Item 1A. Risk Factors
In addition to the other information in this
10-K, the following risk factors should be considered carefully in evaluating us. You should carefully consider the risks and uncertainties
described below and the other information in this report, including our financial statements and related notes appearing elsewhere in
this 10-K and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
before deciding whether to invest in our Class A Common Stock or to maintain or change your investment. Our business, financial condition,
results of operations or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market
price of our Class A Common Stock could decline and you could lose all or part of your investment. This 10-K also contains forward-looking
statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results
could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including
those set forth below. For a summary of these risk factors, please see “Risk Factors Summary” beginning on page 21 of this
10-K.
Risks Related to our Business
We have a limited operating history and
have no products approved for commercial sale, which may make it difficult for you to evaluate our current business and predict our future
success and viability.
We are a clinical stage biotechnology company
with a limited operating history upon which you can evaluate our business and prospects. We have no products approved for commercial
sale and have not generated any material revenue from product sales. To date, we have devoted substantially all of our resources and
efforts to organizing and staffing our company, business planning, building and equipping our research and development laboratories,
building and equipping our manufacturing suites, raising capital, acquiring raw materials for manufacturing, product candidate development
and manufacturing, securing related intellectual property rights and conducting clinical trials of Lomecel-BTM. We have not yet
demonstrated our ability to obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so
on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. As a result, it may be more
difficult for you to accurately predict our future success or viability than if we had a longer operating history.
In addition, we may encounter unforeseen expenses,
difficulties, complications, delays and other known and unknown factors and risks frequently experienced by clinical stage biotechnology
companies in rapidly evolving fields, including but not limited to changes in FDA or foreign body regulatory oversight of products. We
also may need to transition from a company with a research focus to a company capable of supporting commercial activities. Such a transition
may involve substantial additional capital requirements in order to launch and market a product, changes in the use of proceeds, and
significant adjustment to personnel, compared to a clinical-stage development company. If we do not adequately address these risks and
difficulties or successfully make such a transition, our business will suffer.
If the potential of our product candidates
to treat diseases is not realized, the value of our technology and our development programs could be significantly reduced.
Our team is currently exploring the potential
of our product candidates to treat diseases. We have not yet proven in clinical trials that our product candidates will be a safe and
effective treatment for any disease or condition. Our product candidates are 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 marketing approval or commercial use. We have not yet completed all of the testing necessary to allow us to make a determination
that serious unintended consequences will not occur. If the potential of our product candidates to treat disease is not realized, the
value of our technology and our development programs could be significantly reduced. Because our product candidates are based on MSCs,
any negative developments regarding the therapeutic potential or side effects of our MSCs, or regarding scientific and medical knowledge
about MSCs in general, could have a material adverse effect on our business, financial condition, results of operations, and prospects.
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Our product development programs are based
on novel technologies and are inherently risky.
We are subject to the risks of failure inherent
in the development of product candidates based on new technologies. The novel nature of our product candidates creates significant challenges
in regards to product development and optimization, manufacturing, government regulation, third-party reimbursement, and market acceptance.
For example, although the FDA has approved several cell therapy products, the FDA has relatively limited experience with regulating these
kinds of therapies, and its regulations and policies are still evolving. As a result, the pathway to regulatory approval for our product
candidates may be more complex and lengthier.
Additionally, stem cells that are taken from
one person and transplanted into a different individual may pose additional risks. For example, stem cells that are not autologous (i.e.,
taken from, and given to, the same individual) but are instead allogeneic (i.e., taken from one individual and given to a different person)
are subject to donor-to-donor variability, which can make standardization more difficult. As a result of these factors, the development
and commercialization pathway for our therapies may be more complex and lengthier, and subject to increased uncertainty, as compared
to the pathway for new conventional (i.e., new chemical entity) drugs.
There are no FDA-approved allogeneic, cell-based
therapies for Aging-related frailty, Alzheimer’s disease (AD), or other aging-related conditions, nor Hypoplastic Left Heart Syndrome
or other cardiac-related indications. This could complicate and delay FDA approval of our product candidate for these indications, or
other indications we study or will study.
Although FDA has approved several cell therapy
products, there are no allogeneic cell-based or stem cell therapies currently approved by the FDA for the treatment of Aging-related
frailty or our other indications. There are also no conventional drugs or therapies currently approved by the FDA with stated indications
for Aging-related frailty, Aging, or Frailty.
According to the FDA, neither “Aging-related
frailty” does not have a definition that are acceptable for characterizing the conditions for regulatory purposes, and there are
no precedents for regulatory approvals in these indications. This could prevent, complicate and/or delay regulatory approval of our product
candidate for these indications.
The FDA and the Japanese PMDA have both indicated
that the concept of “Frailty” as an indication will require additional clinical data and discussion before future pivotal
trials and marketing authorization. Because the condition of Frailty lacks consensus, there is no guarantee that PMDA, FDA or any regulatory
agency will agree to an approvable indication, that there will be consensus regarding the definition of the condition or will agree on
clinical endpoints that would be considered acceptable for demonstrating clinically meaningful benefit. More specifically, our ability
to begin Phase 3 (i.e., pivotal) trials in a “Frailty” or “Aging-related frailty” indication will depend on our
Phase 2 clinical data and subsequent interactions with FDA where we would discuss the size and scope of a Phase 3 program, the appropriate
target patient population (i.e., defining the indication), and agreement on one or more primary endpoints that demonstrate clinically
meaningful outcome.
It is possible that the FDA may never recognize
“aging” as a disease and may never agree to a definition of “Aging-related frailty” primarily due to a lack of
consensus on the definitions amongst clinicians, researchers and regulators, an insufficient understanding of the underlying pathophysiologic
mechanisms that cause any or all of the manifestations, or both. To obtain FDA approval for any indication for the disease states we
are studying, we will have to demonstrate, among other things, that our product candidates are safe and effective for that indication
in the target population. The results of our clinical trials must be statistically significant, meaning that there must be sufficient
data to indicate that it is unlikely the outcome occurred by chance. The FDA will also require us to demonstrate an appropriate dose
(i.e., number of cells) and dosing interval for our product candidates, and to identify and define treatment responders, which may require
additional clinical trials. As a result, the clinical endpoints, the criteria to measure the intended results of treatment, and the correct
dosing for our cell-based therapeutic approaches for these indications may be difficult to determine. These challenges may prevent us
from developing and commercializing products on a timely or profitable basis, or at all.
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If we are not able to recruit and retain
qualified management and scientific personnel, we may fail in developing our technologies and product candidates.
Our future success depends to a significant extent
on the skills, experience, and efforts of the principal members of our scientific and management personnel. These members include Joshua
M. Hare, M.D. and our staff of scientific consultants. Our co-founder, Dr. Hare, remains employed by the University of Miami (UM), and
provides services to us as a consultant on a limited basis. The loss of Dr. Hare or any or all of these individuals could harm our business
and might significantly delay or prevent the achievement of research, development or business objectives. Competition for regulatory,
clinical manufacturing and management personnel in the pharmaceutical industry is intense. We may be unable to recruit or retain personnel
with sufficient management skills in the area of cell therapeutics or attract or integrate other qualified management and scientific
personnel in the future.
Our product candidates represent new classes
of therapy that the marketplace may not understand or accept.
Even if we successfully develop and obtain regulatory
approval for our product candidates, the market may not understand or accept them. We are developing product candidates that represent
novel treatment approaches and will compete with a number of more conventional products and therapies manufactured and marketed by others,
including major pharmaceutical companies. The degree of market acceptance of any of our future developed and potential products will
depend on a number of factors, including:
If the health care community does not accept
our product candidates or future approved products for any of the foregoing reasons, or for any other reason, it could affect our sales
or have a material adverse effect on our business, financial condition, results of operations, and prospects.
Our dependence upon a limited supply of
bone marrow donors and biologic growth media may impact our ability to produce sufficient quantities of our product candidates as needed
to complete our clinical trials, and if our trials are successful, to meet product demand.
The population of acceptable bone marrow donors
is limited to volunteers between the ages of 18 and 45. In addition, potential donors are prescreened for a variety of health conditions
and are only allowed to donate bone marrow a total of six times in their lifetime, further limiting the total number of potential donors.
The amount of bone marrow donated may be insufficient for us to mass produce our product candidates at a scale sufficient to meet our
clinical trial needs or to produce a product to meet future commercial demand at an acceptable cost. In addition, the expansion of MSCs
through our proprietary manufacturing methods utilizes biologic growth media that may be in limited supply. Our product candidates will
be inherently more difficult to manufacture at commercial-scale than conventional pharmaceuticals, which are manufactured using precise
chemical formulations and operational methods. Cost-effective production at clinical trial or commercial scale quantities may not be
achievable.
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Future government regulation or health concerns
may also reduce the number of donors or otherwise limit the amount of bone marrow available to us. If we cannot secure quantities of
bone marrow or biologic growth media sufficient to meet the manufacturing demands for our clinical trials, we might not be able to complete
our clinical trials and obtain marketing approval for our product candidates. Moreover, even if our clinical trials are successful and
we obtain marketing approval for our product candidates, our inability to secure enough bone marrow or biologic growth media to meet
product demand could limit our potential revenues.
MSCs are biological entities derived from
human bone marrow and therefore have the potential for disease transmission and can pose risks to the recipient.
MSC therapies require many manufacturing steps.
Cells must be harvested from donor tissue, isolated, and expanded in cell culture to produce a sufficient number of cells for use. Each
step carries risks for contamination by other cells, microbes, or adventitious agents. The transfer of cells into a recipient can also
carry risks and complications associated with the procedure itself, and a recipient may reject the transplanted cells.
Further, the utilization of donated bone marrow
creates the potential for transmission of cancer and communicable disease, including but not limited to human immunodeficiency virus
(HIV), viral hepatitis, syphilis, Creutzfeldt-Jakob disease, and other viral, fungal, or bacterial pathogens. Although we and our suppliers
are required to comply with federal and state regulations intended to prevent communicable disease transmission, we or our suppliers
may fail to comply with such regulations. Further, even with compliance, our products might nevertheless be viewed by the public as being
associated with transmission of disease, and a clinical trial subject or patient who contracts an infectious disease might assert that
the use of our product candidate or products resulted in disease transmission, even if the individual became infected through another
source.
Any actual or alleged transmission of communicable
disease could result in clinical trial subject or patient claims, litigation, distraction of management’s attention, increased
expenses, and adverse regulatory authority action. Further, any failure in screening, whether by us or other manufacturers of similar
products, could adversely affect our reputation, the support we receive from the medical community, and overall demand for our products.
As a result, such actions or claims, whether or not directed at us, could have a material adverse effect on our reputation with our customers
and our ability to market our products, which could have a material adverse effect on our business, financial condition, results of operations,
and prospects.
If our processing and storage facility
or our clinical manufacturing facilities are damaged or destroyed, our business and prospects could be negatively affected.
Our processing and storage facility is located
in a region which experiences severe weather, notably hurricanes, from time to time. If this facility in Miami, Florida or the equipment
in the facility were to be significantly damaged or destroyed, we could suffer a loss of some or all of the stored units of our product
candidates and it could force us to halt our clinical trial processes. The risk of tropical storm and hurricane activity historically
rises on or about June 1st each year, and subsides on or about November 30th each year. We have not undertaken
a systematic analysis of the potential consequences to our business and financial results from a major hurricane or tornado, flood, fire,
earthquake, power loss, terrorist activity or other disasters and do not currently have a recovery plan for such disasters. If we underestimate
our insurance needs, we will not have sufficient insurance to cover losses above and beyond the limits on our policies. In addition,
we do not carry sufficient insurance to compensate us for actual losses from interruption of our business that may occur, and any losses
or damages incurred by us could harm our business. The occurrence of any of these business disruptions could seriously harm our operations
and financial condition and increase our costs and expenses.
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Ethical and other concerns surrounding
the use of stem cell therapy or human tissue may negatively affect public perception of us or our future products or product candidates,
or may negatively affect regulatory approval of our future products or product candidates, thereby reducing demand for our future products.
The commercial success of our product candidates
will depend in part on general public acceptance of the use of MSC therapy for the prevention or treatment of human diseases. Although
we do not use embryonic stem cells or fetal tissue, but the public may not be able to, or may fail to, differentiate our use of adult
MSCs from the use of embryonic stem cells or fetal tissue by others, which could result in a negative perception of our company or our
future products or product candidates, thereby reducing demand, which could have a material adverse effect on our business, financial
condition, results of operations, and prospects.
We may obtain MSCs from volunteer adult bone
marrow donors from non-profit organizations that collect and process tissue donations. Bone marrow donors receive payment, but ethical
concerns have been raised by some about the use of donated human tissue in a for-profit setting, as we are doing. Future adverse events
in the field of stem cell therapy, changes in public policy, or changes to the FDA’s regulatory approval framework for these products
could also result in greater governmental regulation of our product candidates or products, and potential regulatory delays relating
to their testing or approval.
We may eventually compete for product sales
with other companies, many of which will have greater resources or capabilities than we have, or may succeed in developing better products
or in developing products more quickly than we do, and we may not compete successfully with them.
We compete or may eventually compete with other
companies and organizations that are marketing or developing therapies for our targeted disease indications, based on traditional pharmaceutical,
medical device, or other non-cellular therapy and technologies. In addition, we have other potential competitors developing a variety
of therapeutics, and in some cases, such as with Alzheimer’s disease, there may be tens or hundreds of companies seeking to commercialize
therapeutics.
We also face competition in the cell therapy
field from academic institutions and governmental agencies. Many of our current and potential competitors have greater financial and
human resources than we have, including more experience in research and development and more established sales, marketing, and distribution
capabilities.
We anticipate that competition in our industry
will increase. In addition, the health care industry is characterized by rapid technological change, resulting in new product introductions
and other technological advancements. Our competitors may develop and market products that render product candidates under development
by us now or in the future, or any products manufactured or marketed by us, non-competitive or otherwise obsolete.
We have ongoing challenges with respect
to our liquidity and access to capital.
As we advance the preclinical and clinical development
of our programs, we expect to continue to incur significant expenses and operating losses, for which we do not have offsetting revenue.
We expect that our sales, research and development and general and administrative costs will increase in connection with conducting additional
preclinical studies and clinical trials for our current and future programs and product candidates, contracting with contract research
organizations (CROs) to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing
general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we
may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.
As of December 31, 2022, we had $19.7 million
in cash and cash equivalents and marketable securities. To date, we have financed our operations primarily through public and private
equity financings, grant awards, and fees generated from clinical trial revenue and contract manufacturing services. There are no assurances
that we will be able to continue to finance operations through these means, and our inability to generate sufficient revenue in the near
term may have an adverse impact on our business, operations and prospects.
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We face risks related to health epidemics
and outbreaks.
The global outbreak of COVID-19 continues to
impact countries, communities, supply chains and markets. The COVID-19 pandemic has impacted and continues to impact our Bahamas Registry
Trial business. It is also possible that the COVID-19 pandemic or other public health risks could adversely affect our business, results
of operations, financial condition or liquidity in the future. For example, they could impact the timing and enrollment of our collaborators’
planned or ongoing clinical trials, delaying clinical site initiation, regulatory review and the potential receipt of regulatory approvals,
payment of milestones under our license agreements and commercialization of one or more of our product candidates, if approved. The COVID-19
pandemic and other public health risks could also disrupt the production capabilities of our contract manufacturing facility. Further,
the outbreak of COVID-19 has heightened the risk that a significant portion of our workforce will suffer illness or otherwise be unable
to work. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot currently predict the extent
to which our business, clinical trials, results of operations, financial condition or liquidity will ultimately be impacted. In addition,
COVID-19 or other public health risks could materially and adversely impact our operations due to, among other factors:
● a general decline in business activity;
Adverse global
conditions, including macroeconomic uncertainty, may negatively impact our financial results.
Global conditions, dislocations
in the financial markets, or continuing inflation could adversely impact our business. In addition, the global macroeconomic environment
has been and may continue to be negatively affected by, among other things, instability in global economic markets, increased U.S. trade
tariffs and trade disputes with other countries, instability in the global credit markets, supply chain weaknesses, instability in the
geopolitical environment as a result of the Russian invasion of the Ukraine, the withdrawal of the United Kingdom from the European Union,
and other political tensions, and foreign governmental debt concerns. Such challenges have caused, and may continue to cause, uncertainty
and instability in local economies and in global financial markets, which may adversely affect our business.
We have a history of losses and may not
be able to achieve profitability going forward.
We have experienced significant losses since
inception and, at December 31, 2022 and 2021, had an accumulated deficit of approximately $62.8 million and $43.9 million, respectively.
We expect to incur additional losses in the future and expect the cumulative losses to increase. We expect our operating expenses to
increase and it is not likely that our grant revenues will fully fund our clinical programs. In such event, we will not have sufficient
cash flow to meet our obligations or make progress in our clinical programs and will need to raise additional capital.
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We have been funded in part by government
and non-profit association grant awards, which is not a guaranteed source of future funding.
The funding of government programs is dependent
on budgetary limitations, congressional appropriations and administrative allotment of funds, and changes in national health and welfare
priorities, all of which are inherently uncertain and may be affected by changes in U.S. government policies resulting from various political
and military developments. Our continued receipt of government and non-profit association funding is also dependent on the ability to
adhere to the terms and provisions of the original grant and contract documents and other regulations. We can provide no assurance that
we will receive or continue to receive funding for the grants and contracts we have been awarded. The loss of government funds or non-profit
association grant awards could have a material adverse effect on our clinical programs and on our business, financial condition, and
results of operations. For additional detail regarding the grant awards, we have received from governmental and non-profit associations,
see “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Grant Awards”
on page 64 of this report.
The use of our product candidates or future
products in individuals may expose us to product liability claims, and we may not be able to obtain adequate product liability insurance.
Because of the nature of our products, we face
an inherent risk of product liability claims. None of our product candidates have been widely used over an extended period of time, and
therefore our safety data are limited. We derive the raw materials for our product candidates from human donor sources, the manufacturing
process is complex, and the handling requirements are specific, all of which increase the likelihood of quality failures and subsequent
product liability claims. We will need to increase our insurance coverage if and when we receive approval for and begin commercializing
our product candidates. We may not be able to obtain or maintain product liability insurance on acceptable terms with adequate coverage
or at all. If we are unable to obtain insurance, or if claims against us substantially exceed our coverage, then our business could be
adversely impacted. Whether or not we are ultimately successful in any product liability litigation, such litigation either before or
after product approval and marketing could consume substantial amounts of our financial and managerial resources and could result in,
among other things:
● significant awards against us;
● substantial litigation costs;
● recall of products or termination of clinical trials;
● injury to our reputation;
● withdrawal of clinical trial participants;
● withdrawal of clinical trial sites or investigators; or
● adverse regulatory action.
Any of these results could have a material adverse
effect on our business, financial condition, and results of operations.
Risks Related to Intellectual Property
If our trade secret and patent position
does not adequately protect our product candidates and their uses, others could compete against us more directly, which could harm our
business and have a material adverse effect on our business, financial condition and results of operations.
Our success depends, in large part, on our ability
to obtain and maintain intellectual property protection for our product candidates. The patent position of biotechnology companies is
generally highly uncertain, involves complex legal and factual questions, and continues to be the subject of much litigation. Our trade
secrets attempt to bridge the gap that threatens patent exclusivity for the protection of products derived from MSCs. Our trade secrets
also remain valid and enforceable without regard to limitations such as term restrictions that are imposed on patents. Our trade secrets
and know-how are the subject of various license agreements and confidentiality agreements as further discussed below.
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The claims of existing U.S. and foreign patent
applications and patents, and those patents that may issue in the future, or those to be licensed to us, that are owned by the Company
or under an obligation of assignment to the Company, may not confer on us significant commercial protection against competing products.
Furthermore, to the extent that the Company owns or is assigned or licenses patent rights covering its business, third parties may challenge
or design around those patent rights, such as by asserting that the patents are invalid or arguing that the patent claims should be narrowly
construed, and thereby avoid successful infringement actions.
Our patent applications on MSC technology, in
particular, include claims directed to therapeutic uses and kits comprising MSCs. Patents with such claims tend to be more vulnerable
to challenge by other parties than patents with extremely narrow claims. Also, our pending patent applications may not issue, may issue
with substantially narrower claims than currently pending claims, or we may not receive any additional patents. Further, the laws of
foreign countries may not protect our intellectual property rights to the same extent as do the laws of the U.S. Our patents might not
contain claims that are sufficiently broad to prevent others from practicing our technologies or from competing with us with their own
technology in the fields of interest to us.
Although the Company has obligations of assignment
and has been assigned patents and patent applications concerning stem cell products and their uses, none of those patents or presently
pending applications has granted claims or pending claims that, if granted, would prevent a third party from commercializing their own
allogeneic stem cell therapy for those indications that we are studying. Consequently, our competitors may independently develop competing
products that do not infringe our patents or other intellectual property.
Control over patented technology requires the
Company to obtain formal assignment of patents and applications from third parties. Although the Company believes it has contracts requiring
formal assignment of the patent properties in its patent portfolio, there is risk that the inventors and research partners now of record
as owning these patent properties will refuse to execute documents confirming assignment of their rights to the Company or that litigation
will be required to compel the execution of those documents. In the meantime, those inventors and research partners may claim to be co-owners
of some of the patent portfolio.
Because of the extensive time required for development,
testing, and regulatory review of a potential product, it is possible that, before any of our product candidates can be commercialized,
any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantages
of the patent. To the extent our product candidates based on that technology are not commercialized ahead of this patent expiration,
to the extent we have no other patent protection on such products, or to the extent that regulatory or patent extensions are not granted,
those products might not have the robust protection we currently expect to enjoy. The background technologies used in the development
of our product candidates are known in the scientific community, and it may be possible to duplicate the methods we use to create our
product candidates, which makes us vulnerable to competition, without the ability to exclude others from potentially commercializing
a similar product.
If certain license agreements are terminated,
our ability to continue clinical trials and commercially market products could be adversely affected.
We are a party to various agreements that give
us rights to use specified technologies applicable to research, development, and commercialization of our product candidates. If these
agreements are voided or terminated, our product development, research, and commercialization efforts may be altered or delayed. Certain
aspects of our technology rely on inventions developed using university or other third-party resources. The universities or third parties
may have certain rights, as defined by law or applicable agreements, and may choose to exercise such rights. If we fail to comply with
any terms or provisions of these agreements, our rights and our access to the universities’ or third parties’ resources could
be terminated. The Exclusive License Agreement with the University of Miami dated November 20, 2014, as amended on December 11, 2017,
and on March 3, 2021, requires the Company to pay fees and royalties and to make commercially reasonable efforts to achieve milestones.
The University of Miami may terminate the Exclusive License Agreement for material breach if the fees and royalties are not paid, or
if the milestones are not met and an extension to achieve the milestones is not agreed upon.
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Some of our employees, including but not limited
to Dr. Hare, are employed by third party employers in addition to being employed or engaged as a consultant by the Company. Such employees
and consultants may owe obligations to the third-party employers related to that employment. Those third-party employers may assert that
they are entitled to assignment of some or all rights of new inventions made by such employees or consultants. If we are unable to conclusively
prove that we are entitled to assignment of those rights, we may be required to negotiate co-ownership to or a license of those rights,
if such an arrangement is available at all.
If we are unable to protect the confidentiality
of our proprietary information, trade secrets, and know-how, our competitive position could be impaired and our business, financial condition,
results of operations, and prospects could be adversely affected.
As disclosed above, some aspects of our technology,
especially regarding manufacturing processes, are unpatented and maintained by us as trade secrets. In an effort to protect these trade
secrets, we require our employees, consultants, collaborators, and advisors to execute confidential disclosure agreements before the
commencement of their relationships with us. These agreements require that all confidential information developed by the individual or
made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed
to third parties. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential
information, and these agreements may be breached. A breach of confidentiality could affect our competitive position. In addition, in
some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants,
collaborators, or advisors have previous employment or consulting relationships. Also, others may independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to our trade secrets.
Adequate remedies may not exist in the event
of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets could impair our competitive position
and could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Third-party claims of intellectual property
infringement may prevent or delay our product development efforts.
Our commercial success depends in part on our
avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents
and other intellectual property rights in the biotechnology and pharmaceutical industries. Numerous U.S. and foreign issued patents and
pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidates.
As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates,
methods of making product candidates, and methods of using product candidates may give rise to claims of infringement of the patent rights
of others.
Third parties may assert that we infringe their
patents or are otherwise employing their proprietary technology without authorization and may sue us. We are aware of several U.S. patents
held by third parties covering potentially similar or related products and their manufacture and use. Generally, conducting clinical
trials and other acts relating to FDA approval are not considered acts of infringement in the U.S. If and when Lomecel-BTM MSCs
are approved by the FDA, third parties may seek to enforce their patents by filing a patent infringement lawsuit against us. Patents
issued in the U.S. by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,”
a heightened standard of proof. We may not be able to prove in litigation that any patent enforced against us is invalid.
Additionally, there may be third-party patents
of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to
the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending
patent applications which may later result in issued patents that our product candidates may infringe. Some of those patent applications
may not yet be available for public inspection. In addition, third parties may obtain patents in the future and claim that use of our
technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing
process of our product candidates, constructs or molecules used in or formed during the manufacturing process, or any final product itself,
the holders of any such patents may be able to block our ability to commercialize the product candidates unless we obtain a license under
the applicable patents, or until such patents expire or they are finally determined to be held not infringed, unpatentable, invalid or
unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations,
processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent
may be able to block our ability to develop and commercialize the product candidate unless we obtained a license or until such patent
expires or is finally determined to be held not infringed, unpatentable, invalid or unenforceable. In either case, such a license may
not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on
commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could
in turn significantly harm our business.
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Parties making claims against us may seek and
obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product
candidates. They might seek an exclusion order from the International Trade Commission to prevent import of our product candidates. Defense
of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee
resources from our business and may impact our reputation. In the event of a successful claim of infringement against us, we may have
to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses
from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary
expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable
terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow
commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms,
if at all. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business
significantly.
We may become involved in lawsuits to protect
or enforce our patents or the patents of our collaborators or licensors, which could be expensive and time consuming.
Litigation may be necessary to enforce patents
issued or licensed to us, to protect trade secrets or know-how, or to determine the scope and validity of the proprietary rights. Litigation,
opposition, or other patent office proceedings could result in substantial additional costs and diversion of management focus. If we
are ultimately unable to protect our technology, trade secrets, or know-how, we may be unable to operate profitably. Competitors may
infringe our patents or the patents of our collaborators or licensors. As a result, we may be required to file infringement claims to
protect our proprietary rights, which can be expensive and time-consuming, particularly for a company of our size. In addition, in an
infringement proceeding, a court may decide that a patent of ours is invalid or is unenforceable, or may refuse to enjoin the other party
from using the technology at issue. An adverse determination of any litigation or defense proceedings could put one or more of our patents
at risk of being invalidated or interpreted narrowly. Litigation or other patent office proceedings may fail and, even if successful,
may result in substantial costs and distraction to our management. We may not be able, alone or with our collaborators and licensors,
to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully
as in the U.S.
Furthermore, though we could seek protective
orders where appropriate, because of the substantial amount of discovery required in connection with intellectual property litigation,
there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition,
during the course of this kind of litigation, there could be public announcements of the results of hearings, motions, or other interim
proceedings or developments. If investors perceive these results to be negative, the market price for our Class A Common Stock could
be significantly harmed.
Our industry is highly competitive and
subject to significant or rapid technological change.
The biotechnology industry, including our fields
of therapeutic interest, is highly competitive and subject to significant and rapid technological change. Accordingly, our success may
depend, in part, on our ability to respond quickly to such change through the development and introduction of new products. Our ability
to compete successfully against currently existing and future alternatives to our product candidates and systems and competitors who
compete directly with us in the biopharmaceutical industry may depend, in part, on our ability to attract and retain skilled scientific
and research personnel, develop technologically superior products, develop competitively priced products, obtain patent or other required
regulatory approvals for our products, be an early entrant to the market and manufacture, market, and sell our products, independently
or through collaborations. If a third party were to commercialize a competitive product, there is no assurance that we would have a basis
for initiating patent infringement proceedings or that, if initiated, we would prevail in such proceedings.
If our product candidates are approved by the
FDA, then potential competitors who seek to introduce generic versions of our product candidates may seek to take advantage of the abbreviated
approval pathway for biological products shown to be biosimilar to or interchangeable with our product candidates. The Biologics Price
Competition and Innovation Act of 2009 might permit these potential competitors to enter the market using a shorter and less costly development
program for a biosimilar product that competes with our products. As discussed, our ability to obtain one or more types of regulatory
exclusivity upon product approval could impact the timing of approval of a competing biosimilar or interchangeable product.
If all of the Company’s intellectual
property has not been properly assigned to the Company, our business, financial condition, results of operation, and prospects could
be adversely affected.
While the Company believes that each patent application
or patent has already been assigned or, if it has not yet been formally assigned, is under an obligation to be assigned to the Company
either through direct employment agreements between the Company and the inventors, or through research agreements with a third party
and the Company, if such is not the case, our business, financial condition, results of operations, and prospects could be adversely
affected.
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Intellectual property rights do not necessarily
address all potential threats to our competitive advantage.
The degree of future protection afforded by our
intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business
or permit us to maintain our competitive advantage. For example:
● the patents of others may have an adverse effect on our business.
Should any of these events occur, it could significantly
harm our business, results of operations and prospects.
Intellectual property litigation may lead
to unfavorable publicity that harms our reputation and causes the market price of our common shares to decline.
During the course of any intellectual property
litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions,
and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived
value of our existing products, programs or intellectual property could be diminished. Accordingly, the market price of shares of our
Class A Common Stock may decline. Such announcements could also harm our reputation or the market for our future products, which could
have a material adverse effect on our business, financial condition, results of operations, and prospects.
Patent reform legislation could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
In September 2011, the Leahy-Smith America Invents
Act, or Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These
include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. In particular, under
the Leahy-Smith Act, the U.S. transitioned in March 2013 to a “first inventor to file” system in which, assuming that other
requirements of patentability are met, the first inventor to file a patent application will be entitled to the patent regardless of whether
a third party was first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013
but before us could therefore be awarded a patent covering an invention of that we also made even if we had made the invention before
the invention was made independently by such third party. This will require us to be cognizant going forward of the time from invention
to filing of a patent application. Furthermore, our ability to obtain and maintain valid and enforceable patents depends on whether the
differences between our technology and the prior art allow our technology to be patentable over the prior art. Since patent applications
in the U.S. and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that
we were the first to either (1) file any patent application related to our product candidates or (2) invent any of the inventions claimed
in our patents or patent applications.
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The Leahy-Smith Act also includes a number of
significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing
third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent
by USPTO administered post-grant proceedings, including post-grant review (PGR), inter partes review (IPR), and derivation proceedings.
An adverse determination in any such submission or proceeding could reduce the scope or enforceability of, or invalidate, our patent
rights, which could adversely affect our competitive position.
Because of a lower evidentiary standard necessary
to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard in U.S. federal courts, a third party could potentially
provide evidence in a USPTO proceeding sufficient for the USPTO to hold a patent claim invalid even though the same evidence would be
insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the
USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant
in a district court action. Thus, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the
prosecution of our or our licensors’ patent applications and the enforcement or defense of any resulting issued patents, all of
which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Changes in U.S. patent law, or laws in
other countries, could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biopharmaceutical companies,
our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical
industry involve a high degree of technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is
costly, time-consuming and inherently uncertain. Changes in either the patent laws or in the interpretations of patent laws in the U.S.
and other countries may diminish the value of our intellectual property and may increase the uncertainties and costs surrounding the
prosecution of patent applications and the enforcement or defense of issued patents. We cannot predict the breadth of claims that may
be allowed or enforced in our patents or in third-party patents. In addition, Congress or other foreign legislative bodies may pass patent
reform legislation that is unfavorable to us.
For example, the U.S. Supreme Court has ruled
on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening
the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our or our licensors’ ability
to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.
Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions, the
laws and regulations governing patents could change in unpredictable ways that would weaken our or our licensors’ ability to obtain
new patents or to enforce our existing patents and patents we might obtain in the future.
Patent terms may be inadequate to protect
our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the U.S.,
if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional
filing date. Various extensions may be available, but the term of a patent, and the protection it affords, are limited. Even if patents
directed to our product candidates are obtained, once the patent term has expired, we may be open to competition from competitive products.
Given the amount of time required for the development, testing and regulatory review of product candidates, patents directed to our product
candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide
us with sufficient rights to exclude others from commercializing products similar or identical to ours.
If we or our licensors do not obtain patent
term extension for our product candidates and/or methods of their use, our business may be materially harmed.
Depending upon the timing, duration and specifics
of FDA marketing approval of our product candidates and their methods of use, one or more of our U.S. patents may be eligible for limited
patent term restoration. These laws permit a patent restoration term of up to five years as compensation for patent term lost during
product development and the FDA regulatory review process. A maximum of one patent may be extended per FDA-approved product as compensation
for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent
beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for
using it or a method for manufacturing it may be extended.
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Patent term extension may also be available in
certain foreign countries upon regulatory approval of our product candidates. However, we or our licensors may not be granted an extension
because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise
failing to satisfy applicable requirements. Patent term extension may also not be granted because the product candidates and/or methods
of use are determined not to be the first permitted marketing or use of those drug candidates in the jurisdiction in question, or patent
term extension may not be granted because the product candidates and/or methods of use are determined not to constitute an “active
ingredient” or use of an “active ingredient” that is eligible for patent term extension. Moreover, if patent term extension
is granted then the additional time period or the scope of patent protection afforded could be less than we request. If we or our licensors
are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, our competitors
may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially. Further,
if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical
data and launch their product earlier than might otherwise be the case.
We may not be able to protect our intellectual
property rights throughout the world.
Although we have in-licensed issued patents and
pending patent applications in the U.S. and certain other countries, filing, prosecuting and defending patents in all countries throughout
the world would be prohibitively expensive, and our intellectual property rights in some countries outside the U.S. can be less extensive
than those in the U.S. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent
as federal and state laws in the U.S. Consequently, we may not be able to prevent third parties from practicing our in-licensed inventions
in all countries outside the U.S. or from selling or importing products made using our in-licensed inventions in and into the U.S. or
other jurisdictions. Competitors may use our in-licensed technologies in jurisdictions where we have not obtained patent protection to
develop their own products and, further, may export otherwise infringing products to territories where we or our licensors have patent
protection but enforcement is not as strong as that in the U.S. These products may compete with our product candidates, and our or our
licensors patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems
in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of many foreign countries do not
favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement
of our or our licensors’ patents or the marketing of competing products in violation of our proprietary rights. Proceedings to
enforce our or our licensors’ patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and
attention from other aspects of our business, could put our or our licensors’ patents at risk of being invalidated or interpreted
narrowly and our or our licensors’ patent applications at risk of not issuing and could provoke third parties to assert claims
against us. We or our licensors may not prevail in any lawsuits that we or our licensors initiate, and the damages or other remedies
awarded, if any, may not be commercially meaningful. Accordingly, our or our licensors’ efforts to enforce or defend our intellectual
property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we
develop or license.
Many countries have compulsory licensing laws
under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability
of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which
could materially diminish the value of such patents. If we or our licensors are forced to grant a license to third parties with respect
to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of
operations and prospects may be adversely affected.
Obtaining and maintaining our patent protection
depends on compliance with various procedural, documentary, fee payment and other requirements imposed by regulations and governmental
patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity
fees and various other governmental fees on patents and/or applications will be due to the USPTO and various foreign patent offices at
various points over the lifetime of our patents and/or applications. We have systems in place to remind us to pay these fees, and we
rely on third parties to pay these fees when due. Additionally, the USPTO and various foreign patent office’s require compliance
with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a
patent has been granted. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse
can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However,
there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial
or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect
on our business, financial condition, and results of operations.
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Risks Related to Regulatory Approval and Other
Government Regulations
If we are not able to successfully develop
and commercialize our product candidates and obtain the necessary regulatory approvals, we may not generate sufficient revenues to continue
our business operations.
To generate sales revenue from our product candidates,
we must conduct extensive preclinical studies and clinical trials to demonstrate that our product candidates are safe and effective and
we must obtain required regulatory approvals. Our early-stage product candidates may fail to perform as we expect. Moreover, our product
candidates in later stages of development may fail to show the required safety and effectiveness for approval despite having progressed
successfully through preclinical or initial clinical testing. We may need to devote significant additional research and development,
financial resources, and personnel to develop commercially viable products. If our product candidates do not prove to be safe and efficacious
in clinical trials, we will not obtain the required regulatory approvals. If we fail to obtain such approvals, we may not generate sufficient
revenues to continue our business operations.
Even if we obtain regulatory approval of a product
candidate, that approval may be subject to limitations on the indicated uses for which it may be marketed. Even after granting regulatory
approval, the FDA and regulatory agencies in other countries continue to review and inspect marketed products, manufacturers, and manufacturing
facilities, which may create additional regulatory burdens. Later discovery of previously unknown problems with a product, manufacturer,
or facility may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market or a withdrawal