10-K
1
f10k2020_senestechinc.htm
ANNUAL REPORT
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
☒
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 PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from to
Commission
file number: 001-37941
SENESTECH,
INC.
(Exact
name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
(928)
779-4143
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last report)
Securities
registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol Name of each exchange on which registered
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 15(d) of the Securities Exchange 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.:
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 registrant’s common stock held by non-affiliates on June 30, 2020 (the last business day of
the registrant’s most recently completed second fiscal quarter) as reported by The NASDAQ Capital Market on such date was
approximately $6,662,272. There were 3,398,832* shares of the registrant’s common stock outstanding on June 30, 2020.
The number of shares of common stock outstanding as of March 29, 2021:
12,164,046
Documents
Incorporated by Reference: None.
*
Reflects a 1-for-20 reverse stock split of our outstanding common stock on February 4, 2020.
SENESTECH,
INC.
FORM
10-K
TABLE
OF CONTENTS
Page
PART I
Item 1 Business 1
Item 1A Risk Factors 9
Item 1B Unresolved Staff Comments 22
Item 2 Properties 22
Item 3 Legal Proceedings 22
Item 4 Mine Safety Disclosures 22
PART II
Item 6 Selected Financial Data 23
Item 7A Quantitative and Qualitative Disclosures About Market Risk 33
Item 8 Financial Statements and Supplementary Data F-1
Item 9A Controls and Procedures 33
Item 9B Other Information 33
PART III
Item 10 Directors, Executive Officers and Corporate Governance 34
Item 11 Executive Compensation 38
Item 14 Principal Accounting Fees and Services 48
PART IV
Item 15 Exhibits, Financial Statement Schedules 49
Signatures 52
i
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the safe-harbor provisions
of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can often be identified by words such
as: “expect,” “believe,” “estimate,” “plan,” “strategy,” “future,”
“potential,” “continue,” “may,” “should,” “will,” and similar references
to future periods. Examples include, among others, statements about:
● The impacts and implications of the COVID-19 pandemic;
● Our plans for our business, including for research and development;
● The adequacy of our facilities to meet our current needs;
● Our financial performance, including our ability to fund operations
These
forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and situations
that are difficult to predict and that may cause our own, or our industry’s, actual results to be materially different from
the future results that are expressed or implied by these statements. Accordingly, actual results may differ materially from those
anticipated or expressed in such statements as a result of a variety of factors, including those discussed in Item 1A-“Risk
Factors” of Part II of in this Annual Report on Form 10-K.
Readers
are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date made. Except as required
by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events
or otherwise.
Any
forward-looking statement made by us in this report is based only on information available to us on the date of this report. Except
as may be required by law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of
new information, future developments or otherwise.
ContraPest
is a registered trademark of SenesTech Inc. This Annual Report on Form 10-K may also include trademarks and trade names owned
by other parties, and all other such trademarks and trade names mentioned in this Annual Report on Form 10-K are the property
of their respective owners.
ii
PART
I
Item 1. Business.
Overview
SenesTech,
Inc. (referred to in this report as “SenesTech,” the “Company,” “we” or “us”)
has developed and is commercializing a global, proprietary technology for managing animal pest populations, initially rat populations,
through fertility control.
Although
there are myriad tools available to control rat populations, most rely on some form of lethal method to achieve effectiveness.
Each of these solutions is inherently limited by rat species’ resilience and survival mechanisms as well as their extraordinary
rate of reproduction. ContraPest®, our initial product, is unique in the pest control industry in attacking the reproductive
systems of both male and female rats, which our field data shows results in a sustained reduction of the rat population.
Rats have plagued humanity throughout history. They pose significant
threats to the environment, and to the health and food security of many communities. In addition, rodents cause extensive product
loss and damage through consumption and contamination. Rats also cause significant damage to critical infrastructure by burrowing
beneath foundations and gnawing on electrical wiring, insulation, fire proofing systems, electronics and computer equipment.
The most prevalent solution to rat infestations is the use of
increasingly powerful rodenticides. Although these solutions provide short term results, there are growing concerns about secondary
exposure and bioaccumulation of rodenticides in the environment, as well as concerns about rodenticides that have no antidotes.
The pest management industry and Pest Management Professionals (“PMPs”) are being asked for new solutions that are
both effective and less toxic. Our goal is to provide customers with not only a solution to combat their most difficult rat problems,
but also offer an effective, non-lethal option to serve customers that are looking to decrease or remove the amount of rodenticide
used in their pest control programs.
ContraPest
is a liquid bait containing the active ingredients 4-vinylcyclohexene diepoxide (“VCD”) and triptolide. ContraPest
limits reproduction of male and female rats beginning with the first breeding cycle following consumption. ContraPest is being
marketed for use in controlling Norway and roof rat populations.
SenesTech
began the registration process with the United States Environmental Protection Agency (the “EPA”) for ContraPest on
August 23, 2015. On August 2, 2016, the EPA granted an unconditional registration for ContraPest as a Restricted Use Product (“RUP”),
due to the need for applicator expertise for deployment. On October 18, 2018, the EPA approved the removal of the RUP designation.
We believe ContraPest is the first and only non-lethal, fertility control product approved by the EPA for the management of rodent
populations.
In
addition to the EPA registration of ContraPest in the United States, ContraPest must obtain registration from the various state
regulatory agencies prior to selling in each state. We have received registration for ContraPest in all 50 states and the District
of Columbia, 47 of which have approved the removal of the RUP designation.
We
expect to continue to pursue regulatory approvals and amendments to the existing U.S. registration for ContraPest to broaden the
marketability and use of ContraPest, and if ContraPest begins to generate sufficient revenue, regulatory approvals for additional
jurisdictions beyond the United States. In certain cases, our EPA and state registrations require completion of testing and certifications
even though we have received approval for the product or its labelling. We continue to seek to comply with these requirements.
The
Company also continues to research and develop enhancements to ContraPest that align with our target verticals and other potential
fertility control options for additional species.
We were formed in July 2004 and incorporated in the state of
Nevada. The Company subsequently reincorporated in the state of Delaware in November 2015. Our corporate headquarters and manufacturing
site are in Phoenix, Arizona. On December 8, 2016, we went public and are currently traded on Nasdaq under the symbol SNES.
On
February 4, 2020, we amended our amended and restated certificate of incorporation to effect a 1-for-20 reverse split of our issued
and outstanding shares of our common stock. The accompanying condensed financial statements and notes thereto give retrospective
effect to the reverse stock split for all periods presented. All issued and outstanding common stock, options and warrants exercisable
for common stock, restricted stock units, preferred stock conversions to common stock and per share amounts contained in our condensed
financial statements have been retrospectively adjusted.
1
Current
Challenges in Pest Control Methodologies
Lethal rodenticides are often at the forefront of pest management
programs but are rarely expected to immediately be 100% effective in removing all rats. Rat behavior, genetic resistance and reproduction
can affect pest control programs and often negatively impact actual results. Studies have shown that successful bait uptake is
influenced by rodent behavior and their interaction with their environment. Some of these behaviors are thought to be inherited
as rats have evolved with humans and control campaigns, while others are conditioned through adverse effects learned in their environment.
In addition, rats that survive the initial exposure to a rodenticide
may be genetically resistant to the effects and will pass that resistance onto their offspring who will carry this resistant trait
to future generations. Because of this, conventional rodenticide producers are continually challenged to develop new, more lethal
chemicals to control future rat populations.
Rats can reproduce multiple times throughout the year, producing
approximately 6 litters a year with 12 pups each. This rapid reproduction rate can cause populations to rebound quickly after implementing
a lethal control program. This means that PMPs typically need to visit a site often to combat not only the initial infestation,
but also subsequent population spikes, or rebounds.
Rodenticides also have significant drawbacks, in that they persist
in tissue and the environment and are indiscriminate in their effects. Consequently, there is growing concern about the adverse
effects that rodenticides may have on children and pets due to accidental exposure, as well as on species that prey on rats, including
birds of prey and large cats, due to the persistence of the rodenticide in the rat tissue. As a result, PMPs will need to include
a wide variety of controls and alternative solutions that minimize these concerns.
Integrated
Pest Management and Fertility Control
The
most effective, long-term way to manage rats is by using a combination of tools that work together to magnify the efficacy of
the pest management protocol; integrated pest management (IPM) is based upon this concept. An effective IPM program needs to reduce
the existing rat population but also prevent that population from rebounding either through reproduction or through invasion by
rodents in adjacent areas. In addition, an IPM program should focus on reducing the factors that make a particular location attractive
to rats, such as abundant food and shelter. Regulatory agencies and industry experts recognize that fertility control is or can
be an essential component of a safe and sustainable IPM program.
ContraPest
is an innovative fertility control technology that targets the reproductive capabilities of both sexes in rat populations, inducing
egg loss in female rats and impairing sperm development in males. Targeting both males and females with fertility control allows
us to drive populations down and to sustain that population reduction. Its effectiveness has been demonstrated in numerous internal
and third-party studies.
Using
a proprietary bait delivery method, ContraPest is dispensed in a highly palatable liquid formulation that promotes sustained consumption
by rat communities, helping to both reduce and keep populations down. Rats require 10% of their body weight in water per day,
making ContraPest an attractive bait to add to pest management programs. The high fat content and sweet taste leads to repeated
consumption even when other sought-after food sources are present. In both field and laboratory settings, ContraPest was chosen
by rats even in the presence of abundant water sources and plentiful food choices including animal feed, trash and other options.
Consumption of ContraPest does not cause illness in rats, and therefore, it does not change behavior or result in bait aversion.
2
We
believe ContraPest can establish a new paradigm in rodent control. Adding ContraPest to an IPM program allows PMPs to bring the
rodent population down initially and keep it at a manageable level by minimizing reproduction and thereby limiting population
rebounds. Continued maintenance baiting of ContraPest at lower population levels dramatically reduces the risk of future population
spikes, allowing PMPs to be more focused on eliminating the causes of future invasions through exclusion and sanitation initiatives.
ContraPest’s delivery system is designed to minimize handler exposure and is dispensed inside tamper-resistant bait stations,
minimizing risks to non-target species.
The
following graphs illustrate the incremental benefit of adding ContraPest to integrated pest management with conventional rodenticides.
The data is derived from three programs we began in late 2019 to demonstrate the effectiveness of ContraPest to potential end-users
and our study of the results through monitoring rat activity by camera. The data presented show the incremental benefit of ContraPest
deployment beyond that achieved through rodenticides. Ongoing monitoring of the program locations has indicated that there has
been no rebound in the rodent population from the current low levels.
(source:
Company studies)
ContraPest
can also be used as a standalone, non-lethal solution which allows for a decreased reliance on lethal rodenticides, where requested
by the customer.
Other
Applications
While
our proprietary technology is effective on rodent species, there is a scientific basis to believe that our technology can be applied
to other mammalian species. We have developed preliminary data with feral dogs, feral pigs, wallabies, mice and brushtail possums.
While this data indicates potential for the continued development of fertility control technology in general, we are not pursuing
these opportunities at this time. We believe that the size of the rat control market is sufficient for our near-term focus. We
remain open to the potential to license our technology to other strategic partners to explore its applicability to other mammalian
species.
3
Business
Strategy
Our
goal is to be a leader in the pest management industry; utilizing fertility control technologies to limit the adverse effects
caused by rodent infestations, educate PMP’s and the general public on alternatives or enhancements to lethal rodenticides
and to develop additional product lines to address the needs of our customers. Key elements of our strategy are:
● Maintain and protect our intellectual property portfolio; and
Marketing
and Sales Approach
The
pest control industry is highly competitive with a number of large competitors developing and marketing pest control products,
particularly rodenticides, and services. Because fertility control in general and ContraPest specifically may be considered a
disruptive technology, we have encountered resistance to initial adoption. We continue to build a robust set of case studies to
demonstrate efficacy and cost efficiency, identify lead users and expand within market segments. In order to enhance the likelihood
of success, we have currently targeted a few key market segments with the highest likelihood to add ContraPest into their IPM
programs. These include agribusiness (egg hen farms, grain and protein production and grain storage, transport and sales facilities),
municipalities and government agencies, D2C (direct to consumer) residential, zoos and sanctuaries, and commercial accounts.
In
the United States, ContraPest is most commonly deployed and serviced by a licensed PMP, although some customers have in house
pest management service personnel. In some circumstances, customers of pest management services will direct these PMPs to use
certain products in the provision of their service. Initially, our marketing strategy involved sales to and through large distributors
of pest control products. In 2019, we substantially modified this strategy to create two different sources of pull-through-demand:
sales to PMPs and marketing and sales directly to end-user customers. We believe that by making end users aware of the existence
and benefits of ContraPest, we are more likely to create demand through PMPs that would otherwise simply continue to use their
existing rodenticide-based IPM models. We currently market ContraPest both to pest management companies and directly to target
segments, using a direct to PMP sales channel; indirectly through distributor sales; and through our own direct sales force. In
addition, in the fourth quarter of 2019, we added a new e-Commerce tool to enable customers in each of our target segments to
buy directly from us. Finally, we have been pursuing strategic relationships with large pest management companies and key end-user
organizations in our target segments for the distribution and sale of ContraPest.
In
each of our target segments we have identified potential lead customers with whom we are working on large scale projects to demonstrate
the efficacy of ContraPest in real world situations. We provide significant product support to these customers to make sure that
we are not only achieving desired results, but also obtaining the data to support sales in the related market vertical. We believe
that successful field trials with these influential end users will help drive significant subsequent sales to other participants
in the relevant market.
We
are also focused on expanding regulatory approvals for ContraPest to make the product more user friendly and available for use
in an increased number of applications. These include alternative delivery methods and expansion of the label to additional applications
and/or species.
4
Pricing
and Value
Our
pricing strategy takes into account the cost of goods sold, the cost of competitive products and the value of our product to the
end user. We believe ContraPest will be perceived as a significant value as a complement to existing pest control products or
as a non-lethal stand-alone solution for managing rat infestations and, as such, should command a premium price. Our experience
is that once potential customers understand the advantages of ContraPest, they recognize that the benefits of long term sustained
rodent reduction dramatically offsets the cost of the product. We plan to continue to use promotional efforts to support the value
message and to justify our product’s premium price, built around the following proposed advantages:
● ContraPest targeted delivery for maximum efficacy.
● Our proprietary gravity feeding system optimizes consumption.
We
also focus on specific advantages for the individual customer and expect to position our product as having the following additional
general advantages:
● Savings by reducing loss or contamination of food and product inventories;
● Savings by reducing damage to infrastructure and major production equipment;
● Reduction in disease vectors; and
Raw
Materials and Manufacturing Process
ContraPest
contains two active ingredients, VCD, an industrial chemical, and triptolide, a plant derived chemical. ContraPest also contains
several other inactive, Generally Recognized as Safe (GRAS), ingredients. Currently, we source VCD from standard industrial chemical
supply providers. Triptolide is derived from the Thunder God Vine, Tripterygium wilfordii, which is commonly cultivated and harvested
wild in southeastern China and other Asian countries. Triptolide is available from a variety of sources, but the process to purify
triptolide for use in ContraPest is expensive. Thus, we are investigating other, less costly sources of triptolide.
Our
manufacturing process involves the incorporation of our two active ingredients, in low concentrations, into several inactive ingredients.
Once incorporated, the entire product goes through a micro-encapsulation process in order to stabilize the final formulation.
This process allows ContraPest to be delivered to rats in a palatable, non-lethal and effective manner.
Currently,
we have production scale capability in our facilities in Arizona to manufacture ContraPest. Our internal production capabilities
allow us to meet our current and anticipated demand during 2020 for ContraPest.
Scientific
Background Regarding our Product
ContraPest
is a liquid bait containing the active ingredients VCD and triptolide. When consumed, ContraPest targets reproduction, limiting
fertility in male and female rats beginning with the first breeding cycle following consumption.
The
female rat is born with a finite number of eggs, or oocytes. She remains fertile and will reproduce until the day she dies. Within
the ovary, eggs develop within structures called follicles. The non-regenerating and least mature follicles are called primordial.
The primordial follicles mature through primary, secondary and antral stages and ultimately ovulate. Once the primordial follicles
have become depleted, ovarian failure occurs, which terminates reproductive capability.
VCD
causes specific loss of small ovarian follicles (both primordial and primary). Because oocytes do not regenerate, repeated dosing
causes loss of these follicles and leads to ovarian failure. Triptolide causes specific loss of growing follicles (secondary and
antral). Female rats treated with triptolide ovulate fewer eggs because the follicles stop growing. In males, triptolide exerts
a significant suppression of male fertility by preventing sperm maturation and impairing the movement of sperm.
5
The
safety and efficacy of VCD and triptolide in fertility control are supported by considerable evidence. Because they induce follicle
loss, both VCD and triptolide are considered ovotoxic, but they do not affect hormonal function and so are not endocrine disruptors.
Studies show that VCD and triptolide do not persist within the bodies of rats and therefore do not bioaccumulate within the environment.
VCD is so rapidly metabolized by ovarian tissue that the plasma half-life of VCD is 14.2 minutes. Triptolide has a plasma half-life
of 21.7 minutes and is inactivated by liver enzymes. Less than 1% of VCD remains within rat tissues because metabolites of VCD,
primarily tetrol and glutathione, are eliminated in urine and have no ovotoxic effects. There is no measurable accumulation of
triptolide within rat internal organs. The speed with which VCD is metabolized makes it “an ideal fertility control agent
(Sobinoff et al. 2008),” and makes its tendency to bioaccumulate negligible.
ContraPest
is a contraceptive. The average duration of infertility ranges from 77 to over 180 days (2 to 6 months) but averages 119 days
(± 4.6 days, N=61; Dyer and Mayer 2014; Siers et al. 2014; Shuster unpubl. SenesTech data). Both in the lab and in the
field, ContraPest consumption has documented effects on fertility reduction and therefore in reducing rat populations.
Other
Potential Products
We
have developed a pipeline of potential additional fertility control and animal health products, with diverse applications, as
outlined in the following chart below. As we currently focus on the commercialization of ContraPest, only minimal progress is
expected on new product development during the coming year.
In
addition, we have begun work on new formulations of ContraPest – particularly solid and semi-solid variants. Although solid
bait is not essential to our near-term plans, the non-liquid formulations may expand the potential uses of ContraPest as well
as pave the way for future sales through retail stores. Our plan is to attempt to accelerate the reformulation process through
partnerships with others in the industry that will be able to give us access to proven technologies, thus reducing potential development
time.
Product Candidate/Area Development Status Segment Primary Target
Boar taint Laboratory and initial pilot study Food production and safety Boars
Animal cancer treatment Concept Companion animal health Companion dogs
Competition
Currently,
we are unaware of any other non-lethal fertility control products that target rats. However, there are other tools in IPM that
may be used to control rat populations. These include:
● Biological controls -- the introduction of predators to manage rodents; and
● Chemical measures -- the deployment of agents that poison or repel rodents.
Our
principal competition is the substitution of other tools that PMPs use in their IPM.
6
Government
Regulation and Product Approval
Federal,
state and local government authorities in the United States regulate, among other things, the testing, manufacturing, quality
control, approval, labeling, packaging, storage, record-keeping, distribution and marketing of the products we develop. Our rat
fertility control product must be approved by the EPA Office of Pesticide Programs before they can be legally marketed and sold
in the United States. The process for obtaining regulatory approval and compliance with appropriate federal, state and local regulations
is rigorous and requires the expenditure of substantial time and financial resources.
United
States Review and Approval Processes
In
the United States, the EPA regulates the sale, distribution and use of any pesticide under the Federal Insecticide, Fungicide
and Rodenticide Act, or FIFRA. The EPA’s definition of a pesticide includes “any substance or mixture of substances
intended for preventing, destroying, repelling, or mitigating any pest.” FIFRA defines a pest as “any insect, rodent,
nematode, fungus, or weed.” To register a new product with the EPA, all active ingredients within the product must be registered
with the EPA.
The
EPA granted registration for ContraPest effective August 2, 2016. This initial EPA approval labeled ContraPest as a restricted-use
product, due to the need for applicator expertise for deployment. On October 18, 2018, the EPA removed the Restricted Use designation,
meaning that we can sell ContraPest to consumers who do not have applicator expertise. ContraPest is currently limited by EPA
requirements to indoor use and to use within one foot of manmade structures. We intend to diligently pursue additional related
regulatory approvals from the EPA to support our product evolution, including seeking approval for full outdoor use, alternative
formulations and for additional rodent species. This may entail the need to complete and submit to EPA additional studies, principally
related to the effects on other animals and fish if ingested or if the product enters the water supply.
In
addition to the EPA registration of ContraPest in the United States, we must obtain registration from the various state regulatory
agencies prior to selling in each state. To date, we have received registration for ContraPest in all 50 states and the District
of Columbia, 47 of which have approved the removal of the Restricted Use designation.
In
addition to product registration, the EPA also approves all labeling (the container label, instructional inserts, and the Safety
Data Sheet (SDS)) of ContraPest. Generally, states accept the EPA approved label as is. ContraPest’s labeling was submitted
to states at initial registration and is resubmitted during state scheduled reregistration or for any significant labeling change
requiring EPA approval.
In certain cases, our EPA and state registrations require completion
of testing and certifications even after we have received approval for the product or its labelling. We continue to seek to comply
with these requirements.
International
Review and Approval Processes
We
are researching potential international markets and will evaluate the regulatory landscapes of each prospective market. Country-specific
regulatory laws have provisions that include requirements for certain labeling, safety, efficacy and manufacturers’ quality
control procedures to assure the consistency of the product, as well as company records and reports. Some specific in-country
studies will be required for particular countries, but others will generally accept an EPA or EU compliant dossier.
Personnel
As
of December 31, 2020, we had 29 full-time employees. Within our workforce, 7 employees are engaged in research and development
and 22 in sales, business development, finance, regulatory, human resources, facilities, information technology and general management
and administration.
None
of our employees are represented by labor unions or covered by collective bargaining agreements.
Intellectual
Property and Other Proprietary Rights
Maintaining
a strong position in the rodenticide market requires constant innovation along with a healthy research program to evolve product
lines to remain competitive and relevant to the needs of the changing global marketplace. We seek to protect our proprietary data
and trade secrets with attention to data exchanges among employees, consultants, collaborators and research and trade partners.
7
Patent
Filings
Our
intellectual property portfolio supporting ContraPest consists of nine international patent filings (in the United States, Europe,
Canada, Brazil, Russia, Japan, Mexico, South Korea, and Australia) addressing the ContraPest compound. Claims directed toward
the compound include composition-of-matter involving a diterpenoid epoxide or salts thereof in combination with an organic diepoxide,
use claims for inducing follicle depletion and for reducing the reproductive capability of a mammalian animal or non-human mammalian
population. Issued claims will have a patent term extending to 2033 or longer based on patent term determinations in each of the
filing countries. The novelty of ContraPest extends to its method of field distribution and has required innovation to perfect
the dosing of our product to rodents. We have filed U.S. and international patent applications covering our novel bait station
device to effectively and efficiently deliver our rodent bait at individual bait sites that would, if issued, offer patent term
protection through at least 2036.
License
Agreements
We
have an exclusive patent license with the University of Arizona for background intellectual property that we plan to employ for
future product development in the domestic animal fertility control market. The patent claims in the United States, Australia
and New Zealand cover the use of 4-vinylcyclohexene diepoxide to deplete ovarian follicles in individual mammals and mammal populations.
The license agreement, signed in 2005, will terminate with the last-to-expire patent claims, which have a term extending to 2026.
Trade
Secrets and Trademarks
Beyond
our patent right holdings, we broaden our intellectual property position with trademark, trade secret, know-how and continuous
scientific discovery to accompany our product development efforts. We protect these proprietary assets with a combination of confidentiality
terms in all commercial agreements or stand-alone confidentiality agreements along with rights-ownership agreements and structured
information transfer understandings prior to beginning any collaborative projects. We own and maintain the ContraPest trademark
and intend to register new trademarks for products from our evolving rodenticide product line and for products for mammalian species
beyond rodentia.
Data
Sets
We
have exclusive use status with the EPA for the data sets we have developed and submitted to the EPA as part of our application
for ContraPest. The exclusive use status applies to new active ingredients and the final formulation of the ContraPest product
for a period of 10 years. For five years after the 10-year period of exclusivity, if another applicant or the EPA Administrator
chooses to rely on one or more data sets that we submitted in support of an application submitted by another applicant, the new
applicant must make a binding offer to compensate us and certify to the EPA that it has done so. If we and the offeror cannot
reach agreement on the terms of the compensation for the use of such data sets, FIFRA requires resolution by binding arbitration.
The EPA rules do not describe how the compensation should be determined, and there is publicly available information about some,
but not all, binding arbitration decisions.
Where
You Can Find Additional Information
We
electronically file with the Securities and Exchange Commission (“SEC”) our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934. We make available on our website at www.senestech.com, free of charge, copies
of these reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing them to, the
Securities and Exchange Commission. The information contained in, or that can be accessed through, our website is not part of,
and is not incorporated into, this Annual Report on Form 10-K.
8
Item 1A. Risk Factors
As
discussed immediately prior to Item 1 of Part I, “Business” under “Cautionary Note Regarding Forward-Looking
Statements,” our actual results could differ materially from those expressed in our forward-looking statements. Factors
that might cause or contribute to such differences include, but are not limited to, those discussed below. Additional risks and
uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations. If any
of the following risks occur, our business, financial condition, operating results, cash flows and the trading price of our common
stock could be materially adversely affected.
Risks
Relating to our Business
The
impacts of the coronavirus pandemic could adversely affect our business, and other similar crises could result in similar or other
harms.
The
outbreak of the novel coronavirus (COVID-19) pandemic has resulted in widespread travel and transportation restrictions and closures
of commercial spaces, industrial facilities and other spaces and businesses in and across the United States and the world, including
in the locations we operate or target sales. As a result, our business has been impacted and we could face continued or more adverse
effects. In addition, our results and financial condition may be adversely affected by federal or state legislation, or other
similar laws, regulations, orders or other governmental or regulatory actions or best practices, that would impose new restrictions
on our ability to operate our business or customers to operate their businesses. For example, our sales and technical field forces
have been restricted from traveling or limited in travel, which adversely affects our ability to sell our products and complete
field studies. While we have implemented cautionary procedures at our manufacturing facility, there may be disruptions to our
ability to manufacture due to current and additional workplace controls. Our customers may be less inclined or unable to purchase
our products or continue product studies due to restrictions under which they may be operating. Those restrictions have been and
are more severe in some jurisdictions, such as California. If financial markets tighten, we may have more limited ability to raise
necessary financing. The COVID-19 pandemic is also placing a significant budgetary burden on federal, state and local governments,
which may impede or delay their ability to purchase our products. We source some of our critical raw materials from Asia, and
the coronavirus has caused supply chain disruptions, which could limit a timely supply of materials. Each of these could have
negative effects on our business, results of operations, financial condition and cash flows. Even if the coronavirus pandemic
passes, another crisis with similar effects could develop and harm our business, financial results and liquidity. The degree to
which the COVID-19 pandemic may impact our results of operations and financial condition is unknown at this time and will depend
on future developments, including the ultimate severity and the duration of the pandemic, and further actions that may be taken
by governmental authorities or businesses or individuals on their own initiatives in response to the pandemic.
Our
success is dependent on the successful commercialization of ContraPest.
The
EPA granted registration approval for ContraPest effective August 2, 2016, and as of July 12, 2018, we have received registration
for ContraPest in all 50 states and the District of Columbia. However, we have not yet had significant sales of ContraPest, which
is our only product to date that is available for commercialization and the generation of revenue.
ContraPest
and our other product candidates, if approved, may not achieve adequate market acceptance necessary for commercial success.
Even
following receipt of regulatory approval for ContraPest or future regulatory approval of our other product candidates, such products
may not gain market acceptance. Market acceptance of any of our product candidates for which we receive approval depends on a
number of factors, including:
● The efficacy and safety of such product candidates as demonstrated in trials;
● Relative convenience and ease of use; and
● Unfavorable publicity relating to the product.
9
If
we cannot successfully commercialize our products, especially ContraPest, we will not become profitable.
If
any of our approved product candidates fail to achieve sufficient market acceptance, we will not be able to generate significant
revenues or become profitable. The commercial success of ContraPest will depend on a number of factors, including the following:
● Establishment of commercially viable pricing;
● A continued acceptable safety profile of ContraPest.
Many
of these factors are beyond our control. If we are unable to successfully commercialize ContraPest, we may not be able to earn
sufficient revenues or profits to continue our business.
We
will require additional capital to fund our operations. Failure to obtain this necessary capital if needed may force us to delay,
limit, or terminate our product development efforts or other operations.
Commercialization
of ContraPest and developing further product candidates, including conducting experiments and field studies, obtaining and maintaining
regulatory approval and commercializing any products approved for sale, is a time-consuming, expensive and uncertain process that
takes years to complete. We expect our expenses to continue and to increase in connection with our ongoing activities, particularly
as we advance our commercialization activities. We may expand our operations, and as a result of many factors, some of which may
be currently unknown to us, our expenses may be higher than expected. Securing additional financing may divert our management
from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates,
including ContraPest. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms
acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required
to:
The
occurrence of any of the events described above would have a material adverse effect on our business, operating results and prospects
and on our ability to develop our product candidates.
ContraPest
is the first product we have marketed, and if we are unable to establish and maintain an effective sales force and marketing and
distribution infrastructures, or enter into and rely upon acceptable third-party relationships, we may be unable to generate any
revenue.
We
continue to develop a functional infrastructure for the sales, marketing, and distribution of our products and the cost of establishing
and maintaining such an infrastructure may exceed the cost-effectiveness of doing so. In order to market ContraPest and any other
products that may be approved by the EPA and comparable foreign regulatory authorities, we must continue to build our sales, marketing,
managerial and other non-technical capabilities or make arrangements with third parties to perform these services for which we
would incur substantial costs. If we are unable to establish and maintain adequate sales, marketing, and distribution capabilities,
whether independently or with third parties, we may not be able to generate product revenue and become profitable. Without an
effective internal commercial organization or the support of a third party to perform sales and marketing functions, we may be
unable to compete successfully.
10
Risks
Regulations Have on Our Business
Regulatory
approval processes of the EPA and comparable foreign regulatory authorities are lengthy, time-consuming and unpredictable, and
if we are ultimately unable to obtain regulatory approval for our product candidates, our business may fail.
The
EPA review process for a product with one or more new active ingredients typically takes approximately two years to complete and
approval is never guaranteed. In addition, we continue to seek approvals to expand labels and use designations for ContraPest
to broaden its market and usability. Our efforts could fail to receive marketing approval from the EPA or, with respect to ContraPest
or our product candidates, from a comparable foreign regulatory authority for many reasons, including:
● Disagreement over the design or implementation of our trials;
● Failure to demonstrate a product candidate’s benefits outweigh its risks;
● Disagreement over our interpretation of data;
● Disagreement over whether to accept efficacy results from trials;
● The insufficiency of data collected from trials to obtain regulatory approval;