply
with the applicable controlled substance laws and regulations can
also result in administrative, civil or criminal enforcement. The
DEA may seek civil penalties, refuse to renew necessary
registrations, or initiate administrative proceedings to revoke
those registrations. In some circumstances, violations could result
in criminal proceedings or consent decrees. Individual states also
independently regulate controlled substances.
If we are unable to establish sales and marketing capabilities or
enter into agreements with third parties to market and sell our
product candidates, we may not be able to generate any
revenue.
We do not currently have an infrastructure for the sale, marketing
and distribution of pharmaceutical products, nor do we intend to
create such capabilities in the foreseeable future. Therefore, in
order to market our product candidates, if approved by the FDA or
any other regulatory body, we must make contractual arrangements
with third parties to perform services related to sales, marketing,
managerial and other non-technical capabilities relating to the
commercialization of our product candidates. If we are unable to
establish adequate contractual arrangements for such sales,
marketing and distribution capabilities, or if we are unable to do
so on commercially reasonable terms, our business, results of
operations, financial condition and prospects will be materially
adversely affected.
Even if we receive marketing approval for our product candidates,
our product candidates may not achieve broad market acceptance,
which would limit the revenue that we generate from their
sales.
The commercial success of our product candidates, if approved by
the FDA or other applicable regulatory authorities, will depend
upon the awareness and acceptance of our product candidates among
the medical community, including physicians, patients and
healthcare payors. Market acceptance of our product candidates, if
approved, will depend on a number of factors, including, among
others:
●
the efficacy and safety of our product candidates as demonstrated
in clinical trials, and, if required by any applicable regulatory
authority in connection with the approval for the applicable
indications, to provide patients with incremental health benefits,
as compared with other available therapies;
●
limitations or warnings contained in the labeling approved for our
product candidates by the FDA or other applicable regulatory
authorities;
●
the clinical indications for which our product candidates are
approved;
●
availability of alternative treatments already approved or expected
to be commercially launched in the near future;
●
the potential and perceived advantages of our product candidates
over current treatment options or alternative treatments, including
future alternative treatments;
●
the willingness of the target patient population to try new
therapies and of physicians to prescribe these
therapies;
●
the strength of marketing and distribution support and timing of
market introduction of competitive products;
●
publicity concerning our products or competing products and
treatments;
●
pricing and cost effectiveness;
●
the effectiveness of our sales and marketing
strategies;
●
our ability to increase awareness of our product candidates through
marketing efforts;
●
our ability to obtain sufficient third-party coverage or
reimbursement; or
●
the willingness of patients to pay out-of-pocket in the absence of
third-party coverage.
If our product candidates are approved but do not achieve an
adequate level of acceptance by patients, physicians and payors, we
may not generate sufficient revenue from our product candidates to
become or remain profitable. Before granting reimbursement
approval, healthcare payors may require us to demonstrate that our
product candidates, in addition to treating these target
indications, also provide incremental health benefits to patients.
Our efforts to educate the medical community and third-party payors
about the benefits of our product candidates may require
significant resources and may never be successful.
Our product candidates may cause undesirable safety concerns and
side effects that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable safety concerns and side effects caused by our product
candidates could cause us or regulatory authorities to interrupt,
delay or halt nonclinical studies and clinical trials and could
result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other regulatory
authorities.
Further, clinical trials by their nature utilize a sample of
potential patient populations. With a limited number of patients
and limited duration of exposure, rare and severe side effects of
our product candidates may only be uncovered with a significantly
larger number of patients exposed to the product candidate. If our
product candidates receive marketing approval and we or others
identify undesirable safety concerns or side effects caused by such
product candidates (or any other similar products) after such
approval, a number of potentially significant negative consequences
could result, including:
●
regulatory authorities may withdraw or limit their approval of such
product candidates;
●
regulatory authorities may require the addition of labeling
statements, such as a “black box” warning or a
contraindication;
●
we may be required to change the way such product candidates are
distributed or administered, conduct additional clinical trials or
change the labeling of the product candidates;
●
we may be subject to regulatory investigations and government
enforcement actions;
●
we may decide to remove such product candidates from the
marketplace;
●
we could be sued and held liable for injury caused to individuals
exposed to or taking our product candidates; and
●
our reputation may suffer.
We believe that any of these events could prevent us from achieving
or maintaining market acceptance of the affected product candidates
and would substantially increase the costs of commercializing our
product candidates and significantly impact our ability to
successfully commercialize our product candidates and generate
revenues.
Even if we receive marketing approval for our product candidates,
we may still face future development and regulatory
difficulties.
Even if we receive marketing approval for our product candidates,
regulatory authorities may still impose significant restrictions on
our product candidates, indicated uses or marketing or impose
ongoing requirements for potentially costly post-approval studies.
Our product candidates will also be subject to ongoing regulatory
requirements governing the labeling, packaging, storage and
promotion of the product and record keeping and submission of
safety and other post-market information. The FDA has significant
post-marketing authority, including, for example, the authority to
require labeling changes based on new safety information and to
require post-marketing studies or clinical trials to evaluate
serious safety risks related to the use of a drug. The FDA also has
the authority to require, as part of an NDA or post-approval, the
submission of a REMS. Any REMS required by the FDA may lead to
increased costs to assure compliance with new post-approval
regulatory requirements and potential requirements or restrictions
on the sale of approved products, all of which could lead to lower
sales volume and revenue.
Manufacturers of drug products and their facilities are subject to
continual review and periodic inspections by the FDA and other
regulatory authorities for compliance with cGMPs and other
regulations. If we or a regulatory agency discover problems with
our product candidates, such as adverse events of unanticipated
severity or frequency, or problems with the facility where our
product candidates are manufactured, a regulatory agency may impose
restrictions on our product candidates, the manufacturer or us,
including requiring withdrawal of our product candidates from the
market or suspension of manufacturing. If we, our product
candidates or the manufacturing facilities for our product
candidates fail to comply with applicable regulatory requirements,
a regulatory agency may, among other things:
●
issue warning letters or untitled letters;
●
seek an injunction or impose civil or criminal penalties or
monetary fines;
●
suspend or withdraw marketing approval;
●
suspend any ongoing clinical trials;
●
refuse to approve pending applications or supplements to
applications submitted by us;
●
suspend or impose restrictions on operations, including costly new
manufacturing requirements; or
●
seize or detain products, refuse to permit the import or export of
products, or require that we initiate a product
recall.
Competing therapies could emerge adversely affecting our
opportunity to generate revenue from the sale of our product
candidates.
The pharmaceuticals industry is highly competitive. There are many
public and private pharmaceutical companies, universities,
governmental agencies and other research organizations actively
engaged in the research and development of product candidates that
may be similar to our product candidates or address similar
markets. It is probable that the number of companies seeking to
develop product candidates similar to our product candidates will
increase.
Currently, management is unaware of any FDA-approved oral
adjunctive therapy for MDD patients with an inadequate response to
standard antidepressants having the same mechanism of action and
safety profile as our oral AV-101. However, new antidepressant
products with other mechanisms of action or products approved for
other indications, including the FDA-approved anesthetic ketamine
hydrochloride, are being or may be used off-label for treatment of
MDD, as well as other CNS indications for which AV-101 may have
therapeutic potential. Additionally, other non-pharmaceutical
treatment options, such psychotherapy and electroconvulsive therapy
(
ECT
) are sometimes used before or instead of standard
antidepressant medications to treat patients with
MDD.
In the field of new generation, orally available, adjunctive
treatments of adult MDD patients with an inadequate response to
standard FDA-approved antidepressants, we believe our principal
competitor is Alkermes’ oral opiate modulator drug candidate,
ALKS-5461, which adjunctive treatment product candidate is the
subject of a New Drug Application recently submitted to the FDA by
Alkermes.
Many of our potential competitors, alone or with their strategic
partners, have substantially greater financial, technical and human
resources than we do and significantly greater experience in the
discovery and development of product candidates, obtaining FDA and
other regulatory approvals of treatments and the commercialization
of those treatments. We believe that a range of
pharmaceutical and biotechnology companies have programs to develop
small molecule drug candidates for the treatment of depression,
including MDD, Parkinson’s disease levodopa induced
dyskinesia, neuropathic pain, epilepsy, and other neurological
conditions and diseases, including, but not limited to, Abbott
Laboratories, Acadia, Allergan, Alkermes, AstraZeneca, Eli Lilly,
GlaxoSmithKline, IntraCellular, Johnson & Johnson/Janssen,
Lundbeck, Merck, Novartis, Ono, Otsuka, Pfizer, Roche, Sage,
Sumitomo Dainippon, and Takeda, as well as any affiliates of the
foregoing companies. Mergers and acquisitions in the
biotechnology and pharmaceutical industries may result in even more
resources being concentrated among a smaller number of our
competitors. Our commercial opportunity could be reduced or
eliminated if our competitors develop and commercialize products
that are safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any
products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than
we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are
able to enter the market.
We may seek to establish collaborations, and, if we are not able to
establish them on commercially reasonable terms, we may have to
alter our development and commercialization plans.
Our drug development programs and the potential commercialization
of our product candidates will require substantial additional cash
to fund expenses. For some of our product candidates, we may decide
to collaborate with pharmaceutical and biotechnology companies for
the development and potential commercialization of those product
candidates.
We face significant competition in seeking appropriate
collaborators. Whether we reach a definitive agreement for
collaboration will depend, among other things, upon our assessment
of the collaborator’s resources and expertise, the terms and
conditions of the proposed collaboration and the proposed
collaborator’s evaluation of a number of factors. Those
factors may include the design or results of clinical trials, the
likelihood of approval by the FDA or similar regulatory authorities
outside the United States, the potential markets for the subject
product candidate, the costs and complexities of manufacturing and
delivering such product candidate to patients, the potential of
competing products, the existence of uncertainty with respect to
our ownership of technology, which can exist if there is a
challenge to such ownership without regard to the merits of the
challenge and industry and market conditions generally. The
collaborator may also consider alternative product candidates or
technologies for similar indications that may be available to
collaborate on and whether such collaboration could be more
attractive than the one with us for our product candidate. The
terms of any collaboration or other arrangements that we may
establish may not be favorable to us.
We may also be restricted under existing collaboration agreements
from entering into future agreements on certain terms with
potential collaborators. Collaborations are complex and
time-consuming to negotiate and document. In addition, there have
been a significant number of recent business combinations among
large pharmaceutical companies that have resulted in a reduced
number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis,
on acceptable terms, or at all. If we are unable to do so, we may
have to curtail the development of the product candidate for which
we are seeking to collaborate, reduce or delay its development
program or one or more of our other development programs, delay its
potential commercialization or reduce the scope of any sales or
marketing activities, or increase our expenditures and undertake
development or commercialization activities at our own expense. If
we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain
additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we may not be
able to further develop our product candidates or bring them to
market and generate product revenue.
In addition, any future collaboration that we enter into may not be
successful. The success of our collaboration arrangements will
depend heavily on the efforts and activities of our collaborators.
Collaborators generally have significant discretion in determining
the efforts and resources that they will apply to these
collaborations. Disagreements between parties to a collaboration
arrangement regarding clinical development and commercialization
matters can lead to delays in the development process or
commercializing the applicable product candidate and, in some
cases, termination of the collaboration arrangement. These
disagreements can be difficult to resolve if neither of the parties
has final decision-making authority. Collaborations with
pharmaceutical or biotechnology companies and other third parties
often are terminated or allowed to expire by the other party. Any
such termination or expiration would adversely affect us
financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover
additional product candidates, or we may expend our limited
resources to pursue a particular product candidate or indication
and fail to capitalize on product candidates or indications that
may be more profitable or for which there is a greater likelihood
of success.
The success of our business depends primarily upon our ability to
identify, develop and commercialize product candidates with
commercial and therapeutic potential. Although AV-101 is in Phase 2
clinical development for treatment of MDD, we may fail to pursue
additional CNS-related Phase 2 development opportunities for
AV-101, or identify additional product candidates for clinical
development for a number of reasons. Our research methodology may
be unsuccessful in identifying new product candidates or our
product candidates may be shown to have harmful side effects or may
have other characteristics that may make the products unmarketable
or unlikely to receive marketing approval.
Because we currently have limited financial and management
resources, we necessarily focus on a limited number of research and
development programs and product candidates and are currently
focused primarily on development of AV-101, with additional limited
focus on NCE drug rescue and RM. As a result, we may forego or
delay pursuit of opportunities with other product candidates or for
other potential CNS-related indications for AV-101 that later prove
to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial
drugs or profitable market opportunities. Our spending on current
and future research and development programs and product candidates
for specific indications may not yield any commercially viable
drugs. If we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish
valuable rights to that product candidate through future
collaboration, licensing or other royalty arrangements in cases in
which it would have been more advantageous for us to retain sole
development and commercialization rights to such product
candidate.
If any of these events occur, we may be forced to abandon our
development efforts for a program or programs, which would have a
material adverse effect on our business and could potentially cause
us to cease operations. Research and development programs to
identify and advance new product candidates require substantial
technical, financial and human resources. We may focus our efforts
and resources on potential programs or product candidates that
ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm and diminished profits and future
earnings.
Although we do not currently have any products on the market, once
we begin commercializing our products, we may be subject to
additional healthcare statutory and regulatory requirements and
enforcement by the federal government and the states and foreign
governments in which we conduct our business. Healthcare providers,
physicians and others will play a primary role in the
recommendation and prescription of our product candidates, if
approved. Our future arrangements with third-party payors will
expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market,
sell and distribute our product candidates, if we obtain marketing
approval. Restrictions under applicable federal and state
healthcare laws and regulations include the following:
●
The federal anti-kickback statute prohibits, among other things,
persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in
cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any
good or service, for which payment may be made under federal
healthcare programs such as Medicare and Medicaid.
●
The federal False Claims Act imposes criminal and civil penalties,
including those from civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or
causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to
avoid, decrease, or conceal an obligation to pay money to the
federal government.
●
The federal Health Insurance Portability and Accountability Act of
1996, as amended by the Health Information Technology for Economic
and Clinical Health Act, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and
also imposes obligations, including mandatory contractual terms,
with respect to safeguarding the privacy, security and transmission
of individually identifiable health information.
●
The federal false statements statute prohibits knowingly and
willfully falsifying, concealing or covering up a material fact or
making any materially false statement in connection with the
delivery of or payment for healthcare benefits, items or
services.
●
The federal transparency requirements, sometimes referred to as the
“Sunshine Act,” under the Patient Protection and
Affordable Care Act, require manufacturers of drugs, devices,
biologics and medical supplies that are reimbursable under
Medicare, Medicaid, or the Children’s Health Insurance
Program to report to the Department of Health and Human Services
information related to physician payments and other transfers of
value and physician ownership and investment
interests.
●
Analogous state laws and regulations, such as state anti-kickback
and false claims laws and transparency laws, may apply to sales or
marketing arrangements and claims involving healthcare items or
services reimbursed by non-governmental third-party payors,
including private insurers, and some state laws require
pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant
compliance.
●
Guidance promulgated by the federal government in addition to
requiring drug manufacturers to report information related to
payments to physicians and other healthcare providers or marketing
expenditures and drug pricing.
Ensuring that our future business arrangements with third parties
comply with applicable healthcare laws and regulations could be
costly. It is possible that governmental authorities will conclude
that our business practices do not comply with current or future
statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations,
including anticipated activities to be conducted by our sales team,
were found to be in violation of any of these laws or any other
governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages,
fines and exclusion from government funded healthcare programs,
such as Medicare and Medicaid, any of which could substantially
disrupt our operations. If any of the physicians or other providers
or entities with whom we expect to do business is found not to be
in compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions
from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses. If we are
found to have improperly promoted off-label uses, we may become
subject to significant liability.
The FDA and other regulatory agencies strictly regulate the
promotional claims that may be made about prescription products,
such as AV-101, if approved. In particular, a product may not be
promoted for uses that are not approved by the FDA or such other
regulatory agencies as reflected in the product’s approved
labeling. For example, if we receive FDA marketing approval for
AV-101 as an adjunctive treatment of MDD, physicians may
nevertheless prescribe AV-101 to their patients in a manner that is
inconsistent with the FDA-approved label. If we are found to have
promoted such off-label uses, we may become subject to significant
liability. The federal government has levied large civil and
criminal fines against companies for alleged improper promotion and
has enjoined several companies from engaging in off-label
promotion. The FDA has also requested that companies enter into
consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed. If we cannot
successfully manage the promotion of our product candidates, if
approved, we could become subject to significant liability, which
would materially adversely affect our business and financial
condition.
Even if approved, reimbursement policies could limit our ability to
sell our product candidates.
Market acceptance and sales of our product candidates will depend
heavily on reimbursement policies and may be affected by healthcare
reform measures. Government authorities and third-party payors,
such as private health insurers and health maintenance
organizations, decide which medications they will pay for and
establish reimbursement levels for those medications. Cost
containment is a primary concern in the U.S. healthcare industry
and elsewhere. Government authorities and these third-party payors
have attempted to control costs by limiting coverage and the amount
of reimbursement for particular medications. We cannot be sure that
reimbursement will be available for our product candidates and, if
reimbursement is available, the level of such reimbursement.
Reimbursement may impact the demand for, or the price of, our
product candidates. If reimbursement is not available or is
available only at limited levels, we may not be able to
successfully commercialize our product candidates.
In some foreign countries, particularly in Canada and European
countries, the pricing of prescription pharmaceuticals is subject
to strict governmental control. In these countries, pricing
negotiations with governmental authorities can take six months or
longer after the receipt of regulatory approval and product launch.
To obtain favorable reimbursement for the indications sought or
pricing approval in some countries, we may be required to conduct a
clinical trial that compares the cost-effectiveness of our product
candidates with other available therapies. If reimbursement for our
product candidates is unavailable in any country in which we seek
reimbursement, if it is limited in scope or amount, if it is
conditioned upon our completion of additional clinical trials, or
if pricing is set at unsatisfactory levels, our operating results
could be materially adversely affected.
We may seek FDA Orphan Drug designation for one or more of our
product candidates, including AV-101. Even if we have obtained FDA
Orphan Drug designation for AV-101 of other product candidates,
there may be limits to the regulatory exclusivity afforded by such
designation.
We may, in the future, choose to seek FDA Orphan Drug designation
for one or more of our product candidates, including AV-101. Even
if we obtain Orphan Drug designation from the FDA for AV-101 or any
other product candidates, there are limitations to the exclusivity
afforded by such designation. In the United States, the company
that first obtains FDA approval for a designated orphan drug for
the specified rare disease or condition receives orphan drug
marketing exclusivity for that drug for a period of seven years.
This orphan drug exclusivity prevents the FDA from approving
another application, including a full NDA to market the same drug
for the same orphan indication, except in very limited
circumstances, including when the FDA concludes that the later drug
is safer, more effective or makes a major contribution to patient
care. For purposes of small molecule drugs, the FDA defines
“same drug” as a drug that contains the same active
moiety and is intended for the same use as the drug in question. To
obtain Orphan Drug status for a drug that shares the same active
moiety as an already approved drug, it must be demonstrated to the
FDA that the drug is safer or more effective than the approved
orphan designated drug, or that it makes a major contribution to
patient care. In addition, a designated orphan drug may not receive
orphan drug exclusivity if it is approved for a use that is broader
than the indication for which it received orphan designation. In
addition, orphan drug exclusive marketing rights in the United
States may be lost if the FDA later determines that the request for
designation was materially defective or if the manufacturer is
unable to assure sufficient quantity of the drug to meet the needs
of patients with the rare disease or condition or if another drug
with the same active moiety is determined to be safer, more
effective, or represents a major contribution to patient
care.
Our future growth may depend, in part, on our ability to penetrate
foreign markets, where we would be subject to additional regulatory
burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to
commercialize our product candidates in foreign markets for which
we may rely on collaboration with third parties. If we
commercialize our product candidates in foreign markets, we would
be subject to additional risks and uncertainties,
including:
●
our customers’ ability to obtain reimbursement for our
product candidates in foreign markets;
●
our inability to directly control commercial activities because we
are relying on third parties;
●
the burden of complying with complex and changing foreign
regulatory, tax, accounting and legal requirements;
●
different medical practices and customs in foreign countries
affecting acceptance in the marketplace;
●
import or export licensing requirements;
●
longer accounts receivable collection times;
●
longer lead times for shipping;
●
language barriers for technical training;
●
reduced protection of intellectual property rights in some foreign
countries;
●
the existence of additional potentially relevant third party
intellectual property rights;
●
foreign currency exchange rate fluctuations; and
●
the interpretation of contractual provisions governed by foreign
laws in the event of a contract dispute.
Foreign sales of our product candidates could also be adversely
affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in
tariffs.
We are a development stage biopharmaceutical company with no
current revenues or approved products, and limited experience
developing new drug, biological and/or regenerative medicine
candidates, including conducting clinical trials and other areas
required for the successful development and commercialization of
therapeutic products, which makes it difficult to assess our future
viability.
We are a development stage biopharmaceutical company. Although our
lead drug candidate is in Phase 2 development, we currently have no
approved products and currently generate no revenues, and we have
not yet fully demonstrated an ability to overcome many of the
fundamental risks and uncertainties frequently encountered by
development stage companies in new and rapidly evolving fields of
technology, particularly biotechnology. To execute our business
plan successfully, we will need to accomplish the following
fundamental objectives, either on our own or with strategic
collaborators:
●
produce product candidates;
●
develop and obtain required regulatory approvals for
commercialization of product candidates we produce;
●
maintain, leverage and expand our intellectual property
portfolio;
●
establish and maintain sales, distribution and marketing
capabilities, and/or enter into strategic partnering arrangements
to access such capabilities;
●
gain market acceptance for our products; and
●
obtain adequate capital resources and manage our spending as costs
and expenses increase due to research, production, development,
regulatory approval and commercialization of product
candidates.
Our future success is highly dependent upon our ability to
successfully develop and commercialize AV-101, acquire or license
additional product candidates, or discover, as well as produce,
develop and commercialize proprietary drug rescue NCEs using our
stem cell technology, and we cannot provide any assurance that we
will successfully develop and commercialize AV-101, acquire or
license additional product candidates or discover and develop drug
rescue NCEs, or that, if produced, AV-101 or any other product
candidate will be successfully commercialized.
Business development and research and development programs designed
to identify, acquire or license additional product candidates, or,
as the case may be, produce drug rescue NCEs require substantial
technical, financial and human resources, whether or not any
additional product candidate is acquired or licensed or NCEs are
ultimately identified and produced. In particular, our drug rescue
programs may initially show promise in identifying potential NCEs,
yet fail to yield a lead NCE suitable for preclinical, clinical
development or commercialization for many reasons, including the
following:
●
our drug rescue research and development methodology may not be
successful in identifying and developing potential drug rescue
NCEs;
●
competitors may develop alternatives that render our drug rescue
NCEs obsolete;
●
a drug rescue NCE may, on further study, be shown to have harmful
side effects or other characteristics that indicate it is unlikely
to be effective or otherwise does not meet applicable regulatory
criteria;
●
a drug rescue NCE may not be capable of being produced in
commercial quantities at an acceptable cost, or at all;
or
●
a drug rescue NCE may not be accepted as safe and effective by
regulatory authorities, patients, the medical community or
third-party payors.
In addition, we do not have a sales or marketing infrastructure,
and we, including our executive officers, do not have any
significant pharmaceutical sales, marketing or distribution
experience. We may seek to collaborate with others to develop and
commercialize AV-101, drug rescue NCEs and/or other product
candidates if and when they are acquired and
developed. If we enter into arrangements with third
parties to perform sales, marketing and distribution services for
our products, the resulting revenues or the profitability from
these revenues to us are likely to be lower than if we had sold,
marketed and distributed our products ourselves. In addition, we
may not be successful in entering into arrangements with third
parties to sell, market and distribute AV-101, any drug rescue NCEs
or other product candidates or may be unable to do so on terms that
are favorable to us. We likely will have little control
over such third parties, and any of these third parties may fail to
devote the necessary resources and attention to sell, market and
distribute our products effectively. If we do not
establish sales, marketing and distribution capabilities
successfully, in collaboration with third parties, we will not be
successful in commercializing our product candidates.
We have limited operating history with respect to drug development,
including our anticipated focus on the identification and
acquisition of additional product candidates or the assessment of
potential drug rescue NCEs and no operating history with respect to
the production of drug rescue NCEs, and we may never be able to
produce a drug rescue NCE.
If we are unable to develop and commercialize AV-101, acquire
or license additional product candidates, or produce suitable drug
rescue NCEs, we may not be able to generate sufficient revenues to
execute our business plan, which likely would result in significant
harm to our financial position and results of operations, which
could adversely impact our stock price.
With respect to drug rescure,there are a number of factors, in
addition to the utility of
CardioSafe
3D, that may impact our ability to identify
and produce, develop or out-license and commercialize drug rescue
NCEs, independently or with strategic partners,
including:
●
our ability to identify potential drug rescue candidates in the
public domain, obtain sufficient quantities of them, and assess
them using our bioassay systems;
●
if we seek to rescue drug rescue candidates that are not available
to us in the public domain, the extent to which third parties may
be willing to out-license or sell certain drug rescue candidates to
us on commercially reasonable terms;
●
our medicinal chemistry collaborator’s
ability to design and produce proprietary drug rescue NCEs based on
the novel biology and structure-function insight we provide
using
CardioSafe
3D; and
●
financial resources available to us to develop and commercialize
lead drug rescue NCEs internally, or, if we out-license them to
strategic partners, the resources such partners choose to dedicate
to development and commercialization of any drug rescue NCEs they
license from us.
Even if we do acquire additional product candidates or produce
proprietary drug rescue NCEs, we can give no assurance that we will
be able to develop and commercialize them as marketable drugs, on
our own or in collaboration with others. Before we generate any
revenues from AV-101, additional acquired or licensed products
candidates or any drug rescue NCEs we or our potential
collaborators must complete preclinical and clinical developments,
submit clinical and manufacturing data to the FDA, qualify a third
party CMO, receive regulatory approval in one or more
jurisdictions, satisfy the FDA that our contract manufacturer is
capable of manufacturing the product in compliance with cGMP, build
a commercial organization, make substantial investments and
undertake significant marketing efforts ourselves or in partnership
with others. We are not permitted to market or promote any of our
product candidates before we receive regulatory approval from the
FDA or comparable foreign regulatory authorities, and we may never
receive such regulatory approval for any of our product
candidates.
If
CardioSafe
3D
fails to predict accurately
and efficiently the cardiac effects, both toxic and nontoxic, of
drug rescue candidates and drug rescue NCEs, then our drug rescue
programs will be adversely affected.
Our success is partly dependent on our ability to
use
CardioSafe
3D to identify and predict, accurately and
efficiently, the potential toxic and nontoxic cardiac effects of
drug rescue candidates
and drug rescue NCEs. If
CardioSafe
3D is not capable of providing
physiologically relevant and clinically predictive information
regarding human cardiac biology, our drug rescue business will be
adversely affected.
CardioSafe
3D
may not be meaningfully more
predictive of the behavior of human cells than existing
methods.
The success of our drug rescue programs is highly dependent
upon
CardioSafe
3D being more accurate, efficient and
clinically predictive than long-established surrogate safety
models, including animal cells and live animals, and immortalized,
primary and transformed cells, currently used by pharmaceutical
companies and others. We cannot give assurance
that
CardioSafe
3D will be more efficient or accurate at
predicting the heart safety of new drug candidates than the testing
models currently used. If
CardioSafe
3D fails to provide a meaningful difference
compared to existing or new models in predicting the behavior of
human heart, respectively, their utility for drug rescue will be
limited and our drug rescue business will be adversely
affected.
We may invest in producing drug rescue NCEs for which there proves
to be no demand.
To generate revenue from our drug rescue activities, we must
produce proprietary drug rescue NCEs for which there proves to be
demand within the healthcare marketplace, and, if we intend to
out-license a particular drug rescue NCE for development and
commercialization prior to market approval, then also among
pharmaceutical companies and other potential collaborators.
However, we may produce drug rescue NCEs for which there proves to
be no or limited demand in the healthcare market and/or among
pharmaceutical companies and others. If we misinterpret market
conditions, underestimate development costs and/or seek to rescue
the wrong drug rescue candidates, we may fail to generate
sufficient revenue or other value, on our own or in collaboration
with others, to justify our investments, and our drug rescue
business may be adversely affected.
We may experience difficulty in producing human cells and our
future stem cell technology research and development efforts may
not be successful within the timeline anticipated, if at
all.
Our human pluripotent stem cell technology is technically complex,
and the time and resources necessary to develop various human cell
types and customized bioassay systems are difficult to predict in
advance. We might decide to devote significant personnel and
financial resources to research and development activities designed
to expand, in the case of drug rescue, and explore, in the case of
drug discovery and regenerative medicine, potential applications of
our stem cell technology platform. In particular, we may conduct
exploratory nonclinical RM programs involving blood, bone,
cartilage, and/or liver cells. Although we and our collaborators
have developed proprietary protocols for the production of multiple
differentiated cell types, we could encounter difficulties in
differentiating and producing sufficient quantities of particular
cell types, even when following these proprietary protocols. These
difficulties could result in delays in production of certain cells,
assessment of certain drug rescue candidates and drug rescue NCEs,
design and development of certain human cellular assays and
performance of certain exploratory non-clinical regenerative
medicine studies. In the past, our stem cell research and
development projects have been significantly delayed when we
encountered unanticipated difficulties in differentiating human
pluripotent stem cells into heart and liver cells. Although we have
overcome such difficulties in the past, we may have similar delays
in the future, and we may not be able to overcome them or obtain
any benefits from our future stem cell technology research and
development activities. Any delay or failure by us, for example, to
produce functional, mature blood, bone, cartilage, and liver cells
could have a substantial and material adverse effect on our
potential drug discovery, drug rescue and regenerative medicine
business opportunities and results of operations.
Restrictions on research and development involving human embryonic
stem cells and religious and political pressure regarding such stem
cell research and development could impair our ability to conduct
or sponsor certain potential collaborative research and development
programs and adversely affect our prospects, the market price of
our common stock and our business model.
Some of our research and development programs may involve the use
of human cells derived from our controlled differentiation of human
embryonic stem cells (
hESC
s). Some believe the use of hESCs gives rise to
ethical and social issues regarding the appropriate use of these
cells. Our research related to differentiation of hESCs may become
the subject of adverse commentary or publicity, which could
significantly harm the market price of our common stock. Although
now substantially less than in years past, certain political and
religious groups in the United States and elsewhere voice
opposition to hESC technology and practices. We may use hESCs
derived from excess fertilized eggs that have been created for
clinical use in
in vitro
fertilization (
IVF
) procedures and have been donated for research
purposes with the informed consent of the donors after a successful
IVF procedure because they are no longer desired or suitable for
IVF. Certain academic research institutions have adopted policies
regarding the ethical use of human embryonic tissue. These policies
may have the effect of limiting the scope of future collaborative
research opportunities with such institutions, thereby potentially
impairing our ability to conduct certain research and development
in this field that we believe is necessary to expand the drug
rescue capabilities of our technology, which would have a material
adverse effect on our business.
The use of embryonic or fetal tissue in research (including the
derivation of hESCs) in other countries is regulated by the
government, and varies widely from country to country.
Government-imposed restrictions with respect to use of hESCs in
research and development could have a material adverse effect on us
by harming our ability to establish critical collaborations,
delaying or preventing progress in our research and development,
and causing a decrease in the market interest in our
stock.
The foregoing potential ethical concerns do not apply to our use of
induced pluripotent stem cells
(iPSC
s) because their derivation does not involve the
use of embryonic tissues.
We have assumed that the biological capabilities of iPSCs and hESCs
are likely to be comparable. If it is discovered that this
assumption is incorrect, our exploratory research and development
activities focused on potential regenerative medicine applications
of our stem cell technology platform could be harmed.
We may use both hESCs and iPSCs to produce human cells for our
customized
in vitro
assays for drug discovery and drug rescue
purposes. However, we anticipate that our future exploratory
research and development, if any, focused on potential regenerative
medicine applications of our stem cell technology platform
primarily will involve iPSCs. With respect to iPSCs, we believe
scientists are still somewhat uncertain about the clinical utility,
life span, and safety of such cells, and whether such cells differ
in any clinically significant ways from hESCs. If we discover that
iPSCs will not be useful for whatever reason for potential
regenerative medicine programs, this would negatively affect our
ability to explore expansion of our platform in that manner,
including, in particular, where it would be preferable to use iPSCs
to reproduce rather than approximate the effects of certain
specific genetic variations.
If we fail to comply with environmental, health and safety laws and
regulations, we could become subject to fines or penalties or incur
costs that could have a material adverse effect on the success of
our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures
and the handling, use, storage, treatment and disposal of hazardous
materials and wastes. Our operations involve the use of hazardous
and flammable materials, including chemicals and biological
materials. Our operations also produce hazardous waste products. We
generally contract with third parties for the disposal of these
materials and wastes. We cannot eliminate the risk of contamination
or injury from these materials. In the event of contamination or
injury resulting from our use of hazardous materials, we could be
held liable for any resulting damages, and any liability could
exceed our resources. We also could incur significant costs
associated with civil or criminal fines and penalties.
Although we maintain workers' compensation insurance to cover us
for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials, this
insurance may not provide adequate coverage against potential
liabilities. We do not maintain insurance for environmental
liability or toxic tort claims that may be asserted against us in
connection with our storage or disposal of biological, hazardous or
radioactive materials.
In addition, we may incur substantial costs in order to comply with
current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may
impair our research, development or production efforts. Failure to
comply with these laws and regulations also may result in
substantial fines, penalties or other sanctions, which could have a
material adverse effect on our operations.
To the extent our research and development activities involve using
iPSCs, we will be subject to complex and evolving laws and
regulations regarding privacy and informed consent. Many of these
laws and regulations are subject to change and uncertain
interpretation, and could result in claims, changes to our research
and development programs and objectives, increased cost of
operations or otherwise harm the Company.
To the extent that we pursue research and development activities
involving iPSCs, we will be subject to a variety of laws and
regulations in the United States and abroad that involve matters
central to such research and development activities, including
obligations to seek informed consent from donors for the use of
their blood and other tissue to produce, or have produced for us,
iPSCs, as well as state and federal laws that protect the privacy
of such donors. United States federal and state and foreign laws
and regulations are constantly evolving and can be subject to
significant change. If we engage in iPSC-related research and
development activities in countries other than the United States,
we may become subject to foreign laws and regulations relating to
human subjects research and other laws and regulations that are
often more restrictive than those in the United States. In
addition, both the application and interpretation of these laws and
regulations are often uncertain, particularly in the rapidly
evolving stem cell technology sector in which we operate. These
laws and regulations can be costly to comply with and can delay or
impede our research and development activities, result in negative
publicity, increase our operating costs, require significant
management time and attention and subject us to claims or other
remedies, including fines or demands that we modify or cease
existing business practices.
Legal, social and ethical concerns surrounding the use of iPSCs,
biological materials and genetic information could impair our
operations.
To the extent that our future stem cell research and development
activities involve the use of iPSCs and the manipulation of human
tissue and genetic information, the information we derive from such
iPSC-related research and development activities could be used in a
variety of applications, which may have underlying legal, social
and ethical concerns, including the genetic engineering or
modification of human cells, testing for genetic predisposition for
certain medical conditions and stem cell banking. Governmental
authorities could, for safety, social or other purposes, call for
limits on or impose regulations on the use of iPSCs and genetic
testing or the manufacture or use of certain biological materials
involved in our iPSC-related research and development programs.
Such concerns or governmental restrictions could limit our future
research and development activities, which could have a material
adverse effect on our business, financial condition and results of
operations.
Our human cellular bioassay systems and human cells we derive from
human pluripotent stem cells, although not currently subject to
regulation by the FDA or other regulatory agencies as biological
products or drugs, could become subject to regulation in the
future.
The human cells we produce from hPSCs and our customized bioassay
systems using such cells, including
CardioSafe
3D, are not currently sold, for research
purposes or any other purpose, to biotechnology or pharmaceutical
companies, government research institutions, academic and nonprofit
research institutions, medical research organizations or stem cell
banks, and they are not therapeutic procedures. As a result, they
are not subject to regulation as biological products or drugs by
the FDA or comparable agencies in other countries. However, if, in
the future, we seek to include human cells we derive from hPSCs in
therapeutic applications or product candidates, such applications
and/or product candidates would be subject to the FDA’s pre-
and post-market regulations. For example, if we seek to develop and
market human cells we produce for use in performing regenerative
medicine applications, such as tissue engineering or organ
replacement, we would first need to obtain FDA pre-market clearance
or approval. Obtaining such clearance or approval from the FDA is
expensive, time-consuming and uncertain, generally requiring many
years to obtain, and requiring detailed and comprehensive
scientific and clinical data. Notwithstanding the time and expense,
these efforts may not result in FDA approval or clearance. Even if
we were to obtain regulatory approval or clearance, it may not be
for the uses that we believe are important or commercially
attractive.
Risks Related to Our Financial Position
We have incurred significant net losses since inception and we will
continue to incur substantial operating losses for the foreseeable
future. We may never achieve or sustain profitability, which would
depress the market price of our common stock and could cause you to
lose all or a part of your investment.
We have incurred significant net losses in each fiscal year since
our inception in 1998, including net losses of $10.3 million and
$47.2 million, which includes $26.7 million of non-cash expense
related to the extinguishment of essentially all of our outstanding
promissory notes and certain other indebtedness, during the fiscal
years ended March 31, 2017 and 2016, respectively. We incurred a
net loss of approximately $10.3 million in the nine months ended
December 31, 2017 and, as of that date, we had an accumulated
deficit of approximately $152.5 million. We do not know whether or
when we will become profitable. Substantially all of our operating
losses have resulted from costs incurred in connection with our
research and development programs and from general and
administrative costs associated with our operations. We expect to
incur increasing levels of operating losses over the next several
years and for the foreseeable future. Our prior losses, combined
with expected future losses, have had and will continue to have an
adverse effect on our stockholders’ equity (deficit) and
working capital. We expect our research and development expenses to
significantly increase in connection with non-clinical studies and
clinical trials of our product candidates. In addition, if we
obtain marketing approval for our product candidates, we may incur
significant sales, marketing and outsourced-manufacturing expenses
should we elect not to collaborate with one or more third parties
for such services and capabilities. As a public company, we incur
additional costs associated with operating as a public company. As
a result, we expect to continue to incur significant and increasing
operating losses for the foreseeable future. Because of the
numerous risks and uncertainties associated with developing
pharmaceutical products, we are unable to predict the extent of any
future losses or when we will become profitable, if at all. Even if
we do become profitable, we may not be able to sustain or increase
our profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to
generate revenues. To date, we have generated approximately $17.7
million in revenues, including receipt of non-dilutive cash
payments from collaborators, sublicense revenue, and research and
development grant awards from the NIH, not including the fair
market value of the ongoing NIMH AV-101 MDD Phase 2 Monotherapy
Study fully-sponsored by the NIMH under our NIMH CRADA. We have not
yet commercialized any product or generated any revenues from
product sales, and we do not know when, or if, we will generate any
revenue from product sales. We do not expect to generate
significant revenue unless and until we obtain marketing approval
of, and begin to experience sales of, AV-101, or we enter into one
or more development and commercialization agreements with respect
to AV-101 or one or more other product candidates. Our ability to
generate revenue depends on a number of factors, including, but not
limited to, our ability to:
●
initiate and successfully complete non-clinical and clinical trials
that meet their prescribed endpoints;
●
initiate and successfully complete all safety studies required to
obtain U.S. and foreign marketing approval for our product
candidates;
●
commercialize our product candidates, if approved, by developing a
sales force or entering into collaborations with third parties;
and
●
achieve market acceptance of our product candidates in the medical
community and with third-party payors.
Unless we enter into a development and commercialization
collaboration or partnership agreement, we expect to incur
significant sales and marketing costs as we prepare to
commercialize AV-101 or other product candidates. Even if we
initiate and successfully complete pivotal clinical trials of
AV-101 or other product candidates, and AV-101 or other product
candidates are approved for commercial sale, and despite expending
these costs, AV-101 or other product candidates may not be
commercially successful. We may not achieve profitability soon
after generating product sales, if ever. If we are unable to
generate product revenue, we will not become profitable and may be
unable to continue operations without continued
funding.
We require additional financing to execute our business plan and
continue to operate as a going concern.
Our audited consolidated financial statements for the year ended
March 31, 2017 as well as the unaudited condensed consolidated
financial statements for the period ended December 31, 2017
included elsewhere in this Report have been prepared assuming we
will continue to operate as a going concern, although we and our
auditors have indicated that our continuing losses and negative
cash flows from operations raise substantial doubt about our
ability to continue as such. Because we continue to experience net
operating losses, our ability to continue as a going concern is
subject to our ability to obtain necessary funding from outside
sources, including obtaining additional funding from the sale of
our securities or obtaining loans and grant awards from financial
institutions and/or government agencies where possible. Our
continued net operating losses increase the difficulty in
completing such sales or securing alternative sources of funding,
and there can be no assurances that we will be able to obtain such
funding on favorable terms or at all. If we are unable to obtain
sufficient financing from the sale of our securities or from
alternative sources, we may be required to reduce, defer, or
discontinue certain or all of our research and development
activities or we may not be able to continue as a going
concern.
Since our inception, most of our resources have been dedicated to
research and development of AV-101 and the drug rescue capabilities
of our stem cell technology platform. In particular, we have
expended substantial resources advancing AV-101 through preclinical
development and Phase 1 clinical safety studies, and
developing
CardioSafe
3D and our cardiac stem cell technology for
drug rescue and potential regenerative medicine applications, and
we will continue to expend substantial resources for the
foreseeable future developing and commercializing AV-101 for
multiple CNS indications, and, potentially, developing drug rescue
NCEs and RM therapies, on our own or in collaborations similar to
the BlueRock Agreement. These expenditures will include costs
associated with general and administrative costs, facilities costs,
research and development, acquiring new technologies, manufacturing
product candidates, conducting nonclinical experiments and clinical
trials and obtaining regulatory approvals, as well as
commercializing any products approved for sale.
At
December 31, 2017, we had a cash and cash equivalents balance of
$13.0 million. We believe this amount is sufficient to enable us to
fund our planned operations for at least the twelve months
following the issuance of the financial statements included in this
Report. We expect to seek additional capital to finalize the
results from the AV-101 MDD Phase 2 Adjunctive Treatment Study,
produce additional AV-101 study
material, conduct Phase 3-enabling studies, conduct Phase 3 studies
in MDD, conduct AV-101 Phase 2 studies in CNS indications other
than MDD
and to fund our internal operations in 2019 and
beyond.
Further, we have no current source of revenue to sustain our
present activities, and we do not expect to generate revenue until,
and unless, we (i) out-license or sell AV-101, a drug rescue NCE,
and/or another drug candidate unrelated to AV-101 to third-parties,
(ii) enter into license arrangements involving our stem cell
technology, or (iii) obtain approval from the FDA or other
regulatory authorities and successfully commercialize, on our own
or through a future collaboration, one or more of our
compounds.
As the outcome of our AV-101 and NCE drug rescue activities and
future anticipated clinical trials is highly uncertain, we cannot
reasonably estimate the actual amounts necessary to successfully
complete the development and commercialization of our product
candidates, on our own or in collaboration with others. In
addition, other unanticipated costs may arise. As a result of these
and other factors, we will need to seek additional capital in the
near term to meet our future operating requirements, including
capital necessary to develop, obtain regulatory approval for, and
to commercialize our product candidates, and may seek additional
capital in the event there exists favorable market conditions or
strategic considerations even if we believe we have sufficient
funds for our current or future operating plans. We are considering
a range of potential sources of funding, including public or
private equity or debt financings, government or other third-party
funding, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements or a
combination of these approaches, and we may complete additional
financing arrangements in 2017 and beyond. Raising funds in the
current economic environment may present additional challenges.
Even if we believe we have sufficient funds for our current or
future operating plans, we may seek additional capital if market
conditions are favorable or if we have specific strategic
considerations.
Our future capital requirements depend on many factors,
including:
●
the number and characteristics of the product candidates we pursue,
including AV-101 and drug rescue NCEs;
●
the scope, progress, results and costs of researching and
developing our product candidates, and conducting preclinical and
clinical studies;
●
the timing of, and the costs involved in, obtaining regulatory
approvals for our product candidates;
●
the cost of commercialization activities if any of our product
candidates are approved for sale, including marketing, sales and
distribution costs;
●
the cost of manufacturing our product candidates and any products
we successfully commercialize;
●
our ability to establish and maintain strategic partnerships,
licensing or other arrangements and the financial terms of such
agreements;
●
market acceptance of our products;
●
the effect of competing technological and market
developments;
●
our ability to obtain government funding for our
programs;
●
the costs involved in obtaining and enforcing patents to preserve
our intellectual property;
●
the costs involved in defending against such claims that we
infringe third-party patents or violate other intellectual property
rights and the outcome of such litigation;
●
the timing, receipt and amount of potential future licensee fees,
milestone payments, and sales of, or royalties on, our future
products, if any; and
●
the extent to which we acquire or invest in businesses, products
and technologies, although we currently have no commitments or
agreements relating to any of these types of
transactions.
Any additional fundraising efforts will divert certain members of
our management team from their day-to-day activities, which may
adversely affect our ability to develop and commercialize our
product candidates. In addition, we cannot guarantee that future
financing will be available in sufficient amounts, in a timely
manner, or on terms acceptable to us, if at all, and the terms of
any financing may adversely affect the holdings or the rights of
our stockholders and the issuance of additional securities, whether
equity or debt, by us, or the possibility of such issuance, may
cause the market price of our shares to decline. The sale of
additional equity securities and the conversion or exchange of
certain of our outstanding securities will dilute all of our
stockholders. The incurrence of debt could result in increased
fixed payment obligations and we could be required to agree to
certain restrictive covenants, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire,
sell or license intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our
business. We could also be required to seek funds through
arrangements with collaborative partners or otherwise at an earlier
stage than otherwise would be desirable and we may be required to
relinquish rights to some of our technologies or product candidate
or otherwise agree to terms unfavorable to us, any of which may
have a material adverse effect on our business, operating results
and prospects.
If we are unable to obtain additional funding on a timely basis and
on acceptable terms, we may be required to significantly curtail,
delay or discontinue one or more of our research or product
development programs or the commercialization of any product
candidate or be unable to continue or expand our operations or
otherwise capitalize on our business opportunities, as desired,
which could materially affect our business, financial condition and
results of operations.
We have identified
material weaknesses in our internal control over financial
reporting, and our business and stock price may be adversely
affected if we do not adequately address those weaknesses or if we
have other material weaknesses or significant deficiencies in our
internal control over financial reporting
.
We have identified material weaknesses in our internal control over
financial reporting. In particular, we concluded that (i) the size
and capabilities of the Company’s staff does not permit
appropriate segregation of duties to prevent one individual from
overriding the internal control system by initiating, authorizing
and completing all transactions, and (ii) the Company utilizes
accounting software that does not prevent erroneous or unauthorized
changes to previous reporting periods and/or can be adjusted so as
to not provide an adequate auditing trail of entries made in the
accounting software.
T
he existence of one or more
material weaknesses or significant deficiencies could result in
errors in our financial statements, and substantial costs and
resources may be required to rectify any internal control
deficiencies. If we cannot produce reliable financial reports,
investors could lose confidence in our reported financial
information, we may be unable to obtain additional financing to
operate and expand our business and our business and financial
condition could be harmed.
Raising additional capital will cause substantial dilution to our
existing stockholders, may restrict our operations or require us to
relinquish rights, and may require us to seek stockholder approval
to authorize additional shares of our common stock.
We intend to pursue private and public equity offerings, debt
financings, strategic collaborations and licensing arrangements
during 2017 and beyond. To the extent that we raise additional
capital through the sale of common stock or securities convertible
or exchangeable into common stock, or to the extent, for strategic
purposes, we convert or exchange certain of our outstanding
securities into common stock, our current stockholders’
ownership interest in our company will be substantially diluted. In
addition, the terms of any such securities may include liquidation
or other preferences that materially adversely affect rights of our
stockholders. Debt financing, if available, would increase our
fixed payment obligations and may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through collaboration, strategic partnerships and licensing
arrangements with third parties, we may have to relinquish valuable
rights to our product candidates, our intellectual property, future
revenue streams or grant licenses on terms that are not favorable
to us.
Some of our programs have been partially supported by government
grant awards, which may not be available to us in the
future.
Since inception, we have received substantial funds under grant
award programs funded by state and federal governmental agencies,
such as the NIH, the NIH’s National Institute of Neurological
Disease and Stroke (
NINDS
) and the NIMH, and the California Institute for
Regenerative Medicine (
CIRM
). To fund a portion of our future research and
development programs, we may apply for additional grant funding
from such or similar governmental
organizations. However, funding by these governmental
organizations may be significantly reduced or eliminated in the
future for a number of reasons. For example, some programs are
subject to a yearly appropriations process in Congress. In
addition, we may not receive funds under future grants because of
budgeting constraints of the agency administering the program.
Therefore, we cannot assure you that we will receive any future
grant funding from any government organization or
otherwise. A restriction on the government funding
available to us could reduce the resources that we would be able to
devote to future research and development efforts. Such a reduction
could delay the introduction of new products and hurt our
competitive position.
Our ability to use net operating losses to offset future taxable
income is subject to certain limitations.
As of March 31, 2017, we had federal and state net operating
loss carryforwards of $77.1 million and $67.6 million,
respectively, which begin to expire in fiscal
2018. Under Section 382 of the Internal Revenue
Code of 1986, as amended (the
Code
) changes in our ownership may limit the amount of
our net operating loss carryforwards that could be utilized
annually to offset our future taxable income, if any. This
limitation would generally apply in the event of a cumulative
change in ownership of our company of more than 50% within a
three-year period. Any such limitation may significantly reduce our
ability to utilize our net operating loss carryforwards and tax
credit carryforwards before they expire. Any such limitation,
whether as the result of future offerings, prior private
placements, sales of our common stock by our existing stockholders
or additional sales of our common stock by us in the future, could
have a material adverse effect on our results of operations in
future years. We have not completed a study to assess whether an
ownership change for purposes of Section 382 has occurred, or
whether there have been multiple ownership changes since our
inception, due to the significant costs and complexities associated
with such study.
General Company-Related Risks
If we fail to attract and retain senior management and key
scientific personnel, we may be unable to successfully produce,
develop and commercialize AV-101, drug rescue NCEs, other potential
product candidates and other commercial applications of our stem
cell technology.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management and scientific and
technical personnel. We are highly dependent upon our Chief
Executive Officer, President and Chief Scientific Officer, Chief
Medical Officer and Chief Financial Officer, as well as other
employees, consultants and scientific collaborators. As of the date
of this Report, we have nine full-time employees, which may make us
more reliant on our individual employees than companies with a
greater number of employees. The loss of services of any of these
individuals could delay or prevent the successful development of
AV-101, drug rescue NCEs, other product candidates, and other
applications of our stem cell technology, including our production
and assessment of potential drug recuse NCEs or disrupt our
administrative functions.
Although we have not historically experienced unique difficulties
attracting and retaining qualified employees, we could experience
such problems in the future. For example, competition for qualified
personnel in the biotechnology and pharmaceuticals field is
intense. We will need to hire additional personnel as we expand our
research and development and administrative activities. We may not
be able to attract and retain quality personnel on acceptable
terms.
In addition, we rely on a diverse range of strategic consultants
and advisors, including manufacturing, scientific and clinical
development, and regulatory advisors, to assist us in designing and
implementing our research and development and regulatory strategies
and plans, including our AV-101 development and drug rescue
strategies and plans. Our consultants and advisors may be employed
by employers other than us and may have commitments under
consulting or advisory contracts with other entities that may limit
their availability to us.
As we seek to advance development of AV-101 for MDD and other
CNS-related conditions, as well as stem cell technology-related
drug rescue and RM programs, we will need to expand our research
and development capabilities and/or contract with third parties to
provide these capabilities for us. As our operations expand, we
expect that we will need to manage additional relationships with
various strategic partners and other third parties. Future growth
will impose significant added responsibilities on members of
management. Our future financial performance and our ability to
develop and commercialize our product candidates and to compete
effectively will depend, in part, on our ability to manage any
future growth effectively. To that end, we must be able to manage
our research and development efforts effectively and hire, train
and integrate additional management, administrative and technical
personnel. The hiring, training and integration of new employees
may be more difficult, costly and/or time-consuming for us because
we have fewer resources than a larger organization. We may not be
able to accomplish these tasks, and our failure to accomplish any
of them could prevent us from successfully growing the
company.
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
If we develop AV-101, drug rescue NCEs, other product candidates,
or regenerative medicine product candidates, either on our own
or in collaboration with others, we will face inherent risks of
product liability as a result of the required clinical testing of
such product candidates, and will face an even greater risk if we
or our collaborators commercialize any such product candidates. For
example, we may be sued if AV-101, any drug rescue NCE, other
product candidate, or regenerative medicine product candidate we
develop allegedly causes injury or is found to be otherwise
unsuitable during product testing, manufacturing, marketing or
sale. Any such product liability claims may include allegations of
defects in manufacturing, defects in design, a failure to warn of
dangers inherent in the product, negligence, strict liability, and
a breach of warranties. Claims could also be asserted under state
consumer protection acts. If we cannot successfully defend
ourselves against product liability claims, we may incur
substantial liabilities or be required to limit commercialization
of our product candidates. Even successful defense would require
significant financial and management resources. Regardless of the
merits or eventual outcome, liability claims may result
in:
●
decreased demand for products that we may develop;
●
injury to our reputation;
●
withdrawal of clinical trial participants;
●
costs to defend the related litigation;
●
a diversion of management's time and our resources;
●
substantial monetary awards to trial participants or patients;
or
●
product recalls, withdrawals or labeling, marketing or promotional
restrictions.
Our inability to obtain and retain sufficient product liability
insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the
commercialization of products we develop. Although we maintain
liability insurance, any claim that may be brought against us could
result in a court judgment or settlement in an amount that is not
covered, in whole or in part, by our insurance or that is in excess
of the limits of our insurance coverage. Our insurance policies
also have various exclusions, and we may be subject to a product
liability claim for which we have no coverage. We will have to pay
any amounts awarded by a court or negotiated in a settlement that
exceed our coverage limitations or that are not covered by our
insurance, and we may not have, or be able to obtain, sufficient
capital to pay such amounts.
As a public company, we incur significant administrative workload
and expenses to comply with U.S. regulations and requirements
imposed by the NASDAQ Stock Market concerning corporate governance
and public disclosure.
As a public company with common stock listed on the NASDAQ Capital
Market, we must comply with various laws, regulations and
requirements, including certain provisions of the Sarbanes-Oxley
Act of 2002, as well as rules implemented by the SEC and the NASDAQ
Stock Market. Complying with these statutes, regulations and
requirements, including our public company reporting requirements,
continues to occupy a significant amount of the time of management
and involves significant accounting, legal and other expenses.
Furthermore, these laws, regulations and requirements require us to
observe greater corporate governance practices than we have
employed in the past, including, but not limited to maintaining a
sufficient number of independent directors, increased frequency of
board meetings, and holding annual stockholder meetings. Our
efforts to comply with these regulations are likely to result in
increased general and administrative expenses and management time
and attention directed to compliance activities.
Unfavorable global economic or political conditions could adversely
affect our business, financial condition or results of
operations.
Our results of operations could be adversely affected by global
political conditions, as well as general conditions in the global
economy and in the global financial and stock markets. Global
financial and political crises cause extreme volatility and
disruptions in the capital and credit markets. A severe or
prolonged economic downturn, such as the recent global financial
crisis, could result in a variety of risks to our business,
including, weakened demand for our product candidates and our
ability to raise additional capital when needed on acceptable
terms, if at all. A weak or declining economy could also strain our
suppliers, possibly resulting in supply disruption, or cause our
customers to delay making payments for our services. Any of the
foregoing could harm our business and we cannot anticipate all of
the ways in which the current economic climate and financial market
conditions could adversely impact our business.
We or the third parties upon whom we depend may be adversely
affected by natural disasters and our business continuity and
disaster recovery plans may not adequately protect us from a
serious disaster.
Natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations,
financial condition and prospects. If a natural disaster, power
outage or other event occurred that prevented us from using all or
a significant portion of our headquarters, that damaged critical
infrastructure, such as the manufacturing facilities of our
third-party CMOs, or that otherwise disrupted operations, it may be
difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery
and business continuity plans we have in place may prove inadequate
in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which could have a
material adverse effect on our business.
Our internal computer systems, or those of our third-party CROs or
other contractors or consultants, may fail or suffer security
breaches, which could result in a material disruption of our
product candidates’ development programs.
Despite the implementation of security measures, our internal
computer systems and those of our third-party CROs and other
contractors and consultants are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. While we have not
experienced any such system failure, 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
programs. For example, the loss of clinical trial data for AV-101
or other product candidates could result in delays in our
regulatory approval efforts and significantly increase our costs to
recover or reproduce the data. To the extent that any disruption or
security breach results in a loss of or damage to our data or
applications or other data or applications relating to our
technology or product candidates, or inappropriate disclosure of
confidential or proprietary information, we could incur liabilities
and the further development of our product candidates could be
delayed.
We may acquire businesses or products, or form strategic alliances,
in the future, and we may not realize the benefits of such
acquisitions.
We may acquire additional businesses or products, form strategic
alliances or create joint ventures with third parties that we
believe will complement or augment our existing business. If we
acquire businesses with promising markets or technologies, we may
not be able to realize the benefit of acquiring such businesses if
we are unable to successfully integrate them with our existing
operations and company culture. We may encounter numerous
difficulties in developing, manufacturing and marketing any new
products resulting from a strategic alliance or acquisition that
delay or prevent us from realizing their expected benefits or
enhancing our business. We cannot assure you that, following any
such acquisition, we will achieve the expected synergies to justify
the transaction.
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology,
or obtain and maintain issued patents that are sufficient to
protect our product candidates, others could compete against us
more directly, which would have a material adverse impact on our
business, results of operations, financial condition and
prospects.
We strive to protect and enhance the proprietary technologies that
we believe are important to our business, including seeking patents
intended to cover our products and compositions, their methods of
use and any other inventions we consider important to the
development of our business. We also rely on trade secrets to
protect aspects of our business that are not amenable to, or that
we do not consider appropriate for, patent protection.
Our success will depend significantly on our ability to obtain and
maintain patent and other proprietary protection for commercially
important technology, inventions and know-how related to our
business, to defend and enforce our patents, should they issue, to
preserve the confidentiality of our trade secrets and to operate
without infringing the valid and enforceable patents and
proprietary rights of third parties. We also rely on know-how,
continuing technological innovation and in-licensing opportunities
to develop, strengthen and maintain the proprietary position of our
product candidates. We own patent applications related to AV-101
and we own and have licensed patents and patent applications
related to human pluripotent stem cell technology.
Although we have an issued patent relating to AV-101 in the U.S.
and the European Union, we cannot yet provide any assurances that
any of our other numerous pending U.S. and additional foreign
patent applications relating to AV-101 will mature into issued
patents and, if they do, that such patents will include claims with
a scope sufficient to protect AV-101 or otherwise provide any
competitive advantage. Moreover, other parties may have developed
technologies that may be related or competitive to our approach,
and may have filed or may file patent applications and may have
received or may receive patents that may overlap or conflict with
our patent applications, either by claiming the same methods or
formulations or by claiming subject matter that could dominate our
patent position. Such third-party patent positions may limit or
even eliminate our ability to obtain patent
protection.
The patent positions of biotechnology and pharmaceutical companies,
including our patent position, involve complex legal and factual
questions, and, therefore, the issuance, scope, validity and
enforceability of any additional patent claims that we may obtain
cannot be predicted with certainty. Patents, if issued, may be
challenged, deemed unenforceable, invalidated, or circumvented.
U.S. patents and patent applications may also be subject to
interference proceedings,
ex parte
reexamination, or
inter
partes
review proceedings,
supplemental examination and challenges in district court. Patents
may be subjected to opposition, post-grant review, or comparable
proceedings lodged in various foreign, both national and regional,
patent offices. These proceedings could result in either loss of
the patent or denial of the patent application or loss or reduction
in the scope of one or more of the claims of the patent or patent
application. In addition, such proceedings may be costly. Thus, any
patents that we may own or exclusively license may not provide any
protection against competitors. Furthermore, an adverse decision in
an interference proceeding can result in a third party receiving
the patent right sought by us, which in turn could affect our
ability to develop, market or otherwise commercialize our product
candidates.
Furthermore, though a patent is presumed valid and enforceable, its
issuance is not conclusive as to its validity or its enforceability
and it may not provide us with adequate proprietary protection or
competitive advantages against competitors with similar products.
Even if a patent issues and is held to be valid and enforceable,
competitors may be able to design around our patents, such as using
pre-existing or newly developed technology. Other parties may
develop and obtain patent protection for more effective
technologies, designs or methods. We may not be able to prevent the
unauthorized disclosure or use of our technical knowledge or trade
secrets by consultants, vendors, former employees and current
employees. The laws of some foreign countries do not protect our
proprietary rights to the same extent as the laws of the United
States, and we may encounter significant problems in protecting our
proprietary rights in these countries. If these developments were
to occur, they could have a material adverse effect on our
sales.
Our ability to enforce our patent rights depends on our ability to
detect infringement. It is difficult to detect infringers who do
not advertise the components that are used in their products.
Moreover, it may be difficult or impossible to obtain evidence of
infringement in a competitor’s or potential
competitor’s product. Any litigation to enforce or defend our
patent rights, even if we were to prevail, could be costly and
time-consuming and would divert the attention of our management and
key personnel from our business operations. We may not prevail in
any lawsuits that we initiate and the damages or other remedies
awarded if we were to prevail may not be commercially
meaningful.
In addition, proceedings to enforce or defend our patents could put
our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly. Such proceedings could also provoke third
parties to assert claims against us, including that some or all of
the claims in one or more of our patents are invalid or otherwise
unenforceable. If any patents covering our product candidates are
invalidated or found unenforceable, our financial position and
results of operations would be materially and adversely impacted.
In addition, if a court found that valid, enforceable patents held
by third parties covered our product candidates, our financial
position and results of operations would also be materially and
adversely impacted.
The degree of future protection for our proprietary rights is
uncertain, and we cannot ensure that:
●
any of our AV-101 or other pending patent applications, if issued,
will include claims having a scope sufficient to protect AV-101 or
any other products or product candidates, particularly considering
that the compound patent to AV-101 has expired;
●
any of our pending patent applications will issue as patents at
all;
●
we will be able to successfully commercialize our product
candidates, if approved, before our relevant patents
expire;
●
we were the first to make the inventions covered by each of our
patents and pending patent applications;
●
we were the first to file patent applications for these
inventions;
●
others will not develop similar or alternative technologies that do
not infringe our patents;
●
others will not use pre-existing technology to effectively compete
against us;
●
any of our patents, if issued, will be found to ultimately be valid
and enforceable;
●
any patents issued to us will provide a basis for an exclusive
market for our commercially viable products, will provide us with
any competitive advantages or will not be challenged by third
parties;
●
we will develop additional proprietary technologies or product
candidates that are separately patentable; or
●
that our commercial activities or products will not infringe upon
the patents or proprietary rights of others.
We also rely upon unpatented trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain our
competitive position, which we seek to protect, in part, by
confidentiality agreements with our employees and our collaborators
and consultants. It is possible that technology relevant to our
business will be independently developed by a person that is not a
party to such an agreement. Furthermore, if the
employees and consultants who are parties to these agreements
breach or violate the terms of these agreements, we may not have
adequate remedies for any such breach or violation, and we could
lose our trade secrets through such breaches or violations.
Further, our trade secrets could otherwise become known or be
independently discovered by our competitors.
We may infringe the intellectual property rights of others, which
may prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing our
product candidates, if approved.
Our success will depend in part on our ability to operate without
infringing the intellectual property and proprietary rights of
third parties. We cannot assure you that our business, products and
methods do not or will not infringe the patents or other
intellectual property rights of third parties.
The pharmaceutical industry is characterized by extensive
litigation regarding patents and other intellectual property
rights. Other parties may allege that our product candidates or the
use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing
their proprietary technology without authorization. As we continue
to develop and, if approved, commercialize our current product
candidates and future product candidates, competitors may claim
that our technology infringes their intellectual property rights as
part of business strategies designed to impede our successful
commercialization. There may be third-party patents or patent
applications with claims to materials, formulations, methods of
manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications
can take many years to issue, third parties may have currently
pending patent applications that may later result in issued patents
that our product candidates may infringe, or which such third
parties claim are infringed by our technologies. The outcome of
intellectual property litigation is subject to uncertainties that
cannot be adequately quantified in advance. The coverage of patents
is subject to interpretation by the courts, and the interpretation
is not always uniform. If we are sued for patent infringement, we
would need to demonstrate that our product candidates, products or
methods either do not infringe the patent claims of the relevant
patent or that the patent claims are invalid, and we may not be
able to do this. Even if we are successful in these proceedings, we
may incur substantial costs and the time and attention of our
management and scientific personnel could be diverted in pursuing
these proceedings, which could have a material adverse effect on
us. In addition, we may not have sufficient resources to bring
these actions to a successful conclusion.
Patent and other types of intellectual property litigation can
involve complex factual and legal questions, and their outcome is
uncertain. Any claim relating to intellectual property infringement
that is successfully asserted against us may require us to pay
substantial damages, including treble damages and attorney’s
fees if we are found to be willfully infringing another
party’s patents, for past use of the asserted intellectual
property and royalties and other consideration going forward if we
are forced to take a license. In addition, if any such claim was
successfully asserted against us and we could not obtain such a
license, we may be forced to stop or delay developing,
manufacturing, selling or otherwise commercializing our product
candidates.
Even if we are successful in these proceedings, we may incur
substantial costs and divert management time and attention in
pursuing these proceedings, which could have a material adverse
effect on us. If we are unable to avoid infringing the patent
rights of others, we may be required to seek a license, defend an
infringement action or challenge the validity of the patents in
court, or redesign our products. Patent litigation is costly and
time-consuming. We may not have sufficient resources to bring these
actions to a successful conclusion. In addition, intellectual
property litigation or claims could force us to do one or more of
the following:
●
cease developing, selling or otherwise commercializing our product
candidates;
●
pay substantial damages for past use of the asserted intellectual
property;
●
obtain a license from the holder of the asserted intellectual
property, which license may not be available on reasonable terms,
if at all; and
●
in the case of trademark claims, redesign, or rename, some or all
of our product candidates to avoid infringing the intellectual
property rights of third parties, which may not be possible and,
even if possible, could be costly and time-consuming.
Any of these risks coming to fruition could have a material adverse
effect on our business, results of operations, financial condition
and prospects.
We may be subject to claims challenging the inventorship or
ownership of our patents and other intellectual
property.
We enter into confidentiality and intellectual property assignment
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. These
agreements generally provide that inventions conceived by the party
in the course of rendering services to us will be our exclusive
property. However, these agreements may not be honored and may not
effectively assign intellectual property rights to us. For example,
even if we have a consulting agreement in place with an academic
advisor pursuant to which such academic advisor is required to
assign any inventions developed in connection with providing
services to us, such academic advisor may not have the right to
assign such inventions to us, as it may conflict with his or her
obligations to assign all such intellectual property to his or her
employing institution.
Litigation may be necessary to defend against these and other
claims challenging inventorship or ownership. If we fail in
defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as
exclusive ownership of, or right to use, valuable intellectual
property. Such an outcome could have a material adverse effect on
our business. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a
distraction to management and other employees.
Obtaining and maintaining our patent protection depends on
compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent
agencies, and our patent protection could be reduced or eliminated
for non-compliance with these requirements.
The U.S. Patent and Trademark Office (
USPTO
), European Patent Office (
EPO
) and various other foreign governmental patent
agencies require compliance with a number of procedural,
documentary, fee payment and other provisions during the patent
process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting
in partial or complete loss of patent rights in the relevant
jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the
case.
Third parties may initiate legal
proceedings against us alleging that we infringe their intellectual
property rights or we may initiate legal proceedings against third
parties to challenge the validity or scope of intellectual property
rights controlled by third parties, the outcome of which would be
uncertain and could have a material adverse effect on the success
of our business.
Any lawsuit we
are engaged in to protect or enforce our patents or the patents of
our licensors could be expensive, time-consuming and
unsuccessful.
Even if the patent applications we own or license are issued,
competitors may infringe these patents. To counter infringement or
unauthorized use, we may be required to file infringement claims,
which can be expensive and time-consuming. In addition, in an
infringement proceeding, a court may decide that a patent of ours
or our licensors is not valid, is unenforceable and/or is not
infringed, or may refuse to stop the other party from using the
technology at issue on the grounds that our patents do not cover
the technology in question. An adverse result in any litigation or
defense proceedings could put one or more of our patents at risk of
being invalidated or interpreted narrowly and could put our patent
applications at risk of not issuing.
Further, third parties may initiate legal proceedings against us or
our licensors or collaborators alleging that we or our licensors or
collaborators infringe their intellectual property rights or we or
our licensors or collaborators may initiate legal proceedings
against third parties to challenge the validity or scope of
intellectual property rights controlled by third parties, including
in oppositions, interferences, reexaminations, inter partes reviews
or derivation proceedings before the United States or other
jurisdictions. These proceedings can be expensive and
time-consuming and many of our or our licensors’ or
collaborators’ adversaries in these proceedings may have the
ability to dedicate substantially greater resources to prosecuting
these legal actions than we or our licensors or collaborators
can.
Our defense of litigation
or interference proceedings may fail and, even if successful, may
result in substantial costs and distract our management and other
employees. We may not be able to prevent, alone or with our
licensors, misappropriation of our intellectual property rights,
particularly in countries where the laws may not protect those
rights as fully as in the United States or European
Union.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Issued patents covering our product candidates could be found
invalid or unenforceable if challenged in court.
If we or one of our licensing partners initiated legal proceedings
against a third party to enforce a patent, if and when issued,
covering one of our product candidates, the defendant could
counterclaim that the patent covering our product candidate is
invalid and/or unenforceable. In patent litigation in the United
States, defendant counterclaims alleging invalidity and/or
unenforceability are commonplace. Grounds for a validity challenge
include alleged failures to meet any of several statutory
requirements, including lack of novelty, obviousness or
non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent
withheld relevant information from the USPTO or EPO, or made a
misleading statement, during prosecution. Third parties may also
raise similar claims before administrative bodies in the United
States or abroad, even outside the context of litigation. Such
mechanisms include re-examination, post grant review and equivalent
proceedings in foreign jurisdictions, e.g., opposition proceedings.
Such proceedings could result in revocation or amendment of our
patents in such a way that they no longer cover our product
candidates or competitive products. The outcome following legal
assertions of invalidity and unenforceability is unpredictable.
With respect to validity, for example, we cannot be certain that
there is no invalidating prior art, of which we and the patent
examiner were unaware during prosecution. If a defendant were to
prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent
protection on our product candidates. Such a loss of patent
protection would have a material adverse impact on our
business.
We will not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in
all countries and jurisdictions throughout the world is
prohibitively expensive, and our intellectual property rights in
some countries outside the United States could be less extensive
than those in the United States, assuming that rights are obtained
in the United States. In addition, the laws of some foreign
countries do not protect intellectual property rights to the same
extent as federal and state laws in the United States.
Consequently, we may not be able to prevent third parties from
practicing our inventions in all countries outside the United
States, or from selling or importing products made using our
inventions in and into the United States or other jurisdictions.
The statutory deadlines for pursuing patent protection in
individual foreign jurisdictions are based on the priority date of
each of our patent applications. For the patent applications
relating to AV-101, as well as for many of the patent families that
we own or license, the relevant statutory deadlines have not yet
expired. Thus, for each of the patent families that we believe
provide coverage for our lead product candidates or technologies,
we will need to decide whether and where to pursue protection
outside the United States.
Competitors may use our technologies in jurisdictions where we do
not pursue and obtain patent protection to develop their own
products and further, may export otherwise infringing products to
territories where we have patent protection, but enforcement is not
as strong as that in the United States. These products may compete
with our products and our patents or other intellectual property
rights may not be effective or sufficient to prevent them from
competing. Even if we pursue and obtain issued patents in
particular jurisdictions, our patent claims or other intellectual
property rights may not be effective or sufficient to prevent third
parties from so competing.
The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United
States. Many companies have encountered significant problems in
protecting and defending intellectual property rights in certain
foreign jurisdictions. The legal systems of some countries,
particularly developing countries, do not favor the enforcement of
patents and other intellectual property protection, especially
those relating to biotechnology. This could make it difficult for
us to stop the infringement of our patents,if obtained, or the
misappropriation of our other intellectual property rights. For
example, many foreign countries have compulsory licensing laws
under which a patent owner must grant licenses to third parties. In
addition, many countries limit the enforceability of patents
against third parties, including government agencies or government
contractors. In these countries, patents may provide limited or no
benefit. Patent protection must ultimately be sought on a
country-by-country basis, which is an expensive and time-consuming
process with uncertain outcomes. Accordingly, we may choose not to
seek patent protection in certain countries, and we will not have
the benefit of patent protection in such countries.
An unfavorable outcome could require us or our licensors or
collaborators to cease using the related technology or developing
or commercializing our product candidates, or to attempt to license
rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us or our licensors
or collaborators a license on commercially reasonable terms or at
all. Even if we or our licensors or collaborators obtain a license,
it may be non-exclusive, thereby giving our competitors access to
the same technologies licensed to us or our licensors or
collaborators. In addition, we could be found liable for monetary
damages, including treble damages and attorneys’ fees, if we
are found to have willfully infringed a patent. A finding of
infringement could prevent us from commercializing our product
candidates or force us to cease some of our business operations,
which could materially harm our business.
Furthermore, because of the substantial amount of discovery
required in connection with intellectual property litigation, there
is a risk that some of our confidential information could be
compromised by disclosure during this type of litigation. There
could also be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities
analysts or investors perceive these results to be negative, it
could have a material adverse effect on the price of our common
stock.
Furthermore, proceedings to enforce our patent rights in foreign
jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly,
could put our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful.
Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop
or license.
We are dependent, in part, on licensed intellectual property. If we
were to lose our rights to licensed intellectual property, we may
not be able to continue developing or commercializing our product
candidates, if approved. If we breach any of the agreements under
which we license the use, development and commercialization rights
to our product candidates or technology from third parties or, in
certain cases, we fail to meet certain development or payment
deadlines, we could lose license rights that are important to our
business.
We are a party to a number of license agreements under which we are
granted rights to intellectual property that are or could become
important to our business, and we expect that we may need to enter
into additional license agreements in the future. Our existing
license agreements impose, and we expect that future license
agreements will impose on us, various development, regulatory
and/or commercial diligence obligations, payment of fees,
milestones and/or royalties and other obligations. If we fail to
comply with our obligations under these agreements, or we are
subject to a bankruptcy, the licensor may have the right to
terminate the license, in which event we would not be able to
develop or market products, which could be covered by the license.
Our business could suffer, for example, if any current or future
licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensed patents or other rights are found to
be invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms.
As we have done previously, we may need to obtain licenses from
third parties to advance our research or allow commercialization of
our product candidates, and we cannot provide any assurances that
third-party patents do not exist that might be enforced against our
current product candidates or future products in the absence of
such a license. We may fail to obtain any of these licenses on
commercially reasonable terms, if at all. Even if we are able to
obtain a license, it may be non-exclusive, thereby giving our
competitors access to the same technologies licensed to us. In that
event, we may be required to expend significant time and resources
to develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates, which could materially harm our business and
the third parties owning such intellectual property rights could
seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or
other forms of compensation.
Licensing of intellectual property is of critical importance to our
business and involves complex legal, business and scientific
issues. Disputes may arise between us and our licensors regarding
intellectual property subject to a license agreement,
including:
●
the scope of rights granted under the license agreement and other
interpretation-related issues;
●
whether and the extent to which our technology and processes
infringe on intellectual property of the licensor that is not
subject to the licensing agreement;
●
our right to sublicense patent and other rights to third parties
under collaborative development relationships;
●
our diligence obligations with respect to the use of the licensed
technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence
obligations; and
●
the ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors and us
and our partners.
If disputes over intellectual property that we have licensed
prevent or impair our ability to maintain our current licensing
arrangements on acceptable terms, we may be unable to successfully
develop and commercialize the affected product
candidates.
We have entered into several licenses to support our various stem
cell technology-related programs. We may enter into additional
license(s) to third-party intellectual property that are necessary
or useful to our business. Our current licenses and any future
licenses that we may enter into impose various royalty payments,
milestone, and other obligations on us. For example, the licensor
may retain control over patent prosecution and maintenance under a
license agreement, in which case, we may not be able to adequately
influence patent prosecution or prevent inadvertent lapses of
coverage due to failure to pay maintenance fees. If we fail to
comply with any of our obligations under a current or future
license agreement, our licensor(s) may allege that we have breached
our license agreement and may accordingly seek to terminate our
license with them. In addition, future licensor(s) may decide to
terminate our license at will. Termination of any of our current or
future licenses could result in our loss of the right to use the
licensed intellectual property, which could materially adversely
affect our ability to develop and commercialize a product candidate
or product, if approved, as well as harm our competitive business
position and our business prospects.
In addition, if our licensors fail to abide by the terms of the
license, if the licensors fail to prevent infringement by third
parties, if the licensed patents or other rights are found to be
invalid or unenforceable, or if we are unable to enter into
necessary licenses on acceptable terms our business could
suffer.
Some intellectual property which we have licensed may have been
discovered through government funded programs and thus may be
subject to federal regulations such as “march-in”
rights, certain reporting requirements, and a preference for U.S.
industry. Compliance with such regulations may limit our exclusive
rights, subject us to expenditure of resources with respect to
reporting requirements, and limit our ability to contract with
non-U.S. manufacturers.
Some of the intellectual property rights we have licensed or
license in the future may have been generated through the use of
U.S. government funding and may therefore be subject to certain
federal regulations. As a result, the U.S. government may have
certain rights to intellectual property embodied in our current or
future product candidates pursuant to the Bayh-Dole Act of 1980
(
Bayh-Dole
Act
). These U.S. government
rights in certain inventions developed under a government-funded
program include a non-exclusive, non-transferable, irrevocable
worldwide license to use inventions for any governmental purpose.
In addition, the U.S. government has the right to require us to
grant exclusive, partially exclusive, or non-exclusive licenses to
any of these inventions to a third party if it determines that:
(i) adequate steps have not been taken to commercialize the
invention; (ii) government action is necessary to meet public
health or safety needs; or (iii) government action is
necessary to meet requirements for public use under federal
regulations (also referred to as “march-in rights”).
The U.S. government also has the right to take title to these
inventions if we fail, or the applicable licensor fails, to
disclose the invention to the government and fail to file an
application to register the intellectual property within specified
time limits. In addition, the U.S. government may acquire title to
these inventions in any country in which a patent application is
not filed within specified time limits. Intellectual property
generated under a government funded program is also subject to
certain reporting requirements, compliance with which may require
us, or the applicable licensor, to expend substantial resources. In
addition, the U.S. government requires that any products embodying
the subject invention or produced through the use of the subject
invention be manufactured substantially in the U.S. The
manufacturing preference requirement can be waived if the owner of
the intellectual property can show that reasonable but unsuccessful
efforts have been made to grant licenses on similar terms to
potential licensees that would be likely to manufacture
substantially in the U.S. or that under the circumstances domestic
manufacture is not commercially feasible. This preference for U.S.
manufacturers may limit our ability to contract with non-U.S.
product manufacturers for products covered by such intellectual
property.
In the event we apply for additional U.S. government funding, and
we discover compounds or drug candidates as a result of such
funding, intellectual property rights to such discoveries may be
subject to the applicable provisions of the Bayh-Dole
Act.
If we do not obtain additional protection under the Hatch-Waxman
Amendments and similar foreign legislation by extending the patent
terms and obtaining data exclusivity for our product candidates,
our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA marketing
approval of our product candidates, one or more of the U.S. patents
we own or license may be eligible for limited patent term
restoration under the Drug Price Competition and Patent Term
Restoration Act of 1984, referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration
term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process.
However, we may not be granted an extension because of, for
example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing
to satisfy applicable requirements. For example, we may not be
granted an extension if the active ingredient of AV-101 is used in
another drug company’s product candidate and that product
candidate is the first to obtain FDA approval. Moreover, the
applicable time period or the scope of patent protection afforded
could be less than we request. If we are unable to obtain patent
term extension or restoration or the term of any such extension is
less than we request, our competitors may obtain approval of
competing products following our patent expiration, and our ability
to generate revenues could be materially adversely
affected.
Changes in U.S. patent law could diminish the value of patents in
general, thereby impairing our ability to protect our
products.
As is the case with other biotechnology companies, our success is
heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biotechnology industry
involve both technological and legal complexity, and is therefore
costly, time-consuming and inherently uncertain. In addition, the
United States has recently enacted and is currently implementing
wide-ranging patent reform legislation: the Leahy-Smith America
Invents Act, referred to as the America Invents Act. The America
Invents Act includes a number of significant changes to U.S. patent
law. These include provisions that affect the way patent
applications will be prosecuted and may also affect patent
litigation. It is not yet clear what, if any, impact the America
Invents Act will have on the operation of our business. However,
the America Invents Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of any patents that may
issue from our patent applications, all of which could have a
material adverse effect on our business and financial
condition.
In addition, recent U.S. Supreme Court rulings have narrowed the
scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. The
full impact of these decisions is not yet known. For example, on
March 20, 2012 in
Mayo Collaborative Services,
DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories,
Inc.
, the Court held that
several claims drawn to measuring drug metabolite levels from
patient samples and correlating them to drug doses were not
patentable subject matter. The decision appears to impact
diagnostics patents that merely apply a law of nature via a series
of routine steps and it has created uncertainty around the ability
to obtain patent protection for certain inventions. Additionally,
on June 13, 2013 in
Association for Molecular
Pathology v. Myriad Genetics, Inc
., the Court held that claims to isolated genomic
DNA are not patentable, but claims to complementary DNA molecules
are patent eligible because they are not a natural product. The
effect of the decision on patents for other isolated natural
products is uncertain. Additionally, on March 4, 2014, the
USPTO issued a memorandum to patent examiners providing guidance
for examining claims that recite laws of nature, natural phenomena
or natural products under the Myriad and Prometheus decisions. This
guidance did not limit the application of Myriad to DNA but,
rather, applied the decision to other natural products. Further, in
2015, in
Ariosa Diagnostics, Inc. v.
Sequenom, Inc
., the Court of
Appeals for the Federal Circuit held that methods for detecting
fetal genetic defects were not patent eligible subject
matter.
In addition to increasing uncertainty with regard to our ability to
obtain future patents, this combination of events has created
uncertainty with respect to the value of patents, once obtained.
Depending on these and other decisions by the U.S. Congress, the
federal courts and the USPTO, the laws and regulations governing
patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce any patents that may
issue in the future.
We may be subject to damages resulting from claims that we or our
employees have wrongfully used or disclosed alleged trade secrets
of their former employers.
Certain of our current employees have been, and certain of our
future employees may have been, previously employed at other
biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We also engage advisors and
consultants who are concurrently employed at universities or who
perform services for other entities.
Although we are not aware of any claims currently pending or
threatened against us, we may be subject to claims that we or our
employees, advisors or consultants have inadvertently or otherwise
used or disclosed intellectual property, including trade secrets or
other proprietary information, of a former employer or other third
party. We have and may in the future also be subject to claims that
an employee, advisor or consultant performed work for us that
conflicts with that person’s obligations to a third party,
such as an employer, and thus, that the third party has an
ownership interest in the intellectual property arising out of work
performed for us. Litigation may be necessary to defend against
these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a
distraction to management. If we fail in defending such claims, in
addition to paying monetary claims, we may lose valuable
intellectual property rights or personnel. A loss of key personnel
or their work product could hamper or prevent our ability to
commercialize our product candidates, which would materially
adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage
provided by our intellectual property rights.
The degree of future protection afforded by our intellectual
property rights is uncertain because intellectual property rights
have limitations, and may not adequately protect our business,
provide a barrier to entry against our competitors or potential
competitors, or permit us to maintain our competitive advantage.
Moreover, if a third party has intellectual property rights that
cover the practice of our technology, we may not be able to fully
exercise or extract value from our intellectual property rights.
The following examples are illustrative:
●
others may be able to develop and/or practice technology that is
similar to our technology or aspects of our technology but that is
not covered by the claims of patents, should such patents issue
from our patent applications;
●
we might not have been the first to make the inventions covered by
a pending patent application that we own;
●
we might not have been the first to file patent applications
covering an invention;
●
others may independently develop similar or alternative
technologies without infringing our intellectual property
rights;
●
pending patent applications that we own or license may not lead to
issued patents;
●
patents, if issued, that we own or license may not provide us with
any competitive advantages, or may be held invalid or
unenforceable, as a result of legal challenges by our
competitors;
●
third parties may compete with us in jurisdictions where we do not
pursue and obtain patent protection;
●
we may not be able to obtain and/or maintain necessary or useful
licenses on reasonable terms or at all; and
●
the patents of others may have an adverse effect on our
business.
Should any of these events occur, they could significantly harm our
business and results of operations.
If, instead of identifying drug rescue candidates based on
information available to us in the public domain, we seek to
in-license drug rescue candidates from biotechnology, medicinal
chemistry and pharmaceutical companies, academic, governmental and
nonprofit research institutions, including the NIH, or other third
parties, there can be no assurances that we will obtain material
ownership or economic participation rights over intellectual
property we may derive from such licenses or similar rights to the
drug rescue NCEs we may produce and develop. If we are unable to
obtain ownership or substantial economic participation rights over
intellectual property related to drug rescue NCEs we produce and
develop, our business may be adversely affected.
Risks Related to our Securities
The limited public market for our securities may adversely affect
an investor’s ability to liquidate an investment in the
Company.
Our common stock is currently quoted on the NASDAQ Capital Market,
however, there is presently limited trading activity. We
can give no assurance that an active market will develop, or if
developed, that it will be sustained. If an investor
acquires shares of our common stock, the investor may not be able
to liquidate the shares should there be a need or desire to do
so.
Market volatility may affect our stock price and the value of your
investment.
The market price for our common stock, similar to other
biopharmaceutical companies, is likely to be highly volatile. The
market price of our common stock may fluctuate significantly in
response to a number of factors, most of which we cannot control,
including, among others:
●
plans for, progress of or results from nonclinical and clinical
development activities related to our product
candidates;
●
the failure of the FDA to approve our product
candidates;
●
announcements of new products, technologies, commercial
relationships, acquisitions or other events by us or our
competitors;
●
the success or failure of other CNS therapies;
●
regulatory or legal developments in the United States and other
countries;
●
failure of our product candidates, if approved, to achieve
commercial success;
●
fluctuations in stock market prices and trading volumes of similar
companies;
●
general market conditions and overall fluctuations in U.S. equity
markets;
●
variations in our quarterly operating results;
●
changes in our financial guidance or securities analysts’
estimates of our financial performance;
●
changes in accounting principles;
●
our ability to raise additional capital and the terms on which we
can raise it;
●
sales of large blocks of our common stock, including sales by our
executive officers, directors and significant
stockholders;
●
additions or departures of key personnel;
●
discussion of us or our stock price by the press and by online
investor communities; and
●
other risks and uncertainties described in these risk
factors.
Future sales and issuances of our common stock may cause our stock
price to decline.
Sales or issuances of a substantial number of shares of our common
stock in the public market, or the perception that such sales or
issuances are occurring or might occur, could significantly reduce
the market price of our common stock and impair our ability to
raise adequate capital through the sale of additional equity
securities.
The stock market in general, and small biopharmaceutical companies
like ours in particular, have frequently experienced significant
volatility in the market prices for securities that often has been
unrelated to the operating performance of the underlying companies.
These broad market and industry fluctuations may adversely affect
the market price of our common stock, regardless of our actual
operating performance. In certain recent situations in which the
market price of a stock has been volatile, holders of that stock
have instituted securities class action litigation against such
company that issued the stock. If any of our stockholders were to
bring a lawsuit against us, the defense and disposition of the
lawsuit could be costly and divert the time and attention of our
management and harm our operating results. Additionally, if the
trading volume of our common stock remains low and limited there
will be an increased level of volatility and you may not be able to
generate a return on your investment.
A significant portion of our total outstanding shares are
restricted from immediate resale but may be sold into the market in
the near future. Future sales of shares by existing stockholders
could cause our stock price to decline, even if our business is
doing well.
Sales of a substantial number of shares of our common stock in the
public market could occur at any time. These sales, or the
perception in the market that the holders of a large number of
shares intend to sell shares, could reduce the market price of our
common stock. Historically, there has been a limited public market
for shares of our common stock. Future sales and issuances of a
substantial number of shares of our common stock in the public
market, including shares issued upon the conversion of our Series A
Preferred, Series B Preferred or Series C Preferred, and the
exercise of outstanding options and warrants for common stock which
are issuable upon exercise, in the public market, or the perception
that these sales and issuances are occurring or might occur, could
significantly reduce the market price for our common stock and
impair our ability to raise adequate capital through the sale of
equity securities.
Our principal institutional stockholders may continue to have
substantial control over us and could limit your ability to
influence the outcome of key transactions, including changes in
control.
Certain of our current institutional stockholders own a substantial
portion of our outstanding capital stock, including our common
stock, Series A Preferred, Series B Preferred, and Series C
Preferred, all of which preferred stock is convertible into a
substantial number of shares of common
stock. Accordingly, institutional stockholders may exert
significant influence over us and over the outcome of any corporate
actions requiring approval of holders of our common stock,
including the election of directors and amendments to our
organizational documents, such as increases in our authorized
shares of common stock, any merger, consolidation or sale of all or
substantially all of our assets or any other significant corporate
transactions. These stockholders may also delay or prevent a change
of control of us, even if such a change of control would benefit
our other stockholders. The significant concentration of stock
ownership may adversely affect the trading price of our common
stock due to investors’ perception that conflicts of interest
may exist or arise. Furthermore, the interests of our principal
institutional stockholders may not always coincide with your
interests or the interests of other stockholders may act in a
manner that advances its best interests and not necessarily those
of other stockholders, including seeking a premium value for its
common stock, which might affect the prevailing market price for
our common stock.
If equity research analysts do not publish research or reports
about our business or if they issue unfavorable commentary or
downgrade our common stock, the price of our common stock could
decline.
The trading market for our common stock relies in part on the
research and reports that equity research analysts publish about us
and our business. We do not control these analysts. The price of
our common stock could decline if one or more equity research
analysts downgrade our common stock or if such analysts issue other
unfavorable commentary or cease publishing reports about us or our
business.
There may be additional issuances of shares of preferred stock in
the future.
Our Restated Articles of Incorporation
(the
Articles
)
permit us to issue up to 10.0 million shares of preferred
stock. Our Board has authorized the issuance of (i) 500,000
shares of Series A Preferred, all of which shares are issued and
outstanding at December 31, 2017; (ii) 4.0 million shares of Series
B 10% Convertible Preferred stock, of which approximately 1.2
million shares remain issued and outstanding at December 31, 2017;
and (iii) 3.0 million shares of Series C Convertible Preferred
Stock, of which approximately 2.3 million shares are issued and
outstanding at December 31, 2017. Our Board could authorize the
issuance of additional series of preferred stock in the future and
such preferred stock could grant holders preferred rights to our
assets upon liquidation, the right to receive dividends before
dividends would be declared to holders of our common stock, and the
right to the redemption of such shares, possibly together with a
premium, prior to the redemption of the common stock. In the event
and to the extent that we do issue additional preferred stock in
the future, the rights of holders of our common stock could be
impaired thereby, including without limitation, with respect to
liquidation.
We do not intend to pay dividends on our common stock and,
consequently, our stockholders’ ability to achieve a return
on their investment will depend on appreciation in the price of our
common stock.
We have never declared or paid any cash dividend on our common
stock and do not currently intend to do so in the foreseeable
future. We currently anticipate that we will retain future earnings
for the development, operation and expansion of our business and do
not anticipate declaring or paying any cash dividends in the
foreseeable future. Therefore, the success of an investment in
shares of our common stock will depend upon any future appreciation
in their value. There is no guarantee that shares of our common
stock will appreciate in value or even maintain the price at which
our stockholders purchased them.
We incur significant costs to ensure compliance with corporate
governance, federal securities law and accounting
requirements.
Since becoming a public company by means of a reverse merger in
2011, we have been subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (
Exchange
Act
), which requires that we
file annual, quarterly and current reports with respect to our
business and financial condition, and the rules and regulations
implemented by the SEC, the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Act, and the Public Company Accounting Oversight Board,
each of which imposes additional reporting and other obligations on
public companies. We have incurred and will continue to
incur significant costs to comply with these public company
reporting requirements, including accounting and related audit
costs, legal costs to comply with corporate governance requirements
and other costs of operating as a public company. These legal and
financial compliance costs will continue to require us to divert a
significant amount of money that we could otherwise use to achieve
our research and development and other strategic
objectives.
The filing and internal control reporting requirements imposed by
federal securities laws, rules and regulations on companies that
are not “smaller reporting companies” under federal
securities laws are rigorous and, once we are no longer a smaller
reporting company, we may not be able to meet them, resulting in a
possible decline in the price of our common stock and our inability
to obtain future financing. Certain of these requirements may
require us to carry out activities we have not done previously and
complying with such requirements may divert management’s
attention from other business concerns, which could have a material
adverse effect on our business, results of operations, financial
condition and cash flows. Any failure to adequately comply with
applicable federal securities laws, rules or regulations could
subject us to fines or regulatory actions, which may materially
adversely affect our business, results of operations and financial
condition.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We will continue to invest resources to
comply with evolving laws, regulations and standards, however this
investment may result in increased general and administrative
expenses and a diversion of management’s time and attention
from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice,
regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected.