Item 1. Business
Overview
We are engaged in the development, manufacture and sale of genomic technology solutions for single-cell analysis (“SCA”) and clinical research. Our ICELL8™ Single-Cell System is a cutting edge platform that can isolate thousands of single cells and process specific cells for analysis, including Next Generation Sequencing (“NGS”). We believe ICELL8s introduction into the rapidly growing SCA market will revolutionize biopharma, diagnostics and life science research. ICELL8 is based upon our SmartChip platform which is also used for profiling and validating molecular biomarkers. SmartChip can perform massively parallel singleplex PCR for one-step target enrichment and library preparation for clinical NGS. Our Apollo 324™ system can be used to process DNA and RNA from clinical samples to NGS-ready libraries. Our SmartChip and Apollo product lines are aimed at researchers performing genetic analyses in the life sciences, pharmaceutical and biotech drug discovery, diagnostics and clinical laboratory industries. WaferGen’s technology solutions are potent tools for the discovery and validation of clinically relevant disease biomarkers, clinical tests and new drug therapies.
We are primarily focused on marketing a flexible, open format genetic analysis system, the WaferGen SmartChip System. SmartChip is a micro-fabricated chip composed of thousands of massively-parallel micro wells that are physically separated from each other. We have engineered a nano-dispenser called the MultiSample Nano-Dispenser (“MSND”) that can not only dispense but also aspirate nanoliter volumes of molecular testing reagents and samples, which provides a range of high throughput capabilities including SCA, differential gene expression measurement, genotyping and target enrichment for NGS testing. NGS refers to the current automated methods used to determine the order of nucleotide building blocks that make up the primary structure in Deoxyribonucleic acid (“DNA”) molecules. In 2010, we formally launched our first generation SmartChip 5K System, which was an innovative real-time Polymerase Chain Reaction (“PCR”) tool enabling scientists to study thousands of genes simultaneously. PCR is an enzymatic process designed to increase the number of copies of DNA for easier detection. Real-time PCR simultaneously amplifies and quantifies (as an absolute number of copies or relative amount) a targeted DNA molecule in real time. In 2012, we launched the SmartChip MyDesign System, which is a second-generation real time PCR instrument with significantly upgraded capabilities.
The SmartChip System’s high density, nanoliter-scale format can provide throughput levels that facilitate the development of life science and clinical research solutions at a fraction of the time and cost currently possible with existing competing systems. We believe that the SmartChip System is well suited for the large and growing genomics markets, including researchers seeking to confirm and expand on discoveries made with the growing use of NGS. The SmartChip and MSND were adapted for NGS library preparation and the SmartChip Target Enrichment (“TE”) System was launched in 2014. SmartChip TE™ is designed to perform a critical sample preparation step prior to targeted-DNA sequencing. Targeted sequencing is aimed at deciphering the nucleic acid sequence of a certain portion of the genome (the targets), for example a set of genes of interest, as opposed to the whole genome. In order to limit the sequencing to the targets of interest, scientists are using various techniques including PCR to treat the nucleic acid samples prior to sequencing. WaferGen is using its SmartChip consumable to conduct massively parallel individual PCR reactions for TE. This approach offers certain advantages over existing chemistries and platforms.
In October 2015 we launched the ICELL8 System for single cell isolation and individual cell genomic analysis. The ICELL8 Single-Cell System consists of a unique pairing of the SmartChip and MSND technologies with a powerful imaging station. Our CellSelect™ software bridges these technologies by automatic selection for cells of interest and provides user control over how best to process samples for downstream applications. This system-level solution for single-cell isolation results in a powerful and user-friendly research tool for discovery and clinical research. The ICELL8 System enhances single-cell research through the power of isolating thousands of cells of any type and size; controlling cell selection for down-stream processing; and, providing biological insight by investigating multiple samples on a single SmartChip. The SmartChip, along with the ability to dispense nanoliter volumes (using the MSND) into these wells, makes this an ideal platform for isolating and processing thousands of single cells for RNA-seq and/or qPCR based applications. The dispensing technology and automated imaging by the ICELL8 System ensures testing is performed only on single cells. This offers a significant advantage over capture technologies on the market which require manual methods for confirming true single cell isolation. In addition, the physical separation of wells in the SmartChip affords better protection against cross-contamination than the emulsion-based systems that which are being pursued by potential future competitors.
In January 2014, we acquired IntegenX Inc.’s product line used in connection with developing, manufacturing, marketing and selling instruments and reagents relating to library preparation for next generation sequencing, including the Apollo 324 instrument and the PrepX™ reagents. The fully automated Apollo 324 library prep solution has been a market leader in the low to medium throughput NGS market segment with an expanding installed base, serving a diverse set of clients from university research labs,
pharmaceutical and agricultural companies, to diagnostic clinical labs. We believe customers favor the Apollo 324 library prep solution for its flexibility, turnaround and hands-on time, as well as sample quantity input requirement. We intend to build upon its success with innovative new applications and protocols for this system.
WaferGen employs a business model that primarily generates revenue from the sale of instruments (i.e. the ICELL8 System, SmartChip Systems and Apollo 324 instruments) and a recurring revenue stream from the sale of consumables (i.e. the ICELL8 Chip and Reagent Kit, SmartChip Panels and Apollo PrepX reagents), similar to the “razor and razor blade” business model.
Genomics Overview
Genes are segments of genomic DNA that encode discreet information that ultimately help synthesize individual biomolecules/proteins. This information is read when the two strands of DNA “unzip” and the series of bases representing a gene are copied into the related Ribonucleic acid (“RNA”). RNA is a polymeric molecule consisting of ribonucleotide building blocks. The three major types in cells are ribosomal RNA (“rRNA”), transfer RNA (“tRNA”), and messenger RNA (“mRNA”), each of which performs an essential role in protein synthesis. “RNAi”s are small RNA molecules that help regulate by turning genes on and off. Like DNA, RNA also has four types of bases that can bond as a pair with four types of bases in the DNA strand based on pairing rules that allow the DNA sequence of the gene to encode a specific RNA sequence. This decoding of DNA genes into RNA is called transcription. The transcribed RNA strand then separates from the DNA strand and acts either in a regulatory fashion to modulate cellular processes or as a template for the cell’s machinery to construct functional proteins. As gene expression (including translation into functional proteins) is dependent upon RNA levels present in the cell, interrogation of RNA levels has become the most widely adopted means for quantifying this process.
One contributor to disease and dysfunction is the over- or under-expression of genes within an organism’s cells. A very complex network of genes interacts to maintain health in organisms such as humans. Although most cells contain an organism’s full set of genes, each cell, according to its function, expresses only a fraction of this set of genes in different quantities and at different times. The challenge for scientists is to delineate the associated genes’ expression patterns and their relationship to disease.
Gene expression studies and whole transcriptome analysis (“WTA”) are used to provide information on the more than 30,000 genes in the human genome. Life science researchers use gene expression profiling to study the differences in expression of genes in a normal versus a disease state. For example, a comparison of gene expression profile of breast cancer patients to those of normal patients will provide an indication of genes that are expressed differentially between the two populations. Such differences can lead to identifications of genes that may be indicative of a disease state. Furthermore, such differences can help physicians make treatment decisions. Researchers are conducting studies to identify single or multiple genes that play a role in a particular disease.
There are three primary technologies used to study gene expression: NGS, microarrays and real-time PCR.
Single-Cell Analysis Overview
NGS technologies have improved at a breathtaking pace this past decade and the costs of sequencing have decreased several orders of magnitude. The decrease in the price/base has made possible applications that were considered impossible even five years ago. RNA-sequencing (“RNA-Seq”) is increasingly being used to understand gene expression differences between normal and disease states in bulk samples. Another interesting NGS-based application is the ability to perform gene expression profiling at a single cell level for 1000s of cells and use the differences in transcriptional states of the individual cells to comprehend the various cell types that exist in heterogeneous cell populations and complex tissues. Most biological measurements to date have been performed on a population of cells or tissues. Such studies lack the ability to discriminate critical events occurring at an individual cell level and hence, would report results that reflect an average for the population under investigation. However, diseases such as cancer or diabetes start from a single cell that has acquired a deleterious mutation. Furthermore, SCA has already resulted in the identification of new cell types in neuronal and immune cell populations. Identifying and understanding such rare events amidst a population of normal cells is the challenge that SmartChip-based SCA aims to solve. Existing technology such as Fluidigm’s microfluidic cartridge can process at best 400 individual cells. These individual cells are selected based on different size cutoffs that introduce size bias in selecting cells. The size bias combined with low throughput has generated a need for technologies that can process thousands of cells in a cost-effective fashion and with minimal bias.
Even though RNA-Seq is becoming a mature NGS technique for evaluating global and single-cell gene expression patterns, many researchers continue to verify their NGS findings using real-time PCR. Furthermore, subsequent to sequencing based discovery and real-time PCR validation, interrogation of the expression pattern of identified target genes in large numbers of samples requires a more timely and cost-effective solution such as the ICELL8 System.
Gene Expression Technology Overview
Real-time PCR represents the most sensitive and accurate method to measure gene expression. PCR is an enzymatic process in which a strand of DNA is copied multiple times, or amplified, so that it can be more readily detected and analyzed. The vast majority of PCR methods use thermal cycling, i.e., alternately heating and cooling the sample to a defined series of temperature steps. These thermal cycling steps are necessary to physically separate the strands in a DNA double helix (at high temperatures), which are then used as the template during DNA synthesis (at lower temperatures) by the DNA polymerase enzyme to selectively amplify the target DNA.
Traditional PCR merely increases the number of DNA copies for easier detection. Real-time PCR permits quantitative analysis, rather than just a qualitative yes/no as to the presence of a gene. Real-time PCR can produce an absolute measurement, such as number of copies of mRNA or microRNA per nanoliter of sample, or a relative measurement in comparison to expression of the same gene in another sample. Real-time PCR chemistries allow for the detection of amplicon amounts in the exponential phase of these reactions where the amount of product can be extrapolated to accurately determine the amount of target in the sample prior to amplification.
Traditional real-time PCR does not measure thousands of genes simultaneously (like NGS or microarray analysis), resulting in limited throughput and relatively high cost, making it unfeasible for whole genome analysis or for very high throughput studies. Thus, in practice, researchers typically first use microarray or RNA Sequencing to identify which genes are over- or under-expressed in the whole genome and then apply real-time PCR to a specific set of those genes to accurately quantify gene expression. The process is referred to as discovery and validation.
Although all humans contain the same set of genes, the actual sequence of each gene may vary from one individual to another, as well as between cells in the same individual. This phenomenon is commonly referred to as genetic variation and can have important medical consequences. Genetic variation affects disease susceptibility, including predisposition to cancer, diabetes, cardiovascular disease and Alzheimer’s disease. In addition, genetic variation may cause people to respond differently to the same drug treatment. One common form of genetic variation is a single-nucleotide polymorphism (“SNP”).
A SNP is a variation in a single “letter” at a specific position in the DNA sequence that differs from a reference sequence for a population. While in some cases a single SNP will be responsible for medically important effects, it is now believed that combinations of SNPs may contribute to the development of most common diseases. Since there are generally millions of SNPs in an individual, it is important to investigate many SNPs simultaneously in order to discover medically valuable information.
Products
SmartChip System
Our SmartChip System provides a suite of gene expression and genome analysis technologies enabling both biomarker discovery and validation on a single platform with the sensitivity and accuracy of real-time PCR. WaferGen’s SmartChip Real-Time PCR System consists of two instrumentation components: a SmartChip MSND for applying sample, assay and reaction mix to the SmartChip Panels, and a SmartChip Cycler for thermal cycling and collecting data from the real-time PCR assays. For large studies, our SmartChips are provided with sub-nanoliter (one-billionth of a liter) oligonucleotide (a short nucleic acid polymer, typically with twenty or fewer bases) reagents of the customer’s choosing pre-loaded in the wells. For smaller projects, the user has the flexibility to purchase empty SmartChips and both samples and assays can be dispensed into the SmartChips at the customer’s site using the MSND. Sub-microliter (one-millionth of a liter) dispensing of samples into a 5,184-well chip enables high throughput real-time PCR amplification of pathway-based gene discovery. Our SmartChip Panels are designed with evaporation control measures that allow for the use of nanoliter volumes, thermal cycling and temperature control. Our software system also analyzes the high throughput data after the completion of the real-time PCR analysis. The user friendly, content-ready SmartChip System is designed to accept samples out of the box, incorporating many of the necessary substrates and chemicals.
The SmartChip System is engineered to deliver superior performance with the combination of high sensitivity and high throughput on a single chip, enabling scientists to broadly view gene expression patterns over a large dynamic range. The SmartChip System requires only a couple of days to perform genetic analyses that took several months to perform utilizing traditional methods, which involved discovery of the gene expression signature with microarrays, followed by verification of the signature with real time PCR. As more clinical studies are carried out using validated gene sets, we believe the market will require, and demand, higher throughput solutions to process large numbers of clinical samples. Today’s solutions typically allow only a few patients’ samples to be processed. We offer a throughput capability that allows hundreds of samples on a single chip.
We believe our SmartChip System is also capable of saving time compared to existing technologies. Research analyzing the whole genome utilizing currently available real-time PCR technology takes weeks to months due to multiple plates and hundreds of pipetting steps required. Our SmartChip System has the ability to quantitatively analyze the gene specific pathways or whole genome with the performance of real-time PCR technology in as short as a single day, and represents a significant advancement. In addition, our development of the SmartChip System seeks to allow 5,184 data points per chip, which could enable a large number of reactions to run in parallel, thus addressing unmet needs of the clinical trial market, compared to today’s leading technologies, which are limited in throughput to 96 wells, 384 wells and 1,536 wells. Competitors in the market place that offer high throughput, like the Fluidigm Biomark, which offers a maximum throughput of 9,216 assays per chip, limit the market by offering only fixed sample and assay formats which may not be optimal for the application.
SmartChip System Capabilities
Our SmartChip System is an integrated instrument and software system capable of dispensing 100nl reactions into the 5,184-well SmartChip, thermal cycling, real-time detection and primary data analysis, and provides the following capabilities:
Open-Platform Custom Assays (MyDesign)
. Our SmartChip System was upgraded in 2012 to provide the capability to customize our open platform panels for gene expression and genotyping studies according to the researcher’s specific needs. The customer has the flexibility to dispense both assays and samples into the 5,184 nanowell panels in numerous configurations. The system has access to millions of predesigned PCR assays for the detection of human, mouse and rat genes. Applications include: validation of genomic next-generation sequencing, RNA-Seq and Chip-Seq data; validation of microarray results; and expansion of assay panels to better understand biological systems.
Custom SNP Genotyping Panels
. Although a single SNP may be responsible for medically important effects, it is now believed that combinations of SNPs may contribute to the development of most common diseases. Our custom SNP Genotyping Panels are developed to cost-effectively investigate multiple SNP genotypes simultaneously and are customized for the required scope of the study. Genotyping clusters from single or multiple runs are visualized using our SmartChip System’s proprietary software.
SmartChip Single-Cell Isolation System
The ICELL8 Single-Cell System can isolate thousands of single cells and processes specific cells for analysis, including NGS. The system has demonstrated unbiased isolation, regardless of cell size, of up to 1,800 single cells, ranging from 5-100 micrometers in size on a single chip including single cells from solid tumors, brain cells, pulmonary airway cells, and multiple cell lines. ICELL8 comprises the SmartChip and MSND, already in the market, which have now been modified for single cell isolation and analysis. The ICELL8 Chip technology is developed for single-cell isolation through individual nanowell barcoding for cell registration and reagent optimization to enhance cell separation and viability. In addition, the CellSelect software images cells, identifies wells that contain a single cell and then directs dispensing of reagents only to wells that contain single cells. A Poisson distribution method dispenses 1,000 to 2,000 individual cells per 5,184 nanowell chip. The MSND can also be used to process hundreds of cells from multiple samples in the same SmartChip. We collaborated with the Broad Institute to obtain proof of concept for cell isolation processes and RNA-Seq analysis that we used to develop the products designed for SCA. In mid-2015, we signed on four early access partners for our SmartChip SCA products - Karolinska Institutet, National Jewish Hospital, Genentech and MD Anderson Cancer Center. We have collaborated with our early access partners to show that we can reproducibly sequence thousands of cells. Feedback on various aspects of the product from these early access partners was overwhelmingly positive - researchers particularly like the workflow ease, the ability to handle multiple cell types including human patient samples such as freshly operated tumors, and the ensuing data quality. Thus, the ICELL8 single-cell system, which was commercially launched in October 2015, is the only system on the market that can span the gamut of hundreds to thousands of cells and have the ability to process diverse cell types in a cost-effective fashion.
SmartChip Target Enrichment (TE) System
The SmartChip TE and Seq-Ready TE Systems use the SmartChip consumable for amplifying the targets of interest via PCR. Researchers then remove the resulting amplified material for further processing prior to sequencing. The key purported advantage of our approach is that we conduct massively parallel individual PCR reactions for target enrichment, whereas other PCR-based techniques use highly multiplexed PCR, which means that they conduct hundreds, if not thousands of PCR reactions in a single tube. By separating PCR reactions into individual wells, our SmartChip TE System offers a much better controlled chemo-enzymatic process that might ultimately translate into higher quality sequencing results. This should be especially important in clinical sequencing, where assays of a high sensitivity and specificity are required. We offer multiple consumable formats of different densities (number of nano-wells) so that, depending on the number of targets required for a particular study, samples can be
dispensed over the whole chip in flexible configurations. This enables the system to enrich targets without cross-contamination with other samples and provides the flexibility to customize targets. This system includes:
Custom Target Enrichment
. Targets of interest can vary greatly based on the area of research and the needs of individual laboratories. The Seq-Ready TE System offers the ability to design amplicons which can be customized to enrich only specific targets identified by the researcher.
Seq-Ready TE MultiSample BRCA1/2 Panel
. A pre-designed target enrichment panel containing 139 unique primer pairs targeting all of the coding regions in BRCA1 and BRCA2 genes, which are key genes identified for breast cancer research, is available as an off the shelf product.
Apollo 324 Library Preparation
In January 2014, we acquired from IntegenX Inc. (“IntegenX”) substantially all of the assets of its product line used in connection with developing, manufacturing, marketing and selling instruments and reagents relating to library preparation for NGS, including the Apollo 324 instrument and the PrepX reagents (the “Apollo Business”).
The Apollo 324 System is a compact, walk-away automation platform offering DNA, RNA-Seq, and ChIP-Seq library preparation kits for analysis on popular NGS platforms from Illumina, Inc. (“Illumina”) (GA, HiSeq and MiSeq), Thermo Fisher Scientific, Inc. (“Thermo”) (Ion Proton and Ion Torrent PGM), and the Roche family of companies (“Roche”) (GS Junior and GS FLX+). The intuitive and easy-to-use PrepX automation protocols and reagent kits enable the set-up of a run with as little as 15 minutes of hands-on time. The user can return in about 90 minutes for sequencer-ready DNA or ChIP-Seq libraries, or about 5 hours for RNA-seq libraries. The system offers the flexibility to start a run with a single library without wasting reagents.
The fully automated Apollo 324 library prep solution has been a market leader in the low to medium throughput NGS market segment with an expanding installed base, serving a diverse set of clients from university research labs, pharmaceutical and agricultural companies, to diagnostic clinical labs. We believe customers favor the Apollo 324 library prep solution for its reliability, turnaround and hands-on time, as well as sample quantity input requirement.
The Apollo Business is highly synergistic with our existing products, especially our SmartChip TE System offerings. Serving the same customer base, the two products together address a wide spectrum of customer needs in sample preparation for NGS and enable one-stop shopping for laboratories performing targeted sequencing.
Market Applications of the SmartChip System and the ICell8 Single-Cell System
We believe the ICELL8 and SmartChip Systems, with their advantages of higher throughput, lower cost, superior sensitivity and genomic analysis capabilities, can address the following markets:
Biomarker Discovery and Validation
. New targets for drugs can be identified through the analysis of gene profile expression (biomarkers) in diseased cells via PCR or RNA-Seq. Potential applications include multiple cancers, neurological, immunological, arthritic and lung diseases.
Drug Efficacy and Optimization
. Genetic analysis is being used to determine the likely toxicity (toxicogenomics) of new drugs and the likelihood of therapeutic response to a specific genetic profile (pharmacogenomics). Federal Drug Administration (“FDA”) guidance calls for drug companies to voluntarily submit pharmacogenomic data to support their drug development programs.
Drug Response Monitoring
. Patient outcomes can be improved by evaluation of a proposed drug’s potency and specificity in order to determine individualized patient dosing, thereby decreasing adverse drug reactions, and improving drug efficacy.
Detection of Rare Mutations
. The Cancer Genome Project is using the human genome sequence and high throughput mutation detection techniques to identify somatically acquired
sequence variants/mutations (which arise in individual cells in the body outside the “germ-line” (sperm and egg) cells that created the individual, and hence not present in all of a person’s cells) and hence identify genes critical in the development of human cancers.
Clinical NGS Applications
. Key discoveries enabled by Next Generation Sequencing, in addition to continued cost and workflow efficiencies, are resulting in the widespread adoption of NGS in clinical research and routine diagnostic applications. Leading areas driving clinical NGS include constitutional and complex diseases.
Biomarker Discovery and Validation:
Gene expression patterns (biomarkers) related to specific diseases are becoming increasingly important in drug development. Comparison of gene expression patterns between normal and diseased tissues or single cells, expression profiles in the presence or absence of drugs can lead to discovery of genes or a set of genes that can be used in drug development. This requires monitoring of tens, hundreds or thousands of mRNAs in large numbers. A typical genetic analysis currently involves the use of NGS or microarrays to identify genes, which are either over-expressed or under-expressed in a small subset of patients. After detailed bioinformatics analysis, a number of differentially expressed genes (two to 200) are evaluated using real-time PCR or targeted NGS in a different subset of patients (50 to 100). The differentially expressed genes in a patient group are then validated using a larger patient group. Real-time PCR techniques, which offer significantly increased sensitivity, are limited in throughput and are cost prohibitive for whole genome analysis. Biomarker investigation requires multiples of such analyses to confirm discovery.
Drug Efficacy and Optimization:
Clinical trials are the most expensive phase for pharmaceutical drug development. The use of gene expression and genotyping is becoming critical to identify a safe drug (toxicogenomics) for the right patient population (pharmacogenomics). Once a set of genes (biomarker) is identified, they are used in numerous samples in clinical trials for pattern recognition, toxicity profiling and patient selection. Similarly, locations of SNPs involved in disease variation and metabolism are also being utilized in clinical trials to understand disease predisposition, requiring thousands of samples to be analyzed.
In its pharmacogenomic data submissions guidance referred to above, the FDA has asked for voluntary data submission utilizing these genetic approaches in clinical trials. This has created a need for reliable, high throughput, cost-effective technologies. Established real time PCR instrument suppliers typically process 96 to 1,536 data points. Our SmartChip System has the ability to study 5,184 assays on a single chip, and thus offers a marked increase in the number of samples that can be evaluated in a single run. This format also enables investigators to interrogate the expression of a large panel of genes of interest with a limited amount of the biological sample.
Drug Response Monitoring:
In addition to studying gene expression, genotyping measures genetic variation in the DNA. Sometimes it is not a single variation but the combination of these sequence differences that may lead to a disease state or a response to a specific therapy. For this reason, researchers look at patterns of these variations in a large number of healthy and affected patients in order to correlate SNPs with a specific disease. Large-scale genotyping studies are being conducted in various genome centers around the world, driven by available research funds, resulting in the greater demand for cost effective high throughput solutions.
Detection of Rare Mutations:
The Cancer Genome Project’s DNA sequencing of patients’ tumors is underway and is rapidly defining cancer-causing mutations. Today, this is accomplished by using hybridization approaches which are unable to detect rare somatic mutations. Such techniques require the use of more sensitive methods like PCR and require genotyping of many samples (50 to 500). WaferGen uses allele-specific PCR with the SmartChip System to enable genotyping at multiple sites in multiple samples, as well as to provide a robust solution for detecting rare mutations. Allele-selective PCR is able to reliably detect SNPs (germ-line) as well as minority (somatic) mutations at sensitivity range of 100 to 10,000 mutations.
Clinical NGS Applications
: Recent advances in sequencing technology have resulted in dramatically lower sequencing costs and highly efficient workflows, enabling NGS to be used for routine clinical applications. In combination with key discoveries of clinically relevant targets enabled by NGS, this has resulted in the need for the efficient interrogation of multiple targets simultaneously. This need has been well demonstrated for key complex diseases, such as cancer, where targeted NGS panels are now used widely. Existing methods, including Sanger sequencing and traditional PCR, are limited because of inherent challenges with multiplexing, workflows, and turnaround times for large numbers of targets.
Future Applications - From Research to Diagnostics:
Newly discovered biomarkers from NGS, gene expression and genotyping studies are rapidly being adopted by practicing physicians to identify the right drug for the right patients and are leading to new ways of diagnosing and monitoring diseases. Biomarkers and platforms that are being used in clinical trials for a particular therapy are expected to become a standard for molecular diagnostics. This personalized medicine market requiring personalized genomic analysis is rapidly growing and will become a new standard in healthcare.
Competition
We believe the industry leaders in the markets in which WaferGen competes are Fluidigm Corporation (“Fluidigm”), Illumina, Thermo, Agilent Technologies, Inc., 10X Genomics, Inc. and PerkinElmer, Inc. Other companies known to be currently serving the genetic analysis market include Affymetrix, Inc., Becton Dickinson and Company, , Bio-Rad Laboratories, Inc., Eppendorf AG, Beckman Coulter, Inc., Luminex Corporation, Cepheid, Pacific Biosciences of California, Inc., NanoString Technologies, Inc., Sequenom, Inc., RainDance Technologies, Inc., Qiagen N.V., Biometra Biomedizinische Analytik GmbH, Enzo Biochem,
Inc., Biomerieux, Inc. and Roche. The marketplace for gene expression technologies is highly competitive, with many of the major players already controlling significant market share, many of which have significantly greater financial, technological and other resources than we do. Illumina is the leader in NGS and Thermo is the market leader for real-time PCR and is second in the NGS market. We believe gene expression is a growing market and this market is driven by the need for RNA-Seq and higher throughput real-time PCR platforms, to overcome the real time low plex PCR technologies that are currently used for discovery and validation. WaferGen’s SmartChip Real Time PCR System is presently the only platform that offers a single solution for both biomarker discovery and validation with low running costs, simplified workflow and fast results. In single-cell, Fluidigm is the established market leader and Becton Dickinson Genomics is integrating FAC-Seq with SCA. WaferGen’s ICELL8 SCA System is presently the only platform that has the ability to analyze cells of any size with unbiased cell isolation coupled with the ability to choose and analyze specific cells utilizing automated imaging. Our competitors could compete with us by developing new products similar to our SmartChip or the ICELL8 Systems. Even though we believe that we have created a unique solution, this does not mean that our competitors will not develop effective products to compete with our products.
Sales and Marketing
During 2014 and 2015, we ramped up our investment in sales and marketing activities to service the academic and medical research market, pharmaceutical and biotech companies and clinical testing laboratories. By the end of 2015, we had a direct sales force of more than a dozen employees in the United States and Europe, plus select distribution partners in other regions of the world.
Despite the increased investment, WaferGen still has limited sales and marketing resources compared to some of our competitors. We will need to increase investment in our sales and marketing infrastructure in order to be competitive in the marketplace.
Seasonality
We do not have sufficient product history to determine seasonality with a high degree of confidence. We expect that customers’ purchasing patterns will not show significant seasonal variation, although demand for our products may be highest in the fourth quarter of the calendar year as pharmaceutical and academic customers typically spend unused budget allocations before the end of the fiscal year.
Sources and Availability of Raw Material and Principal Suppliers
The raw materials used in the manufacturing of our products are for the most part readily available from numerous sources.
Research and Development
Our research and development efforts are aimed at developing new products and new applications, improving existing products, improving product quality and reducing production costs. Our research and development expenses were approximately $
9.28 million
for the
year ended December 31, 2015
and $
6.72 million
for the
year ended December 31, 2014
.
Intellectual Property and Other Proprietary Rights
We are pursuing an intellectual property portfolio, including filing a number of U.S. and international patent applications and in-licensing certain patents covering products, methodologies, integration and applications. We presently have six patents issued and twelve pending in the U.S. with respect to our SmartChip products and technologies, and a number of pending SmartChip-related patent applications worldwide. In addition to our patents, we rely on trade secrets, know-how, and copyright and trademark protection. Our success may depend on our ability to protect our intellectual property rights.
Government Regulation and Environmental Matters
We are subject to a variety of federal, state and municipal environmental and safety laws based on our use of hazardous materials in both our manufacturing and research and development operations. We believe that we are in material compliance with applicable environmental laws and regulations. Compliance with environmental laws does not currently cause us to incur material costs. If we cause contamination to the environment, intentionally or unintentionally, we could be responsible for damages related to the clean-up of such contamination or individual injury caused by such contamination. We cannot predict how changes in the laws and regulations will impact how we conduct our business operations in the future or whether the costs of compliance will increase in the future.
Regulation by governmental authorities in the United States and other countries is not currently a significant factor in the manufacturing, labeling, distribution and marketing of our products and systems. However, developments in FDA regulations, as
well as the emergence of clinical NGS applications, may result in our products becoming subject to FDA regulation, particularly if, in the future, potential clinical NGS applications cause our products to become subject to FDA medical device regulations.
Corporate History
Wafergen, Inc. was incorporated in the state of Delaware in October 2002. On May 31, 2007, Wafergen, Inc. was acquired by WaferGen Bio-systems, Inc., a Nevada corporation. In the transaction, Wafergen, Inc. merged with a subsidiary of WaferGen Bio-systems, Inc. and became a wholly owned subsidiary of WaferGen Bio-systems, Inc.
Employees
We have assembled a team of highly qualified scientists, engineers and business managers to support our product development and commercialization activities. Their efforts will continue to focus on expanding, improving and commercializing our core technologies. As of
December 31, 2015
, we had 54 regular employees, 53 of whom were employed full-time, compared to 46 regular employees as of
December 31, 2014
, 45 of whom were employed full-time. None of our employees are represented by a labor union, and we consider our employee relations to be good. We believe that our future success will depend, in part, on our continued ability to attract, hire and retain qualified personnel.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This discussion highlights some of the risks that may affect future operating results. These are the risks and uncertainties we believe are most important to consider. We cannot be certain that we will successfully address these risks. If we are unable to address these risks, our business may not grow, our stock price may suffer and we may be unable to stay in business. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations.
Risks Related to Our Company and Our Business
We have generated only limited sales, have a history of operating losses and we may not be able to reach profitability.
We have a history of losses and expect to continue to incur operating and net losses for the foreseeable future. We incurred a net loss of $
15.3 million
for the year ended
December 31, 2015
. As of
December 31, 2015
, our accumulated deficit was $
106.8 million
. We have not achieved operating profitability on a quarterly or annual basis.
Historically, there have been limited sales of any of our products. Our revenues were $2.2 million for the year ended December 31, 2010, $0.5 million for the year ended December 31, 2011, $0.6 million for the year ended December 31, 2012, $1.3 million for the year ended December 31, 2013, $6.0 million for the year ended December 31, 2014 and $
7.2 million
for the year ended
December 31, 2015
. We will need to significantly grow our revenues to become profitable.
We will need to raise additional capital to meet our business requirements in the future and such capital raising may be costly or difficult to obtain and could dilute current stockholders’ ownership interests.
We have incurred losses since inception and expect to continue to incur losses until we are able to significantly grow our revenues. Accordingly we may need additional financing to maintain and expand our business. Such financing may not be available on favorable terms, if at all. Any additional capital raised through the sale of equity or equity linked securities may dilute current stockholders’ ownership percentages and could also result in a decrease in the market value of our equity securities. The terms of any securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect on the holders of any of our securities then outstanding.
If we are unable to obtain such additional financing on a timely basis, we may have to curtail our development activities and growth plans and/or be forced to sell assets, perhaps on unfavorable terms, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately could be forced to discontinue our operations and liquidate, in which event it is unlikely that stockholders would receive any distribution on their shares. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” in Part II, Item 7 in this Annual Report. Further, if we do not generate sufficient revenues from operations, we may not be able to stay in business.
In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible promissory notes and warrants, which may adversely impact our financial results.
Our success depends on our ability to develop commercially successful products and on market acceptance of our new and relatively unproven technologies.
Our future is dependent upon the success of the current and future generations of one or more of the products we sell or propose to sell, including the SmartChip System and Apollo instruments. We may not possess all of the resources, capability and intellectual property rights necessary to develop and commercialize all of the products or services that may result from our technologies. Our long-term viability, growth and profitability will depend upon successful testing, approval and commercialization of the SmartChip System incorporating our technology resulting from our research and development activities. Adverse or inconclusive results in the development and testing of our products could significantly delay or ultimately preclude commercialization of our technology. Accordingly, there is only a limited basis upon which to evaluate our business and prospects. An investor in our Company should consider the challenges, expenses, and difficulties we will face seeking to develop and manufacture a new product in a relatively new and rapidly changing market. Some of the factors affecting market acceptance of our products and services include:
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availability, quality and price of our products and services compared to our competitors’;
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the functionality of our products and services, and whether they address market requirements;
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the timing of introduction of our products and services as compared to our competitors’;
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the existence of product defects; and
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scientists’ and customers’ opinions of our products and services and our ability to incorporate their feedback into future products and services.
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Our business is dependent on our ability to improve our existing products, to develop new products that serve existing markets, and to develop new products that create new markets and applications that were previously not practical with existing systems. We currently have fewer resources available for research and development activities than many of our competitors. We may not be able to develop or launch new products in a timely manner, or at all, or they may not meet customer requirements or be of sufficient quality or at a price that enables us to compete effectively in the marketplace. Challenges frequently encountered in connection with the development or early commercialization of products and services using new and relatively unproven technologies might limit our ability to develop and successfully commercialize these products and services. If our research and product development efforts do not result in commercially viable products within anticipated timelines, if at all, our business and results of operations may be adversely affected.
We expect to make significant investments to research and develop Smart Chip-based solutions for single-cell genomics, which may not be successful.
We are currently focusing our R&D efforts on the development and commercialization of Smart Chip-based solutions for single-cell genomics. We have devoted, and expect to continue to devote, significant resources to the development of single-cell products. Our efforts to develop single-cell analysis products may not be successful, may cause us to incur significant expense and may distract our management from successfully commercializing existing products. We may not be able to introduce products for single-cell genomics as quickly as anticipated. Any single-cell analysis products we develop will be subject to significant research and testing, which may be a lengthy and expensive process. There can be no guarantee that we will develop any products that would be commercially viable. If we determine that our single-cell analysis programs, or any future development programs, are unlikely to succeed, we may abandon them without any return on our investment into those programs.
Because our business depends on research and development spending levels for pharmaceutical and biotechnology companies and academic and governmental research institutions, our success and our operating results will substantially depend on these customers.
We expect that much of our revenue in the foreseeable future will be derived primarily from products and services provided to a relatively small number of pharmaceutical and biotechnology companies and academic, governmental and other research institutions. Our success will depend upon their demand for and use of our products and services. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. For example,
reductions in capital or operating expenditures by these customers may result in lower than expected instrumentation sales and similarly, reductions in operating expenditures by these customers could result in lower than expected sales by us. A number of our customers and potential customers rely on government funding for their research and development expenditures. A significant or prolonged decrease in government funding for academic or scientific research may significantly impact our customers’ and potential customers’ research and development expenditures, which could have an adverse impact on future revenues and results of operations.
We expect that our results of operations will fluctuate, which could cause our stock price to decline.
Our revenue is subject to fluctuations due to the timing of sales of high-value products, the impact of seasonal spending patterns, the timing and size of research projects our customers perform, changes in overall spending levels in the life sciences industry, the timing and amount of government grant funding programs and other unpredictable factors that may affect customer ordering patterns. Given the difficulty in predicting the timing and magnitude of sales for our products and services, we may experience quarter-to-quarter fluctuations in revenue and/or a sequential decline in quarterly revenue.
If revenue does not grow significantly, we will not be able to achieve and maintain profitability. Any significant delays in the commercial launch of our products, unfavorable sales trends in our existing product lines, or impacts from the other factors mentioned above could adversely affect our revenue growth or cause a sequential decline in quarterly revenues. Due to the possibility of fluctuations in our revenue and expenses, we believe that quarterly comparisons of our results are not a good indication of our future performance. If our operating results fluctuate or do not meet the expectations of stock market analysts and investors, our stock price probably would decline.
If we lose our key personnel or are unable to attract and retain additional qualified personnel, we may be unable to achieve our goals.
We are highly dependent on our management and scientific personnel. The loss of their services could adversely impact our ability to achieve our business objectives. We compete for qualified management and scientific personnel with other life science companies, universities and research institutions, particularly those focusing on genomics. Competition for these individuals, particularly in the San Francisco Bay area, is intense, and the turnover rate can be high. Our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating existing employees. Failure to attract and retain management and scientific personnel could materially adversely affect our business, financial condition and results of operations.
Our results may be impacted by changes in foreign currency exchange rates.
Since we sell and source products in many different countries, changes in exchange rates could adversely affect our cash flows and results of operations in the future. Furthermore, reported sales and purchases made in non-U.S. currencies, when translated into U.S. dollars for financial reporting purposes, fluctuate due to exchange rate movement. We cannot predict the effect of exchange rate fluctuations on future sales and operating results.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease the trading price of our common stock.
We must maintain effective disclosure and internal controls to provide reliable financial reports. We have been assessing our controls to identify areas that need improvement. Based on our evaluation as of
December 31, 2015
, we concluded that our disclosure controls and procedures were effective as of
December 31, 2015
, however, we have identified material weaknesses in the past and may do so again in the future. Failure to maintain the improvements in our controls as necessary to maintain an effective system of such controls could harm our ability to accurately report our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our common stock.
Any failure to maintain adequate disclosure and internal controls may result in restatements of our financial statements and may cause us to become subject to additional risks and uncertainties, including, among others, increased professional fees and expenses, the increased possibility of legal proceedings and review by the Securities and Exchange Commission (the “SEC”) and other regulatory bodies and could subject us to civil or criminal penalties, shareholder class actions or derivative actions. We could face monetary judgments, penalties or other sanctions that could have a material adverse effect on our business, financial condition and results of operations and could cause our stock price to decline.
Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products or services or adversely impact our stock price.
Our commercial success depends in part on our non-infringement of the patents or proprietary rights of third parties and the ability to protect our own intellectual property.
Third parties may assert that we are employing their proprietary technology without authorization even if we are not. As we enter new markets, we expect that competitors will likely assert that our products infringe their intellectual property rights as part of a business strategy to impede our successful entry into those markets. Third parties may have obtained, and may in the future obtain, patents and claim that our products or activities infringe these patents. We could incur substantial costs and divert the attention of our management and technical personnel in defending ourselves against these claims even if we are eventually successful in defending ourselves against these claims. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which effectively could block our ability to further develop, commercialize, manufacture, use and sell methods and products, and could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties, or be prohibited from making, using or selling certain methods and/or products. We may not be able to obtain these licenses at a reasonable cost, or at all. In that event, we could encounter delays in product introductions while we attempt to develop alternative methods or products. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our ability to grow and to attain profitability.
Our proprietary intellectual property rights may not adequately protect our products and technologies.
Although we have filed a number of United States and international patent applications, we presently have six patents issued in the United States, which do not cover all of our products and technologies. Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for our products and technologies. Patent law relating to claims in the technology fields in which we operate is uncertain, so we cannot be assured the patent rights we have, or may obtain in future, will be valuable or enforceable. We may only be able to protect products and technologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. Furthermore, the degree of future protection of our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep a competitive advantage.
The patent positions of life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. The laws of some countries other than the United States do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals, which could make it difficult for us to stop the infringement of any patents we may obtain in such countries. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example:
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we might not have been the first to conceive or reduce to practice one or more inventions disclosed in our pending patent applications;
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we might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative products and technologies or duplicate any of our products and technologies;
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it is possible that none of our pending patent applications will result in issued patents, and even if they issue as patents, they may not provide a basis for commercially viable products, and/or may not provide us with any competitive advantages, or may be challenged and invalidated by third parties;
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we may not develop additional proprietary products and technologies that are patentable; and
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third-party patents may have an adverse effect on our ability to continue to grow our business.
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We have applied, and continue to apply, for patents covering our intellectual property (e.g., products and technologies and uses thereof), as we deem appropriate. However, we may fail to apply for patents on products and/or technologies in a timely fashion or at all.
We also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we attempt to use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or scientific and other advisors may unintentionally or willfully disclose our information to competitors. If we were to attempt to enforce a claim that a third-party had illegally obtained and was using our trade secrets, it could be expensive and time consuming, and the outcome could be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets than courts inside the United States. Moreover, if our competitors independently develop equivalent knowledge, methods and know-how, it may be difficult for us to enforce our intellectual property and our business could be harmed.
If we are not able to defend the patent or trade secret protection position of our products and technologies, then we may not be able to exclude competitors from developing or marketing competing products, and we may not generate enough revenue from product sales to justify the cost of development of our products and to achieve or maintain profitability.
We do not presently have significant intellectual property rights licensed from third parties but, in the future, we may have to license intellectual property from key strategic partners. We may become reliant upon such third parties to protect their intellectual property rights to any licensed technology. Such third parties may not protect the intellectual property rights that we license from them and we may be unable defend such intellectual property rights on our own or we may have to undertake costly litigation to defend the intellectual property rights of such third parties. There can be no assurances that we will continue to have proprietary rights to any of the intellectual property that we license from such third parties or otherwise have the right to use through similar strategic relationships. Any loss or limitations on use with respect to our right to use such intellectual property licensed from third parties or otherwise obtained from third parties or with whom we have entered into strategic relationships could negatively impact our competitive advantage.
We face intense competition in our target markets, which could render our products and/or technologies obsolete, result in significant price reductions or substantially limit the volume of products that we sell. If we cannot continuously develop and commercialize new products better than our competitors, our revenue may not grow as intended and we may not be able to become or remain profitable.
Future competition will likely come from existing competitors as well as other companies seeking to develop new technologies for analyzing genetic information, such as next generation sequencing. Some of our competitors have various products and/or methodologies for gene detection, expression, characterization, and/or analyses that may be competitive with our products and/or methodologies. For example, companies such as 10X Genomics, Inc., Agilent Technologies, Inc., Fluidigm Corporation, Illumina, Inc., PerkinElmer, Inc. and Thermo Fisher Scientific, Inc. have products for genetic analysis that are directly competitive with certain of our products. In addition, pharmaceutical and biotechnology companies have significant needs for genomic information and may choose to develop or acquire competing technologies to meet these needs. In the molecular diagnostics field, competition will likely come from established diagnostic companies, companies developing and marketing DNA probe tests for genetic and other diseases and other companies conducting research on new technologies to ascertain and analyze genetic information. Further, in the event that we develop new technology and products that compete with existing technology and products of well-established companies, there can be no guarantee that the marketplace will readily adopt any such new technology and products that we may introduce in the future.
The market for genetic research and molecular diagnostic products is highly competitive, with several large companies already having significant market share. Many of our competitors have significantly greater financial, technical, marketing and other resources than we do. In addition, many current and potential competitors have greater name recognition, more extensive customer bases, well developed and productive collaborative arrangements with key companies and academic researchers and access to proprietary genetic content. Established genetic research and diagnostic companies have an installed base of instruments in several markets, including clinical and reference laboratories. These companies have formed alliances with genomics companies that provide them access to genetic information that may be incorporated into their diagnostic tests. We may not be able to compete effectively with these companies.
Our manufacturing capacity may limit our ability to sell our products.
There are uncertainties inherent in expanding our manufacturing capabilities and we may not be able to increase our capacity in a timely manner. For example, manufacturing and product quality issues may arise as we increase production rates at our manufacturing facility and launch new products. As a result, we may experience difficulties in meeting customer demand, in which case we could lose customers or be required to delay new product introductions, and demand for our products could decline. Due to the intricate nature of manufacturing products, we may encounter similar or previously unknown manufacturing difficulties in the future that could significantly reduce production yields, impact our ability to launch or sell these products, or to produce them economically, prevent us from achieving expected performance levels or cause us to set prices that hinder wide adoption by customers.
If demand for our products is reduced, our manufacturing capacity could be under-utilized and some of our long-lived assets, including facilities and equipment, may be impaired, which would increase our expenses. Changes in demand for our products, and changes in our customers’ product needs, could have a variety of negative effects on our competitive position and our financial results, and, in certain cases, may reduce our revenue, increase our costs, or lower our gross margin percentage.
We may lose customers or sales if we are unable to meet customer demand for our products on a timely and cost-effective basis, or if we are unable to ensure the proper performance and quality of our products.
We produce our products in an innovative and complicated manufacturing process which has the potential for significant variability in manufacturing yields. We may encounter difficulties in manufacturing our products and, due to the complexity of our products and our manufacturing process, we may experience delays in the manufacture of our products or fail to ensure their proper performance or quality. As we develop new and enhanced products, we must be able to resolve in a timely, cost-effective manner manufacturing issues that may arise from time to time.
If product sale quantities or the mix of products sold differs materially from our expectations, this could adversely impact our financial results. Difficulties in meeting customer, collaborator and internal demand could also cause us to lose customers or require us to delay new product introductions, which could in turn result in reduced demand for our products.
We rely on internal quality control procedures to verify our manufacturing processes. Due to the complexity of our products and manufacturing process, however, it is possible that products that do not meet all of our performance specifications may not be identified before they are shipped. If our products do not consistently meet our customers' performance expectations, demand for our products will decline. In addition, we do not maintain any backup manufacturing capabilities for the production of our products. Any interruption in our ability to continue operations at our existing manufacturing facilities could delay our ability to develop or sell our products, which could result in lost revenue and seriously harm our business, financial condition and results of operations.
Our reliance on outside manufacturers and suppliers to provide certain instruments could subject us to risks that may harm our business.
We outsource the manufacturing of our instruments to a limited number of suppliers. From time to time we may change manufacturers, and any new manufacturer engaged by us may not perform as expected. If our vendors experience shortages or delays in their manufacture of our instruments, or if we experience quality problems with our vendors, then our shipment schedules could be significantly delayed or costs significantly increased. Certain of our instruments may be manufactured or supplied by a single vendor, which could magnify the risk of shortages or delays. If supplies from our vendors do not meet our requirements or were delayed or interrupted for any reason, we would not be able to commercialize our products successfully or in a timely fashion, and our business could be adversely impacted.
We may be adversely affected by environmental, health and safety laws, regulations and liabilities.
We are subject to a variety of federal, state and municipal environmental, health and safety laws based on our use of hazardous materials in both our manufacturing and research and development operations. These laws and regulations often require expensive compliance procedures or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations can result in substantial fines, criminal sanctions and/or operational shutdown. Furthermore, we may become liable for the investigation and cleanup of environmental contamination, whether intentional or unintentional, and we could be responsible for damages related to the clean-up of such contamination or individual injury caused by such contamination. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials as a result of such contamination. Some of these matters may require expending significant amounts for investigation, cleanup or other costs. Events such as these could negatively impact our financial position.
Our sales, marketing and technical support organization may limit our ability to sell our products.
We currently have limited resources available for sales, marketing and technical support services as compared to some of our primary competitors. In order to effectively commercialize our genetic analysis systems and other products to follow, we will need to expand our sales, marketing and technical support staff both domestically and internationally. We may not be successful in establishing or maintaining either a direct sales force or distribution arrangements to market our products and services. In addition, we compete primarily with much larger companies that have larger sales and distribution staffs and a significant installed base of products in place, and the efforts of a limited sales and marketing force may not be sufficient to build the market acceptance of our products required to support continued growth of our business.
Consolidation trends in both our market and many of our customers' markets have increased competition.
There has been a trend toward industry consolidation in our markets for the past several years. We expect this trend toward industry consolidation to continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in operating results and could harm our business.
In addition, there has been a trend toward consolidation in many of the customer markets we sell to, in particular the pharmaceutical industry. Consolidation in our customer markets results in increased competition for important market segments and fewer available accounts, and larger consolidated customers may be able to exert increased pricing pressure on companies in our market.
We market and sell, and plan to market and sell, our products in numerous international markets. If we are unable to manage our international operations effectively, our business, financial condition and results of operations could be adversely affected.
We market and sell, and plan to market and sell, our products in a number of foreign countries, including Canada, European Union countries, Japan, China and other East Asian countries, and we are therefore subject to risks from failure to comply with foreign laws and regulations that differ from those under which we operate in the U.S. as well as U.S. rules and regulations that govern foreign activities such as the U.S. Foreign Corrupt Practices Act. In addition, we may be adversely affected by other risks associated with operating in foreign countries. Economic uncertainty in some of the geographic regions in which we operate, including developing regions, could result in the disruption of commerce and negatively impact cash flows from our operations in those areas.
Risks inherent in international operations include, but are not limited to, the following:
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changes in general economic and political conditions in the countries in which we operate;
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unexpected adverse changes in foreign and U.S. laws or regulatory requirements, including those with respect to permitting, export duties and quotas;
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changes by foreign governments in their support of genetic analysis research;
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trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make us less competitive in some countries;
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differing local preferences and expectations for laboratory equipment and supplies;
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differing approaches to genetic analysis research at pharmaceutical and biotech companies, academic and private research centers and other diagnostic companies;
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fluctuations in exchange rates, which may affect demand for our products and may adversely affect our profitability;
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difficulty of, and costs relating to compliance with, the different commercial and legal requirements of the overseas markets in which we offer and sell our products;
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differing labor regulations;
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difficulty in establishing, staffing and managing non-U.S. operations;
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potential changes in or interpretations of tax laws;
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inability to obtain, maintain or enforce intellectual property rights; and
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difficulty in enforcing agreements in foreign legal systems.
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Our business in foreign markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business, which in turn could adversely affect our business, financial condition and results of operations.
If we fail to maintain or monitor our information systems our business could be adversely affected.
We depend on information systems to control our manufacturing, customer service, distribution, website and the processes for managing inventory, fulfilling orders, responding to inquiries, contributing to our overall internal control processes, maintaining records of our property, plant and equipment, and recording and paying amounts due vendors and other creditors. If we were to experience a prolonged disruption in our information systems that involve interactions with customers and suppliers, it could result in the loss of sales and customers and/or increased costs, which could adversely affect our business.
Security breaches, including with respect to cybersecurity, and other disruptions could compromise our information and expose us to liability, which could cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information, and that of our customers, and personally identifiable information of our customers and employees. The secure maintenance of this information is important to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such breach could compromise our systems and the information stored there could be accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and damage to our reputation.
We may be exposed to liability due to product defects.
The risk of product liability claims is inherent in the testing, manufacturing, marketing and sale of research products for therapeutic and diagnostic development. We may seek to acquire additional insurance for clinical liability risks. We may not be able to obtain such insurance or general product liability insurance on acceptable terms or in sufficient amounts. A product liability claim or recall could negatively impact our financial position.
We may not realize the anticipated benefits of past or future acquisitions, and integration of these acquisitions may disrupt our business and management.
In January 2014, we acquired from IntegenX Inc. (“IntegenX”) substantially all of the assets of its product line used in connection with developing, manufacturing, marketing and selling instruments and reagents relating to library preparation for next generation sequencing, including the Apollo 324 instrument and the PrepX reagents (the “Apollo Business”). In the future we may acquire additional companies, product lines, or technologies or enter into joint ventures or other strategic initiatives. We may not realize the anticipated benefits of this acquisition or any other future acquisition and any acquisition has numerous risks. These risks include the following: difficulty in assimilating the operations and personnel of the acquired company; difficulty in effectively integrating the acquired technologies or products with our current technologies and products; difficulty in maintaining controls, procedures, and policies during the transition and integration; disruption of our ongoing business and distraction of our management and employees from other opportunities and challenges due to integration issues; difficulty integrating the acquired company’s accounting, management information, and other administrative systems; inability to retain key technical and sales personnel of the acquired business; inability to retain key customers, vendors, and other business partners of the acquired business; inability to achieve the financial and strategic goals for the acquired and combined businesses; incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results; potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among other things; potential inability to assert that internal controls over financial reporting are effective. Mergers and acquisitions of companies are inherently risky, and ultimately, if we do not complete the integration of the acquired business successfully and in a timely manner, we may not realize the anticipated benefits of the acquisitions to the extent anticipated, which could adversely affect our business, financial condition, or results of operations.
We may pursue acquisitions and other strategic transactions, which may be very risky and may not be successful.
Our strategy envisions, if an opportunistic target is identified, future growth from acquiring and integrating similar operations and/or product lines. There can be no assurance that we will be able to identify suitable acquisition candidates and, once identified, to negotiate successfully their acquisition at a price or on terms and conditions favorable to us, or to integrate the operations of such acquired businesses with the existing operations. In addition, we compete for acquisition candidates with other entities, some of which have greater financial resources than ours. Failure to implement successfully our acquisition strategy would limit our potential growth. Furthermore, if we enter into strategic discussions with a potential acquisition candidate whose business is competitive to ours, we must be very careful to prevent the acquisition target from obtaining sensitive, proprietary information about us that it could use to our detriment if a deal is not completed.
We may consider acquisitions or strategic transactions that could result in the target’s shareholders receiving a substantial amount, or even a majority of our voting securities. If we completed such a transaction, our current shareholders would have a reduced influence on our operations, and there may be significant changes in our management and board of directors. Any acquisition we may pursue also involves the risk of diverting our management’s attention from the normal daily operations of our business. Also, there is always a risk that an acquisition may not be profitable. Any strategic transaction that we pursue may involve substantial integration costs and risks. Many resources and assets of the proposed strategic partner may be duplicative of our own resources and assets. We may assume liabilities in connection with acquisitions that we may not fully understand or which may be more significant than we anticipate. We may also anticipate that strategic transactions will provide cost savings or growth opportunities that may never be realized.
An interruption in our ability to manufacture our products or an inability to obtain key components or raw materials due to a catastrophic disaster or infrastructure could adversely affect our business.
We currently manufacture in a single location. Our manufacturing facility is located in the San Francisco Bay Area in California. This area is subject to natural disasters such as earthquakes, wildfires, or floods. If a natural disaster were to damage our facility significantly or if other events were to cause our operations to fail, we may be unable to manufacture our products, provide our services, or develop new products. In addition, if the capabilities of our suppliers and component manufacturers are limited or stopped, due to disasters, quality, regulatory, or other reasons, it could negatively impact our ability to manufacture our products.
There is no assurance that we will be able to move to new headquarters upon the termination of the lease for our current headquarters without any effect to our business.
The Company conducts its operations from leased premises. We have received written notice from the landlord for our headquarters at 7400 Paseo Padre Drive, Fremont, California, that our lease will be terminated effective April 12, 2016. We use this location as our corporate headquarters, laboratory and manufacturing facility. Effective March 1, 2016, we entered into a new lease for a facility located at 34700 Campus Drive, Fremont, California, to replace the terminated lease. If we do not vacate our present premises by April 12, 2016, we may become liable for significant damages, along with a substantial increase in rent. There is no assurance that we will be able to move into our new headquarters without any material interruption to our business.
Risks Related to Our Industry
Our success depends upon the continued emergence and growth of markets for analysis of genetic variation and biological function.
We design our products primarily for applications in the life sciences and pharmaceutical industries. The usefulness of our technology depends in part upon the availability of genetic data and its usefulness in identifying or treating disease. We are focusing on markets for analysis of genetic variation and biological function, namely gene expression profiling. This market is new and emerging, and may not develop as quickly as we anticipate, or reach its full potential. Other methods of analysis of genetic variation and biological function may emerge and displace the methods we are developing. Also, researchers may not seek or be able to convert raw genetic data into medically valuable information through the analysis of genetic variation and biological function. In addition, factors affecting research and development spending generally, such as changes in the regulatory environment affecting life sciences and pharmaceutical companies, and changes in government programs that provide funding to companies and research institutions, could harm our business. If useful genetic data is not available or if our target markets do not develop in a timely manner, demand for our products may grow at a slower rate than we expect, and we may not be able to achieve or sustain profitability.
We may not be able to deliver acceptable products to our customers due to the rapidly evolving nature of genetic sequence information upon which our products are based.
The genetic sequence information upon which we may rely to develop and manufacture our products is contained in a variety of public and private databases throughout the world. These databases are rapidly expanding and evolving. In addition, the accuracy of such databases and resulting genetic research is dependent on various scientific interpretations, and it is not expected that global genetic research efforts will result in standardized genetic sequence databases for particular genomes in the near future.
Although we have implemented ongoing internal quality control efforts to help ensure the quality and accuracy of our products, the fundamental nature of our products requires us to rely on genetic sequence databases and scientific interpretations which are continuously evolving. As a result, these variables may cause us to develop and manufacture products that incorporate sequence errors or ambiguities. The magnitude and importance of these errors depends on multiple and complex factors that would be considered in determining the appropriate actions required to remedy any inaccuracies. Our inability to timely deliver acceptable products as a result of these factors would likely adversely affect our relationship with customers, and could negatively impact our financial condition.
We face risks associated with technological obsolescence and emergence of standardized systems for genetic analysis.
High throughput genetic analyses and quantitative detection methodologies (including, for example, PCR) are undergoing rapid evolution and technological changes. New technologies, techniques or products could emerge which might allow the packaging and analysis of genomic information at densities similar to, or even higher than, our existing or future technology. Other companies may begin to offer products that are directly competitive with, or are technologically superior to, our products. There can be no assurance that we will be able to maintain our technological advantages over emerging technologies in the future. Over time, we will need to respond to technological innovation in a rapidly changing industry. Standardization of tools and systems for genetic research is still ongoing and there can be no assurance that our products will emerge as the standard for genetic research. The emergence of competing technologies and systems as market standards for genetic research may result in our products becoming uncompetitive which would have an adverse effect on our business.
Our success depends on the continuous development of new products and our ability to manage the transition from our older products to new products.
We compete in markets that are new, intensely competitive, highly fragmented and rapidly changing, and many of our current and potential competitors have significantly greater financial, technical, marketing and other resources than we do. In addition, many current and potential competitors have greater name recognition, more extensive customer bases and access to proprietary genetic content. The continued success of our products will depend on our ability to produce products with smaller feature sizes and create greater information capacity at our current or lower costs. The successful development, manufacture and introduction of our new products is a complicated process and depends on our ability to manufacture and supply enough products in sufficient quantity and quality and at acceptable cost in order to meet customer demand. If we fail to keep pace with emerging technologies or are unable to develop, manufacture and introduce new products, we will become uncompetitive, our pricing and margins will decline, and our business will suffer.
Our failure to successfully manage the transition between our older products and new products may adversely affect our financial results. As we introduce new or enhanced products, we must successfully manage the transition from older products to minimize disruption in customers’ ordering patterns, avoid excessive levels of older product inventories and provide sufficient supplies of new products to meet customer demands. When we introduce new or enhanced products, we face numerous risks relating to product transitions, including the inability to accurately forecast demand and difficulties in managing different sales and support requirements due to the type or complexity of the new products.
Ethical, legal and social concerns surrounding the use of genetic information could reduce demand for our products.
Genetic testing has raised ethical issues regarding privacy and the appropriate uses of the resulting information. For these reasons, governmental authorities and others may call for limits on or regulation of the use of genetic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, such concerns may lead individuals to refuse to use genetics tests even if permissible. Any of these scenarios could reduce the potential markets for our products.
Our products and services, or the products and services of our customers, could become subject to regulation by the FDA or other regulatory agencies in the future.
Our products are currently labeled, promoted and sold to academic institutions, private research institutions, and pharmaceutical,
biotechnology and diagnostics companies for research purposes only, and not as diagnostic tests or medical devices. As products labeled, promoted and intended for research use only (“RUO”), they are not subject to regulation as medical devices by the FDA. Products labeled and intended for research use are not currently subject to regulation as medical devices by comparable agencies of other countries. However, the FDA or other regulators in the U.S. or elsewhere could disagree with our conclusion that our products are for research use only or deem our current marketing and promotional efforts as being inconsistent with RUO products. In addition, if we change the labeling or promotion of our products in the future to include indications for human diagnostic applications or medical uses, including treatment of diseases or medical conditions, or we have knowledge that our customers are using our products for clinical diagnostic or therapeutic purposes, our products or related applications could be subject to additional regulation as in vitro diagnostic devices, such as under the FDA’s pre- and post-market regulations for medical devices. For example, if we wish to label, promote or advertise our products for use in performing clinical diagnostics, we would first need to obtain FDA pre-market clearance or approval (depending on any product’s specific intended use and any such modified labeling claims), unless otherwise exempt from clearance or approval requirements. Obtaining FDA clearance or approval can be expensive and uncertain, and generally takes several months to years to obtain, and may require detailed and comprehensive scientific and clinical data. Notwithstanding the expense, these efforts may never result in FDA clearance or approval. Even if we were to obtain regulatory approval or clearance, it may not be for the uses we believe are important or commercially attractive.
Further, the FDA may expand its regulatory oversight of our products or the products of our customers, which could impose restrictions on our ability to market and sell our products. For example, our customers may elect to use our RUO labeled products in their own laboratory developed tests (“LDTs”), for clinical diagnostic use. However, the market for LDTs could shrink significantly if the FDA decides to actively regulate LDTs. Historically, the FDA has generally not regulated LDTs, which are currently regulated under the Clinical Laboratory Improvement Amendments (“CLIA”). However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for regulating LDTs, which are designed, manufactured, and used within a single laboratory. The draft guidance documents provide the anticipated details through which the FDA would propose to establish an LDT oversight framework, including premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared companion diagnostics currently on the market. The guidance documents, if and when finalized, may significantly impact the sales of our products and how customers use our products, and may require us to change our business model in order to maintain compliance with these laws.
Additionally, on November 25, 2013, the FDA issued Final Guidance “Distribution of In Vitro Diagnostic Products Labeled for Research Use Only.” The guidance emphasizes that the FDA will review the totality of the circumstances when it comes to evaluating whether equipment and testing components are properly labeled as RUO. The final guidance states that merely including a labeling statement that the product is for research purposes only will not necessarily render the device exempt from the FDA’s clearance, approval, and other regulatory requirements if the circumstances surrounding the distribution of the product indicate that the manufacturer knows its product is, or intends for its product to be, offered for clinical diagnostic uses. These circumstances may include written or verbal marketing claims or links to articles regarding a product’s performance in clinical applications and a manufacturer’s provision of technical support for clinical applications. If the FDA imposes significant changes to the regulation of LDTs, or modifies its approach to our products labeled and intended for research use only, it could reduce our revenue or increase our costs and adversely affect our business, prospects, results of operations or financial condition. In addition, if the FDA determined that our products labeled for research use only were intended, based on a review of the totality of circumstances, for use in clinical investigation or diagnosis, those products could be considered misbranded or adulterated under the Federal Food, Drug, and Cosmetic Act and subject to recall or other enforcement action.
We may be required to proactively achieve compliance with certain FDA regulations and to conform our manufacturing operations to the FDA’s good manufacturing practice regulations for medical devices, known as the Quality System Regulation (“QSR”), as part of our contracts with customers or as part of our collaborations with third parties. In addition, we may voluntarily seek to conform our manufacturing operations to QSR requirements. For clinical diagnostic products that are regulated as medical devices, the FDA enforces the QSR through pre-approved inspections and periodic unannounced inspections of registered manufacturing facilities. If we are subject to QSR requirements, the failure to comply with those requirements or take satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter or an untitled letter, a delay in approving or clearing, or a refusal to approve or clear, our products, a shutdown of manufacturing operations, a product recall, civil or criminal penalties or other sanctions, which could in turn cause our sales and business to suffer.
Risks Related to Our Organization
Even though we are not a California corporation, our common stock could still be subject to a number of key provisions of the California General Corporation Law.
Under Section 2115 of the California General Corporation Law (“CGCL”), corporations not organized under California law may still be subject to a number of key provisions of the CGCL. This determination is based on whether the corporation has significant
business contacts with California and if more than 50% of its voting securities of record are held by persons having addresses in California. In the immediate future, the majority of our business operations, revenue and payroll will be conducted in, derived from, and paid to residents of California. Therefore, depending on our ownership, we could be subject to some provisions of the CGCL. Among the more important provisions are those relating to the election and removal of directors, cumulative voting, standards of liability and indemnification of directors, distributions, dividends and repurchases of shares, stockholder meetings, approval of some corporate transactions, dissenters’ and appraisal rights, and inspection of corporate records. If we are required to comply with these provisions, this compliance could cause us to incur additional administrative and legal expenses and divert our management’s time and attention from the operation of our business.
The requirements of being a public company may strain our resources, divert our management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations. We are subject to the Nasdaq Capital Market’s rules and regulations. Compliance with these rules and regulations have increased our legal and financial compliance costs, made some activities more difficult, time-consuming or costly and increased demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and results of operations. Although we currently employ staff to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.
Risks Related to Our Common Stock
Our stock price could be volatile.
The market price of the common stock has fluctuated significantly since it was first quoted on the OTC Bulletin Board on June 6, 2007. Since this date, through
December 31, 2015
, the intra-day trading price has fluctuated from a low of $0.70 to a high of $3,130.79. The price of our common stock may continue to fluctuate significantly in response to factors, some of which are beyond our control, including the following:
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actual or anticipated variations in operating results;
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changes in the economic performance and/or market valuations of other life science companies;
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our announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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additions or departures of key personnel; and
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sales or other transactions involving our capital stock.
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Even with our common stock being traded on the Nasdaq Capital Market, there can be no assurance that investors will be interested in purchasing our common stock when our stockholders want to dispose of their shares or at prices that are attractive to our stockholders.
There can be no assurance that we will continue to meet the requirements for our common stock to trade on the Nasdaq Capital Market.
Since becoming listed on the Nasdaq Capital Market on August 22, 2014, we have been required to comply with certain Nasdaq listing requirements, including, without limitation, with respect to our corporate governance, finances and stock price. If we fail to meet any of these requirements, our shares could be delisted. In particular, Nasdaq rules include a $1.00 minimum bid price requirement.
On December 21, 2015, we received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market indicating that we were not in compliance with the $1.00 minimum bid price requirement. In accordance with Nasdaq listing rules, we have 180 calendar days, or until June 20, 2016, to regain compliance with minimum bid price requirement. To regain compliance,
the bid price of our common stock must close at or above $1.00 for a minimum of ten consecutive business days at any time before June 20, 2016. On June 20, 2016, if we meet the Nasdaq Capital Market initial listing criteria, except for the minimum bid price requirement, we may be provided with an additional 180 calendar-day compliance period. If we are not eligible for an additional compliance period at that time, Nasdaq staff will provide us with written notification that our common stock will be delisted. Upon such notice, we may appeal the Nasdaq staff’s delisting determination to a Nasdaq Listing Qualifications Panel pursuant to the procedures set forth in the applicable Nasdaq Marketplace Rules. There can be no assurance that, if we appeal any such determination of the Nasdaq staff, such appeal would be successful.
There can be no assurances that we will regain compliance with Nasdaq’s minimum bid price requirement, or, even if we do regain compliance, that we will be able to maintain our Nasdaq listing.
If our common stock were delisted from the Nasdaq Capital Market, it would likely lead to a number of negative implications, including an adverse effect on the price of our common stock, reduced liquidity in our common stock, the loss of federal preemption of state securities laws and greater difficulty in obtaining financing. In the event of a delisting, we would expect to take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
Stockholders may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock and our preferred stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are authorized to issue an aggregate of 310,000,000 shares of capital stock consisting of 300,000,000 shares of common stock, par value $0.001 per share, of which 18,712,631 shares were issued and outstanding as of
December 31, 2015
, and 10,000,000 shares of
preferred stock, par value $0.001 per share, of which 430 (each convertible into 10,000 shares of common stock, subject to certain ownership limitations) were issued and outstanding as of
December 31, 2015
. The Series 2 Convertible Preferred Stock has no voting rights. Future issuances of preferred stock will have preferences and rights as may be determined by our board of directors at the time of issuance. Specifically, our board of directors has the authority to issue preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into common stock, which could decrease the relative voting power of the common stock or result in dilution to our existing stockholders.
In addition, as of
December 31, 2015
, we had notes in favor of Malaysian Technology Development Corporation Sdn. Bhd. (“MTDC”) outstanding with a face value of $5.2 million which we could have settled by issuing an aggregate of 6,550,768 shares of our common stock, and we had 450,676 outstanding restricted stock units, outstanding options to purchase an aggregate of 477,438 shares of our common stock, outstanding unit warrants to purchase 64,700 shares of our common stock and 32,350 warrants to purchase shares of our common stock, and outstanding warrants to purchase an aggregate of 23,032,838 shares of our common stock. The future vesting or exercise of these securities will subject our existing stockholders to experience dilution of their ownership interests.
We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any additional shares of our common stock may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock are then traded.
If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research reports about our business, our share price and trading volume could decline.
The trading market for our common stock depends, to some extent, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares or change their opinion of our business prospects, our share price would likely decline. If one or
more of these analysts ceases coverage of our company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Stockholders should not anticipate receiving cash dividends on our common stock.
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain future earnings to support operations and to finance expansion and therefore do not anticipate paying any cash dividends on our common stock in the foreseeable future.