10-K
1
form10-k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2020
OR
☐
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from _____________ to ___________________
Commission
file number: 001-38325
Hancock
Jaffe Laboratories, Inc.
(Exact
name of registrant as specified in its charter)
70
Doppler
Irvine,
California 92618
(Address
of principal executive offices)
(949)
261-2900
(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files).
Yes
☐ No ☒
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No ☒
The
aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2020
(the last business date of the registrant’s most recently completed second fiscal quarter), based on the last sale price
of the registrant’s common stock on such date was $9,244,443.
As
of March 25, 2021, there were 8,503,636 shares of common stock outstanding.
HANCOCK
JAFFE LABORATORIES, INC.
TABLE
OF CONTENTS
PART I
ITEM 1. Business 2
ITEM 1A. Risk Factors 8
ITEM 1B. Unresolved Staff Comments 33
ITEM 2. Properties 33
ITEM 3. Legal Proceedings 33
ITEM 4. Mine and Safety Disclosures 33
PART II
ITEM 6. Selected Financial Data 34
ITEM 7A. Quantitative and Qualitative Disclosures and Market Risk 42
ITEM 8. Financial Statements and Supplementary Data 42
ITEM 9A. Controls and Procedures 43
ITEM 9B. Other Information 43
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 44
ITEM 11. Executive Compensation 52
ITEM 14. Principal Accounting Fees and Services 66
PART IV
ITEM 15. Exhibits and Financial Statements Schedules 66
Signatures 69
Financial Statements and Supplementary Data F-1
PART
I
CAUTIONARY
NOTE ON FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains, or may contain, certain “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve significant risks and uncertainties.
Such statements may include, without limitation, statements with respect to the Company’s plans, objectives, projections,
expectations and intentions and other statements identified by words such as “may,” “will,” “could,”
“would,” “should,” “believes,” “expects,” “anticipates,” “estimates,”
“intends,” “plans,” “potential” or similar expressions. These statements are based upon the
current beliefs and expectations of the Company’s management and do not constitute guarantees of future performance. Actual
results could differ materially from those contained in the forward-looking statements and are subject to significant risks and
uncertainties, including those discussed under “Risk Factors,” as well as those discussed elsewhere in this Form 10-K.
Actual results (including, without limitation, the actual timing for and results of the clinical trials described herein, and
FDA review of the Company’s products in development) may differ significantly from those set forth in the forward-looking
statements. These forward-looking statements involve risks and uncertainties that are subject to change based on various factors
(many of which are beyond the Company’s control).
You
are further cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this
Form 10-K or, in the case of documents referred to or incorporated by reference, the date of those documents.
All
subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to
release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form
10-K or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If
we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect
to those or other forward-looking statements.
Unless
the context requires otherwise, references in this Annual Report on Form 10-K to “we,” “us,” “our,”
“our company,” “HJLI”, or similar terminology refer to Hancock Jaffe Laboratories, Inc.
We
use our registered trademarks and trade names, such as VenoValve® and CoreoGraft®TM, in this Annual Report
on Form 10-K. Solely for convenience, trademarks and trade names referred to in this prospectus appear without the ® and TM
symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law,
our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names. We do not intend our
use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship
of us by, any other companies.
ITEM 1. Business
Overview
Hancock
Jaffe Laboratories, Inc. is a medical device company developing tissue-based devices that are designed to be life sustaining or
life enhancing for patients with cardiovascular disease, and peripheral arterial and venous disease. The Company’s products
are being developed to address large unmet medical needs by either offering treatments where none currently exist or by substantially
increasing the current standards of care. Our products which we are developing include: the VenoValve®, a porcine based
device to be surgically implanted in the deep venous system of the leg to treat a debilitating condition called chronic venous
insufficiency (“CVI”); and the CoreoGraft®, a bovine based conduit to be used to revascularize the heart during
coronary artery bypass graft (“CABG”) surgeries. Both of these products are currently being developed
for approval by the U.S. Food and Drug Administration (“FDA”). Our current senior management team has been affiliated
with more than 50 products that have received FDA approval or CE marking. We currently lease a 14,507 sq. ft. manufacturing facility
in Irvine, California, where we manufacture products for our clinical trials and which has previously been FDA certified for commercial
manufacturing of devices.
Each
of our products will be required to successfully complete significant clinical trials to demonstrate the safety and efficacy of
the product before it will be able to be approved by the FDA.
Products
VenoValve
Background
Chronic
venous disease (“CVD”) is the world’s most prevalent chronic disease. CVD is generally classified using a standardized
system known as CEAP (clinical, etiological, anatomical, and pathophysiological). The CEAP system consists of seven clinical classifications
(C0 to C6) with C5 to C6 being the most severe cases of CVD.
Chronic
Venous Insufficiency (“CVI”) is a subset of CVD and is generally used to describe patients with C4 to C6 CVD. CVI
is a condition that affects the venous system of the leg causing pain, swelling, edema, skin changes, and ulcerations. In order
for blood to return to the heart from the foot, ankle, and lower leg, the calf muscle pushes the blood up the veins of the leg
and through a series of one-way valves. Each valve is supposed to open as blood passes through, and then close as blood moves
up the leg to the next valve. CVI occurs when the one-way valves in the veins of the leg fail and become incompetent. When the
valves fail, blood flows backwards and in the wrong direction (reflux). As blood pools in the lower leg, pressure inside the veins
increases (venous hypertension). Reflux, and the resulting venous hypertension, causes the leg to swell, resulting in debilitating
pain, and in the most severe cases, venous ulcers. The VenoValve is being developed to treat CVI in the deep venous system with
a focus on severe patients with C4b, C5 and C6 CVI.
Estimates
indicate that approximately 2.4 million people in the U.S. have C5 to C6 CVI in the deep venous system, including patients that
develop venous leg ulcers (C6 patients). Over one million new severe cases of CVI occur each year in the U.S., mostly from patients
who have experienced a deep vein thrombosis (blood clot). The average patient seeking treatment of a venous ulcer spends as much
as $30,000 a year on wound care, and the total direct medical costs from venous ulcer sufferers in the U.S. has been estimated
to exceed $38 billion a year. Aside from the direct medical costs, severe CVI sufferers experience a significantly reduced quality
of life. Daily activities such as preparing meals, housework, and personal hygiene (washing and bathing) become difficult due
to reduced mobility. For many severe CVI sufferers, intense pain, which frequently occurs at night, prevents patients from getting
adequate sleep. Severe CVI sufferers are known to miss approximately 40% more work days than the average worker. A high percentage
of venous ulcer patients also experience severe itching, leg swelling, and an odorous discharge. Wound dressing changes, which
occur several times a week, can be extremely painful. Venous ulcers from deep venous CVI are very difficult to heal, and a significant
percentage of venous ulcers remain unhealed for more than a year. Even if healed, recurrence rates for venous ulcers are known
to be high (20% to 40%) within the first year and as high as 60% after five years.
The
Opportunity
The
VenoValve is a porcine based valve developed at HJLI to be implanted in the deep venous system of the leg to treat severe CVI.
By reducing reflux, and lowering venous hypertension, the VenoValve has the potential to reduce or eliminate the symptoms of deep
venous, severe CVI, including venous leg ulcers. The current version of the VenoValve is designed to be surgically implanted into
the patient via a 5 to 6 inch incision in the upper thigh.
There
are presently no FDA approved medical devices to address valvular incompetence, or effective treatments for deep venous CVI. Current
treatment options include compression garments, or constant leg elevation. These treatments are generally ineffective, as they
attempt to alleviate the symptoms of CVI without addressing the underlying causes of the disease. In addition, we believe that
compliance with compression garments and leg elevation is extremely low, especially among the elderly. Valve transplants from
other parts of the body have been attempted, but with very-poor results. Many attempts to create substitute valves have also failed,
usually resulting in early thromboses. The premise behind the VenoValve is that by reducing the underlying causes of CVI, reflux
and venous hypertension, the debilitating symptoms of CVI will decrease, resulting in improvement in the quality of the lives
of CVI sufferers.
There
are approximately 2.4 million people in the U.S. that suffer from deep venous CVI due to valvular incompetence.
VenoValve
Clinical Status
After
consultation with the FDA, and as a precursor to the U.S. pivotal trial, we conducted a small first-in-human study for
the VenoValve in Colombia. The first-in-human Colombian trial included 11 patients. In addition to providing safety and efficacy
data, the purpose of the first-in-human study was to provide proof of concept, and to provide valuable feedback to make
any necessary product modifications or adjustments to our surgical implantation procedures for the VenoValve prior to conducting
the U.S. pivotal trial. In December of 2018, we received regulatory approval from Instituto Nacional de Vigilancia de Medicamentos
y Alimentos (“INVIMA”), the Colombian equivalent of the FDA. On February 19, 2019, we announced that the first VenoValve
was successfully implanted in a patient in Colombia. Between April of 2019 and December of 2019, we successfully implanted VenoValves
in 10 additional patients, completing the implantations Colombian first-in-man study. Overall, VenoValves have been implanted
in all 11 patients. Endpoints for the VenoValve first-in-human study include safety (device related adverse events), reflux, measured
by doppler, a VCSS score used by the clinician to measure disease severity, and a VAS score used by the patient to measure pain.
All
11 patients have now completed the one-year first-in-human trial and final results from the study were released in December
of 2020. Among the 11 patients, reflux improved an average of 54%, Venous Clinical Severity Scores (“VCSSs”) improved
an average of 56%, and visual analog scale (VAS) scores, which are used by patients to measure pain, have improved an average
of 76%, when compared to pre-surgery levels. VCSS scores are commonly used by clinicians in practice and in clinical
trials to objectively assess outcomes in the treatment of venous disease, and include ten characteristics including pain,
inflammation, skin changes such as pigmentation and induration, the number of active ulcers, and ulcer duration. The improvement
in VCSS scores is significant and indicates that almost all of the VenoValve patients who had severe CVI pre-surgery, had
mild CVI or the complete absence of disease at one-year post surgery.
VenoValve
safety incidences were minor with no reported device related adverse events. Minor non-device related adverse safety
issues included one (1) fluid pocket (which was aspirated), intolerance from Coumadin anticoagulation therapy, three (3)
minor wound infections (treated with antibiotics), and one occlusion due to patient non-compliance with anti-coagulation therapy.
In
preparation for the VenoValve U.S. pivotal trial, we submitted a Pre-IDE filing with the FDA in October of 2020 and had a pre
IDE meeting with the FDA on January 11, 2021. Topics presented at the meeting included the background and clinical need
for the VenoValve, proposed U.S. pivotal study design, patient monitoring protocols for safety and efficacy, bench testing protocols
used to develop the device, and the VenoValve first-in-human results. We received valuable feedback from the FDA in several areas
during the Pre-IDE meeting and believe we reached consensus on many important issues.
An
investigational device exemption or IDE from the FDA is required before a medical device company can proceed
with a pivotal trial for a class III medical device. On March 5, 2021 we filed an
IDE application with the FDA for the VenoValve U.S. pivotal trial. Based in-part upon feedback received from the FDA during
the Pre-IDE meeting, we proposed a prospective, non-blinded, single arm, multi-center study of seventy-five (75) CVI patients
enrolled at up to 20 U.S. sites. Proposed endpoints for the pivotal trial mirror those endpoints used for the first-in-human trial,
and include the absence of material adverse safety events (mortality, deep wound infection, major bleeding, ipsilateral deep vein
thrombosis, pulmonary embolism) at thirty (30) days post implantation, reductions of reflux at one hundred and eighty days (180)
days post VenoValve implantation, VCSS scoring to measure disease manifestations, VAS scores to measure pain, and quality of life
measurements. We have significant interest from key opinion leaders and several of the top vascular clinicians in the U.S.
who would like to participate in the VenoValve U.S. pivotal trial and are in the process of qualifying potential sites for the
study.
CoreoGraft
Background
Heart
disease is the leading cause of death among men and women in the U.S. accounting for about 1 in every 4 deaths. Coronary heart
disease is the most common type of heart disease, killing over 370,000 people each year. Coronary heart disease occurs when arteries
around the heart become blocked or occluded, in most cases by plaque. Although balloon angioplasty with or without cardiac stents
have become the norm if one or two arteries are blocked, coronary artery bypass surgery remains the treatment of choice for patients
with multiple blocked arteries on both sides of the heart. Approximately 200,000 coronary artery bypass graft (“CABG”)
surgeries take place each year in the U.S. and are the most commonly performed cardiac procedure. CABG surgeries alone account
for 55% of all cardiac surgeries, and CABG surgeries when combined with valve replacement surgeries account for approximately
62% of all cardiac surgeries. The next largest category accounts for 10% of cardiac surgeries. The number of CABG surgeries are
expected to increase as the population continues to age. On average, three grafts are used for each CABG surgery.
Although
CABG surgeries are invasive, improved surgical techniques over the years have lowered the fatality rate from CABG surgeries to
between 1% and 3% prior to discharge from the hospital. Arteries around heart are accessed via an incision along the sternum known
as a sternotomy. Once the incision is made, the sternum (chest) is divided (“cracked”) to access the heart and its
surrounding arteries.
CABG
surgery is relatively safe and effective. In most instances, doctors prefer to use the left internal mammary artery (“LIMA”),
an artery running inside the ribcage and close to the sternum, to re-vascularize the left side of the heart. Use of the LIMA to
revascularize the left descending coronary artery (known as the “widow maker”) has become the gold standard for revascularizing
the left side of the heart during CABG surgeries. For the right side of the heart, and where additional grafts are needed on the
left side, the current standard of care is to harvest the saphenous vein from the patient’s leg to be dissected into pieces
and used as bypass grafts around the heart. Unfortunately, saphenous vein grafts (“SVGs”) are not nearly as effective
as the LIMA for revascularizing the heart. In fact, SVGs continue to be the weak link for CABG surgeries.
The
saphenous vein harvest procedure is itself invasive. Either a long incision is made along the inner leg of the patient to harvest
the vein, or the saphenous vein is extracted endoscopically. Regardless of the type of harvest procedure, bypass graft harvest
remains an invasive and complication prone aspect of the CABG procedure. Present standard-of-care complications are described
in recent published reports in major medical journals. The percentage of complications from the harvest procedure can be as high
as 24%. This is mainly due to non-healing of the saphenous wound or development of infection in the area of the saphenous vein
harvest site.
While
the LIMA is known for excellent short term and long term patency rates, studies indicate that between 10% and 40% percent of SVGs
that are used as conduits for CABG surgeries fail within the first year after the CABG surgery. A significant percentage fail
within the first 30 days. At 10 years, the SVGs failure rate can be as high as 75%. When a graft fails, it becomes blocked or
occluded, depriving the heart of blood flow. Mortality during the first year after bypass graft failure is very high, between
5% and 9%. For purposes of comparison, a 3% threshold is considered to be a high cardiac risk. In fact, a relatively recent study
in Denmark has reported that mortality rates at 8 to 10 years after CABG surgery are as high as 60% to 80%. While a life expectancy
of 8 to 10 years following CABG surgery may have been acceptable in the past, expectations have changed and with people now generally
living longer, additional focus is now being placed on extending life expectancies following CABG surgeries.
Researchers
have determined that there are two main causes of SVGs failure: size mismatch, and a thickening of the interior of the SVGs that
begins immediately following the harvest procedure. Size mismatch occurs because the diameter of SVGs is often significantly larger
than the diameter of the coronary arteries around the heart. This size mismatch causes flow disturbances, leading to graft thromboses
and graft failure. The thickening of the cell walls of SVGs occur when a layer of endothelial cells on the inner surface of the
SVGs are disturbed beginning at the harvesting procedure, starting a chain reaction which causes the cells to thicken and the
inside of the graft to narrow, resulting in blood clots and graft failure.
The
Opportunity
The
CoreoGraft is a bovine based off the shelf conduit that could potentially be used to revascularize the heart, instead of harvesting
the saphenous vein from the patient’s leg. In addition to avoiding the invasive and painful SVG harvest process, HJLI’s
CoreoGraft closely matches the size of the coronary arteries, eliminating graft failures that occur due to size mismatch. In addition,
with no graft harvest needed, the CoreoGraft could also reduce or eliminate the inner thickening that burdens and leads to failure
of the SVGs.
In
addition to providing a potential alternative to SVGs, the CoreoGraft could be used when making grafts from the patients’
own arteries and veins is not an option. For example, patients with significant arterial and vascular disease often do not have
suitable vessels to be used as grafts. For other patients, such as women who have undergone radiation treatment for breast cancer
and have a higher incidence of heart disease, using the LIMA may not be an option if it was damaged by the radiation. Another
example are patients undergoing a second CABG surgery. Due in large part to early SVG failures, patients may need a second CABG
surgery. If the SVG was used for the first CABG surgery, the patient may have insufficient veins to harvest. While the CoreoGraft
may start out as a product for patients with no other options, if the CoreoGraft establishes good short term and long term patency
rates, it could become the graft of choice for all CABG patients in addition to the LIMA.
Clinical
Status
In
January of 2020, we announced the results of a six-month, nine sheep, animal feasibility study for the CoreoGraft. Bypasses were
accomplished by attaching the CoreoGrafts from the ascending aorta to the left anterior descending artery, and surgeries were
preformed both on-pump and off-pump. Partners for the feasibility study included the Texas Heart Institute, and American Preclinical
Services.
Test
subjects were evaluated via angiograms and flow monitors during the study, and a full pathology examination of the CoreoGrafts
and the surrounding tissue was performed post necropsy.
The
results from the feasibility study demonstrated that the CoreoGrafts remained patent (open) and fully functional at 30, 90, and
180 day intervals after implantation. In addition, pathology examinations of the grafts and surrounding tissue at the conclusion
of the study showed no signs of thrombosis, infection, aneurysmal degeneration, changes in the lumen, or other problems that are
known to plague and lead to failure of SVGs.
In
addition to exceptional patency, pathology examinations indicated full endothelialization for grafts implanted for 180 days both
throughout the CoreoGrafts and into the left anterior descending arteries. Endothelium is a layer of cells that naturally exist
throughout healthy veins and arteries and that act as a barrier between blood and the surrounding tissue, which helps promote
the smooth passage of blood. Endothelium are known to produce a variety anti-clotting and other positive characteristics that
are essential to healthy veins and arteries. The presence of full endothelialization within the longer term CoreoGrafts indicates
that the graft is being accepted and assimilated in a manner similar to natural healthy veins and arteries that exist throughout
the vascular system and is an indication of long-term biocompatibility.
In
May of 2020, we announced that we had received approval from the Superintendent of Health of the National Health Counsel for the
Republic of Paraguay to conduct a first-in-human trial for the CoreoGraft. Up to 5 patients that need coronary artery bypass graft
surgery will receive CoreoGraft implants as part of the first-in-human study. In July of 2020, we announced that we had received
permission to proceed with the first-in-human study, which had been put on hold due to the COVID-19 pandemic, and in August of
2020 we announced that the first two patients had been enrolled for the first-in-human CoreoGraft trial. Heart bypass surgeries
for the first two patients to receive CoreoGraft implants as part of our first-in-human trial were successfully completed in October
of 2020. A third bypass surgery using the CoreoGraft was successfully completed in November of 2020. Two CoreoGraft surgical patients
have expired due to what we believe are non-device related adverse events, one in October and one in November of 2020.
Pursuant to our protocol for the first-in-human trial, these events are being reviewed by a data and safety monitoring board
and pending the outcome of the review, we expect to resume enrolling patients for the study in the second quarter of 2021.
Government
Regulation
Our
product candidates and our operations are subject to extensive regulation by the FDA, and other federal and state authorities
in the United States, as well as comparable authorities in foreign jurisdictions. Our product candidates are subject to regulation
as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act (“FDCA”), as implemented and
enforced by the FDA. The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy,
labeling, packaging, storage, installation, distribution, servicing, recordkeeping, premarket clearance or approval, adverse event
reporting, advertising, promotion, marketing, and import and export of medical devices to ensure that medical devices distributed
domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.
PMA
Approval Pathway
Class
III devices such as the VenoValve and the CoreoGraft generally require pre-market approval (PMA) before they can
be marketed in the U.S. The PMA review and approval process is more demanding than the 510(k) premarket notification process.
In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive
data, including data from preclinical studies and human clinical trials. The PMA also must contain a full description of the device
and its components, a full description of the methods, facilities and controls used for manufacturing, and proposed labeling.
Following receipt of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review.
If FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice,
the FDA’s review often takes significantly longer, and can take several years. An advisory panel of experts from outside
the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability
of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA generally will conduct a pre-approval
inspection of the applicant or its third-party manufacturers’ manufacturing facility or facilities to ensure compliance
with the QSR. The FDA will approve the new device for commercial distribution if it determines that the data and information in
the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for
its intended use(s).
The
FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including,
among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data
from patients in the clinical study that supported PMA approval, or requirements to conduct additional clinical studies post-approval.
The FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health
or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use. In such
cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports
to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material
adverse enforcement action, including withdrawal of the approval. Certain changes to an approved device, such as changes in manufacturing
facilities, methods or quality control procedures, or changes in the design performance specifications, which affect the safety
or effectiveness of the device, require submission of a PMA supplement. PMA supplements often require submission of the same type
of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered
by the original PMA and may not require as extensive clinical data or the convening of an advisory panel. Certain other changes
to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode
of operation and technical basis of operation, or when the design change is so significant that a new generation of the device
will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a
reasonable assurance of safety and effectiveness. We believe that the VenoValve and the CoreoGraft each will require the approval
of a PMA.
Clinical
Trials in Support of PMA
Clinical
trials are almost always required to support a PMA submission. All clinical investigations of devices to determine safety and
effectiveness must be conducted in accordance with the FDA’s investigational device exemption (IDE) regulations,
which govern investigational device labeling, prohibit promotion of the investigational device and specify an array of recordkeeping,
reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant
risk,” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA,
which must become effective prior to commencing human clinical trials. A significant risk device is one that presents a potential
for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human
life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human
health, or otherwise presents a potential for serious risk to a subject. Both the VenoValve and the CoreoGraft will likely
require IDE applications prior to human testing in the United States.
An
IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to
test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30
days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines
that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial
to proceed under a conditional approval.
In
addition to IDE approval, a human, the study must be approved by, and conducted under the oversight of, an Institutional
Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the study,
and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more
IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved
by the FDA. Acceptance of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective
and, if it does become effective, the FDA may or may not determine that the data derived from the trials support the safety and
effectiveness of the device or warrant the continuation of clinical trials. An IDE supplement must be submitted to, and approved
by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness,
study plan or the rights, safety or welfare of human subjects. During a study, the sponsor is required to comply with the applicable
FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational
plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices
or on making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA’s
regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the
disposition of the investigational device and comply with all reporting and recordkeeping requirements. Additionally, after a
trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a
belief that the risks to study subjects outweigh the anticipated benefits.
Post-market
Regulation
After
a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:
establishing registration and device listing with the FDA; QSR requirements, which require manufacturers, including third-party
manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects
of the design and manufacturing process; labeling regulations and FDA prohibitions against the promotion of investigational products,
or “off-label” uses of cleared or approved products; requirements related to promotional activities; clearance or
approval of product modifications that could significantly affect safety or effectiveness or that would constitute a major change
in intended use of one of our cleared devices; medical device reporting regulations, which require that a manufacturer report
to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device
or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were
to recur; correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections
and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA;
and post-market surveillance activities and regulations.
Regulation
Outside of the U.S.
Each
country or territory outside of the U.S. has its own rules and regulations with respect to the manufacture, marketing and sale
of medical devices. For example, in December of 2018, we received regulatory approval from Instituto Nacional de Vigilancia de
Medicamentos y Alimentos (“INVIMA”), the Colombian equivalent of the U.S. Food and Drug Administration, for our first-in-human
trial for the VenoValve in Colombia. At this time, other than the first-in-human trial in Colombia, we have not determined which
countries outside of the U.S., if any, for which we will seek approval for our product candidates.
Our
Competitive Strengths
We
believe we will offer the cardiovascular device market a compelling value proposition with the launch of our two product candidates,
if approved, for the following reasons:
Intellectual
Property
We
possess an extensive proprietary processing and manufacturing methodology specifically applicable to the design, processing, manufacturing
and sterilization of biologic devices. This includes FDA compliant quality control and assurance programs, proprietary tissue
processing technologies demonstrated to eliminate recipient immune responses, trusted relationship with abattoir suppliers, and
a combination of tissue preservation and gamma irradiation that enhances device functions and guarantees sterility. We have filed
several patent applications for the VenoValve and CoreoGraft with the U.S. Patent and Trademark Office (USPTO)
and throughout the world. In February of 2021, we received a notice for allowance from the USPTO for an application
focusing on novel aspects of the VenoValve Frame.
Employees
As
of March 19, 2021, we had 19 full-time employees. None of our employees are represented by a collective bargaining
agreement, and we have never experienced any work stoppage. We believe we have good relations with our employees.
Corporate
Information
We
were incorporated in Delaware on December 22, 1999. Our principal executive offices are located at 70 Doppler, Irvine, California,
92618, and our telephone number is (949) 261-2900. Our corporate website address is www.hancockjaffe.com. The information contained
on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus
is an inactive textual reference only.
ITEM 1A. Risk Factors
Investing
in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together
with all of the other information contained in this Annual Report, before deciding to invest in our securities. If any of the
following risks materialize, our business, financial condition, results of operation and prospects will likely be materially and
adversely affected. In that event, the market price of our common stock could decline, and you could lose all or part of your
investment.
Summary
The
risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the
only risks we face. You should carefully consider these risk factors and the other reports and documents filed by us with the
SEC.
● Changes in external competitive market factors;
● Uncertainties in generating sustained revenue or achieving profitability;
● Unanticipated working capital or other cash requirements;
● Our ability to consummate future acquisitions or strategic transactions;
Risks
Related to Our Business and Strategy
We
have incurred significant losses since our inception, expect to incur significant losses in the future and may never achieve or
sustain profitability.
We
have historically incurred substantial net losses, including net losses of $9,135,486, $7,625,397, $13,042,709, $7,791,469 and
$3,387,490 for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively. As a result of our historical losses,
we had an accumulated deficit of $65,323,411 as of December 31, 2020. Our losses have resulted primarily from costs related to
general and administrative expenses relating to our operations, as well as our research programs and the development of our product
candidates. Currently, we are not generating revenue from operations, and we expect to incur losses for the foreseeable future
as we seek to obtain regulatory approval for our product candidates. Additionally, we expect that our general and administrative
expenses will increase due to the additional operational and reporting costs associated with being a public company as well as
the projected expansion of our operations. We do not expect to generate significant revenue until any of our product candidates
are licensed or sold, if ever. We may never generate significant revenue or become profitable. Even if we do achieve profitability,
we may be unable to sustain or increase profitability on a quarterly or annual basis. Our failure to achieve and subsequently
sustain profitability could harm our business, financial condition, results of operations and cash flows.
We
currently depend entirely on the successful and timely regulatory approval and commercialization of our two product candidates,
which may not receive regulatory approval or, if any of our product candidates do receive regulatory approval, we may not be able
to successfully commercialize them.
We
currently have two product candidates (the CoreoGraft and the VenoValve) and our business presently depends entirely on our success
with our product candidates. In order for our product candidates to succeed the products need to be approved by regulatory
authorities, which may never happen. Our product candidates are based on technologies that have not been used previously in the
manner we propose. Market acceptance of our product candidates will largely depend on our ability to demonstrate their relative
safety, efficacy, cost-effectiveness and ease of use. We may not be able to successfully develop and commercialize our product
candidates. If we fail to do so, we will not be able to generate substantial revenues, if any.
We
are subject to rigorous and extensive regulation by the FDA in the United States and by comparable agencies in other jurisdictions,
including the European Medicines Agency, or EMA, in the European Union, or EU. Our product candidates are currently in development
and we have not received FDA approval for our product candidates. Our product candidates may not be marketed in the United States
until they have been approved by the FDA and may not be marketed in other jurisdictions until they have received approval from
the appropriate foreign regulatory agencies. Each product candidate requires significant research, development, preclinical testing
and extensive clinical investigation before submission of any regulatory application for marketing approval.
Obtaining
regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of any
of our product candidates on a timely basis, or at all. The number, size, design and focus of preclinical and clinical trials
that will be required for approval by the FDA, the EMA or any other foreign regulatory agency varies depending on the device,
the disease or condition that the product candidates are designed to address and the regulations applicable to any particular
products. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory
approval. The FDA, the EMA and other foreign regulatory agencies can delay, limit or deny approval of a product for many reasons,
including, but not limited to:
● a product candidate may not be shown to be safe or effective;
● we may not be able to enroll enough patients to complete our product studies;
● a product candidate may fail to comply with regulatory requirements; and/or
If
our product candidates are not approved at all or quickly enough to provide net revenues to defray our operating expenses, our
business, financial condition, operating results and prospects could be harmed.
If
we are unable to successfully raise additional capital, our future clinical trials and product development could be limited and
our long-term viability may be threatened.
We
have experienced negative operating cash flows since our inception and have funded our operations primarily from proceeds received
from sales of our capital stock, the issuance of the convertible and non-convertible notes, and the sale of our products to larger
medical device companies. We will need to seek additional funds in the future through equity or debt financings, or strategic
alliances with third parties, either alone or in combination with equity financings to complete our product development initiatives.
These financings could result in substantial dilution to the holders of our common stock, or require contractual or other restrictions
on our operations or on alternatives that may be available to us. If we raise additional funds by issuing debt securities, these
debt securities could impose significant restrictions on our operations. Any such required financing may not be available in amounts
or on terms acceptable to us, and the failure to procure such required financing could have a material and adverse effect on our
business, financial condition and results of operations, or threaten our ability to continue as a going concern.
Our
present and future capital requirements will be significant and will depend on many factors, including:
● the costs, timing and outcome of regulatory review of our product candidates;
● the effect of competing technological and market developments;
● market acceptance of our product candidates;
● the ability to achieve revenue growth and improve gross margins;
We
may not be able to acquire additional funds on acceptable terms, or at all. If we are unable to raise adequate funds, we may have
to liquidate some or all of our assets or delay, reduce the scope of or eliminate some or all of our development programs.
If
we do not have, or are not able to obtain, sufficient funds, we may be required to delay development or commercialization of our
product candidates. We also may have to reduce the resources devoted to our product candidates or cease operations. Any of these
factors could harm our operating results.
The
COVID-19 pandemic has significantly negatively impacted our business.
The
COVID-19 pandemic has disrupted the global economy and has negatively impacted large populations including people and businesses
that may be directly or indirectly involved with the operation of our Company and the manufacturing, development, and testing
of our product candidates. The full scope and economic impact of COVID-19 is still unknown and there are many risks from COVID-19
that could generally and negatively impact economies and healthcare providers in the countries where we do business, the medical
device industry as a whole, and development stage, pre-revenue companies such as HJLI. The primary impacts of COVID-19 to our
operations were stay-at-home work requirements, travel restrictions limiting our ability to initiate and continue animal studies
and patient trials and disruptions to scheduled meetings with regulatory agencies such as the FDA. Notwithstanding these impacts,
we were able to use remote work tools, communications solutions, and other methods to continue our trials and regulatory submissions
with minimal impact to our overall development timeline. While many of these restrictions are currently relaxed, there can be
no assurance we will be able similarly adjust if they are put back in place in the future. At this time, we have identified
the following COVID-19 related risks that we believe have a greater likelihood of negatively impacting our company specific, including,
but not limited to:
We
may engage in future acquisitions or strategic transactions which may require us to seek additional financing or financial commitments,
increase our expenses and/or present significant distractions to our management.
In
the event we engage in an acquisition or strategic transaction, we may need to acquire additional financing (particularly, if
the acquired entity is not cash flow positive or does not have significant cash on hand). Obtaining financing through the issuance
or sale of additional equity and/or debt securities, if possible, may not be at favorable terms and may result in additional dilution
to our current stockholders. Additionally, any such transaction may require us to incur non-recurring or other charges, may increase
our near and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which
could adversely affect our operations and financial results. For example, an acquisition or strategic transaction may entail numerous
operational and financial risks, including the risks outlined above and additionally:
● exposure to unknown liabilities;
● higher than expected acquisition and integration costs;
● write-downs of assets or goodwill or impairment charges;
● increased amortization expenses;