Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 44
Item 2. Properties 44
Item 3. Legal Proceedings 44
Item 4. Mine Safety Disclosures 44
Part II
Item 6. Selected Financial Data 46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50
Item 8. Financial Statements and Supplementary Data 50
Item 9A. Controls and Procedures 50
Item 9B. Other Information 51
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 51
Part III
Item 10. Directors, Executive Officers and Corporate Governance 51
Item 11. Executive Compensation 55
Item 14. Principal Accounting Fees and Services 62
Part IV
Item 15. Exhibits, Financial Statement Schedules 63
Signatures 67
Power of Attorney 67
Index to Consolidated Financial Statements F-1
Cautionary
Note on Forward-Looking Statements
This
annual report on form 10-K (“Annual Report”) contains forward-looking statements. Such forward-looking statements include
those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements
of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they
are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those
expressed or implied in such statements.
All
statements other than historical facts contained in this Annual Report, including statements regarding our future financial position,
capital expenditures, cash flows, business strategy and plans and objectives of management for future operations are forward-looking
statements. The words “anticipated,” “believe,” “expect,” “plan,” “intend,”
“seek,” “estimate,” “project,” “could,” “may,” and similar expressions are
intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future
capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events
and financial performance and involve risks and uncertainties, including, without limitation, our ability to raise additional capital
to fund our operations, obtaining Food and Drug Administration (“FDA”) and other regulatory authorization to market our drug
and biological products, successful completion of our clinical trials, our ability to achieve regulatory authorization to market our
lead product NELL-1/DBX®, our reliance on third party manufacturers for our drug products, market acceptance of our products, our
dependence on licenses for certain of our products, our reliance on the expected growth in demand for our products, exposure to product
liability and defect claims, development of a public trading market for our securities, and various other matters, many of which are
beyond our control.
Should
one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially
and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all of the forward-looking statements
made in this Annual Report are qualified by these cautionary statements and accordingly there can be no assurances made with respect
to the actual results or developments. We undertake no obligation to revise or publicly release the results of any revision to these
forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements.
Unless
expressly indicated or the context requires otherwise, the terms “Company,” “we,” “us,” and “our”
in this document refer to Bone Biologics Corporation, a Delaware corporation, and, our wholly owned subsidiary, as defined under Part
I, Item 1-”Business” in this Annual Report.
Glossary
of Abbreviations and Defined Terms
Abbreviations
BMP Bone Morphogenic Protein
CDMO Contract Development and Manufacturing Organization
cGMP current Good Manufacturing Practice
CRO Contract Research Organization
DDD Degenerative disc disease
HREC Human Research Ethics Committee
IDE Investigational Device Exemption
IRB Institutional Review Board
MTF Musculoskeletal Transplant Foundation
NDA New Drug Application
NELL-1 Neural epidermal growth factor-like 1 protein (NELL-1)
PMA Pre-market approval
REMS Risk Evaluation and Mitigation Strategies
rhBMP-2 Recombinant Bone Morphogenic Protein
rhNELL-1 Recombinant NELL-1
TLIF Transforaminal lumbar interbody fusion
UCLA TDG UCLA Technology Development Group on behalf of UC Regents
Defined Terms
Demineralized Bone Bone that has had the calcium removed.
Osteostimulative Stimulates bone growth.
PART
I
Item
1. Business
OVERVIEW
We
are a medical device company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein known
as NELL-1/DBX®. The NELL-1/DBX® combination product is an osteostimulative recombinant protein that provides target specific
control over bone regeneration. The protein, as part of the UCB-1 technology platform, has been licensed exclusively for worldwide
applications to us through a technology transfer from the UCLA Technology Development Group on behalf of UC Regents (“UCLA TDG”).
UCLA TDG and the Company received guidance from the FDA that NELL-1/DBX® will be classified as a combination product with a device
lead.
The
Company was founded by University of California professors in collaboration with an Osaka University professor and a University of Southern
California surgeon in 2004 as a privately-held company with proprietary, patented technology that has been validated in sheep and non-human
primate models to facilitate bone growth. Our platform technology has application in delivering improved outcomes in the surgical specialties
of spinal, orthopedic, general orthopedic, plastic reconstruction, neurosurgery, interventional radiology, and sports medicine. Lead
product development and clinical studies are targeted on spinal fusion surgery, one of the larger segments in the orthopedic market.
We
are a development stage entity. The production and marketing of our products and ongoing research and development activities will be
subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any
combination product developed by us must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory
approval process implemented by the FDA under the Food, Drug and Cosmetic Act. There can be no assurance that we will not encounter problems
in clinical trials that will cause us or the FDA to delay or suspend the clinical trials.
Our
success will depend in part on our ability to obtain patents and product license rights, maintain trade secrets, and operate without
infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents
issued to or licensed by us will not be challenged, invalidated, rendered unenforceable, or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to us.
PRODUCTS
We
have developed a stand-alone platform technology through significant laboratory and small and large animal research over more than ten
years to generate the current applications across broad fields of use. The platform technology is our recombinant human protein, known
as NELL-1, a proprietary skeletal specific growth factor which is a bone void filler. NELL-1 provides regulation over skeletal tissue
formation and stem cell differentiation during bone regeneration. The Company obtained the platform technology pursuant to an exclusive
license agreement with UCLA TDG.
We
are currently focused on bone regeneration in lumbar spinal fusion, in keeping with our exclusive license agreement, using NELL-1 in
combination with DBX®, a proprietary demineralized bone matrix from Musculoskeletal Transplant Foundation (“MTF”). The
NELL-1/DBX® medical device is a combination product which is an osteostimulative recombinant protein that provides target specific
control over bone regeneration. Leveraging the resources of investors and strategic partners, we have successfully surpassed four critical
milestones:
● Completed pivotal animal study; and
● Filed for a clinical trial outside the United States.
Our
lead product is expected to be purified NELL-1 mixed with 510(k) cleared DBX® Demineralized Bone Putty recommended for use in conjunction
with applicable hardware consistent with the indication. The NELL-1/DBX® Fusion Device will be comprised of a single dose vial of
NELL-1 recombinant protein freeze dried onto DBX®. A vial of NELL-1/DBX® will be sold in a convenience kit with a diluent and
a syringe of 510(k) cleared demineralized bone (“DBX® Putty”) produced by MTF. A delivery device will allow the surgeon
to mix the reconstituted NELL-1 with the appropriate quantity of DBX® Putty just prior to implantation.
The
NELL-1/DBX® Fusion Device is intended for use in lumbar spinal fusion and may have a variety of other spine and orthopedic applications.
While
the product is initially targeted at the lumbar spine fusion market, in keeping with our exclusive license agreement, we believe NELL-1’s
novel set of characteristics, target specific mechanism of action, efficacy, safety and affordability position the product well for application
in a variety of procedures including:
Spine
Implants. This is the largest market for bone substitute product, representing greater than 70% of the total U.S. market according
to Transparency Market Research. While use of the patient’s own bone, also referred to as autograft, to enhance fusion of vertebral
segments remains the optimal use for this type of treatment, complications associated with use of autograft bone including pain, increased
surgical time and infection limit its use.
Non-Union
Trauma Cases. While the majority of fractures heal without the need for osteosynthetic products, bone substitutes are used in
complicated breaks where the bone does not mend naturally. Management believes that NELL-1 is expected to perform as well as high-priced
growth factors in this market.
Osteoporosis.
The medical need to find a solution to counter a decrease in bone mass and density seen in women most frequently after menopause
or a similar effect on astronauts in microgravity environments for an extended period is a major medical challenge. The systemic use
of NELL-1 to stimulate bone regeneration throughout the body thereby increasing bone density could have a very significant impact on
the treatment of osteoporosis.
UCLA’s
initial research was funded with approximately $18 million in resources from UCLA TDG and government grants. Since licensing the exclusive
worldwide intellectual property rights from UCLA TDG, our continued development has been funded through various strategic investments.
Our research and development expenses for the years ended December 31, 2021 and 2020 were $45,500 and $102,293, respectively. We anticipate
that it will require approximately $10 million to complete first in man studies and an estimated additional $27 million to achieve FDA
approval for a spine interbody fusion indication. These amounts are estimates based on data currently available to us, and are subject
to many factors including the various risk factors discussed below under Item 1A.
NELL-1’s
powerful specific bone and cartilage forming properties are derived from the ability of NELL-1 to only target cells that exhibit an activated
“master switch” to develop into bone or cartilage. NELL-1 is a function specific recombinant human protein that has been
proven in laboratory bench models to recapitulate normal human growth and development to provide control over bone and cartilage regeneration.
NELL-1
was isolated in 1996, and the first NELL-1 patent on bone regeneration was filed in 1999. Subsequent patents and continuations in part
describing NELL-1 manufacturing, delivery, and cartilage regeneration were filed to further strengthen the patent portfolio.
RESEARCH
& PUBLICATIONS
We
believe our scientific evidence validates the many benefits of NELL-1. Currently there is a comprehensive database of more than 80 research
publications and abstracts of preclinical studies with NELL-1 of which more than 45 are peer-reviewed publications.
We
completed a preclinical study, which shows our rhNELL-1 growth factor effectively promotes bone formation in a phylogenetically advanced
spine model. In addition, rhNELL-1 was shown to be well tolerated and there were no findings of inflammation.
Bone
Biologics has received Human Research Ethics Committee (HREC) approval for the first center of a multicenter pilot clinical trial to
evaluate NB1 (NELL-1/DBX®) in 30 patients in Australia. The pilot study will evaluate the safety and effectiveness of NB1 in adult
subjects with spinal degenerative disc disease (DDD) at one level from L2-S1, who may also have up to Grade 1 spondylolisthesis
or Grade 1 retrolisthesis at the involved level who undergo transforaminal lumbar interbody fusion (TLIF).
PROPOSED
INITIAL CLINICAL APPLICATION
The
NELL-1/DBX® Fusion Device will be indicated for spinal fusion procedures in skeletally mature patients with degenerative disc disease
(“DDD”) at one level from L4-S1. These DDD patients may also have up to Grade I spondylolisthesis at the involved level.
The NELL-1/DBX® Fusion Device is to be implanted via an anterior open or an anterior laparoscopic approach in conjunction with a
cleared intervertebral body fusion device. Patients receiving the device should have had at least six months of non-operative treatment
prior to treatment with the device. A cervical indication is currently under consideration. This indication for use would fill a current
clinical gap, created by potentially dangerous inflammatory responses caused by commercially available catalytic bone growth agents,
the subject of a Public Health Notification from the FDA on July 1, 2008 about life threatening complications associated with a recombinant
human protein in cervical spine fusion. We do not expect our product to see the same adverse events with NELL-1/DBX® as have been
observed with other commercially available protein. We have performed a rat femoral onlay model to compare proinflammatory response of
rhBMP-2 and NELL-1 within Helistate collagen sponges. While NELL-1 induced normal healing, rhBMP-2 induced significant amounts of swelling
and histological evidence of intense inflammatory response.
DESCRIPTION
OF THE DBX® PUTTY TO BE USED WITH NELL-1
The
DBX® Demineralized Bone Putty provided as part of the convenience kit with NELL-1/DBX® is a Class II device. The common name
is “Bone Void Filler Containing Human Demineralized Bone Matrix.” The product is regulated under 21 C.F.R. §888.3045
Resorbable calcium salt bone void filler device, Product Codes MQV, GXP, and MBP. MTF is the manufacturer of the DBX® Putty. This
product was cleared by the FDA under 510(k) number K053218 for spine indication in December 2006.
DBX®
Putty is a matrix composed of processed human cortical bone. Demineralized bone granules are mixed with sodium hyaluronate to form the
DBX® Putty. Every lot of final DBX® Putty product is tested in an athymic mouse model or in an alkaline phosphatase assay, which
has been shown to have a positive correlation with the athymic mouse model, to ensure osteostimulation.
Based
upon extensive discussions with regulatory experts and a specific communication from the FDA in response to a submission of our plan
under the Restated License Agreement between UCLA TDG and the Company we believe the NELL-1/DBX® Fusion Device will be regulated
as a Class III medical device and will therefore require submission and approval of a pre-market approval (“PMA”).
OUR
BUSINESS STRATEGY
Our
business plan is to develop our target specific growth factor for bone regeneration that has demonstrated increases in the quantity and
quality of bone, while displaying strong safety profile. Our spine fusion product focus continues to advance from the research
to the development stage and then to clinical stage to allow for the approval for use of our target specific protein exhibiting efficacy
and safety by matching or exceeding current market approved products. The utilization of investment partners is critical to facilitate
the development through pre Investigational Device Exemption (“IDE”), clinical, and ultimate commercialization as we fund
the pre-IDE work and continue achieving milestones.
DEVELOPMENT
OF THE COMPANY
Bone
Biologics Corporation (the “Company”) was incorporated under the laws of the State of Delaware on October 18, 2007 as AFH
Acquisition X, Inc. Pursuant to a Merger Agreement, dated September 19, 2014, by and among the Company, its wholly-owned subsidiary,
Bone Biologics Acquisition Corp., a Delaware corporation (“Merger Sub”), and Bone Biologics, Inc. Merger Sub merged with
and into Bone Biologics Inc., with Bone Biologics Inc. remaining as the surviving corporation in the merger. Upon the consummation of
the merger, the separate existence of Merger Sub ceased. On September 22, 2014, the Company officially changed its name to “Bone
Biologics Corporation” to more accurately reflect the nature of its business and Bone Biologics, Inc. became a wholly owned subsidiary
of the Company. Bone Biologics, Inc. was incorporated in California on September 9, 2004.
Effective
July 24, 2018, the Company implemented a reverse split of the common stock of the Company on a basis of 1 new common share for 10 old
common shares.
Effective
October 12, 2021, the Company implemented a reverse split of the common stock of the Company on a basis of 1 new common share for 2.5
old common shares.
UCLA
TDG Exclusive License Agreement
Effective
April 9, 2019, the Company entered into an Amended and Restated Exclusive License Agreement dated as of March 21, 2019 (the “Amended
License Agreement”) with the UCLA TDG. The Amended License
Agreement amends and restates the Amended and Restated Exclusive License Agreement, dated as of June 19, 2017 (the “2017 Agreement”).
The 2017 Agreement amended and restated the Exclusive License Agreement, effective March 15, 2006, between the Company and UCLA TDG,
as amended by ten amendments. Under the terms of the Amended License Agreement, the Regents have continued to grant the Company exclusive
rights to develop and commercialize NELL-1 (the “Licensed Product”) for spinal fusion, osteoporosis and trauma applications.
The Licensed Product is a recombinant human protein growth factor that is essential for normal bone development.
We
have agreed to pay an annual maintenance fee to UCLA TDG of $10,000 as well as to pay certain royalties to UCLA TDG under the Restated
License Agreement at the rate of 3.0% of net sales of licensed products. We must pay the royalties to UCLA TDG on a quarterly basis.
Upon a first commercial sale, we also must pay between $50,000 and $250,000, depending on the calendar year which is after the first
commercial sale. If we are required to pay any third party any royalties as a result of us making use of UCLA TDG patents, then we may
reduce the royalty owed to UCLA TDG by 0.333% for every percentage point paid to a third party. If we grant sublicense rights to a third
party to use the UCLA TDG patent, then we will pay to UCLA TDG 10% to 20% of the sublicensing income we receive from such sublicense.
We
are obligated to make the following milestone payments to UCLA TDG for each Licensed Product or Licensed Method:
● $100,000 upon enrollment of the first subject in a Feasibility Study;
● $250,000 upon enrollment of the first subject in a Pivotal Study:
We
are also obligated to pay UCLA TDG a cash milestone payment within thirty (30) days of a Liquidity Event (including a Change of Control
Transaction and a payment election by UCLA TDG exercisable after December 22, 2019) such payment to equal the greater of:
● 2% of all proceeds in connection with a Change of Control Transaction.
We
are obligated to diligently proceed with developing and commercializing licensed products under UCLA TDG patents set forth in the Restated
License Agreement. UCLA TDG has the right to either terminate the license or reduce the license to a non-exclusive license if we do not
meet certain diligence milestone deadlines set forth in the Restated License Agreement.
We
must reimburse or pre-pay UCLA TDG for patent prosecution and maintenance costs incurred during the term of the Restated License Agreement.
We have the right to bring infringement actions against third party infringers of the Restated License Agreement, UCLA TDG may join voluntarily,
at its own expense, or, at our expense, be joined involuntarily to the action. We are required to indemnify UCLA TDG against any third
party claims arising out of our exercise of the rights under the Restated License Agreement or any sublicense.
On
August 13, 2020 the Company and UCLA TDG entered into a First Amendment to the Amended and Restated License Agreement pursuant to which
the due dates for certain Development Milestones were updated to better reflect delays caused by the COVID-19 Pandemic and to
address the Company’s failure to pay certain amounts with regard to patent prosecution, cost reimbursement, maintenance fees, and
late fees, and in connection therewith, a revised payment schedule was set forth.
On June 30, 2021 the Company
and UCLA TDG entered into a Second Amendment to the Amended and Restated License Agreement pursuant to which the due dates for certain
Development Milestones was updated to better reflect delays caused by the COVID-19 Pandemic.
COMPETITION
The
orthobiologic and orthopedic industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis
on intellectual property. We face substantial competition from many different sources, including large and specialty orthopedic companies,
biotechnology companies, academic research institutions and governmental agencies along with public and private research institutions.
Our
business is in a very competitive and evolving field, that faces competition from large established orthopedic companies such as (but
not limited to) Medtronic, Stryker, Zimmer-Biomet, and DePuy-Synthes that possess considerably more resources than Bone Biologics.
Our
commercial opportunity could be reduced if our competitors develop and commercialize products that are safer, more effective, have fewer
or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may
obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are able to enter the market.
The
NELL-1 growth factor is mechanistically distinct from BMPs and can minimize complications associated with BMP therapies. The early proof
of concept animal studies has shown the efficacy of NELL-1 combined with demineralized bone matrix (DBM) as a novel bone graft material
for interbody spine fusion.
CUSTOMERS
The
populations of interest include spine surgeons, and patients with a skeletal bone defect or bone-related condition in their spine, for
which intervention is undertaken to correct such a defect. Spine surgeons and patients can choose to eliminate the need to perform a
second painful surgery to obtain autograft harvest of hip bone for fusion procedures by utilizing various other types of biologics.
Most
cases of lower back pain can be linked to a general cause such as muscle strain, injury, overuse, or can be attributed to a specific
condition like herniated disc, degenerative disc disease, spondylolisthesis, spinal stenosis, or osteoarthritis.
INTELLECTUAL
PROPERTY
We
have an intellectual property portfolio that includes exclusive, worldwide licenses from UCLA TDG which we believe constitute a formidable
barrier to entry.
Additional
patent applications are currently in preparation. The intellectual property portfolio comprehensively covers NELL-1 manufacture, NELL-1
compositions and NELL-1 use in wide ranging clinical and diagnostic applications. We protect our proprietary technology through mechanisms
including U.S. and foreign patent filings, trade secret protections, and collaboration agreements with domestic and international corporations,
universities and research institutions. We are the exclusive licensee for the following ten UCLA TDG issued patents:
U.S. Patent No. Summary Date Issued
GOVERNMENT
REGULATION
The
manufacturing and marketing of any product which we may formulate with our technologies as well as our related research and development
activities are subject to regulation for safety, efficacy and quality by governmental authorities in the U.S. and other countries. We
anticipate that these regulations will apply separately to each product. The Company believes that complying with these regulations will
involve a considerable level of time, expense and uncertainty.
In
the U.S., devices are subject to rigorous federal regulation and, to a lesser extent, state regulation. The Federal Food, Drug and Cosmetic
Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other
things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our products.
Device development and approval within this regulatory framework is difficult to predict, requires a number of years and involves the
expenditure of substantial resources. Moreover, ongoing legislation by U.S. Congress and rule making by the FDA presents an ever-changing
landscape where we could be required to undertake additional activities before any governmental approval is granted allowing us to market
our products. The steps required before a biological device may be marketed in the U.S. include:
● The submission of a PMA to the FDA; and
In
addition to obtaining FDA approval for each product, each manufacturing establishment must be registered with, and approved by, the FDA.
Moreover, manufacturing establishments are subject to biennial inspections by the FDA and must comply with the FDA’s current Good
Manufacturing Practice “cGMP” for products, drugs and devices.
Non-clinical
Trials
Non-clinical
testing includes laboratory evaluation of chemistry and formulation as well as tissue culture and animal studies to assess the safety
and potential efficacy of the product. Non-clinical safety tests must be conducted by laboratories that comply with FDA regulations regarding
good laboratory practices. Non-clinical testing is inherently risky and the results can be unpredictable or difficult to interpret. The
results of non-clinical testing are submitted to the FDA as part of an IDE and are reviewed by the FDA prior to the commencement of clinical
trials. Unless the FDA objects to an IDE, clinical studies may begin 30 days after the IDE is submitted. We have relied and intend to
continue to rely on third-party contractors to perform non-clinical trials.
Clinical
Trials
Clinical
trials involve the administration of the investigational product to healthy volunteers or to patients under the supervision of a qualified
investigator. Clinical trials must be conducted in accordance with good clinical practices under protocols that detail the objectives
of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted
to the FDA prior to its conduct. Further, each clinical study must be conducted under the auspices of an independent institutional review
board. The institutional review board will consider, among other things, ethical factors, the safety of human subjects and the possible
liability of the institution. The drug product used in clinical trials must be manufactured according to the FDA’s current Good
Manufacturing Practices.
Clinical
trials under IDE regulations are typically conducted in two sequential trials. In the Pilot trial, the initial introduction of the product
into healthy human subjects, the drug is tested for safety (adverse side effects), absorption, metabolism, bio-distribution, excretion,
food and drug interactions, abuse as well as limited measures of pharmacologic effect and proof of principle that involves studies in
a limited patient population in order to:
● demonstrate efficacy in a limited patient population;
● identify the range of doses likely to be effective for the indication; and
● identify possible adverse events and safety risks.
When
there is evidence that the product may be effective and has an acceptable safety profile in pilot evaluations, pivotal
trials are undertaken to establish and confirm the clinical efficacy and establish the safety profile of the product within a larger
population at geographically dispersed clinical study sites. Pivotal trials frequently involve randomized controlled trials and, whenever
possible, studies are conducted in a manner so that neither the patient nor the investigator knows what treatment is being administered.
The Company, the IRB or the FDA, may suspend clinical trials at any time if it is believed that the individuals participating in such
trials are being exposed to unacceptable health risks. We intend to rely upon third-party contractors to advise and assist us in the
preparation of our IDEs and the conduct of clinical trials that will be conducted under the IDEs.
Premarket
Approval and FDA Approval Process
The
results of the manufacturing process, development work, non-clinical studies and clinical studies are submitted to the FDA in the form
of a PMA prior to marketing and selling the product. The testing and approval process is likely to require substantial time and effort.
In addition to the results of non-clinical and clinical testing, the PMA applicant must submit detailed information about chemistry,
manufacturing and controls that will describe how the product is made and tested through the manufacturing process.
The
PMA review process involves FDA investigation into the details of the manufacturing process, as well as the design and analysis of each
of the non-clinical and clinical studies. This review includes inspection of the manufacturing facility, the data recording process for
the clinical studies, the record keeping at a sample of clinical trial sites and a thorough review of the data collected and analyzed
for each non-clinical and clinical study. Through this investigation, the FDA reaches a decision about the risk-benefit profile of a
product candidate. If the benefit is worth the risk, the FDA begins negotiating with the company about the content of an acceptable package
insert and associated Risk Evaluation and Mitigation Strategies (“REMS”), if required.
The
approval process is affected by a number of factors, including the severity of the disease, the availability of alternative treatments
and the risks and benefits demonstrated in clinical trials. Consequently, there is a risk that approval may not be granted on a timely
basis, if at all. The FDA may deny a PMA if applicable regulatory criteria are not satisfied, require additional testing or information
or require post-marketing testing (Phase 4) and surveillance to monitor the safety of a company’s product if it does not believe
the PMA contains adequate evidence of the safety and efficacy of the product. Moreover, if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which it may be marketed. Finally, product approvals may be withdrawn
if compliance with regulatory standards is not maintained or health problems are identified that would alter the risk-benefit analysis
for the product. Post-approval studies may be conducted to explore the use of the product for new indications or populations such as
pediatrics.
Among
the conditions for PMA approval is the requirement that any prospective manufacturer’s quality control and manufacturing procedures
conform to the FDA’s Good Manufacturing Practices and the specifications approved in the PMA. In complying with standards set forth
in these regulations, manufacturers must continue to expend time, money and effort in the area of product and quality control to ensure
full technical compliance. Manufacturing establishments, both foreign and domestic, also are subject to inspections by or under the authority
of the FDA and by other federal, state or local agencies. Additionally, in the event of non-compliance, FDA may issue warning letters
and/or seek criminal and civil penalties, enjoin manufacture, seize product or revoke approval.
International
Approval
Whether
or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to
the commencement of commercial sales of the medical product in such countries. The requirements governing the conduct of clinical trials
and product approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required
for FDA approval. Although there are some procedures for unified filings for certain European countries, in general, each country at
this time has its own procedures and requirements.
Other
Regulation
In
addition to regulations enforced by the FDA, we are also subject to U.S. regulation under the Controlled Substances Act, the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act
and other present and potential future federal, state, local or similar foreign regulations. Our research and development may involve
the controlled use of hazardous materials, chemicals and radioactive compounds. Although we believe that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination
or injury from these materials cannot be completely eliminated. In the event of any accident, we could be held liable for any damages
that result and any such liability could exceed our resources.
EMPLOYEES
AND HUMAN CAPITAL
As
of the date hereof, we have two (2) full-time employees. We have relied and plan on continuing to rely on independent organizations,
advisors and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval, clinical
management, manufacturing, marketing, and sales. Such services may not always be available to us on a timely basis or at costs that we
can afford. Our future performance will depend in part on our ability to successfully integrate newly hired officers and to engage and
retain consultants, as well as our ability to develop an effective working relationship with our management and consultants.
Item
1A. Risk Factors
The
following factors, as well as factors described elsewhere in this Form 10-K, or in other filings by the Company with the Securities and
Exchange Commission, could adversely affect the Company’s consolidated financial position, results of operations or cash flows.
Other factors not presently known to us or that we presently believe are not material could also affect our business operations and financial
results.
Risks
Relating to Our Financial Position and Capital Needs
Our
limited operating history makes it difficult to evaluate our current business and future prospects.
We
have a limited operating history, and there is a risk that we will be unable to continue as a going concern. We have minimal assets and
no significant financial resources. Our limited operating history makes it difficult to evaluate our current business model and future
prospects. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered
by companies in the early stages of development. Potential investors should carefully consider the risks and uncertainties that a new
company with no operating history will face. In particular, potential investors should consider that there is a significant risk that
we will not be able to:
● implement or execute our current business plan, which may or may not be sound;
● maintain our anticipated management and advisory team; and
● raise sufficient funds in the capital markets to effectuate our business plan.
If
we cannot execute any one of the foregoing or similar matters relating to our business, the business may fail, in which case you would
lose the entire amount of your investment in the Company.
Our
long-term capital requirements are subject to numerous risks.
We
anticipate that it will require approximately $10 million to complete first in man studies and an estimated additional $27 million to
achieve FDA approval for a spine interbody fusion indication. These amounts are estimates based on data currently available to us, and
are subject to many factors, including the risk factors discussed herein. We anticipate we will need to raise substantial additional
funds for the pivotal clinical trial prior to marketing our first product. The above estimates and our long-term capital requirements
will depend on many factors, including, among others:
● continued progress and cost of our research and development programs;
● progress with pre-clinical studies and clinical trials;
● time and costs involved in obtaining regulatory (including FDA) clearance;
● competing technological and market developments;
● market acceptance of our device formulations or products;
● costs for recruiting and retaining employees and consultants;
● costs for training physicians;
● legal, accounting and other professional costs; and
We
may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. We may seek to
raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources,
which may be dilutive to existing stockholders or otherwise have a material effect on our current or future business prospects. If adequate
funds are not available, we may be required to significantly reduce or refocus our development and commercialization efforts with regard
to our delivery technologies and our proposed formulations and products.
We
Have Relied on Hankey Capital for Funding
For
the past several years, we have depended on our relationship with Hankey Capital for working capital to fund our operations, which has
been raised in the form of both debt and equity capital. Hankey Capital, directly and indirectly, controls approximately 70% of our issued
and outstanding shares of common stock. On October 15, 2021, the Company completed a public offering (the “October 2021 Primary
Offering”) generating net proceeds to the Company of $6,858,843. In connection with the October 2021 Primary Offering, Hankey Capital
converted all the outstanding convertible notes ($12,767,894 in principal amount and $2,054,041 of accrued interest) into shares
of our common stock. However, no assurance can be given that any future financing from Hankey Capital will be available or, if available,
that it will be on terms that are satisfactory to the Company. In the absence of financing from other sources, the inability to obtain
additional financing from Hankey Capital will result in the scaling back or discontinuance of our product development programs or operations
entirely.
Our
recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern.
Our
recurring operating losses raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered
public accounting firm included an explanatory paragraph in its report on our financial statements as and for the years ended December
31, 2021 and 2020 with respect to this uncertainty. As reflected in the financial statements, the Company incurred a net loss of $1,610,685
and used net cash in operating activities of $1,228,586 during the year ended December 31, 2021. The perception of our ability to continue
as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the
loss of confidence by investors, suppliers and employees.
We
have incurred losses for the years ended December 31, 2021 and 2020 and we expect our operating expenses to increase in the foreseeable
future, which may make it more difficult for us to achieve and maintain profitability.
We
have no significant operating history and since inception to December 31, 2021 have incurred accumulated losses of approximately $70.5
million. We will continue to incur significant expenses for development activities for our lead product NELL-1/DBX®.
On
October 15, 2021, the Company completed the October 2021 Primary Offering of 1,510,455 units (the “Units”). Each Unit consists
of one share of common stock of the Company, par value $0.001 per share (the “Common Stock”), and one warrant (a “Warrant”)
to purchase one share of Common Stock for $6.30 per share. The Units were sold at a price of $5.25 per Unit, generating net proceeds
to the Company of $6,858,843.
We
will continue to attempt to raise additional debt and/or equity financing to fund future operations and to provide additional working
capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the
Company’s needs. If cash resources are insufficient to satisfy the Company’s on-going cash requirements, the Company will
be required to scale back or discontinue its product development programs, or obtain funds if available (although there can be no certainties)
through strategic alliances that may require the Company to relinquish rights to its technology, or substantially reduce or discontinue
its operations entirely. No assurance can be given that any future financing will be available or, if available, that it will be on terms
that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on
our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. As
a result, we can provide no assurance as to whether or if we will ever be profitability. If we are not able to achieve and maintain profitability,
the value of our company and our common stock could decline significantly.
We
face a number of risks associated with the incurrence of substantial debt which could adversely affect our financial condition.
If
we incur a substantial amount of debt, we
may be required to use a significant portion of any cash flow to pay principal and interest on the debt, which will reduce the
amount available to fund working capital, capital expenditures, and other general purposes. Any indebtedness may negatively impact
our ability to operate our business and limit our ability to borrow additional funds by increasing our borrowing costs, and impact the
terms, conditions, and restrictions contained in possible future debt agreements, including the addition of more restrictive covenants;
impact our flexibility in planning for and reacting to changes in our business as covenants and restrictions contained in possible future
debt arrangements may require that we meet certain financial tests and place restrictions on the incurrence of additional indebtedness
and place us at a disadvantage compared to similar companies in our industry that have less debt.
Risks
Related to the Development and Regulatory Approval of our Product Candidates
Our
product candidates are at an early stage of development and may not be successfully developed or commercialized.
Our
products are in the early stage of development and will require substantial further capital expenditures, development, testing, and regulatory
clearances prior to commercialization. The development and regulatory approval process takes several years, and it is not likely that
our products, technologies or processes, even if successfully developed and approved by the FDA, would be commercially available for
five or more years. Of the large number of devices in development, only a small percentage successfully completes the FDA regulatory
approval process and is commercialized. Accordingly, even if we are able to obtain the requisite financing to fund our development programs,
we cannot assure you that our product candidates will be successfully developed or commercialized. Our failure to develop, manufacture
or receive regulatory approval for or successfully commercialize any of our product candidates, could result in the failure of our business
and a loss of all of your investment in our company.
Any
product candidates advanced into clinical development are subject to extensive regulation, which can be costly and time consuming, cause
unanticipated delays or prevent the receipt of the required approvals to commercialize such product candidates.
The
clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution
of our product candidates are subject to extensive regulation by the FDA in the U.S. and by comparable health authorities in foreign
markets. In the U.S., we may not be permitted to market our product candidates until we receive approval of our PMA from the FDA. The
process of obtaining PMA approval is expensive, often takes many years and can vary substantially based upon the type, complexity and
novelty of the products involved. In addition to the significant clinical testing requirements, our ability to obtain marketing approval
for these products depends on obtaining the final results of required non-clinical testing, including characterization of the manufactured
components of our product candidates and validation of our manufacturing processes. The FDA may determine that our product manufacturing
processes, testing procedures or facilities are insufficient to justify approval. Approval policies or regulations may change and the
FDA has substantial discretion in the approval process, including the ability to delay, limit or deny approval of a product candidate
for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.
The
FDA or another regulatory agency can delay, limit or deny approval of a product candidate for many reasons, including, but not limited
to:
With
respect to foreign markets, approval procedures vary among countries and, in addition to the aforementioned risks, can involve additional
product testing, administrative review periods and agreements with pricing authorities. Any delay in obtaining, or inability to obtain,
applicable regulatory approvals could prevent us from commercializing our product candidates.
Any
product candidate we advance into clinical trials may cause unacceptable adverse events or have other properties that may delay or prevent
their regulatory approval or commercialization or limit their commercial potential.
Unacceptable
adverse events caused by any of our product candidates that we advance into clinical trials could cause us or regulatory authorities
to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities
for any or all targeted indications and markets. This, in turn, could prevent us from commercializing the affected product candidate
and generating revenues from its sale.
We
have not yet completed testing of any of our product candidates for the treatment of the indications for which we intend to seek product
approval in humans, and we currently do not know the extent of adverse events, if any, that will be observed in patients who receive
any of our product candidates. If any of our product candidates cause unacceptable adverse events in clinical trials, we may not be able
to obtain regulatory approval or commercialize such product or, if such product candidate is approved for marketing, future adverse events
could cause us to withdraw such product from the market.
Delays
in the commencement of clinical trials could result in increased costs and delay our ability to pursue regulatory approval.
The
commencement of clinical trials can be delayed for a variety of reasons, including delays in:
● obtaining regulatory clearance to commence a clinical trial;
● identifying, recruiting and training suitable clinical investigators;
Any
delays in the commencement of clinical trials will delay our ability to pursue regulatory approval for our product candidates. In addition,
many of the factors that cause, or lead to, a delay in the commencement of clinical trials may also ultimately lead to the denial of
regulatory approval of a product candidate.
Suspensions
or delays in the completion of clinical testing could result in increased costs to us and delay or prevent our ability to complete development
of that product or generate product revenues.
Once
a clinical trial has begun, patient recruitment and enrollment may be slower than we anticipate. Clinical trials may also be delayed
as a result of ambiguous or negative interim results or difficulties in obtaining sufficient quantities of product manufactured in accordance
with regulatory requirements. Further, a clinical trial may be modified, suspended or terminated by us, an IRB, an ethics committee or
a data safety monitoring committee overseeing the clinical trial, any clinical trial site with respect to that site, or the FDA or other
regulatory authorities due to a number of factors, including:
● stopping rules contained in the protocol;
● lack of adequate funding to continue the clinical trial.
Any
changes in the current regulatory requirements and guidance also may occur, and we may need to amend clinical trial protocols to reflect
these changes. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs,
timing and the likelihood of a successful completion of a clinical trial. If we experience delays in the completion of, or if we must
suspend or terminate, any clinical trial of any product candidate, our ability to obtain regulatory approval for that product candidate
will be delayed and the commercial prospects, if any, for the product candidate may suffer as a result. In addition, many of these factors
may also ultimately lead to the denial of regulatory approval of a product candidate.
We
may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates
or indications for which there may be a greater likelihood of success.
Because
we have limited financial and managerial resources, we are focused on our lead product for spine fusion. As a result, we may forego
or delay pursuit of opportunities with other product candidates or, for other indications for which there may be a greater likelihood