ITEM 1A. RISK FACTORS.
The
risk factors listed in this section provide examples of risks, uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Readers should be aware that the occurrence of any of the events
described in these risk factors could have a material adverse effect on our business, results of operations and financial condition.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future
events, or otherwise.
Preceding
the full risk factors is a list of certain of the risk factors that follow. Reference is made to the complete risk factors for a full
description of the risks involved.
Risks
Related to Our Business Generally
Risks
Related to Our Cell Therapy Product Development Efforts
● We may have difficulties in sourcing brown adipose (fat) tissue.
Risks
Related to Our Intellectual Property
● We may not be able to protect our proprietary rights.
Risks
Related to Government Regulation
Risks
Related to Our Common Stock
● We pay no dividends.
Risks
Associated with Our Nasdaq Listing
Risks
Related to Our Business Generally
We
have a limited operating history; we have incurred substantial losses since inception; we expect to continue to incur losses for the
near term.
We
have a limited operating history. Since our inception, we have incurred net losses. As of December 31, 2022, our accumulated deficit
was $152,640,897.
We
will need to obtain a significant amount of financing to complete our clinical trials and implement our business plan.
Since
our inception, we have not generated revenues from our operations and have funded our operations through the sale of our equity securities
and debt securities. The implementation of our business plan, as discussed in this Annual Report under Item 1 (“Business”),
will require the receipt of sufficient equity and/or debt financing to purchase necessary equipment, technology and materials, fund our
clinical trials and other research and development efforts and otherwise fund our operations. We will require significant additional
funding to complete our clinical trials using BRTX-100. We will also require a substantial amount of additional funding to implement
our other programs described in this Annual Report under Item 1 (“Business”), including our metabolic ThermoStem Program,
and fund general operations. No assurance can be given that the amount of funding that we anticipate may be required for such purposes
is correct or that we will be able to accomplish our goals within the timeframes projected. In addition, no assurance can be given that
we will be able to obtain any required financing on commercially reasonable terms or otherwise. In the event we do not obtain the financing
required for the above purposes, we may have to curtail our development, marketing and promotional activities, which would have a material
adverse effect on our business, financial condition and results of operations, and ultimately we could be forced to discontinue our operations
and liquidate.
Our
business strategy is high risk.
We
are focusing our resources and efforts primarily on the development of cellular-based products and services which will require extensive
cash for research, development and commercialization activities. This is a high-risk strategy because there is no assurance that our
products and services, including our Disc/Spine Program and our ThermoStem metabolic brown fat research initiative, will
ever become commercially viable (commercial risk), that we will prevent other companies from depriving us of market share and profit
margins by offering services and products based on our inventions and developments (legal risk), that we will successfully manage a company
in a new area of business, regenerative medicine, and on a different scale than we have operated in the past (operational risk), that
we will be able to achieve the desired therapeutic results using stem and regenerative cells (scientific risk), or that our cash resources
will be adequate to develop our products and services until we become profitable, if ever (financial risk). We are using our cash in
one of the riskiest industries in the economy (strategic risk). This may make our securities an unsuitable investment for many investors.
We
will need to enter into agreements in order to implement our business strategy.
Except
for a certain license agreement with Regenerative Sciences, LLC and agreements relating to the conduct of our Phase 2 clinical trial,
we do not have any material agreements or understandings in place with respect to the implementation of our business strategy. No assurances
can be given that we will be able to enter into any necessary agreements with respect to the development of our business. Our inability
to enter into any such agreements would have a material adverse effect on our results of operations and financial condition.
We
depend on our executive officers and on our ability to attract and retain additional qualified personnel.
Our
performance is substantially dependent on the performance of Lance Alstodt, our Chief Executive Officer. We rely upon him for strategic
business decisions and guidance. We are also dependent on the performance of Francisco Silva, our Vice President of Research and Development.
Each of Messrs. Alstodt and Silva is subject to an employment agreement with us. We do not have any key-man insurance policies on the
lives of either of our executive officers. We believe that our future success in developing marketable products and services and achieving
a competitive position will depend in large part upon whether we can attract and retain additional qualified management and scientific
personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to attract and retain such personnel.
The loss of the services of Mr. Alstodt and/or Mr. Silva or the inability to attract and retain additional personnel and develop expertise
as needed would have a substantial negative effect on our results of operations and financial condition.
The
impact of COVID-19 and related risks could materially affect our results of operations and prospects.
Beginning
in March 2020, the global pandemic related to the novel coronavirus COVID-19 began to impact the global economy. Because of the size
and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time.
Risks presented by the ongoing effects of COVID-19 include, among others, the following:
Clinical
Trials. We anticipate that the COVID-19 pandemic may negatively impact our clinical trials. Due to the worldwide efforts being taken
to combat COVID-19 and the increased clinical work being done in this respect, we believe that it may be difficult for certain needed
laboratory supplies, equipment and other materials to be obtained in order to conduct our clinical trials. We also anticipate that, due
to a fear of COVID-19 transmission, there may be a hesitancy on the part of certain individuals to become clinical trial participants.
We believe that these possible negative effects have lessened as more of the population has become vaccinated; however, the impact that
the vaccinations will have is uncertain at this time.
Adverse
Legislative and/or Regulatory Action. Federal, state and local government actions to address and contain the impact of COVID-19 may
adversely affect us. For example, we may be subject to legislative and/or regulatory action that negatively impacts the manner in which
the clinical trials may be conducted.
Operational
Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of our senior management or a significant
percentage of our workforce are unable to continue to work because of illness, government directives or otherwise. In addition, in connection
with increased remote working arrangements, we face a heightened risk of cybersecurity attacks or data security incidents and are more
dependent on internet and telecommunications access and capabilities.
Risks
Related to Our Cell Therapy Product Development Efforts
Our
future success is significantly dependent on the timely and successful development and commercialization of BRTX-100, our lead product
candidate for the treatment of chronic lumbar disc disease; if we encounter delays or difficulties in the development of this product
candidate, as well as any other product candidates, our business prospects would be significantly harmed.
We
are dependent upon the successful development, approval and commercialization of our product candidates. Before we are able to seek regulatory
approval of our product candidates, we must conduct and complete extensive clinical trials to demonstrate their safety and efficacy in
humans. Our lead product candidate, BRTX-100, is in early stages of development and we have just recently commenced a Phase 2
clinical trial using BRTX-100 to treat chronic lower back pain due to degenerative disc disease related to protruding/bulging
discs.
Clinical
testing is expensive, difficult to design and implement, and can take many years to complete. Importantly, a failure of one or more of
these or any other clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result
of, clinical trials that could delay or prevent our ability to complete our clinical studies, receive regulatory approval or commercialize
our cell therapy product candidates, including the following:
● difficulty collaborating with patient groups and investigators;
● patients dropping out of a study;
● failure to raise sufficient funds to complete our clinical trials.
Any
inability to successfully complete pre-clinical and clinical development could result in additional costs to us or impair our ability
to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required, or we
may elect, to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical study delays could also
shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before
we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Even
if we are able to successfully complete our clinical development program for our product candidates, and ultimately receive regulatory
approval to market one or more of the products, we may, among other things:
● have the product removed from the market after obtaining marketing approval;
● encounter issues with respect to the manufacturing of commercial supplies;
● be subject to additional post-marketing testing requirements; and/or
● be subject to restrictions on how the product is distributed or used.
We
anticipate that we will not be able to commercialize our BRTX-100 product candidate for at least five years.
We
may experience delays and other difficulties in enrolling a sufficient number of patients in our clinical trials which could delay or
prevent the receipt of necessary regulatory approvals.
We
may not be able to initiate or complete as planned any clinical trials if we are unable to identify and enroll a sufficient number of
eligible patients to participate in the clinical trials required by the FDA or other regulatory authorities. We also may be unable to
engage a sufficient number of clinical trial sites to conduct our trials.
We
may face challenges in enrolling patients to participate in our clinical trials due to the novelty of our cell-based therapies, the size
of the patient populations and the eligibility criteria for enrollment in the trial, and potential subjects’ concern over the COVID-19
pandemic. In addition, some patients may have concerns regarding cell therapy that may negatively affect their perception of therapies
under development and their decision to enroll in the trials. Furthermore, patients suffering from diseases within target indications
may enroll in competing clinical trials, which could negatively affect our ability to complete enrollment of our trials. Enrollment challenges
in clinical trials often result in increased development costs for a product candidate, significant delays and potentially the abandonment
of the clinical trial.
We
may have other delays in completing our clinical trials and we may not complete them at all.
We
have just recently commenced the clinical trials necessary to obtain FDA approval to market our product candidate, BRTX-100. Since
we lack significant experience in completing clinical trials and bringing a drug through commercialization, we have hired outside consultants
with such experience. Clinical trials for BRTX-100 and other product candidates in development may be delayed or terminated as
a result of many factors, including the following:
● failure by regulators to authorize us to commence a clinical trial;
● treatment candidates demonstrating a lack of efficacy during clinical trials;
● treatment candidates demonstrating significant safety signals; and/or
Any
delay or failure to complete clinical trials and obtain FDA approval for our product candidates could have a material adverse effect
on our cost to develop and commercialize, and our ability to generate revenue from, a particular product candidate.
The
development of our cell therapy product candidates is subject to uncertainty because autologous cell therapy is inherently variable.
When
manufacturing an autologous cell therapy, the number and composition of the cell population varies from patient to patient. Such variability
in the number and composition of these cells could adversely affect our ability to manufacture autologous cell therapies in a cost-effective
or profitable manner and meet acceptable product release specifications for use in a clinical trial or, if approved, for commercial sale.
As a consequence, the development and regulatory approval process for autologous cell therapy products could be delayed or may never
be completed.
Any
disruption to our access to the media (including cell culture media) and reagents we are using in the clinical development of our cell
therapy product candidates could adversely affect our ability to perform clinical trials and seek future regulatory submissions.
Certain
media (including cell culture media) and reagents, as well as devices, materials and systems, that we intend to use in our clinical trials,
and that we may need or use in commercial production, are provided by unaffiliated third parties. Any lack of continued availability
of these media, reagents, devices, materials and systems for any reason would have a material adverse effect on our ability to complete
these studies and could adversely impact our ability to achieve commercial manufacture of our planned therapeutic products. Although
other available sources for these media, reagents, devices, materials and systems may exist in the marketplace, we have not evaluated
their cost, effectiveness, or intellectual property foundation and therefore cannot guarantee the suitability or availability of such
other potential sources.
Products
that appear promising in research and development may be delayed or may fail to reach later stages of clinical development.
The
successful development of cellular based products is highly uncertain. Product candidates that appear promising in preclinical and early
research and development may be delayed or fail to reach later stages of development. Decisions regarding the further development of
product candidates must be made with limited and incomplete data, which makes it difficult to ensure or even accurately predict whether
the allocation of limited resources and the expenditure of additional capital on specific product candidates will result in desired outcomes.
Pre-clinical and clinical data can be interpreted in different ways, and negative or inconclusive results or adverse events during a
clinical trial could delay, limit or prevent the development of a product candidate. Positive preclinical data may not continue or occur
for future subjects in our clinical studies and may not be repeated or observed in ongoing or future studies involving our product candidates.
Furthermore, our product candidates may also fail to show the desired safety and efficacy in later stages of clinical development despite
having successfully advanced through initial clinical studies. In addition, regulatory delays or rejections may be encountered as a result
of many factors, including changes in regulatory policy during the period of product development.
Our
clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which would prevent or delay regulatory
approval and commercialization.
The
clinical trials of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and
rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test
and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any of our product candidates, we
must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both
safe and effective for use in each target indication. In particular, because some of our product candidates are subject to regulation
as biological drug products, we will need to demonstrate that those products are safe, pure, and potent for use in their target indications.
Each product candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended
use. The risk/benefit profile required for product licensure will vary depending on these factors and may include decrease or elimination
of pain, adequate duration of response, a delay in the progression of the disease, an improvement in function and/or decrease in disability.
In
addition, even if such trials are successfully completed, we cannot guarantee that the FDA will interpret the results as we do, and more
trials could be required before we submit our product candidates for approval. To the extent that the results of the trials are not satisfactory
to the FDA for support of a marketing application, we may be required to expend significant resources, which may not be available to
us, to conduct additional trials in support of potential approval of our product candidates.
Even
if we complete the necessary clinical trials, we cannot predict when, or if, we will obtain regulatory approval to commercialize a product
candidate, and the approval may be for a narrower indication than we seek.
We
cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate.
Even if our product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete
their review processes in a timely manner, or we may not be able to obtain regulatory approval. Additional delays may result if an FDA
Advisory Committee or other regulatory authority recommends non-approval or restrictions or conditions on approval. In addition, we may
experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes
in regulatory authority policy during the period of product development, clinical trials and the review process. Regulatory authorities
also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form
of narrow indications, contraindications or a Risk Evaluation and Mitigation Strategy, or REMS. These regulatory authorities may require
warnings or precautions with respect to conditions of use or they may grant approval subject to the performance of costly post-marketing
clinical trials. In addition, regulatory authorities may not approve the labeling claims or allow the promotional claims that are necessary
or desirable for the successful commercialization of our product candidates. Any of the foregoing scenarios could materially harm the
commercial prospects for our product candidates and materially and adversely affect our business, financial condition, results of operations
and prospects.
We
may never obtain FDA approval for any of our product candidates in the United States and, even if we do, we may never obtain approval
for or commercialize any of our product candidates in any foreign jurisdiction, which would limit our ability to realize our full market
potential.
In
order to eventually market any of our product candidates in any particular foreign jurisdiction, we must establish and comply with numerous
and varying regulatory requirements regarding safety and efficacy on a jurisdiction-by-jurisdiction basis. Approval by the FDA in the
United States, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, preclinical
studies and clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory
approval in one country does not guarantee regulatory approval in any other country.
Approval
processes vary among countries and can involve additional product testing and validation and additional administrative review periods.
Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical
trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent
the introduction of our product candidates in those countries. The foreign regulatory approval process involves similar risks to those
associated with FDA approval. We do not have any product candidates approved for sale in any jurisdiction, including international markets,
nor have we attempted to obtain such approval. If we fail to comply with regulatory requirements in international markets or to obtain
and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and
our ability to realize the full market potential of our products may be unrealized.
We
presently lack manufacturing capabilities to produce our product candidates in connection with our Phase 3 clinical trial and at commercial
scale quantities and do not have an alternate manufacturing supply, which could negatively impact our ability to meet any future demand
for the products.
We
have utilized our laboratory to provide the cell processing services necessary for clinical production of BRTX-100 for our Phase
2 disc clinical trial. We believe that we have sufficient laboratory capacity to provide such services with regard to the balance of
the Phase 2 trial; however, we would need to significantly expand our manufacturing capabilities to provide such cell processing services
in connection with a Phase 3 clinical trial and to meet potential commercial demand for BRTX-100 and any other of our product
candidates, if approved, as well as any of our other product candidates that might attain regulatory approval. Such expansion would require
additional regulatory approvals. Even if we increase our manufacturing capabilities, it is possible that we may still lack sufficient
capacity to meet demand. Ultimately, if we are unable to supply our products to meet commercial demand, whether because of processing
constraints or other disruptions, delays or difficulties that we experience, sales of the products and their long-term commercial prospects
could be significantly damaged.
We
may seek to utilize a third-party manufacturer for BRTX-100 or any of our other product candidates; however, we do not have any
arrangements in place with a third-party manufacturer. If our facilities at which these product candidates would be manufactured or our
equipment were significantly damaged or destroyed, or if there were other disruptions, delays or difficulties affecting manufacturing
capacity, our planned and future clinical studies and commercial production for these product candidates would likely be significantly
disrupted and delayed. It would be both time consuming and expensive to replace this capacity with third parties, particularly since
any new facility would need to comply with the regulatory requirements.
Ultimately,
if we are unable to supply our cell therapy product candidates to meet commercial demand (assuming commercial approval is obtained),
whether because of processing constraints or other disruptions, delays or difficulties that we experience, our production costs could
dramatically increase and sales of the product and its long-term commercial prospects could be significantly damaged.
The
commercial potential and profitability of our products are unknown and subject to significant risk and uncertainty.
Even
if we successfully develop and obtain regulatory approval for our cell therapy product candidates, the market may not understand or accept
the products, which could adversely affect both the timing and level of future sales. Ultimately, the degree of market acceptance of
our product candidates (or any of our future product candidates) will depend on a number of factors, including:
Even
if we are successful in achieving sales of our product candidates, it is not clear to what extent, if any, the products will be profitable.
The costs of goods associated with production of cell therapy products are significant. In addition, some changes in manufacturing processes
or procedures generally require FDA or foreign regulatory authority review and approval prior to implementation. We may need to conduct
additional pre-clinical studies and clinical trials to support approval of any such changes. Furthermore, this review process could be
costly and time-consuming and could delay or prevent the commercialization of product candidates.
We
may have difficulties in sourcing brown adipose (fat) tissue.
We
use brown adipose (fat) tissue to identify and characterize brown adipose derived stem cells for use in our pre-clinical ThermoStem
Program. There is no certainty that we will be able to continue to collect brown adipose samples through any relationships that we
have, have had or may establish with potential sources of brown adipose tissue. The inability to procure brown fat tissue would have
a material adverse effect upon our ability to advance our ThermoStem Program.
If
safety problems are encountered by us or others developing new stem cell-based therapies, our stem cell initiatives could be materially
and adversely affected.
The
use of stem cells for therapeutic indications is still in the very early stages of development. If an adverse event occurs during clinical
trials related to one of our proposed products and/or services or those of others, the FDA and other regulatory authorities may halt
clinical trials or require additional studies. The occurrence of any of these events would delay, and increase the cost of, our development
efforts and may render the commercialization of our proposed products and/or services impractical or impossible.
We
are vulnerable to competition and technological change, and also to physicians’ inertia.
We
will compete with many domestic and foreign companies in developing our technology and products, including biotechnology, medical device
and pharmaceutical companies. Many current and potential competitors have substantially greater financial, technological, research and
development, marketing, and personnel resources. There is no assurance that our competitors will not succeed in developing alternative
products and/or services that are more effective, easier to use, or more economical than those which we may develop, or that would render
our products and/or services obsolete and non-competitive. In general, we may not be able to prevent others from developing and marketing
competitive products and/or services similar to ours or which perform similar functions or which are marketed before ours.
Competitors
may have greater experience in developing products, therapies or devices, conducting clinical trials, obtaining regulatory clearances
or approvals, manufacturing and commercialization. It is possible that competitors may obtain patent protection, approval or clearance
from the FDA or achieve commercialization earlier than we can, any of which could have a substantial negative effect on our business.
We
will compete against cell-based therapies derived from alternate sources, such as bone marrow, adipose tissue, umbilical cord blood and
potentially embryos. Doctors historically are slow to adopt new technologies like ours, whatever the merits, when older technologies
continue to be supported by established providers. Overcoming such inertia often requires very significant marketing expenditures or
definitive product performance and/or pricing superiority.
We
expect that physicians’ inertia and skepticism will also be a significant barrier as we attempt to gain market penetration with
our future products and services. We may need to finance lengthy time-consuming clinical studies (so as to provide convincing evidence
of the medical benefit) in order to overcome this inertia and skepticism.
We
may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not
realize the benefits of such alliances or licensing arrangements.
We
may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third
parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates
and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges,
increase our near and long-term expenditures, issue securities that dilute the shares of our existing stockholders, or disrupt our management
and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming
and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements
for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third
parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. To date, such efforts
have not been successful.
Further,
collaborations involving our product candidates, such as our collaborations with third-party research institutions, are subject to numerous
risks, which may include the following:
As
a result, if we enter into collaboration agreements and strategic partnerships or license our products or businesses, we may not be able
to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company
culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic
transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into
new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization
of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition,
and results of operations.
We
have limited experience in the development and marketing of cell therapies and may be unsuccessful in our efforts to establish a profitable
business.
Our
business plan has been focused historically on capturing a piece of the burgeoning field of cell therapy. We have limited experience
in the areas of cell therapy product development and marketing, and in the related regulatory issues and processes. Although we have
recruited a team that has experience with designing and conducting clinical trials and have hired FDA consultants, as a company, we have
limited experience in conducting clinical trials and no experience in conducting clinical trials through to regulatory approval of any
product candidate. In part because of this lack of experience, we cannot be certain that planned clinical trials will begin or be completed
on time, if at all. We cannot assure that we will successfully achieve our clinical development goals or fulfill our plans to capture
a piece of the cell therapy market.
Our
cell therapy business is based on novel technologies that are inherently expensive, risky and may not be understood by or accepted in
the marketplace, which could adversely affect our future value.
The
clinical development, commercialization and marketing of cell and tissue-based therapies are at an early-stage, substantially research-oriented,
and financially speculative. To date, very few companies have been successful in their efforts to develop and commercialize a cell therapy
product. In general, cell-based or tissue-based products may be susceptible to various risks, including undesirable and unintended side
effects, unintended immune system responses, inadequate therapeutic efficacy, or other characteristics that may prevent or limit their
approval or commercial use. In addition, BRTX-100 is a cell-based candidate that is produced by using a patient’s own stem
cells derived from bone marrow. Regulatory approval of novel product candidates such as BRTX-100, which is manufactured using
novel manufacturing processes, can be more complex and expensive and take longer than other, more well-known or extensively studied pharmaceutical
or biopharmaceutical products, due to the FDA’s lack of experience with them. To our knowledge, the FDA has not yet approved a
disc related stem cell therapy product. This lack of experience may lengthen the regulatory review process, require us to conduct additional
studies or clinical trials, which would increase our development costs, lead to changes in regulatory positions and interpretations,
delay or prevent approval and commercialization of these product candidates or lead to significant post-approval limitations or restrictions.
Furthermore, the number of people who may use cell or tissue-based therapies is difficult to forecast with accuracy. Our future success
is dependent on the establishment of a large global market for cell- and tissue-based therapies and our ability to capture a share of
this market with our product candidates.
Our
cell therapy product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
The
enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated regulatory pathway for the
approval of products demonstrated to be biosimilar, or “highly similar,” to or “interchangeable” with an FDA-approved
innovator (original) biologic product. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve
biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to
an existing reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years
after the original branded product is approved under a biologics license application, or BLA. The FDA has developed considerable experience
with the biosimilar and interchangeable biosimilar processes since the enactment of the BPCIA in 2009. Should any of our product candidates
be approved via the BLA pathway, we expect that biosimilar applicants will seek approval of biosimilar, and/or interchangeable, versions
of our product that could result in lower prices for our products.
We
believe that, if any of our product candidates are approved as a biological product under a BLA, it should qualify for the 12-year period
of exclusivity. However, there is a risk that the FDA could approve biosimilar applicants for other reference products that no longer
have such exclusivity, thus potentially creating the opportunity for greater competition sooner than anticipated.
The
FDA’s regulation of regenerative medicine products remains unpredictable and we are not certain what impact this will have on the
potential approval of our products
The
FDA’s regulation of therapies derived from stem cell products and technologies is evolving and may continue to evolve. In December
2016, the 21st Century Cures Act, or the Cures Act, was signed into law in the United States to advance access to medical innovations.
Among other things, the Cures Act established a new FDA regenerative medicine advanced therapy, or RMAT, designation. This designation
offers a variety of benefits to product candidates, including enhanced FDA support during clinical development, priority review on application
filing, accelerated approval based on potential surrogate endpoints, and the potential use of patient registry data and other forms of
real world evidence for post-approval confirmatory studies. There is no certainty that any of our product candidates will receive RMAT
designation or any other type of expedited review program designation from the FDA. In any event, the receipt of an FDA RMAT designation
or other expedited review program designation may not result in a faster development process, review or approval compared to products
considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA.
We
may be subject to significant product liability claims and litigation, including potential exposure from the use of our product candidates
in human subjects, and our insurance may be inadequate to cover claims that may arise.
Our
business exposes us to potential product liability risks inherent in the testing, processing and marketing of cell therapy products.
Such liability claims may be expensive to defend and result in large judgments against us. We face an inherent risk of product liability
exposure related to the testing of our current and any future product candidates in human clinical trials and will face an even greater
risk with respect to any commercial sales of our products should they be approved. No product candidate has been widely used over an
extended period of time, and therefore safety data is limited. Cell therapy companies derive the raw materials for manufacturing of product
candidates from human cell sources, and therefore the manufacturing process and handling requirements are extensive, which increases
the risk of quality failures and subsequent product liability claims.
We
will need to maintain insurance coverage adequate to cover our clinical trials and increase that coverage before commercializing product
candidates, if ever. At any time during our clinical trials or after commercialization, if that occurs, we may not be able to obtain
or maintain product liability insurance on acceptable terms with adequate coverage or at all, or if claims against us substantially exceed
our coverage, then our financial position could be significantly impaired.
Whether
or not we are ultimately successful in any product liability litigation that may arise, such litigation could consume substantial amounts
of our financial and managerial resources, result in decreased demand for our products and injure our reputation.
We
seek to maintain errors and omissions, directors and officers, workers’ compensation and other insurance at levels we believe to
be appropriate to our business activities. If, however, we were subject to a claim in excess of this coverage or to a claim not covered
by our insurance and the claim succeeded, we would be required to pay the claim from our own limited resources, which could have a material
adverse effect on our financial condition, results of operations and business. Additionally, liability or alleged liability could harm
our business by diverting the attention and resources of our management and damaging our reputation.
Our
internal computer systems, or those that are expected to be used by our clinical investigators, clinical research organizations or other
contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of development programs
for our product candidates.
We
rely on information technology systems to keep financial records, maintain laboratory and corporate records, communicate with staff and
external parties and operate other critical functions. Any significant degradation or failure of these computer systems could cause us
to inaccurately calculate or lose data. Despite the implementation of security measures, these internal computer systems and those used
by our clinical investigators, clinical research organizations, and other contractors and consultants are vulnerable to damage from computer
viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. The techniques that could
be used by criminal elements or foreign governments to attack these computer systems are sophisticated, change frequently and may originate
from less regulated and remote areas of the world. While we have not experienced any such system failure, theft of information, accident
or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption
of our clinical development activities. For example, the loss of clinical trial data from historical or future clinical trials could
result in delays in regulatory approval efforts and significantly increase costs to recover or reproduce the data. To the extent that
any disruption, theft of information, or security breach were to result in a loss of or damage to data or applications, or inappropriate
disclosure of confidential or proprietary information, we could incur liability and the clinical development and the future development
of our product candidates could be delayed.
To
operate and sell in international markets carries great risk.
We
intend to market our products and services both domestically and in foreign markets. A number of risks are inherent in international
transactions. In order for us to market our products and services in non-U.S. jurisdictions, we need to obtain and maintain required
regulatory approvals or clearances in these countries and must comply with the country specific regulations regarding safety, manufacturing
processes and quality. These regulations, including the requirements for approvals or clearances to market, may differ from the FDA regulatory
scheme. International operations and sales also may be limited or disrupted by political instability, price controls, trade restrictions
and changes in tariffs. Additionally, fluctuations in currency exchange rates may adversely affect demand for our services and products
by increasing the price of our products and services in the currency of the countries in which the products and services are offered.
There
can be no assurance that we will obtain regulatory approvals or clearances in all of the countries where we intend to market our products
and services, that we will not incur significant costs in obtaining or maintaining foreign regulatory approvals or clearances, or that
we will be able to successfully commercialize our products and services in various foreign markets. Delays in receipt of approvals or
clearances to market our products and services in foreign countries, failure to receive such approvals or clearances or the future loss
of previously received approvals or clearances could have a substantial negative effect on our results of operations and financial condition.
Our
inability to obtain reimbursement for our products and services from private and governmental insurers could negatively impact demand
for our products and services.
Market
acceptance and sales of our product candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions
about formulary coverage as well as levels at which government authorities and third-party payors, such as private health insurers and
health maintenance organizations, reimburse patients for the price they pay for our product candidates, as well as levels at which these
payors pay directly for our product candidates, where applicable, could affect whether we are able to successfully commercialize these
products. We cannot guarantee that reimbursement will be available for any of our product candidates. We also cannot guarantee that coverage
or reimbursement amounts will not reduce the demand for, or the price of, our product candidates.
If
coverage and reimbursement are not available or are available only at limited levels, we may not be able to successfully commercialize
our products. The Patient Protection and Affordable Care Act, or PPACA, as well as the Inflation Reduction Act, passed on August 16,
2022, and other health reforms include measures that would limit or prohibit payments for certain medical treatments or subject the pricing
of drugs and biologics to government control. In addition, in many foreign countries, particularly the countries of the European Union,
or the EU, the pricing of drugs and biologics is subject to government control. If our products are or become subject to government regulation
that limits or prohibits payment for our products, or that subjects the price of our products to government control, we may not be able
to generate revenue, attain profitability or commercialize our products.
In
addition, third-party payors are increasingly limiting both coverage and the level of reimbursement of new drugs and biologics. They
may also impose strict prior authorization requirements and/or refuse to provide any coverage of uses of approved products for medical
indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether
and how much third-party payors will reimburse patients for their use of newly-approved drugs and biologics. If we are unable to obtain
adequate levels of reimbursement for our product candidates, our ability to successfully market and sell our product candidates will
be harmed.
Risks
Related to Our Intellectual Property
We
may not be able to protect our proprietary rights.
Our
commercial success will depend in large part upon our ability to protect our proprietary rights. There is no assurance, for example,
that any additional patents will be issued based on our or our licensor’s pending applications or, if issued, that such patents
will not become the subject of a re-examination, will provide us with competitive advantages, will not be challenged by any third parties,
or that the patents of others will not prevent the commercialization of products and services incorporating our technology. Furthermore,
there can be no guarantee that others will not independently develop similar products and services, duplicate any of our products and
services, or design around any patents we obtain.
Our
commercial success will also depend upon our ability to avoid infringing patents issued to others. If we were judicially determined to
be infringing on any third-party patent, we could be required to pay damages, alter our products, services or processes, obtain licenses,
or cease certain activities. If we are required in the future to obtain any licenses from third parties for some of our products and/or
services, there can be no guarantee that we would be able to do so on commercially favorable terms, if at all. United States and foreign
patent applications are not immediately made public, so we might be surprised by the grant to someone else of a patent on a technology
we are actively using. Although we conducted a freedom to operate, or FTO, search years ago on the licensed technology associated with
our Disc/Spine Program, modifications made, and/or further developments that may be made, to that technology may not be covered
by the initial FTO. No FTO has been undertaken with respect to our ThermoStem brown fat initiative.
Litigation,
which would result in substantial costs to us and the diversion of effort on our part, may be necessary to enforce or confirm the ownership
of any patents issued or licensed to us, or to determine the scope and validity of third-party proprietary rights. If our competitors
claim technology also claimed by us and prepare and file patent applications in the United States, we may have to participate in interference
proceedings declared by the U.S. Patent and Trademark Office, or the Patent Office, or a foreign patent office to determine priority
of invention, which could result in substantial costs and diversion of effort, even if the eventual outcome is favorable to us. Any such
litigation or interference proceeding, regardless of outcome, could be expensive and time-consuming.
Successful
challenges to our patents through oppositions, re-examination proceedings or interference proceedings could result in a loss of patent
rights in the relevant jurisdiction. If we are unsuccessful in actions we bring against the patents of other parties, and it is determined
that we infringe upon the patents of third parties, we may be subject to litigation, or otherwise prevented from commercializing potential
products and/or services in the relevant jurisdiction, or may be required to obtain licenses to those patents or develop or obtain alternative
technologies, any of which could harm our business. Furthermore, if such challenges to our patent rights are not resolved in our favor,
we could be delayed or prevented from entering into new collaborations or from commercializing certain products and/or services, which
could adversely affect our business and results of operations.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course
of litigation there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our
common stock.
In
addition to patents, we rely on unpatented trade secrets and proprietary technological expertise. Some of our intended future cell-related
therapeutic products and/or services may fit into this category. We also rely, in part, on confidentiality agreements with our partners,
employees, advisors, vendors, and consultants to protect our trade secrets and proprietary technological expertise. There can be no guarantee
that these agreements will not be breached, or that we will have adequate remedies for any breach, or that our unpatented trade secrets
and proprietary technological expertise will not otherwise become known or be independently discovered by competitors.
Failure
to obtain or maintain patent protection, failure to protect trade secrets, third-party claims against our patents, trade secrets, or
proprietary rights or our involvement in disputes over our patents, trade secrets, or proprietary rights, including involvement in litigation,
could divert our efforts and attention from other aspects of our business and have a substantial negative effect on our results of operations
and financial condition.
We
may not be able to protect our intellectual property in countries outside of the United States.
Intellectual
property law outside the United States is uncertain and, in many countries, is currently undergoing review and revisions. The laws of
some countries do not protect our patent and other intellectual property rights to the same extent as United States laws. Third parties
may attempt to oppose the issuance of patents to us in foreign countries by initiating opposition proceedings. Opposition proceedings
against any of our patent filings in a foreign country could have an adverse effect on our corresponding patents that are issued or pending
in the United States. It may be necessary or useful for us to participate in proceedings to determine the validity of our patents or
our competitors’ patents that have been issued in countries other than the United States. This could result in substantial costs,
divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of operations
and financial condition.
Changes
to United States patent law may have a material adverse effect on our intellectual property rights.
The
Leahy-Smith America Invents Act, or AIA, which was signed into law in 2011, significantly changes United States patent law. It may take
some time to establish what the law means, since it is just being interpreted by the lower courts, Federal Circuit Courts of Appeal,
and the Supreme Court. The effects of these decisions are still not known. The first major change is that AIA switches the United States
patent system from a “first to invent” system to a “first to file” system. Now that the first to file system
is in effect, there is a risk that another company may independently develop identical or similar patents at approximately the same time,
and be awarded the patents instead of us. Further, for the second major change, AIA abolished interference proceedings, and establishes
derivation proceedings to replace interference proceedings in all cases in which the time period for instituting an interference proceeding
has not lapsed where an inventor named in an earlier application derived the claimed invention from a named inventor. Now that the derivation
proceedings are in effect, there is a risk that the inventorship of any pending patent application can be challenged for reasons of derivation.
The third major change is that AIA established post-grant opposition proceedings that will apply only to patent applications filed after
“first to file” became effective. Post-grant opposition will enable a person who is not the patent owner to initiate proceedings
in the Patent Office within nine months after the grant of a patent that can result in cancellation of a patent as invalid. In addition
to AIA, recent court decisions have created uncertainty with regard to our ability to obtain and maintain patents. Therefore there is
a risk that any of our patents once granted may be subject to post-grant opposition, which will increase uncertainty on the validity
of any newly granted patent or may ultimately result in cancellation of the patent.
In
addition, the Supreme Court has recently taken more limiting positions as to what constitutes patentable subject matter. As a result,
many patents covering what were previously patentable inventions are now determined to cover inventions which are deemed non-statutory
subject matter and are now invalid. As a result of this and subsequent opinions by the Court of Appeals for the Federal Circuit, the
Patent Office is now applying more stringent limitations to claims in patent applications and is refusing to grant patents in areas of
technology where patents were previously deemed available. Therefore there is a risk that we will be unable to acquire patents to cover
our products and if such patents are granted they may subsequently be found to be invalid.
In
certain countries, patent holders may be required to grant compulsory licenses, which would likely have a significant and detrimental
effect on any future revenues in such country.
Many
countries, including some countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses
to third parties. In addition, most countries limit the enforceability of patents against government agencies or government contractors.
In these countries, the patent owner may be limited to monetary relief and may be unable to enjoin infringement, which could materially
diminish the value of the patent. Compulsory licensing of life-saving products is also becoming increasingly common in developing countries,
either through direct legislation or international initiatives. Such compulsory licenses could be extended to our product candidates,
which may limit our potential revenue opportunities, including with respect to any future revenues that may result from our product candidates.
Risks
Related to Government Regulation
Even
if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory oversight.
Our
product candidates for which we obtain regulatory approval will be subject to ongoing regulatory requirements for manufacturing, labeling,
packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information. Any regulatory
approvals that we receive for our product candidates also may be subject to a REMS or the specific obligations imposed as a condition
for marketing authorization by equivalent authorities in a foreign jurisdiction, limitations on the approved indicated uses for which
the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing,
including Phase 4 clinical trials, and surveillance to monitor the quality, safety and efficacy of the product. For example, in the United
States, the holder of an approved new drug application, or NDA, or BLA is obligated to monitor and report adverse events and any failure
of a product to meet the specifications in the NDA or BLA. The holder of an approved NDA or BLA also must submit new or supplemental