ITEM 1A. RISK FACTORS
An investment in our securities
involves a high degree of risk. You should carefully consider the risks described below as well as the other information in this Annual
Report before deciding to invest in or maintain your investment in our company. The risks described below are not intended to be an all-inclusive
list of all of the potential risks relating to an investment in our securities. Any of the risk factors described below could significantly
and adversely affect our business, prospects, financial condition and results of operations. Additional risks and uncertainties not currently
known or that are currently considered to be immaterial may also materially and adversely affect our business. As a result, the trading
price or value of our securities could be materially adversely affected and you may lose all or part of your investment.
Risks Relating to Our Financial Position and Need for Additional
Capital
We have incurred significant losses and expect to continue to
incur losses for the foreseeable future.
We have never been profitable.
We have generated revenues during the fiscal years ended March 31, 2022 and March 31, 2021, in the amounts of $294,165, and $659,104,
respectively, primarily from our contracts with the NIH. Our revenues, from research grants, continue to be insufficient to cover our
cost of operations. It is possible that we may not be able to enter into future government contracts beyond our current contract with
the NIH that ends in September 2022. Future profitability, if any, will require the successful commercialization of our Hemopurifier technology,
other products that may emerge from our potential diagnostic products or from additional government contract or grant income. We may not
be able to successfully commercialize the Hemopurifier or any other products, and even if commercialization is successful, we may never
be profitable.
We will require additional financing to sustain our operations,
achieve our business objectives and satisfy our cash obligations, which may dilute the ownership of our existing stockholders.
We will require significant
additional financing for our operations and for expected additional future clinical trials in the U.S., regulatory clearances, and continued
research and development activities for the Hemopurifier and other future products. In addition, as we expand our activities, our overhead
costs to support personnel, laboratory materials and infrastructure will increase. We may also choose to raise additional funds in debt
or equity financings if they are available to us on reasonable terms to increase our working capital and to strengthen our financial position.
Any sale of additional equity or convertible debt securities could result in dilution of the equity interests of our existing stockholders.
Additionally, new investors may require that we and certain of our stockholders enter into voting arrangements that give them additional
voting control or representation on our Board of Directors. If required financing is unavailable to us on reasonable terms, or at all,
we may be unable to support our operations, including our research and development activities, which would have a material adverse effect
on our ability to commercialize our products or continue our business.
Risks Related to Our Business Operations
We face intense competition in the medical device industry.
We compete with numerous U.S.
and foreign companies in the medical device industry, and many of our competitors have greater financial, personnel, operational and research
and development resources than we do. We believe that because the field of exosome research is burgeoning, multiple competitors are or
will be developing competing technologies to address exosomes in cancer. Progress is constant in the treatment and prevention of viral
diseases, so the opportunities for the Hemopurifier may be reduced there as well. Diagnostic technology may be developed that can supplant
diagnostics we are developing for neurodegenerative diseases and cancer. Our commercial opportunities will be reduced or eliminated if
our competitors develop and market products for any of the diseases we target that:
· are more effective;
· have fewer or less severe adverse side effects;
· are better tolerated;
· are more adaptable to various modes of dosing;
· are easier to administer; or
· are less expensive than the products or product candidates we are developing.
Even if we are successful
in developing the Hemopurifier and potential diagnostic products, and obtain FDA and other regulatory approvals necessary for commercializing
them, our products may not compete effectively with other successful products. Researchers are continually learning more about diseases,
which may lead to new technologies for treatment. Our competitors may succeed in developing and marketing products that are either more
effective than those that we may develop, alone or with our collaborators, or that are marketed before any products we develop are marketed.
Our competitors include fully integrated pharmaceutical companies and biotechnology companies as well as universities and public and private
research institutions. Many of the organizations competing with us have substantially greater capital resources, larger research and development
staffs and facilities, greater experience in product development and in obtaining regulatory approvals, and greater marketing capabilities
than we do. If our competitors develop more effective pharmaceutical treatments for infectious disease or cancer, or bring those treatments
to market before we can commercialize the Hemopurifier for such uses, we may be unable to obtain any market traction for our products,
or the diseases we seek to treat may be substantially addressed by competing treatments. If we are unable to successfully compete against
larger companies in the pharmaceutical industry, we may never generate significant revenue or be profitable.
We have limited experience in identifying
and working with large-scale contracts with medical device manufacturers; manufacture of our devices must comply with good manufacturing
practices in the U.S.
To achieve the levels of production
necessary to commercialize our Hemopurifier and any other future products, we will need to secure large-scale manufacturing agreements
with contract manufacturers which comply with good manufacturing practice standards and other standards prescribed by various federal,
state and local regulatory agencies in the U.S. and any other country of use. We have limited experience coordinating and overseeing the
manufacture of medical device products on a large-scale. It is possible that manufacturing and control problems will arise as we attempt
to commercialize our products and that manufacturing may not be completed in a timely manner or at a commercially reasonable cost. In
addition, we may not be able to adequately finance the manufacture and distribution of our products on terms acceptable to us, if at all.
If we cannot successfully oversee and finance the manufacture of our products if they obtain regulatory clearances, we may never generate
revenue from product sales and we may never be profitable.
Our Hemopurifier technology may become obsolete.
Our Hemopurifier product may
be made unmarketable prior to commercialization by us by new scientific or technological developments by others with new treatment modalities
that are more efficacious and/or more economical than our products. The homeland security industry is growing rapidly with many competitors
that are trying to develop products or vaccines to protect against infectious disease. Any one of our competitors could develop a more
effective product which would render our technology obsolete. Further, our ability to achieve significant and sustained penetration of
our key target markets will depend upon our success in developing or acquiring technologies developed by other companies, either independently,
through joint ventures or through acquisitions. If we fail to develop or acquire, and manufacture and sell, products that satisfy our
customers’ demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive
products, then market acceptance of our products could be reduced and our business could be adversely affected. Our products may not remain
competitive with products based on new technologies.
Our success is dependent in part on our
executive officers.
Our success depends to a critical
extent on the continued services of our Chief Executive Officer, Charles J. Fisher, Jr., M.D., our Chief Financial Officer, James B. Frakes,
our Chief Medical Officer, Steven LaRosa, M.D., and our Chief Business Officer, Guy Cipriani. If any of these key executive officers were
to leave us, we would be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay
in the implementation of our business plan and the diversion of limited working capital. The unique knowledge and expertise of these individuals
would be difficult to replace within the biotechnology field. We do not currently carry key man life insurance policies on any of our
key executive officers which would assist us in recouping our costs in the event of the loss of those officers. If any of our key officers
were to leave us, it could make it impossible, if not cause substantial delays and costs, to implement our long-term business objectives
and growth.
Our inability to attract and retain qualified
personnel could impede our ability to achieve our business objectives.
We have 14 full-time employees.
We utilize, whenever appropriate, consultants in order to conserve cash and resources.
Although we believe that these
employees and consultants will be able to handle most of our additional administrative, research and development and business development
in the near term, we will nevertheless be required over the longer-term to hire highly skilled managerial, scientific and administrative
personnel to fully implement our business plan and growth strategies. Due to the specialized scientific nature of our business, we are
highly dependent upon our ability to attract and retain qualified scientific, technical and managerial personnel. Competition for these
individuals, especially in San Diego, California, where many biotechnology companies are located, is intense and we may not be able to
attract, assimilate or retain additional highly qualified personnel in the future. We may not be able to engage the services of qualified
personnel at competitive prices or at all, particularly given the risks of employment attributable to our limited financial resources
and lack of an established track record. Also, if we are required to attract personnel from other parts of the U.S. or abroad, we may
have significant difficulty doing so due to the high cost of living in the Southern California area and due to the costs incurred with
transferring personnel to the area. If we cannot attract and retain qualified staff and executives, we will be unable to develop our products
and achieve regulatory clearance, and our business could fail.
We plan to expand our operations, which
may strain our resources; our inability to manage our growth could delay or derail implementation of our business objectives.
We will need to significantly
expand our operations to implement our longer-term business plan and growth strategies. We will also be required to manage multiple relationships
with various strategic partners, technology licensors, customers, manufacturers and suppliers, consultants and other third parties. This
expansion and these expanded relationships will require us to significantly improve or replace our existing managerial, operational and
financial systems, procedures and controls; to improve the coordination between our various corporate functions; and to manage, train,
motivate and maintain a growing employee base. The time and costs to effectuate these steps may place a significant strain on our management
personnel, systems and resources, particularly given the limited amount of financial resources and skilled employees that may be available
at the time. We may not be able to institute, in a timely manner or at all, the improvements to our managerial, operational and financial
systems, procedures and controls necessary to support our anticipated increased levels of operations and to coordinate our various corporate
functions, or that we will be able to properly manage, train, motivate and retain our anticipated increased employee base. If we cannot
manage our growth initiatives, including our expansion of our clinical trials in India and potentially in other countries, we will be
unable to commercialize our products on a large-scale in a timely manner, if at all, and our business could fail.
As a public company with limited financial resources undertaking
the launch of new medical technologies, we may have difficulty attracting and retaining executive management and directors.
The directors and management
of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims,
as well as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws
imposing additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and management
are also becoming increasingly concerned with the availability of directors’ and officers’ liability insurance to pay on a
timely basis the costs incurred in defending such claims. While we currently carry directors’ and officers’ liability insurance,
such insurance is expensive and difficult to obtain. If we are unable to continue or provide directors’ and officers’ liability
insurance at affordable rates or at all, it may become increasingly more difficult to attract and retain qualified outside directors to
serve on our Board of Directors. We may lose potential independent board members and management candidates to other companies in the biotechnology
field that have greater directors’ and officers’ liability insurance to insure them from liability or to biotechnology companies
that have revenues or have received greater funding to date which can offer greater compensation packages. The fees of directors are also
rising in response to their increased duties, obligations and liabilities. In addition, our products could potentially be harmful to users,
and we are exposed to claims of product liability including for injury or death. We have limited insurance and may not be able to afford
robust coverage even as our products are introduced into the market. As a company with limited resources and potential exposures to management,
we will have a more difficult time attracting and retaining management and outside independent directors than a more established public
or private company due to these enhanced duties, obligations and potential liabilities.
If we fail to comply with extensive regulations
of U.S. and foreign regulatory agencies, the commercialization of our products could be delayed or prevented entirely.
Our Hemopurifier product is
subject to extensive government regulations related to development, testing, manufacturing and commercialization in the U.S. and other
countries. The determination of when and whether a product is ready for large-scale purchase and potential use will be made by the U.S.
Government through consultation with a number of governmental agencies, including the FDA, the National Institutes of Health, the Centers
for Disease Control and Prevention and the Department of Homeland Security. Our Hemopurifier has not received required regulatory approval
from the FDA, or any foreign regulatory agencies, to be commercially marketed and sold. The process of obtaining and complying with FDA
and other governmental regulatory approvals and regulations in the U.S. and in foreign countries is costly, time consuming, uncertain
and subject to unanticipated delays. Obtaining such regulatory approvals, if any, can take several years. Despite the time and expense
exerted, regulatory approval is never guaranteed. We also are subject to the following risks and obligations, among others:
· the FDA may require additional testing for safety and effectiveness;
· the FDA may change its approval policies and/or adopt new regulations.
Failure to comply with these
or other regulatory requirements of the FDA may subject us to administrative or judicially imposed sanctions, including:
· warning letters;
· civil penalties;
· criminal penalties;
· injunctions;
· product seizure or detention;
· product recalls; and
· total or partial suspension of productions.
Delays in successfully completing our planned
clinical trials could jeopardize our ability to obtain regulatory approval.
Our business prospects will
depend on our ability to complete studies, clinical trials, including our ongoing Early Feasibility trial in 10 to 12 patients in head
and neck cancer and our study in Covid-19 patients, obtain satisfactory results, obtain required regulatory approvals and successfully
commercialize our Hemopurifier product candidate. Completion of our clinical trials, announcement of results of the trials and our ability
to obtain regulatory approvals could be delayed for a variety of reasons, including:
· slow patient enrollment;
· serious adverse events related to our medical device candidates;
· unsatisfactory results of any clinical trial;
· delays resulting from the coronavirus pandemic.
Our development costs will
increase if we have material delays in any clinical trial or if we need to perform more or larger clinical trials than planned. If the
delays are significant, or if any of our product candidates do not prove to be safe or effective or do not receive required regulatory
approvals, our financial results and the commercial prospects for our product candidates will be harmed. Furthermore, our inability to
complete our clinical trials in a timely manner could jeopardize our ability to obtain regulatory approval for our Hemopurifier or any
other potential product candidates.
If we or our suppliers fail to comply with
ongoing FDA or foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products
could be subject to restrictions or withdrawal from the market.
Any product for which we obtain
clearance or approval, if any, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities
for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and
foreign regulatory bodies. In particular, we and our third-party suppliers may be required to comply with the FDA’s Quality System
Regulation, or QSR. These FDA regulations cover the methods and documentation of the design, testing, production, control, quality assurance,
labeling, packaging, sterilization, storage and shipping of our products. Compliance with applicable regulatory requirements is subject
to continual review and is monitored rigorously through periodic inspections by the FDA. If we, or our manufacturers, fail to adhere to
QSR requirements in the U.S., this could delay production of our products and lead to fines, difficulties in obtaining regulatory clearances,
recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn, have a material
adverse effect on our financial condition or results of operations.
In addition, the FDA assesses
compliance with the QSR through periodic announced and unannounced inspections of manufacturing and other facilities. The failure by us
or one of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately
respond to any adverse inspectional observations or product safety issues, could result in any of the following enforcement actions:
· unanticipated expenditures to address or defend such actions;
· operating restrictions or partial suspension or total shutdown of production;
· refusal to grant export approval for our products; or
· criminal prosecution.
Moreover, the FDA strictly
regulates the promotional claims that may be made about approved products. In particular, a product may not be promoted for uses that
are not approved by the FDA as reflected in the product’s approved labeling. However, companies may share truthful and not misleading
information that is otherwise consistent with a product’s FDA approved labeling. The FDA and other agencies actively enforce the
laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses
may be subject to significant civil, criminal and administrative penalties. The COVID-19 pandemic could also potentially affect the business
of the FDA and comparable authorities in other countries, which could result in delays in meetings related to planned clinical trials
and ultimately of reviews and approvals of our product candidates.
Any of these sanctions could
have a material adverse effect on our reputation, business, results of operations and financial condition. Furthermore, our key component
suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result
in our failure to produce our products on a timely basis and in the required quantities, if at all.
Delays, interruptions or the cessation of
production by our third-party suppliers of important materials or delays in qualifying new materials, may prevent or delay our ability
to manufacture or process our Hemopurifier.
Most
of the raw materials used in the process for manufacturing our Hemopurifier are available from more than one supplier. However, there
are materials within the manufacturing and production process that come from single suppliers. We do not have written contracts with all
of our single source suppliers, and at any time they could stop supplying our orders. FDA review of a new supplier may be required if
these materials become unavailable from our current suppliers. Although there may be other suppliers that have equivalent materials that
would be available to us, FDA review of any alternate suppliers, if required, could take several months or more to obtain, if able to
be obtained at all. Any delay, interruption or cessation of production by our third-party suppliers of important materials, or any delay
in qualifying new materials, if necessary, would prevent or delay our ability to manufacture our Hemopurifiers. In addition, an uncorrected
impurity, a supplier’s variation in a raw material or testing, either unknown to us or incompatible with its manufacturing process,
or any other problem with our materials, testing or components, would prevent or delay the release of our Hemopurifiers for use in our
clinical trials.
For example, in late 2020,
we identified during our device quality review procedures prior to product release that one of our critical suppliers had produced a Hemopurifier
component that was not produced to our specifications. Although no affected Hemopurifiers were released into our inventory or to any clinical
trial sites, we believe we have resolved this issue both with that initial supplier and with an additional supplier and that our current
Hemopurifier inventory combined with expected near term production runs from raw materials on hand will be sufficient for the conduct
of our current ongoing clinical trials, but it is possible that the need for our Hemopurifiers could increase and exceed our production.
Any such delays could limit our ability to meet demand for the Hemopurifier and delay our ongoing clinical trials, which would have a
material adverse impact on our business, results of operations and financial condition.
Difficulties in manufacturing our Hemopurifier
could have an adverse effect upon our expenses, our product revenues and our ability to complete our clinical trials.
We currently outsource most
of the manufacturing of our Hemopurifier. The manufacturing of our Hemopurifier is difficult and complex. To support our current clinical
trial needs, we comply with and intend to continue to comply with cGMP in the manufacture of our product. Our ability to adequately manufacture
and supply our Hemopurifier in a timely matter is dependent on the uninterrupted and efficient operation of our facilities and those of
third-parties producing raw materials and supplies upon which we rely in our manufacturing. The manufacture of our products may be impacted
by:
· natural disasters;
· changes in forecasts of future demand for product components;
· potential facility contamination by microorganisms or viruses;
· updating of manufacturing specifications;
· product quality success rates and yields; and
· global viruses and pandemics, including the current COVID-19 pandemic.
If efficient manufacture and
supply of our Hemopurifier is interrupted, we may experience delayed shipments or supply constraints. If we are at any time unable to
provide an uninterrupted supply of our products for our clinical trials, our ongoing clinical trials may be delayed, which could materially
and adversely affect our business, results of operations and financial conditions.
If our products, or malfunction of our products,
cause or contribute to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary
corrective actions or agency enforcement actions.
Under the FDA medical device
reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused
or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury
if the malfunction of the device or one of our similar devices were to recur. If we fail to report these events to the FDA within the
required timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving our products also could
result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement
action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication
of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
We outsource many of our operational and
development activities, and if any party to which we have outsourced certain essential functions fails to perform its obligations under
agreements with us, the development and commercialization of our lead product candidate and any future product candidates that we may
develop could be delayed or terminated.
We rely on third-party consultants
or other vendors to manage and implement much of the day-to-day conduct of our clinical trials and the manufacturing our Hemopurifier
product candidate. Accordingly, we are and will continue to be dependent on the timeliness and effectiveness of the efforts of these third
parties. Our dependence on third parties includes key suppliers and third-party service providers supporting the development, manufacture
and regulatory approval of our Hemopurifier, as well as support for our information technology systems and other infrastructure. While
our management team oversees these vendors, failure of any of these third parties to meet their contractual, regulatory and other obligations
or the development of factors that materially disrupt the performance of these third parties could have a material adverse effect on our
business. For example, all of the key oversight responsibilities for the development and manufacture of our Hemopurifier are conducted
by our management team, but all other activities are the responsibility of third-party vendors. It is possible that the ongoing COVID-19
pandemic might constrain the ability of needed third-party vendors to provide services that we require.
If a clinical research organization
that we utilize is unable to allocate sufficient qualified personnel to our studies in a timely manner or if the work performed by it
does not fully satisfy the requirements of the FDA or other regulatory agencies, we may encounter substantial delays and increased costs
in completing our development efforts. Any manufacturer that we select may encounter difficulties in the manufacture of new products in
commercial quantities, including problems involving product yields, product stability or shelf life, quality control, adequacy of control
procedures and policies, compliance with FDA regulations and the need for further FDA approval of any new manufacturing processes and
facilities. If any of these occur, the development and commercialization of our Hemopurifier product candidate could be delayed, curtailed
or terminated, because we may not have sufficient financial resources or capabilities to continue such development and commercialization
on our own.
If we or our contractors or service providers
fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could affect our ability
to develop, market and sell our Hemopurifier product candidate and any other future product candidates that we may develop, if any, and
may harm our reputation.
If we or our manufacturers
or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to
regulatory actions, which could affect our ability to successfully develop, market and sell our Hemopurifier product candidate or any
future product candidates, if any, and could harm our reputation and lead to reduced or non-acceptance of our proposed product candidates
by the market. Even technical recommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia
or biotechnology companies may make the manufacturing of a clinical product extremely labor intensive or expensive, making the product
candidate no longer viable to manufacture in a cost-efficient manner. The mode of administration may make the product candidate not commercially
viable. The required testing of the product candidate may make that candidate no longer commercially viable. The conduct of clinical trials
may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional Biosafety Committee, which may
delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial
or deem a product candidate unsafe to continue testing. This would have a material adverse effect on the value of the product candidate
and our business prospects.
We will need to outsource and rely on third
parties for the clinical development and manufacturing, sales and marketing of our Hemopurifier or any future product candidates that
we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We do not have the required
financial and human resources to carry out on our own all the pre-clinical and clinical development for our Hemopurifier product candidate
or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or
sell our Hemopurifier product candidate or any future product candidates that we may develop. Our business model calls for the partial
or full outsourcing of the clinical and other development and manufacturing, sales and marketing of our product candidates in order to
reduce our capital and infrastructure costs as a means of potentially improving our financial position. Our success will depend on the
performance of these outsourced providers. If these providers fail to perform adequately, our development of product candidates may be
delayed and any delay in the development of our product candidates would have a material and adverse effect on our business prospects.
We are and will be exposed to product liability risks, and clinical
and preclinical liability risks, which could place a substantial financial burden upon us should we be sued.
Our business exposes us to
potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of medical devices.
Claims may be asserted against us. A successful liability claim or series of claims brought against us could have a material adverse effect
on our business, financial condition and results of operations. We may not be able to continue to obtain or maintain adequate product
liability insurance on acceptable terms, if at all, and such insurance may not provide adequate coverage against potential liabilities.
Claims or losses in excess of any product liability insurance coverage that we may obtain could have a material adverse effect on our
business, financial condition and results of operations.
Our Hemopurifier product candidate
may be used in connection with medical procedures in which it is important that those products function with precision and accuracy. If
our product candidates, including our Hemopurifier, do not function as designed, or are designed improperly, we may be forced by regulatory
agencies to withdraw such products from the market. In addition, if medical personnel or their patients suffer injury as a result of any
failure of our products to function as designed, or our products are designed inappropriately, we may be subject to lawsuits seeking significant
compensatory and punitive damages. The risk of product liability claims, product recalls and associated adverse publicity is inherent
in the testing, manufacturing, marketing and sale of medical products. We have recently obtained general clinical trial liability insurance
coverage. However, our insurance coverage may not be adequate or available. We may not be able to secure product liability insurance coverage
on acceptable terms or at reasonable costs when needed. Any product recall or lawsuit seeking significant monetary damages may have a
material effect on our business and financial condition. Any liability for mandatory damages could exceed the amount of our coverage.
Moreover, a product recall could generate substantial negative publicity about our products and business and inhibit or prevent commercialization
of other future product candidates.
We have not received, and may never receive,
approval from the FDA to market a medical device in the United States.
Before a new medical device
can be marketed in the U.S., it must first receive a PMA or 510(k) clearance from the FDA, unless an exemption applies. A PMA submission,
which is a higher standard than a 510(k) clearance, is used to demonstrate to the FDA that a new or modified device is safe and effective.
The 510(k) is used to demonstrate that a device is “substantially equivalent” to a predicate device, that is, one that has
been cleared by the FDA. We expect that any product we seek regulatory approval for, including the Hemopurifier, will require a PMA. The
FDA approval process involves, among other things, successfully completing clinical trials and filing for and obtaining a PMA. The PMA
process requires us to prove the safety and effectiveness of our products to the FDA’s satisfaction. This process, which includes
preclinical studies and clinical trials, can take many years and requires the expenditure of substantial resources and may include post-marketing
surveillance to establish the safety and efficacy of the product. Notwithstanding the effort and expense incurred, the process may never
result in the FDA granting a PMA. Data obtained from preclinical studies and clinical trials are subject to varying interpretations that
could delay, limit or prevent regulatory approval. Delays or rejections may also be encountered based upon changes in governmental policies
for medical devices during the period of product development. The FDA can delay, limit or deny approval of a PMA application for many
reasons, including:
· inadequate compliance with preclinical, clinical or other regulations;
· our failure to meet the FDA’s statistical requirements for approval; and
Modifications to products
that are approved through a PMA application generally need FDA approval. Similarly, some modifications made to products cleared through
a 510(k) may require a new 510(k). The FDA’s 510(k) clearance process usually takes from three to 12 months, but may last longer.
The process of obtaining a PMA is much costlier and more uncertain than the 510(k) clearance process and generally takes from one to three
years, or even longer, from the time the application is submitted to the FDA until an approval is obtained. Any of our products considered
to be a class III device, which are considered to pose the greatest risk and the approval of which is governed by the strictest guidelines,
will require the submission and approval of a PMA in order for us to market it in the U.S. We also may design new products in the future
that could require the clearance of a 510(k).
Although we have received
approval to proceed with clinical trials of the Hemopurifier in the U.S. under the investigational device exemption, the current approval
from the FDA to proceed could be revoked, the study could be unsuccessful, or the FDA PMA approval may not be obtained or could be revoked.
Even if we obtain approval, the FDA or other regulatory authorities may require expensive or burdensome post-market testing or controls.
Any delay in, or failure to receive or maintain, clearance or approval for our future products could prevent us from generating revenue
from these products or achieving profitability. Additionally, the FDA and other regulatory authorities have broad enforcement powers.
Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some physicians from using our products and adversely
affect our reputation and the perceived safety and efficacy of our products.
The approval requirements for medical products used to fight
bioterrorism and pandemics are still evolving, and any products we develop for such uses may not meet these requirements.
We are advancing product candidates
under governmental policies that regulate the development and commercialization of medical treatment countermeasures against bioterror
and pandemic threats. While we intend to pursue FDA market clearance to treat infectious bioterror and pandemic threats, it is often
not feasible to conduct human studies against these deadly high threat pathogens. For example, the Hemopurifier is an investigational
device that has not yet received FDA approval for any indication. We continue to investigate the potential for the use of the Hemopurifier
in viral diseases under an open IDE and our FDA Breakthrough Designation for “...the treatment of life-threatening glycosylated
viruses that are not addressed with an approved therapy.” We currently have an open FDA approved Expanded Access Protocol for the
treatment of Ebola infected patients in the U.S. and a corresponding HealthCanada approval in Canada. Based on our studies to date, the
Hemopurifier can potentially clear many viruses that are pathogenic in humans, including HCV, HIV, Monkeypox and Ebola.
Additionally, in June 2020,
the FDA approved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients
with SARS-CoV-2/COVID-19 in a New Feasibility Study. This study is designed to enroll up to 40 subjects
at up to 20 centers in the U.S. Subjects will have established laboratory diagnosis of COVID-19, be admitted to an intensive care unit,
or ICU, and will have acute lung injury and/or severe or life threatening disease, among other criteria. Endpoints for this study, in
addition to safety, will include reduction in circulating virus as well as clinical outcomes.
However, we have a very limited
supply of Hemopurifiers and therefore any use in this pandemic will be only investigational in a very small number of patients, even if
it appears that the device can help those patients. Thus, we may not be able to demonstrate the effectiveness of our treatment countermeasures
through controlled human efficacy studies. Additionally, a change in government policies could impair our ability to obtain regulatory
approval for the Hemopurifier.
The results of our clinical trials may not
support our product candidate claims or may result in the discovery of adverse side effects.
Any research and development,
pre-clinical testing and clinical trial activities involving our Hemopurifier and any additional products that we may develop are subject
to extensive regulation and review by numerous governmental authorities both in the U.S. and abroad. Clinical studies must be conducted
in compliance with FDA regulations or the FDA may take enforcement action. The data collected from these clinical studies may ultimately
be used to support market clearance for these products. Even if our clinical trials are completed as planned, the results of these trials
may not support our product candidate claims and the FDA may not agree with our conclusions regarding the trial results. Success in pre-clinical
studies and early clinical trials does not ensure that later clinical trials will be successful, and the later trials may not replicate
the results of prior trials and pre-clinical studies. The clinical trial process may fail to demonstrate that our product candidates are
safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of others.
Any delay or termination of our clinical trials will delay the filing of our product submissions and, ultimately, our ability to commercialize
our product candidates and generate revenues. It is also possible that patients enrolled in clinical trials will experience adverse side
effects that are not currently part of the product candidate’s profile.
U.S. legislative or FDA regulatory reforms
may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to manufacture, market and distribute
our products after approval is obtained.
From time to time, legislation
is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture
and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted
by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations
of existing regulations may impose additional costs or lengthen review times of future products. It is impossible to predict whether legislative
changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be on
our product development efforts.
Our current and future business activities
are subject to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and
security and other healthcare laws and regulations, which could expose us to significant penalties.
We are currently and will
in the future be subject to healthcare regulation and enforcement by the U.S. federal government and the states in which we will conduct
our business if our product candidates are approved by the FDA and commercialized in the United States. In addition to the FDA’s
restrictions on marketing of approved products, the U.S. healthcare laws and regulations that may affect our ability to operate include:
the federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security laws; and
federal transparency laws related to payments and/or other transfers of value made to physicians (defined to include doctors, dentists,
optometrists, podiatrists and chiropractors) and other healthcare professionals (such as physicians assistants and nurse practitioners)
and teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways,
thus complicating compliance efforts. These laws may adversely affect our sales, marketing and other activities with respect to any product
candidate for which we receive approval to market in the United States by imposing administrative and compliance burdens on us.
Because of the breadth of
these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business
activities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States,
could be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and
state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and
administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare
programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to
resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business and our results of operations.
We are subject to stringent and changing
U.S. and foreign laws, regulations and standards as well as policies, contracts and other obligations related to data privacy and security.
Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, fines and penalties,
a disruption of our clinical trials or commercialization of our products, private litigation, harm to our reputation, or other adverse
effects on our business or prospects.
In the ordinary course of
business, we collect, receive, store, process, use, generate, transfer, disclose, make accessible, protect, secure, dispose of, transmit,
and share (collectively, “Process” or “Processing”) personal information and other information, including proprietary
and confidential business data, trade secrets, intellectual property, information we collect in connection with clinical trials, as necessary
to operate our business, for legal and marketing purposes, and for other business-related purposes. Our data processing activities may
subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external
and internal privacy and security policies, representations, certifications, standards, publications, frameworks, and contractual obligations
to third parties related to privacy, information security and Processing (collectively, “Data Protection Obligations”).
In the United States, federal,
state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data
privacy laws, and consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act). For example, the federal Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical
Health Act (“HITECH”), imposes specific requirements relating to the privacy, security, and transmission of individually identifiable
health information. In addition, the California Consumer Privacy Act of 2018, CCPA, imposes obligations on covered businesses, including
giving California residents expanded rights to access and require deletion of their personal information, opt-out of certain personal
information sharing, and receive detailed information about how their personal information is used. The CCPA also provides for statutory
fines for noncompliance(up to $7,500 per violation). Although there are limited exemptions for clinical trial data under the CCPA, the
CCPA could increase compliance costs and potential liability with respect to other personal data we may maintain about California residents.
In addition, it is anticipated that the California Privacy Rights Act of 2020 (“CPRA”), effective January 1, 2023, will expand
the CCPA. The CPRA establishes a new California Privacy Protection Agency to implement and enforce the CPRA, which could increase the
risk of enforcement. Other states, including Colorado, Connecticut, Utah and Virginia, have enacted data privacy laws which become effective
in 2023 and similar laws are being considered in other states and at the federal level, reflecting a trend toward more stringent privacy
legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance
challenging and expose us to additional liability.
Outside the United States,
an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union’s
General Data Protection Regulation, or EU GDPR and the United Kingdom’s GDPR (“UK GDPR”) impose strict requirements
for processing personal data.. The GDPR requires covered businesses to, among other requirements, provide detailed disclosures, contractually
commit to data protection measures in our contracts, maintain adequate data security measures, notify regulators and affected individuals
of certain data breaches and meet extensive privacy governance and documentation requirements. Companies that violate the GDPR can face
private litigation, restrictions on data processing, and fines of up to the greater of 20 million Euros or 4% of their worldwide annual
revenue. GDPR litigation risk may increase as a result of a recent decision of the EU’s highest court finding that a consumer protection
association may bring representative actions alleging violations of the GDPR even without a mandate to do so from any specific individuals
and whether or not specific individuals’ data protection rights have been violated.
Certain jurisdictions have
enacted data localization laws and cross-border personal data transfer laws, which could make it more difficult to transfer information
across jurisdictions (such as transferring or receiving personal data that originates in the EU or in other foreign jurisdictions). Existing
mechanisms that facilitate cross-border personal data transfers may change or be invalidated and recent legal challenges and increasingly
strict interpretive guidance have created significant uncertainty about what measures would suffice to make such transfers lawful. For
example, absent appropriate safeguards or other circumstances, the EU GDPR generally restricts the transfer of personal data to countries
outside of the European Economic Area (“EEA”) that the European Commission does not consider to provide an adequate level
of data privacy and security, such as the United States. The European Commission released a set of “Standard Contractual Clauses”
(“SCCs”) that are designed to be a valid mechanism to facilitate personal data transfers out of the EEA to these jurisdictions.
Currently, these SCCs are a valid mechanism to transfer personal data outside of the EEA, but there exists some uncertainty regarding
whether the SCCs will remain a valid mechanism. Additionally, the SCCs impose additional compliance burdens, such as conducting transfer
impact assessments to determine whether additional security measures are necessary to protect the at-issue personal data. In addition,
the UK similarly restricts personal data transfers outside of those jurisdictions to countries such as the United States that do not provide
an adequate level of personal data protection, and certain countries outside Europe have also passed or are considering laws requiring
local data residency or otherwise impeding the transfer of personal data across borders, any of which could increase the cost and complexity
of doing business.
If we cannot implement a valid
compliance mechanism for cross-border data transfers, we may face increased exposure to regulatory actions, substantial fines, and injunctions
against processing or transferring personal data from Europe or other foreign jurisdictions. The inability to import personal data to
the United States could significantly and negatively impact our business operations, including by limiting our ability to conduct clinical
trial activities; limiting our ability to collaborate with parties that are subject to such cross-border data transfer or localization
laws; or requiring us to increase our personal data processing capabilities and infrastructure in foreign jurisdictions at significant
expense.
Data Protection Obligations
are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally,
these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions.
Preparing for and complying with these obligations requires significant resources and may necessitate changes to our information technologies,
systems, and practices and to those of any third parties that process personal data on our behalf.
Although we endeavor to comply
with all applicable Data Protection Obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our
efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our
business operations and compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations,
or contractual obligations could result in adverse effects, including inability to or interruption in our ability to operate our business
and proceedings against us by governmental entities or others.
If we fail, or are perceived
to have failed, to address or comply with Data Protection Obligations, it could: increase our compliance and operational costs; expose
us to regulatory scrutiny, actions, fines and penalties; result in reputational harm; interrupt or stop our clinical trials; result in
litigation and liability; result in an inability to process personal data or to operate in certain jurisdictions; harm our business operations
or financial results or otherwise result in a material harm to our business, or other material adverse impact on our business, results
of operations and financial condition. Additionally, given that Data Protection Obligations impose complex and burdensome obligations
and that there is substantial uncertainty over the interpretation and application of these obligations, we may be required to incur material
costs, divert management attention, and change our business operations, including our clinical trials, in an effort to comply, which could
materially adversely affect our business operations and financial results.
Any of these events could
have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions
or stoppages in our business operations including, as relevant, clinical trials; interruptions or stoppages of data collection needed
to train our algorithms; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize
our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our
operations.
If our information technology systems or
data, or those maintained on our behalf, are or were compromised we could experience adverse consequences resulting from such compromise,
including but not limited to: regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations;
reputational harm; loss of revenue or profits; and other adverse consequences.
In the ordinary course of
our business, we may process proprietary, confidential and sensitive information, including personal data, intellectual property, trade
secrets, and proprietary business information owned or controlled by ourselves or other third parties, or collectively, Sensitive Information.
We may use and share Sensitive Information with service providers and subprocessors and other third parties upon whom we rely to help
us operate our business. If we, our service providers, partners, or other relevant third parties have experienced, or in the future experience,
any security incident(s) that result in any data loss; deletion or destruction; unauthorized access to; loss, unauthorized acquisition,
disclosure, or exposure of, Sensitive Information, or compromise related to the security, confidentiality, integrity of our (or their)
information technology, software, services, communications or data (any, a “Security Breach”), it may result in a material
adverse impact on our business, results of operations and financial condition, including the diversion of funds to address the breach,
and interruptions, delays, or outages in our operations and development programs.
Cyberattacks, malicious internet-based
activity and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect.
These threats come from a variety of sources, including traditional computer “hackers,” threat actors, sophisticated nation
states, and nation-state-supported actors. During times of war and other major conflicts, we and the third parties upon which we rely
may be vulnerable to a heightened risk of these attacks, including cyber-attacks, that could materially disrupt our systems and operations,
supply chain, and ability to produce, sell and distribute our goods and services.
We and the third parties upon
which we rely may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through
phishing attacks), supply-chain attacks, loss of data or other information technology assets, adware, software bugs, malicious code (such
as viruses and worms), employee theft or misuse, denial-of-service attacks (such as credential stuffing) and ransomware attacks. We may
also be the subject of phishing attacks, viruses, malware (including as a result of advanced persistent threat intrusions), server malfunction,
software or hardware failures, loss of data or other computer assets, telecommunications failures, earthquakes, fires, floods, or other
similar issues.
Ransomware attacks, including
by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe,
and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion
payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for
example, applicable laws or regulations prohibiting such payments.
Similarly, supply-chain attacks
have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party
partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a
breach of or disruption to our information technology systems (including our services) or the third-party information technology systems
that support us and our services
Any of the previously identified
or similar threats could cause a security incident or other interruption. A security incident or other interruption could result in unauthorized,
unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive
information. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide
our services.
We may be required to expend
significant resources, fundamentally change our business activities and practices, or modify our operations, including clinical trial
activities, or information technology in an effort to protect against Security Breaches and to mitigate, detect and remediate actual and
potential vulnerabilities. Applicable Data Protection Obligations (as defined above) may require us to implement specific security measures
or use industry-standard or reasonable measures to protect against Security Breaches. There can be no assurances that our security measures
or those of third parties upon whom we rely will be effective in protecting against Security Incidents.
While we have implemented
security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We
may be unable in the future to detect vulnerabilities in our information technology systems (including our products) because such threats
and techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred.
Despite our efforts to identify and address vulnerabilities, if any, in our information technology systems (including our products), our
efforts may not be successful. Further, we may experience delays in developing and deploying remedial measures designed to address any
such identified vulnerabilities.
Applicable Data Protection
Obligations (as defined above) may require us to notify relevant stakeholders of Security Breaches, including affected individuals, partners,
collaborators, regulators, law enforcement agencies and others. Such disclosures are costly, and the disclosures or the failure to comply
with such requirements could lead to a material adverse impact on our business, results of operations and financial condition. If we (or
a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience
adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits,
and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal
data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions;
interruptions in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant
consequences may cause customers to stop using our services, deter new customers from using our services, and negatively impact our ability
to grow and operate our business.
There can be no assurances
that any limitations or exclusions of liability in our contracts would be adequate or would otherwise protect us from liabilities or damages
if we fail to comply with Data Protection Obligations related to information security or Security Breaches.
We cannot be sure that our
insurance coverage, if any, will be adequate or otherwise protect us from or adequately mitigate liabilities or damages with respect to
claims, costs, expenses, litigation, fines, penalties, business loss, data loss, regulatory actions or other material adverse impact on
our business, results of operations and financial condition arising out of our Processing operations, privacy and security practices,
or Security Breaches that we may experience. The successful assertion of one or more large claims against us that exceeds our available
insurance coverage, or results in changes to our insurance policies (including premium increases or the imposition of large excess or
deductible or co-insurance requirements), could have a material adverse impact on our business, results of operations and financial condition.