Overview
Vyant
Bio, Inc. (the “Company”, “Vyant Bio”, “VYNT” or “we”),
is an innovative biotechnology company reinventing drug discovery for complex neurodevelopmental and neurodegenerative disorders.
Our central nervous system (“CNS”) drug discovery platform combines human-derived organoid models of brain disease,
scaled biology, and machine learning. Our platform is designed to: 1) elucidate disease pathophysiology; 2) formulate key therapeutic
hypotheses; 3) identify and validate drug targets, cellular assays, and biomarkers to guide candidate molecule selection; and 4) guide
clinical trial patient selection and trial design. Our current programs are focused on identifying repurposed and novel small molecule
clinical candidates for rare CNS genetic disorders including Rett Syndrome (“Rett”), CDKL5 Deficiency Disorders (“CDD”)
and familial Parkinson’s Disease (“PD”). The Company’s management believes that drug discovery needs to progressively
shift as the widely used preclinical models for predicting safe and effective drugs have under-performed, as evidenced by the time and
cost of bringing novel drugs to market. As a result, Vyant Bio is focused on combining sophisticated data science capabilities with highly
functional human cell derived disease models. We leverage our ability to identify validated targets and molecular-based biomarkers to
screen and test thousands of small molecule compounds in human diseased 3D brain organoids in order to create a unique approach to assimilating
biological data that supports decision making iteratively throughout the discovery phase of drug development to identify both novel and
repurposed drug candidates.
In
December 2021, the Company’s Board of Directors approved a plan to sell the vivoPharm Pty Ltd (“vivoPharm”)
business to allow the Company to focus on the development of neurological
developmental and degenerative disease therapeutics. We engaged an investment banker in December 2021 to sell the vivoPharm business
before the end of 2022.
StemoniX
Merger
On
March 30, 2021, Vyant Bio, formerly known as Cancer Genetics, Inc. (“CGI”), completed its business combination (the “Merger”)
with StemoniX, Inc., a Minnesota corporation (“StemoniX”), in accordance with the Agreement and Plan of Merger and Reorganization,
dated as of August 21, 2020 (the “Initial Merger Agreement”) by and among the Company, StemoniX and CGI Acquisition, Inc.,
a Minnesota corporation and wholly-owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto
made and entered into as of February 8, 2021 (the “First Amendment”) and Amendment No. 2 thereto made and entered into as
of February 26, 2021 (the “Second Amendment”) (the Initial Merger Agreement, as amended by the First Amendment and Second
Amendment, the “Merger Agreement”), pursuant to which Merger Sub merged with and into StemoniX, with StemoniX surviving the
Merger as a wholly-owned subsidiary of the Company.
The
Merger was accounted for as a reverse acquisition with StemoniX being the accounting acquirer of CGI using the acquisition method of
accounting. Under acquisition accounting, the assets and liabilities (including executory contracts, commitments and other obligations)
of CGI, as of March 30, 2021, the closing date of the Merger, were recorded at their respective fair values and added to the historical
accounts of StemoniX. The excess of purchase price consideration over the fair values of the identifiable net assets was recorded as
goodwill. The total consideration paid by StemoniX in the Merger amounted to $59.9 million, which represents the fair value of CGI’s
11,007,186 shares of Common Stock or $50.74 million, 2,157,686 Common Stock warrants or $9.04 million and 55,907 Common Stock options
outstanding on the closing date of the Merger with a fair value of $139 thousand. In addition, at the effective time of the Merger, existing
StemoniX shareholders received an additional 804,711 incremental shares in accordance with the conversion ratio set forth in the Merger
Agreement.
Effective
with the Merger, the historical financial statements of StemoniX, as the accounting acquiror, became the historical financial statements
of the Company under U.S. generally accepted accounting principles (“US GAAP”) and Cancer Genetics, Inc. was renamed Vyant
Bio, Inc. Therefore, the underlying operations of CGI and subsidiaries are consolidated in the Vyant Bio consolidated financial
statements from March 30, 2021 onward. The discussions regarding the Company’s business herein reflect the operations
of StemoniX prior to the Merger as well as the post-Merger combined operations of Vyant Bio and StemoniX.
vivoPharm
Business
vivoPharm
has a large set of anti-tumor referenced data based on xenograft, syngeneic predictive orthotopic tumor models to provide
discovery services such as contract research services, focused on predictive and unique specialized models to guide drug
discovery with a major focus in immuno-oncology. vivoPharm offers a suite of protocols and standard of care (“SoC”)
data and supports planning and conducting unique, specialized studies to guide drug discovery and development programs. These studies
range from early compound selection to developing comprehensive sets of in vitro and in vivo data, as needed for investigational
new drug (“IND”) applications as
required by regulatory bodies, such as the United States Food and Drug Administration (“FDA”),
the European Medicines Agency (“MEA”) and Therapeutic Goods Administration (“TGA”) in Australia.
vivoPharm’s current discovery services include preclinical anti-tumor efficacy, good laboratory practice (“GLP”)
compliant toxicity studies and small and bio-molecule analytical services. vivoPharm
provides the tools and testing methods for companies and researchers seeking to identify and to develop new compounds and molecular-based
biomarkers for diagnostics and therapeutics.
vivoPharm’s
international presence enables it to access global market opportunities. vivoPharm’s headquarters in Australia specializes
in safety and toxicology studies, including mammalian, genetic and in vitro, along with bioanalytical services including immune-analytical
capabilities. vivoPharm operates from multiple locations in Melbourne (VIC) and
Adelaide (SA). vivoPharm’s U.S.-based laboratory, located at the Hershey Center for Applied Research in Hershey,
Pennsylvania, primarily focuses on screening and efficacy testing for a wide range of pharmaceutical and chemical products. The third
location, in Munich, Germany, hosts project management and business development personnel for the European customers.
As
of December 31, 2021, the Company has accounted for vivoPharm as discontinuing operations. For further information, see
section entitled “Discontinuing Operations” later in this Part I, and Note 3, Discontinuing Operations, to
the Company’s Consolidated Financial Statements included in Part II. Item 8 herein.
Business
Strategy
Drug
Discovery
The Company’s strategy is to continue building
a unique and robust “human-first” drug discovery platform to discover repurposed and novel therapeutics to treat neurodevelopmental
and neurodegenerative diseases, initially focusing on rare CNS genetic disorders including Rett, CDD and familial PD. Key to the Company’s
strategy is the development and continued enhancement of specialized disease models by utilizing human-derived induced pluripotent stem
cells (“iPSC”) to generate three dimensional organoids that exhibit spontaneous synchronized neuronal activity that can be
detected in a high-throughput fashion. Vyant Bio has industrialized the production of iPSC-derived organoids into standard multi-well
plate formats that we believe are sufficiently robust and reproducible to enable high throughput drug screening and provide insightful
data for optimized selection of therapeutic candidates.
The human organoid platform is combined with software
analytics and machine learning systems, branded by the Company as its proprietary AnalytiX™ system. This integrated approach
enables standardized, high-throughput screening of drug candidates to establish t human efficacy prior to conducting human clinical studies,
mitigating or in some cases avoiding the inadequacies of testing in clonal cell lines or preclinical animal models. The Company believes
that its technologies will permit drug discovery in human disease areas that are difficult to address using current methodologies, such
as brain diseases, accelerate preclinical drug discovery and development, reduce risk of clinical failure, predict with greater degrees
of confidence and, ultimately, reduce the cost of discovering new therapeutic agents. The Company’s strategy is to strive to file
two IND applications with the FDA starting in 2023. The Company intends to license its therapeutic candidates to third parties before
or after Phase I clinical trials for subsequent clinical development and receive a mixture of upfront payments, licensing fees, milestone-based
fees, and ongoing royalty payments.
The
Company began transforming its Maple Grove, Minnesota facility to a high throughput manufacturing and screening facility in the fourth
quarter of 2021 to expand the Company’s research and development capabilities. This transition is in line with the Company’s
strategy to leverage its iPSC technology to pursue wholly owned and partnered drug discovery projects that yield higher valued proprietary
therapeutic assets. This facility transformation is expected to be completed in the second half of 2022. Previously, the Company derived
revenue from the sale of iPSC-based microOrganTM plates to pharmaceutical, biotechnology and research customers and through
the performance of Discovery as a Service (“DaaS”) for these customers. The Company anticipates revenue generated from these
activities will substantially cease in the first half of 2022 as the Company plans to use those resources to support its internal disease
model and therapeutic drug development. The Company is also exploring potential opportunities to out-license access to its proprietary
iPSC technologies to be used by pharmaceutical and biotechnology companies in their internal drug discovery programs.
Therapeutic
Programs
The
Company is actively seeking to discover repurposed and novel (New Chemical Entity, or “NCE”) lead candidates for Rett,
CDD and familial PD which will become the foundation of the Company’s therapeutic platform. The Company’s therapeutic
asset pipeline is as follows:
Rett
Syndrome (“Rett”)
Rett
is a rare genetic neurological disorder that occurs almost exclusively in girls and leads to severe impairments, affecting nearly every
aspect of the child’s life including their ability to speak, walk, eat, and even breathe easily. The hallmark of Rett is near constant
repetitive hand movements. Rett is usually recognized in children between 6 to 18 months as they begin to miss developmental milestones
or lose abilities they had gained. Rett is caused by mutations on the X chromosome in a gene called MECP2. There are more than 900
different mutations found on the MECP2 gene. Most of these mutations are found in eight different “hot spots.” Rett is not
a degenerative disorder with individuals living to middle age or beyond. Rett occurs worldwide in 1 of every 10,000 female births
and is even rarer in boys. Rett can present with a wide range of disability ranging from mild to severe. The course and severity of Rett
is determined by the location, type and severity of the mutation and X-inactivation. A 2022 report from Mellalta estimates the total
global market opportunity for Rett therapeutic treatments is approximately $1.5 billion.
The Company currently has two programs focused
on Rett, that were identified based on a phenotypic screen of the SMART library provided by the International Rett Syndrome Foundation
on our Rett patient-derived organoids: a repurposing candidate (VYNT0126) and several novel compounds.
The VYNT0126 molecule is a promising repurposed
candidate for several reasons. The compound has already been approved by the FDA as a cognition-enhancing medication for dementia related
to Alzheimer’s disease, and there is readily available safety data. VYNT0126 exhibits a consistent dose-dependent rescue of the
functional diseased Rett phenotype on our Rett patient-derived organoids and across additional functional readouts such as multielectrode
electrophysiology assays, and cellular phenotypes (synaptogenesis).
The Company is also pursuing novel compounds for
Rett identified in the SMART screen in collaboration with Atomwise (as described below). We are applying machine learning to drive
compound progression and we expect to complete our hit-to-lead optimization efforts in 2022 and commence IND-enabling studies in the
first half of 2023.
CDKL5
Deficiency Disorder (“CDD”)
CDD is a neurodevelopmental condition characterized
by early-onset seizures, intellectual delay, and motor dysfunction. Although crucial for proper brain development, the precise targets
of CDKL5 and its relation to patients’ symptoms are under investigation. Our microBrain organoid screening platform enlightens
cellular, molecular, and neural network mechanisms of genetic epilepsy that we are researching to ultimately promote novel therapeutic
opportunities for patients. While genetic testing is currently available to determine if patients have mutation in the CDKL5 gene,
the limited knowledge of pathology has hindered development of therapeutics, leaving CDD as an ultra-rare disease with a defined unmet
medical need and no currently approved therapeutic treatments.
The Company’s researchers screened approximately
5,200 custom library compounds composed of FDA approved molecules, molecules that passed Phase 1 clinical trials, and a panel of phenotypic
screening compounds. This effort led to the potential to identify both internal NCE’s and potential repurposing molecules. Approximately
288 compounds showed some degree of rescue of the CDD hyperexcitability phenotype, and we are conducting further confirmatory screening
followed by dose response studies and pharmacologic deconvolution. In collaboration with Cyclica (as described below), we are applying
machine learning to identity in silico molecules for screening of 3 novel CDD targets. To drive hit-to-lead optimization we are
establishing in vitro binding and cell-based functional assays for these targets to examine the relationship between target potency
and degree of phenotypic rescue.
Parkinson’s
Disease (“PD”)
PD
is a progressive neurodegenerative disorder that affects predominately dopamine-producing (“dopaminergic”) neurons in a specific
area of the brain called substantia nigra. PD symptoms generally develop slowly over time and include tremors, muscle rigidity, gait
and balance problems, and slow, imprecise movements. PD afflicts more than 10 million people worldwide, with 60,000 new cases per annum
diagnosed in the US alone, typically middle-aged and elderly people. The market for therapeutics to treat the many symptoms and
different types of Parkinson’s disease is expected to expand to $7.2 billion by 2028, according to business intelligence provider
Coherent Market Insights.
The
etiology of PD is poorly understood but it is widely accepted that a combination of genetics and environmental factors are the cause.
About 10-15 percent of people with PD have a family history of the condition, and family-linked
cases can result from genetic mutations in a group of genes, including GBA, LRRK2, PARK2, PARK7, PINK1 or the SNCA gene.
Joint
Venture and Collaborations
Joint
Venture
Atomwise
Joint Venture
On
December 3, 2019, StemoniX announced a non-exclusive joint venture with Atomwise, Inc., a San Francisco based company, which combines
StemoniX’s human microOrgan platform with Atomwise’s structure-based Artificial Intelligence (“AI”) technology
to enable the rapid discovery and development of novel small molecule therapies. The joint venture is initially targeting Rett. In the joint venture, Atomwise is using its AI technology to analyze billions of compounds in silico
to identify potent and selective binders for proteins that are important for Rett. StemoniX is currently testing the compounds
on its human microBrain 3D disease model to determine biological activity. We believe this joint effort will decrease the traditional
medicinal chemistry timeline as well as increase the number of promising compounds that can be tested, and thereby result in an efficient
path to successful drug development. Each party owns 50% of this venture and is required to fund their respective development activities
related to this arrangement.
Ordaos Collaboration
We had a collaboration to design and qualify
biomarker-specific small protein therapeutics in an arrangement that included Ordaos’ generative AI technology to accelerate and
optimize small protein (50 to 100 amino acids) drug discovery and development processes. In this collaboration, Ordaos provided a pipeline
of digitally optimized therapeutics for further development. Preliminary data from newly-designed optimized proteins indicates the design
parameters generated an improved class of proteins that were sufficient to predict ELISA EC50 binding in nanomolar (“nM”)
range. We are working together to further optimize proteins for future drug development.
Cyclica
Collaboration
On August 12, 2021, we entered into a non-exclusive
Strategic Collaboration Agreement (“SCA”) with Cyclica, Inc., a Toronto, Ontario-based company that uses a proprietary AI
and machine learning (“ML”) platform to identify potential new therapeutic targets, re-purposed compounds, and NCEs. In this
collaboration we are currently focusing on identifying new targets and NCE for CDD,. The collaboration combines patient-derived neural
organoids of the Company’s human-first neural platform with Cyclica’s in-silico platform to generate a disease-based, proteome-wide,
discovery platform. The clinically linked biological signal of the CDD organoids and their responses to biologically active compounds
drives the Cyclica platform to generate high-quality predictions for therapeutic targets based on their proprietary knowledge and structure-based
algorithms. The predictions are tested in the Company’s platform, and if verified, advanced into AI/ML-based NCE synthesis. Together
the platforms enable rapid interrogation of the human proteome to accelerate the discovery of new cures for this debilitating disease
and the SCA has identified four novel targets, three of which are being actively pursued under the SCA. The Company owns all inventions
and discoveries resulting from the collaboration (“Work Product”). Cyclica is entitled to a decreasing percentage of any
consideration that the Company receives for the sale, licensing, or other disposition of Work Product, ranging from the mid-double digits
in the early preclinical stages of development down to the mid-single digits from and after late-stage clinical development.
OrganoTherapeutics Collaboration
On March 29, 2022, we announced a collaboration
with OrganoTherapeutics to advance our work on the identification of lead compounds to address the complexities of Parkinson’s
Disease, with our initial focus on the GBA and LRRK2 familial mutations. Haploinsufficiency of the GBA gene which makes the enzyme glucocerebrosidase
is the most common genetic mutation that causes PD. People with PD who have the GBA mutation tend to experience motor symptom deficits
sooner, cognitive decline more rapidly and have particular difficulty with their gait and postural balance.
NIH
Collaboration
In
April 2019, the National Center for the Advancement of Translational Sciences (“NCATS”), the institute charged with finding
better technology models for the National Institutes of Health (“NIH”), and StemoniX entered into a Research Collaboration
Agreement (“RCA”). The RCA is part of the HEAL (Helping to End Addiction Long-Term) Initiative, a multi-institute effort
to fight the opioid epidemic, and screening of over 300 compounds has been completed. The analysis by the NIH was supported with AnalytiX,
described above, and provided an unbiased and deep analysis of the microBrain waveforms. The resulting output was developed into a joint
publication that demonstrated how the Company’s neural platform responds across a wide range of chemicals and drugs and can be
used to separate different mechanisms of action. More importantly, the joint project validated a high-throughput, human-based platform
for further insight into drug action and provided a foundation for future drug development that would treat pain without opioids with
a goal of combatting the opioid crisis.
Competition
The
pharmaceutical industry is intensely competitive, where a company’s proprietary advancements in science and technology play a critical
role in its competitive advantage. Any product candidates that we may successfully discover and develop, may compete with existing
therapies, or new therapies that may become available in the future. Our commercial opportunities could be reduced or eliminated if our
competitors develop and commercialize products that are more effective, have fewer side effects, are more convenient or are less expensive
than any products that we may develop.
At
this time, our primary competitors are other pharmaceutical and biotechnology or biomedical development companies that are trying to
discover and develop compounds to be used in the treatment of Rett, CDKL5, PD and other CNS diseases, including those companies
already doing so. Some of those companies include Acadia Pharmaceuticals (NASDAQ:ACAD), Anavex Life Sciences (NASDAQ:AVXL) Biogen (NASDAQ:BIIB),
Pfizer Inc. (NYSE:PFE), Abbvie Plc (NYSE:ABBV), Novartis AG (NYSE:NVS), GlaxoSmithKline Plc (NYSE:GSK), Merck & Co. Inc. (NYSE:MRK),
Eli Lilly & Co. (NYSE: LLY), Johnson & Johnson (NYSE:JNJ), Roche Holding AG (VTX:ROG), Zogenix (NASDAQ:ZGNX), UCB (Euronext:UCB)
and Marinus Pharmaceuticals, Inc. (NASDAQ:MRNS). We also face competition from academic institutions and government agencies,
both in the United States and abroad.
Intellectual
Property
Patents
and Trade Secrets
We
protect and expand our intellectual property primarily through a combination of patent filings, trade secrets and exclusive/non-exclusive
in-licensing. For processes and products that can be reverse-engineered, we typically file utility patent applications.
Regarding
our patent portfolio, the Company does not rely on a singular patent to execute our business plan. Our objective is to create a significant
barrier to entry for competitors by applying for patents not only on our lead products and processes but also on possible workarounds.
Our intellectual property portfolio (including both owned patent applications and licensed-in technology) covers stem cells, manufacturing
processes, product packaging, digital cellular electronics, cell micro-environments and structure, and cell networks. Each patent application
includes its own strategy, which may involve the use of provisional patent application filings and related domestic and foreign patent
applications that claim the benefits of the provisional applications and that are intended to provide the Company coverage in key geographical
markets. Our patent portfolio is designed to grow with our Company.
The
Company has 12 issued patents in various countries globally, defined in the table below:
TITLE |
|
COUNTRY |
|
APP
NUMBER |
|
PATENT
NUMBER |
|
GRANT
DATE |
|
PRIORITY
DATE |
|
PUBLICATION
NUMBER |
METHOD OF FABRICATING CELL ARRAYS AND USES THEREOF |
|
Japan |
|
2017-530976 |
|
6510649 |
|
Apr 12, 2019 |
|
Aug 28, 2014 |
|
2017532061 |
METHOD OF FABRICATING CELL ARRAYS AND USES THEREOF |
|
Singapore |
|
11201701540P |
|
11201701540P |
|
May 22, 2020 |
|
Aug 28, 2014 |
|
|
METHOD OF FABRICATING CELL ARRAYS AND USES THEREOF |
|
United States of America |
|
14/839,170 |
|
10,625,234 |
|
Apr 21, 2020 |
|
Aug 28, 2014 |
|
US20160059203A1 |
SURFACE ENERGY DIRECTED CELL SELF ASSEMBLY |
|
United States of America |
|
15/199,419 |
|
11,248,212 |
|
Feb 15, 2022 |
|
Jun 30, 2015 |
|
US20170002324A1 |
METHOD OF MANUFACTURING OR DIFFERENTIATING MAMMALIAN
PLURIPOTENT STEM CELLSOR PROGENITOR CELLS USING A HOLLOW FIBER BIOREACTOR |
|
United States of America |
|
15/293,563 |
|
10,760,053 |
|
Sep 1, 2020 |
|
Oct 15, 2015 |
|
US20170107488A1 |
CELL MEDIUM FORMULATION FOR CELL STABILIZATION |
|
Switzerland |
|
17701262.2 |
|
3402330 |
|
Dec 29, 2021 |
|
Jan 12, 2016 |
|
3402330 |
CELL MEDIUM FORMULATION FOR CELL STABILIZATION |
|
Germany |
|
17701262.2 |
|
602017051503.5 |
|
Dec 29, 2021 |
|
Jan 12, 2016 |
|
3402330 |
CELL MEDIUM FORMULATION FOR CELL STABILIZATION |
|
European Patent Office |
|
17701262.2 |
|
3402330 |
|
Dec 29, 2021 |
|
Jan 12, 2016 |
|
3402330 |
CELL MEDIUM FORMULATION FOR CELL STABILIZATION |
|
France |
|
17701262.2 |
|
3402330 |
|
Dec 29, 2021 |
|
Jan 12, 2016 |
|
3402330 |
CELL MEDIUM FORMULATION FOR CELL STABILIZATION |
|
United Kingdom |
|
17701262.2 |
|
3402330 |
|
Dec 29, 2021 |
|
Jan 12, 2016 |
|
3402330 |
PROJECTED CAPACITIVE MULTI ELECTRODE EUKARYOTIC CELL
ARRAY |
|
United States of America |
|
15/588,154 |
|
11,054,408 |
|
Jul 6, 2021 |
|
May 6, 2016 |
|
US20170322194A1 |
HIGH THROUGHPUT OPTICAL ASSAY OF HUMAN MIXED CELL POPULATION
SPHEROIDS |
|
United States of America |
|
16/035,039 |
|
11,193,159 |
|
Dec 7, 2021 |
|
Jul 14, 2017 |
|
US20190017097A1 |
We
believe our combination of owned and licensed-in patents, covering both our products and processes and our ownership of intellectual
property that provides protection against anticipated workarounds by potential competitors, and trade secrets is a unique advantage.
Trademarks
The
Company has the following registered trademarks: StemoniX, microHeart, microBrain, microKidney, microNerve, microLiver, microTumor, microPancreas,
BeYourCure, Person-on-a-Plate, Clinical Trial on-a-Plate, and microOrgan VyantBio, Vyant Bio, and Human-powered and the following
pending trademark application: Biological Intelligence. In addition, the Company claims common law trademark rights with respect to the
mark AnalytiX.
Licenses
The
Company licenses multiple patents and protocols from the University of California, San Diego, as well as from (1) Academia Japan for
technology that we need in order to create and sell induced pluripotent stem cells, (2) ID Pharma for the Sendai virus vector technology,
and (3) the Max Plank Innovation GmbH for mid-brain organoid production.
In
the context of our drug development effort, whenever possible, we obtain licenses from customers to use the data we collect while providing
drug screening services to those customers. We believe that this data will have significant value to our business as it refines its screening
models.
IDP
License Agreement
StemoniX
entered into a Non-Exclusive License Agreement (the “IDP License Agreement”) with ID Pharma Co., Ltd., a Japanese corporation
(“IDP”) effective as of January 29, 2016. Under the terms of the IDP License Agreement, IDP has granted StemoniX a royalty
bearing, non-exclusive and non-transferable license in the United States and, upon exercise of the option described below, worldwide,
to use the technology and processes covered by certain patents owned by IDP (the “IDP Licensed Patents”) to (i) generate
iPSCs covered by the IDP Licensed Patents and differentiated cells derived from such iPSCs (collectively, the “IDP Licensed Products”),
(ii) sell the IDP Licensed Products that are differentiated cells, and (iii) provide services involving the IDP Licensed Products (the
“IDP Licensed Services”).
Pursuant
to the IDP License Agreement, StemoniX agreed to pay IDP a non-credible and non-refundable up-front fee. The IDP License Agreement provides
StemoniX the option, at any time during the term of the IDP License Agreement, to pay IDP an additional non-creditable and non-refundable
fee in exchange for the rights to sell the IDP Licensed Products and IDP Licensed Services worldwide. Additionally, StemoniX has agreed
to pay IDP a single digit percentage royalty on net sales of IDP Licensed Products sold by StemoniX. Royalties are payable within 60
days after the close of each consecutive 12-month period after the effective date of the IDP License Agreement, and annual minimum royalties
apply. The IDP License Agreement may be terminated by either party upon an uncured breach of any material provision of the IDP License
Agreement by the other party and under certain other circumstances.
Academia
Japan License Agreement
StemoniX
signed an Amended and Restated Non-Exclusive License Agreement (the “AJ License Agreement”) with iPS Academia Japan, Inc.,
a Japanese corporation (“Academia Japan”) effective as of April 1, 2017. Under the terms of the AJ License Agreement, Academia
Japan has granted StemoniX a royalty bearing, non-exclusive, non-transferable license to use the technology and processes covered by
two groups of patents owned by Academia Japan (collectively, the “AJ Licensed Patents”) to (i) develop, make, use, sell,
have sold by one or more distributors, offer to sell and have offered to sell by one or more distributors iPSCs covered by the AJ Licensed
Patents and differentiated cells derived from such iPSCs (collectively, the “AJ Licensed Products”), and (ii) provide services
involving the AJ Licensed Products (the “AJ Licensed Services”). Similarly, StemoniX granted Academia Japan a non-exclusive,
worldwide, royalty free license to certain of its patents solely for academic and educational purposes.
Pursuant
to the AJ License Agreement, StemoniX has agreed to pay Academia Japan a non-creditable and non-refundable upfront fee as well as running
royalties for the AJ Licensed Patents, with single digit percentage royalties payable at varying rates depending on the applicable group
of AJ Licensed Patents and the applicable group of AJ Licensed Products and/or AJ Licensed Services.
The
AJ License Agreement may be terminated by Academia Japan upon a material, uncured breach of the AJ License Agreement by StemoniX, and
under certain other circumstances.
Manufacturing
and Supply
We
manufacture iPSC microOrgans at our facilities in Maple Grove, Minnesota and La Jolla, California. We do not have any manufacturing facilities
or personnel for our therapeutic assets. We expect to rely on third parties to manufacture our therapeutic product candidates for
preclinical and clinical testing.
Sales
and Marketing
We
have and plan to utilize third-party, specialized business development firms to support our internal staff as we pursue licenses for
our proprietary disease models and, once developed, our therapeutic assets.
Government
Regulation
Government
authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things,
the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, marketing and export and import of products such as those we are developing. A new drug must be approved by
the FDA before it may be legally marketed in the United States. We are subject to various government regulations
in connection with the development of our pipeline.
U.S.
Drug Development and Regulation
In
the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act and its implementing regulations (“FDCA”).
The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes
and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements
at any time during the product development process, approval process or after approval may subject an applicant to administrative or
judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval,
a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions,
fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement
action could have a material adverse effect on us.
Once
a drug candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations
of product chemistry, toxicity and formulation, as well as animal studies. An ND
sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to FDA as part
of the IND. The sponsor must also include a protocol detailing, among other things, the objectives of the first phase of clinical
trials, the parameters to be used in monitoring the safety of the trial, and the effectiveness criteria to be evaluated should the first
phase lend itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically
becomes effective thirty (30) days after receipt by FDA, unless FDA, within the 30-day time period, places the clinical trial on a clinical
hold. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about on-going
or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the
FDA notifies the sponsor that the hold has been lifted.
All
clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with FDA good clinical
practice (“GCP”) requirements, which include a requirement that all research subjects provide their informed consent in writing
for their participation in any clinical trial. Clinical trials must be conducted under protocols detailing the objectives of the trial,
dosing procedures, subject selection and exclusion criteria and the safety and/or effectiveness criteria to be evaluated. Each protocol
must be submitted to FDA as part of the IND, and timely safety reports must be submitted to FDA and the investigators for serious and
unexpected adverse events. An Institutional Review Board (“IRB”) at each institution participating in the clinical trial
must review and approve each protocol before a clinical trial may commence at the institution and must also approve the information regarding
the trial as well as the consent form that must be provided to each trial subject or his or her legal representative, monitor the study
until completed and otherwise comply with all applicable IRB regulation.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined in certain cases:
Phase
1: The compound is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism,
distribution and excretion and, if possible, to gain an early indication of its effectiveness. In most cases, initial Phase 1 clinical
trials are conducted with healthy volunteers. However, where the compound being evaluated is for the treatment of severe or life-threatening
diseases, such as cancer, and especially when the product may be too toxic to ethically administer to healthy volunteers, the initial
human testing may be conducted on patients with the target disease or condition. Sponsors sometimes subdivide their Phase 1 clinical
trials into Phase 1a and Phase 1b clinical trials. Phase 1b clinical trials are typically aimed at confirming dosage, pharmacokinetics
and safety in a larger number of patients. Some Phase 1b studies evaluate biomarkers or surrogate markers that may be associated with
efficacy in patients with specific types of diseases or conditions.
Phase
2: This phase involves clinical trials in a limited patient population to identify possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the product for specific targeted diseases or conditions and to confirm dosage tolerance and appropriate
dosage.
Phase
3: Phase 3 clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population,
generally at geographically dispersed clinical study sites. These clinical trials, often referred to as “pivotal” clinical
trials, are intended to establish the overall risk-benefit ratio of the compound and provide, if appropriate, an adequate basis
for product labeling.
FDA
or the sponsor may suspend a clinical trial at any time on various grounds, including any finding that the research subjects or
patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at
its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been
associated with unexpected, serious harm to study subjects. In addition, clinical trials may be overseen by an independent group of qualified
experts organized by the sponsor, known as a data safety monitoring board or committee. Depending on its charter, this committee may
determine whether a trial may move forward at designated check points based on access to certain data from the trial.
Post-approval
trials may also be conducted after a drug receives initial marketing approval. These trials, often referred to as “Phase 4”
trials, are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances,
FDA may mandate the performance of such clinical trials as a condition of approval of a drug.
During
the development of a new drug, sponsors are given several opportunities to meet with FDA. These meetings can provide an opportunity for
the sponsor to share information about the progress of the application or clinical trials, for the FDA to provide advice, and for the
sponsor and the FDA to reach agreement on the next phase of development. These meetings may occur prior to the submission of an IND,
at the end of Phase 2 clinical trials, or before a New Drug Application (“NDA”) is ultimately submitted. Sponsors
typically use the meetings at the end of the Phase 2 trials to discuss Phase 2 clinical results and present plans for the pivotal Phase
3 clinical trials that they believe will support approval of the new drug. Meetings at other times may be made upon request.
Concurrent
with clinical trials, companies typically complete additional animal and laboratory studies, develop additional information about
the chemistry and physical characteristics of the drug, and finalize a process for manufacturing the product in commercial quantities
in accordance with FDA’s current Good Manufacturing Practices (“cGMP”) requirements. The manufacturing process must
consistently produce quality batches of the drug, and, among other things, the manufacturer must develop methods for testing the
identity, strength, quality and purity of the final drug. In addition, appropriate packaging must be selected and tested, and stability
studies must be conducted to demonstrate the effectiveness of the packaging and that the compound does not undergo unacceptable deterioration
over its shelf life.
While
the IND is active, progress reports summarizing the results of ongoing clinical trials and nonclinical studies performed since the last
progress report must be submitted on at least an annual basis to FDA, and written IND safety reports must be submitted to FDA and investigators
for serious and unexpected adverse events, findings from other studies suggesting a significant risk to humans exposed to the
same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically
important, increased incidence of a serious adverse reaction compared to that listed in the protocol or investigator brochure.
There
are also requirements governing the submission of certain clinical trials and completed trial results to public registries. Sponsors
of certain clinical trials of FDA-regulated products are required to register and disclose specified clinical trial registration
and results information, which is made publicly available at www.clinicaltrials.gov. Failure to properly report clinical trial results
can result in civil monetary penalties. Disclosure of clinical trial results can often be delayed until the new product or new indication
being studied has been approved.
U.S.
review and approval process
The
results of product development, preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing
process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to FDA
as part of an NDA. The submission of an NDA is subject to the payment of substantial user fees; a waiver of which may be obtained
under certain limited circumstances.
FDA
reviews NDAs to determine, among other things, whether the product is safe and effective for its intended use and whether it is manufactured
in a cGMP-compliant manner, which will assure and preserve the product’s identity, strength, quality and purity. Under the Prescription
Drug User Fee Act (“PDUFA”), FDA has a goal of ten months from the date of “filing” of a standard, completed
NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is
submitted to FDA because FDA has approximately two months to make a “filing” decision after the application is submitted.
FDA conducts a preliminary review of all NDAs within the first sixty days after submission, before accepting them for filing,
to determine whether they are sufficiently complete to permit substantive review. FDA may request additional information rather than
accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application
also is subject to review before the FDA accepts it for filing.
FDA
may refer an application for a new drug to an advisory committee within FDA. An advisory committee is a panel of independent experts,
including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether and under
what conditions the application should be approved. FDA is not bound by the recommendations of such an advisory committee, but it considers
advisory committee recommendations carefully when making decisions.
Before
approving an NDA, FDA will also inspect the facility where the product is manufactured. FDA will not approve an application unless it
determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent
production of the product within required specifications. Before approving an NDA, FDA may also inspect one or more clinical trial
sites to assure compliance with GCP requirements.
After
the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. A Complete Response Letter indicates that the
review cycle of the application is complete, and the application will not be approved in its present form. A Complete Response Letter
usually describes the specific deficiencies in the NDA identified by FDA and may require additional clinical data, such
as an additional pivotal Phase 3 trial or other significant and time-consuming requirements related to clinical trials, nonclinical
studies or manufacturing. If a Complete Response Letter is issued, the sponsor must resubmit the NDA, addressing all of the deficiencies
identified in the letter, or withdraw the application. Even if such data and information are submitted, FDA may decide that the
NDA does not satisfy the criteria for approval. An approval letter authorizes commercial marketing of the drug with prescribing information
for specific indications.
The
Pediatric Research Equity Act (“PREA”) requires IND sponsors to conduct pediatric clinical trials for most drugs, for a
new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs
and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must
evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support
dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request
a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons,
including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that
additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. FDA must send a non-compliance
letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval
of a pediatric formulation.
If
a drug receives FDA approval, the approval may be limited to specific diseases and dosages, which could restrict the commercial
value of the product. In addition, FDA may require testing and surveillance programs to monitor the safety of approved products which
have been commercialized and may require a sponsor to conduct post-marketing clinical trials, which are designed to further assess a
drug’s safety and effectiveness after NDA approval. FDA may also place other conditions on approval, including a requirement for
a risk evaluation and mitigation strategy (“REMS”) to assure the safe use of the drug. If FDA concludes a REMS is needed,
the sponsor of the NDA must submit a proposed REMS. FDA will not approve the NDA without an approved REMS, if required. A REMS could
include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient
registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion,
distribution, prescribing or dispensing of products. Marketing approval may be withdrawn for non-compliance with REMS or other regulatory
requirements, or if problems occur following initial marketing.
Post-approval
requirements
Once
an approval is granted, FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur
after the drug reaches the market. Later discovery of previously unknown problems with a drug may result in restrictions on the drug
or even complete withdrawal of the drug from the market. After approval, some types of changes to the approved drug, such as adding new
indications, certain manufacturing changes and additional labeling claims, are subject to further FDA review and approval. Manufacturers
and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with
FDA and certain state agencies and are subject to periodic unannounced inspections by FDA and certain state agencies for compliance with
cGMP regulations and other laws and regulations.
Any
drug product manufactured or distributed by us pursuant to FDA approval will be subject to continuing regulation by FDA, including, among
other things, record-keeping requirements, reporting of adverse experiences with the drug, providing FDA with updated safety and efficacy
information, drug sampling and distribution requirements, complying with certain electronic records and signature requirements, and complying
with FDA promotion and advertising requirements. FDA strictly regulates labeling, advertising, promotion and other types of information
regarding approved drugs that are placed on the market, and imposes requirements and restrictions on drug manufacturers, such as those
related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described
in the product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities,
and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable
regulatory requirements may result in restrictions on the marketing of a product for a certain indication or withdrawal of the product
from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable governmental requirements at any
time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative
or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal
of an approval, clinical holds on post-marketing clinical trials, enforcement letters, product recalls, product seizures, total or partial
suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising
or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties.
Expedited
development and review programs
The
FDA administers a number of programs that can expedite the development and review of new drugs.
The
fast track designation program is intended to expedite or facilitate the process for reviewing new drug products that
meet certain criteria. Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or
life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. With
regard to a fast track product, FDA may consider for review sections of the NDA on a rolling basis before the complete application is
submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, FDA agrees to accept sections of the NDA
and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section
of the NDA.
A
product is eligible for priority review if it is intended to treat a serious condition, and if approved, would provide a significant
improvement in safety or efficacy compared to currently marketed products. FDA will attempt to direct additional resources to the evaluation
of an application for a new drug designated for priority review in an effort to facilitate the review. FDA endeavors to review applications
with priority review designations within six months of the filing date, as compared to ten months for review of NDAs under its current
PDUFA review goals.
In
addition, a product may be eligible for accelerated approval. Drugs intended to treat serious or life-threatening diseases or conditions
may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably
likely to predict a clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality,
that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account
the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval,
the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical
trials. Drugs receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required
post-marketing trials or if such trials fail to verify the predicted clinical benefit. In addition, the FDA currently requires as
a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial
launch of the product.
The
Food and Drug Administration Safety and Innovation Act (“FDASIA”) established a category of drugs referred to as “breakthrough
therapies” that may be eligible to receive breakthrough therapy designation. A sponsor may seek FDA designation of a compound as
a “breakthrough therapy” if the product is intended, alone or in combination with one or more other products, to treat a
serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed
early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction
and guidance. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can
also be granted to the same drug if relevant criteria are met. If a product is designated as breakthrough therapy, FDA will work to expedite
the development and review of such drug.
Fast
track designation, priority review and breakthrough therapy designation do not change the standards for approval but may expedite the
development or approval process. However, even if a product qualifies for one or more of these programs, FDA may later decide that
the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not
be shortened.
Orphan
drug designation
Under
the Orphan Drug Act, FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or
condition that affects fewer than 200,000 individuals in the United States or, if it affects more than 200,000 individuals in the United
States, there is no reasonable expectation that the cost of developing and making a drug product available in the United States for this
type of disease or condition will be recovered from sales of the product. Orphan designation must be requested before an NDA is submitted.
After FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are publicly disclosed by FDA.
Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If
a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has
such designation, the product is entitled to orphan product exclusivity, which means that FDA may not approve any other applications
to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority
to the product with orphan exclusivity or inability to manufacture the product in sufficient quantities. The designation of such drug
also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages
and user-fee waivers. However, competitors, may receive approval of different products for the indication for which the orphan product
has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity.
Orphan exclusivity also could block the approval of one of our compounds for seven years if our compound is determined to be contained
within the competitor’s product for the same indication or disease, or if a competitor obtains approval of the same drug as defined
by the FDA. In addition, if an orphan designated product receives marketing approval for an indication broader than what is designated,
it may not be entitled to orphan exclusivity.
Marketing
exclusivity
Market
exclusivity provisions under the FDCA can delay the submission or approval of certain marketing applications. The FDCA provides a five-year
period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new
chemical entity. A drug is a new chemical entity if FDA has not previously approved any other new drug containing the same active moiety,
which is the molecule or ion responsible for the action of the drug substance.
During
the exclusivity period, the FDA may not approve or even accept for review an abbreviated new drug application (“ANDA”), or
an NDA submitted under Section 505(b)(2) (a “505(b)(2) NDA”), submitted by another company for another drug based on the
same active moiety, regardless of whether the drug is intended for the same indication as the original innovative drug or for another
indication, where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application
may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents
listed with the FDA by the innovator NDA holder.
The
FDCA alternatively provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, if new clinical investigations,
other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval
of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the
modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA
from approving ANDAs or 505(b)(2) NDAs for drugs containing the active ingredient for the original indication or condition of use. Five-year
and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would
be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials
necessary to demonstrate safety and effectiveness.
Pediatric
exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional
six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response
to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical
trials. In addition, orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain
circumstances.
Foreign
Sales
Sales
outside the United States of potential drug compounds we develop will also be subject to foreign regulatory requirements governing human
clinical trials and marketing for drugs. The requirements vary widely from country to country, but typically the registration and approval
process takes several years and requires significant resources. In most cases, if the FDA has not approved a potential drug compound
for sale in the United States, the potential drug compound may be exported for sale outside of the United States, only if it has been
approved in any one of the following: the European Union, Canada, Australia, New Zealand, Japan, Israel, Switzerland and South Africa.
There are specific FDA regulations that govern this process.
Health
Insurance Portability and Accountability Act
The
Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health
Act (“HITECH”), and implementing regulations thereunder (collectively, “HIPAA”) requires certain healthcare providers,
health plans and healthcare clearinghouses who conduct specified electronic healthcare transactions (“covered entities”),
as well as their independent contractors and agents who conduct certain activities involving protected health information on their behalf
(“business associates”) to comply with enumerated requirements relating to the privacy, security and transmission of protected
health information. Failure to comply with HIPAA can result in corrective action, as well as civil fines and penalties and government
oversight. Among other changes, HITECH made HIPAA security standards directly applicable to business associates, increased the tiered
civil and criminal fines and penalties that may be imposed against covered entities, business associates and possibly other persons,
and gave state attorneys general new authority to file actions to enforce HIPAA. Further, the breach notification rule implemented
under HITECH requires covered entities to notify affected individuals, the U.S. Department of Health and Human Services Office of Civil
Rights (“OCR”), the agency that enforces HIPAA, and for breaches affecting more than 500 individuals, the media, of any breaches
of unsecured protected health information. HIPAA does not create a private right of action for individuals, though individuals may submit
complaints related to HIPAA to OCR.
European
General Data Protection Regulation
The
collection and use of personal health data in the European Union had previously been governed by the provisions of the Data
Protection Directive, which has been replaced by the General Data Protection Regulation (“GRPR”) which became effective
on May 25, 2018 While the Data Protection Directive did not apply to organizations based outside the EU, the GDPR has expanded its
reach to include any business, regardless of its location, that provides goods or services to residents in the EU. This expansion
would incorporate the Company’s clinical trial activities in EU members states. The GDPR imposes strict requirements on
controllers and processors of personal data, including special protections for “sensitive information” which includes
health and genetic information of data subjects residing in the EU. GDPR grants individuals the opportunity to object to the
processing of their personal information, allows them to request deletion of personal information in certain circumstances, and
provides the individual with an express right to seek legal remedies in the event the individual believes his or her rights have
been violated. Further, the GDPR imposes strict rules on the transfer of personal data out of the European Union to the
United States or other regions that have not been deemed to offer “adequate” privacy protections. Failure to comply with
the requirements of the GDPR and the related national data protection laws of the European Union Member States, which may deviate
slightly from the GDPR, may result in fines of up to 4% of global revenue, or €20,000,000, whichever is greater. As a result
of the implementation of the GDPR, the Company may be required to put in place additional mechanisms ensuring compliance with the
new data protection rules.
The
Company’s research activities in the EU are currently limited to non-human preclinical studies, and as such, the Company does not
collect, store, maintain, process, or transmit any Personal Data (as that term is defined under the GDPR) of trial subjects. However,
since the Company currently has three employees located in the EU, its processing and transfer for employee Personal Data is subject
to GDPR requirements. The Company has implemented a privacy and security program that is designed to adhere to the requirements of the
GDPR in order to protect employee Personal Data, and in the event the Company progresses to research or clinical trials involving humans,
to protect participant Personal Data. However, there is significant uncertainty related to the manner in which data protection authorities
will seek to enforce compliance with GDPR. For example, it is not clear if the authorities will conduct random audits of companies doing
business in the EU, or if the authorities will wait for complaints to be filed by individuals who claim their rights have been violated.
Enforcement uncertainty and the costs associated with ensuring GDPR compliance be onerous and adversely affect the Company’s business,
financial condition, results of operations and prospects. As a result, the Company cannot predict the impact of the GDPR regulations
on its current or future business, either in the US or the EU.
Other
Regulatory Requirements
The
Company’s laboratory is subject to federal, state and local regulations relating to the handling and disposal of regulated medical
waste, hazardous waste and biohazardous waste, including chemical, biological agents and compounds, blood and bone marrow samples and
other human tissue. Typically, the Company uses outside vendors who are contractually obligated to comply with applicable laws and regulations
to dispose of such waste. These vendors are licensed or otherwise qualified to handle and dispose of such waste.
OSHA
has established extensive requirements relating to workplace safety for health care employers, including requirements to develop and
implement programs to protect workers from exposure to blood-borne pathogens by preventing or minimizing any exposure through needle
stick or similar penetrating injuries.
Discontinuing
Operations
vivoPharm
Business
In
December 2021, the Company’s Board of Directors approved a plan to sell the vivoPharm business to focus the Company on the
development of neurological developmental and degenerative disease therapeutics. As noted in Note 3 to the Company’s Consolidated
Financial Statements contained in Part II. Item 8 herein, we have accounted for the vivoPharm business as discontinuing
operations as of December 31, 2021. We plan to sell the vivoPharm business during 2022.
Overview
- vivoPharm
vivoPharm offers preclinical services such
as predictive tumor models, human orthotopic xenografts and syngeneic immuno-oncology
relevant tumor models in its Hershey, PA facility, and is a leader in the field of immuno-oncology preclinical services and orthotopic
predictive models. This service is supplemented with GLP toxicology and extended bioanalytical services in the Company’s Australian-based
facilities in Melbourne, Victoria, and Adelaide, South Australia.
The
vivoPharm business is based on demand for preclinical and discovery services from biotechnology and pharmaceutical companies,
academia and the research community. Biotechnology and pharmaceutical companies engaged in drug development with the desire to
run clinical trials to determine the safety and effectiveness of treatments and therapeutics continuously benefit from its services.
vivoPharm’s preclinical development of biomarker detection methods, response to immuno-oncology directed novel treatments
and early prediction of clinical outcome is supported by its extended portfolio of orthotopic, xenografts and syngeneic tumor test systems
as a specialized service offering in the immuno-oncology space.
vivoPharm
has developed industry recognized capabilities in early phase development and discovery, especially in immuno-oncology models, tumor
micro-environment studies, and specialized pharmacology services that support basic discovery, preclinical and phase 1 clinical
trials. vivoPharm’s studies have been utilized to support over 300 IND submissions to date across a range of therapeutic
indications, including lymphomas, leukemia, breast cancer, GI-cancers, liver cancer, pancreatic cancer, non-small cell lung cancer,
and other non-cancer rare diseases. vivoPharm is presently serving over 50 biotechnology and pharmaceutical companies across four
continents in over 100 studies and trials with highly specialized development, clinical and preclinical research. Over the past 18 years,
vivoPharm has also generated an extensive library of human xenograft and syngeneic tumor models, including subcutaneous, orthotopic
and metastatic models. vivoPharm offers its expertise in small and bio-molecules.
vivoPharm
continues to leverage its international presence to access global market opportunities. vivoPharm’s headquarters
in Australia specializes in safety and toxicology studies, including mammalian, genetic and in vitro, along with bioanalytical services
including immune-analytical capabilities. vivoPharm operates from multiple locations in Victoria and South Australia. vivoPharm’s
U.S.-based laboratory, located at the Hershey Center for Applied Research in Hershey, Pennsylvania, primarily focuses on screening and
efficacy testing for a wide range of pharmaceutical and chemical products. The third location, in Munich, Germany, hosts project management
and business development personnel.
vivoPharm
Market Overview
United
States Clinical Oncology Market Overview
Despite
many advances in the treatment of cancer, it remains one of the greatest areas of unmet medical need. In 2021, the World Health Organization
attributed 10 million deaths globally to cancer, which prior to the COVID-19 was approximately about 1 in 6 deaths. Within the United
States, excluding COVID-19 related deaths, cancer is the second most common cause of death, exceeded only by heart disease, accounting
for nearly one out of every four deaths.
United
States and International Clinical Trials Market Overview
The
global preclinical Contract Research Organization (“CRO”) market size was valued at $4.5 billion in 2020 and is expected
to grow at a compound annual growth rate (“CAGR”) of 8.1% from 2021 to 2028. Increased R&D budget for drug
development is leading to rising demand for preclinical CRO services, thus boosting the market growth during the forecast
period, according to a September 2021
report published by Grand View Research, Inc. Outside of the United States, growth in the pharmaceuticals and clinical trials
market is continuing, and trials are increasingly becoming more complex. Growth in the European pharma market is anticipated to be
driven largely by the United Kingdom, Germany, Spain, France and Italy.
While
oncology drugs have the potential to be among the most personalized therapeutics, very few successfully make it to market. The application
of pharmacogenomics to oncology clinical trials enables researchers to better predict differences, initially driven by data derived in
preclinical research. The Company believes a growing demand for faster development of personalized medicines and more effective clinical
trials are growth drivers of this market, and its core expertise is preclinical efficacy, toxicity and bioanalytical services.
vivoPharm
has a particularly strong set of experiences working in the preclinical area of checkpoint inhibitors and specifically immunotherapies.
Drug development is continuing to attract biotech companies transforming scientific innovation into practice-changing cancer drugs, thereby
driving demand for vivoPharm’s services. When considering druggable targets within the different immuno-oncology drug classes,
T cell immunomodulators and cell therapies had the largest increase in new targets in the past 2 years, which suggests that more innovation
is going into these drug classes than the other immune-oncology drug classes.
vivoPharm
is currently focused on delivering its pre-clinical CRO and drug discovery services to a diverse group of market participants, including
biotechnology and pharmaceutical companies; governmental agencies; and academic research centers. These participants require syngeneic
and xenograft tumor models to support the development of novel biomarkers and increasing technological expertise to collect key data
sets for their clinical trials, understand and manage therapeutic development and design customized therapy choices. vivoPharm
believes that its approach to rapidly translate research insights about the genetics and molecular mechanisms of cancer into the research
community will lead to innovative products being developed, particularly in the area of immuno-oncology therapies.
vivoPharm’s
Service Offerings
vivoPharm’s
focus on the preclinical market, its services are primarily sought by biotechnology and pharmaceutical companies engaged in designing
and preparing to run clinical trials, for their value and efficacy in oncology and immuno-oncology treatments and therapeutics. vivoPharm
believes trial participants’ likelihood of experiencing either favorable or adverse responses to the trial treatment can be determined
first by its extended portfolio of orthotopic, xenografts and syngeneic tumor test systems, and in early development through biomarker
identification and development, thereby increasing trial efficiency, participant safety and trial success rates. Biotechnology and pharmaceutical
companies also seek vivoPharm’s services in preclinical trial design and drug development, in order to effectively and efficiently
select those therapeutic candidates most likely to progress to clinical treatment options. vivoPharm’s services are
also sought by researchers and research groups seeking to identify biomarkers and panels and develop methods for diagnostic technologies
and tests for disease.
vivoPharm
Discovery Services
vivoPharm
offers proprietary preclinical test systems valued by the pharmaceutical industry, biotechnology companies and academic research centers.
In particular, vivoPharm’s preclinical development of biomarker detection methods, response to immuno-oncology directed
novel treatments and early prediction of clinical outcome is supported by its extended portfolio of orthotopic, xenografts and syngeneic
tumor test systems. vivoPharm specializes in conducting studies tailored to guide drug development, starting from compound libraries
and ending with a comprehensive set of in vitro and in vivo data and reports, as needed for Investigational New Drug filing. vivoPharm
operates in AAALAC accredited and GLP-compliant audited facilities. vivoPharm provides its preclinical services, with a focus
on efficacy models, from its Hershey, PA facility for the U.S. and European markets, and supplemented with GLP toxicology and extended
bioanalytical services in its Australia-based facility in Melbourne, Victoria, and Adelaide, South Australia.
vivoPharm’s
Discovery Services provide the tools and testing methods for companies and researchers seeking to identify new molecular- and biomarker-based
indicators for disease and to determine the pharmacogenomics, safety and effectiveness of potential therapeutic candidate compounds.
Discovery Services offered include development of both xenograft and syngeneic animal models, toxicology and genetic toxicology services,
pharmacology testing, pathology services, and validation of biomarkers for diseases including cancers. vivoPharm also provides
consulting, guidance and preparation of samples and clinical trial design. vivoPharm believes the ability to analyze variations
in biomarkers, tumor cells and compounds, and to interpret results into meaningful predictors of disease or indicators of therapeutic
success is essential to discovering new molecular markers for cancer, new therapeutics, and targets for therapies.
vivoPharm
executes its market strategy by delivering results-oriented information and insights which we believe is or will become important to
drug discovery and development and ultimately to accelerated therapy approvals and commercialization.
vivoPharm’s
Discovery Services aim to accelerate the development of novel treatment candidates and precision medicine, with a current focus in oncology.
vivoPharm believes the level of personalized treatment required to optimize a patient’s treatment regimen and to maximize
clinical trial success rates may be significantly improved using molecular- and biomarker-based characterization.
Solid
Tissue Cancers
The
term “solid tumors” encompasses abnormal masses of cells that do not include fluid areas (e.g., blood) or cysts. Solid
tumors are composed of abnormal cell growths that originate in organs or soft tissue and are normally named after the types of cells
that form them. Examples of solid tumors include breast cancer, lung cancer, ovarian cancer and melanoma. Solid tumors may be benign
(not cancerous) or malignant (cancerous) and may spread from their primary tissue of origin to other locations in the body (metastasis).
There are over 200 individual chemotherapeutic drugs available for combating solid tumor cancers. Selection of an appropriate course
of treatment for a patient may depend on identification of the gene mutation or mutations present in their particular cancer and on determining
the cancer’s tissue of origin. Metastatic tumors with an uncertain primary site can be a difficult clinical problem. In tens of
thousands of oncology patients every year, no confident diagnosis is ever issued, making standard-of-care treatment impossible.
Sales
and Marketing
vivoPharm’s
sales and marketing efforts consist of both direct and indirect efforts, with the majority of efforts focused on direct sales in the
United States, Europe and Australia. vivoPharm collaborates with preclinical development and translational science teams
at pharmaceutical and biotech companies on studies involving tumor models and therapeutic candidate compound testing.
vivoPharm’s
U.S. and European business development and sales professionals have scientific backgrounds in hematology, pathology, and laboratory services,
with many years of experience in biopharmaceutical and clinical oncology sales, esoteric laboratory sales from leading biopharmaceutical,
pharmaceutical or specialty reference laboratory companies. VivoPharm currently has a team of four business development and sales
professionals in the United States and Europe.
vivoPharm
also promotes its services through marketing channels commonly used by the biopharma and pharmaceutical industries, such as internet,
medical meetings and broad-based publication of its scientific and economic data. In addition, vivoPharm provides easy-to-access
information to its customers over the internet through dedicated websites. vivoPharm’s customers value easily accessible
information in order to quickly review patient or study information.
Competition
The
largest competitors in the global preclinical CRO market are companies like Pharmaceutical Product Development, LLC
(US), MD Biosciences (US)., IQVIA (US), PAREXEL International Corporation (US), Envigo (US), Charles River (US), Inotiv (US), ICON PLC
(Dublin), PRA Health Sciences (US), Medpace (US), Laboratory Corporation of America Holdings (US), WuXi AppTec (China) and Eurofins Scientific
(Luxembourg). The players operating in the global preclinical CRO market are focusing on product unveilings, along with intensifying
their global presence by entering untouched markets.
Projects
related to the molecular mechanisms driving cancer development have received increased government funding, both in the United States
and internationally. The National Cancer Institutes’ Cancer Moonshot is anticipated to increase both patient awareness and federal
government funding for research and clinical trials. The Federal Government has committed $1.8 billion over a 7-year period to fund the
21st Century Cures Act. As more information regarding cancer genomics and biomarkers becomes available to the public, vivoPharm
anticipates that more products aimed at identifying targeted treatment options will be developed and that these products may compete
with its products.
Third-Party
Suppliers
vivoPharm
currently relies on third-party suppliers for its specialized research and scientific instrumentation and related supplies of reagents,
tumor cell lines, and other inventory for it to successfully perform its CRO services for its customers. vivoPharm does not believe
a short-term disruption from any one of these suppliers would have a material effect on its business, nor has vivoPharm experienced
any material disruptions due to COVID-19.
Operations
and Production Facilities
As
a preclinical oncology CRO, vivoPharm’s leased facilities are built to house immunocompromised mice, conventional rodents
and specialized models. They incorporate surgical suites, gowning rooms, and holding rooms. In order to ensure an environment
of utmost sterility, while also minimizing the workload by negating dependency on cage-wash infrastructure, vivoPharm relies on
its landlords and licensors to manage the vivariums at its animal facilities. This allows for capacity utilization flexibility and
focus of time and energy into scientific endeavors.
Quality
Assurance
vivoPharm
is committed to maintaining a standard of excellence and to providing reliable and accurate laboratory services to its customers. To
that goal, vivoPharm’s independent Quality Assurance Unit (“QAU”) has implemented a comprehensive and integrated
Quality Management System (“QMS”) designed to drive consistent high quality testing services while ensuring the highest
ethical standards across its business. vivoPharm’s QMS satisfies FDA requirements for nonclinical studies conduct and content,
computer systems validation, electronic records and signatures, and GLP.
vivoPharm
Governmental Regulations
vivoPharm’s
Pennsylvania and Australia research laboratory facilities comply with GLP” to the extent required by the FDA, Environmental Protection
Agency, USDA, Organization for Economic Co-operation and Development (“OECD”), as well as other international regulatory
agencies. Furthermore, vivoPharm’s early-stage discovery work, which is not subject to GLP standards, is typically carried
out under a quality management system or internally developed quality systems. vivoPharm’s facilities are regularly
inspected by U.S. and other regulatory compliance monitoring authorities, its clients’ quality assurance departments, and its own
internal quality assessment program.
Other
Discontinuing Operations
In
July 2019, CGI sold all assets related to its BioPharma and Clinical businesses. As of December 31, 2021,
$409 thousand of liabilities relating to these businesses are classified as other
current liabilities – discontinuing operations on the Company’s consolidated balance sheets.
Employees
and Human Capital Management
As of March 15, 2022, we had 34 full-time
employees, including 8 with Ph.D. degrees in our continuing Vyant Bio and StemoniX operations. Of these employees, 24 are
in research and development and 10 are general and administrative. As of March 15, 2022, we had 38 full-time employees
in our vivoPharm business, including 10 with Ph.D. degrees. We have never had a work stoppage, and none of our employees
are represented by a labor organization or under any collective-bargaining arrangements. We consider our employee relations to be good.
Our
human capital management objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing
and new employees, advisors and consultants. The principal purposes of our equity and cash incentive plans, along with a comprehensive
benefits package and a 401(k) plan, are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation
awards.
The Company’s employees are in high demand
in the industries in which we operate. We have experienced higher employee turnover in the past year given the demand for our employees
and overall employment market conditions, including increased salaries and a high number of job openings, which have been part of the
“Great Resignation” that has been experienced by many companies that are highly dependent on human capital talent. The retention
of our employees is a high priority as well as recruiting key talent to meet our business goals.
Segment
and Geographical Information
The
Company operates in one reportable business segment and derive revenue from multiple countries, with 61% and 80% of its continuing operations
revenue coming from the United States in fiscal year 2021 and 2020, respectively.
Corporate
and Available Information
The
Company was incorporated in the State of Delaware on April 8, 1999. On March 30, 2021, the Company
completed its Merger with StemoniX, which is now a wholly-owned subsidiary of the Company.
The
Company’s principal executive offices are located at 2370 State Route 70 West, Two Executive Campus, Suite 310, Cherry Hill, NJ
08002-4102. The Company’s telephone number is (201) 479-1357 and the corporate website address is www.vyantbio.com. The Company
included the website address in this annual report on Form 10-K only as an inactive textual reference and does not intend it to be an
active link to the Company website. The information on the website is not incorporated by reference in this annual report on Form 10-K.
This
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, as well
as other documents the Company files with the U.S. Securities and Exchange Commission (“SEC”), are available free of charge
through the Investors section of the Company website at https://ir.vyantbio.com/sec-filings as soon as reasonably practicable
after such material is electronically filed with or furnished to the SEC. The public can obtain documents that the Company files with
the SEC at www.sec.gov.
Item
1A. Risk Factors
An
investment in our common stock involves a high degree of risk including the risk of a loss of your entire investment. You should carefully
consider the risks and uncertainties described below and the other information contained in this report and the other reports we filed
with the Securities and Exchange Commission. The risks set forth below are not the only ones facing us. Additional risks and uncertainties
may exist that could also adversely affect our business, operations and financial condition. If any of the following risks actually materialize,
our business, financial condition and/or operations could suffer. In such event, the value of our common stock could decline, and you
could lose all or a substantial portion of the money that you have paid for our common stock.
Summary
of Risk Factors
● | We
have a history of net losses, expect to incur net losses in the future and may never achieve
sustained profitability. |
● | We
have limited experience in drug discovery and drug development, and we have never advanced
a drug to human development or had a drug approved alone or with collaborators. |
● | We
may not be successful in our efforts to identify or discover drug candidates and may fail
to capitalize on programs, collaborations, or drug candidates that may present a greater
commercial opportunity or for which there is a greater likelihood of success. |
● | We
do not have any experience in clinical development and have not advanced any drug candidates
into clinical development. |
● | Clinical
trials are expensive, time-consuming and difficult to design and implement, and have traditionally
had high attrition. |
● | Our
future revenue is unpredictable and operating results are expected to fluctuate from
period to period. |
● | Our
business is subject to risks arising from epidemic diseases, such as the global outbreak
of COVID-19. |
● | The
regulatory approval processes of the FDA and comparable foreign authorities are lengthy,
time consuming, expensive and inherently challenging, and if we or our collaborators are
ultimately unable to obtain regulatory approval for our drug candidates, our business could
be significantly limited. |
● | Our
success depends upon achieving a critical mass of customers and strategic relationships. |
● | We
may acquire other businesses or make investments in other companies or technologies that
could harm operating results, dilute its stockholders’ ownership, increase debt or
cause us to incur significant expense. |
● | We
may not be able to sell the vivoPharm business and/or any sales we consummate may
not produce the desired results. |
● | If
we are unable to obtain and maintain patent and other intellectual property protection for
our products and processes, or if the scope of the patent and other intellectual property
protection obtained is not sufficiently broad, our competitors could develop and commercialize
products similar or identical to ours, and our ability to successfully commercialize our
technology and products may be adversely affected. |
● | The
loss or transition of any member of our senior management team or the inability to attract
and retain highly skilled scientists, clinicians and salespeople could adversely affect our
business. |
● | If
we are unable to manage growth, our prospects may be limited, and our future results
of operations may be adversely affected. |
● | Because
we do not expect to pay cash dividends for the foreseeable future, you must rely on appreciation
of our common stock price for any return on your investment. Even we change that policy,
we may be restricted from paying dividends on our common stock. |
Risks
Relating to the Our Financial Condition and Capital Requirements
We
have a history of net losses, expect to incur net losses in the future and may never achieve sustained profitability.
We
have historically incurred substantial net losses. We had net losses of $40.9 million and $8.7 million for the years
ended December 31, 2021 and 2020, respectively, and had an accumulated deficit of $78.8 million as of December
31, 2021. The 2021 results including a net loss from discontinuing operations of $22.3 million, which includes a $20.2 million
goodwill impairment charge as well as continuing operations non-cash expenses of $4.8 million and merger related costs of $2.3
million. We expect losses to continue. These losses have had, and will continue to have, an adverse effect on working capital,
total assets and stockholders’ equity. Because of the numerous risks and uncertainties associated with our revenue growth and
costs associated with being a public company, we are unable to predict when we will become profitable, and we may never become
profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual
basis. Our inability to achieve, and then maintain, profitability would negatively affect our business, financial condition, results
of operations and cash flows.
Prior
to the Merger and receipt of the net proceeds of the financings that were a condition of the Merger, recurring losses from operations
raised substantial doubt regarding our ability to continue as a going concern, and we may need to raise additional capital by issuing
securities or debt or through licensing arrangements, which may cause dilution to stockholders or restrict operations or proprietary
rights.
For
the years ended December 31, 2021 and 2020, we had
net cash used in operating activities from continuing operations of $16.5 million and $5.8 million, respectively.
We expect our expenses to increase in connection with our ongoing activities.
The
Company had cash and cash equivalents of $20.6 million as of December 31, 2021. The Company’s management has projected that
the Company’s cash on hand, together with net proceeds from the planned sale of the vivoPharm business during 2022
as well as proceeds from sales of common stock pursuant to the Purchase Agreement (as defined below) with Lincoln Park Capital, LLC will
be adequate to fund the Company’s currently planned operations into the second quarter of 2023. Such estimate may prove to be wrong,
and we could use our available capital resources sooner than we currently expect, and/or the capital resources that we are assuming will
be present could fail to materialize at the amounts we project or at all
For
instance, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than
we currently anticipate, and we may need to seek additional funds sooner than planned. Future capital requirements depend upon many factors,
including, but not limited to:
● | the
rate at which invest in our disease model and therapeutic drug development; |
● | the
rate at which we are able to enter into strategic relationships; |
● | the
extent to which we commence development activities for new therapeutic indications; |
● | the
response of competitors to our products and services; |
● | the
costs of preparing, filing and prosecuting patent applications, maintaining and protecting
our intellectual property rights including enforcing and defending intellectual property
related claims; and |
● | the
costs of operating as a public company. |
We
may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and
alliances, licensing arrangements or monetization transactions. To the extent that we raise additional capital through the sale of equity,
convertible debt securities or other equity-based derivative securities, our existing shareholders’ ownership interest will be
diluted, and the terms may include liquidation or other preferences that adversely affect shareholder rights. Any indebtedness
we incur would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business. Furthermore, the issuance of additional securities, whether equity or
debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline and existing shareholders
may not agree with our financing plans or the terms of such financings. If we raise additional funds through strategic partnerships and
alliances, licensing arrangements or monetization transactions with third parties, we may have to relinquish valuable rights to our technologies,
or our products, or grant licenses on terms unfavorable to us. Adequate additional financing may not be available to us on acceptable
terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our
product development or future commercialization efforts or grant rights to develop and market products that we would otherwise prefer
to develop and market ourselves.
Our future revenue is unpredictable and
operating results are expected to fluctuate from period to period.
The
emerging nature of the markets in which we compete make it difficult for us to accurately forecast our revenue in any given period.
Historically,
most of our revenue has been derived from our vivoPharm business, which we have committed to a plan to sell. Revenue
from StemoniX have historically derived from the sale of iPSC-based microOrgan plates to pharmaceutical, biotechnology and research
customers or the performance of DaaS for these customers. We anticipate revenue generated from these activities will substantially cease
in the first half of 2022, and we will focus on our therapeutic drug discovery and development using our iPSC human disease models. Therefore,
we will not generate revenue until we are able to successfully develop and discover drug candidates and partner with pharmaceutical and
biotechnology companies and other industry partners.
To
date, we have not generated revenue from licensing our iPSC disease models or therapeutic assets. Additionally, our ability to obtain
license and/or subscription agreements with pharmaceutical companies and other industry partners is unproven, and in the best of circumstances
it may take several months or more in order to enter into such agreements. There can be no assurances that we will be successful in entering
into collaborations with pharmaceutical companies, artificial intelligence/technology and other industry partners. Moreover, even after
entering into such agreements, it may take months or years before they generate revenue, if at all. There is no assurance that any revenue
generated will recover the costs
For
these reasons, it is difficult for us to predict, when, if ever, we will generate revenue and become profitable.
Our
operating results are likely to fluctuate substantially from period to period as a result of several factors, many of which are beyond
our control. These factors include:
● | the
ability to derive licensing contracts for Company-identified drug candidates or Company developed
human iPSC disease models; |
● | the
ability to enter into successful strategic relationships; |
● | the
unpredictable expenses associated with drug development and clinical trials; |
● | the
amount and timing of operating costs and capital expenditures relating to expansion of our
operations; |
● | the
announcement or introduction of new or enhanced technologies, products, or services by competitors;
and |
● | the
ability to attract and retain qualified personnel. |
CGI
identified a material weakness in its internal control over financial reporting. If we are not able to remediate the material weakness
and otherwise maintain an effective system of internal control over financial reporting, the reliability of its financial reporting,
investor confidence in us and the value of our common stock could be adversely affected.
As
a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such
internal controls. Section 404 of the Sarbanes-Oxley Act (“Section 404”) requires that we evaluate and determine the
effectiveness of internal controls over financial reporting and provide a management report on internal control over financial reporting.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is
a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and
corrected on a timely basis.
During
the audit for the 2020 fiscal year of CGI, the accounting predecessor (as the Merger was a reverse merger) and legal acquiror of StemoniX,
identified a material weakness in internal control over financial reporting related to our accounting for the potential impairment of
intangible assets. This material weakness was not remediated at the time of the Merger and therefore, became part of the post-Merger
internal control structure of Vyant Bio. This accounting requires us to record an impairment charge if the carrying amount of the asset
group is not recoverable and is in excess of the fair value of the asset group. CGI’s calculation of undiscounted future cash flows
resulted in a conclusion that no impairment was necessary, however, we could not supply supporting evidence that its calculation was
accurate.
We
began the process of implementing changes to its internal control over intangible assets to remediate the control deficiencies that gave
rise to the material weakness, and implemented the following enhancements to internal
controls to address this material weakness:
● |
Hired a new CFO with
significant experience in internal controls, US GAAP and financial forecasting; |
● |
Established a financial
planning and analysis function in June 2021 to analyze, forecast and report on the Company’s operations; and |
● |
Developed a financial
model to forecast vivoPharm revenue based on inputs from management. |
We
determined that the underlying revenue forecasting model to support the determination of cash flows for our vivoPharm business
contained data input errors that required additional analysis and validation during the first quarter of 2022. While these data errors
did not impact our assessment of the carrying value of our vivoPharm business as of December 31, 2021, the redesign of this control
and ongoing testing of its operational effectiveness will not occur until 2022. As a result, the Company concluded that the deficiency
in our internal control over financial reporting related to revenue and cash flow forecasting would give rise to the level of a material
weakness as of December 31, 2021. The Company expects to remediate this control in 2022 through enhanced data validation and management
review.
Our
ability to establish and maintain an effective system of internal control over financial reporting could impact the reliability of our
financial reporting, investor confidence in us and the value of our common stock could be materially and adversely affected. Effective
internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate
disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved
controls, or difficulties encountered in their implementation could cause us to fail to meet its reporting obligations. For as long as
we are a “smaller reporting company” under the U.S. securities laws, our independent registered public accounting firm will
not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. An independent
assessment of the effectiveness of internal control over financial reporting could detect problems that management’s assessment
might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements
and require us to incur the expense of remediation.
We
do not expect that disclosure controls or internal control over financial reporting will prevent all errors and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s
objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of its control
systems to prevent error or fraud could materially adversely impact us.
Risks
Relating to Our Business and Strategy
Our
business is subject to risks arising from epidemic diseases, such as the global outbreak of COVID-19.
The
outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting
worldwide economic activity. A pandemic, including COVID-19 or other public health epidemic, poses the risk that we or our employees,
contractors, suppliers, courier delivery services and other partners may be prevented from conducting business activities for an indefinite
period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental
authorities.
The
continued spread of COVID-19 and its variants, and the measures taken by the governments of countries affected could disrupt the supply
chain of material needed for our business and could delay future projects from commencing due to COVID-19 related impacts on the demand
for our services and therefore have a material adverse effect on business, financial condition and results of operations.
Many
of our customers worldwide were impacted by COVID-19 and temporarily closed their facilities which impacted revenue in the first half
of 2020 for our StemoniX business. While the impact of the pandemic on our business has lessened, the global outbreak of COVID-19 continues
with new variants and is impacting the way we operate our business as well as in certain circumstances limiting the availability of lab
supplies. The extent to which the COVID-19 pandemic may impact the our future business will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, such as the availability and effectiveness of vaccines, the duration of the
outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions,
and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
We
are actively monitoring the impact of the COVID-19 pandemic on its business, results of operations and financial condition. The full
extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition
in the future is unknown at this time and will depend on future developments that are highly unpredictable.
We
face competition in drug discovery from other biotechnology, pharmaceutical, artificial intelligence and other drug discovery companies
and technologies and our operating results may be negatively affected if we fail to compete effectively.
The
biotechnology, pharmaceutical and drug discovery and development industries are intensely competitive and subject to rapid and significant
technological change. We have competitors in a number of jurisdictions, many of which have substantially greater name recognition, commercial
infrastructures and financial, technical and personnel resources than we have. Established competitors may invest heavily to quickly
discover and develop novel compounds that could make our drug candidates obsolete or uneconomical. Any new product that competes with
an approved product may need to demonstrate compelling advantages in efficacy, cost, convenience, tolerability and safety to be commercially
successful. In recent years drug discovery has integrated biology, chemistry and technology, including machine learning, augmented and
artificial intelligence as well as several forms of human cells to accelerate research and development activities and its effectiveness
and efficiency. Other competitive factors, including generic competition, could force us to lower prices or could result in reduced sales.
In addition, new products developed by others could emerge as competitors to our drug candidates. If we are not able to compete effectively
against our current and future competitors, our business will not grow and our financial condition and operations will suffer.
We
have limited experience in drug discovery, drug development, disease model development and clinical development, and we have never advanced
a drug to human development or had a drug approved alone or with collaborators.
The
convergence in drug discovery of human organoid disease models along with new in silico technologies including artificial intelligence,
machine learning, and new chemistry creation is unproven. There is limited evidence that such an approach will reduce time and risk around
preclinical development. Regarding our business model to date, we are pursuing two distinct but parallel tracks to identify novel and
repurposed drug therapies: we develop and license access to human cell-derived disease models, and in conjunction with applying data
science and in vivo testing, use this technology to identify candidates to bring through the discovery phase which we plan to then partner
with pharmaceutical companies to pursue clinical development and commercialization. We may also out license our iPSC disease model development
capabilities to strategic partners to co-develop drugs associated with such disease models. To date, we have made very limited independent
drug discovery efforts, have not licensed our iPSC disease models and no assurances can be given that we will be successful in generating
revenue from these activities.
The
Company’s strategy is to attempt to file approximately two investigational new drug (“IND”) applications with United
States Food and Drug Administration (“FDA”) starting in 2023 and perform clinical trials up through Phase I. We do not have
any experience in clinical development and have not advanced any drug candidates into clinical development. Our lack of experience in
conducting clinical development activities may adversely impact the likelihood that we will be successful in advancing our programs,
if we are not able to find experienced partners. Further, any predictions you make about the future success or viability of our internal
drug discovery programs may not be as accurate as they could be if we had a history of conducting clinical trials and developing our
own drug candidates.
In
addition, as our internal drug discovery business grows, we may encounter unforeseen expenses, difficulties, complications, delays, and
other known and unknown factors. Our internal drug discovery business may need to transition to a business capable of supporting clinical
development activities. We may not be successful in such a transition.
Our
approach to the discovery and development of drug candidates based on our microOrgan plates and our AnalytiX tools is novel and unproven,
and we do not know whether we will be able to develop any products of commercial value.
We
are leveraging our microOrgan plates and our AnalytiX tools to attempt to create a pipeline of drug candidates for patients whose diseases
have not been adequately addressed to date by other approaches, and to identify drug candidates with a higher likelihood of success in
clinical trials. While we believe that our technology may potentially enable drug research and clinical development that is more efficient
than conventional drug research and development, our approach is both novel and unproven. Because our approach is both novel and unproven,
the cost and time needed to discover our drug candidates is difficult to predict, and our efforts may not result in the discovery and
development of commercially viable medicines or therapies. We may also be incorrect about the effects of any drug candidates we pursue
on disease states, which may limit the utility of our approach or the perception of the utility of our approach. Furthermore, our estimates
of our defined patient populations available for study and treatment may be lower than expected, which could adversely affect our or
our partners’ ability to conduct clinical trials and may also adversely affect the size of any market for medicines we may license
for commercialization. Our approach may not result in time savings, higher success rates or reduced costs as we expect it to, and if
not, we may not attract collaborators or develop new drugs as quickly or cost effectively as expected and therefore we may not be able
to commercialize our approach as expected at this time.
We
may never realize return on our investment of resources and cash in our drug discovery collaborations.
We
intend to use our high-throughput drug screening on our microOrgan plate technology and use our data science-based AnalytiX tools to
quickly test and evaluate a drug for toxicity and efficacy. We believe such technologies, which we have developed at significant expense,
will provide us or our collaborators with valuable drug discovery insights. Our collaborators could include start-up, pre-commercial
biotechnology, in silico and large-scale pharmaceutical companies. When we engage in drug discovery with these collaborators,
we will strive to receive a mixture of upfront payments, including licensing fees, milestone-based fees, and ongoing royalty payments
in addition to any charges for in vivo, in vitro and in silico testing, and our SaaS services. However, we have not yet
been successful in generating any significant payments or contracts using this business model and may never be.
We
may never enter into any material drug discovery collaborations nor realize return on our investment of resources and cash in our drug
discovery collaborations. Drug discovery is complex, capital intensive and is prone to high failure rates and uncertain outcomes. Our
drug discovery collaborators may incur additional costs or experience delays in completing, or ultimately be unable to complete, the
development and commercialization of any drug candidates. In addition, our ability to realize return from our drug discovery collaborations
is subject to the following risks, among others:
● | drug
discovery collaborators have significant discretion in determining the amount and timing
of efforts and resources that they will apply to our collaborations and may not perform their
obligations as expected; |
● | drug
discovery collaborators may not pursue development or commercialization of any drug candidates
for which we are entitled to option fees, milestone payments, or royalties or may elect not
to continue or renew development or commercialization programs based on results of clinical
trials or other studies, changes in the collaborator’s strategic focus or available
funding, or external factors, such as an acquisition, that divert resources or create competing
priorities; |
● | drug
discovery collaborators may delay clinical trials for which we are entitled to milestone
payments; |
● | we
may not have access to, or may be restricted from disclosing, certain information regarding
our collaborators’ drug candidates being developed or commercialized and, consequently,
may have limited ability to inform our stockholders about the status of, and likelihood of
achieving, milestone payments or royalties under such collaborations; |
● | drug
discovery collaborators could independently develop, or develop with third parties, products
that compete directly or indirectly with any drug candidates and products for which we are
entitled to milestone payments or royalties if the collaborator believes that the competitive
products are more likely to be successfully developed or can be commercialized under terms
that are more economically attractive; |
● | drug
candidates discovered in drug discovery collaborations with us may be viewed by our collaborators
as competitive with their own drug candidates or products, which may cause our collaborators
to cease to devote resources to the commercialization of any such drug candidates; |
● | drug
discovery collaborators may begin to perceive us to be a competitor more generally, particularly
if we advance our internal drug discovery programs, and therefore may be unwilling to continue
then existing collaborations with us or to enter into new collaborations with us; |
● | a
drug discovery collaborator may fail to comply with applicable regulatory requirements regarding
the development, manufacture, distribution, or marketing of a drug candidate or product,
which may impact our ability to receive milestone payments; |
● | disagreements
with drug discovery collaborators, including disagreements over intellectual property or
proprietary rights, contract interpretation, or the preferred course of development, might
cause delays or terminations of the research, development, or commercialization of drug candidates
for which we are eligible to receive milestone payments, or might result in litigation or
arbitration; |
● | drug
discovery collaborators may not properly obtain, maintain, enforce, defend or protect our
intellectual property or proprietary rights or may use our proprietary information in such
a way as to potentially lead to disputes or legal proceedings that could jeopardize or invalidate
our or their intellectual property or proprietary information or expose us and them to potential
litigation; |
● | drug
discovery collaborators may infringe, misappropriate, or otherwise violate the intellectual
property or proprietary rights of third parties, which may expose us to litigation and potential
liability; |
● | drug
discovery collaborators could suffer from operational delays as a result of global health
impacts, such as the COVID-19 pandemic; and |
● | drug
discovery collaborations may be terminated prior to our receipt of any significant value
from the collaboration. |
Any
drug discovery collaborations we enter into may not lead to development or commercialization of drug candidates that results in our receipt
of fees, milestone payments, or royalties in a timely manner, or at all. If any drug discovery collaborations that we enter into do not
result in the successful development and commercialization of drug products that result in fees, milestone payments, or royalties to
us, we may not receive return on the resources we have invested in the drug discovery collaboration. Moreover, even if a drug discovery
collaboration initially leads to the achievement of milestones that result in payments to us, it may not continue to do so.
We
also will likely rely on collaborators for the development and potential commercialization of drug candidates we discover internally
when we believe it will help maximize the commercial value of the drug candidate. Such collaborators may not achieve the research, development,
regulatory and sales milestones for those development candidates that result in material payments to us.
We
may not be successful in our efforts to identify or discover drug candidates and may fail to capitalize on programs, collaborations,
or drug candidates that may present a greater commercial opportunity or for which there is a greater likelihood of success.
Research
programs to identify new drug candidates require substantial technical, financial human resources, and external expertise. As a newly
formed organization of existing technologies, we have not yet developed any drug candidates, and we may fail to identify potential drug
candidates for clinical development. Similarly, a key element of our business plan is to expand the use of our technology in drug discovery
collaborations with third parties. A failure to demonstrate the utility of our platform by successfully using it ourselves to discover
internal drug candidates could harm our business prospects.
Because
we have limited resources, we focus our research programs on diseases where we have some know-how and where we believe there is a meaningful
commercial opportunity, among other factors. The focus of our initial internal drug discovery programs is in the area of neurological
disorders including Rett Syndrome, CDLK5 Deficiency Disorder, and Parkinson’s Disease. We may forego or delay pursuit of opportunities
with certain programs, collaborations, or drug candidates or for indications that later prove to have greater commercial potential. However,
the development of any drug candidate we pursue may ultimately prove to be unsuccessful or less successful than another potential drug
candidate that we might have chosen to pursue on a more aggressive basis with our capital resources. If we do not accurately evaluate
the commercial potential for a particular drug candidate, we may relinquish valuable rights to that drug candidate through strategic
collaboration, partnership, licensing, or other arrangements in cases in which it would have been more advantageous for us to retain
development and commercialization rights to such drug candidate. Alternatively, we may allocate internal resources to a drug candidate
in a therapeutic area in which it would have been more advantageous to enter into a collaboration.
If
we are not able to establish or maintain collaborations to develop and commercialize any of the disease models we develop or drug candidates
we discover, we may have to alter our development and commercialization plans for those disease models and drug candidates and our business
could be adversely affected.
We
have not yet established license collaborations for our disease models and related AnalytiX tools. We expect to rely on future collaborators
for either the development of our disease models or leverage such licensed models for drug discovery. We face significant competition
in seeking appropriate collaborators for these activities, and a number of more established companies may also be pursuing such collaborations.
We
have also not yet identified any drug candidates or advanced any of our drug discovery programs past the discovery stage and into preclinical
studies or human clinical trials. We expect to rely on future collaborators for the development and potential commercialization of drug
candidates we discover internally when we believe it will help maximize the commercial value of the drug candidate. We face significant
competition in seeking appropriate collaborators for these activities, and a number of more established companies may also be pursuing
such collaborations. These established companies may have a competitive advantage over us due to their size, financial resources, and
greater clinical development and commercialization expertise. Whether we reach a definitive agreement for such collaborations 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 preclinical studies and clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United
States, the potential market for the subject drug candidate, the costs and complexities of manufacturing and delivering such drug 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 drug candidates or technologies for similar indications that may be available to collaborate
on and whether such a collaboration could be more attractive than the one with us for our drug candidate. Collaborations are complex
and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among
large biopharmaceutical companies that have resulted in a reduced number of potential future collaborators.
If
we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms or at all, we may have to curtail
the development of a drug candidate, reduce, or delay its development program or one or more of our other development programs, or increase
our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development
or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available
to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake
the necessary development and commercialization activities, we may not be able to further develop any drug candidates or bring them to
market.
Our
drug discovery collaborators will have significant discretion in determining when to make announcements, if any, about the status of
our collaborations, including about clinical developments and timelines for advancing collaborative programs, and the price of our common
stock may decline as a result of announcements of unexpected results or developments.
Our
drug discovery collaborators will have significant discretion in determining when to make announcements about the status of our collaborations,
including about preclinical and clinical developments and timelines for advancing the collaborative programs. While as a general matter
we intend to periodically report on the status of our collaborations, our drug discovery collaborators may wish to report such information
more or less frequently than we intend to or may not wish to report such information at all unless legally required to do so. The price
of our common stock may decline as a result of the public announcement of unexpected results or developments in our collaborations or
as a result of our collaborators withholding such information.
If
any current or future collaborators are unable to successfully complete clinical development, obtain regulatory approval for, or commercialize
any drug candidates, or experience delays in doing so, our business may be materially harmed.
The
success of any current or future collaborators’ development and commercialization programs will depend on several factors associated
with our collaborators’ operations, including the following:
● |
acceptable
data based on in vitro or in silico screenings; |
● |
acceptable
data at the completion of necessary preclinical studies to enable the initiation of clinical trials; |
● |
successful
enrollment of patients in, and the completion of, the clinical trials; |
● |
acceptance
by the FDA or other regulatory agencies of regulatory filings for any drug candidates we and our current or future collaborators
may develop; |
● |
expanding
and maintaining a workforce of experienced scientists and others to continue to develop any drug candidates; |
● |
obtaining
and maintaining intellectual property protection and regulatory exclusivity for any drug candidates we and our current or future
collaborators may develop; |
● |
making
arrangements with third-party manufacturers for, or establishing, clinical and commercial manufacturing capabilities; |
● |
establishing
sales, marketing, and distribution capabilities for drug products and successfully launching commercial sales, if and when approved; |
● |
acceptance
of any drug candidates we and our current or future collaborators may develop, if and when approved, by patients, the medical community,
and third-party payors; |
● |
effectively
competing with other therapies; |
● |
obtaining
and maintaining coverage, adequate pricing, and adequate reimbursement from third-party payors, including government payors; |
● |
patients’
willingness to pay out-of-pocket in the absence of coverage and/or adequate reimbursement from third-party payors; or |
● |
maintaining
a continued acceptable safety profile following receipt of any regulatory approvals. |
Many
of these factors are beyond our control, including clinical outcomes, the regulatory review process, potential threats to our intellectual
property rights, and the manufacturing, marketing, and sales efforts of any current or future collaborator. Clinical drug development
involves a lengthy and expensive process, with an uncertain outcome. If we or our current or future collaborators are unable to develop,
receive marketing approval for, and successfully commercialize any drug candidates, or if we or they experience delays as a result of
any of these factors or otherwise, we may need to spend significant additional time and resources, which would adversely affect our business,
prospects, financial condition, and results of operations.
The
use of any of our drug candidates in clinical trials may expose us to liability claims, which may cost us significant amounts of money
to defend against or pay out, causing our business to suffer.
The
nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of our drug candidates.
If any of our drug candidates enter clinical trials or become marketed products, they could potentially harm people or allegedly harm
people possibly subjecting us to costly and damaging product liability claims. Some of the patients who participate in clinical trials
are already ill when they enter a trial or may intentionally or unintentionally fail to meet the exclusion criteria. The waivers we obtain
may not be enforceable and may not protect us from liability or the costs of product liability litigation. Although we intend to obtain
product liability insurance that we believe is adequate, we are subject to the risk that our insurance will not be sufficient to cover
claims. The insurance costs along with the defense or payment of liabilities above the amount of coverage could cost us significant amounts
of money and management distraction from other elements of the business, causing our business to suffer.
Clinical
trials are expensive, time-consuming and difficult to design and implement, and have traditionally had high attrition.
Before
obtaining marketing approval from the FDA or other comparable foreign regulatory authorities for the sale of our drug candidates, we
or our collaborators must complete preclinical development and extensive clinical trials to demonstrate the safety and efficacy of our
drug candidates. We currently plan to design, fund and operate Phase 1 clinical trials and the license our drug candidates and rely on
our collaboration partners to undertake future clinical trial funding and related activities. Clinical testing is expensive and can take
many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. We
and our collaborators may experience delays in their clinical trials and it is unknown whether clinical trials will begin on time, need
to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety
of reasons, including delays related to:
● | we
and our collaboration partner’s funding and operational execution; |
● | regulatory
requirements for prolonged in vivo dosing regimens due to proposed treatment protocols; |
● | the
FDA or comparable foreign regulatory authorities requiring additional preclinical assessment
of the candidate or disagreeing as to the design or implementation of clinical studies; |
● | obtaining
regulatory authorizations to commence a trial or consensus with regulatory authorities on
trial designs; |
● | reaching
agreement on acceptable terms with prospective contract research organizations, or CROs,
and clinical trial sites, the terms of which can be subject to extensive negotiation and
may vary significantly among different CROs and trial sites; |
● | diversion
of healthcare resources to combat epidemics, such as the COVID-19 pandemic; |
● | obtaining
institutional review board, or IRB, approval at each site, or independent ethics committee,
or IEC, approval at any sites outside the United States; |
● | dependence
on the needs and timing of third-party collaborators; |
● | changes
to clinical trial protocols; |
● | recruiting
suitable patients to participate in a trial in a timely manner and in sufficient numbers; |
● | clinical
sites deviating from trial protocol or dropping out of a trial; |
● | addressing
patient safety concerns that arise during the course of a trial; |
● | having
patients complete a trial or return for post-treatment follow-up; |
● | imposition
of a clinical hold by regulatory authorities, including as a result of unforeseen safety
issues or side effects or failure of trial sites to adhere to regulatory requirements; |
● | the
occurrence of serious adverse events in trials of the same class of agents conducted by other
companies or institutions; |
● | subjects
choosing an alternative treatment for the indications for which we are developing our drug
candidates, or participating in competing trials; |
● | adding
a sufficient number of clinical trial sites; |
● | manufacturing
sufficient quantities of a drug candidate for use in clinical trials; |
● | challenges
in transporting the drug candidate to investigation sites; |
● | lack
of adequate funding to continue the clinical trial; |
● | selection
of clinical end points that require prolonged periods of clinical observation or analysis
of the resulting data; |
● | failure
to meet deadlines for annual reports or untimely review of reports by regulators; |
● | a
facility manufacturing our drug candidates or any of their components being ordered by the
FDA or comparable foreign regulatory authorities to temporarily or permanently shut down
due to violations of current good manufacturing practice, or cGMP, regulations or other applicable
requirements, or infections or cross-contaminations of drug candidates in the manufacturing
process; |
● | any
changes to the manufacturing process that may be necessary or desired; |
● | third-party
clinical investigators losing the licenses or permits necessary to perform the clinical trials,
not performing clinical trials on anticipated schedule or consistent with the clinical trial
protocol, good clinical practice, or GCP, or other regulatory requirements; or |
● | third-party
contractors not performing data collection or analysis in a timely or accurate manner; or
third-party contractors providing poor quality data that requires extensive cleansing; or
third-party contractors becoming debarred or suspended or otherwise penalized by the FDA
or other government or regulatory authorities for violations of regulatory requirements or
of the US Foreign Corrupt Practices Act while conducting non-US trials, in which case we
or our collaborators may need to find a substitute contractor, and we or our collaborators
may not be able to use some or all of the data produced by such contractors in support of
our marketing applications. |
In
addition, disruptions caused by the COVID-19 pandemic or other public health crises may increase the likelihood that our collaborators
encounter such difficulties or delays in initiating, enrolling, conducting or completing clinical trials or research and development.
Our collaborators could encounter delays if a clinical trial is suspended or terminated by them, by the IRBs (or IECs) of the institutions
in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory
authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the
clinical trial in accordance with regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial
site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side
effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of
adequate funding to continue the clinical trial. Furthermore, our collaborators may rely on CROs and clinical trial sites to ensure the
proper and timely conduct of clinical trials and, while there may be agreements governing these activities, our collaborators would have
limited influence over their actual performance.
Further,
conducting clinical trials in foreign countries, as our collaborators may do for our current and future drug candidates, presents additional
risks that may delay completion of clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere
to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens
associated with foreign regulatory schemes, failure to account for foreign currency exchange rates in budgeting and financial considerations,
customs and trade practices in the shipment of drug substances, as well as political and economic risks relevant to such foreign countries.
If
we or our collaborators experience delays in the completion of, or termination of, any clinical trial of our drug candidates, the commercial
prospects of our drug candidates will be harmed, and our ability to generate product and/or license revenue from any of these drug candidates
will be delayed. In addition, any delays in completing clinical trials will increase our collaborators’ costs, slow down our drug
candidate development and approval process and jeopardize the ability to commence product sales and generate revenue. Any of these occurrences
may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay
in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our drug candidates.
We
and our collaborators will depend on enrollment of patients in their clinical trials in order to continue development of our drug candidates.
If they are unable to enroll patients in those clinical trials, our and their research and development efforts could be adversely affected.
The
timely completion of clinical trials in accordance with their protocols depends, among other things, on our collaborators’ ability
to enroll a sufficient number of patients who remain in the study until its conclusion. Our collaborators may experience difficulties
in patient enrollment in their clinical trials for a variety of reasons. Patient enrollment is affected by many factors including the
size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design
of the clinical trial, the size of the patient population required for analysis of the trial’s primary endpoints, the proximity
of patients to study sites, our collaborators’ ability to recruit clinical trial investigators with the appropriate competencies
and experience, our collaborators’ ability to obtain and maintain patient consents, the risk that patients enrolled in clinical
trials will drop out of the trials before completion, and competing clinical trials and clinicians’ and patients’ perceptions
as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be
approved for the indications we are investigating. Our collaborators’ ability to enroll patients in clinical trials may be impacted
by governmental restrictions and diversion of healthcare resources resulting from the COVID-19 pandemic. Many pharmaceutical companies
may conduct clinical trials in patients with the disease indications that our potential drug products may target. As a result, we and
our collaborators may need to compete with them for clinical sites, physicians and the limited number of patients who fulfill the stringent
requirements for participation in clinical trials. Also, due to the confidential nature of clinical trials, it is unknown how many of
the eligible patients may be enrolled in competing studies and who are consequently not available for our collaborators’ clinical
trials. Our Phase 1 clinical trials or our collaborators’ clinical trials may be delayed or terminated due to the inability to
enroll enough patients. The delay or inability to meet planned patient enrollment may result in increased costs and delay or termination
of the trials, which could have a harmful effect on our and our collaborators’ ability to develop products.
The
regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, expensive and inherently challenging,
and if we or our collaborators are ultimately unable to obtain regulatory approval for our drug candidates, our business could be significantly
limited.
The
time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following
the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities.
The results of preclinical studies and early clinical trials of our drug candidates may not be predictive of the results of later-stage
clinical trials. Drug candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having
progressed through preclinical studies and initial clinical trials. It is common for companies in the biopharmaceutical industry to suffer
significant setbacks in advanced clinical trials due to nonclinical findings made while clinical studies were underway and safety or
efficacy observations made in clinical studies, including previously unreported adverse events. Our collaborators’ future clinical
trial results may not be successful, and notwithstanding any potential promising results in earlier studies, we cannot be certain that
we and our collaborators’ will not face similar setbacks. The historical failure rate for drug candidates in our industry is high.
In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the
course of a drug candidate’s clinical development, is subject to individual or review panel interpretation, and may vary among
jurisdictions. We have not obtained regulatory approval for any drug candidate and it is possible that none of our existing drug candidates
or any drug candidates we may seek to develop in the future will ever obtain regulatory approval.
Our
drug candidates could fail to receive regulatory approval for many reasons, including the following:
● | the
FDA or comparable foreign regulatory authorities may disagree with the design or implementation
of our collaborators’ clinical trials; |
● | we
or our collaborators’ may be unable to demonstrate to the satisfaction of the FDA or
comparable foreign regulatory authorities that a drug candidate is safe and effective for
its proposed indication; |
● | the
results of clinical trials may not meet the level of statistical significance required by
the FDA or comparable foreign regulatory authorities for approval; |
● | the
FDA or comparable foreign regulatory authorities may disagree with our or our collaborators’
interpretation of data from preclinical studies or clinical trials; |
● | the
data collected from clinical trials of our drug candidates may not be sufficient to support
the submission of an New Drug Application (NDA), or Biologics License Application (BLA),
or other submission or to obtain regulatory approval in the United States or elsewhere; the
FDA or comparable foreign regulatory authorities may disagree that changes to branded reference
drugs meet the criteria for the 505(b)(2) regulatory pathway or foreign regulatory pathways
such as the hybrid medicinal product pathway; |
● | the
FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes
or facilities of third-party manufacturers with which we or our collaborators contract for
clinical and commercial supplies; and |
● | the
approval policies or regulations of the FDA or comparable foreign regulatory authorities
may significantly change in a manner rendering clinical data insufficient for approval. |
The
lengthy approval process as well as the unpredictability of future clinical trial results may result in our or our collaborators failing
to obtain regulatory approval to market our drug candidates, which would significantly harm our business, results of operations and prospects.
In
addition, even if we were to obtain approval, regulatory authorities may approve any of our potential drug candidates for fewer or more
limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on
the performance of costly post-marketing clinical trials, may approve a drug candidate with a label that does not include the labeling
claims necessary or desirable for the successful commercialization of that drug candidate, may classify our drug candidates in a way
that hinders market acceptance, and/or may restrict distribution of our approved drugs. Any of the foregoing scenarios could materially
harm the commercial prospects for our potential drug candidates.
We
have not previously submitted an NDA or BLA to the FDA or similar drug approval filings to comparable foreign authorities, for any drug
candidate, and we cannot be certain that any of our drug candidates will be successful in clinical trials or receive regulatory approval.
Further, our drug candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive
regulatory approvals for our drug candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory
approvals to market one or more of our drug candidates, our revenue will be dependent, in part, upon the size of the markets in the
territories for which we gain regulatory approval and have commercial rights. If the markets for patients that we or our collaborators
are targeting for our drug candidates are not as significant as we estimate, we may not generate significant revenue from sales of such
products, if approved.
We
may plan to seek regulatory approval to commercialize our drug candidates in the United States, the European Union, and in additional
foreign countries. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many
other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and
governing, among other things, clinical trials and commercial sales, pricing and distribution of our drug candidates, and we cannot predict
success in these jurisdictions.
Our
success depends upon achieving a critical mass of customers and strategic relationships.
Our
success is dependent upon achieving significant market acceptance and strategic relationships. To date, we have achieved only limited
market acceptance and formed only limited strategic relationships. We do not know whether we will be able to create all the customer
and strategic relationships necessary to make our business model function.
The
degree of market acceptance and adoption of our products will depend on a number of factors, including cost, potential efficacy and potential
advantages over alternatives, ease of use and quality, the strength of marketing and distribution support and timing of market introduction
of competitive products and services, publicity concerning our products and services or competing products and services or the standards
of our competitors who are trying to improve on their own stem cell development technologies. Another risk of adoption is changes in
the allocated spending by these companies as our products come online, which is unpredictable and could hurt our business. Other changes
in the healthcare landscape, including current treatments and reimbursements, will impact interest in adopting our technology.
Even
if a product or service displays a favorable efficacy in development, market acceptance of the product or service will not be known until
after it is launched. Our efforts to educate the medical community on the benefits of our products and services may require significant
resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional
technologies marketed by our competitors, particularly due to the novelty of our approach. If these products do not achieve an adequate
level of acceptance, we may not generate significant product revenue and may not become profitable.
Any
investigation of our customers could damage our business.
From
time to time, one or more of our customers may be audited or investigated by regulatory authorities or enforcement agencies with respect
to regulatory compliance of their clinical trials, programs or the marketing and sale of their drugs. There is a risk that either our
customers or regulatory authorities could claim that we performed services improperly or that we are responsible for clinical trial or
program compliance. If our customers or regulatory authorities make such claims against us and prove them, we could be subject to damages,
fines or penalties. In addition, negative publicity regarding regulatory compliance of customers’ clinical trials, programs or
drugs could have an adverse effect on our business and reputation.
We
may acquire other businesses or make investments in other companies or technologies that could harm operating results, dilute its stockholders’
ownership, increase debt or cause us to incur significant expense.
As
part of our business strategy, we may pursue other mergers or acquisitions of businesses and assets. If we make any acquisitions, we
may not be able to integrate these acquisitions successfully into existing business, and could assume unknown or contingent liabilities.
Any future acquisitions also could result in significant write-offs or the incurrence of debt and contingent liabilities, any of which
could have a material adverse effect on our financial condition, results of operations and cash flows. Integration of an acquired company
also may disrupt ongoing operations and require management resources that would otherwise focus on developing existing business. We may
experience losses related to investments in other companies, which could have a material negative effect on the results of operations.
We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and may not realize the
anticipated benefits of any acquisition, technology license, strategic alliance or joint venture.
To
finance any mergers or acquisitions, we may choose to issue shares of common stock as consideration, which would dilute the ownership
of its stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other companies using stock as
consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings.
Additional funds may not be available on terms that are favorable to us, or at all.
If
our laboratory facilities become damaged or inoperable, or we are required to vacate any facility, the ability to provide services may
be jeopardized.
We
currently derive substantially all revenue from preclinical services. Our facilities and equipment could be harmed or rendered inoperable
by natural or man-made disasters, including fire, flooding and power outages, which may render it difficult or impossible for us to perform
tests or provide laboratory services for some period of time. The inability to perform services or the backlog of projects that could
develop if any of our facilities is inoperable for even a short period of time may result in the loss of customers or harm to our reputation
or relationships with key researchers, collaborators, and customers, and we may be unable to regain those customers or repair our reputation
in the future. Furthermore, our facilities and the equipment used to perform research and development work could be costly and time-consuming
to repair or replace.
If
we use biological and hazardous materials in a manner that causes injury, we could be liable for damages.
Our
activities currently require the controlled use of potentially harmful biological materials and hazardous materials and chemicals. We
cannot eliminate the risk of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal
of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could
exceed our resources or any applicable insurance coverage we may have. Additionally, we are subject to, on an ongoing basis, federal,
state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products.
The cost of compliance with these laws and regulations may become significant and could have a material adverse effect on the financial
condition, results of operations and cash flows. In the event of an accident or if we otherwise fail to comply with applicable regulations,
we could lose permits or approvals or be held liable for damages or penalized with fines.
Cyber-attacks
or other failures in telecommunications or information technology systems could result in information theft, data corruption and significant
disruption of our business operations.
We
depend on information technology and telecommunications systems for significant aspects of operations. These information technology and
telecommunications systems support a variety of functions, including test processing, sample tracking, quality control, customer service
and support, billing, and general and administrative activities. Information technology and telecommunications systems are vulnerable
to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. In
May of 2019, an unknown individual gained unauthorized access to the then StemoniX chief executive officer’s email account and
fraudulently sent an email instructing an employee to wire company funds to a bank account. As a result of this breach, we suffered financial
loss of $109,000. In response, StemoniX implemented additional information technology security precautions, including enhanced e-mail
security software, employee training, verbal acknowledgement of requests for payment and dual authorization payment controls at a new
bank, as well as hired our current Chief Financial Officer. However, we can provide no assurances that a cyber-attack or security breach
will not occur again. If we are subjected to one or more cyber-attacks or security breaches, we would suffer additional financial loss.
Furthermore, as use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized
access to computer systems and networks, have increased in frequency and sophistication and make us even more at risk. These threats
pose a risk to the security of our systems and networks, the confidentiality and the availability and integrity of our data. Any disruption
or loss of information technology or telecommunications systems on which critical aspects of our operations depend could have an adverse
effect on business.
Our
results of operations may be adversely affected if we fail to realize the full value of our assets.
We
assess the realizable condition of goodwill annually and conducts an interim evaluation of these assets as well as amortizing indefinite-lived
intangible assets whenever events or changes in circumstances, such as operating losses or a significant decline in earnings associated
with the acquired business or asset, indicate that these assets may be impaired. In connection with the Merger and in accordance with
US GAAP, we recorded $9.5 million of amortizing intangible assets and $22.0 million of goodwill based on the fair value of the
Cancer Genetic’s outstanding common stock, stock options and warrants on the day of the Merger. All of the amortizing intangible
assets and goodwill were allocated to the vivoPharm business. During the fourth quarter of 2021, we commenced a process to sell
our vivoPharm business and reclassified its operations as discontinuing operations. Upon this change in classification,
we recorded an impairment charge of $20.2 million to reflect the estimated net proceeds from the sale of this business. Our ability
to realize the carrying value of the vivoPharm business recorded as of December 31, 2021 will depend on the future
cash flows from the sale of the vivoPharm business. If we are not able to realize the value of the goodwill and indefinite-lived
intangible assets, we may be required to incur additional material charges relating to the impairment of those assets. Such impairment
charges could materially and adversely affect our operating results and financial condition.
Our
business model and technology are evolving and unproven.
Our
historic StemoniX business model is relatively new, unproven, and likely to continue to evolve. Accordingly, our business model may not
be successful, and it may need to be changed. Our ability to generate significant revenue will depend, in large part, on its ability
to successfully market its products. We intend to continue to develop our business model as the market for our products and services
continues to evolve.
In
addition, the technology our business model depends on is rapidly changing. Our current model is based on current knowledge and technologies
in stem cell sciences, which change frequently. These changes may soon cause our current model to be less relevant, decreasing potential
business revenue.
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 as well as known and novel therapeutic drug candidates. 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. Furthermore, environmental laws and regulations
are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain
of our future compliance. 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.
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 or other work-related injuries, this insurance may not provide adequate coverage against
potential liabilities. 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 or liabilities,
which could materially adversely affect our business, financial condition, results of operations and prospects.
Future
governmental regulation or lack of regulatory approvals of the industry could affect our business.
Legislative
and regulatory proposals are continuously under consideration by federal, state, local, and foreign governmental organizations, and it
is possible that laws or regulations may exist or may be adopted with respect to our industry. The adoption of any such laws or regulations
may decrease the growth in the use of our products, our ability to attract and retain personnel, increase our cost of doing business,
or otherwise have a material adverse effect on our business. Regulatory changes or failure to comply with existing regulations could
adversely affect our business and financial condition and results of operations. We may need to obtain regulatory approvals in the use
of stem cells and our other technologies and may not receive these approvals. We also may not receive approvals for our potential therapeutic
applications. We would be unable to act without approval, as that would be a regulatory violation and expose the business to significant
liability.
We
are exposed to the risks of natural and man-made catastrophes, pandemics and malicious and terrorist acts that could materially adversely
affect our business, financial condition and results of operations.
Natural
and man-made catastrophes, pandemics, and malicious and terrorist acts present risks that could materially adversely affect our results
of operations. While we have taken steps to identify and mitigate these risks, such risks cannot be predicted, nor fully protected against
even if anticipated. In addition, such events could result in overall macroeconomic volatility or specifically a decrease or halt in
economic activity in large geographic areas, adversely affecting the marketing or operation of our business within such geographic areas
or the general economic climate, which in turn could have an adverse effect on our business, operations and financial condition.
In
particular, the COVID-19 outbreak, which has been declared a global pandemic by the World Health Organization, has significantly and
negatively impacted financial markets and economic conditions in the United States and globally. As a result, our operations have been,
and may be further, negatively impacted. Consequently, our business, financial condition and results of operations has been, and could
be further, significantly and adversely affected.
Our ability to obtain
compounds used for drug discovery and development could be affected as a result of the tensions between Ukraine and Russia.
Certain of our collaborators purchase a significant
portion of their supply of systemized compounds used for drug discovery and development from a supplier headquartered in Ukraine.
Tensions between Ukraine and Russia have escalated in recent months, culminating in Russia’s recent invasion of Ukraine. Continued
escalation of political tensions, economic instability, military activity or civil hostilities in Ukraine could disrupt our ability to
obtain these compounds on a timely basis or at all. If we and our collaborators are unable to continue to obtain supplies from Ukraine
or secure one or more replacement suppliers capable of production at a substantially equivalent cost, our developmental efforts could
be delayed and our costs increased, and our business, financial condition and results of operation could be adversely affected.
Risks
Related to vivoPharm
We
may not be able to sell the vivoPharm business and/or any sales we consummate may not produce the desired results.
During the year ended December 31, 2021, we
committed to a plan to sell the vivoPharm business as we believe it is in the best interest of our stockholders. As a result,
the vivoPharm business been classified as discontinuing operations in the consolidated financial statements in this
Annual Report on Form 10-K. As of December 31, 2021, our net assets held for sale totaled $9.4 million, excluding
cash. See Note 3 – Discontinuing Operations to the consolidated financial statements in this Annual
Report on Form 10-K for more information.
We
can provide no assurances that we will successfully sell the vivoPharm business, that we will do so in accordance with our expected
timeline or that we will recover the carrying value of the assets. Additionally, any decisions made regarding our deployment or use of
any sales proceeds we receive in any sale involves risks and uncertainties. As a result, our decisions with respect to such proceeds
may not lead to increased long-term stockholder value, or may result in a material charge to our statement of operations.
A
number of factors will impact the sales price of the vivoPharm business which are outside our control, therefore,
there can be no assurance that the vivoPharm business can be sold for a price that in our opinion reflects its fair value.
If a sale of the vivoPharm business at what we consider to be a reasonable price is not available, we may decide to cease efforts
to sell the vivoPharm business and would be required to again reflect the vivoPharm business as part of our continuing
operations for financial accounting and reporting purposes. Such a change would also require us to restate our financial statements retroactively
for all reportable periods, which would change the information being reported herein. Because vivoPharm incurred an operating
loss for fiscal 2021, such a change would negatively affect our fiscal 2021 results from continuing operations.
Our
discovery services customers face intense competition from lower cost generic products, which may lower the amount that they spend on
our services.
Our
discovery service customers face increasing competition from lower cost generic products, which in turn may affect their ability to pursue
research and development activities with us. In the United States, EU and Japan, political pressure to reduce spending on prescription
drugs has led to legislation and other measures which encourages the use of generic products. In addition, proposals emerge from time
to time in the United States and other countries for legislation to further encourage the early and rapid approval of generic drugs.
Loss of patent protection for a product typically is followed promptly by generic substitutes, reducing customers’ sales of that
product and their overall profitability. Availability of generic substitutes for our customers’ drugs may adversely affect their
results of operations and cash flow, which in turn may mean that they would not have surplus capital to invest in research and development
and drug commercialization, including in our services. If competition from generic products impacts customers’ finances such that
they decide to curtail our services, revenue may decline and this could have a material adverse effect on our business.
The
potential loss or delay of our large contracts or of multiple contracts could adversely affect results.
Most
of our discovery services customers can terminate the contracts upon 30 to 90 days’ notice. These customers may delay, terminate
or reduce the scope of the contracts for a variety of reasons beyond our control, including but not limited to:
● | decisions
to forego or terminate a particular clinical trial; |
● | lack
of available financing, budgetary limits or changing priorities; |
● | failure
of products being tested to satisfy safety requirements or efficacy criteria; |
● | unexpected
or undesired clinical results for products; or |
● | shift
of business to a competitor or internal resources. |
As
a result, contract terminations, delays and alterations are a possible outcome in our discovery services business. In the event of termination,
the contracts often provide for fees for winding down the project, but these fees may not be sufficient for us to maintain margins, and
termination may result in lower resource utilization rates. In addition, we may not realize the full benefits of the backlog of contractually
committed services if customers cancel, delay or reduce their commitments under our contracts with them, which may occur if, among other
things, a customer decides to shift its business to a competitor or revoke our status as a preferred provider. Thus, the loss or delay
of a large contract or the loss or delay of multiple contracts could adversely affect our revenue and profitability. We believe the
risk of loss or delay of multiple contracts potentially has greater effect where we are party to broader partnering arrangements with
global biopharmaceutical companies.
Our
financial results may be adversely affected if we underprice contracts, overruns cost estimates or fails to receive approval for or experience
delays in documenting change orders.
Most
of the discovery services contracts are either fee for service contracts or fixed-fee contracts. Our past financial results have been,
and future financial results may be, adversely impacted if we initially underprice contracts or otherwise overrun cost estimates
and is unable to successfully negotiate a change order. Change orders can occur when the scope of work we perform need to be modified
from that originally contemplated by the contract with the customer and are typically treated as new projects. Modifications can occur,
for example, when there is a change in a key clinical trial assumption or parameter or a significant change in timing. Where we are not
successful in converting out-of-scope work into change orders under current contracts, we bear the cost of the additional work. Such
underpricing, significant cost overruns or delay in documentation of change orders could have a material adverse effect on our business,
results of operations, financial condition or cash flows.
If
we fail to perform the services in accordance with contractual requirements, regulatory standards and ethical considerations, we could
be subject to significant costs or liability and our reputation could be harmed.
In
connection with the discovery services business, we contract with biopharmaceutical companies to provide specialized services to assist
them in planning and conducting unique, specialized studies to guide drug discovery and development programs with a concentration in
oncology and immuno-oncology. Our services include managing pre-clinical trials, data and laboratory analysis, electronic data capture
and other related services. Such services are complex and subject to contractual requirements, regulatory standards and ethical considerations.
If we fail to perform the services in accordance with these requirements, regulatory agencies may take action against us for failure
to comply with applicable regulations governing clinical trials. Customers may also bring claims against us for breach of contractual
obligations. Any such action could have a material adverse effect on results of operations, financial condition and reputation.
The
performance of clinical development services is complex and time-consuming. For example, we may make mistakes in conducting a clinical
trial that could negatively impact or obviate the usefulness of the clinical trial or cause the results of the clinical trial to be reported
improperly. If the clinical trial results are compromised, we could be subject to significant costs or liability, which could have an
adverse impact on the ability to perform services. As examples:
● | non-compliance
generally could result in the termination of ongoing clinical trials or sales and marketing
projects or the disqualification of data for submission to regulatory authorities; |
● | compromise
of data from a particular clinical trial, such as failure to verify that informed consent
was obtained from patients, could require us to repeat the clinical trial under the terms
of the contract at no further cost to the customer, but at a substantial cost to us; and |
● | breach
of a contractual term could result in liability for damages or termination of the contract. |
While
we endeavor to contractually limit exposure to such risks, improper performance of our services could have an adverse effect on our financial
condition, damage reputation and result in the cancellation of current contracts by or failure to obtain future contracts from the affected
customer or other customers.
In
our preclinical CRO business unit doing early-stage discovery work we conduct testing on animals, which could subject us to disruptions
by animal rights activists, and we are subject to laws and standards dealing with animal testing, each of which could affect our business
negatively.
Our
Pennsylvania and Australia research laboratory facilities comply with Good Laboratory Practices (“GLP”) to the extent required
by the FDA, Environmental Protection Agency, USDA, Organization for Economic Co-operation and Development (“OECD”),
as well as other international regulatory agencies. Furthermore, our early-stage discovery work, which is not subject to GLP standards,
is typically carried out under a quality management system or internally developed quality systems. Our facilities are regularly inspected
by U.S. and other regulatory compliance monitoring authorities, its clients’ quality assurance departments, and its own internal
quality assessment program. We are also accredited by American Association for
Accreditation of Laboratory Animal Care (“AAALAC”) International, a private, nonprofit organization that promotes
the humane treatment of animals in science through voluntary accreditation and assessment programs. We volunteer to participate in the
AAALAC’s program to demonstrate its commitment to responsible animal care and use, in addition to its compliance with local, state
and federal laws that regulate animal research.
Animal
rights group, such as People for the Ethical Treatment of Animals (“PETA”) have in the past targeted scientific research,
which, if targeted at us or our customers, could affect our business.
International
expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing
business outside of the United States.
Our
business strategy incorporates international expansion, including recent acquisitions which have provided facilities in Australia, and
the possibility of establishing and maintaining other locations outside of the United States and expanding relationships with biopharmaceutical,
academic and governmental research organizations. Doing business internationally involves a number of risks, including:
● | multiple,
conflicting and changing laws and regulations such as tax and transfer pricing laws, export
and import restrictions, employment laws, regulatory requirements and other governmental
approvals, permits and licenses; |
● | being
subject to additional privacy and cybersecurity laws, including the Australian Privacy Act
of 1988; |
● | failure
by us or our distributors to obtain regulatory approvals for the sale or use of tests in
various countries, including failure to achieve “CE Marking”, a conformity mark
which is required to market in vitro diagnostic medical devices in the European Economic
Area and which is broadly accepted in other international markets; |
● | difficulties
in managing foreign operations; |
● | financial
risks, such as longer payment cycles, difficulty enforcing contracts and collecting accounts
receivable and exposure to foreign currency exchange rate fluctuations; |
● | reduced
protection for intellectual property rights; |
● | natural
disasters, political and economic instability, including wars, terrorism and political unrest,
outbreak of disease, boycotts, curtailment of trade and other business restrictions; and |
● | failure
to comply with the Foreign Corrupt Practices Act (“FCPA”), including its books
and records provisions and its anti-bribery provisions, by maintaining accurate information
and control over sales and distributors’ activities. |
Any
of these risks, if encountered, could significantly harm future international expansion and operations and, consequently, have a material
adverse effect on our financial condition, results of operations and cash flows.
Our
operating results may be adversely affected by fluctuations in foreign currency exchange rates and restrictions on the deployment of
cash across global operations.
Although we report operating results in U.S. dollars,
a portion of our revenue and expenses are or will be denominated in currencies other than the U.S. dollar, particularly in Australia and
Europe. Fluctuations in foreign currency exchange rates can have a number of adverse effects on the Company. Because our consolidated
financial statements are presented in U.S. dollars, we must translate revenue, expenses and income, as well as assets and liabilities,
into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S.
dollar against other currencies will affect revenue, income from operations, other income (expense), net and the value of consolidated
balance sheet items originally denominated in other currencies. There is no guarantee that our financial results will not be adversely
affected by currency exchange rate fluctuations. In addition, in some countries we could be subject to strict restrictions on the movement
of cash and the exchange of foreign currencies, which could limit our ability to use these funds across its global operations.
We
could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws.
The
FCPA and anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments
for the purpose of obtaining or retaining business or other commercial advantage. Our policies mandate compliance with these anti-bribery
laws, which often carry substantial penalties, including criminal and civil fines, potential loss of export licenses, possible suspension
of the ability to do business with the federal government, denial of government reimbursement for products and exclusion from participation
in government health care programs. We may operate in jurisdictions that have experienced governmental and private sector corruption
to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with certain local customs and practices.
We cannot assure that the internal control policies and procedures always will protect us from reckless or other inappropriate acts committed
by affiliates, employees or agents. Violations of these laws, or allegations of such violations, could have a material adverse effect
on our business, financial position and results of operations.
Risks
Related to Our Dependence on Third Parties
We
expect that we will rely on third parties to assist us and our collaborators in conducting clinical trials for our drug candidates. If
these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory
approval for or commercialize our drug candidates and our business would be substantially harmed.
We
expect that we and our collaborators will enter into agreements with third-party CROs to assist our collaborators in conducting and managing
their clinical programs, including contracting with clinical sites to perform clinical studies. We and our collaborators may rely on
these parties for execution of clinical studies for our drug candidates, and they would control only certain aspects of conducting the
clinical studies. Nevertheless, our collaborators will be responsible for ensuring that each of their studies is conducted in accordance
with the applicable protocol, legal, regulatory and scientific standards, and their reliance on CROs and clinical sites will not relieve
them of their regulatory responsibilities. Such CROs will be required to comply with current Good Clinical Practices regulations, or
cGCPs, which are regulations and guidelines 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 these cGCP regulations
through periodic inspections of trial sponsors, principal investigators and trial sites. If our collaborators or their CROs fail to comply
with applicable cGCPs, the clinical data generated in clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory
authorities may require our collaborators to perform additional clinical trials before approving their marketing applications. We cannot
assure you that, upon inspection, the FDA will determine that any of the clinical trials comply with cGCPs. In addition, clinical trials
must be conducted with products produced under current Good Manufacturing Practices, or cGMP regulations and will require a large number
of test subjects. The failure of us, our collaborators, CROs or clinical sites to comply with these regulations may require them to repeat
clinical trials, which would delay the regulatory approval process and could also subject them to enforcement action up to and including
civil and criminal penalties.
Although
we expect our collaborators to design the clinical trials for our drug candidates in consultation with CROs, we expect that the CROs
will manage and assist our collaborators with the clinical trials conducted at contracted clinical sites. As a result, many important
aspects of our drug development programs would be outside of our collaborators’ direct control. In addition, the CROs and clinical
sites may not perform all of their obligations under arrangements with us or our collaborators or in compliance with regulatory requirements.
If the CROs or clinical sites do not perform clinical trials in a satisfactory manner, or if they breach their obligations to our collaborators
or fail to comply with regulatory requirements, the development and commercialization of our drug candidates for the subject indications
may be delayed or our development program materially and irreversibly harmed. We cannot control the amount and timing of resources these
CROs and clinical sites will devote to our program or our drug candidates. If our collaborators are unable to rely on clinical data collected
by CROs through the clinical research sites, our collaborators could be required to repeat, extend the duration of, or increase the size
of clinical trials, which could significantly delay commercialization and require significantly greater expenditures.
If
any of our collaborators’ relationships with these third-party CROs or clinical sites terminate, our collaborators may not be able
to enter into arrangements with alternative CROs or clinical sites. If CROs 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 clinical protocols, regulatory requirements or for other reasons, any such clinical trials
may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our drug
candidates. As a result, our financial results and the commercial prospects for our drug candidates would be harmed, our costs could
increase and our ability to generate revenue could be delayed.
We
expect that we will rely on third parties to assist us and our collaborators in formulation and manufacture of our drug candidates and
approved drugs. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not
be able to obtain regulatory approval for our drug candidates or commercialize approved drugs and our business would be substantially
harmed.
We
do not currently, nor do we expect in the future to, have expertise in the formulation and manufacturing of drug candidates for use in
clinical trials or commercial drug products. As such, we expect to engage a contract manufacturing organization (CMO) for the formulation,
production, packaging, and distribution of high-quality drug products in sufficient quantities for clinical trials and market entry.
These products must meet FDA and other regulatory authority standards for quality, strength, and potency. Regulatory authorities require
submission of manufacturing specification in the investigational new drug application (IND), which must adhere to quality standards and
be manufactured according to guidance on cGMP.
The
CMO is reliant on the availability of the active pharmaceutical ingredient (API) in sufficient quantities to meet the requirements for
the production of the specified dosage form for the clinical trial as well as subsequent manufacturing requirements for the marketed
drug. The CMO may manufacture the API in-house or contract with a third-party chemical manufacturer to supply the API in sufficient quantity.
If the CMO or the third-party API supplier are not able to produce the API or drug product because of scarcity of raw materials, manufacturing
equipment malfunction, manufacturing facility inoperability or damage, disruption of shipping or transport logistics, or other unplanned
for complications the approval of the IND will be delayed until a replacement CMO can be secured. Likewise, disruptions to the production
of the dosage form for marketed drug manufacture will delay the final approval of the NDA or BLA or will affect our ability to enter
the market. If the CMO fails to meet quality standards in the manufacture of the drug product for any reason, significant delays in the
availability of the product will adversely affect the availability of the marketed product.
We
require third-party relationships that may not provide needed services. If such collaborators or partners fail to perform as expected
the potential for us to generate future revenue from our technologies and products and services would be significantly reduced and our
business would be harmed.
Many
aspects of our business require third-party relationships, including but not limited to equipment, materials, technology, knowledge,
sales, business development and distribution. We also utilize a number of banking, payroll, enterprise software and computer applications,
and data storage that relay upon third-party vendors and cloud-based applications.
Specific
and unique material needs are human cells and co-factors to support the growth and development of those cells. These partners may not
allocate the resources, including time and capital, necessary to supply whatever is needed for our business. This and other issues may
require termination or conflict with partners that our business model depends upon. We have been sourcing a number of our lab supplies
from alternative suppliers due to product availability from our normal suppliers. For our StemoniX business, 384 well plates used to
grow microOrgans are in scarce supply to due to product availability and a lack of alternative suppliers.
Our
current and any future partnerships are subject to numerous risks, including:
● | partners
have significant discretion in determining the efforts and resources that they will apply
to the partnerships; |
● | partners
may not perform their obligations as expected or fail to fulfill their responsibilities in
a timely manner, or at all; |
● | we
may not have access to, or may be restricted from disclosing, certain information regarding
products or services being developed or commercialized under a partnership and, consequently,
may have limited ability to inform our shareholders about the status of such developments; |
● | partners
could independently develop, or develop with third parties, products that compete directly
or indirectly with ours if the collaborators believe that competitive products are more likely
to be successfully developed or can be commercialized under terms that are more economically
attractive than ours; |
● | products
or services developed with partners may be viewed by our partners as competitive with their
own products or services, which may cause partners to stop work on our behalf; or |
● | partners
may not properly maintain or defend our intellectual property rights or may use our proprietary
information in such a way as to invite litigation that could jeopardize or invalidate our
intellectual property or proprietary information or expose us to potential litigation. |
In
addition, certain partnership agreements provide our partners with rights to terminate such agreements, which rights may or may not be
subject to conditions, and which rights, if exercised, could adversely affect our product development efforts and could make it difficult
for us to attract new partners. In that event: we would likely be required to limit the size and scope of efforts for the development
and commercialization; we would likely be required to seek additional financing to fund further development or identify alternative strategic
collaborations; our potential to generate future revenue from royalties and milestone payments would be significantly reduced, delayed
or eliminated; and it could have an adverse effect on our business and future growth prospects.
If
conflicts arise with our partners, collaborators or licensors, they may act in their own self-interest, which may be adverse to the interests
of our Company.
We
may in the future experience disagreements with our partners, collaborators or licensors. Conflicts may arise in our collaboration and
license arrangements with third parties due to one or more of the following:
● | disputes
with respect to milestone or payments that are believed due under the applicable agreements; |
● | disagreements
with respect to the ownership of intellectual property rights or scope of licenses; |
● | disagreements
with respect to the scope of any obligations; |
● | unwillingness
on the part of a partner or collaborator to keep us informed regarding the progress of its
activities; and |
● | disputes
with respect to our efforts with respect to the agreement with a partner or collaborator. |
Conflicts
with our partners, collaborators or licensors could materially adversely affect our business, financial condition or results of operations
and future growth prospects.
A
partner may choose to violate confidentiality agreements or use knowledge of our business operations to compete, decreasing our potential
collaborators and increasing competition, which could lead to a loss of business revenue.
Our
reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them
or that our trade secrets will be misappropriated or disclosed.
Because
we collaborate with various organizations and academic institutions, we must, at times, share trade secrets with them. We seek to protect
our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative
research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior
to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use
or disclose our confidential information, such as trade secrets.
Despite
the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information
increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others,
or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and
trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive
position and may have a material adverse effect on our business. A competitor’s discovery of our trade secrets would impair our
competitive position and have an adverse impact on our business.
Intellectual
Property Risks Relating to Our Business
If
we are unable to obtain and maintain patent and other intellectual property protection for our products and processes, or if the scope
of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize
products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
Our
ability to compete effectively will depend, in part, on our ability to maintain the proprietary nature of our technology and processes.
We rely on know-how, patents, trade secrets, license agreements and contractual provisions to establish our intellectual property rights
and protect our products. These legal means, however, afford only limited protection and may not adequately protect our rights.
Through
our StemoniX subsidiary, we currently have twenty patent applications pending in the United States. The main risks related to these patent
applications is that the underlying patents will not be issued, or if they are issued, that the technology will still be used or challenged
by competitors. If the patents are issued and need to be defended from lawsuits, such defense would require significant time and financial
costs, and there is the risk of losing the challenge. In addition, we may not be issued similar patent rights throughout the world. These
risks apply to any of our trademarks as well. Furthermore, competitors may allege that our business infringes on their intellectual property.
If challenged, there will be legal costs and the risk of loss, even if such allegations are false.
Moreover,
the patent application and approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or
desirable patent applications at a reasonable cost or in a timely manner. Furthermore, we, or any future partners, collaborators, or
licensees, may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before
it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to seek additional patent protection.
If we fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated.
If there are material defects in the form, preparation, prosecution or enforcement of our patents or patent applications, such patents
may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents.
Even
if they are unchallenged, our patents and patent applications, if issued, may not provide us with any meaningful protection or prevent
competitors from designing around our patent claims by developing similar or alternative technologies in a non-infringing manner. For
example, a third party may develop a competitive technology that is similar to ours, but that falls outside the scope of our patent protection.
If the patent protection provided by the patents and patent applications we hold or pursue is not sufficiently broad to impede such competition,
our ability to successfully commercialize our technology could be negatively affected.
In
addition to patent protection, we expect to rely heavily on trade secrets, know-how and other unpatented technology, which are difficult
to protect. Although we seek such protection in part by entering into confidentiality agreements with our vendors, employees, consultants
and others who may have access to proprietary information, we cannot be certain that these agreements will not be breached, adequate
remedies for any breach would be available, or our trade secrets, know-how and other unpatented proprietary technology will not otherwise
become known to or be independently developed by our competitors. If we are unsuccessful in protecting our intellectual property rights,
sales of our products may suffer and our ability to generate revenue could be severely impacted.
Our
rights to use technologies licensed from third parties are not within our control and may we lose existing rights or may not be able
to obtain new rights on reasonable terms.
We
are heavily dependent on licensed in technology in order to operate our business. We license multiple patents and protocols from the
University of California, San Diego, as well as from (1) Academia Japan for technology that we need in order to create and sell induced
pluripotent stem cells, (2) ID Pharma for the Sendai virus vector technology, and (3) the Max Plank Innovation GmbH for mid-brain
organoid production. None of these licenses are exclusive. In addition, we may need to obtain additional licenses that are also non-exclusive.
The lack of exclusivity could decrease the barriers of entry for potential competitors. Additionally, if one or more of our license agreements
terminates, we may not be able to enter into new license agreements for comparable technology or on comparable terms.
If
our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our marks of interest
and our business may be adversely affected.
Our
trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks.
We rely on both registration and common law protection for our trademarks. We may not be able to protect our rights to these trademarks
and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in
our markets of interest. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity
to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in
many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered
trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings.
If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and
our business may be adversely affected.
We
may become involved in lawsuits or other proceedings to protect or enforce patents or other intellectual property rights, which could
be time-consuming and costly to defend, and could result in loss of significant rights and the assessment of treble damages.
From
time to time we may face intellectual property infringement (or misappropriation) claims from third parties. Some of these claims may
lead to litigation. The outcome of any such litigation can never be guaranteed, and an adverse outcome could affect us negatively. For
example, were a third-party to succeed on an infringement claim against the us, we may be required to pay substantial damages (including
up to treble damages if such infringement were found to be willful). In addition, we could face an injunction, barring us from conducting
the allegedly infringing activity. The outcome of the litigation could require us to enter into a license agreement which may not be
pursuant to acceptable or commercially reasonable or practical terms or which may not be available at all. It is also possible that an
adverse finding of infringement against us may require us to dedicate substantial resources and time in developing non-infringing alternatives,
which may or may not be possible. In the case of diagnostic tests, we would also need to include non-infringing technologies which would
require us to re-validate tests. Any such re-validation, in addition to being costly and time consuming, may be unsuccessful.
Furthermore,
we may initiate claims to assert or defend intellectual property against third parties. Any intellectual property litigation, irrespective
of whether we are the plaintiff or the defendant, and regardless of the outcome, is expensive and time-consuming, and could divert management’s
attention from our business and negatively affect operating results or financial condition. We may not be able to prevent, alone or with
third-party collaborators or suppliers, misappropriation of our proprietary rights, particularly in countries where the laws may not
protect those rights as fully as in the United States. In addition, interference proceedings brought by the USPTO may be necessary to
determine the priority of inventions with respect to patents and patent applications or those of our current or future collaborators,
suppliers or customers.
Finally,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential and proprietary information could be compromised by disclosure during this type of litigation. In addition, there
could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could have a substantial adverse effect on our financial condition.
We
may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming
ownership of what we regard as our own intellectual property.
Many
of our current and former employees, including our senior management, were previously employed at universities or at other biotechnology
or pharmaceutical companies, including some which may be competitors or potential competitors. Some of these employees may be subject
to proprietary rights, non-disclosure and non- competition agreements, or similar agreements, in connection with such previous employment.
Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may
be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary
information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims,
in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual
property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize
our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful
in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In
addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with
each party who in fact develops intellectual property that we regard as our own, which may result in claims by or against us related
to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims,
litigation could result in substantial costs and be a distraction to our senior management and scientific personnel.
Issued
patents covering our technology or products could be found invalid or unenforceable if challenged in court or in administrative proceedings.
We may not be able to protect our trade secrets in court.
If
we initiate legal proceedings against a third-party to enforce a patent, should such a patent issue, the defendant could counterclaim
that the patent covering is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity
or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements,
including lack of novelty, obviousness, written description or non- enablement. Grounds for an unenforceability assertion could be an
allegation that someone connected with prosecution of the patent withheld information material to patentability from the USPTO, or made
a misleading statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United States
or abroad, even outside the context of litigation. An adverse determination could result in the revocation or cancellation of, or amendment
to, our patents. Such a loss of patent protection could have a material adverse impact on our business.
In
addition, our trade secrets may otherwise become known or be independently discovered by competitors. Competitors and other third parties
could attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe, misappropriate
or otherwise violate our intellectual property rights, design around our protected technology or develop their own competitive technologies
that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed
by a competitor or other third party, we would have no right to prevent them, or those to whom they communicate it, from using that technology
or information to compete with us. If our trade secrets are not adequately protected or sufficient to provide an advantage over our competitors,
our competitive position could be adversely affected, as could our business. Additionally, if the steps taken to maintain our trade secrets
are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets.
We
may be subject to claims challenging the inventorship or ownership of the patents and other intellectual property.
We
may be subject to claims that former employees, collaborators or other third parties have an ownership interest in the patents and intellectual
property that we own or that we may own or license in the future. While it is our policy to require our employees and contractors who
may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may
be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own or
such assignments may not be self-executing or may be breached. We could be subject to ownership disputes arising, for example, from conflicting
obligations of employees or consultants. Litigation may be necessary to defend against any claims challenging inventorship or ownership.
If we or fail in defending any such claims, we may have to pay monetary damages and may lose valuable intellectual property rights, such
as exclusive ownership of, or right to use, intellectual property, which could adversely impact our business, results of operations and
financial condition.
If
we fail to comply with our obligations under any future intellectual property licenses with third parties, we could lose license rights
that are important to our business.
We
may enter into license agreements in the future. We expect that such license agreements will impose, various diligence, milestone payment,
royalty, insurance and other obligations on us. If we fail to comply with our obligations under these licenses, our licensors may have
the right to terminate these license agreements. Termination of these license agreements or reduction or elimination of our licensed
rights may also result in our having to negotiate new or reinstated licenses with less favorable terms.
If
we do not obtain patent term extension and exclusivity, our business may be materially harmed.
Patents
have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally
20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection
it affords, is limited. Even if patents covering our proprietary technology are obtained, once the patent life has expired, we may be
open to competition from competitive products. As a result, our patent portfolio may not provide us with sufficient rights to exclude
others from commercializing products similar or identical to ours.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting, maintaining, defending and enforcing patents in all countries throughout the world would be prohibitively expensive, and
our intellectual property rights in some countries outside the United States could be less extensive than those in the United States.
The requirements for patentability may differ in certain countries, particularly in developing countries; thus, even in countries where
we do pursue patent protection, there can be no assurance that any patents will issue. There can be no assurance that we will obtain
or maintain patent rights in or outside the United States under any future license agreements. 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 countries outside the United States, even in jurisdictions
where we pursue patent protection, or from selling or importing technologies or products made using our inventions in and into the United
States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not pursued and obtained 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 competitors may compete with us, and our patents or other intellectual
property rights may not be effective or sufficient to prevent them from competing.
Risks
Related to Employee Matters and Managing Growth
We
only have a limited number of employees to manage and operate our business.
As
of March 15, we had 34 employees in our continuing operations and 38 employees in our vivoPharm business.
Our focus on the development of our drug candidates and disease models requires us to optimize cash utilization and to manage and operate
our business in a highly efficient manner. We cannot assure you that we will be able to hire or retain adequate staffing levels to develop
our technology or run our operations or to accomplish all of the objectives that we otherwise would seek to accomplish.
There
is a scarcity of experienced professionals in our industry. If we are not able to retain and recruit personnel with the requisite technical
skills, we may be unable to successfully execute the business strategy.
The
specialized nature of our industry results in an inherent scarcity of experienced personnel in the field. Our future success depends
upon the ability to attract and retain highly skilled personnel (including medical, scientific, technical, commercial, business, regulatory
and administrative personnel) necessary to support anticipated growth, develop business and perform certain contractual obligations.
Given the scarcity of professionals with the scientific knowledge that we require and the competition for qualified personnel among life
science businesses, we may not succeed in attracting or retaining the personnel required to continue and grow operations. The loss of
a key employee, the failure of a key employee to perform in his or her current position or our inability to attract and retain skilled
employees could result in the inability to continue to grow our business or to implement business strategy.
The
loss or transition of any member of our senior management team or the inability to attract and retain highly skilled scientists, clinicians
and salespeople could adversely affect our business.
Our
success depends on the skills, experience, and performance of key members of the senior management team. The individual and collective
efforts of these employees will be important as we continue to develop tests and services, and as we expand commercial activities. We
have experienced increased turnover in the past year and the loss or incapacity of existing members of the senior management team
could adversely affect operations if we experience difficulties in hiring qualified successors.
The
complexity inherent in integrating a new key member of the senior management team with existing senior management may limit the effectiveness
of any such successor or otherwise adversely affect our business. Leadership transitions can be inherently difficult to manage and may
cause uncertainty or a disruption to business or may increase the likelihood of turnover of other key officers and employees. Specifically,
a leadership transition in the commercial team may cause uncertainty about or a disruption to our commercial organization, which may
impact the ability to achieve sales and revenue targets.
Our
officers and directors have significant influence over critical decisions.
Our
officers and directors have a significant stake in the Company and are likely to have influence over any critical decisions relating
to the Company. Our officers and directors beneficially own, directly or indirectly, approximately 10.9% of our outstanding common
stock as of March 15, 2022. As a result, such individuals are likely to continue to have a significant influence in determining
the outcome of any matter submitted to the shareholders for approval (including the election of directors and any merger, consolidation
or sale of all or substantially all of the Company’s assets) and to have significant influence in the management and affairs of
the Company. The interests of the officers and directors may differ from the interests of other shareholders due to various factors,
which may include the differing price at which they acquired their ownership in the Company as compared to other shareholders, the significant
investment of personal time and effort by the officers and directors into the Company, and differing views on the effect of sunk costs
with regard to potential future liquidity events.
Our
employees, independent contractors, consultants, collaborators and contract research organizations may engage in misconduct or other
improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for
us and harm our reputation.
We
are exposed to the risk that our employees, independent contractors, consultants, collaborators and contract research organizations may
engage in fraudulent conduct or other illegal activity. Misconduct by those parties could include intentional, reckless and/or negligent
conduct or disclosure of unauthorized activities to us that violates: (1) FDA regulations or similar regulations of comparable non-U.S.
regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities,
(2) manufacturing standards, (3) federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established
and enforced by comparable non-U.S. regulatory authorities, and (4) laws that require the reporting of financial information or data
accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self- dealing, bribery and other abusive practices. These laws and regulations restrict
or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Employee or collaborator misconduct could also involve the improper use of, including trading on, information obtained
in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted and
maintained a code of conduct and in connection with the merger, we intend to maintain our code of conduct and business ethics, but it
is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may not be effective
in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws, standards or regulations. If any such actions are instituted against us,
and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business
and results of operations, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, imprisonment,
contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could
have a material adverse effect on our ability to operate our business and our results of operations.
If
we are unable to manage growth, our prospects may be limited and our future results of operations may be adversely affected.
We
intend to continue to attempt to expand our business with sales and marketing programs and other activities as needed to meet future
demand. Any significant expansion may strain managerial, financial and other resources. If we are unable to manage such growth, business,
operating results and financial condition could be adversely affected. We will need to improve continually the operations, financial
and other internal systems to manage growth effectively, and any failure to do so may lead to inefficiencies and redundancies, and result
in reduced growth prospects and diminished operational results.
Risks
Relating to Our Common Stock
The
price of our common stock has been and could remain volatile, and the market price of common stock may decrease.
The
market price of our common stock has historically experienced and may continue to experience significant volatility. From consummation
of the merger of Cancer Genetics and StemoniX on March 30, 2021 through March 15, 2022, the market price of our common stock has
fluctuated from a high of $4.81 per share in the second quarter of 2021 to a low of $0.99 in the first quarter of 2022. Market prices
for securities of development-stage life sciences companies have historically been particularly volatile. The factors that may cause
the market price of our common stock to fluctuate include, but are not limited to:
| ● | progress,
or lack of progress, in developing and commercializing our drug discovery candidates; |
| ● | our
ability to recruit and retain qualified regulatory and research and development personnel; |
| ● | changes
in the relationship with key collaborators, suppliers, customers and third parties; |
| ● | changes
in the market valuation or earnings of competitors or companies viewed as similar to us; |
| ● | changes
in key personnel; |
| ● | depth
of the trading market in our common stock; |
| ● | changes
in our capital structure, such as future issuances of securities or the incurrence of additional
debt; |
| ● | the
granting or exercise of employee stock options or other equity awards; |
| ● | realization
of any of the risks described under this section titled “Risk Factors;” and |
| ● | general
market and economic conditions. |
In
addition, the equity markets have experienced significant price and volume fluctuations that have affected the market prices for the
securities of newly public companies for a number of reasons, including reasons that may be unrelated to business or operating performance.
These broad market fluctuations may result in a material decline in the market price of our common stock and you may not be able to sell
your shares at prices you deem acceptable. In the past, following periods of volatility in the equity markets, securities class action
lawsuits have been instituted against public companies. Such litigation, if instituted against us, could result in substantial cost and
the diversion of management attention.
Reports
published by securities or industry analysts, including projections in those reports that exceed actual results, could adversely affect
our common stock price and trading volume.
Securities
research analysts establish and publish their own periodic projections for our business. These projections may vary widely from one another
and may not accurately predict the results we actually achieve. Our stock price may decline if the actual results do not match securities
research analysts’ projections. Similarly, if one or more of the analysts who authors reports on us downgrades our stock
or publishes inaccurate or unfavorable research about our business, stock price could decline. If one or more of these analysts ceases
coverage of us or fails to publish reports on us regularly, our stock price or trading volume could decline. While we expect securities
research analyst coverage, if no securities or industry analysts begin to cover us, the trading price for our stock and the trading volume
could be adversely affected.
We
are incurring significant costs and devotes substantial management time as a result of operating as a public company.
As
a public company, we are incurring significant legal, accounting and other expenses. For example, in addition to being required to comply
with certain requirements of the Sarbanes-Oxley Act of 2002, we are required to comply with certain requirements of the Dodd Frank Wall
Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, including the establishment
and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance
with these requirements will continue to increase legal and financial compliance costs and will make some activities more time consuming
and costly. In addition, we expect that management and other personnel will continue to need to divert attention from operational and
other business matters to devote substantial time to these public company requirements.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure
controls and procedures. In particular, we must perform system and process evaluation and testing of internal control over financial
reporting to allow management to report on the effectiveness of internal control over financial reporting, as required by Section 404
of the Sarbanes-Oxley Act. In addition, if we lose status as a “non-accelerated filer,” we will be required to have our independent
registered public accounting firm attest to the effectiveness of internal control over financial reporting. Our compliance with Section
404 of the Sarbanes-Oxley Act, as applicable, requires us to incur substantial accounting expense and expend significant management efforts.
We currently do not have an internal audit group, and we will need to continue to hire additional accounting and financial staff with
appropriate public company experience and technical accounting knowledge. If we or the independent registered public accounting firm
identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of
our stock could decline and we could be subject to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities,
which would require additional financial and management resources.
Our
ability to successfully implement our business plan and maintain compliance with Section 404, as applicable, requires us to be able to
prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational
and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption
in the transition to, new or enhanced systems, procedures or controls, may cause operations to suffer and we may be unable to conclude
that internal control over financial reporting is effective. If we fail to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report financial results, and current and potential stockholders may lose confidence in our
financial reporting. This, in turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our
ability to access the capital markets.
Anti-takeover
provisions of our certificate of incorporation, bylaws and Delaware law could make an acquisition of the Company, which may be beneficial
to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove the current members of the board
and management.
Certain
provisions of our amended and restated certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition
or other change of control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium
for your shares. Furthermore, these provisions could prevent or frustrate attempts by our stockholders to replace or remove members of
the board of directors. These provisions also could limit the price that investors might be willing to pay in the future for our common
stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have
the opportunity to do so. These provisions, among other things:
● | authorize
the board of directors to issue, without stockholder approval, preferred stock, the rights
of which will be determined at the discretion of the board of directors and that, if issued,
could operate as a “poison pill” to dilute the stock ownership of a potential
hostile acquirer to prevent an acquisition that the board of directors does not approve; |
● | establish
advance notice requirements for stockholder nominations to the board of directors or for
stockholder proposals that can be acted on at stockholder meetings; and |
● | limit
who may call a stockholder meeting. |
In
addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, which may, unless certain
criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our common stock, from
merging or combining with the Company for a prescribed period of time.
Because
we do not expect to pay cash dividends for the foreseeable future, you must rely on appreciation of our common stock price for any return
on your investment. Even we change that policy, we may be restricted from paying dividends on our common stock.
We
do not intend to pay cash dividends on shares of common stock for the foreseeable future. Any determination to pay dividends in the future
will be at the discretion of the board of directors and will depend upon results of operations, financial performance, contractual restrictions,
restrictions imposed by applicable law and other factors the board of directors deems relevant. Accordingly, you will have to rely on
capital appreciation, if any, to earn a return on your investment in our common stock. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock.