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TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Report”) contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements contained in this Report include, but are not limited to, statements about:
| ● | the ability of our clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results; | |
| ● | the timing of commencement and focus of our ongoing and future preclinical studies and clinical trials, and the reporting of data from those studies and trials; | |
| ● | our expectations with regard to the results of our clinical studies, preclinical studies and research and development programs, including the timing for enrollment and the timing and availability of data from such studies; | |
| ● | the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting; | |
| ● | our expectations with regard to the timing of submission of an amended request for ODD (as defined below) and the eligibility of PTHS (as defined below) or any other indications to qualify for ODD or any other regulatory incentives; | |
| ● | our expectations with respect to entry into clinical trial agreements and other agreements with contract research organizations (“CROs”), potential collaborators and clinical trial sites for our preclinical studies and clinical trials; | |
| ● | our ability to acquire, discover, develop and advance product candidates into, and successfully complete, clinical trials; | |
| ● | developments and projections relating to our competitors and our industry and the success of competing therapies that are or may become available; | |
| ● | the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates; | |
| ● | our ability to obtain and maintain regulatory approval of our product candidates; | |
| ● | our plans relating to the further development and commercialization of our product candidates, including additional disease states or indications we may pursue; | |
| ● | our expectations regarding future sales of our other products, including MSC-Gro (as defined below), and future revenues from our agreement with European Wellness; |
| ● | the potential effects of public health crises, such as the COVID-19 pandemic, on our preclinical and clinical programs and business; | |
| ● | existing regulations and regulatory developments in the United States and other jurisdictions; | |
| ● | our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available and our ability to avoid infringing the intellectual property rights of others; | |
| ● | our ability to effectively manage our growth, including the need to hire additional personnel and our ability to attract, recruit and retain such personnel, and maintain our culture; |
| ● | our ability to fund the acquisition of fully automated closed system bioprocessing and other equipment and for the development of a new current Good Manufacturing Practices (“cGMP”) compliant manufacturing facility we expect to lease; | |
| ● | our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; | |
| ● | our plans and ability to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our product candidates, and to continue as a going concern; | |
| ● | the performance of our third-party suppliers, CROs and manufacturers; | |
| ● | our financial performance; and | |
| ● | the period over which we estimate our existing cash will be sufficient to fund our future operating expenses and capital expenditure requirements. |
We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Report and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
REFERENCES
Unless the context indicates otherwise, (i) the terms “Vitro,” the “Company,” “we,” “us” and “our” refer to Vitro Biopharma, Inc., and its consolidated subsidiaries; (ii) “Securities Act” refers to the Securities Act of 1933, as amended; and (iii) “Exchange Act” refers to the Securities Exchange Act of 1934, as amended. This Report also may include trademarks, service marks and trade names owned by us or other companies. All trademarks, service marks and trade names included in this Report are the property of their respective owners.
PART I
Item 1. Business
Overview
We are an innovative biotechnology company targeting autoimmune diseases and inflammatory disorders, with an ancillary focus in the research services and cosmeceutical fields. With respect to our regenerative medicine business, we are developing novel cellular therapeutic candidates intended to address significant unmet medical needs. In the United States, we are authorized to conduct two clinical trials under two FDA IND applications to assess the safety and efficacy of AlloRx Stem Cell therapy in PTHS and PASC, or Long COVID, and expect to commence those trials in early 2024. We generate revenue from our other technologies through a number of other activities, including through the sale of our stem cell products as well as cosmeceuticals through InfiniVive MD, our wholly-owned subsidiary, which helps to alleviate our capital expenses.
Our lead investigational product candidate is our cell-based therapy product (“AlloRx Stem Cell therapy”), which is based on our proprietary AlloRx® stem cells (“AlloRx Stem Cells”) that are derived from culture-expanded MSCs sourced from the Wharton’s jelly of umbilical cords donated by healthy volunteers following childbirth. During our manufacturing process, we utilize our proprietary specialty culture media, MSC-Gro, to support the growth and expansion of MSCs from umbilical cords to create AlloRx Stem Cells. MSC-Gro has been developed by us over 20 years of research and development. We have also developed other cell culture processes that are applied during our manufacturing process, which, together with MSC-Gro, we believe confers additional benefits to AlloRx Stem Cells and generates increased ATP expression (an energy molecule), viability, immunosuppression measurement and yield.
We believe that AlloRx Stem Cell therapy makes a compelling product candidate to further evaluate in clinical trials for the potential treatment of inflammatory and autoimmune disorders. Through clinical trials in the United States, we intend to explore the potential of AlloRx Stem Cell therapy to reduce inflammation, stimulate tissue repair and balance immune system response, among other things. In addition to inflammatory disorders, we intend to evaluate the potential of AlloRx Stem Cell therapy to combat immune dysregulation in patients affected by autoimmune disorders based on results from our pre-clinical research described below, including the observed ability of MSCs to secrete concentrations of certain immunomodulatory substances, including IDO. We also believe AlloRx Stem Cell therapy is an attractive option to further evaluate in the potential treatment of various neurodegenerative diseases.
We are currently focused on the treatment of inflammatory and autoimmune disorders, which represent a significant burden to society and the healthcare systems. There are over 80 recognized autoimmune disorders, which are caused by an acute or chronic imbalance in the immune system where the immune system recognizes proteins of the body as foreign and elicits a specific immune response that leads to the immune system improperly attacking certain bodily tissues, cells or organs (for example, in MS, the immune system recognizes myelin basic protein as foreign). Some inflammatory and autoimmune conditions are caused by genetic or environmental factors, or a combination of both, while others may be caused from complications associated with other diseases or trauma or the treatment of other diseases or trauma. In general, inflammatory and autoimmune disorders share certain biological characteristics, in that the immune system imbalance results from the improper activation of certain immune cells that can lead to extensive tissue damage and destruction and cause pain and loss of function. Inflammatory and autoimmune disorders represent major areas of unmet clinical needs, as well as substantial commercial opportunities.
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Our Science
The starting raw material source for AlloRx Stem Cells is the Wharton’s jelly of donated UCs. Based on extensive pre-clinical studies and research conducted by us and third-parties, as further described below (see “—AlloRx Stem Cell therapy for Various Indications: a Scientific Approach”), we believe UC-derived MSCs like AlloRx Stem Cells may have advantages compared to MSCs derived from other starting raw material sources, such as BM-MSCs, AD-MSCs, and P-MSCs. In our extensive pre-clinical, in vitro studies described below, we analyzed various biological characteristics of AlloRx Stem Cells (UC-derived MSCs) in head-to-head comparisons to AD-MSCs, BM-MSCs, and P-MSCs, including:
Growth rate. Because MSCs must be expanded in vitro prior to use in a clinical setting, we believe that the growth and expansion characteristics of MSCs in vitro are an important consideration. In a pre-clinical, in vitro study, we analyzed MSCs’ growth in cell cultures in head-to-head comparisons and observed that AlloRx Stem Cells (UC-derived MSCs) doubled in size in vitro after only 25 hours, as compared to longer doubling times of 35 hours, 40 hours and 53 hours for AD-MSCs, P-MSCs and BM-MSCs, respectively, indicating an increased growth rate of AlloRx Stem Cells as compared to these other MSCs. Pre-clinical studies conducted by third parties using other UC-derived MSCs also support our observations described above. In a pre-clinical, in vitro study conducted by Jin-Hee Kim, et al. (the “Kim Study”) analyzing the immunological characteristics of UC-derived MSCs in a head-to-head comparison to AD-MSCs and MSCs derived from periodontal ligaments (“PL-MSCs”), it was observed that UC-derived MSCs doubled in size in vitro after only 32.1 hours, whereas PL-MSCs doubled after 42.7 hours and AD-MSCs doubled after 56.4 hours (Jin-Hee Kim et al, “Comparison of Immunological Characteristics of Mesenchymal Stem Cells from the Periodontal Ligament, Umbilical Cord, and Adipose Tissue,” Volume 2018 Hindawi Stem Cells International, 1-12, 1 April 2018).
Immunomodulatory potency by quantification of γ-IFN-induced IDO activity: In a pre-clinical, in vitro study, we analyzed the immunomodulatory potency of AlloRx Stem Cells (UC-derived MSCs) in a head-to-head comparison to AD-MSCs, BM-MSCs, and P-MSCs by measuring the activity of γ-IFN-induced IDO, as quantified by the conversion of tryptophan to kynurenine. IDO, an immunomodulatory substance secreted by MSCs, initiates the conversion of tryptophan to kynurenine, and kynurenine expression plays a critical role in regulating the body’s immune response. As illustrated in the chart below, we observed a significant difference in γ-IFN-induced IDO activity in AlloRx Stem Cells (UC-derived MSCs) as compared to AD-MSCs, BM-MSCs, and P-MSCs. Maximal IDO activity at 10 ng/ml γ-IFN was approximately two-fold greater in AlloRx Stem Cells versus the MSCs derived from other sources. We believe these results indicate UC-derived MSCs like AlloRx Stem Cells may have greater immunomodulatory cellular potency by quantification of γ-IFN-induced IDO activity, as compared to AD-MSCs, P-MSCs, and BM-MSCs.
Immunomodulatory potency of AlloRx Stem Cells (UC-derived MSCs), AD-MSCs, P-MSCs and BM-MSCs by the γ-IFN induced IDO activity assay is shown above.
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Pre-clinical studies conducted by third parties using other UC-derived MSCs support our observations described above, as the Kim Study also observed the following concentrations of two other immunomodulatory substances secreted by MSCs, TGF-ꞵ1 and hepatocyte growth factor (“HGF”), 48 hours after γ-IFN activation in UC-derived MSCs as compared to AD-MSCs and PL-MSCs:
| Immunomodulatory Substance |
UC-derived MSCs |
AD-MSCs | PL-MSCs | |||
| TGF-ꞵ1 | 4.5 ng/ml | 3.5 ng/ml | 3.5 ng/ml | |||
| HGF | 325 pg/ml | 190 pg/ml | 100 pg/ml |
Cellular ATP expression (an energy molecule): In a pre-clinical, in vitro study, we performed a quantitative assessment of mitochondrial function by measuring ATP expression of AlloRx Stem Cells (UC-derived MSCs) in a head-to-head comparison to AD-MSCs, BM-MSCs, and P-MSCs. As illustrated in the chart below, AlloRx Stem Cells (UC-derived MSCs) showed a significant difference in cellular ATP-content. ATP expression is a measure of cellular energy, as ATP is the primary molecule that stores and transfers energy in a cell and powers metabolic processes within the body. Due to the fact that mitochondria produce most ATP within the body, we believe these results indicate the potential for increased mitochondrial functionality of UC-derived MSCs like AlloRx Stem Cells as compared to AD-MSCs, P-MSCs, and BM-MSCs.
In the chart above, cellular ATP is shown as a function of cells per well. Cellular potency is measured by the slope of this relation.
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Cell migration in response to Substance P: In a pre-clinical, in vitro study, we analyzed the migration of AlloRx Stem Cells in a head-to-head comparison to AD-MSCs, BM-MSCs, and P-MSCs, in response to exposure to Substance P. Substance P is a peptide that presents itself when an injury occurs, thus simulating an environment of injury. As illustrated in the chart below, AlloRx Stem Cells (UC-derived MSCs) showed a significant difference in cell migration in response to Substance P, as AlloRx Stem Cells (UC-derived MSCs) showed greatest closure at 50 pg/mL Substance P (~40% closure), while AD-MSC, P-MSC, and BM-MSC had a closure between 5-15% all within a 72-hour period. Due to the fact that Substance P is a peptide that presents itself in response to an injury, we believe that UC-derived MSCs’ ability to migrate to Substance P reaction at a faster rate may be indicative of an ability to more quickly migrate to the source of injury within the body as compared to AD-MSCs, P-MSCs, and BM-MSCs.
Comparison of migration into cell-free regions. Migration was measured by percent closure of the occluded plate region and is plotted as a function of time following exposure to 50 pg/ml Substance P.
In addition, UC-derived MSCs are also the youngest stem cells and are therefore generally free from issues related to age (such as mutations), and prior medical conditions that come with the use of BM-MSCs and AD-MSCs. In addition, unlike BM-MSCs or AD-MSCs, UC-derived MSCs involve a non-invasive collection process, are sourced and collected after childbirth, and may provide significant economies of scale in the manufacturing process, as further described below. We believe these factors taken together may provide us with a competitive and financial advantage compared to other cell therapies currently in development that are derived from BM-MSCs, AD-MSCs, or P-MSCs.
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Our Pipeline
Our five core development programs are illustrated in the pipeline chart below:
Core Development Programs
Our pipeline includes five core development programs. In the United States, we are authorized to conduct two clinical trials under two FDA IND applications to assess the safety and efficacy of AlloRx Stem Cell therapy in the following clinical trials and indications:
| ● | Phase 1/2a clinical trial of PTHS, which is a rare neurogenetic disorder primarily affecting children that is characterized by global developmental delays including significant language delays, intellectual disability, debilitating breath holding, neuro-irritability, autistic features, disordered sleep, and significant behavioral concerns. Per the Pitt Hopkins Research Foundation, PTHS impacts between 1 in 34,000 and 1 in 41,000 individuals according to some estimates. Although the exact incidence of PTHS is unknown, we believe it would meet the prevalence requirements for an ODD from the FDA if the other designation requirements are met, although any determination as to whether PTHS qualifies as a “rare disease or condition” will be made by FDA, as further described below. | |
| ● | Phase 1/2a clinical trial of PASC, or Long COVID, a newly recognized condition following the onset of the COVID-19 pandemic, which is characterized by persistent and prolonged symptoms or long-term complications four weeks or more after first being infected with the SARs-CoV-2 virus. Long COVID results from COVID-19 infection and produces prolonged symptoms of fatigue, cognitive impairment and various additional symptoms that can be debilitating. According to the CDC, a recent study found that approximately two-thirds of respondents who had tested positive for COVID-19 experienced long-term symptoms often associated with SARs-CoV-2 infection. In addition, a report published in March 2022 by the STAA team of the U.S. Government Accountability Office found that Long COVID has potentially affected up to 23 million Americans. Given the emerging nature of COVID-19 and new virus variants resulting from mutations, we believe the incidence of Long COVID will continue to increase. |
We intend to initiate our FDA cleared clinical trials for PTHS and Long COVID in late 2023 pending completion of this offering and IRB approval of clinical trial agreements with contemplated collaborators and clinical trial sites. In addition, we are also currently focused on our pre-clinical development programs for MS, Lupus (SLE) and Alzheimer’s disease. We plan to submit two additional IND applications to FDA to initiate Phase 1/2a clinical trials to assess the safety and efficacy of AlloRx Stem Cell therapy in adults with Lupus (SLE) sometime in early 2024 and in adults with MS in late 2024, which will be subject to FDA clearance prior to the initiation of any clinical trials for these indications. We are also advancing and actively pursuing preclinical research and development activities of AlloRx Stem Cell therapy for the potential treatment of Alzheimer’s disease with the goal of progressing towards a potential IND filing for this indication in the future.
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Other Pre-Clinical Development Programs
In addition to our core development programs, we are also evaluating the potential for AlloRx Stem Cell therapy in the treatment of a broad range of other indications. We believe that we can leverage clinical safety and tolerability data from our core development programs to support our development efforts in other indications, saving substantial research and development time and resources compared to traditional drug development, where each program is separately developed. To achieve this goal, we are also advancing preclinical research and development activities in the following additional indications: ALS, also known as Lou Gehrig’s disease; Parkinson’s disease; and traumatic brain injury. Our ultimate mission is to advance AlloRx Stem Cell therapy into pivotal registration studies for each of these indications, with the goal of achieving regulatory approvals, subsequent commercialization, and broad use by the healthcare community.
AlloRx Stem Cell therapy is currently in the early stage of development and will require substantial time, resources, manufacturing scale-up, establishment of a cGMP manufacturing facility that would comply with FDA requirements to support a biologics license application (“BLA”), and regulatory approval prior to potential commercialization in the United States. For a discussion of certain risks related to our development programs, see “Risk Factors” herein.
MSC-Gro™
Our “clinical grade” formulation of MSC-Gro, our proprietary specialty culture media, is sold by us to a single customer in Australia that utilizes MSC-Gro to manufacture its stem cell therapy product candidate currently being investigated for the potential treatment of osteoarthritis; this customer is planning to commence a pivotal Phase 3 clinical trial in Australia in late 2023 and, upon a successful outcome, expects that its stem cell therapy product candidate may be eligible to obtain regulatory approval for commercialization in Australia in 2026. If this customer’s stem cell therapy product candidate is ultimately approved for commercialization in Australia, we expect to benefit from the increased sales of MSC-Gro to this particular customer as it scales up manufacturing to meet commercial demand.
Our Business Model
While our primary business strategy is to become a leading regenerative medicine and cellular therapy company through the development and commercialization of AlloRx Stem Cell therapy, we currently generate revenue from our proprietary technologies through a variety of sources:
| ● | In addition to selling our clinical grade formulation of MSC-Gro to a single customer in Australia, as further described above, we sell multiple variations of our “research grade” formulation of MSC-Gro, along with a variety of other stem cell products and technologies developed by us, directly to leading biopharmaceutical institutions, university research labs, clinics, investigators and sponsors. These products include native MSCs, several lines of CAFs and native fibroblasts that are used by these institutions for stem cell research and the development of advanced immunotherapy of cancer. | |
| ● | We supply AlloRx Stem Cells to certain foreign clinics and medical centers that use AlloRx Stem Cells to conduct open-label, patient-sponsored clinical studies for the potential treatment of a wide variety of indications, including osteoarthritis, MS, Lupus, COPD, ALS, and Alzheimer’s disease, in other countries. In addition to generating revenue from these supply arrangements, we leverage safety, tolerability and dosing data, along with certain other anecdotal data and information, generated by these foreign clinical studies to support our internal research and development activities and for the efficient and informed internal development of our AlloRx Stem Cell therapy development programs. Continued distribution of AlloRx Stem Cells to these foreign third-party clinics and medical centers pursuant to these supply arrangements will continue to be an important business objective of ours. |
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| ● | We had a drug discovery and development contract to develop novel biologic products with European Wellness, a multinational company based in Europe, and its U.S. subsidiary, BioPep. The goal of this agreement was to discover, develop and commercialize biological products with application to regenerative medicine. We had been working with BioPep to establish manufacturing and regulatory support aimed at gaining FDA approval for specific products derived from AlloEx Exosomes that could potentially be used for treatment of various conditions, including aesthetic dermatology and skin revitalization; however, our work with BioPep has been suspended since April 2023 pending discussions regarding amounts believed to be owed to us under that agreement for work already completed. If those discussions are unsuccessful, we may not be able to collect all of the amounts believed to be owed to us or the other amounts originally expected to be received by us under the agreement, which could have an adverse effect on our revenue, cash flow, operating results and financial condition. In addition, if those discussions are unsuccessful, our agreement with them, which expired in accordance with its terms on July 31, 2023, would not be expected to be renewed. While discussions are ongoing, management does not currently expect our agreement with them to be renewed. Regardless of whether the agreement is renewed, however, we intend to continue to seek to recover all amounts believed to be owed to us under that agreement for work completed. AlloEx Exosomes are a derivative of AlloRx Stem Cells that are developed and manufactured by us. AlloEx Exosomes are derived from cultured AlloRx Stem Cells at the latter part of their growth curve by our proprietary cell culture process. In the United States, AlloEx Exosomes are regulated by the FDA as a biological product. | |
| ● | Through InfiniVive MD, our wholly-owned subsidiary, we develop and sell topical cosmetic conditioned media and exosome-containing serums, which are manufactured using AlloRx Stem Cells and its derivatives, to plastic surgeons, cosmetic surgeons, aestheticians and consumers in the United States and internationally. These products are designed to moisturize and hydrate the skin to reduce the appearance of aging, including lines and wrinkles, and we believe the inclusion of AlloRx Stem Cells and its derivatives may promote healthy looking skin and the appearance of rejuvenation. |
International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies
As discussed above, we supply AlloRx Stem Cells to certain foreign third-party clinics and medical centers. We currently have supply arrangements with numerous third-party clinics and medical centers in foreign locations, including:
| ● | The Medical Surgical Associates Center, in collaboration with The Foundation for Orthopaedics and Regenerative Medicine, a collection of stem cell treatment clinics located in St. John’s, Antigua and Barbuda; and | |
| ● | DVC Stem, a stem cell treatment clinic located in the Cayman Islands, owned and operated by Da Vinci Wellness Center. |
These and other foreign third-party clinics and medical centers are currently using, or intend to use, AlloRx Stem Cells to conduct open-label, patient-sponsored clinical studies for the potential treatment of a wide variety of indications, including MS, ALS, Alzheimer’s disease, Parkinson’s disease, multiple system atrophy (“MSA”), Lupus (SLE), COPD/asthma, chronic kidney disease (“CKD”), and diabetes. Eligible individuals with certain specified indications and who meet eligibility requirements may receive AlloRx Stem Cells at their own expense at these third-party clinics and medical centers with which we supply AlloRx Stem Cells. The primary purpose of these clinical studies is for the open-label treatment of the respective indication; accordingly, there is no randomized control group for patients treated in these foreign clinical studies. For foreign clinical studies that are conducted using AlloRx Stem Cells, the third-party clinics and medical centers are responsible for the administration of AlloRx Stem Cells to these individuals as well as their care and follow-up. They are also responsible for compliance with all applicable regulations. These third-party clinics and medical centers receive formal letters from the Ministry of Health (or other comparable agency) of these countries and/or approval from an IRB (or other comparable ethics review committee) prior to the commencement of these studies.
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We leverage safety, tolerability and dosing data, along with certain other anecdotal data and information, generated by these foreign clinical studies to support our internal research and development activities and for the efficient and informed internal development of our AlloRx Stem Cell therapy development programs. These clinical studies have enabled us to gain additional prior human experience using AlloRx Stem Cells, and the resulting data has enabled us to better understand the tolerability profile of AlloRx Stem Cells, as well as allowing us to cost effectively explore where AlloRx Stem Cell therapy may have relevance and efficacy and how it may be utilized to advance treatment over current standards of care. AlloRx Stem Cells are not licensed for commercial sale in these countries and is considered an investigational therapeutic. Our supply arrangements with foreign third-party clinics and medical centers are typically not governed by any written supply, clinical trial, or data sharing agreements. For additional information and a discussion of certain risks related to our supply arrangements with these foreign third-party clinics, see “—International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies” below and “Risk Factors” herein.
Our Strategy
Our primary business strategy is to become a leading regenerative medicine company through the development and commercialization of novel cell therapy products for unmet medical needs, with an emphasis on autoimmune disorders and inflammatory disease indications. Key elements of our business strategy are as follows:
| ● | Advance AlloRx Stem Cell therapy through clinical development to registration and commercialization in the United States for PTHS, Long COVID, and other indications in our core development programs. We are focused on initiating and executing Phase 1/2a clinical trials in the United States for PTHS and Long COVID in accordance with FDA-authorized INDs, with intentions of advancing into Phase 2b and Phase 3 pivotal registration studies for these indications as efficiently as possible. We also intend to further pursue an ODD for PTHS, as further described below. We are also currently focused on our pre-clinical development programs for MS, Lupus (SLE) and Alzheimer’s disease. | |
| ● | Initiate and conduct clinical development in an effort to establish clinical proof-of-concept and biological activity for AlloRx Stem Cell therapy and continue to deepen our understanding of therapeutic mechanisms of action. We intend to initiate Phase 1/2a clinical trials in PTHS and Long COVID in accordance with FDA-authorized INDs with the intent to establish safety, tolerability and efficacy proof-of-concept and evidence of biological activity in these indications. We seek to initiate and conduct well-designed Phase 1/2a clinical studies for AlloRx Stem Cell therapy for PTHS, Long COVID and potentially other indications in our pipeline in hopes of establishing a solid foundation for later-stage clinical trials, development and partnering activity, and expansion into complementary indications. We are committed to a rigorous clinical approach, which we believe will help us advance our programs efficiently, providing high quality, transparent communications and regulatory submissions with FDA. In addition, we hope to continue to refine our understanding of AlloRx Stem Cell therapy’s activities and mechanisms of action to prepare the foundation for product enhancements and expansion into additional treatment opportunities. |
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| ● | Explore new potential treatment opportunities by leveraging prior human experience derived from our supply arrangements with foreign medical centers and our results from other programs. We are committed to efficiently exploring potential clinical indications where AlloRx Stem Cell therapy may achieve a superior profile to the current standards of care and where we believe we can effectively address significant unmet medical needs. In pursuit of this goal: |
| ● | We are working to enter into clinical trial agreements with research and clinical institutions and clinical trial sites in the United States for our Phase 1/2a trials for PTHS and Long COVID, although we have not yet entered into any clinical trial agreement(s) for these contemplated Phase 1/2a clinical trials at this time. We do not expect that any future collaborations pursuant to one or more clinical trial agreements will involve the type of collaborative arrangements in which we would share the risks and rewards of any such clinical trials or otherwise with the third-party clinical institution. We have also established supply arrangements with certain foreign third-party clinics and medical centers, including with The Medical Surgical Associates Center and other institutions. Through these supply arrangements and our own internal research and development activities, we are evaluating AlloRx Stem Cell therapy in numerous open-label, patient sponsored foreign clinical studies and preclinical studies that reflect various types of disorders/indications, including Parkinson’s disease and traumatic brain injury. These supply arrangements have enabled us to cost effectively explore where AlloRx Stem Cell therapy may have relevance and how it may be utilized to advance treatment over current standards of care. We use safety, tolerability and dosing data, along with certain other anecdotal data and information, generated by these third parties for our research and development activities, including for the efficient and informed internal development of AlloRx Stem Cell therapy. For additional information regarding our supply arrangements with foreign third-party clinics and medical centers, including a description of the material terms of such supply arrangements, see “—International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies” below. | |
| ● | We intend to leverage clinical safety, tolerability and efficacy data from our core development programs, especially from our development program for PTHS, a rare neurogenetic disorder that features autistic traits, to support our research and development activities in a wide variety of other areas such as ASD, saving substantial development time and resources compared to traditional drug development where each program is separately developed. For example, if the results from our Phase 1/2a clinical trial for PTHS are successful to establish the safety and tolerability of AlloRx Stem Cell therapy, we intend to request FDA authorization to advance AlloRx Stem Cell therapy directly into Phase 2b/3 clinical trials potentially for cerebral palsy, Crohn’s disease, Parkinson’s disease, Epilepsy and autism, which are indications that are symptomatically similar to PTHS. For additional information, see “—Our Core Development Programs.” |
| ● | Expand our scalable manufacturing platform and refine our manufacturing processes. We currently lease and operate a manufacturing facility in Golden, Colorado that is designated as cGMP compliant, with a QMS that is globally recognized as ISO 9001:2015 and ISO 13485:2016 certified. We manufacture AlloRx Stem Cells and certain other of our stem cell products and technologies, including CAFs and native fibroblasts, at this manufacturing facility. We currently have the capacity to manufacture over 300 AlloRx Stem Cell therapy treatments per month. We are also planning a separate cGMP manufacturing facility that, if completed, will be used exclusively for the manufacture of AlloRx Stem Cells. We plan to use highly scalable, fully automated closed system bioprocessing in the new cGMP biomanufacturing facility. We intend to use our existing cash and any additional funds received upon the exercise for cash of our outstanding common stock purchase warrants, if and when exercised at the election of the warrant holders, to fund the acquisition of fully automated closed system bioprocessing and other equipment and for the development of this new cGMP compliant manufacturing facility we expect to lease. We believe that this separate facility will be necessary to comply with all FDA requirements to support a BLA and related inspections for the manufacture of AlloRx Stem Cell therapy, given that AlloRx Stem Cell therapy is a product intended for parenteral use in humans. We expect to commence development of the new cGMP biomanufacturing facility once we have the necessary capital resources, which is estimated to cost approximately $1.0 to $3.0 million depending on the amount of anticipated production increase. We believe that the use of fully automated closed system bioprocessing in a new cGMP biomanufacturing facility would allow us to fully capitalize on the potential biological advantages of UC-derived MSCs. Leveraging the potential biological advantages of UC-derived MSCs and the increased technological and manufacturing capabilities in a new cGMP biomanufacturing facility once completed, we believe that the number of AlloRx Stem Cell therapy treatments that we may be able to manufacture from just one umbilical cord may increase exponentially from current levels, and we believe these economies of scale will provide us with a competitive and financial advantage if we expand our scalable manufacturing platform in the future. |
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| ● | Continue to generate value by commercializing our existing products and technologies to support internal development efforts for AlloRx Stem Cell therapy. We intend to continue to broaden our commercial access for AlloRx Stem Cells and our other proprietary stem cell products and technologies. Unlike many of our competitors that do not generate revenue, we currently generate value from our proprietary products and technologies through a number of distinct revenue-generating activities. For example, we sell and distribute our proprietary research products, including MSCs, CAFs, native fibroblasts, and other cell culture products and technologies, which have been developed by us, to support stem cell and cancer research by leading institutions, clinics, investigators and sponsors. In addition, we generate revenue from the sale of AlloRx Stem Cells to certain foreign clinics and medical centers, as well as from the sale of our InfiniVive MD cosmetic products. These arrangements generate revenue and provide us with working capital that we use to execute on our primary business strategy of becoming a leading regenerative medicine company through the development and commercialization of our novel cellular therapies. We believe that this strategy will help us to develop a portfolio of high-quality product development opportunities, enhance our commercialization capabilities and increase our ability to generate value from our proprietary technologies, as well as potentially limiting our reliance on external financing going forward. |
| ● | Pursue additional collaboration arrangements and out-licensing opportunities. We intend to be opportunistic and consider pursuing co-development, out-licensing, commercialization or other supply or collaboration agreements for the purpose of commercializing AlloRx Stem Cell therapy, AlloRx Stem Cells and our other products and product candidates, both domestically and internationally. | |
| ● | Seek non-dilutive funding and grant awards to support our clinical research and product candidate development. We intend to continue to seek non-dilutive funding and grant awards to support our clinical research and product candidate development. These funding awards are non-dilutive, may further limit our reliance on external financing, and would allow us to collaborate with state and federal partners in pursuing safe and effective therapeutics for disorders that have few, if any, available approved treatments. |
Our Core Development Programs
Our pipeline includes five core development programs, including our expected lead development program for the treatment of PTHS. In the United States, we are authorized to conduct two clinical trials under two FDA cleared INDs for the purpose of evaluating the safety and efficacy of AlloRx Stem Cell therapy in PTHS and Long COVID. We intend to initiate these clinical trials in early 2024 and requisite third-party approval of clinical trial agreements or other agreements with contemplated collaborators and clinical trial sites. In the future, we may engage one or more third-party CROs to assist us in, among other things, identifying trial sites for these contemplated clinical trials and in conducting and managing these clinical trials on our behalf.
We are also currently focused on our pre-clinical development programs for MS, Lupus (SLE) and Alzheimer’s disease. We plan to submit two additional IND applications to FDA to initiate Phase 1/2a clinical trials to assess the safety and efficacy of AlloRx Stem Cell therapy in adults with Lupus (SLE) sometime in early 2024 and in adults with MS in late 2024, which will be subject to FDA clearance prior to the initiation of any clinical trials for these indications. We are also advancing and actively pursuing preclinical research and development activities of AlloRx Stem Cell therapy for the potential treatment of Alzheimer’s disease with the goal of progressing towards a potential IND filing for this indication in the future.
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Set forth below is additional information regarding our core development programs:
Pitt-Hopkins Syndrome
Under an IND, which became effective on November 4, 2021, we are authorized to conduct a randomized, double-blind, placebo-controlled Phase 1/2a trial to evaluate the safety and efficacy of AlloRx Stem Cell therapy in children with PTHS. We intend to enter into a clinical trial agreement with one or more medical institutions or clinical trial sites to conduct this trial. The trial stipulates enrolling up to 30 patients, with enrollment expected to commence in early 2024 pending requisite third-party approval of clinical trial agreements or other agreements with contemplated collaborators and clinical trial sites. Once fully enrolled, we expect this trial to last for approximately 12 to 24 months.
Description of PTHS and Medical Need. PTHS is a rare neurogenetic disorder that features autistic traits. PTHS results from genetic mutations/deletions of a key brain development gene, TCF4 (transcription factor 4) that controls neurogenesis. Affected children have distinctive facial features and experience moderate to severe intellectual disability, feeding difficulties, delays in reaching developmental milestones, impaired ability to speak, and can have recurrent seizures, poor sleep, autistic features, maladaptive behaviors, and breathing pattern abnormalities (reported from age 7 months to 7 years old). Gastrointestinal problems are common. Given that there are currently no pharmaceutical treatments available for PTHS and that current options are focused on management of symptoms, a successful cell therapy could be expected to significantly improve quality of life for those suffering from the condition.
Summary of Potential Mechanism of Action and Treatment Opportunity. We intend to conduct clinical trials in the United States and additional pre-clinical research in hopes of continuing to refine our understanding of AlloRx Stem Cell therapy’s activities and mechanisms of action. We believe there may be numerous potential biological mechanisms that underly MSC therapy. We believe that UC-derived MSCs like AlloRx Stem Cell therapy may have the potential to mediate a variety of intercellular communication pathways, creating cellular processes that may have the potential to result in anti-inflammatory effects, immunomodulation, and anti-apoptotic effects. Our beliefs are based on our pre-clinical studies and research, as supplemented by the findings of the Ryu Study (as defined and described below), the Kim Study and the Chen Study (as defined and described below), among others. In connection with PTHS, we intend to evaluate the potential of AlloRx Stem Cell therapy to cross the blood-brain barrier, which may be compromised in PTHS and other neurodegenerative diseases, and enter the brain through intravenous infusion. Our working hypothesis is that the mechanism of action in PTHS may involve both cellular and gene therapy, the former from mechanisms described below and the latter from the presence of cells that express functional TCF-4 gene products.
Potential for Orphan Drug Designation and Exclusivity. Because PTHS is a rare indication, affecting between 1 in 34,000 and 1 in 41,000 individuals according to some estimates, we believe that this indication would meet the prevalence requirements for an ODD from FDA if the other designation requirements are met. A sponsor may request an ODD any time before the marketing application for the product for the rare disease or condition is submitted. In August 2021, we submitted an initial request for ODD for this indication to FDA’s Office of Orphan Products Development. In November 2021, FDA indicated that it was unable to grant our initial ODD request but indicated that we may submit an amendment to our initial request containing additional information, specifically outcome data from our Phase 1/2a clinical trial for PTHS under an IND. We intend to submit an amendment to our request for ODD once additional information becomes available to us, including initial clinical data from the first cohort of patients treated in our Phase 1/2a trial for PTHS, as supplemented thereafter with additional clinical data as it becomes available. FDA has not yet made a determination as to whether PTHS qualifies as a “rare disease or condition,” and we expect such determination will be made on the basis of the facts and circumstances as of the date the amendment to our request for ODD is submitted. If the ODD is granted, then AlloRx Stem Cell therapy may be eligible for a period of orphan drug exclusivity (“ODE”) for seven years for this indication, except in limited circumstances. We may also have the opportunity to pursue one of the FDA’s expedited review programs for the use of AlloRx Stem Cell therapy in PTHS. As of the date of this prospectus, we have not sought expedited review from the FDA as clinical trial outcome data is not yet available. For additional information regarding an ODD, ODE and the FDA’s expedited review programs, including other associated benefits, see “—Government Regulation and Biologic Drug Approval” herein.
Next Steps. We intend to enter into clinical trial agreements with one or more medical institutions or clinical trial sites to conduct this trial. Once we have executed a clinical trial agreement, we intend to enroll patients as quickly as possible and complete the protocol authorized by FDA in an IND. As further described above, we intend to further pursue an ODD once additional information becomes available to us, including initial clinical data from our Phase 1/2a trial, before seeking marketing authorization. We intend to begin providing initial clinical data to FDA once it becomes available following treatment of the first cohort of patients in the trial, with supplemental clinical data to be provided to FDA thereafter as it becomes available. We also intend to leverage data from our Phase 1/2a clinical trial to support the advancement of our clinical programs for other indications. For example, if the results from our Phase 1/2a clinical trial are successful to establish the safety and tolerability of AlloRx Stem Cell therapy, we intend to request FDA approval to advance AlloRx Stem Cell therapy directly into Phase 2b/3 clinical trials potentially for cerebral palsy, Crohn’s disease, Epilepsy and autism, which are indications that are symptomatically similar to PTHS. We also believe the dosage and treatment regimen for these indications will be consistent with PTHS given the patient population.
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Long COVID/PASC
On April 1, 2021, an IND became effective pursuant to which we received authorization to conduct a multicenter, randomized, double-blind, placebo-controlled Phase 1/2a trial to evaluate the safety and efficacy of AlloRx Stem Cell therapy for the treatment of ARDS due to COVID-19 in adults. Acute Respiratory Distress Syndrome (“ARDS”) is a serious immunological and inflammatory condition characterized by widespread inflammation in the lungs that can be triggered by COVID-19 and represents a major cause of morbidity and mortality in patients that have been hospitalized and are in critical care settings. Since April 2021, however, COVID-19 vaccination and booster rates have continued to increase across the United States and the standard of care for the treatment of hospitalized patients with ARDS due to COVID-19 has continued to develop, including from the emergence of new therapeutics and treatments that have been authorized by FDA under EUA. After analyzing these trends, we have shifted our focus and clinical development efforts from the treatment of hospitalized patients with ARDS due to COVID-19 to the treatment of patients with Long COVID on an outpatient basis.
In October 2021, we submitted an amendment to request an extension of our effective IND from FDA to expand the clinical protocol and treated indication of ARDS secondary to COVID-19 infection to include Long COVID, which is now effective. Accordingly, we are now authorized to conduct a multicenter, randomized, double-blind, placebo-controlled Phase 1/2a trial under such IND to evaluate the safety and efficacy of AlloRx Stem Cell therapy for the treatment of Long COVID in adults. The trial stipulates enrolling 30 patients, with enrollment expected to commence in early 2024 pending requisite third-party approval of clinical trial agreements or other agreements with contemplated collaborators and clinical trial sites. Once fully enrolled, we expect the trial to last for approximately six to nine months.
Description of Long COVID and Medical Need. Long COVID is a serious condition characterized by persistent and prolonged symptoms or long-term complications four weeks or more after first being infected with the SARs-CoV-2 virus. Some individuals suffering from Long COVID may experience lingering symptoms, such as difficulty breathing or shortness of breath, cough, fatigue, post-exertional malaise, or chest pain, while others experience more serious long-lasting effects, such as organ damage or multisystem inflammatory syndrome, a condition in which organs and tissues become severely inflamed, following the onset of COVID-19 infection. Individuals suffering from severe Long COVID may also experience lasting health effects such as long-term breathing problems, stroke, chronic kidney impairment, and heart complications. According to the CDC, a recent study found that approximately two-thirds of respondents who had tested positive for COVID-19 experienced long-term symptoms often associated with SARs-CoV-2 infection. More recently, a report published in March 2022 by the STAA team of the U.S. Government Accountability Office found that Long COVID has potentially affected up to 23 million Americans, pushing an estimated 1 million people out of work. Currently there are no FDA-approved treatments for Long COVID. There is a great unmet need for novel approaches towards the effective management and potential treatment of Long COVID, and we believe AlloRx Stem Cell therapy represents a promising approach.
Summary of Potential Mechanism of Action and Treatment Opportunity. We believe that the immunomodulatory properties of UC-derived MSCs, including their ability to secrete concentrations of certain immunomodulatory substances, including IDO, may support the potential clinical use of UC-derived MSCs to combat the immune dysregulation and improve the prognosis in Long COVID patients. Our pre-clinical studies are further described below under “—AlloRx Stem Cell therapy for Various Indications: a Scientific Approach”.
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Next Steps. We intend to engage a third-party CRO to assist us in, among other things, identifying trial sites for this clinical trial and expect to rely on any such CRO and clinical study sites to conduct and manage this clinical trial on our behalf. Prior to commencing this trial, we will need to reach agreement on acceptable terms with prospective CROs and enter into one or more clinical trial agreements with medical institutions or clinical trial sites to conduct this trial. Afterwards, we intend to enroll patients as quickly as possible and complete the expanded clinical protocol for Long COVID authorized by FDA in an IND. If the results from our ongoing Phase 1/2a clinical trial for Long COVID are successful to establish the safety, tolerability and/or efficacy of AlloRx Stem Cell therapy, our goal, subject to FDA review, is to advance AlloRx Stem Cell therapy directly into a larger Phase 2b/3 clinical trial for Long COVID. We also intend to leverage data from our Phase 1/2a clinical trial or any such future Phase 2b/3 clinical trial for Long COVID to support the advancement of our clinical programs for other indications.
Lupus (SLE)
In early 2024, we plan to submit an IND application to FDA to initiate a Phase 1/2a clinical trial to assess the safety and efficacy of AlloRx Stem Cell therapy in adults with Lupus (SLE), which will be subject to FDA review and clearance prior to the initiation of any clinical trials for this indication. The commencement of any Phase 1/2a clinical trial will depend on, among other things, the timing of FDA review and authorization.
Description of Lupus (SLE) and Medical Need. Lupus (SLE) is a chronic autoimmune disease involving many systems in the human body, including joints, kidneys, the central nervous system, heart, the hematological system and others. The biologic basis of the disease is a dysfunction of the immune system, leading to production of self (auto) antibodies, attacking healthy organs and causing damage that can be irreversible. Lupus (SLE) is the most prominent type of lupus and affects over 70% of lupus patients. Lupus (SLE) is a chronic autoimmune disease characterized by inflammation of the connective tissue which can be life threatening due to damage caused to the central nervous system and major bodily organs. There is currently no known cure for Lupus (SLE). Only one new treatment for Lupus (SLE), Benlysta, has been approved by the FDA in the last 50 years. According to research estimates of the Lupus Foundation of America, at least 1.5 million Americans have lupus (more than 5 million worldwide) with more than 16,000 new cases diagnosed each year in the United States.
Summary of Potential Mechanism of Action and Treatment Opportunity. The etiology of Lupus (SLE) may involve disfunction of MSC autophagy (cellular uptake of extracellular materials), which we believe may support the potential of UC-derived MSCs like AlloRx Stem Cells for the treatment of Lupus (SLE). Pre-clinical research, including the Chen Study described below, supports the role of MSC autophagy resulting in the reduction of auto-antigens as being especially relevant to Lupus (SLE). In a pre-clinical, in vitro study of 32 Lupus (SLE) patients conducted by Jinyun Chen evaluating the link between autophagy and apoptosis of activated T cells from Lupus (SLE) patients and the regulation of UC-derived MSCs on T cell autophagy (the “Chen Study”), it was observed that activated autophagy increased apoptosis of T cells in Lupus (SLE) patients. To evaluate the autophagic activity of T cells, the Chen Study measured the level of autophagic LC3-IIB utilizing flow cytometry. The basal autophagic activity in Lupus (SLE) patients, as compared to healthy control subjects, was 6.69 ± 0.23 versus 4.31 ± 0.13, p < 0.0001 for CD3+T cells; 5.25 ± 0.22 versus 3.58 ± 0.07, p = 0.0001 for CD4+T cells; 7.52 ± 0.26 versus 5.01 ± 0.09, p < 0.0001 for CD8+T cells, respectively. After stimulation with anti-CD3/CD28, the autophagic activity in T Cells in Lupus (SLE) patients as compared to healthy controls was 48.07 ± 1.51 versus 37.00 ± 1.00, p = 0.0077 for CD3+T cells; 50.38 ± 3.02 versus 33.20 ± 2.30, p = 0.0213 for CD4+T cells; 51.64 ± 1.10 versus 41.20 ± 5.20, p = 0.0254 for CD8+T cells, respectively. In addition to elevated autophagy following stimulation with anti-CD3/CD28, the Chen Study also observed increased apoptosis of T cells from Lupus (SLE) patients following stimulation and further observed that apoptosis was positively associated with autophagy (r = 0.570, p < 0.0001 for CD4+T cells; r = 0.508, p = 0.0001 for CD8+T cells).
To analyze whether UC-derived MSCs could regulate T cell autophagy, peripheral blood mononuclear cells (PBMCs) from Lupus (SLE) patients were cultured with or without UC-derived MSCs in vitro for 3 days with anti-CD3/CD28 stimulation. In comparison to PBMCs cultured without UC-derived MSCs, PBMCs cultured with UC-derived MSCs had a significant decrease in T cell autophagy (30.70 ± 1.76 versus 51.37 ± 7.07, p = 0.0469 for CD3+T cells; 22.47 ± 2.41 versus 58.78 ± 4.68, p < 0.0001 for CD4+T cells; 27.16 ± 1.87 versus 67.00 ± 6.32, p < 0.0001 for CD8+T cells) and a significant decrease in apoptosis (24.31% ± 9.47% versus 50.10% ± 6.33%, p = 0.0432 for CD3+T cells; 22.20% ± 2.60% versus 51.93% ± 1.77%, p = 0.0003 for CD4+T cells; 23.25% ± 2.43% versus 55.87% ± 4.63%, p = 0.0011 for CD8+T cells). To further understand these results, the Chen Study also analyzed mitochondrial content of cells utilizing Mitotracker Deep Red (MDR) staining, in which it was observed that UC-derived MSCs transferred mitochondria to activate T cells. This data suggests that UC-derived MSCs may have the potential to regulate autophagy, and therefore decrease apoptosis, via mitochondrial transfer (Jinyun Chen et al, “Umbilical Cord-Derived Mesenchymal Stem Cells Suppress Autophagy of T Cells in Patients with Systemic Lupus Erythematosus via Transfer of Mitochondria,” Volume 2016 Stem Cells Int., 7 Dec. 2016).
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Multiple Sclerosis (MS)
In late 2024, we plan to submit an IND application to FDA to initiate a Phase 1/2a clinical trial to assess the safety and efficacy of AlloRx Stem Cell therapy in adults with MS, which will be subject to FDA review and clearance prior to the initiation of any clinical trials for this indication. The commencement of any Phase 1/2a clinical trial will depend on, among other things, the timing of FDA review and authorization.
Description of MS and Medical Need. MS is a chronic inflammatory, demyelinating and neurodegenerative disorder of the central nervous system. The initial diagnosis of MS is frequently characterized by episodes of neurological disturbances followed with residual deficits or full recovery (relapsing-remitting MS) and in a minority by a slow accumulation of disability from the onset (primary progressive MS). MS affects almost one million patients in the United States and over two and a half million people worldwide. MS results in decreased quality of life, with cognitive deficiencies reported in 40-70% of patients and 30% of patients requiring caregiving which often comes from their families, according to the National Multiple Sclerosis Society. Very few treatment options for progressive MS exist.
Summary of Potential Mechanism of Action and Treatment Opportunity. We believe that the lack of safe and effective therapies in MS and the ability of UC-derived MSCs to secrete concentrations of certain immunomodulatory substances, including IDO, and other substances that may have the potential to suppress pro-inflammatory Th17 cells that underly MS makes AlloRx Stem Cell therapy an attractive treatment option to evaluate in MS. We also believe that other potential mechanisms of action may be relevant to MS, including the potential of UC-derived MSCs to potentially promote neuronal repair and remyelination. In addition, as observed by the Chen Study, in the context of Lupus (SLE) treatments, UC-derived MSCs may have the potential to decrease apoptosis (cell death), making UC-derived MSCs like AlloRx Stem Cell therapy an attractive option to further evaluate in the potential treatment of MS.
Alzheimer’s Disease
We are advancing and actively pursuing preclinical research and development activities of AlloRx Stem Cell therapy for the potential treatment of Alzheimer’s disease with the goal of progressing towards a potential IND filing for this indication in the future. In this regard, we continue to supply AlloRx Stem Cells to foreign third-party clinics and medical centers for use in foreign clinical studies of Alzheimer’s disease being conducted by these clinics and medical centers at the patients’ own expense, thereby expanding the sample population to gain additional prior human experience with subjects affected by Alzheimer’s disease. We intend to provide all relevant human experience data to FDA in connection with any future IND application submitted by us to FDA seeking authorization to commence clinical trials of Alzheimer’s disease in humans in the United States. For additional information, see “—International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies” below. Further, as further described below, numerous preclinical studies have been conducted by third parties investigating the potential relevancy of MSCs in the treatment of Alzheimer’s disease.
Description of Alzheimer’s disease and Medical Need. Alzheimer’s disease is a progressive and chronic neurodegenerative disease characterized by memory and cognitive deterioration beyond normal aging that becomes severe enough to interfere with daily tasks. It is the most common form of dementia. Alzheimer’s disease is characterized by the loss of neurons and synapses in the cerebral cortex and certain subcortical regions. Different mechanisms have been implicated in the underlying cause of the cognitive and functional impairments observed in Alzheimer’s disease including disfunction of stem cells within the brain. Degeneration of the cholinergic nervous system has been shown to be closely linked to the impairment of cognitive functions. Also, neurodegeneration caused by a complex interplay among abnormal tau and beta-amyloid proteins and several other factors is thought to play a major role in the pathogenesis of Alzheimer’s disease. However, neurodegeneration in Alzheimer’s disease appears to be a multi-factorial event, in which various genetics as well as environmental risk factors may play a role sequentially and/or in parallel.
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According to the Alzheimer’s Association, Alzheimer’s disease currently affects over six million people in the United States. Worldwide, the disease is estimated to afflict as many as 24 million people, and the patient population in the United States is expected to grow to approximately 13 million people in the United States by 2050. While medications that provide a modest improvement in Alzheimer’s disease symptoms are available, there are no therapies currently approved to address the underlying pathology of and slow the inexorable progression of the disease, with the exception of Biogen’s aducanumab, which was approved by the FDA in June 2021, and Eisai’s Leqembi (lecanemab-irmb), which was approved by FDA in January 2023 via the Accelerated Approval pathway and subsequently granted full FDA approval in July 2023.
Summary of Potential Mechanism of Action and Treatment Opportunity. We intend to evaluate AlloRx Stem Cell therapy in the potential treatment of Alzheimer’s disease, including its potential relevance in reducing Alzheimer’s disease-associated brain inflammation, improving the function of blood vessels in the brain and reducing brain damage due to Alzheimer’s disease progression, and are focusing our preclinical research and development efforts of AlloRx Stem Cell therapy accordingly. As observed by the Chen Study in the context of Lupus (SLE) treatments, UC-derived MSCs may have the potential to decrease apoptosis (cell death) , which we believe makes UC-derived MSCs like AlloRx Stem Cell therapy an attractive option to further evaluate in the potential treatment of Alzheimer’s disease.
For a discussion of certain risks related to our contemplated clinical trials and various factors that may affect our ability to initiate or complete such clinical trials on a timely basis or at all, including potential enrollment issues, unacceptable adverse events, and inspections by FDA or IRBs of clinical trial sites, see “Risk Factors” herein.
Our Products
MSC-Gro
MSC-Gro is our proprietary specialty culture media that has been developed by us over 20 years of research and development with multiple formulations:
| ● | Research grade formulation: We have developed a variety of research grade formulations of MSC-Gro, which are marketed and sold mainly to research institutions, clinics and investigators. These institutions use MSC-Gro to support cellular immunotherapy development for cancer and also support stem cell research. We have low serum, serum-free and CAF-specific formulations. We have recently hired a full-time marketer of these products with extensive experience in the marketing and sales of related products. We sell these products directly and through select distributors. | |
| ● | Clinical grade formulation: Our clinical grade formulation of MSC-Gro is used by us for the manufacture of AlloRx Stem Cells. As discussed above, we also sell our clinical grade formulation to a single customer in Australia that utilizes MSC-Gro to manufacture its stem cell therapy product candidate currently being investigated for the potential treatment of osteoarthritis; this customer is planning to commence a pivotal Phase 3 clinical trial in Australia in late 2023 and, upon a successful outcome, expects that its stem cell therapy product candidate may be eligible to obtain regulatory approval for commercialization in Australia in 2026. If this customer’s stem cell therapy product candidate is ultimately approved for commercialization in Australia, we expect to benefit from the increased sales of MSC-Gro to this particular customer as it scales up manufacturing to meet commercial demand. |
Cancer-Associated Fibroblasts
We sell CAFs and native fibroblasts developed by us directly to leading institutions, clinics, investigators and sponsors, including major biotechnology/biopharmaceutical firms and several universities. These institutions use CAFs and native fibroblasts for advanced cancer research, especially for the development of immunotherapy for the treatment of solid tumors.
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Cosmetic Conditioned Media and Exosome-Containing Serums
Through InfiniVive MD, our wholly-owned subsidiary that we acquired in August 2021, we develop, manufacture and sell topical conditioned media and exosome-containing serums. Our InfiniVive MD cosmetic products use our exosome-containing conditioned medium derived from AlloRx Stem Cells as the main active ingredient. Accordingly, InfiniVive MD cosmetic products contain exosomes for use topically by certified plastic surgeons, cosmetic surgeons, and aestheticians, or consumers, including:
| ● | InfiniVive MD’s Exosome Serum. This cosmetic product contains conditioned media derived from AlloRx Stem Cells containing various secreted products including proteins, RNA and exosomes. InfiniVive MD’s Exosome Serum is marketed and sold by us exclusively to certified plastic surgeons, cosmetic surgeons, aestheticians and other medical professionals. InfiniVive MD’s Exosome Serum is intended to be applied topically by these medical professionals. Exosomes, which are extracellular vesicular nanostructures containing proteins, mRNA, and other substances, are involved in cellular communication, regulation of immune function, and tissue regeneration, among other things. We currently sell InfiniVive MD’s Exosome Serum throughout the United States and internationally.
From June 2022 to July 2022, out of an abundance of caution, we voluntarily suspended sales of InfiniVive MD’s Exosome Serum in the United States in order to conduct an investigation into the potential improper administration of this product by medical professionals that have purchased this product directly from us or via distribution from other medical professionals. The purpose of this investigation was to ensure that medical professionals were using InfiniVive MD’s Exosome Serum only topically as directed and otherwise in compliance with our use restrictions and applicable laws and regulations and to limit potential exposure to legal liability and regulatory enforcement if medical professionals were misusing the product. Upon completion of the investigation, it was determined that InfiniVive MD’s Exosome Serum was not being misused or misapplied and, following discussion with our legal advisors specializing in regulations relevant to the sale of our products, we resumed sales of InfiniVive MD’s Exosome Serum. During the investigation, we also reviewed and further enhanced our permitted use labeling and determined to require all customers to complete a written certification confirming, prior to shipment of the product, that the product would be administered only in accordance with the product’s permitted uses and our instructions, as further described in the labeling. This voluntarily suspension of sales of InfiniVive MD’s Exosome Serum in the United States did not have a material impact on our operating results for fiscal year 2022. | |
| ● | InfiniVive MD’s Daily Serum. This cosmetic product is a conditioned media and exosome-based cosmetic serum derived from AlloRx Stem Cells. InfiniVive MD’s Daily Serum is currently marketed and sold by us exclusively to plastic surgeons, cosmetic surgeons, aestheticians and other medical professionals. |
Our statements herein regarding our InfiniVive MD topical cosmetic and exosome-containing serums have not been reviewed or approved by the FDA. For a discussion of certain risks and governmental regulation related to these products, see “Risk Factors” herein and “—Government Regulation and Biologic Drug Approval—U.S. Regulation of Wellness Products” below.
On November 20, 2022, we entered into a Supply Agreement with Dr. Jack Zamora, our former Chief Executive Officer, pursuant to which we agreed to provide InfiniVive MD Exosome Serum and InfiniVive MD Daily Serum to Dr. Zamora at his request. The provision of InfiniVive MD products under the Supply Agreement is subject to certain minimum and maximum quantity limitations. For additional information regarding the Supply Agreement, see “Certain Relationships and Related-Party Transactions.”
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Dietary Supplements and Nutraceuticals
Through Fitore, our wholly-owned subsidiary that we acquired in August 2021, we sell dietary supplements, nutraceuticals and health products, many of which are based on our stem cell research. These products are designed to induce certain benefits by activating the body’s own stem cells and transplanted stem cells. These nutraceutical products are marketed and sold online. We are currently selling Fitore products solely from remaining inventory and do not anticipate manufacturing any additional products in the foreseeable future or at all. For a discussion of certain risk relating to the manufacture of dietary supplements, nutraceuticals and other health products, see “Risk Factors— Risks Related to the Dietary and Nutritional Supplements Industry and Fitore Products.”
AlloEx Exosomes®
We have also developed AlloEx Exosomes, which are a derivative of AlloRx Stem Cells. In the United States, AlloEx Exosomes are regulated by the FDA as a biological product. AlloEx Exosomes are manufactured by us and are derived from cultured AlloRx Stem Cells at the latter part of their growth curve by our proprietary cell culture process. AlloEx Exosomes were being used by us as the starting biological material in our effort to identify, and ultimately seek FDA approval for, a key investigational product candidate in our collaboration with European Wellness. For additional information regarding our agreement with European Wellness, which expired on July 31, 2023, and AlloEx Exosomes, see “Joint Operating Agreement with European Wellness” below.
Preliminary Tolerability Data for AlloRx Stem Cells
As of September 1, 2023, over 440 subjects have received treatment with AlloRx Stem Cells via peripheral intravenous infusion or direct injection for potential treatment of a wide variety of indications, including ARDS due to COVID-19, Long COVID, MS, ALS, Lupus, MSA, Alzheimer’s disease, CKD, COPD, diabetes and age-related conditions. To date, there have been no serious adverse events reported that were considered related to AlloRx Stem Cells.
Preliminary Tolerability Data from Compassionate Use in the United States
Sixteen patients in the United States have been treated with AlloRx Stem Cells by third-party physicians or our former partners pursuant to emergency single use eIND authorization (“eIND authorization”) that was granted from the FDA (often referred to as compassionate use) for the treatment of patients with immediately life-threatening conditions or serious diseases, including ARDS due to COVID-19, anaphylaxis secondary to COVID monoclonal antibodies and ALS. Of the sixteen patients treated with AlloRx Stem Cells pursuant to eIND authorization in the United States, seven patients died from causes determined to be related to COVID-19 but did not experience any serious adverse events that were considered related to the treatment itself, in each case as determined by the treating physician. In general, while we have received certain preliminary and/or anecdotal data and information from third-party physicians and partners following treatment by them with AlloRx Stem Cells pursuant to emergency single use eIND authorization, we typically have not received final objective data or information related to final end results.
Set forth below is additional information related to the treatment of patients with AlloRx Stem Cells pursuant to eIND authorization in the United States, including the name and location of the hospital, the identity of the treating physician and the number of patients treated for various indications. In connection with these treatments, there were no serious adverse events reported that were considered related to AlloRx Stem Cells:
| Hospital | Location | Treating Physician | Patients Treated (#) | Indication(s) | ||||
| Hackensack Medical Center | Hackensack, NJ | Dr. Keith Rose | 2 | Critical COVID - ARDS | ||||
| Orlando Health | Orlando, FL | Dr. Nimish Nemani | 1 | Critical COVID - ARDS | ||||
| Tri City Medical Center | Oceanside, CA | Dr. Navneet Boduu | 5 | Critical COVID - ARDS | ||||
| UC Anschutz | Denver, CO | Dr. Susan Boakle | 1 | Anaphylaxis Due to COVID monoclonal antibodies | ||||
| Thorek Memorial Hospital | Glenview, IL | Dr. Chad Prodromos | 1 | ALS | ||||
| NY Community Hospital | Brooklyn, NY | Dr. Prabhat Soni; Giostar | 1 | Critical COVID - ARDS | ||||
| Providence Alaska Medical Center | Anchorage, AK | Dr. Mike Schwalbe | 1 | Critical COVID - ARDS | ||||
| LA Downtown Medical Center | Los Angeles, CA | Dr. Prabhat Soni; Giostar | 4 | Critical COVID - ARDS |
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Compassionate use is intended to provide access to investigational medicines for patients with serious or life-threatening conditions who have limited available treatment options. Under applicable FDA rules, a patient cannot receive a compassionate use drug unless FDA has issued an individual patient eIND authorization, which the attending physician requested and received from FDA prior to each individual patient treatment. There is no randomized control group for patients treated under individual patient eIND authorization. For additional information regarding compassionate use using AlloRx Stem Cells, and data derived therefrom, see “Risk Factors” herein.
Preliminary Tolerability Data from Foreign Clinical Studies
Over 424 subjects have also been treated with AlloRx Stem Cells in foreign clinical studies being conducted by third-parties. For a more complete description of our supply arrangements with certain foreign third-party clinics and medical centers and the open-label, patient-sponsored clinical studies being conducted by such foreign third-party clinics and medical centers, see “—International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies” below. As further described below, for all clinical studies that are conducted by foreign third-party clinics using AlloRx Stem Cells, we receive safety and tolerability data, including data relating to any occurrence of any serious adverse events, from such third-party clinics and medical centers, but they are ultimately responsible for the administration of AlloRx Stem Cells to individuals as well as their care and follow-up. In addition to receipt of safety and tolerability data, we also receive other preliminary and/or anecdotal data and information from time to time, but final end results generated from these open-label clinical studies conducted by foreign third-party clinics are unknown by us, and final objective data is not provided to us by these foreign third-party clinics and medical centers. While certain anecdotal data is used by us to cost-effectively explore where AlloRx Stem Cell therapy may have relevance, we intend to initiate and conduct clinical trials in the United States with the goal of proving efficacy and achieving regulatory approvals for AlloRx Stem Cell therapy, each of which is in the sole authority of the FDA.
Set forth below is additional information related to the treatment of subjects with AlloRx Stem Cells in open-label, patient-sponsored clinical studies conducted by foreign third-party clinics and medical centers, including the name and location of the third-party clinic, the identity of the lead investigator and the number of subjects treated for various indications. In connection with these treatments, there were no serious adverse events reported that were considered related to AlloRx Stem Cells:
| Clinic Name | Location | Investigator | Subjects Treated (#) |
Indications | ||||
| Medical & Surgical Associates | St. John, Antigua | Dr. Chad Prodromos | Total: 165 | |||||
| 117 | Anti-inflammatory | |||||||
| 30 | Osteoarthritis | |||||||
| 3 | Diabetes | |||||||
| 2 | Parkinson’s disease | |||||||
| 3 | Chronic Kidney Disease | |||||||
| 4 | Autism | |||||||
| 6 | 1 patient treated for each of various other indications(a) | |||||||
| Medical & Surgical Associates | St. John, Antigua | Dr. Joey Johns | Total: 17 | COVID - ARDS | ||||
| DVCStem | Seven Mile Beach, Grand Cayman Island | Dr. Lou Kona | Total: 232 | |||||
| 92 | Anti-inflammatory | |||||||
| 61 | Multiple Sclerosis | |||||||
| 3 | Diabetes | |||||||
| 4 | Fibromyalgia | |||||||
| 6 | Crohn’s disease | |||||||
| 18 | ALS | |||||||
| 5 | Lyme disease | |||||||
| 3 | Muscular Dystrophy | |||||||
| 3 | Alzheimer’s disease | |||||||
| 16 | Parkinson’s disease | |||||||
| 3 | RA | |||||||
| 21 | 1 patient treated for each of various other indications(b) |
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| Clinic Name | Location | Investigator | Subjects Treated (#) |
Indications | ||||
| Matamata Medical Center | Matamata, New Zealand | Dr. Bruce Pitchford | Total: 8 | |||||
| 3 | MSA-p | |||||||
| 2 | ALS | |||||||
| 3 | Familial Tremor, Menigitis, MSA-c | |||||||
| PRMedica | Cabo San Lucas, Mexico | Dr. Victor Ocegueda | Total: 2 | |||||
| 1 | Spinal Cord | |||||||
| 1 | Long COVID |
| (a) | 1 patient treated for each of various other indications, including: MS, RA, UC, Alzheimer’s, ED and Polymyalgia Rheumatica (a type of RA). | |
| (b) | 1 patient treated for each of various other indications, including: Long COVID, Stroke, Spinal Cord, Kidney Disease, UC, Osteoarthritis, COPD, Inclusion Body Myositis, Asbestosis, Asthma, MCA Stoke and Complex regional pain syndrome (CRPS). |
Relevance of Preliminary Tolerability Data
We consider the preliminary tolerability data generated from the prior human experience described above to be relevant to our business for a variety of reasons, including:
| ● | Our IND applications submitted to FDA in which we sought, and ultimately received, FDA authorization to conduct Phase 1/2a clinical trials in PTHS and Long COVID were required to include, among other things, a comprehensive summary of all prior human experience with the product candidate. Accordingly, prior human experience data for AlloRx Stem Cells, including data collected in foreign clinical studies conducted by third-parties, was previously provided by us to FDA at the time we submitted such IND applications, including comprehensive information relating to the subject and treating physician, safety and tolerability data, and whether any serious adverse events were reported. We expect to provide additional preliminary tolerability data to FDA in any regulatory submissions that may be submitted by us in the future. Accordingly, this preliminary tolerability data has enabled us to provide high quality, transparent communications and regulatory submissions with FDA. | |
| ● | This extensive prior human experience with our product candidate is a factor that goes into authorization from FDA to proceed with Phase 1/2a clinical trials to evaluate both the safety and efficacy of AlloRx Stem Cell therapy. Accordingly, we believe preliminary tolerability data has saved us substantial research and development time and resources. | |
| ● | Our continued supply of AlloRx Stem Cells for use in foreign clinical studies is also relevant for our continued study of the safety and tolerability effects of AlloRx Stem Cells while also exploring other potential indications where AlloRx Stem Cells may have relevance. Accordingly, we also use this preliminary tolerability data for our research and development activities, including for the efficient and informed internal development of our product candidates like AlloRx Stem Cell therapy. Therefore, we intend to continue to gain additional prior human data for additional indications for AlloRx Stem Cells, including in foreign clinical studies conducted by third-parties. Accordingly, we believe this preliminary tolerability data is relevant given its use by us in the efficient and informed internal development of our product candidates. |
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Recent Acquisitions
InfiniVive MD
Effective August 1, 2021, we acquired all of the outstanding equity interests of InfiniVive MD from Dr. Jack Zamora, our former Chief Executive Officer, pursuant to an Agreement and Plan of Exchange. We issued 884,615 shares of our common stock to Dr. Zamora valued at $4.94 per share in the exchange transaction, which resulted in InfiniVive MD becoming a wholly-owned subsidiary of our company. The shares issued to Dr. Zamora are subject to restrictions on transfer. At the time of the acquisition, Dr. Zamora was Chief Executive Officer and a director of our company. See “Certain Relationships and Related-Party Transactions” for additional information.
Prior to the acquisition, InfiniVive MD was a customer of our company.
Fitore
Also effective August 1, 2021, we acquired all of the issued and outstanding stock of Fitore, making that entity a wholly-owned subsidiary of our company. That acquisition was completed pursuant to the terms of an Agreement and Plan of Merger (the “Merger Agreement”) and resulted in the issuance of an aggregate of 153,846 shares of our common stock valued at $4.94 per share, six Series A Units, with each Series A Unit consisting of 2,000 shares of Series A Preferred Stock, a Class A Warrant to purchase up to 3,846 shares of our common stock at an exercise price of $13.00 per share and a Class B Warrant to purchase up to 3,846 shares of our common stock at an exercise price of $26.00 per share, and 5% Convertible Notes in the aggregate principal amount of $1 million. The 5% Convertible Notes are payable three years from the effective date of the acquisition and are convertible into our common stock at a conversion price of $26.00 per share. All of the securities issued in connection with the acquisition are subject to restrictions on transfer.
Our Chief Financial Officer, Nathan Haas, was a significant stockholder of Fitore at the time of the acquisition and in that capacity received 30,769 shares of our common stock, 1.2 Series A Units and a 5% Convertible Note in the principal amount of $200,000. Our former Chief Executive Officer, Dr. Jack Zamora, was also a significant stockholder of Fitore at the time of the acquisition and in that capacity received 46,154 shares of our common stock, 1.8 Series A Units and a 5% Convertible Note in the principal amount of $300,000. See “Certain Relationships and Related-Party Transactions” for additional information.
Our Regenerative Medicine Business: AlloRx Stem Cell therapy
AlloRx Stem Cell therapy for Various Indications: a Scientific Approach
In a pre-clinical animal study by Hak-Hyun Ryu, et al, evaluating the effects of MSCs on spinal cord injuries in dogs (the “Ryu Study”), the following benefits were observed in animals receiving UC-derived MSCs as compared to the control group receiving no MSCs (Hak-Hyun Ryu et al, “Comparison of Mesenchymal Stem Cells Derived from Fat, Bone Marrow, Wharton’s Jelly, and Umbilical Cord Blood for Treating Spinal Cord Injuries in Dogs,” 74(12) J. Vet. Med. Sci., 1617-1630, 9 August 2012):
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Increased locomotion of hind limbs (as measured by Olby scores). To objectively measure functional recovery after spinal injury, the Ryu Study utilized the Olby score (0-14). Prior to the spinal injury, all of the dogs in the Ryu Study had an Olby score of 14 points, which is indicative of normal pelvic limb gait. Eight weeks following treatment with MSCs, the MSC-treated dogs had Olby scores of 5 or 6 points, which indicates purposeful hind limb motion. By comparison, the control dogs not treated with MSCs had Olby scores of 3 points after eight weeks, which indicates possible minimal nonweight-bearing protraction of the pelvic limb in only one joint.
Lower levels of proinflammatory cytokines. The Ryu Study measured the concentration of certain proinflammatory cytokines, including COX-2 and IL-6, in the animals eight weeks after transplantation of UC-derived MSCs. The average concentration of COX-2 in the control group and the group treated with UC-derived MSCs was 55 ng/ml and 30 ng/ml, respectively. The average concentration of IL-6 in the control group and the group treated with UC-derived MSCs was 39 ng/ml and 24 ng/ml, respectively.
Increased expressions of neural proteins. The Ryu Study analyzed the expressions of neural proteins including class III beta-tubulin (Tuj1), neurofilament (NF160) and neuronal nuclei (NeuN), and galactosylceramidase (GALC) using Western blot analysis. After eight weeks, as compared to the untreated control group, dogs treated with UC-derived MSCs had 28% increased expression of Tuj1, 30% increased expression of NF160, 10% increased expression of NeuN and 11% increased expression of GALC. The increased expressions of these proteins are indicative of increased neuroprotective effects.
Potential Mechanisms of Action of AlloRx Stem Cell therapy
We intend to conduct clinical trials in the United States and additional pre-clinical research in hopes of continuing to refine our understanding of AlloRx Stem Cell therapy’s activities and mechanisms of action. Based on the findings described above and our own extensive pre-clinical research, among others, we intend to further evaluate the potential of AlloRx Stem Cell therapy to treat multiple facets of various indications through potentially multiple mechanisms of actions that may include the following:
| ● | Reduction of inflammation. We believe AlloRx Stem Cell therapy may have the potential to reduce inflammation (i) through activation of anti-inflammatory biochemical and cellular pathways, including potentially reducing destructive pro-inflammatory cytokines that may negatively impact the brain, muscles, bones, and joints, and (ii) by converting certain harmful pro-inflammatory macrophages, called M1 macrophages (a type of white blood cell that is vital to the immune system) to certain anti-inflammatory macrophages, called M2 macrophages. These potential mechanisms of action are illustrated in the diagram below. |
| ● | Modulate immune function. We believe that AlloRx Stem Cell therapy may have the potential to improve immune system function, such as by potentially regulating a variety of immune cells mediating the cellular immune system including T-cells, T-helper cells, TREG cells and dendritic cells. Immunomodulation typically involves immunosuppression, which support the potential use of UC-derived MSCs in treating autoimmune diseases. |
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| ● | Restore blood flow. We believe AlloRx Stem Cell therapy may have the potential to restore blood flow due to injury or stroke through a process called angiogenesis and to induce formation of endothelial cells that restore blood flow to tissues and improve overall functioning of the blood vessels. We intend to evaluate the potential of AlloRx Stem Cell therapy to improve blood supply to the muscles, bones, and organs, including the brain, and thereby improve nutrient supply and waste removal. | |
| ● | Activate intrinsic repair and regenerative mechanisms. We believe AlloRx Stem Cell therapy may have the potential to induce regenerative and repair pathways to promote cellular recovery from damage and restore homeostasis. |
Potential biological advantages of UC-Derived MSCs
The starting raw material source for AlloRx Stem Cells is the Wharton’s jelly of donated UCs. Based on extensive pre-clinical studies and research conducted by us and third parties, as further described below, we believe UC-derived MSCs like AlloRx Stem Cells may have advantages compared to MSCs derived from other starting raw material sources, such as BM-MSCs, AD-MSCs, and P-MSCs.
UC-derived MSCs are the youngest adult stem cells and are therefore generally free from issues related to age (such as mutations), and prior medical conditions that come with the use of BM-MSCs and AD-MSCs. In addition, unlike BM-MSCs, AD-MSCs, UC-derived MSCs involve a non-invasive collection process, are sourced and collected after childbirth, and may provide significant economies of scale in the manufacturing process, as further described below. We believe these factors taken together may provide us with a competitive and financial advantage compared to other cell therapies currently in development that are derived from BM-MSCs, AD-MSCs or P-MSCs.
In addition, in our extensive pre-clinical, in vitro studies described below, we analyzed various biological characteristics of AlloRx Stem Cells (UC-derived MSCs) in head-to-head comparisons to AD-MSCs, BM-MSCs, and P-MSCs, including:
Growth Rate
Because MSCs must be expanded in vitro prior to use in a clinical setting, we believe that the growth and expansion characteristics of MSCs in vitro are an important consideration. In a pre-clinical, in vitro study, we analyzed MSCs’ growth in cell cultures in head-to-head comparisons and observed that AlloRx Stem Cells (UC-derived MSCs) doubled in size in vitro after only 25 hours, as compared to longer doubling times of 35 hours, 40 hours and 53 hours for AD-MSCs, P-MSCs and BM-MSCs, respectively, indicating an increased growth rate of AlloRx Stem Cells as compared to these other MSCs. Pre-clinical studies conducted by third parties using other UC-derived MSCs also support our observations described above. In the Kim Study, which analyzed the immunological characteristics of UC-derived MSCs in a head-to-head comparison to AD-MSCs and PL-MSCs, it was observed that UC-derived MSCs doubled in size in vitro after only 32.1 hours, whereas PL-MSCs doubled after 42.7 hours and AD-MSCs doubled after 56.4 hours.
Immunomodulatory Potency Measures
In a pre-clinical, in vitro study, we analyzed the immunomodulatory potency of AlloRx Stem Cells (UC-derived MSCs) in a head-to-head comparison to AD-MSCs, BM-MSCs, and P-MSCs. To compare immunomodulatory properties of MSCs from these sources, the activation of IDO by exposure to γ-IFN was determined on an equivalent cellular basis (see graph below). The γ-IFN-induced IDO activity was quantified by the conversion of tryptophan to kynurenine. IDO, an immunomodulatory substance secreted by MSCs, initiates the conversion of tryptophan to kynurenine, and kynurenine expression plays a critical role in regulating the body’s immune response. Maximal IDO activity at 10 ng/ml γ-IFN was approximately two-fold greater in AlloRx Stem Cells versus the MSCs derived from other sources. There was a significant difference in γ-IFN-induced IDO activity between the AD-MSCs, BM-MSCs, and P-MSCs compared to AlloRx Stem Cells (UC- derived MSCs) with a p-value<0.005 by one-way ANOVA analysis of variance for significance of slope difference. We believe these results indicate UC-derived MSCs like AlloRx Stem Cells may have greater immunomodulatory cellular potency by quantification of γ-IFN-induced IDO activity, as compared to AD-MSCs, P-MSCs, and BM-MSCs.
Immunomodulatory potency of UC- derived MSCs, AD-MSCs, P-MSCs and BM -MSCs by the γ-IFN induced IDO activity assay is shown above.
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Pre-clinical studies conducted by third parties using other UC-derived MSCs support our observations described above, as the Kim Study also observed the following concentrations of two other immunomodulatory substances secreted by MSCs, TGF-ꞵ1 and hepatocyte growth factor (“HGF”), 48 hours after γ-IFN activation in UC-derived MSCs as compared to AD-MSCs and PL-MSCs:
Immunomodulatory Substance |
UC-derived MSCs |
AD-MSCs | PL-MSCs | |||
| TGF-ꞵ1 | 4.5 ng/ml | 3.5 ng/ml | 3.5 ng/ml | |||
| HGF | 325 pg/ml | 190 pg/ml | 100 pg/ml |
Cellular ATP Expression
In a pre-clinical, in vitro study, we performed a quantitative assessment of mitochondrial function by measuring ATP expression of AlloRx Stem Cells (UC-derived MSCs) in a head-to-head comparison to AD-MSCs, BM-MSCs, and P-MSCs. As illustrated in the chart below, AlloRx Stem Cells (UC-derived MSCs) showed a significant difference in cellular ATP-content. ATP expression is a measure of cellular energy, as ATP is the primary molecule that stores and transfers energy in a cell and powers metabolic processes within the body. Due to the fact that mitochondria produce most ATP within the body, we believe these results indicate the potential for increased mitochondrial functionality of UC-derived MSCs like AlloRx Stem Cells as compared to AD-MSCs, P-MSCs, and BM-MSCs.
In the chart above, cellular ATP is shown as a function of cells per well. Cellular potency is measured by the slope of this relation.
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Cell Migration
In a pre-clinical, in vitro study, we analyzed the migration of AlloRx Stem Cells (UC-derived MSCs) in a head-to-head comparison to AD-MSCs, BM-MSCs, and P-MSCs, in response to exposure to Substance P. Substance P is a peptide that presents itself when an injury occurs, thus simulating an environment of injury. As illustrated in the chart below, AlloRx Stem Cells (UC-derived MSCs) showed a significant difference in cell migration in response to Substance P, as AlloRx Stem Cells (UC-derived MSCs) showed greatest closure at 50 pg/mL Substance P (~40% closure), while AD-MSC, P-MSC, and BM-MSC had a closure between 5-15% all within a 72-hour period. These results were seen in several replicates (n=4). Due to the fact that Substance P is a peptide that presents itself in response to an injury, we believe that UC-derived MSCs’ ability to migrate to Substance P reaction at a faster rate may be indicative of an ability to more quickly migrate to the source of injury within the body as compared to AD-MSCs, P-MSCs, and BM-MSCs.
Comparison of migration into cell-free regions. Migration was measured by percent closure of the occluded plate region and is plotted as a function of time following exposure to 50 pg/ml Substance P.
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Proliferation Capacity
In a pre-clinical, in vitro study, we also analyzed the proliferation capacity of AlloRx Stem Cells (UC-derived MSCs) in a head-to-head comparison to AD-MSCs, BM-MSCs, and P-MSCs, by quantifying cellular redox activity by a well-validated resazurin-based fluorometric assay. As illustrated in the chart below, we observed that AlloRx Stem Cells (UC-derived MSCs) had a maximum effect of fetal bovine serum (“FBS”) at 6%, while no saturation was seen in the other cell lines, indicating greater cell proliferation capacity in AlloRx Stem Cells as compared to AD-MSCs, BM-MSCs, and P-MSCs.
In the chart above, the relative fluorescent difference at day 1 and 3 using Presto Blue as shown as a function of FBS content in a serum-free medium.
Key Features and Potential Benefits of AlloRx Stem Cell therapy
The key features of AlloRx Stem Cell therapy offer potential benefits as a possible therapeutic, including the following:
| ● | “Off-the-Shelf” and scalable product. AlloRx Stem Cell therapy is intended to be an “off-the-shelf” commercialized product that is stored frozen and available for on-demand use. AlloRx Stem Cells are allogeneic cells derived from the youngest known adult stem cells as opposed to autologous MSCs derived from adipose tissue, bone marrow, etc. Since these cells are non-immunogenic and do not transfer DNA to the recipient, they do not require tissue extraction as do autologous MSCs. As of May 31, 2023, AlloRx Stem Cells have been administered in over 381 individuals without eliciting a rejection or allergic response from the recipient. We believe this is because umbilical cord-derived MSCs are non-immunogenic meaning that they do not illicit an immune response based on previous independent research by third parties, and thus AlloRx Stem Cell therapy does not require tissue-type matching. Each lot of AlloRx Stem Cell therapy is derived from the Wharton’s jelly of donated umbilical cords, where young MSCs are present. AlloRx Stem Cells are then culture-expanded in vitro using MSC-Gro, our proprietary specialty culture media, to produce more MSCs with potentially increased potency and viability as compared to MSCs prepared using stromal vascular fraction (“SVF”). We currently have the capacity to manufacture over 300 AlloRx Stem Cell therapy treatments per month. We are currently planning a separate cGMP manufacturing facility that, if completed, will be used exclusively for the manufacture of AlloRx Stem Cells. We plan to use highly scalable, fully automated closed system bioprocessing in the new cGMP biomanufacturing facility. We believe that the use of fully automated closed system bioprocessing in a new cGMP biomanufacturing facility would allow us to fully capitalize on the potential biological advantages of UC-derived MSCs. Leveraging the potential biological advantages of UC-derived MSCs and the increased technological and manufacturing capabilities in a new cGMP biomanufacturing facility, we believe that the number of AlloRx Stem Cell therapy treatments that we may be able to manufacture from just one umbilical cord could increase exponentially from current levels. We believe that these economies of scale may provide us with a significant competitive and financial advantage compared to other cell therapies currently in development that are derived from BM-MSCs, AD-MSCs or P-MSCs. This also provides significant advantages over autologous cell therapy interventions, which involve removing cells from an individual through an operative procedure, and then reintroducing the cells back into the same person, sometimes after weeks of culture expansion. Accordingly, autologous approaches lack economies of scale since they serve only a single patient. In foreign clinical studies conducted by third-parties thus far, AlloRx Stem Cells have been administered through intravenous infusion in under one hour on an outpatient basis, or via direct tissue injection, depending upon the indication. |
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| ● | Potential biological advantages of UC-derived MSCs. The starting raw material source for AlloRx Stem Cells is the Wharton’s jelly of donated umbilical cords. As further described above (see “AlloRx Stem Cell therapy for Various Indications: a Scientific Approach —Potential Biological advantages of UC-Derived MSCs”), we believe that UC-derived MSCs have a number of potential biological advantages compared to MSCs sourced from other raw materials. The sourcing and manufacturing of AlloRx Stem Cells are designed to capitalize on the potential biological advantages of MSCs sourced from umbilical cords. | |
| ● | Consistent manufacturing. Manufacturing of AlloRx Stem Cells is performed by us at the manufacturing facility we lease in Golden, Colorado. The manufacturing facility is cGMP compliant, with a QMS that is globally recognized as ISO 9001:2015 and ISO 13485:2016 certified. AlloRx Stem Cells are sourced from the Wharton’s jelly of umbilical cords. All donated umbilical cords are received directly from tissue banks registered with The American Association of Tissue Banks (“AATB”). Prior to accepting donated umbilical cords, strict screening and evaluation of the donor’s medical and social history is performed. Prior to processing, the umbilical cords undergo additional rigorous testing, screening and monitoring, including third-party in vitro testing for the absence of a wide variety of common viral infections in donors by FDA-approved assays for a wide variety of infections, including hepatitis A, B and C, COVID-19, and HIV-1/HIV-2. Throughout the production process, the cells are analyzed according to pre-established criteria to ensure that a consistent, well-characterized product candidate is produced in accordance with the Chemistry, Manufacturing and Controls (“CMC”) section of our INDs. We are planning to lease a separate cGMP manufacturing facility once we have the necessary capital resources that, if completed, will be used exclusively for the manufacture of AlloRx Stem Cells. We believe that this separate facility will be necessary to comply with all FDA requirements to support a BLA for the manufacture of AlloRx Stem Cells, given that it is a product intended for parenteral use in humans. Subject to available capital resources, we expect to develop a new cGMP biomanufacturing facility in the future. | |
| ● | Preliminary Tolerability Data. As of September 1, 2023, over 440 subjects have received treatment with our AlloRx Stem Cells, primarily in foreign clinical studies conducted by third parties, and no serious adverse events have been reported that were considered related to the product candidate. In foreign clinical studies using AlloRx Stem Cells, we have observed that intra-articular injections for musculoskeletal conditions can produce transient pain, which can be treated by analgesics and typically subsides within 24 to 48 hours. |
Other Pre-Clinical Development Programs: AlloRx Stem Cell therapy for Potential Treatment of Other Indications
In addition to our core development programs, we are also evaluating the potential of AlloRx Stem Cell therapy for the treatment of a broad range of other indications, with a focus on autoimmune diseases and inflammatory disorders. We believe that we can leverage clinical safety data from our core development programs, including for PTHS and Long COVID, and preclinical studies to support research and development efforts in other areas, saving substantial development time and resources compared to traditional drug development where each program is separately developed. Accordingly, we are advancing preclinical research and development work in the indications described below.
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Inflammatory and Autoimmune Disorders In General
We are currently focused on the treatment of autoimmune diseases and inflammatory disorders. There are over 80 recognized autoimmune disorders, which are caused by an acute or chronic imbalance in the immune system where the immune system recognizes proteins of the body as foreign and elicits a specific immune response that leads to the immune system improperly attacking certain bodily tissues, cells or organs (for example, in MS, the immune system recognizes myelin basic protein as foreign). Some inflammatory and autoimmune conditions are caused by genetic or environmental factors, or a combination of both, while others may be caused from complications associated with other diseases or trauma or the treatment of other diseases or trauma. In general, inflammatory and autoimmune disorders share certain biological characteristics, in that the immune system imbalance results from the improper activation of certain immune cells that can lead to extensive tissue damage and destruction and cause pain and loss of function. Inflammatory and autoimmune disorders represent major areas of unmet clinical needs, as well as substantial commercial opportunities.
ALS
Description and Medical Need
ALS, often referred to as “Lou Gehrig’s disease,” is a progressive neurodegenerative disease caused by selective death of motor nerve cells in the spinal cord. Motor neurons reach from the brain to the spinal cord and from the spinal cord to the muscles throughout the body. The progressive degeneration of the motor neurons in ALS patients lead to progressive weakness, respiratory failure and eventually, death.
Worldwide, the prevalence of ALS is approximately 5 to 7 per 100,000 individuals. According to Johns Hopkins Medicine, it is estimated that as many as 30,000 Americans have the disease at any given time. Treatment decisions are typically determined by the patient’s symptoms, preferences and the stage of the disease. Approved disease modifying medications include Riluzole, which has been approved by FDA to treat ALS.
Next Steps
We intend to investigate AlloRx Stem Cells in an animal model of ALS to test various cohorts including AlloRx Stem Cells alone or in combination with neural stem cells (“NSCs”), NSCs alone and another cohort where TDP-43, a recently discovered neuromuscular protein that may underly motor neuron death, is inactivated. We intend to seek grant funding to conduct these studies. We plan to continue to supply AlloRx Stem Cells to foreign third-party clinics and medical centers for use in foreign clinical studies of ALS that are being conducted, or that will be conducted, by these clinics and medical centers at the patients’ own expense, thereby expanding the sample population to gain additional prior human experience. For additional information, see “—International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies” below.
Parkinson’s Disease
Description and Medical Need
Parkinson’s disease is a chronic, progressive neurodegenerative disorder in which dopamine-producing neurons residing in the Substantia Nigra region of the brain undergo degeneration and eventually die, resulting in progressive impairment in movement and gait and other non-motor symptoms. The cause of the disease is presently unknown. Parkinson’s disease is the second-most common neurodegenerative disorder. Most people are over the age of 50 when they are first diagnosed.
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According to the Parkinson’s Foundation, over 10 million people worldwide suffer from Parkinson’s disease, of whom about 1 million are in the United States. Treatment of Parkinson’s disease primarily comprises symptomatic treatment through dopamine replacement, either directly (Levodopa), with dopamine mimetics or by inhibition of its breakdown. These treatments focus on treating the symptoms of the disease and are not a cure for Parkinson’s disease. Parkinson’s disease is also treated by Deep Brain Stimulation (“DBS”), which consists of implanting electrodes deep into the brain to provide permanent electrical stimulation to specific areas of the brain and to cause a delay in the activity in those areas. Similar to drug therapy, DBS focuses on treating the symptoms of Parkinson’s disease and does not provide a cure.
Next Steps
There is a great unmet need for novel approaches towards the effective management and potential treatment of Parkinson’s disease and we believe AlloRx Stem Cell therapy may represent a promising approach especially when deployed by methods that could allow access of these cells to the brain. We plan to continue to supply AlloRx Stem Cells to foreign third-party clinics and medical centers for use in foreign clinical studies of Parkinson’s disease being conducted by these clinics and medical centers at the patients’ own expense, thereby expanding the sample population to gain additional prior human experience. For additional information, see “—International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies” below.
Traumatic Brain Injury
Description and Medical Need
Traumatic brain injury, or TBI, typically occurs when a sudden force impacts the head, resulting in damage and functional impairment of the brain. Injuries range in severity, from mild, characterized by a brief change in mental status or consciousness, to severe, involving an extended period of unconsciousness or amnesia. Mild TBI accounts for 70 to 80% of all reported TBIs, but the prevalence may be even higher, as many cases often do not receive medical attention. Symptoms of mild TBI may include headaches, fatigue, depression, irritability and impaired cognitive function and may persist for many years, negatively affecting quality of life. In addition, mild TBI can lead to increased risk of affective mood disorders such as major depressive disorder, post-traumatic stress disorder and other psychiatric and nonpsychiatric disorders.
In the United States, the CDC estimates 1.7 million people sustain a TBI annually. Nearly 3.2 to 5.3 million people in the United States live with TBI-related disabilities, and 15% to 30% of patients being treated for TBI continue to exhibit prolonged neurocognitive dysfunctions. To date, there are no pharmacological treatments approved for mild TBI, and there are limited assets in development. Patients with mild TBI are often told to avoid mentally strenuous activities to allow their brains to rest.
Next Steps
We believe that AlloRx Stem Cell therapy may have the potential to reduce the extent of damage caused by a TBI and promote accelerated healing of the blood-brain barrier. We plan to first perform pre-clinical studies of animal models comparing AlloRx Stem Cells to their secreted products containing exosomes and we plan to seek future grant support for these studies. We plan to supply AlloRx Stem Cells to foreign third-party clinics and medical centers for use in foreign clinical studies of TBI that are being conducted, or that will be conducted, by these clinics and medical centers at the patients’ own expense, thereby expanding the sample population to gain additional prior human experience. For additional information, see “—International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies” below.
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International Supply Arrangements for AlloRx Stem Cells; Foreign Third-Party Conducted Clinical Studies
In addition to our development programs in the United States, we supply AlloRx Stem Cells to certain foreign third-party clinics and medical centers. Internationally, AlloRx Stem Cells are being supplied for use in clinical studies in the following countries:
| ● | St. John’s, Antigua and Barbuda: The Medical Surgical Associates Center, in collaboration with The Foundation for Orthopaedics and Regenerative Medicine, is expected to conduct over 25 clinical studies for a wide variety of indications, including: stroke, Parkinson’s disease, osteoporosis, lupus, osteoarthritis, cerebral palsy, COPD/asthma, MS, autism, and diabetes. These clinical studies are currently recruiting patients for enrollment. The PI for these clinical studies, Dr. Chadwick Prodromos, owns (i) 844,800 shares of our common stock, (ii) Class A Warrants to purchase up to 15,384 shares of our common stock at an exercise price of $13.00 per share, and (iii) a Class B Warrant to purchase up to 15,384 shares of our common stock at an exercise price of $26.00 per share. | |
| ● | Cayman Islands: Ongoing clinical studies being conducted by DVC Stem for a wide variety of indications, including Crohn’s disease, osteoarthritis, meniscus tears, Alzheimer’s disease, and Parkinson’s disease. |
Eligible individuals with certain specified indications and who meet eligibility requirements may receive AlloRx Stem Cells at their own expense at these third-party clinics and medical centers and others with which we may supply AlloRx Stem Cells in the future. The primary purpose of these clinical trials is for the open-label treatment of the respective indication; accordingly, there is no randomized control group for patients treated in these foreign clinical studies. For foreign clinical studies that are conducted using AlloRx Stem Cells, the third-party clinics and medical centers are responsible for the administration of AlloRx Stem Cells to these individuals as well as their care and follow-up. They are also responsible for compliance with all applicable regulations. These third-party clinics or medical centers receive formal letters from the Ministry of Health (or other comparable agency) of these countries and/or IRB approval (or other comparable ethical review committee approval) prior to the commencement of these clinical studies.
We leverage safety, tolerability and dosing data, along with certain other anecdotal data and information, generated by these foreign clinical studies to support our internal research and development activities and for the efficient and informed internal development of our AlloRx Stem Cell therapy development programs. These clinical studies have enabled us to gain additional prior human experience using AlloRx Stem Cells, and the resulting data has enabled us to better understand the tolerability profile of AlloRx Stem Cells, as well as allowing us to cost-effectively explore where AlloRx Stem Cell therapy may have relevance and efficacy and how it may be utilized to advance treatment over current standards of care. AlloRx Stem Cells are not licensed for commercial sale in these countries and are considered an investigational therapeutic.
Participation in these foreign clinical studies has been adversely impacted by the COVID-19 pandemic, including due to travel restrictions imposed by various countries. While many of these travel restrictions have now been lifted, participation in these clinical trials remains lower than anticipated.
Material Terms of Supply Arrangements
Our supply arrangements with third-party clinics and medical centers are typically not governed by any written supply, clinical trial, or data sharing agreements. However, prior to the sale of AlloRx Stem Cells to these foreign clinics and medical centers, we require that each foreign third-party clinic and medical center first provide us with proof of review and approval or favorable opinion of an IRB or another independent ethics committee and compliance with any local government regulations. Each foreign third-party clinic must also provide us with the name of the administrator of the study and his or her qualifications to conduct the study. Finally, each foreign third-party clinic must agree to provide us with the safety, tolerability and dosing data from the use of AlloRx Stem Cells in the study, including any serious adverse events or adverse events, in compliance with HIPPA requirements. In return, we agree to supply the clinic with AlloRx Stem Cells at an agreed price per vial of AlloRx Stem Cells. We derive revenues from our sale of AlloRx Stem Cells pursuant to these supply arrangements, and these arrangements do not involve the type of collaborative arrangements in which we share the risks and rewards of any clinical trials or otherwise with these foreign third-party medical centers.
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Generally, under these supply arrangements, these foreign third-party clinics must issue purchase orders for AlloRx Stem Cells. Although these purchase orders stipulate key terms including order quantity, price, payment terms, and delivery instructions, these arrangements do not have any minimum purchase requirements. In addition, pursuant to our informal supply arrangement with DVC Stem located in the Cayman Islands, we will not supply any other third-party clinic located in the Cayman Islands with AlloRx Stem Cells for so long as DVC Stem continues to purchase AlloRx Stem Cells from us. For a discussion of certain risks related to our supply arrangements with these foreign clinics, including that a substantial portion of our sales are completed on a purchase order basis without any written supply, clinical trial or data sharing agreements, see “Risk Factors” herein.
Memorandum of Understanding with Dr. Zamora
On November 20, 2022, we entered into a Memorandum of Understanding with Dr. Zamora (the “MOU”) in order to support clinical research for AlloRx Stem Cells. Under the MOU, we agreed to provide AlloRx Stem Cells at a specified price to international clinical research facilities or other clinics with which Dr. Zamora may become affiliated, provided that certain regulatory conditions are satisfied, including proof of satisfaction of applicable United States and local legal requirements. The MOU will be effective for a period of five years, unless earlier terminated or replaced by mutual written agreement between Dr. Zamora and the Company. See “Certain Relationships and Related-Party Transactions” for additional information.
Joint Operating Agreement with European Wellness
On August 6, 2021, we entered into a Joint Operating Agreement (again, the “JOA”) with European Wellness and BioPep, its research and development subsidiary, under which we agreed to provide research and development services on identified targets. We were unable to identify a key target product to submit for FDA IND authorization using European Wellness’s existing mito-organelle peptides as the starting biological material as contemplated by the JOA. As a result, on April 28, 2022, we entered into an amendment (the “Amendment”) to the JOA (as amended, the “European Wellness Agreement”). As further described below, the European Wellness Agreement expired in accordance with its terms on July 31, 2023.
Pursuant to the European Wellness Agreement, we were obligated to use our best efforts to identify a key investigational product candidate, using AlloEx Exosomes as the starting biological material, that could be submitted by European Wellness for FDA IND authorization. AlloEx Exosomes, and any investigational product candidate identified and developed under the agreement with European Wellness, are or will be regulated by the FDA as a biological product. We were in the early stage of identification and potential development of any key investigational product candidate, and had been working with third-party service providers to support this process, which require substantial time, resources and regulatory approval prior to potential commercialization in the United States.
The European Wellness Agreement also required us to use our best efforts, in collaboration with a third-party service provider to be identified by us, to develop an FDA-validated immunoassay and potency assay of any target product. It was contemplated that any pre-clinical studies would be carried out by a third-party service provider, with our support and oversight. In addition, we agreed to manage the production of any target research products and to quantify biological activity for preclinical and clinical testing to support an FDA IND filing, all of which would be carried out by third-party service providers identified by us, at third-party manufacturing facilities.
We were additionally required, pursuant to the European Wellness Agreement, to oversee the development by a third-party service provider of a recombinant cell line, to be delivered to European Wellness, for certain manufacturing.
With the ultimate goal of supporting BioPep in becoming a cGMP manufacturer in the US, we were also obligated to help develop a biomanufacturing infrastructure to support BLA-compliant operations and to develop a certified Quality Management System for BioPep to support FDA approval of target products. For any INDs to be submitted by us or European Wellness covering products developed under the European Wellness Agreement, we were obligated to provide the “Chemistry, Manufacturing, and Controls” section in support of the full IND application.
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The Amendment further contemplated the potential identification and development of a veterinary product by a third-party using rabbit-sourced umbilical-cord derived MSCs. It was contemplated that development of this veterinary product in collaboration with European Wellness would begin once the key investigational product using AlloEx Exosomes was completed. We and European Wellness were obligated to use our best efforts to negotiate the terms of this arrangement at such time.
Had any products developed pursuant to the European Wellness Agreement been ultimately approved for commercialization, the European Wellness Agreement contemplated that such products would be commercialized and distributed by European Wellness and/or BioPep. However, the European Wellness Agreement also contemplated that certain post-development rights and obligations of us and European Wellness, such as potential licensing rights to us and shared ownership over intellectual property developed pursuant to the agreement, would be negotiated with European Wellness at a later date. The European Wellness Agreement further contemplated that the parties could enter into negotiations to potentially engage Vitro as a CMO to carry out product manufacturing on behalf of European Wellness and BioPep. The European Wellness Agreement did not provide us any licensing rights, royalty rights or ownership over the products developed.
In April 2023, we commenced discussions with European Wellness regarding amounts believed to be owed to us under the Joint Operating Agreement for work already completed and suspended delivering any of our work product to European Wellness. Our agreement with them expired in accordance with its terms on July 31, 2023 and it is not expected to be renewed. Although we intend to continue to seek to recover all amounts believed to be owed to us under that agreement for work completed, we may not be able to collect all of the amounts believed to be owed to us through the date of termination or the other amounts originally expected to be received by us under the agreement for completion of all services thereunder as originally contemplated. See “Risk Factors” herein for additional information.
Upon signing the Joint Operating Agreement in August 2021, European Wellness paid us an initial fee of $500,000, which was recognized as revenue during the first quarter of 2022 when the associated performance milestones had been achieved. In connection with the Amendment, European Wellness also paid us an additional lump-sum non-refundable payment of $250,000 in May 2022, which had been recorded as deferred revenue and, upon the expiration of the European Wellness Agreement on July 31, 2023, was recognized as other project income, offset by $58,254 in project related expenses. In accordance with ASC 606, the Company determined that it did not satisfy the performance obligations at a point in time (ASC paragraph 606-10-25-30) and did not recognize the aforementioned amount as revenue. We also received quarterly payments of $25,000 for providing research and development management services.
Manufacturing
The manufacture and delivery of cell therapy products to patients involves complex, integrated processes. Commercial success in this area requires manufacturing processes that are reliable, scalable, and economical. We have and will continue to devote significant resources to process development and manufacturing scale-up to optimize process robustness and success rates in developing AlloRx Stem Cells, AlloRx Stem Cell therapy, AlloEx Exosomes and other potential product candidates, as well as to reduce per-unit manufacturing costs and enable us to quickly achieve regional and global scale production upon regulatory approval for AlloRx Stem Cell therapy or any additional product candidates.
We currently operate a manufacturing facility in Golden, Colorado that is cGMP compliant, with a QMS that is globally recognized as ISO 9001:2015 and ISO 13485:2016 certified. We manufacture AlloRx Stem Cells and certain other of our products and technologies, including CAFs, at this manufacturing facility. In addition, we are also planning to lease a separate cGMP manufacturing facility that, if completed, will be used exclusively for the manufacture of AlloRx Stem Cells. We intend to use our existing cash and any additional funds received upon the exercise for cash of our outstanding warrants, if and when exercised at the election of the warrant holders, to fund the acquisition of fully automated closed system bioprocessing and other equipment needed for the development of a new cGMP compliant manufacturing facility which we expect to lease. We believe that this separate facility will be necessary to comply with all FDA requirements to support a BLA for the manufacture of AlloRx Stem Cell therapy, given that it is a product intended for parenteral use in humans. We expect to commence development of the new cGMP biomanufacturing facility once we have the necessary capital resources. We plan to use highly scalable, fully automated closed system bioprocessing in the new cGMP biomanufacturing facility.
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AlloRx Stem Cells and AlloRx Stem Cell therapy
The sourcing and manufacturing of AlloRx Stem Cells are designed to capitalize on the potential biological advantages of MSCs sourced from umbilical cords. We currently have the capacity to manufacture over 300 AlloRx Stem Cell therapy treatments per month. We believe that the use of fully automated closed system bioprocessing in a new cGMP biomanufacturing facility would allow us to fully capitalize on the potential biological advantages of UC-derived MSCs. Leveraging the potential biological advantages of UC-derived MSCs and the increased technological and manufacturing capabilities in a new cGMP biomanufacturing facility, we believe that the number of AlloRx Stem Cell therapy treatments that we may be able to manufacture from just one umbilical cord may increase exponentially from current levels.
The manufacturing facility that we lease went online in 2007 and consists of 2000 square feet of R&D space, with approximately 250 square feet of cleanroom and 1000 square feet of warehouse and Quality Control space. The cleanroom area is used exclusively for processing of human cellular and tissue products for use in clinical trials, research and development, and sale to third parties as discussed above.
During our proprietary manufacturing process, we utilize our proprietary specialty culture media, MSC-Gro, to support the growth and expansion of MSCs from umbilical cords to create AlloRx Stem Cells. We believe that MSC-Gro provides us with additional significant competitive advantages given its potential ability to produce more MSCs with potentially increased potency and viability as compared to MSCs prepared through SVF. In an in vitro study comparing SVF and expanded MSCs using MSC-Gro, we observed that MSCs expanded using MSC-Gro had (i) increased γ-IFN-induced IDO activity, suggesting greater immunomodulatory potency, (ii) increased cellular ATP-content, suggesting the potential for increased mitochondrial functionality, and (iii) greater cell counts and viability, as compared to SVF-prepared MSCs.
After expansion using MSC-Gro, AlloRx Stem Cells are then formulated, packaged and stored frozen (cryopreserved) until shortly before use. Our manufacturing process for AlloRx Stem Cell therapy has been reviewed and authorized by the FDA under CMC as part of our IND applications.
All umbilical cords are donated by healthy adult females following childbirth and are received directly from tissue banks registered with the AATB. Prior to accepting donated umbilical cords, strict screening of the donor’s medical and social history is evaluated. The donor also consents with the AATB accredited facility, and serology and virology are performed prior to processing. Throughout the production process, the cells are analyzed according to pre-established criteria to ensure that a consistent, well-characterized product candidate is produced. Due to the significant number of AlloRx Stem Cell therapy treatments that can be manufactured from just one umbilical cord, we currently believe that we have an adequate number of umbilical cords on hand to meet our current and anticipated manufacturing needs. We anticipate obtaining any additional umbilical cords that may be needed from tissue banks registered with the AATB. Because umbilical cords are sourced from medical waste that is discarded after childbirth, we believe that there is an adequate supply of umbilical cords that can be sourced from these registered tissue banks on an as needed basis. If these registered tissue banks were to no longer provide umbilical cords to us, alternate suppliers would be needed; otherwise, this could impact our ability to produce AlloRx Stem Cells in the future. Our cell banks used in production of AlloRx Stem Cells also undergo substantial safety testing, including in-vitro cell-based assay tests, in-vivo testing in animal models as well as extensive viral pathogen and bacterial assays to assure absence of adventitious agents according to FDA guidelines.
InfiniVive MD Cosmetic and Exosomes Serums
At the manufacturing facility that we lease in Golden, Colorado, we manufacture all our products sold through InfiniVive MD, including InfiniVive MD’s Exosome Serum and InfiniVive MD’s Daily Serum.
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Fitore Dietary Supplements and Nutraceuticals
We are currently selling Fitore products solely from remaining inventory and do not anticipate manufacturing any additional products in the foreseeable future or at all. For a discussion of certain risk relating to the manufacture of dietary supplements, nutraceuticals and other health products, see “Risk Factors— Risks Related to the Dietary and Nutritional Supplements Industry and Fitore Products.”
Commercialization
We currently have limited sales, marketing and product distribution infrastructure relating to sales of our MSC-Gro and other stem cell products, InfiniVive MD cosmetic treatments, and Fitore dietary supplements and nutraceuticals. In order to commercialize any of our biologic or drug product candidates, including AlloRx Stem Cell therapy, if approved by FDA for commercial sale, we will need to develop a more robust sales and marketing organization with technical expertise and supporting distribution capabilities for the biologic or drug product candidates or collaborate with third parties that have sales and marketing experience.
As we move AlloRx Stem Cell therapy or any additional product candidates through development toward regulatory approval, we will evaluate several options for each product candidate’s commercialization strategy. These options include further building an internal sales force, entering into a joint marketing collaboration with another pharmaceutical or biotechnology company, or out-licensing any future approved product to another pharmaceutical or biotechnology company.
Competition
We compete in an industry characterized by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property protection and regulatory exclusivities. The field of regenerative medicine, which includes gene therapies, cell therapies (such as AlloRx Stem Cell therapy), and tissue-engineered products, is broadly defined as “products intended to repair, replace or regenerate organs, tissues, cells, genes, and metabolic processes in the body,” per the Alliance for Regenerative Medicine, an international advocacy organization. Regenerative medicine companies number over 1,000 worldwide as of the first half of 2020.
In many of the indications in our development programs, we face competition from both cellular therapy companies, and pharmaceutical/biotechnology companies. The following table is a general list of cellular therapy companies that we believe could be considered our primary competition on the basis that these companies are developers of living cell-based therapies, albeit for different indications in some cases.
| Name | Corporate Headquarters | Clinical stage pipeline indication(s) | ||
| Athersys, Inc. | U.S. | Ischemic stroke; ARDS; GvHD; Acute Myocardial Infarction | ||
| BrainStorm Cell Therapeutics | U.S. | ALS; MS | ||
| Celularity Inc. | U.S. | AML; GBM | ||
| Corestem | South Korea | ALS (Commercial in South Korea); Lupus (SLE) | ||
| Coya Therapeutics, Inc. | U.S. | ALS | ||
| Fate Therapeutics, Inc. | U.S. | AML; BCL | ||
| Healios K.K. | Japan | Ischemic stroke; ARDS | ||
| Longeveron Inc. | U.S. | AD; Metabolic Syndrome; ARDS; Aging frailty | ||
| Medipost | South Korea | Osteoarthritis (commercial); BPD; AD | ||
| Mesoblast Ltd. | Australia | Heart failure, low back pain, GvHD; ARDS; Crohn’s disease | ||
| Pluristem Therapeutics, Inc. | Israel | CLI; ARDS; ARS; GvHD | ||
| SanBio Co., Ltd. | Japan | Ischemic stroke; Traumatic brain injury | ||
| Stemedica Cell Technologies | U.S. | Ischemic stroke; heart failure; AD |
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ARDS = Acute Respiratory Distress Syndrome; GvHD = Graft versus host disease; ALS = Amyotrophic lateral sclerosis; MS = Multiple sclerosis; BPD = Bronchopulmonary dysplasia; CLI = Critical limb ischemia; CMD = coronary microvascular disease; ARS = Acute radiation syndrome; AML = Acute Myeloid Leukemia; GBM = Glioblastoma multiforme; BCL = B-cell lymphoma.
Many of our potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development, and commercialization of products that may be competitive with ours.
Competition in Long COVID
Currently, there are no FDA-approved treatments for Long COVID. Several companies currently have ongoing Long COVID development programs or may be in active discussions to expand their current development programs to the potential treatment of Long COVID, including:
| ● | Axcella Health Inc., headquartered in the United States. | |
| ● | GlaxoSmithKline plc, headquartered in England. | |
| ● | Tonix Pharmaceuticals Holding Corp., headquartered in the United States. | |
| ● | Vir Biotechnology, Inc., headquartered in the United States. |
Competition in Pitt-Hopkins Syndrome
Currently, there are no FDA-approved treatments for PTHS. Several companies currently have ongoing PTHS development programs, including:
| ● | Neuren Pharmaceuticals Ltd., headquartered in Australia, received FDA approval in March 2022 to conduct a Phase 2 trial of its product candidate in PTHS. |
Intellectual Property
Generation and protection of intellectual property, including patents, trade secrets, trademarks, proprietary technology, proprietary manufacturing techniques, and know-how, is of critical importance in our field and in biotechnology generally. We rely on a combination of trade secrets, patent filings and other intellectual property protections in an effort to protect our product candidates as well as related methods of use. We will be able to protect our product candidates and methods of use from unauthorized use by third parties only to the extent that our technology is effectively and diligently maintained as trade secrets or where applicable, covered by valid and enforceable patents. Our commercial success may also depend on whether we can defend our patents against third-party challenges and on operating without infringing on the intellectual property rights of others.
We have filed patent applications related to stem cell-based compositions and therapeutic uses. The patent applications are directed to compositions and therapeutic uses of allogeneic MSCs to (a) treat Long COVID; (b) treat PTHS having multiple complications; (c) treat MS; (d) treat ALS; (e) treat lupus; as well as other inflammatory and autoimmune conditions; and (f) for use in combination therapies for treatment of various conditions. Claims in the patent applications, if allowed, could protect aspects of our product-related compositions as well as the use of our product-related compositions. Our pending patent applications include a provisional application. Provisional applications are converted to non-provisional and/or foreign applications to pursue patent protection in conversion applications but these conversion applications may not result in a patent. Further, if patents do issue, these patents may not provide exclusivity for our products and methods of use.
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We have no U.S. patents and have a single patent registered in the Bahamas. We currently have eight pending applications. The eight pending patent applications include one provisional application, three U.S. non-provisional applications, one foreign application, and four international applications (a PCT which serves as a placeholder for many foreign countries that are members).
We expect to file additional patent applications in support of our currently targeted indications, as well as potentially new processes and manufacturing-related inventions. These expected additional patent applications may be related to existing patent applications or may create new patent families.
Patent searches have been performed and we are aware of U.S. and foreign patents held by third parties that cover similar or related compositions and therapeutic treatment regimens that we are claiming in our patent applications. We are also aware of clinical trials in progress or completed covering similar or related compositions and therapeutic treatment regimens as the ones we are seeking.
Successful enforcement of any patent is not guaranteed. In addition, biotechnology patents are subject to additional uncertainty and enforcement involves complex legal and factual questions. Further, patents may not preclude third party companies or entities from developing similar or therapeutically equivalent MSC products and uses that do not infringe our patents. In addition, changes in patent laws, rules, or regulations or in their interpretations by the courts may materially diminish the value of our intellectual property or narrow the scope of our patent protection, which could have a material adverse effect on our business and financial condition.
Company Intellectual Property Related to Patent Filings
Stem Cell Line for Treatment of Various Medical Conditions. The pending claims in this patent application family are currently directed to compositions of MSC cells and therapeutic uses. Indications to be treated disclosed in this application include, but are not limited to, MS, autism spectrum disorders, memory loss, impaired cognitive function, traumatic brain injury (TBI), Lupus (SLE), ALS, GvHD, diabetes, and other disorders characterized by inflammation. In this patent family, we own one registered patent in the Bahamas, one pending U.S. patent application filed as a continuation and one pending application in Great Britain. If issued and maintained, patents arising from these applications are projected to expire in 2037.
Immune Modulation by MSCs. Claims in this family of patent applications are directed to treating side effects of subject having ARDS-related symptoms due to infective agents such as pneumonia related to COVID-19 infections. This patent application family has one pending U.S. patent application and one international placeholder application (PCT). If issued and maintained, patents arising from these applications are projected to expire in 2042.
Treatment of Medical Conditions by Stem Cell Transplants and Stem Cell Activation. Claims in this family of patent applications are directed to our technology for treatment of a variety of medical conditions using MSCs such as our AlloRx Stem Cells® with distinctions from native umbilical cord MSCs. This patent family has one pending U.S. patent application and one international placeholder application (PCT). If issued and maintained, patents arising from these applications are projected to expire in 2042.
Treatment of Pitt Hopkins Disease using Pre-treated Human MSCs. Claims in this patent family relate to treating PTHS and related side effects. This patent family has one pending international placeholder application (PCT). If a patent is issued and maintained from this PCT application, patents arising from this application are projected to expire in 2043.
Treatment of Post-Acute Sequalae of SARs-CoV-2 Infection (Long COVID) using Pre-treated Human MSCs. Claims in this patent family relate to treating side effects of Long COVID. This patent family has one pending international placeholder application (PCT). If a patent is issued and maintained from this PCT application, patents arising from this application are projected to expire in 2043.
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Trade Secrets
We also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information with respect to our employees and collaborators by obtaining executed agreements requiring protection of our trade secrets and assignment of patents to us.
We have a proprietary process for producing MSCs that is believed to reliably produce more MSC product than other known processes in a shorter period. This process is not patented and is protected by trade secret. Trade Secrets are only beneficial as long as the trade secret can be protected, which in turn requires certain internal record keeping and security measures. Further, third parties are not precluded from practicing such trade secret methods developed on their own because there is no right to prevent others from this innovation. Our MSCs are cultured using our state-of-the-art scalable process for manufacturing in high volume quality allogeneic MSCs referred to as our proprietary AlloRx Stem Cells®. Our technology can generate enough cells of use for multiple therapeutic treatments giving this process significant economies of scale and cost advantage. These current processes of manufacture and scale-up are protected by trade secrets.
Using our MSC technology, we have developed and own a commercially-available media for growing and expanding cells such as stem cells referred to as MSC-Gro. This stem cell growth media is protected by trade secret. It is possible that a competitor will create a comparable or the same cell growth media as MSC-Gro and/or independently discover our proprietary MSC expansion techniques for our AlloRx Stem Cells® and this could adversely affect our company.
Trade secrets are difficult to protect and enforce and therefore provide us with only limited protection. Trade secrets must be protected within the company and those employees and former employees of our company with knowledge of our trade secrets must not share with a third party while employees of the company and any time thereafter. It is difficult to ensure that our trade secrets will be kept secret and not shared with a third party, for example, a third-party competitor. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors—Risks Related to Intellectual Property.”
Trademarks
We also have applied for and been awarded certain trademarks. These trademarks include MSC-Gro™, AlloRx Stem Cells®, AlloEX Exosomes®, STEMulize®, now marketed as Stemulife™, Science for Life® and “Vitro Biopharma.” We intend to maintain and protect our trademarks from unauthorized use.
Government Regulation and Biologic Drug Approval
Government authorities in the United States, at the federal, state and local level, and other countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, recordkeeping, promotion, advertising, distribution, marketing and export and import of products such as those we are selling and developing. Because we are developing novel cell therapy product candidates that are unique biological entities, the regulatory requirements that we will be subject to are not entirely clear and may change. Even with respect to more established products that fit into the categories of gene therapies or cell therapies, the regulatory landscape is still developing. Regulatory requirements governing gene therapy products and cell therapy products have changed frequently and will likely continue to change in the future. We believe that the FDA will regulate AlloRx Stem Cell therapy as a biologic drug (i.e., a biologic) through the BLA process under the jurisdiction of the Office of Tissues and Advanced Therapies within the Center for Biologics Evaluation and Research (“CBER”). The Office of Tissues and Advanced Therapies was established to consolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapy Advisory Committee to advise CBER on its review. We will work with FDA to confirm that a BLA is the most appropriate pathway and that CBER will be the FDA center responsible for review and licensure (i.e., approval). For future product candidates, we will also confirm the appropriate approval pathway (i.e., BLA or new drug application (“NDA”)) and the appropriate FDA center with regulatory oversight (i.e., CBER or CDER).
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U.S. Biologic Drug Development Process
In the United States, biologic drugs (“biologics”) are regulated under two statutes: The Public Health Service Act (“PHS Act”) and the Federal Food, Drug, and Cosmetic Act (“FFDCA”) and their implementing regulations. However, submission and approval of only one application—typically either a BLA or an NDA—is required prior to marketing. The FDA has also issued numerous “Guidance Documents” and other materials that address specific aspects of biologic development for particular types of product candidates (e.g., cells, tissues, gene therapies, or vaccines). Substantial time and financial resources are required to obtain regulatory approvals and subsequently comply with appropriate federal, state, and local statutes and regulations. Failure to comply with the applicable U.S. requirements at any time during the biologic development, approval, or post-approval processes may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, imposition of a clinical hold on ongoing clinical trials, issuance of warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
The process required by the FDA before a biologic may be marketed in the United States generally involves the following steps:
| ● | completion of preclinical laboratory tests, animal studies and formulation studies in accordance with FDA’s current good laboratory practice requirements and other applicable regulations; | |
| ● | submission to the FDA of an IND, which must become effective before human clinical trials may begin; | |
| ● | approval by an independent IRB at each clinical site (or by one “commercial IRB”) before each trial may be initiated; |
| ● | performance of adequate and well-controlled human clinical trials in accordance with cGCP requirements to establish the safety, purity, and potency (i.e., efficacy) of the proposed biologic for its intended use; | |
| ● | submission to the FDA of a BLA after completion of all clinical trials; | |
| ● | satisfactory outcome of an FDA advisory committee review, if applicable; | |
| ● | satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the biologic is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the biologic’s identity, strength, quality and purity, and FDA inspection of selected clinical investigation sites to assess compliance with cGCPs; and | |
| ● | FDA review and approval of the BLA to permit commercial marketing of the product for particular indications for use in the United States. |
The specific preclinical studies and clinical testing that is required for a BLA varies widely depending upon the specific type of product candidate under development. Prior to beginning a human clinical trial with either a biologic or drug product candidate in the United States, we must submit an IND to the FDA and that IND must become effective. The focus of an IND submission is the general investigational plan and protocol for the proposed clinical study. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; CMC information; and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold, and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical hold is lifted and the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
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Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with cGCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters for monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development. Other submissions to an IND include protocol amendments, information amendments, IND safety reports and annual reports. Furthermore, an independent IRB for each clinical trial site (or a “commercial IRB” that acts as the IRB at one or more of the clinical trial sites) must review and approve the protocol and informed consent form before the clinical trial may begin. The IRB also monitors the clinical trial until completed.
Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some clinical trials also include oversight by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board (“DSMB”). A DSMB authorizes whether or not a study may move forward at designated check points based on access to certain data from the trial. The DSMB may halt the clinical trial if it determines there is an unacceptable safety risk for subjects or on other grounds, such as no demonstration of efficacy. Related reporting requirements for the sponsor, clinical investigator, and/or IRB also include IND safety reports and updating clinical trial results in public registries (e.g., ClinicalTrials.gov).
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
| ● | Phase 1: The product candidate is initially introduced into healthy human subjects. These clinical trials are designed to test the safety, dosage tolerance, absorption, metabolism, distribution, excretion, side effects, and, if possible, early evidence of effectiveness. In the case of some products for severe or life-threatening diseases when the product may be too inherently toxic to ethically administer it to healthy volunteers, the initial human testing is often conducted in individuals who have the targeted disease or condition instead of healthy subjects. | |
| ● | Phase 2: The product candidate is administered to a limited population of individuals who have the specified disease or condition to continue to evaluate safety, as well as preliminary efficacy, optimal dosages and dosing schedule, possible adverse side effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 (i.e., pivotal) clinical trials. | |
| ● | Phase 3: Generally, the largest in size, Phase 3 clinical trials are generally conducted at multiple geographically dispersed clinical trial sites. The product candidate is administered to an expanded population of individuals who have the specified disease or condition to further evaluate dosage, provide statistically significant evidence of clinical efficacy and gain additional safety data. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval. |
Concurrent with clinical trials, sponsors usually complete additional animal studies. Sponsors must also develop information about the chemical and physical characteristics of the biologic and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate, and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final biologic. In addition, the sponsor must develop and test appropriate packaging, and must conduct stability studies to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life. Before approval of a BLA, FDA evaluates the establishment by an on-site inspection to ensure the facilities and controls used for the manufacture, processing, packaging, and testing of the drug are adequate to ensure and preserve its identity, strength, quality, and purity.
During the development of a new biologic, sponsors are given opportunities to meet with the FDA. These meetings typically occur before the submission of an IND (i.e., pre-IND meeting), at the end of Phase 2 (i.e., EOP2 meeting), and before a BLA is submitted (i.e., pre-BLA meeting). Meetings at other times may be requested. These meetings provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use EOP2 meetings to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will support approval of the new biologic.
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U.S. Review and Approval Process for Biologic Drugs
Assuming successful completion of all required testing in accordance with the applicable statutory and regulatory requirements, the sponsor submits a BLA to the FDA. A BLA contains the results of product development, preclinical and other non-clinical studies and clinical trials, descriptions of the manufacturing process, analytical testing, proposed labeling and other relevant information. The submission of a BLA is subject to the payment of a substantial application fee under the Prescription Drug User Fee Amendments (“PDUFA”). PDUFA fees apply to both drugs and biologics. Sponsors may seek a waiver of these fees in certain limited circumstances, including a waiver of the application fee for the first BLA or NDA submitted by a small business. Product candidates with an ODD are not subject to the BLA application fee unless the product application also includes a non-orphan indication.
The FDA reviews a BLA to determine, among other things, whether a biologic is safe, pure, and potent (i.e., effective) for its intended use and whether its manufacturing is GMP-compliant to assure the product’s identity, strength, quality and purity. Under PDUFA, the FDA has a goal date of ten months from the date of “filing” to review and act on the submission. However, the time between submission and filing can add an additional two months as FDA conducts a preliminary review to ensure that the BLA is sufficiently complete to permit substantive review. Formal FDA review of the BLA does not begin until FDA has accepted it for filing. The FDA may refer an application in some cases to an advisory committee for its independent review. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation to FDA as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving a BLA, the FDA will typically inspect the locations where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with GMPs, and are adequate to assure consistent production of the product within required specifications. An important part of a BLA is a lot release protocol that the sponsor will use to test each lot of product made after BLA approval, as well as the FDA’s own test plan that will be used for confirmatory testing of each post-approval product lot that is made before it is released to the public. If the FDA determines that the data and information in the application, including about the manufacturing process or manufacturing facilities, are not acceptable, then the FDA will outline the deficiencies and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
After the FDA evaluates a BLA, it will either issue an approval letter or a Complete Response Letter (“CRL”). The approval letter authorizes commercial marketing of the biologic with approved prescribing information for specific approved indications. On the other hand, a CRL indicates that the review cycle of the application is complete but the BLA cannot be approved in its present form. A CRL usually describes the specific deficiencies identified by the FDA and describes the actions the sponsor must take to correct those deficiencies. A sponsor that receives a CRL must resubmit the BLA after addressing the deficiencies or withdraw the application. Even if such additional data and information are submitted to address the deficiencies, the FDA may decide that the data and information in the resubmitted BLA do not satisfy the approval criteria.
Following marketing approval, a sponsor may need to fulfill certain post-marketing requirements (“PMRs”) or post-marketing commitments (“PMCs”). For example, post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients for the intended therapeutic indication. The trials may be agreed upon prior to approval, or the FDA may require them if new safety issues emerge. Following approval, a sponsor may also need to conduct a pediatric study that was temporarily deferred during the initial product development process. Under the Pediatric Research Equity Act (“PREA”), a sponsor must conduct pediatric clinical trials for most new drugs or biologics, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. PREA studies must be included in the application unless the sponsor has received a deferral or waiver.
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A risk evaluation and mitigation strategy (“REMS”) may also be an important component of a BLA approval that requires sponsor post-marketing regulatory efforts. A REMS is a safety strategy to manage a known or potential serious risk associated with a drug or biologic and to enable patients to have continued access to such medicines by managing their safe use. A REMS may include medication guides, physician communication plans, or elements to assure safe use (ETASU) such as restricted distribution methods, patient registries, and other risk minimization tools.
Once approved, the FDA may withdraw the product approval if compliance with PMRs, PMCs, or a REMS program is not maintained or if problems occur after the product reaches the marketplace. The FDA may also request that a product be recalled for an identified safety issue. In addition, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could impact the timeline for regulatory approval or otherwise impact ongoing development programs.
FDA Expedited Review Programs for Serious Conditions
Under various statutory and regulatory authorities, the FDA has authority to review and approve certain drugs and biologic drugs on an expedited basis if they are intended to treat a serious condition and meet other requirements. These expedited programs are discussed below.
RMAT Designation
In 2017, the FDA established a new designation, known as the regenerative medicine advanced therapy (again, “RMAT”) designation, as part of its implementation of the 21st Century Cures Act. If they meet the appropriate criteria, regenerative medicine therapies to treat, modify, reverse, or cure serious conditions may be eligible for RMAT designation as well as FDA’s other expedited programs (i.e., fast track, breakthrough therapy, or priority review designations or accelerated approval). As with other biological products, regenerative medicine therapies receiving RMAT designation must meet the same standards for approval, including demonstrating the product’s safety and effectiveness. As described in Section 3033 of the 21st Century Cures Act, an investigational product is eligible for RMAT designation if:
| ● | It is a regenerative medicine therapy, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products (except for those regulated solely under Section 361 of the PHS Act and 21 C.F.R. Part 1271); |
| ● | It is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and | |
| ● | Preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition. |
Advantages of the RMAT designation include all the benefits of the fast track and breakthrough designations, including early interactions with the FDA to discuss the use of any potential surrogate or intermediate endpoints to support an accelerated approval. However, unlike a breakthrough designation, the RMAT designation does not require evidence to indicate that the drug may offer a substantial improvement over available therapies. A request for an RMAT designation can be included in a new IND, or submitted as an amendment to an existing IND. As with other expedited programs, the FDA can withdraw an RMAT designation that has been granted if the designation criteria are no longer met.
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Accelerated Approval
In addition, a product may be eligible for accelerated approval. Drug products intended to treat serious or life-threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, the FDA currently requires pre-approval of promotional materials as a condition for accelerated approval, which could adversely impact the timing of the commercial launch of the product.
Fast-Track Designation
The fast-track designation is intended to expedite or facilitate the process for reviewing new drug and biologic drug products that meet certain criteria. Specifically, products are eligible for this designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. With regard to a fast-track product, the FDA may review sections of the marketing applications on a rolling basis before the complete application is submitted if the sponsor provides a schedule for the submission of the application sections, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section.
Priority Review Designation
A product is eligible for priority review designation if it has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a priority review-designated product in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to the standard ten months for review.
Breakthrough Therapy Designation
The Food and Drug Administration Safety and Innovation Act established a category of products referred to as “breakthrough therapies” that may be eligible to receive breakthrough therapy designation. A sponsor may seek FDA designation of a product candidate as a “breakthrough therapy” if the product is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the features of a fast-track designation, as well as more intensive FDA interaction and guidance. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review designation, which can also be granted to the same drug if relevant criteria are met. If a product is designated as breakthrough therapy, the FDA will work to expedite the development and review of that product.
A drug or biologic drug that is subject to one or more of these expedited programs may be reviewed and approved more quickly than other non-expedited program products; however, the standard for approval (i.e., safety and effectiveness) does not change. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that it no longer meets the conditions of the expedited program and the expedited program status may be removed. We may explore one or more of these opportunities for our product candidates as appropriate.
Marketing Exclusivity
In the case of biologic drugs, several types of marketing exclusivity may apply:
| ● | Reference product exclusivity; | |
| ● | ODD and orphan drug exclusivity; and | |
| ● | Pediatric exclusivity. |
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Reference Product Exclusivity
We believe that FDA will regulate AlloRx Stem Cell therapy as a new biologic and require submission and approval of a BLA under the PHS Act. The PHS Act includes a framework for determining when a biologic is a “reference product” and therefore eligible for marketing exclusivity. The reference product is the single biologic against which a biosimilar (a product that is highly similar to and has no clinically meaningful differences from the reference product) or an interchangeable biosimilar (a product that is both biosimilar to, and will produce the same clinical result as, the reference product) is evaluated.
FDA must determine the date of “first licensure” (i.e., approval) of a biologic which will, in turn, determine whether that biologic qualifies as a reference product that will be eligible for statutory exclusivity (and when such exclusivity will expire). Typically (but not always) the date of approval is the date of first licensure. Once that date of first licensure is determined for a reference product, then FDA will not approve a biosimilar or interchangeable biosimilar until the date that is 12 years after the date on which the reference product was first approved. However, FDA may receive an application for a biosimilar or interchangeable biosimilar four years after the date on which the reference product was first approved. These 12- and four-year terms are each extended by six months if the product has been awarded six-month pediatric exclusivity.
Legal uncertainties remain about FDA’s application of the date of first licensure and statutory exclusivity provisions to cell therapy products. At the appropriate time, we intend to provide information to FDA so that FDA can determine the date of first licensure of AlloRx Stem Cell therapy (or any other product candidate that will be regulated as a biologic) which will, in turn, set the date from which statutory exclusivity will begin to run. However, FDA may not make an immediate decision about the date of first licensure at the time it approves a new biologic. Furthermore, there is currently no precedent showing how FDA will apply this statutory framework to a cell therapy product. The law in this area is evolving and will likely continue to evolve.
Orphan Drug Designation and Exclusivity
To encourage the pharmaceutical and biotechnology industries to develop drugs and biologics to treat diseases or conditions that affect relatively few patients in the U.S., Congress enacted the Orphan Drug Act in 1983. As amended, under this act the FDA may grant an ODD for a drug or biologic drug being developed to treat a “rare disease or condition,” defined as affecting less than 200,000 persons in the U.S., or affecting more than 200,000 persons in the U.S. but for which there is no reasonable expectation that development costs will be recovered from U.S. sales of the product. A request for ODD must be submitted to the FDA before a marketing application is submitted (i.e., BLA or NDA), but there is no assurance that FDA will award an ODD if requested. If awarded, information about the ODD will be made public on FDA’s website.
An ODD does not change the regulatory review standards of safety and effectiveness and does not shorten the length of the FDA review or approval process. However, there are a number of potential benefits if a drug or biologic with an ODD is eventually approved. If an investigational product with an ODD subsequently receives the first FDA approval for the disease or condition for which it has such designation, then the approved product is entitled to orphan drug exclusivity (again, “ODE”). Having ODE means that the FDA may not approve any other applications to market the same drug or biologic for the same use or indication for seven years, except in limited circumstances (including but not limited to demonstrating clinical superiority of a new product vs. the product with ODE because of greater safety, greater effectiveness, or making a major contribution to patient care; or an FDA finding that the sponsor of the product with ODE cannot assure that sufficient quantities of the product will be available for patients). Even if an investigational product has an ODD, there is no guarantee that FDA will award ODE upon approval.
Competitors may receive approval of either a different product for the same use or indication, or the same product for a different use or indication. Approved drugs and biologics can also be used by physicians off-label, which is within the scope of their practice of medicine. Accordingly, receiving ODE is not an absolute protection against potentially competing products. Moreover, an ODE awarded to another sponsor could block FDA approval of one of our product candidates for seven years. The law involving ODDs and ODEs, including FDA’s interpretation of “same drug,” is continuing to evolve through litigation, as well as changes to FDA regulations and policies.
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In addition to the potential award of seven-year ODE upon product approval, the benefits of an ODD also include eligibility for certain research tax credits and a waiver of the marketing application fee. An application for a prescription product with an ODD is not subject to an application fee unless the application also includes an indication for a non-rare disease or condition as well. For fiscal year 2021, the application fee for a new drug or biologic requiring clinical studies was $2,875,842.
Pediatric Exclusivity
Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity (e.g., ODE) if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials.
Post-Approval Requirements
Any products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual program fees for any marketed products. Drug and biologic drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which therefore imposes certain procedural and documentation requirements on us and our third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
| ● | restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; | |
| ● | fines, warning letters, or untitled letters; | |
| ● | clinical holds on clinical studies; | |
| ● | refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product approvals; | |
| ● | product seizure or detention, or refusal to permit the import or export of products; | |
| ● | consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; |
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| ● | mandated modification of promotional materials and labeling and the issuance of corrective information; | |
| ● | the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or | |
| ● | injunctions or the imposition of civil or criminal penalties. |
The FDA closely regulates the marketing, labeling, advertising and promotion of approved products. A company can make only those claims that were approved by the FDA in the application for marketing approval and in accordance with the provisions of the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe, in their independent professional medical judgment, legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of approved treatments, as the practice of medicine is outside the scope of FDA’s authority. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined companies from engaging in off-label promotion. The FDA and other regulatory agencies have also required that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA-approved labeling.
U.S. Regulation of Wellness Products
Products that promote health and wellness, including cosmetics, dietary supplements, and other personal care products, are regulated by various federal, state, and local agencies, including but not limited to the following: (i) the FDA; (ii) the Federal Trade Commission (FTC); and (iii) various state regulatory bodies. Similar to biologic drug products, the FDA in the course of enforcing the FFDCA may subject a company to various sanctions for violating FDA regulations or provisions of the FFDCA, including requiring or requesting recalls, issuing warning letters, seeking to impose civil money penalties, and seizing products that the agency believes are non-compliant. The FTC, in addition to FDA, regulates the advertising of dietary supplements, cosmetics, and other health-related products to ensure that any advertising is truthful and not misleading, and that an advertiser maintains adequate substantiation for all product claims. FTC enforcement actions may result in consent decrees, cease and deist orders, judicial injunctions, and the payment of fines with respect to advertising claims that are found to be unsubstantiated.
Dietary Supplements
The Dietary Supplement Health and Education Act of 1994 (DSHEA) amended the FFDCA to establish a new framework governing the composition, safety, labeling, manufacturing, and marketing of dietary supplements. Generally, under DSHEA, dietary ingredients (i.e., vitamins; minerals; herb or other botanical; amino acids; or dietary substances for use by humans to supplement the diet) that were marketed in the United States prior to October 15, 1994 as a dietary supplement may be used in dietary supplements without notifying FDA. “New” dietary ingredients (i.e., dietary ingredients that were not marketed in the United States before October 15, 1994) must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been “present in the food supply as an article used for food” without being “chemically altered.” A new dietary ingredient notification must provide the FDA evidence of a “history of use or other evidence of safety” establishing that use of the dietary ingredient “will reasonably be expected to be safe.” A new dietary ingredient notification must be submitted to FDA at least 75 days before the initial marketing. The FDA may determine that a new dietary ingredient notification does not provide an adequate basis to conclude that a dietary ingredient is reasonably expected to be safe. In addition, manufacturers of dietary supplements must ensure that ingredients in their products that are not defined as dietary ingredients comply with all requirements applicable to conventional foods. For example, fillers and other constituents of the product must be approved as food additives or must be deemed generally recognized as safe for the conditions of use in order to be sold.
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The FDA generally prohibits the marketing of a dietary supplement with any “disease claim,” including claims that the product is intended to treat, cure, mitigate, or prevent disease or other health-related conditions or correlating use of the product with a decreased risk of disease, unless the claim constitutes a “health claim” that is authorized by the FDA. The FTC has imposed stringent, claim-specific substantiation standards on certain dietary supplement manufacturers, to settle charges that they deceptively advertised their supplements’ efficacy. However, “statements of nutritional support,” including so-called “structure/function claims,” are permitted to be included in labeling for dietary supplements. Such statements may describe how a particular dietary ingredient affects the structure, function, or general well-being of the body, or mechanism of action by which a dietary ingredient may affect the structure, function, or well-being of the body, but such statements may not state that a dietary supplement will reduce the risk or incidence of a disease unless such claim has been reviewed and approved by the FDA. A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading. Such statements must be submitted to the FDA no later than thirty days after first marketing the product with the certification that they possess the necessary evidence and must be accompanied by an FDA mandated label disclaimer that “This statement has not been evaluated by the FDA. This product is not intended to diagnose, treat, cure or prevent any disease.”
The FDA has published detailed current Good Manufacturing Practice (cGMP), regulations that govern the manufacturing, packaging, labeling and holding operations of dietary supplement manufacturers. The cGMP regulations, among other things, impose significant recordkeeping requirements on manufacturers and require dietary supplements to be of appropriate potency, purity and identity. The cGMP requirements are in effect for all dietary supplement manufacturers, and the FDA conducts inspections of dietary supplement manufacturers pursuant to these requirements.
The FSMA, expands the reach and regulatory powers of the FDA with respect to the production and importation of food, including dietary supplements. The expanded reach and regulatory powers include the FDA’s ability to order mandatory recalls, administratively detain domestic products, and require certification of compliance with domestic requirements for imported foods associated with safety issues. FMSA also gave FDA the authority to administratively revoke manufacturing facility registrations, effectively enjoining manufacturing of dietary ingredients and dietary supplements without judicial process.
Cosmetics and Personal Care Products
Personal care products are subject to various laws and regulations that set forth among other things whether a product can be marketed as a “cosmetic” or requires further approval or regulation as an over-the-counter (OTC) drug. In the United States, the regulation of cosmetic content and labeling is under the primary jurisdiction of FDA with advertising, labeling claims, and marketing also regulated by FTC. Cosmetic products are not subject to pre-market approval by FDA, but their ingredients and their label and labeling content are regulated by FDA, and it is the burden of those who sell cosmetics to ensure that they are safe for use as directed and not adulterated or misbranded. The labeling of cosmetic products is subject to the requirements of the FFDCA, the Fair Packaging and Labeling Act, and other FDA regulations.
The FFDCA defines cosmetic products by their intended use, as “articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body … for cleansing, beatifying, promoting attractiveness, or altering the appearance.” Among the products included in this definition are skin moisturizers, serums, perfumes, lipsticks, eye and facial makeup preparations, as well as material intended for use as a component of a cosmetic product. A product may be considered a drug if it is intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease, or is intended to affect the structure or any function of the body (“structure/function claims”). A product’s intended use can be inferred from marketing or product claims. Structure/function claims are generally prohibited for cosmetic products as are disease prevention and treatment claims. The FDA prohibits certain ingredients from being included in cosmetic products. It is possible that cosmetic product ingredients now commonly in use that are the product of certain scientific advancements or production processes may be restricted or prohibited in the future as more is learned about such ingredients.
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In recent years, the FDA has issued warning letters to many cosmetic companies alleging improper structure/function claims regarding their cosmetic products, including, for example, product claims regarding gene activity, cellular rejuvenation, and rebuilding collagen. Cosmetic companies confront difficulty in determining whether a claim would be considered by the FDA to be an improper structure/function claim. Given this difficulty, there is a risk that we could receive a warning letter, be required to modify our product claims, or take other actions to satisfy the FDA if the FDA determines any of our marketing materials contain improper structure/function claims for our cosmetic products.
Other Healthcare Laws
Pharmaceutical manufacturers are subject to additional healthcare regulation and enforcement by the U.S. federal government and authorities in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation, U.S. federal anti-kickback and other fraud and abuse, false claims, consumer fraud, pricing reporting, data privacy and security, and transparency laws and regulations as well as similar foreign laws in the jurisdictions in which companies conduct their business outside the U.S. Similar state and local laws and regulations may also restrict business practices in the pharmaceutical industry, which may apply to business practices, including but not limited to, research, pricing, discounting, promotion, sales commission, incentive program, distribution, sales and marketing, and other arrangements and with respect to claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or by patients themselves; state laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; or that otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports, and/or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities; state laws and regulations that prohibit certain marketing-related activities, including provision of gifts, meals, or other items to certain healthcare providers, restrict the ability of manufacturers to offer co-pay support to patients for certain prescription drugs, and/or require drug manufacturers to file reports relating to pricing and marketing information; state laws that require disclosures to state agencies and/or commercial purchasers with respect to certain price increases that exceed certain specified thresholds; state and local laws which require tracking and reporting of gifts, compensation, and other remuneration and items of value provided to physicians, other healthcare providers and entities; state and local laws that require the registration of pharmaceutical sales representatives; and state and local laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Violation of any of such laws or any other governmental regulations that apply may result in significant civil, criminal, and administrative penalties, damages, fines, disgorgement, reputational harm, additional reporting obligations and oversight, including if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, the curtailment or restructuring of operations, exclusion from participation in governmental healthcare programs, such as Medicare and Medicaid, and individual imprisonment.
Coverage and Reimbursement
Sales of any pharmaceutical product depend, in part, on the extent to which the product will be covered by third-party payors, such as federal, state and foreign government healthcare programs, commercial insurance and managed healthcare organizations, and, if covered, their level of reimbursement for the product. Significant uncertainty exists as to the coverage and reimbursement status of any newly approved product. Decisions regarding the extent of coverage and amount of reimbursement to be provided are made on a plan-by-plan basis. One third-party payor’s decision regarding coverage and reimbursement for a particular product does not ensure that other payors will also provide coverage and reimbursement for the product. As a result, the coverage determination process can require manufactures to provide scientific and clinical support for the use of a product to each payor separately and can be time-consuming, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the treatment or procedure in which the product is used may not be available, which may impact physician utilization. In addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biological products, will apply to companion diagnostics.
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In addition, third-party payors are increasingly reducing reimbursements for pharmaceutical products and services. The U.S. government and state legislatures have continued implementing cost-containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution of generic products. Third-party payors are increasingly challenging the prices charged, examining the medical necessity and reviewing the cost effectiveness of pharmaceutical products, in addition to questioning their safety and efficacy. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product. Decreases in third-party reimbursement for any product or a decision by a third-party payor not to cover a product could reduce utilization of the product.
In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. Pharmaceutical products may face competition from lower-priced products in foreign countries that have placed price controls on pharmaceutical products and may also compete with imported foreign products. Furthermore, there is no assurance that a product will be considered medically reasonable and necessary for a specific indication, will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be established even if coverage is available or that the third-party payors’ reimbursement policies will not adversely affect the ability for manufacturers to sell products profitably.
Healthcare Reform
In the United States and certain foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”) was signed into law, which substantially changed the way healthcare is financed by both governmental and private insurers and delivered in the United States. By way of example, the ACA increased the minimum level of Medicaid rebates payable by manufacturers of most innovator brand name drugs from 15.1% to 23.1%; required collection of rebates for drugs paid by Medicaid managed care organizations; imposed a non-deductible annual fee on pharmaceutical manufacturers or importers who sell certain “branded prescription drugs” and biologic agents to specified federal government programs, implemented a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected; expanded eligibility criteria for Medicaid programs; created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; established the Medicare Part D coverage gap discount program that, as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D, requires manufacturers to provide a now 70% point-of-sale-discount off the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period; required reporting of certain financial arrangements between manufacturers of drugs, biologics, devices, and medical supplies and physicians and teaching hospitals under the Physician Payments Sunshine Act; and established a Center for Medicare and Medicaid Innovation at the Centers for Medicare and Medicaid Services (“CMS”) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. While Congress has not passed comprehensive repeal legislation, legislation affecting the implementation of the ACA has passed. For example, in 2017, Congress enacted the Tax Act, which eliminated, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate.” On June 17, 2021, the U.S. Supreme Court dismissed a judicial challenge to the ACA brought by several states arguing that the ACA’s individual mandate, without the shared responsibility payment, was unconstitutional and could not be severed from the ACA. The Supreme Court’s ruling did not specifically address the states’ constitutionality arguments. In addition, the Further Consolidated Appropriations Act of 2020, signed into law December 20, 2019, permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on certain high-cost employer-sponsored health coverage and the excise tax on non-exempt medical devices and, effective January 1, 2021, also eliminates the annual fee imposed on certain health insurance providers based on market share.
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Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions of Medicare payments to providers of 2% per fiscal year and reduced payments to several types of Medicare providers, which will remain in effect into fiscal year 2031 — except for the period from May 1, 2020 through March 31, 2022, during which Congress temporarily suspended the sequester due to the COVID-19 pandemic, and except for the period from April 1, 2022 through June 30, 2022, during which Congress reduced the sequester from 2% to 1% — absent additional congressional action. Moreover, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed, among other things, to bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for pharmaceutical products. While several proposed reform measures will require Congress to pass legislation to become effective, Congress and the Biden administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. The Biden administration has taken several recent executive actions that signal changes in policy from the prior administration. For example, on July 9, 2021, President Biden signed an executive order to promote competition in the U.S. economy that included several initiatives addressing prescription drugs. Among other provisions, the executive order directed the Secretary of HHS to issue a report to the White House that includes a plan to, among other things, reduce prices for prescription drugs, including prices paid by the federal government for such drugs. In response to the Executive Order, on September 9, 2021, HHS issued a Comprehensive Plan for Addressing High Drug Prices that identified potential legislative policies and administrative tools that Congress and the agency can pursue in order to make drug prices more affordable and equitable, improve and promote competition throughout the prescription drug industry, and foster scientific innovation. In addition, individual states in the United States have also become increasingly active in passing laws and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, marketing cost disclosure and transparency measures and, in some cases, mechanisms to encourage importation from other countries and bulk purchasing. Furthermore, there has been increased interest by third party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. Implementation of cost containment measures or other healthcare reforms that affect the pricing and/or availability of drug products may impact our ability to generate revenue, attain or maintain profitability, or commercialize products for which we may receive regulatory approval in the future. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our drug candidates or additional pricing pressures.
Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017, or the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new product candidates that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its products available to eligible patients as a result of the Right to Try Act.
Employees
As of October 31, 2023, we had 10 full-time employees, 2 full-time consultants, and 6 part-time consultants. Among those, 2 have M.D. or Ph.D. degrees. Of these full-time employees and consultants, 8 are engaged in research and development activities. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
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Facilities
We lease two separate office or laboratory facilities for our business and operations. Our executive offices are located in the Cherry Creek neighborhood of Denver, where we currently occupy approximately 2,978 square feet of office space under a lease until December 31, 2026 with monthly rent payments of approximately $7,693 until June 30, 2024, subject to yearly increases thereafter as specified in the lease agreement, plus our pro rata share of certain costs, including utility, insurance and common area maintenance costs. Our manufacturing and administrative offices and facilities are currently located at 4621 Technology Drive, Golden Colorado, where we lease approximately 3,100 square feet under a 10-year lease commencing July 1, 2020 and which provides us with several options to renew upon expiration for additional 5-year terms. The lease is with an affiliate of our Chief Science Officer. The rent is $5,645 per month plus taxes, insurance and utilities.
While we believe these premises are suitable for our current needs, we are also planning to lease a separate cGMP manufacturing facility once we have the necessary capital resources that, if and when completed, will be used exclusively for the manufacture of AlloRx Stem Cells in order to meet potential future commercial demand for AlloRx Stem Cell therapy. In connection with the development of a new cGMP manufacturing facility, we intend to lease a facility and purchase highly scalable, fully automated closed system bioprocessing equipment, subject to available capital resources. For additional information, see “—Manufacturing” above.
Legal Proceedings
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. No legal proceedings, government actions, administrative actions, investigations, or claims are currently pending against us or our officers and directors in which we are adverse. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Corporate History
We were incorporated under the laws of the State of Nevada on March 31, 1986 under the name Imperial Management, Inc. On December 17, 1986, we merged with Labtek, Inc., a Colorado corporation, and the name of the company was changed to Labtek, Inc. The name of the Company was thereafter changed to Vitro Diagnostics, Inc. on February 6, 1987. From November 1990 to July 31, 2000, we were engaged in the development, manufacture and distribution of purified human antigens and the development of diagnostic products and related technologies. In August 2000, we sold the assets used in the manufacture and sale of purified antigens for diagnostic applications, following which we focused on developing therapeutic products, our stem cell technology, our patent portfolio and proprietary technology and cell lines for applications in autoimmune disorders and inflammatory disease processes and stem cell research. On February 3, 2021, our name was changed to Vitro Biopharma, Inc. and in August 2021, we completed the acquisitions of InfiniVive MD and Fitore. On July 6, 2022, Christopher Furman joined our Board and become our Chief Executive Officer.
Available Information
Electronic copies of the materials we file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements, are available to the public at the web site maintained by the SEC at http://www.sec.gov.
We also maintain a website at www.vitrobiopharma.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this Report. We have included our website address as an inactive textual reference only.
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Item 1A. Risk Factors
Summary of Risk Factors
Our business and operations are subject to a number of risks, which you should be aware of prior to making a decision to invest in our common stock. These risks are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. Below is a summary of these risks.
Risks Related To Our Financial Condition
| ● | There is substantial doubt about our ability to continue as a going concern, and if we are unable to continue, you may lose your entire investment; | |
| ● | We have incurred substantial losses in recent years and may never be profitable; | |
| ● | A significant portion of our revenue has been concentrated on a few large customers and our agreement with one of those customers, European Wellness/BioPep, expired in accordance with its terms on July 31, 2023; | |
| ● | The use of our current or future product candidates and our other products in individuals may expose us to product liability claims, and we may not be able to obtain adequate product liability insurance; and | |
| ● | In order to successfully implement our plans and strategies, we will need to grow our organization, and we may experience difficulties in managing this growth. |
Risks Related To Our Business
| ● | We are heavily dependent on the successful development and commercialization of AlloRx Stem Cell therapy, and we may not be able to successfully develop and commercialize the product candidate and obtain the necessary regulatory approvals; | |
| ● | If the potential of our product candidates, particularly AlloRx Stem Cell therapy, to treat various diseases and conditions is not realized, the value of our technology and development programs could be significantly reduced; | |
| ● | We have never commercialized a biologic or drug product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize any products on our own or together with suitable collaborators; | |
| ● | We have a limited operating history with our current business model, which may make it difficult for you to evaluate our current business and predict our future success and viability; | |
| ● | Our product development programs are based on novel technologies and are inherently risky; | |
| ● | The lack of any existing FDA-approved allogeneic, cell-based therapies for PTHS, Long COVID, Lupus (SLE), MS or Alzheimer’s disease could complicate and delay FDA approval of AlloRx Stem Cell therapy for these indications; | |
| ● | If we are not able to recruit and retain additional qualified management and scientific personnel, we may fail in obtaining financing, pursuing collaborations or developing our technologies and product candidates; | |
| ● | Our collaborations we intend to enter into with one or more medical institutions to help us develop our product candidates and commercialize our products may never materialize, and our ability to commercialize such products may be impaired or delayed if collaborations are unsuccessful; | |
| ● | Our business could be harmed if the third-party healthcare professionals on whom we rely to administer AlloRx Stem Cell therapy and AlloRx Stem Cells to patients administer these incorrectly or fail to follow our instructions or recommendations; | |
| ● | We may be unable to develop a new manufacturing facility on a timely basis or at all; | |
| ● | Interim, “topline” and preliminary data from our clinical trials that we announce or publish may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data; | |
| ● | We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on other product candidates or indications that may be more profitable or for which there is a greater likelihood of success; |
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| ● | Our competitors may develop similar or comparable treatments for the target indications of our product candidates that are approved more quickly, marketed more successfully or are demonstrated to be safer or more effective than our product candidates, and we may not compete successfully with them; and | |
| ● | Our product candidates are derived from human UCs and therefore have the potential for disease transmission and are susceptible to ethical and other concerns surrounding the use of stem cell therapy or human tissue. |
Risks Related To Intellectual Property
| ● | If our intellectual property does not adequately protect our products and uses, others could compete against us more directly, which could harm our business and have a material adverse effect on our business, financial condition, and results of operations; | |
| ● | If we fail to obtain assignment of rights of our intellectual property from all inventors, we may not own or exclusively own our intellectual property, which could adversely affect our ability to protect our product and have a materially effect on our business; | |
| ● | Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties and if one or more third parties were to assert that we infringe their patents or are otherwise employing their proprietary technology without authorization, it could impair our ability to commercialize our product candidates and otherwise significantly harm our business; and | |
| ● | If we do not obtain patent term extension for our product candidates and/or methods of their use, our business may be materially harmed. |
Risks Related To Regulatory Approval And Other Government Regulations
| ● | We cannot market and sell our product candidates in the United States or in other countries if we fail to obtain the necessary regulatory approvals; | |
| ● | If we are not able to conduct our clinical trials properly and on schedule, marketing approval by FDA and other regulatory authorities may be delayed or denied; | |
| ● | Final marketing approval of our product candidates by the FDA or other regulatory authorities for commercial use may be delayed, limited, or denied, any of which could adversely affect our ability to generate operating revenues; | |
| ● | Producing and marketing an approved drug or other medical product is subject to significant and costly post-approval regulation; | |
| ● | We and any of our future development partners will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events; | |
| ● | We may not ultimately qualify for or benefit from orphan drug exclusivity, breakthrough therapy designation, fast track designation, or priority review; and | |
| ● | The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. |
Additional Risks Related To Our Supply Arrangements With Third-Party Foreign Medical Centers
| ● | FDA could prohibit us from exporting products for use in compassionate use programs or clinical studies in foreign jurisdictions; | |
| ● | FDA, FTC, and other regulatory agencies actively enforce against medical tourism companies and medical providers advertising to patients in the United States if the claims or procedures are not substantiated or in compliance with the local countries’ laws; and | |
| ● | The FDA and other comparable foreign regulatory authorities may not accept data from trials or studies conducted in locations outside of their jurisdiction. |
Risks Related To Ownership Of Our Common Stock
| ● | Our principal stockholders and management, including our Chief Science Officer and our former Chief Executive Officer in particular, own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval; | |
| ● | The price of our stock may be volatile, and you could lose all or part of your investment; |
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| ● | Management identified a material weakness in our internal control over financial reporting that previously caused us to restate our financial statements for the three and nine months ended July 31, 2022, and there is no assurance that we will be able to remediate this material weakness and otherwise implement and maintain an effective system of internal control over financial reporting, accurately report our financial results or prevent fraud in the future; and | |
| ● | Provisions in our third amended and restated articles of incorporation and amended and restated bylaws, and Nevada law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our common stock. |
Our Company
We were incorporated under the laws of the State of Nevada on March 31, 1986 under the name Imperial Management, Inc. On December 17, 1986, we merged with Labtek, Inc., a Colorado corporation, and the name of the company was changed to Labtek, Inc. The name of the company was thereafter changed to Vitro Diagnostics, Inc on February 6, 1987. From November 1990 to July 31, 2000, we were engaged in the development, manufacture and distribution of purified human antigens and the development of diagnostic products and related technologies. In August 2000, we sold the assets used in that business, following which we focused on developing therapeutic products, our stem cell technology, our patent portfolio and proprietary technology and cell lines for applications in autoimmune diseases and inflammatory disorders and stem cell research. On February 3, 2021, our name was changed to Vitro Biopharma, Inc. and in August 2021, we completed the acquisitions of InfiniVive MD and Fitore. On July 6, 2022, Christopher Furman joined our Board and became our Chief Executive Officer. Our principal executive offices are located at 3200 Cherry Creek Drive South, Suite 410, Denver, CO 80209, and our telephone number is (855) 848-7627.
Our website address is www.vitrobiopharma.com. The information on, or that can be accessed through, our website is not part of this prospectus and is not incorporated by reference herein. We have included our website address as an inactive textual reference only.
Our common stock was previously registered under Section 12 of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and until 2016, we filed reports with the Securities and Exchange Commission, which we refer to as the SEC, under Section 13(a) of the Exchange Act as required by reason of our Section 12 registration. In October 2020, our registration under Section 12 was revoked by the SEC for our failure to file the reports required by Section 13(a). Commencing after our fiscal year ended October 31, 2021, we again became required to register our common stock under Section 12(g) of the Exchange Act because the value of our total assets and number of stockholders exceeded applicable limits, and to file with the SEC thereafter reports and other documents required under Section 13(a) of the Exchange Act by virtue of that Section 12(g) registration. On September 12, 2022, we filed a registration statement on Form 10 with the SEC to again register our common stock under the Exchange Act in accordance with the requirements of Section 12(g), which such registration statement, as amended, became effective on November 11, 2022. As a result, we are required to file reports with the SEC under Section 13(a) of the Exchange Act, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Implications of Being a Smaller Reporting Company
We are a smaller reporting company as defined in the Exchange Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our annual reports on Form 10-K and have reduced disclosure obligations regarding executive compensation, and if we are a smaller reporting company with less than $100 million in annual revenue, we would not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.
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RISK FACTORS
Investing in shares of our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all of the other information contained in this prospectus, including our financial statements and related notes included elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones facing us. The occurrence of any of the following risks, or of additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could materially and adversely affect our business, financial condition, reputation, or results of operations. In such case, the trading price of shares of our common stock could decline, and you may lose all or part of your investment.
Risks Related To Our Financial Condition
As described in the report of our auditors for the years ended October 31, 2023 and 2022 and the notes to our consolidated financial statements, there is substantial doubt about our ability to continue as a going concern, and if we are unable to continue, you may lose your entire investment.
The uncertainty about our ability to continue in operation is based on our continuing losses from operation, limited revenue and limited working capital, among other things which existed as of years-ended October 31, 2023 and October 31, 2022. As of October 31, 2023, we had a cash balance of approximately $0.1 million, a working capital deficit of approximately $1.7 million and an accumulated deficit of approximately $28.1 million. Included in the accumulated deficit are losses of $6.9 million for the year ended October 31, 2022 and $5.4 million for the year ended October 31, 2023. Given all these facts, we are dependent on obtaining funding from operations and the sale of debt or equity to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Our ability to continue as a going concern depends on the success of this offering and receipt of additional funds through debt or equity financing and our operations. In the event we are unable to obtain such funding, we may have to delay, reduce or eliminate certain of our planned operations, including some of our research and development and/or clinical trials, reduce overall overhead expense, or divest assets. This in turn may have an adverse effect on our ability to realize the value of our assets. If we are unable to continue as a going concern, you may lose all or part of your investment.
We have limited revenue and cash flow and are dependent on improving operations, along with receipt of additional working capital, to fund continued development and implementation of our business plan, and our failure to obtain this capital may cause the partial or total loss of your investment.
As of October 31, 2023 our ongoing cash flow is inadequate to implement our business plan. In the recent past, we have relied on equity and debt financing to supplement operations to provide necessary cash flow and will depend on the receipt of funds through additional debt or equity financings, for the foreseeable future. Since significant amounts of capital are required for companies to pursue clinical trials in pursuit of FDA approval, we are dependent on improving our cash flow and revenue, as well as receipt of additional working capital, to fund continued development and implementation of our business plan. In addition to funds required for research and the development of our product candidates, we will require capital to pay our administrative expenses, including salaries and rent. Any future equity financing may be at prices or on terms that are disadvantageous to existing stockholders. We may not be able to obtain additional capital at all and may be forced to curtail or cease our operations. We will continue to rely on equity or debt financing and limited revenue to finance operations until such time, if ever, that we generate sufficient cash flow. The inability to obtain necessary financing may adversely impact our ability to develop our product candidates and to expand our business operations.
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We have incurred substantial losses in recent years and may never be profitable.
During the fiscal years ended October 31, 2023 and 2022, we incurred losses of approximately $5.4 million and $6.9 million, respectively. In the future, our ability to become profitable will depend on our ability to commercialize one or more of our product candidates, expand sales of our subsidiaries and generate revenue sufficient to cover our costs and expenses. As we advance the preclinical and clinical development of our programs, we expect to continue to incur significant expenses and operating losses, for which we do not have sufficient offsetting revenue. We expect that our sales, research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future programs and product candidates, contracting with contract research organizations (“CROs”) to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. There is no assurance that we will ever be profitable.
The acquisitions of our two subsidiaries were only recently completed and we may not successfully grow those businesses to be profitable and contribute to our cash flow. We expect that sales of Fitore products in the future will be limited.
The acquisition of both InfiniVive MD and Fitore were completed effective August 1, 2021. Accordingly, we have had only a limited time to become familiar with the businesses and determine whether and how we can grow the businesses. Neither entity is profitable on a stand-alone basis and each contributed to our net loss in 2022. In June 2022, we terminated the chief executive officer and all other employees of Fitore and are currently selling Fitore products solely from remaining inventory and with minimal marketing efforts. We do not anticipate manufacturing any additional Fitore products in the foreseeable future or at all. Consequently, we expect that sales of Fitore products in the future will be limited. Our ability to grow the business of InfiniVive MD is dependent on our ability to improve marketing and sales to the point that revenue will be sufficient to offset operating expenses of that entity. If we are unable to grow this business, our operations will consume the proceeds of this offering sooner than we expect, and our stock price may suffer.
A significant portion of our revenue has been concentrated on a few large customers and our agreement with one of those customers, European Wellness, recently expired. As a result, we expect our consulting revenue in the future to be more limited and, if we lose more customers, our results of operations would be expected to be further adversely impacted.
Our revenue has been concentrated in a small number of our domestic customers and European Wellness/BioPep. The sales to two domestic customers accounted for approximately 43% and 15% of our sales in fiscal year 2023 The consulting revenue from European Wellness/BioPep accounted for approximately 18% of our sales in fiscal year 2022. With respect to European Wellness/BioPep, we had suspended delivering work product to it under our agreement since April 2023 while we engaged in discussions regarding amounts believed to be owed to us under that agreement for work already completed, and our agreement with them expired in accordance with its terms on July 31, 2023 and is not expected to be renewed. Although we intend to continue to seek to recover and recognize as revenue or other project income all amounts believed to be owed to us under that agreement, we may not be able to collect or recognize as revenue or other project income all of the amounts believed to be owed to us through the date of expiration or the other amounts originally expected to be received by us under the agreement for completion of all services thereunder as originally contemplated. Because our contract with European Wellness expired on July 31, 2023 and has not been renewed, we expect our consulting revenue in the future will be materially adversely affected, in particular if we are unsuccessful in ultimately recognizing our deferred revenue or other project income associated with this agreement or collecting other amounts from them for work already completed, unless and until an alternative consulting partnership or collaboration becomes available to us. The loss of all or a part of our revenue from any of the other customers could have a material adverse effect on our revenue, cash flow, operating results and financial condition until an alternative partnership or collaboration might be developed, and there can be no assurance that an alternative partnership or collaboration will be available to us, on terms acceptable to us or at all, in such a circumstance.
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Servicing our debt may require a significant amount of cash. We may not have sufficient cash flow from our business to pay our indebtedness.
As of October 31, 2023, we have outstanding approximately $2.3 million in indebtedness to our Chief Science Officer on account of past-due compensation and accrued interest. These obligations mature on December 31, 2025 and on July 31, 2024, respectively. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our future performance and receipt of additional capital, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. Repayment of these obligations, even if we are able to obtain the requisite capital, would decrease the funds available to further our business plan. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt.
Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income.
We recognize deferred tax assets when the tax benefit is considered to be more likely than not of being realized; otherwise, a valuation allowance is applied against deferred tax assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, our ability to realize the deferred tax assets could be impacted. Additionally, future changes in tax laws could limit our ability to obtain the future tax benefits represented by our deferred tax assets. As of October, 2023, our net deferred tax assets were $5 million. We have recorded a full valuation allowance against this asset.
The use of our product candidates and our other products, including AlloRx Stem Cells, InfiniVive MD products, MSC-Gro, CAFs and our other products, or any future products in individuals may expose us to product liability claims, and we may not be able to obtain adequate product liability insurance.
Because of the nature of our products, including our product candidates like AlloRx Stem Cell therapy as well as our AlloRx Stem Cells, InfiniVive MD products, MSC-Gro, CAFs and our other products, we face an inherent risk of product liability claims. None of our product candidates or other products have been widely used over an extended period of time, and our safety data is therefore limited. We derive the raw materials for our product candidates from human donor sources, the manufacturing process is complex, and the handling requirements are specific, all of which increase the likelihood of quality failures and subsequent product liability claims. In addition, we supply AlloRx Stem Cells to certain foreign clinics pursuant to purchase orders issued by our customers, which are likely to be favorable to those customers. We generally do not enter into long-term purchase agreements with our customers that obligate them to purchase our products or protect us from product liability claims made by the patients such customers treat using AlloRx Stem Cells. We will need to increase our insurance coverage if and when we receive approval for and begin commercializing our product candidates. We may not be able to obtain or maintain product liability insurance on acceptable terms with adequate coverage or at all. If we are unable to obtain insurance, or if claims against us substantially exceed our coverage, then our business could be adversely impacted. Whether or not we are ultimately successful in any product liability litigation, such litigation either before or after product approval and marketing could consume substantial amounts of our financial and managerial resources and could result in, among other things:
| ● | significant awards against us; | |
| ● | substantial litigation costs; | |
| ● | recall of products or termination of clinical trials; | |
| ● | FDA withdrawal of marketing approval of products or suspension or revocation of an IND for a product candidate; | |
| ● | injury to our reputation; | |
| ● | withdrawal of clinical trial participants; | |
| ● | withdrawal of clinical trial sites or investigators; or | |
| ● | adverse regulatory action. |
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Any of these results could have a material adverse effect on our business, financial condition, and results of operations.
In order to successfully implement our plans and strategies, we will need to grow our organization, and we may experience difficulties in managing this growth.
As of October 31, 2023, we had 10 full-time employees, 2 full-time consultants, and 6 part-time consultants. Of these full-time employees and consultants, 8 are engaged in research and development activities. In order to successfully implement our development and commercialization plans and strategies, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:
| ● | identifying, recruiting, integrating, maintaining and motivating additional employees; | |
| ● | managing our internal development efforts effectively, including preclinical and clinical studies and investigations, as well as FDA and other comparable foreign regulatory agencies’ review process for any current or future product candidates, while complying with any contractual obligations to contractors and other third parties we may have; and | |
| ● | improving our operational, financial and management controls, reporting systems and procedures. |
Our future financial performance and our ability to successfully develop and, if approved, commercialize, any current or future product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including key aspects of clinical development and manufacturing. We cannot assure you that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by third party service providers is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval of our current and future product candidates or otherwise advance our business. We cannot assure you that we will be able to manage our existing third-party service providers or find other competent outside contractors and consultants on economically reasonable terms, or at all.
If we are not able to effectively expand our organization by hiring new employees and/or engaging additional third-party service providers, we may not be able to successfully implement the tasks necessary to further develop and commercialize our current and future product candidates and, accordingly, may not achieve our research, development and commercialization goals.
We have in the past and may in the future enter into transactions that give rise to conflicts of interest with our affiliates and related parties and such transactions may harm our business and financial condition if they are not structured in our best interest.
Every transaction that the Company enters into with affiliates is subject to an inherent conflict of interest. As further described below (see “Certain Relationships and Related-Party Transactions”), effective August 2021, we acquired InfiniVive MD, a company that at the time was solely owned by Dr. Zamora, and Fitore, a company that at the time was partially owned by Dr. Zamora. At the time of these transactions, Dr. Zamora was serving as our Chief Executive Officer and was member of our Board of Directors; he was also a stockholder of our company. Our Board of Directors was aware of the interests of Dr. Zamora in each transaction and insisted that he recuse himself from any Board deliberations or votes with regard to each of these transactions in order to address these inherent conflicts of interest between our interests and those of Dr. Zamora. As a result of these and other efforts, our Board of Directors believes that these transactions were negotiated at arms’ length and these transactions were consummated on terms as favorable to us as they could have been if obtained from non-affiliated persons. In addition, each of these transactions was approved by all of the disinterested members of our Board of Directors. While an effort has been made, and will continue to be made, to engage in transactions and enter into agreements with affiliated persons and other related parties on terms as favorable to us as they could have been if obtained from non-affiliated persons, there will always be an inherent conflict of interest between our interests and those of our affiliates and related parties if they have any interest adverse to those of our company. The Company may be adversely impacted if any related party agreement or transaction has been made, or is made in the future, on unfavorable terms.
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Risks Related to our Business
We are heavily dependent on the successful development and commercialization of AlloRx Stem Cell therapy, and if we encounter delays or difficulties in the development of this product candidate, we may not generate sufficient revenue to continue our business operations and our business could be harmed.
AlloRx Stem Cell therapy is currently in the early stage of development and will require substantial time, resources, research and development, and regulatory approval prior to potential commercialization in the United States. To generate sales revenue from our product candidates, we must conduct extensive preclinical studies and clinical trials to demonstrate that our product candidates are safe and effective, and we must obtain required regulatory approvals. We will need to devote significant additional research and development, financial resources, and personnel to develop commercially viable products. It is likely to take several years to obtain the required regulatory approvals for our product candidates, or we may never gain the necessary approvals.
Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical trials after achieving positive results in preclinical development or early-stage clinical trials, and we cannot be certain that we will not face similar setbacks. Significant adverse effects caused by, or other unexpected properties of, any product candidates that we may choose to develop could cause us, an IRB or regulatory authority to interrupt, delay or halt clinical trials of one or more of such product candidates and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable non-U.S. regulatory authorities. If any product candidate that we may choose to develop is associated with significant adverse effects or other unexpected properties, we may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which those undesirable characteristics would be expected to be less prevalent, less severe or more tolerable from a risk-benefit perspective. Moreover, preclinical and clinical data is often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or other regulatory authority approval. If we fail to produce positive results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business and financial prospects, would be negatively impacted. If we fail to obtain such approvals, we may not generate sufficient revenues to continue our business operations.
Even if we obtain regulatory approval of a product, that approval may be subject to limitations on the indicated uses for which it may be marketed. Even after granting regulatory approval, the FDA and regulatory agencies in other countries continue to review and inspect marketed products, manufacturers, and manufacturing facilities, which may create additional regulatory burdens. Later discovery of previously unknown problems with a product, manufacturer, or facility may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market or a withdrawal of the approved application by the FDA. Furthermore, FDA may require post-approval studies or other commitments from us, and failure to comply with or meet those commitments could result in withdrawal of the approved application by FDA. Regulatory agencies may also establish additional regulations, policies, or guidance that could prevent or delay regulatory approval of our product candidates.
As a result, our business could be materially harmed if we encounter difficulties in the development of this product candidate, such as:
| ● | delays in the design, enrollment, implementation or completion of required preclinical studies and clinical trials; |
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| ● | an inability to follow our current development strategy for obtaining regulatory approval from regulatory authorities because of changes in the regulatory approval process; and | |
| ● | less than desired or complete lack of efficacy or safety in preclinical studies or clinical trials. |
If any of the above were to occur, this could significantly and adversely affect the development and commercialization of our AlloRx Stem Cell therapy or other products and could have a material adverse effect on our business, financial condition, and results of operations.
If the potential of our product candidates, particularly AlloRx Stem Cell therapy, to treat various diseases and conditions is not realized, the value of our technology and our development programs could be significantly reduced.
We are currently planning Phase 1/2a clinical trials with the intent to establish safety, tolerability and efficacy proof-of-concept and/or evidence of biological activity of AlloRx Stem Cell therapy in various indications. We have not yet proven in clinical trials that AlloRx Stem Cell therapy will be a safe and effective treatment for any disease or condition. This product candidate is susceptible to various risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy, or other characteristics that may prevent or limit its marketing approval or commercial use. We have not yet completed all of the testing necessary to allow us to make a determination that serious unintended consequences will not occur. If the potential of this product candidate to treat diseases or conditions is not realized, the value of our technology and our development programs could be significantly reduced. Because our product candidates are based on MSCs, any negative developments regarding the therapeutic potential or side effects of our MSCs, or to scientific and medical knowledge about MSCs in general, could have a material adverse effect on our business, financial condition, results of operations, and prospects.
We have never commercialized a biologic or drug product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize any products if we attain an EUA or other regulatory approval for commercialization of AlloRx Stem Cell therapy or any other product candidates.
We have never commercialized a biologic or drug product candidate, and we currently have no sales force, marketing or distribution capabilities for such a product. To achieve commercial success for our biologic or drug product candidates, which we may license to others, we may rely on the assistance and guidance of those collaborators who will provide sales and marketing support as well as logistic and distribution services. For product candidates for which we retain commercialization rights, we will have to develop our own sales, marketing and supply organization or outsource these activities to a third party.
Factors that may affect our ability to commercialize any future approved products on our own include recruiting and retaining adequate numbers of effective sales and marketing personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our products and other unforeseen costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization will be expensive and time-consuming and could delay the launch of our future approved products. We may not be able to build an effective sales and marketing organization. If we are unable to build our own distribution and marketing capabilities or find suitable partners for the commercialization of our future approved products, we may not generate revenues from them or be able to reach or sustain profitability.
We have a limited operating history with our current business model, which may make it difficult for you to evaluate our current business and predict our future success and viability.
We are an early-stage clinical development company with a limited operating history with our current business model upon which you can evaluate our business and prospects. Prior to 2020, our historical operations were limited to research and development and limited sales of research-related products. In 2020, we began the transition to become a clinical stage biotechnology company focused primarily in the field of regenerative medicine. Since 2020, we have devoted substantially all of our resources and efforts to reorganizing and staffing our company, business planning, expanding our research and development capabilities, expanding our manufacturing facility, raising capital, evaluating and completing acquisitions, developing product candidates, pursuing related intellectual property rights and organizing clinical trials of AlloRx Stem Cell therapy.
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Our limited operating history developing clinical-stage product candidates may make it more difficult for us to succeed or for investors to evaluate our business and prospects. In addition, as an early-stage development company, we have limited experience in development activities, including conducting clinical trials, or seeking and obtaining regulatory approvals, even though certain of our executives have had relevant experience at other companies. We will also need to transition from a company with a research focus to a company capable of conducting clinical trials and, if successful, supporting commercial activities beyond our current InfiniVive MD and Fitore products. Such a transition will involve substantial additional capital requirements to launch and market a product and significant adjustment to personnel, compared to a development company. In addition, we have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in the biopharmaceutical area. To execute our business plan, we will need to successfully:
| ● | execute our product candidate development activities, including successfully completing our clinical trial programs; | |
| ● | obtain required regulatory approvals or authorizations for the development and commercialization of our product candidates; | |
| ● | manage our costs and expenses related to clinical trials, regulatory approvals, manufacturing and commercialization; | |
| ● | secure substantial additional funding; | |
| ● | develop and maintain successful strategic relationships; | |
| ● | maintain an enforceable intellectual property portfolio; | |
| ● | build and maintain appropriate clinical, sales, manufacturing, distribution, and marketing capabilities on our own or through third parties; and | |
| ● | gain market acceptance and favorable reimbursement status for our product candidates. |
If we are unsuccessful in accomplishing these objectives, we may not be able to develop product candidates, raise capital or expand our business, or continue our operations.
Our product development programs are based on novel technologies and are inherently risky.
We are subject to the risks of failure inherent in the development of product candidates based on new technologies. The novel nature of our product candidates creates significant challenges in regard to product development and optimization, manufacturing, government regulation, third-party reimbursement, and market acceptance. For example, although the FDA has approved several autologous (i.e., taken from, and given to, the same individual) cell therapy products, the FDA has not approved any allogeneic (i.e., taken from one individual and given to a different person) cell therapy products, and the FDA has relatively limited experience with regulating these kinds of therapies, and its regulations and policies are still evolving. As a result, the pathway to regulatory approval for our current and future product candidates may accordingly be more complex and lengthier.
Additionally, stem cells that are taken from one person and transplanted into a different individual may pose additional risks. For example, stem cells that are not autologous but are instead allogeneic are subject to donor-to-donor variability, which can make standardization more difficult. As a result of these factors, the development and commercialization pathway for our therapies may be more complex, lengthier, and subject to increased uncertainty, as compared to the pathway for new conventional (i.e., new chemical entity) drugs.
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There are no FDA-approved allogeneic, cell-based therapies for PTHS, Long COVID, Lupus (SLE), MS, Alzheimer’s disease, or many other indications targeted by AlloRx Stem Cell therapy, our lead investigational product candidate. This could complicate and delay FDA approval of our product candidate for these indications.
Although FDA has approved several autologous cell therapy products, there are no allogeneic cell-based or stem cell therapies currently approved for the treatment of PTHS, Long COVID, Lupus (SLE), MS or Alzheimer’s disease. To obtain FDA approval for any indication for the disease states we are studying, we will have to demonstrate, among other things, that our product candidates are safe and effective for that indication in the target population. The results of our clinical trials must be statistically significant, meaning that there must be sufficient data to indicate that it is unlikely the outcome occurred by chance. The FDA will also require us to demonstrate an appropriate dose (i.e., number of cells) and dosing interval for our product candidates, and to identify and define treatment responders, which may require additional clinical trials. As a result, the clinical endpoints, the criteria to measure the intended results of treatment, and the correct dosing for our cell-based therapeutic approaches for these indications may be difficult to determine. These challenges may prevent us from developing and commercializing products on a timely or profitable basis, or at all.
Our product candidates represent new classes of therapy that the marketplace may not understand or accept.
Even if we successfully develop and obtain regulatory approval for our product candidates, the market may not understand or accept them. We are developing product candidates that represent novel treatment approaches and will compete with a number of more conventional products and therapies manufactured and marketed by others, including major pharmaceutical companies. The degree of market acceptance of any of our developed and potential products will depend on a number of factors, including:
| ● | the clinical safety and effectiveness of our products and their perceived advantage over alternative treatment methods; | |
| ● | our ability to demonstrate that our cell-based products can have a clinically significant effect, initially for PTHS, Long COVID, and other disease states, for which we may seek marketing approval; | |
| ● | our ability to separate ourselves from the ethical controversies associated with cell product candidates derived from human embryonic or fetal tissue; | |
| ● | ethical controversies that may arise regarding the use of stem cells or human tissue of any kind, including adult stem cells, adult bone marrow, adult cardiac stem cells, and other adult tissues derived from donors; | |
| ● | adverse events involving our product candidates or candidates of others that are cell based; | |
| ● | our ability to supply a sufficient amount of our products to meet regular and repeated demand in order to develop a core group of medical professionals familiar with and committed to the use of our products; and | |
| ● | the cost of our products and the reimbursement policies of government and third-party payors. |
If the health care community does not accept our product candidates or future approved products for any of the foregoing reasons, or for any other reason, it could affect our sales or have a material adverse effect on our business, financial condition, results of operations, and prospects.
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If we are not able to recruit and retain additional qualified management and scientific personnel, we may fail in obtaining financing, pursuing collaborations or developing our technologies and product candidates.
Our future success depends to a significant extent on the skills, experience, and efforts of the principal members of our scientific and management personnel. These members include Christopher Furman, our Chief Executive Officer, Dr. James Musick, our Chief Science Officer, and Dr. Caroline Mosessian, our Chief Regulatory Officer, among others. The loss of any or all of these individuals could harm our business and might significantly delay or prevent the achievement of research, development or business objectives. Competition for regulatory, clinical manufacturing and management personnel in the pharmaceutical industry is intense. We may be unable to recruit or retain personnel with sufficient management skills in the area of cell therapeutics or attract or integrate other qualified management and scientific personnel in the future.
We may, in the future, enter into arrangements with third-party collaborators to help us develop our product candidates and commercialize our products, and our ability to commercialize such products may be impaired or delayed if collaborations are unsuccessful.
We expect to enter into clinical trial agreements with third-party investigators and research and clinical institutions in the United States to conduct our clinical trials in the United States, including our Phase 1/2a trials for PTHS and Long COVID, although we have not yet entered into any clinical trial agreement(s) for these contemplated Phase 1/2a clinical trials at this time. We may be unable to enter into these clinical trial agreements or related agreements on a timely basis or at all, which are contingent on approvals required to be obtained from the clinical institutions and clinical trial sites. We do not expect that any future collaborations pursuant to one or more clinical trial agreements will involve the type of collaborative arrangements in which we would share the risks and rewards of any such clinical trials or otherwise with the third-party clinical institution.
We are dependent upon the success of our current and any future collaborators in performing their responsibilities in connection with the relevant collaboration. If we fail to maintain these collaborative relationships for any reason, we would need to perform the activities that we currently anticipate would be performed by our collaborators on our own at our sole expense. This could substantially increase our capital needs, and we may not have the capability or financial capacity to undertake these activities on our own, or we may not be able to find other collaborators on acceptable terms, or at all. This may limit the programs we are able to pursue and result in significant delays in the development, sale, and manufacture of our product candidates and products, and may have a material adverse effect on our business, financial condition, and results of operations.
Our dependence upon our current and potential future collaborations exposes us to a number of risks, including that our collaborators (i) may fail to cooperate or perform their contractual obligations, including financial obligations, (ii) may choose to undertake differing business strategies or pursue alternative technologies, or (iii) may take an opposing view regarding ownership of clinical trial results or intellectual property. Due to these factors and other possible events, we could suffer delays in the research, development, or commercialization of our product candidates and future products or we may become involved in litigation or arbitration, which could be time-consuming and expensive. We additionally may be compelled to split revenue with our collaborators, which could have a material adverse effect on our business, financial condition, and results of operations.
We rely on third-party healthcare professionals to administer AlloRx Stem Cell therapy and AlloRx Stem Cells to patients, and our business could be harmed if these third parties administer these incorrectly or fail to follow our instructions or recommendations.
We rely, or will rely in the future, on the expertise of third-party physicians, nurses and other associated medical personnel to administer, as the case may be, AlloRx Stem Cell therapy and AlloRx Stem Cells in clinical trials in the United States and as part of compassionate use treatments authorized by FDA, as well as in foreign third-party conducted clinical studies. If these medical personnel are not properly trained to administer, or do not properly administer, AlloRx Stem Cell therapy and AlloRx Stem Cells, the therapeutic effect of AlloRx Stem Cell therapy and AlloRx Stem Cells may be reduced or the patient may suffer injury.
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In addition, we freeze our AlloRx Stem Cells prior to shipping and distribution to third parties, which requires third-party medical personnel to be trained on proper methodology for proper storage, quality control and deployment procedures for all AlloRx Stem Cells received from us. If these or other processes are not performed correctly, the cells may become damaged and/or the patient may suffer injury. While we intend to provide training materials and other resources to these third-party medical personnel, the storage, quality control and deployment procedures, including the thawing and subsequent peripheral intravenous infusion or direct injection, of AlloRx Stem Cell therapy and AlloRx Stem Cells will occur outside our supervision and may not be performed or administered properly. If, due to a third-party error, people believe that AlloRx Stem Cells are ineffective or harmful, the desire to use AlloRx Stem Cells may decline, which would negatively impact our business, reputation and prospects. We may also face significant liability even though we may not be responsible for the actions of these third parties.
Our business would be adversely affected if our relationships with third-party healthcare professionals on which we rely were disrupted.
Our contractual relationships with our network of healthcare professionals which provide for consulting and other services may implicate certain state laws in the United States that generally prohibit non-physician entities from practicing medicine, exercising control over physicians or engaging in certain practices such as fee-splitting with physicians. Although we believe that we have structured our arrangements to ensure that the healthcare professionals maintain exclusive authority regarding the delivery of medical care when deemed clinically appropriate, there can be no assurance that these laws will be interpreted in a manner consistent with our practices or that other laws or regulations will not be enacted in the future that could have a material and adverse effect on our business, financial condition and results of operations. Regulatory authorities, state medical boards of medicine, state attorneys general and other parties, including our affiliated healthcare professionals, may assert that we are engaged in the prohibited corporate practice of medicine, or that our arrangements with our network of healthcare professionals constitute unlawful fee-splitting. If a state’s prohibition on the corporate practice of medicine or fee-splitting law is interpreted in a manner that is inconsistent with our practices, we would be required to restructure or terminate our relationship with our healthcare professionals to bring our activities into compliance with such laws. A determination of non-compliance, or the termination of or failure to successfully restructure these relationships could result in disciplinary action, penalties, damages, fines, and a loss of revenue, any of which could have a material and adverse effect on our business, financial condition and results of operations. State corporate practice of medicine doctrines and fee-splitting prohibitions also often impose penalties on healthcare professionals for aiding the corporate practice of medicine, which could discourage physicians and other healthcare professionals from participating in our network of providers.
We may be unable to develop a new manufacturing facility on a timely basis or at all, which may impact our ability to capitalize on the potential biological advantages of UC-derived MSCs, to comply with all FDA requirements to support a BLA, or to commercialize any future approved products following any regulatory approval.
As we proceed with our clinical trial efforts and in advance of any commercialization, we must be able to demonstrate to the FDA that we can manufacture our product candidates with consistent characteristics. While we currently manufacture our product candidates in our own facility, scaling up the manufacturing process would require us to develop a larger facility, which would require significant time and capital investments to conform to applicable manufacturing standards.
We are planning a new, separate manufacturing facility that, if completed, will be used exclusively for the manufacture of AlloRx Stem Cell therapy and AlloRx Stem Cells. We believe that this separate facility will be necessary to comply with all FDA requirements to support a BLA and related inspections for the manufacture of AlloRx Stem Cell therapy, given that AlloRx Stem Cell therapy is a product intended for parenteral use in humans. We plan to use highly scalable, fully automated closed system bioprocessing in the new cGMP biomanufacturing facility, which we believe is necessary for us to fully capitalize on the potential biological advantages of UC-derived MSCs.
We expect to commence development of the new manufacturing facility once we have the necessary capital resources, but may be unable to commence or complete development on a timely basis, or at all. Developing a new manufacturing facility, which we expect will contain fully automated closed system bioprocessing equipment, and recruiting necessary additional personnel will be expensive and time-consuming, and we may not be able to raise sufficient funds to develop such facility and to buy such equipment. In addition, although we intend to use our existing cash and any additional funds received upon the exercise for cash of our outstanding warrants for the acquisition of fully automated closed system bioprocessing and other equipment and for the development of a new biomanufacturing facility, receipt of any funds from warrant holders will only occur in the event that warrant holders elect to exercise their warrants. We cannot predict if or when the warrants will be exercised, and it is possible that the warrants may expire and never be exercised. Accordingly, we are unable to control the timing or amount of receipt of such funds or to determine when or if we will receive such funds, which may impact our ability to fund the development of a new manufacturing facility on a timely basis or at all.
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In addition, the development of a new manufacturing facility may require additional regulatory approvals. If we are unable to develop a new manufacturing facility in compliance with regulatory requirements or to hire additional necessary manufacturing personnel, we may encounter delays or additional costs in achieving our research, development and commercialization objectives, which could materially damage our business and financial prospects. In addition, our ability to complete any ongoing clinical trials may be negatively affected.
We may be dependent on third parties for the manufacture or distribution of any product candidates, and any problems experienced by these third parties could result in a delay or interruption in the supply of our product candidate in our clinical trials and any future approved products.
If we are unable to develop a new manufacturing facility, we may need to outsource manufacturing on a large scale for AlloRx Stem Cells and AlloRx Stem Cell therapy, which would cause us to be materially dependent on these suppliers for supply of components of consistent quality. Reliance on third-party manufacturers entails risks such as the failure of the third party to follow regulatory guidelines, possible breach of the manufacturing agreement, and possible termination or non-renewal of that agreement. Our ability to complete any ongoing clinical trials may be negatively affected in the event that we are forced to seek and validate a replacement source for any of these critical components. If we are not able to obtain adequate supplies of these items of consistent quality from our third-party suppliers, it will also be more difficult to manufacture commercial quantities of our product candidates that are approved for commercial sale.
In addition, if one or more of our product candidates is approved for commercial sale, we intend to rely on third parties for their distribution. Proper shipping and distribution require compliance with specific storage and shipment procedures (e.g., prevention of damage to shipping materials and prevention of temperature excursions during shipment). Failure to comply with such procedures will necessitate return and replacement, potentially resulting in additional cost and causing us to fail to meet supply requirements.
Changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval of the manufacturing process and procedures in accordance with the FDA’s cGMPs. Any new facility is subject to a pre-approval inspection by the FDA and would again require us to demonstrate product comparability to the FDA. We would also need to verify, such as through a manufacturing comparability study, that any new manufacturing process would produce our product candidate according to the specifications previously submitted to the FDA, and there are comparable foreign requirements. The delays associated with the verification of a new third-party manufacturer, or a new facility built by us, could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. This review may be costly and time consuming and could delay or prevent the launch of a product.
We will be reliant on third parties to conduct, manage, and monitor our clinical studies, and if those third parties perform in an unsatisfactory manner, it may harm our business.
We currently do not have the ability to independently conduct nonclinical studies that comply with Good Laboratory Practice (“GLP”) requirements. We intend to rely substantially on CROs and clinical study sites to ensure the proper and timely conduct of our clinical studies, and we have limited influence over their actual performance.
We rely upon CROs to monitor and manage data for our clinical programs, as well as for the execution of nonclinical studies. We control only certain aspects of our CROs’ activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities.
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We and our CROs are required to comply with current GLP and Current Good Clinical Practice (“cGCP”) regulations and guidelines enforced by the FDA and are also required by the competent authorities of the member states of the European Economic Area and comparable foreign regulatory authorities to comply with the International Council for Harmonization guidelines for any of our product candidates that are in nonclinical and clinical development, respectively. The regulatory authorities enforce cGCP regulations through periodic inspections of clinical study sponsors, CROs, and clinical study sites. Although we rely on CROs to conduct our GLP-compliant nonclinical studies and cGCP-compliant clinical studies, we remain responsible for ensuring that each of our nonclinical studies and clinical studies is conducted in accordance with our investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities. If we, our CROs or clinical study sites fail to comply with cGCP requirements, the clinical data generated in our clinical studies may be deemed unreliable and the FDA or comparable foreign regulatory authorities may reject our marketing applications or require us to perform additional clinical studies before approving our marketing applications. Accordingly, if we or our CROs fail to comply with these regulations or other applicable laws, regulations or standards, or fail to recruit a sufficient number of subjects, we may be required to repeat clinical studies, which would delay the relevant regulatory approval process. Failure by our CROs to properly execute study protocols in accordance with applicable law could also create product liability and healthcare regulatory risks for us as the sponsor of those studies.
While we have agreements governing their activities, our CROs are not our employees, and we do not control whether or not they devote sufficient time and resources to our future clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies, or other drug development activities which could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret and intellectual property protection and allow our potential competitors to access and exploit our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our (or their own) clinical protocols or regulatory requirements or for any other reasons, our clinical studies may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate that we develop could be harmed, our costs could increase, and our ability to generate revenue could be delayed.
In addition, we and our CROs are subject to various data privacy laws in the U.S., Europe, and elsewhere that are often uncertain, contradictory, and evolving. It is possible that these data privacy laws may be interpreted and applied inconsistent with our or our CROs’ practices. If so, this could result in government-imposed fines or orders requiring that we or our CROs change our practices, which could adversely affect our business.
If our relationships with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms or in a timely manner. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse impact on our business, financial condition, and prospects.
Favorable results from compassionate use treatment or initial interim results from a clinical trial do not ensure that later clinical trials will be successful and success in early-stage clinical trials does not ensure success in later-stage clinical trials.
AlloRx Stem Cells have been administered as part of compassionate use treatments, which permit the administration of the AlloRx Stem Cells outside of clinical trials. No assurance can be given that any positive results are attributable to the AlloRx Stem Cells, or that administration of AlloRx Stem Cells to other patients will have positive results. Compassionate use is a term that is used to refer to the use of an investigational drug outside of a clinical trial to treat a patient with a serious or immediately life-threatening disease or condition who has no comparable or satisfactory alternative treatment options. Regulators often allow compassionate use on a case-by-case basis for an individual patient or for defined groups of patients with similar treatment needs.
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There is no assurance that we will obtain regulatory approval for AlloRx Stem Cells. We will only obtain regulatory approval to commercialize a product candidate if we can demonstrate to the satisfaction of the FDA or other applicable regulatory authorities, in well-designed and conducted clinical trials, that the product candidate is safe and effective and that the product candidate, including the cell production methodology, otherwise meets the appropriate standards required for approval. Clinical trials can be lengthy, complex and extremely expensive processes with uncertain results. A failure of one or more clinical trials may occur at any stage of testing.
Success in pre-clinical and early clinical trials does not ensure that later clinical trials will be successful, and initial results from a clinical trial do not necessarily predict final results. While results from treating patients through compassionate use have in certain cases been successful, we cannot be assured that further trials will ultimately be successful. Results of further clinical trials may be disappointing.
Even if pre-clinical and early-stage clinical trials are successful, we may need to conduct additional clinical trials for product candidates with patients receiving the drug for longer periods before we are able to seek approvals to market and sell these product candidates from the FDA and regulatory authorities outside the United States. Even if we are able to obtain approval for our product candidates through an accelerated approval review program, we may still be required to conduct clinical trials after such an approval. If we are not successful in commercializing any of our lead product candidates, or are significantly delayed in doing so, our business will be materially harmed.
In addition, adverse events involving our product candidates or candidates of others that are cell based, either in compassionate use treatments, third-party foreign clinical trials or studies or otherwise, could negatively impact future clinical trials and the approval process for AlloRx Stem Cells. Any such adverse event would affect our ability to commercialize and sell AlloRx Stem Cells.
Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data. These results and related findings and conclusions are based on assumptions, estimations, calculations and conclusions, and are subject to change following the generation of additional data or a more comprehensive review of the data related to the particular study or trial. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline and preliminary data should be viewed with caution until the final data are available.
From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as subject enrollment continues and more subject data become available or as subjects from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could have a material adverse effect on our business, financial condition, and results of operations.
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We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on other product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other therapeutic platforms or product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs, therapeutic platforms and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.
If our competitors develop similar or comparable treatments for the target indications of our product candidates that are approved more quickly, marketed more successfully or are demonstrated to be safer or more effective than our product candidates, or if FDA approves biosimilar competitors to our products post-approval, our commercial opportunity will be reduced or eliminated.
We compete in an industry characterized by rapidly advancing technologies, intense competition, a changing regulatory and legislative landscape and a strong emphasis on the benefits of intellectual property protection and regulatory exclusivities. Our competitors include other biotechnology companies, pharmaceutical companies, academic institutions, government agencies and other private and public research organizations. AlloRx Stem Cell therapy or any future product candidates, if successfully developed and approved, may compete with established therapies and with new treatments that may be introduced by our competitors. We believe that competitors are actively developing competing products to our product candidates, and in some cases, such as with autism spectrum disorders, there may be tens or hundreds of companies seeking to commercialize therapeutics.
Many of our competitors and potential competitors have substantially greater scientific, research, and product development capabilities, as well as greater financial, marketing, sales and human resources capabilities than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development and commercialization of products that may be competitive with ours. Accordingly, our competitors may be more successful with respect to their products than we may be in developing, commercializing, and achieving widespread market acceptance for our products. If a competitor obtains approval for an orphan drug that is the same drug or the same biologic as one of our candidates before we do, we will be blocked from obtaining FDA approval for seven years from the date of the competitor’s product, unless we can establish that our product is clinically superior to the previously-approved competitor’s product or we can meet another exception, such as by showing that the competitor has failed to provide an adequate supply of its product to patients after approval. In addition, our competitors’ products may be more effective or more effectively marketed and sold than any treatment we may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses related to developing and supporting the commercialization of any of our product candidates. Developments by competitors may render our product candidates obsolete or noncompetitive. After one of our product candidates is approved, FDA may also approve a generic version with the same dosage form, safety, strength, route of administration, quality, performance characteristics and intended use as our product. These generic equivalents would be less costly to bring to market and could generally be offered at lower prices, thereby limiting our ability to gain or retain market share.
The acquisition or licensing of pharmaceutical products is also very competitive, and a number of more established companies, which have acknowledged strategies to in-license or acquire products, may have competitive advantages as may other emerging companies taking similar or different approaches to product acquisitions. The more established companies may have a competitive advantage over us due to their size, cash flows, institutional experience and historical corporate reputation.
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MSCs are biological entities obtained from living humans that can pose risks to the recipient. Any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly. We may incur significant costs to comply with current or future environmental, health and safety laws and regulations.
MSC therapies require many manufacturing steps. Cells must be harvested from donor tissue, isolated, and expanded in cell culture to produce a sufficient number of cells for use. Each step carries risks of contamination by other cells, microbes, or adventitious agents. The transfer of cells into a recipient can also carry risks and complications associated with the procedure itself, and a recipient may reject the transplanted cells. Any failure by us to adequately mitigate such risks and complications could have a material adverse effect on our reputation or our ability to market our products, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
We and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Even if we and these suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from biological materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of any insurance we may obtain and exceed our financial resources. We may not be able to maintain insurance on acceptable terms, or at all.
We are also subject to numerous environmental, health and safety laws and regulations. We may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or commercialization efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Our product candidates are derived from human UCs and therefore have the potential for disease transmission.
The utilization of donated umbilical cords creates the potential for transmission of cancer and communicable disease, including but not limited to human immunodeficiency virus (HIV), viral hepatitis A, B and C, COVID-19, syphilis, Creutzfeldt-Jakob disease, and other viral, fungal, or bacterial pathogens. Although we and our suppliers are required to comply with federal and state regulations intended to prevent communicable disease transmission, we or our suppliers may fail to comply with such regulations. Further, even with compliance, our products might nevertheless be viewed by the public as being associated with transmission of disease, and a clinical trial subject or patient who contracts an infectious disease might assert that the use of our product candidate or products resulted in disease transmission, even if the individual became infected through another source.
Any actual or alleged transmission of communicable disease could result in clinical trial subject or patient claims, litigation, distraction of management’s attention, potentially increased expenses, and adverse regulatory authority action. Further, any failure in screening, whether by us or other manufacturers of similar products, could adversely affect our reputation, the support we receive from the medical community, and overall demand for our products. As a result, such actions or claims, whether or not directed at us, could have a material adverse effect on our reputation with our customers and our ability to market our products, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Ethical and other concerns surrounding the use of stem cell therapy or human tissue may negatively affect public perception of us or our products or product candidates or may negatively affect regulatory approval of our products or product candidates, thereby reducing demand for our products.
The commercial success of our product candidates will depend in part on general public acceptance of the use of MSC therapy for the prevention or treatment of human diseases. The use of embryonic cells and fetal tissue for research and MSC therapy has been the subject of substantial national and international debate regarding related ethical, legal, and social issues. In the U.S., for example, until March 2009, federal government funding of embryonic stem cell research was limited to specifically identified cell lines and was not otherwise available. We do not use embryonic stem cells or fetal tissue, but the public may not be able to, or may fail to, differentiate our use of adult MSCs from the use of embryonic stem cells or fetal tissue by others, especially considering our use of donor umbilical cords. This could result in a negative perception of our company or our products or product candidates, thereby reducing demand, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
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We may obtain MSCs from umbilical cords donated by healthy adult female donors from non-profit organizations that collect and process tissue donations. Umbilical cord donors receive payment, but ethical concerns have been raised by some about the use of donated human tissue in a for-profit setting, as we are doing. Future adverse events in the field of stem cell therapy, changes in public policy, or changes to the FDA’s regulatory approval framework for these products could also result in greater governmental regulation of our product candidates or products, and potential regulatory delays relating to their testing or approval.
The successful commercialization of our current or future product candidates will depend on obtaining reimbursement from government and third-party payors.
If we successfully develop and obtain necessary regulatory approvals, we intend to sell our product candidates in the United States and outside of the United States where the regulatory environment allows us to expand such products. In the United States and any other jurisdictions in which we may market our product, the market for any pharmaceutical product is affected by the availability of reimbursement from government and third-party payors, such as government health administration authorities, private health insurers, health maintenance organizations, and pharmacy benefit management companies. MSC therapies may be expensive compared with conventional pharmaceuticals, due to the higher cost and complexity associated with the research, development, and production of product candidates, the small size and large geographic diversity of the target patient population for some indications, and the complexity associated with the distribution of signaling cell therapies which require special handling, storage, and shipment procedures and protocols. This, in turn, may make it more difficult for us to obtain adequate reimbursement from government and third-party payors, particularly if we cannot demonstrate a favorable cost-benefit relationship. Government and third-party payors may also deny coverage or offer inadequate levels of reimbursement for our potential products if they determine that the product has not received appropriate clearances from the FDA or other government regulators or is experimental, unnecessary or inappropriate.
In some other countries where we may seek to market our products, such as The Commonwealth of the Bahamas, Antigua and The Grand Cayman Islands, the pricing of prescription pharmaceutical products and services and the level of government reimbursement are subject to governmental control. In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we or our potential future collaborators may be required to conduct one or more clinical trials that compare the cost effectiveness of our product candidates or products to other available therapies. Conducting one or more additional clinical trials would be expensive and could result in delays in commercialization of our product candidates.
Managing and reducing health care costs has been a general concern of federal and state governments in the United States and various foreign governments. Although we do not believe that any recently enacted or presently proposed legislation in any jurisdictions in which we currently operate should impact our business based on our current model, we might be subject to future regulations or other cost-control initiatives that materially restrict the price we would receive for our products. In addition, government and third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services, and many limit reimbursements for newly approved health care products. In particular, government and third-party payors may limit the indications for which they will reimburse patients who use any products that we may develop. Cost control initiatives could decrease the price for products that we may develop, which could result in lower product revenues to us.
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A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business.
We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:
| ● | differing regulatory requirements and reimbursement regimes in foreign countries; | |
| ● | unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements; | |
| ● | economic weakness, including inflation, or political instability in particular foreign economies and markets; | |
| ● | compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; | |
| ● | foreign taxes, including withholding of payroll taxes; | |
| ● | foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; | |
| ● | difficulties staffing and managing foreign operations; | |
| ● | workforce uncertainty in countries where labor unrest is more common than in the United States; | |
| ● | potential liability under foreign regulations; | |
| ● | challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States; | |
| ● | production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and | |
| ● | business interruptions resulting from geo-political actions, including war and terrorism. |
These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.
Biotechnology is a well-capitalized area, and as a result, we may not be able to keep up with other well-capitalized companies in the market.
Biotechnology and biotechnological inventions are heavily capitalized and very competitive. The biotechnology industry is subject to significant and rapid technological change. Accordingly, our success may depend, in part, on our ability to respond quickly to such change through the development and introduction of new products or revised treatment regimens. Our ability to compete successfully against currently existing and future alternatives to our product candidates and systems and competitors who compete directly with us in the biotechnology industry may depend, in part, on our ability to attract and retain skilled personnel, develop superior products, be competitively priced, obtain patent or regulatory approvals as well as being early entrants to the market and to manufacture, market, and sell our products, independently or through collaborations. If we are unable to keep up with these changes and competition, our business could be significantly affected.
If our product candidates are approved by the FDA, then potential competitors could seek to use a publicly available stem-cell products to compete with our products for the same therapeutic uses, taking advantage of an abbreviated approval pathway as interchangeable with our product candidates. If we are unable to prevent entry of these products into our targeted market, our business could be significantly affected.
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Risks Related To Intellectual Property
If our intellectual property does not adequately protect our products and uses, others could compete against us more directly, which could harm our business and have a material adverse effect on our business, financial condition, and results of operations.
Our success depends, in large part, on our ability to obtain and maintain intellectual property protection for product candidates, process candidates and manufacturing/scale-up processes. Patent positions for biotechnology companies are generally uncertain, involve complex legal and factual questions, and can be subject to litigation.
We have no U.S. patents and we may never be awarded one. Our portfolio contains several patent applications, including one provisional application. Provisional applications may be converted to non-provisional and/or foreign applications, but these applications may not result in a patent. If patents do not issue, we may not have exclusivity for our products and methods of use.
The claims of U.S. and foreign patent applications such as our Patent Cooperation Treaty (“PCT”), a placeholder for filing international applications, if granted may not confer significant commercial protection against competing products and may not preclude entry by third parties into the marketplace. Furthermore, to the extent that we eventually own patent rights covering our business, the granted patents may be narrow and provide patent limited protection. In addition, third parties may challenge or design around those patents; for example, by asserting that the patents are invalid or arguing that the patent claims should be narrowly construed, and thereby avoid infringement actions. A third party may also develop technology not encompassed by the claims of the patents and/or patent applications. Further, if a foreign patent is awarded, the laws of foreign countries may not protect intellectual property rights to the same extent as laws of the United States.
Our patent applications on MSC technologies include claims directed to MSC-containing compositions and therapeutic uses. The MSC technology area is subject to competition and as a result, third parties may challenge the validity of any patents to facilitate entry into the market. If awarded patents from these patent applications, the patents might not contain claims that are sufficiently broad to prevent others from practicing our technologies or from competing with us with their own MSC technologies in the fields of interest to us. Consequently, competitors may independently develop competing products that do not infringe any patents or do not violate other intellectual property rights.
Obtaining and enforcing patents in the biopharmaceutical industry requires a high level of technological and legal complexity. Therefore, obtaining and enforcing patents is costly, time-consuming and as a result unpredictable.
Our pending patent applications may not issue or may issue with substantially narrower claims than currently pending claims. These narrower claims may not confer protection of our products.
Because of the extensive time required for development, testing, and regulatory review of a potential product, it is possible that a patent may expire or remain in force for a short period following commercialization, thereby limiting the period of exclusivity. To the extent our product candidates may not be protected, third parties are not precluded from making using, or selling a competing product or method.
Additionally, the background technologies used in some development of our therapeutics and treatments may be known by third parties. This could allow for third parties to compete using the same prior technologies.
If we fail to obtain assignment of rights of our intellectual property from all inventors or fail to obtain assignment of rights of our intellectual property in a timely fashion, we may not own or exclusively own our intellectual property, and this could adversely affect our ability to protect our product and have a materially effect on our business.
Control over patented technology requires us to obtain formal assignment of patents and patent applications from all inventors. If inventor assignments are not received or not received in a timely manner, we may not exclusively own the rights in the patents or patent applications and this may further affect processes in the U.S. and foreign jurisdictions.
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While we believe that each inventor on each patent application or patent has already assigned the intellectual property rights by obligation of employment with us or, if it has not yet been formally assigned, is under an obligation to be assigned to us, if such is not the case, our business, financial condition, results of operations, and prospects could be adversely affected. Further, we have certain rights of assignment by employee inventors regarding patents and we have been assigned some of the patents and patent applications by certain parties, while some of assignments were obtained after assignments were due which may adversely affect ownership rights. In addition, an inventor may have rights in the intellectual property by way of co-ownership. Under U.S. patent law, each co-inventor where there is no assignment or agreement (e.g., percent ownership or assignment requirement), has joint and several ownership of the whole application or patent regardless of individual contribution. In the absence of any agreement to the contrary, each of the joint owners or inventors without assignment of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners. In certain instances, negotiation and/or litigation may be required to compel the execution of those documents where assignment obligation can be verified.
If we are unable to protect the confidentiality of our proprietary information, trade secrets, and know-how, our competitive position could be impaired and our business, financial condition, results of operations, and prospects could be adversely affected.
Some aspects of our technology, especially regarding MSC expansion, manufacturing, and storage processes, are unpatented. This confidential information is protected by trade secret. These trade secrets are valuable to us and maintaining the secrecy of our processes is important to the success of our business. Trade secrets remain valid and enforceable without regard to limitations such as term restrictions that are imposed on patents. Trade secrets are not enforceable against a third party that innovates these processes independently. To date, our trade secrets and know-how are protected by confidentiality and/or employment agreements. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. A breach of confidentiality could affect our competitive position. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators, or advisors have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets or other proprietary information.
Adequate remedies may not exist in the event of unauthorized use or disclosure of confidential information. The disclosure of trade secrets or other proprietary information could impair our competitive position and could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Third-party claims of patent infringement may prevent or delay our product development efforts.
There is a risk of litigation involving patents and other intellectual property rights. Numerous U.S. and foreign patents, and pending patent applications, are owned by third parties in the fields in which we are developing product candidates. There is a risk that our product and formulation candidates, methods of making product candidates, and methods of using our product candidates may give rise to claims of infringement by third parties. Third parties may assert that we infringe their patents or are otherwise employing their proprietary technology without authorization. If our MSCs are approved by the FDA to treat our targeted indications, third parties may seek to enforce their patents by filing a patent infringement lawsuit.
Additionally, there may be third-party patents of which we are currently unaware with claims related to the use or manufacture of our product or therapeutic use candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in patents that our product or therapeutic use candidates may infringe. Some of these patent applications may not yet be available for public review because they are not yet publicly available. If any third-party patents were held by a court of competent jurisdiction to cover our targeted therapeutic uses, formulations or dosing regimens, or any final product itself, the holders of any such patents may be able to block our ability to commercialize targeted processes and compositions unless we are able to obtain a license regarding the applicable patents, or until such patents expire or they are finally determined to be held not infringed, unpatentable, invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use or dosing regimens, including combination therapy or patient selection criteria, the holders of any such patent may be able to block our ability to develop and commercialize the product candidate and/or our methods of use unless we obtain a license or until such patent expires or is finally determined to be held not infringed, unpatentable, invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.
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Parties making claims against us may seek and obtain injunctive or other equitable relief, which, if granted would block our ability to further develop and commercialize our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of Company resources from our business. In the event of a successful claim of infringement, we may have to pay substantial damages, obtain one or more licenses from third parties, pay royalties or redesign accused products and/or methods, which may be impossible or require substantial time and monetary expenditure.
Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance research or allow commercialization of product candidates and in certain cases, to avoid litigation. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize product candidates, which could harm our business significantly.
We may become involved in lawsuits to protect or enforce any patents we might obtain in the future, which could be expensive and time consuming.
Litigation may be necessary to enforce patent rights to protect trade secrets or know-how; or to defend the scope and validity of patent rights. Litigation, opposition, or other patent office proceedings in the U.S. and foreign jurisdictions, as applicable, could result in substantial additional costs and diversion of management focus. If we are ultimately unable to protect our intellectual property, we may be subject to competition which will potentially impact profitably. Competitors may infringe any patents we might obtain in the future. As a result, we may be required to file infringement claims against one or more competitors to protect our intellectual property rights, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent is invalid or unenforceable, thus preventing enjoinment of a third party or may refuse to enjoin the other party from using the technology at issue. An adverse determination of any litigation or defense proceedings could put one or more of our patents we might obtain in the future at risk of being invalidated or interpreted narrowly. Litigation or other patent office proceedings may fail and, even if successful, may result in substantial costs and distraction to management. We may not be able, alone or with our collaborators, to prevent misappropriation of our proprietary rights, particularly in countries where the local laws may not protect or enforce such rights as fully as in the U.S.
Furthermore, though we would seek protective orders where appropriate, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised. Disclosure of confidential information during this type of litigation could cause harm to our business.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common stock to decline.
During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our existing products, programs or intellectual property could be diminished. Accordingly, the value of our company may decline. These declines could be significant. Such announcements could also harm our reputation or the market for future products, which could have a material adverse effect on our current business, current financial condition, and prospects.
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Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Laws change and these changes in laws could have an impact on our business. U.S. patent laws that govern filing, prosecution and patentable subject matter are constantly in flux. These laws can include provisions that affect the way patent applications are filed, the way in which patent applications are prosecuted and may also affect patent litigation. New laws confirmed by lower courts and new procedures available through USPTO proceedings may also affect our ability to obtain patents and to prevent our claims from being narrowly construed or invalidated. The availability of these processes to third parties could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain patents or to enforce our patents we might obtain in the future.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if a patent remains in good standing, the natural expiration of a patent is 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the term of a patent, and the protection it affords, are limited. In addition, patent life can be reduced if it is found that patented claims have overlapping subject matter of a related co-owned patent and a terminal disclaimer is filed, reducing the life of the subject patent to less than 20 years. Even if patents directed to our product candidates are obtained, once the patent term has expired, we may be open to competition from competitive products. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
If we do not obtain patent term extension for our product candidates and/or methods of their use, our business may be materially harmed.
Depending upon the timing, duration, and specifics of any applicable FDA marketing approval of our product candidates and our methods of use, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, or the Biologics Price Competition and Innovation Act of 2009. These laws permit a patent restoration or extension of term as compensation for patent term lost during product development and the FDA regulatory review process. These extensions are limited to a single patent being extended per FDA-approved product. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended.
Patent term extension may also be available in certain foreign countries upon regulatory approval of our product candidates and/or therapeutic uses of these product candidates. However, we may not be granted an extension. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than applied for, our business could be affected. In addition, competitors may obtain approval of competing products at the same time or following our patent expiration, and our revenue could be reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.
We may not be able to protect our intellectual property rights throughout the world.
We may not have patents in every jurisdiction in which we sell, thus creating competition that could impact our profitability. Although we have pending patent applications in the U.S. and PCT placeholder applications, filing, prosecuting, and defending patents in all countries throughout the world would be prohibitively expensive. Due to local laws and other causes, our intellectual property rights in some countries outside the U.S. can be less robust than those in the U.S. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S. whether we have filed an application in that country or not. In addition, we may not be able to prevent third parties from selling or importing products made using our inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the U.S. These products may compete with our product candidates and/or therapeutic uses, and this could have adverse effects on our business.
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Further, it is costly and time-consuming to assert infringement of intellectual property rights against a competitor in a foreign country. Besides cost and time, many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. Some legal systems in foreign countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our intellectual property or stop marketing of competing products in violation of proprietary rights. As noted above, proceedings to enforce patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, efforts to protect and enforce our intellectual property rights in foreign jurisdictions may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patents. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected in that country and overall.
Maintenance of patents and patent applications is expensive and loss of patent rights by non-payment of required fees could impact the company. We rely on our outside legal counsel to assist with these matters by sending reminders, as well as, on third parties to pay these fees when due.
Additionally, the USPTO and various foreign patent offices require compliance with procedural, documentary, fee payment and other similar provisions during the patent application process and once a patent is issued or granted. We employ reputable law firms and other professionals to help us comply, and if needed for an inadvertent lapse many of these deadlines can be extended and a lapse in payment cured by applying a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance and/or non-payment can result in abandonment or lapse of the patent or patent application without chance of reinstatement, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business, financial condition, and commercial operations.
Risks Related To Regulatory Approval And Other Government Regulations
If we are not able to conduct our clinical trials properly and on schedule, marketing approval by FDA and other regulatory authorities may be delayed or denied.
The commencement and completion of our clinical trials may be delayed or terminated for many reasons, including, but not limited to, if:
| ● | the FDA does not grant INDs to test the product candidates in humans; | |
| ● | the FDA does not grant, or suspends, permission to proceed and places the trial on clinical hold; | |
| ● | we are not able to identify sufficient clinical trial sites and/or clinical trial investigators to begin or complete a trial; | |
| ● | subjects do not enroll in our trials at the rate we expect; |
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| ● | subjects experience an unacceptable rate or severity of adverse side effects; | |
| ● | third-party clinical investigators do not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, cGCP and regulatory requirements, or other third parties do not perform data collection and analysis in a timely or accurate manner, or maintain data security and integrity; | |
| ● | the FDA does not agree with our interpretation of data obtained from preclinical and nonclinical animal testing and clinical trials, even though the data can be interpreted in different ways; | |
| ● | inspections by the FDA or IRBs of clinical trial sites at research institutions participating in our clinical trials find regulatory violations that require us to undertake corrective action, suspend, or terminate one or more sites, or prohibit us from using some or all of the data in support of our marketing applications; or | |
| ● | one or more IRBs or DSMBs (as defined below) suspends or terminates the trial at an investigational site, precludes enrollment of additional subjects, or withdraws its approval of the trial. |
Our development costs will increase if we have material delays in our clinical trials, or if we are required to modify, suspend, terminate, or repeat a clinical trial. If we are unable to conduct our clinical trials properly and on schedule, marketing approval may be delayed or denied by the FDA.
Producing and marketing an approved drug or other medical product is subject to significant and costly post-approval regulation.
Even if approved for commercial sale, we may be required to conduct Phase 4 clinical trials or comply with other post-marketing requirements for the products. Even if we obtain approval of a product, we can only market the product for the approved indications. After granting marketing approval, the FDA and regulatory agencies in other countries continue to review and inspect marketed products, manufacturers, and manufacturing facilities, creating additional regulatory burdens. Later discovery of previously unknown problems with a product, manufacturer, or facility may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market. Further, regulatory agencies may establish different or additional regulations that could impact the post-marketing status of our products.
If we violate the guidelines pertaining to promotion and advertising of our clinical candidates or approved products, either inadvertently or otherwise, we may be subject to disciplinary action by the FDA’s Office of Prescription Drug Promotion (“OPDP”) or other regulatory bodies.
The FDA’s Office of Prescription Drug Promotion, or OPDP, is responsible for reviewing prescription drug advertising and promotional labeling to ensure that the information contained in these materials is not false or misleading. There are specific disclosure requirements and the applicable regulations mandate that advertisements cannot be false or misleading or omit material facts about the product. Prescription drug promotional materials must present a fair balance between the drug’s effectiveness and the risks associated with its use. Most warning letters from OPDP cite inadequate disclosure of risk information.
OPDP prioritizes its actions based on the degree of risk to the public health, and often focuses on newly introduced drugs and those associated with significant health risks. There are two types of letters that OPDP typically sends to companies that violate its drug advertising and promotional guidelines: notice of violation letters, or untitled letters, and warning letters. In the case of an untitled letter, OPDP typically alerts the drug company of the violation and issues a directive to refrain from future violations but does not typically demand other corrective action. A warning letter is typically issued in cases that are more serious or where the company is a repeat offender. Although we have not received any such letters from OPDP, we may inadvertently violate OPDP’s guidelines in the future and be subject to a OPDP untitled letter or warning letter, which may have a negative impact on our business. Similarly, we and our collaborators may inadvertently violate the guidelines of the foreign equivalent of the FDA’s OPDP.
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We and any of our future development partners will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business.
If we and any future development partners are successful in commercializing our products, FDA and foreign regulatory authorities would require that we and any future development partners report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any future development partners may fail to report adverse events we become aware of within the prescribed timeframe. We and any future development partners may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we and any future development partners fail to comply with our reporting obligations, FDA or a foreign regulatory authority could take action against us including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.
Our business could target benefits from various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, and priority review, but we may not ultimately qualify for or benefit from these incentives.
We may seek various regulatory incentives, such as orphan drug exclusivity, breakthrough therapy designation, fast track designation, accelerated approval, priority review and Priority Review Vouchers (“PRVs”), where available, that provide for certain periods of exclusivity, expedited review and/or other benefits, and we may also seek similar designations elsewhere in the world. Often, regulatory agencies have broad discretion in determining whether products qualify for such regulatory incentives and benefits. We cannot guarantee that we will be able to receive orphan drug status from FDA or equivalent regulatory designations elsewhere. We also cannot guarantee that we will obtain breakthrough therapy or fast track designation, which may provide certain potential benefits such as more frequent meetings with FDA to discuss the development plan, intensive guidance on an efficient drug development program, and potential eligibility for rolling review or priority review. Legislative developments in the U.S., including proposed legislation that would restrict eligibility for PRVs, may affect our ability to qualify for these programs in the future.
Even if we are successful in obtaining beneficial regulatory designations by FDA or other regulatory agency for our product candidates, such designations may not lead to faster development or regulatory review or approval and does not increase the likelihood that our product candidates will receive marketing approval. We may not be able to obtain or maintain such designations for our product candidates, and our competitors may obtain these designations for their product candidates, which could impact our ability to develop and commercialize our product candidates or compete with such competitors, which would adversely impact our business, financial condition or results of operations.
Obtaining and maintaining regulatory approval of a product in one jurisdiction does not mean that we will be successful in obtaining or maintaining regulatory approval in other jurisdictions.
Obtaining and maintaining regulatory approval of a product in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction. For example, even if the FDA grants marketing approval of a product, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion and reimbursement of the product in those countries. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. Moreover, product types or regulatory classifications, as well as approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including different or additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.
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Obtaining foreign regulatory approvals and establishing and maintaining compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we or any future collaborator fails to comply with the regulatory requirements in international markets or fails to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular, an approved product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label, which is within their purview as part of their practice of medicine. If we are found to have promoted such off-label uses, however, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. The FDA may also issue a public warning letter or untitled letter to the company. If we cannot successfully manage the promotion of our future approved products, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
The FDA and other comparable foreign regulatory authorities may not accept data from trials or studies conducted in locations outside of their jurisdiction.
We currently supply AlloRx Stem Cells to certain foreign third-party clinics and medical centers. Such foreign third-party clinics and medical centers are currently using, or intend to use, AlloRx Stem Cells to conduct clinical studies for the potential treatment of a wide variety of indications, and we may choose to conduct international clinical trials or studies in the future. The primary purpose of these clinical studies is for the open-label treatment of the respective indication; accordingly, there is no randomized control group for patients treated in these foreign clinical studies.
The acceptance of study data by the FDA, or other comparable foreign regulatory authority from clinical trials or studies conducted outside of their respective jurisdictions may be subject to certain conditions. In cases where data from foreign clinical trials or studies are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (1) the data are applicable to the United States population and United States medical practice; (2) the trials are performed by clinical investigators of recognized competence and pursuant to cGCP requirements; and (3) the FDA is able to validate the data through an on-site inspection or other appropriate means. The FDA may accept the use of some foreign data to support a marketing approval if the clinical trial meets certain requirements. Additionally, the FDA’s clinical trial requirements, including the adequacy of the subject population studied and statistical powering, must be met. Furthermore, such foreign trials or studies would be subject to the applicable local laws of the foreign jurisdictions where the trials or studies are conducted, including from our ongoing and planned pre-clinical studies of AlloRx Stem Cells, for which we plan to enroll cohorts outside the United States. There can be no assurance that the FDA or any applicable foreign regulatory authority will accept data from trials or studies conducted outside of its respective jurisdiction. Moreover, since the foreign third-party conducted clinical studies using AlloRx Stem Cells are neither placebo-controlled nor blinded, the FDA may be less likely to accept such data. If the FDA, or any applicable foreign regulatory authority does not accept such data, it may result in the need for additional studies, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval for commercialization in the applicable jurisdiction.
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In addition, foreign clinical studies conducted by The Foundation for Orthopaedics and Regenerative Medicine in St. John’s, Antigua and Barbuda using AlloRx Stem Cells are run by Chadwick Prodromos, M.D., who holds (i) 844,800 shares of our common stock, which were issued upon the conversion of shares of Series A Preferred Stock, (ii) Class A Warrants to purchase up to 15,384 shares of our common stock at an exercise price of $13.00 per share, and (iii) Class B Warrants to purchase up to 15,384 shares of our common stock at an exercise price of $26.00 per share. As part of future drug approval applications to the FDA, we must disclose certain financial interests of investigators who participated in any of the clinical studies being submitted in support of approval or must certify to the absence of such financial interests. The FDA evaluates the information contained in such disclosures to determine whether disclosed interests may have an impact on the reliability of a study. If the FDA determines that financial interests of any clinical investigator, including that of Dr. Prodromos, raise serious questions of data integrity, the FDA can institute a data audit, request that we submit further data analyses, conduct additional independent studies to confirm the results of the questioned study, or refuse to use the data from the questioned study as a basis for approval. A finding by the FDA that a financial relationship of an investigator raises serious questions of data integrity could delay or otherwise adversely affect approval of our products.
We may attempt to secure approval from the FDA or comparable foreign regulatory authorities through an expedited review program, and if we are unable to do so, then we could face increased expense to obtain, and delays in the receipt of, necessary marketing approvals.
We may in the future seek approval for one or more of our product candidates under one of the FDA’s expedited review programs for serious conditions. These programs are available to sponsors of therapies that address an unmet medical need to treat a serious condition. The qualifying criteria and requirements vary for each expedited program. Prior to seeking review under one of these expedited programs for any of our product candidates, we intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive marketing approval through an expedited review program.
In August 2021, we submitted an initial request for ODD for PTHS to FDA’s Office of Orphan Products Development. In November 2021, FDA indicated that it was unable to grant our initial ODD request but indicated that we may submit an amendment to our initial request containing additional information, specifically outcome data from our Phase 1/2a clinical trial for PTHS. FDA has not yet made a determination as to whether PTHS qualifies as a “rare disease or condition,” and we expect such determination will be made on the basis of the facts and circumstances if and when the amendment to our request for ODD is submitted.
There can be no assurances that, after our evaluation of the FDA’s feedback and other factors, we will decide to pursue one or more of these expedited review programs. Similarly, there can be no assurance that after subsequent FDA feedback we will continue to pursue one or more of these expedited programs, even if we initially decide to do so. Furthermore, FDA could decide not to grant our request to use one or more of the expedited review programs for a product candidate, even if the FDA’s initial feedback is that the product candidate would qualify for such program(s). Moreover, FDA can decide to stop reviewing a product candidate under one or more of these expedited review programs if, for example, the conditions that warranted expedited review no longer apply to that product candidate.
Some of these expedited programs (e.g., accelerated approval) also require post-marketing clinical trials to be completed and, if any such required trial fails, the FDA could withdraw the approval of the product. If one of our product candidates does not qualify for any expedited review program, then this could result in a longer time period to approval and commercialization of such product candidate, could increase the cost of development of such product candidate, and could harm our competitive position in the marketplace.
Our research and development activities could be affected or delayed due to possible restrictions on animal testing.
Certain laws and regulations require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, or if the laws and regulations regarding animal testing otherwise change, our research and development activities may be interrupted, delayed or become more expensive.
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We may face difficulties from changes to current statutes or regulations and future legislation or regulations, both in the U.S. as well as in other foreign jurisdictions where we may be operating.
Existing statutes or regulations may be revised and additional legislation or regulations may be codified that could prevent, limit, delay or otherwise adversely affect regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.
For example, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges and attempts to repeal or replace certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, legislation affecting the implementation of the ACA have passed. On December 22, 2017, President Trump signed into law federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which includes a provision eliminating, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate”. In addition, the Further Consolidated Appropriations Act of 2020, signed into law December 20, 2019, permanently eliminates, effective January 1, 2020, the ACA-mandated “Cadillac” tax on certain high-cost employer-sponsored health coverage and the excise tax on non-exempt medical devices and, effective January 1, 2021, also eliminates the annual fee imposed on certain health insurance providers based on market share. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to increase from 50% to 70% the point-of-sale discount that pharmaceutical manufacturers participating in the Medicare Coverage Gap Discount Program must provide to eligible Medicare Part D beneficiaries during the coverage gap phase of the Part D benefit, commonly referred to as the “donut hole,” and to reduce standard beneficiary cost sharing in the coverage gap from 30% to 25% in most Medicare Part D plans. In December 2018, the Centers for Medicare & Medicaid Services, or CMS, published a new final rule permitting further collections and payments to and from certain ACA-qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit ruled that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On June 17, 2021, the U.S. Supreme Court dismissed this challenge without specifically ruling on the constitutionality of the ACA.
In addition, other legislative changes have been proposed and adopted in the United States that could impact our future business and operations, including those that may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for our product candidates, if approved, and accordingly, our business, financial condition, and results of operations.
Moreover, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. While several proposed reform measures will require additional Congress to pass legislation to become effective, Congress and the Biden administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. The Biden administration has taken several recent executive actions that signal changes in policy from the prior administration. For example, on July 9, 2021, President Biden signed an executive order (the “Executive Order”) to promote competition in the U.S. economy that included several initiatives addressing prescription drugs. Among other provisions, the Executive Order directed the Secretary of Health and Human Services (“HHS”) to issue a report to the White House that includes a plan to, among other things, reduce prices for prescription drugs, including prices paid by the federal government for such drugs. In response to the Executive Order, on September 9, 2021, HHS issued a Comprehensive Plan for Addressing High Drug Prices that identified potential legislative policies and administrative tools that Congress and the agency can pursue in order to make drug prices more affordable and equitable, improve and promote competition throughout the prescription drug industry, and foster scientific innovation. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, and marketing cost disclosure and transparency measures, and, in some cases, mechanisms designed to encourage importation from other countries and bulk purchasing.
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We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our product candidates.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for biotechnology products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Our relationships with healthcare providers, clinical investigators, CROs and third-party payors in connection with our current and future business activities may be subject to federal and state healthcare fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws, which could expose us to, among other things, criminal sanctions, civil penalties, contractual damages, exclusion from governmental healthcare programs, reputational harm, administrative burdens and diminished profits and future earnings.
Healthcare providers and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain future marketing approval. Our current and future arrangements with healthcare providers, clinical investigators, CROs, third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include, without limitation, the following:
| ● | the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. The Anti-Kickback Statute applies to arrangements between pharmaceutical manufacturers on the one hand and individuals, such as prescribers, patients, purchasers, and formulary managers on the other hand, including, for example, consulting/speaking arrangements, discount and rebate offers, grants, charitable contributions, and patient support offerings, among others. A conviction for violation of the Anti-Kickback Statute can result in criminal fines and/or imprisonment and requires exclusion from participation in federal health care programs. Exclusion may also be imposed if the government determines that an entity has committed acts that are prohibited by the Anti-Kickback Statute. Although there are a number of statutory exceptions and regulatory safe harbors to the federal Anti-Kickback Statute that protect certain common industry practices from prosecution, the exceptions and safe harbors are narrowly drawn, and arrangements may be subject to scrutiny or penalty if they do not fully satisfy all elements of an available exception or safe harbor. The Anti-Kickback Statute safe harbors have been the subject of recent regulatory reforms. As a general matter, however, any changes to the safe harbors may impact our future contractual and other arrangements with pharmacy benefit managers, group purchasing organizations, third-party payors, wholesalers and distributors, healthcare providers and prescribers, and other entities, as well as our future pricing strategies; |
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| ● | the federal false claims laws, including the civil False Claims Act, which can be enforced by private citizens through civil whistleblower or qui tam actions, prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties of $11,803 to $23,607 per false claim or statement for penalties assessed after December 13, 2021, with respect to violations occurring after November 2, 2015. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payers if they are deemed to “cause” the submission of false or fraudulent claims. Criminal prosecution is also possible under the federal criminal False Claims Act, which is similar to the federal civil False Claims Act and imposes criminal liability for making or presenting a false, fictitious or fraudulent claim to the federal government; | |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits, among other things, knowingly and willfully executing or attempting to execute a scheme or artifice to defraud any healthcare benefit program or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of any health care benefit program in connection with the delivery of or payment for healthcare benefits, items, or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Criminal statutes enacted as part of HIPAA also make it a crime to knowingly and willfully falsify, conceal or cover up a material fact, make any materially false, fictitious or fraudulent statements or representations, or make or use any materially false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services.; | |
| ● | the federal civil monetary penalties law authorizes the imposition of substantial civil monetary penalties against an entity, such as a pharmaceutical manufacturer, that engages in certain activities including, among others (1) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way; (2) arranging for or contracting with an individual or entity that is excluded from participation in federal healthcare programs to provide items or services reimbursable by a federal healthcare program; (3) violations of the federal Anti-Kickback Statute; (4) failing to report and return a known overpayment; or (5) offering or transferring remuneration to any Medicare or Medicaid beneficiary that the offeror or transferor knows or should know is likely to influence such individual to order or receive from a particular provider, practitioner or supplier any item or service for which payment may be made, in whole or in part, under Medicare or Medicaid; |
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| ● | the federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to track and annually report to CMS (for public disclosure) information regarding certain payments and other transfers of value to covered recipients. The term covered recipients includes U.S.-licensed physicians, physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified nurse anesthetists, certified nurse midwives, and teaching hospitals, as well as information regarding certain ownership and investment interests held by physicians and their immediate family members; and | |
| ● | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing or other arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. |
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to certain payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Some state laws require pharmaceutical companies to report information on the pricing of certain drug products. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. For instance, the collection and use of health data in the European Union is governed by the General Data Protection Regulation (the “GDPR”), which extends the geographical scope of European Union data protection law to non-European Union entities under certain conditions, tightens existing European Union data protection principles, creates new obligations for companies and new rights for individuals. Failure to comply with the GDPR may result in substantial fines and other administrative penalties. In addition, on June 28, 2018, the State of California enacted the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and similar laws have been passed or proposed in other states and proposed at the federal level.
Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve on-going substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, temporary or permanent debarment, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Risks Related To The Cosmetic Product Industry And InfiniVive MD Products
A recall or suspension of sale of our InfiniVive MD products, or the discovery of serious safety issues with our products or the incorrect application of such products by medical professionals to which we sell such products, could have a significant negative impact on us.
The FDA and equivalent foreign regulatory authorities have the authority to require the recall or suspension, either temporarily or permanently, of commercialized products in the event of material deficiencies or defects in quality systems, product design or manufacture or in the event that a product poses an unacceptable risk to health. Regulatory authorities have broad discretion to require the recall or suspension of a product or to require that manufacturers alert customers of safety risks and may do so even in circumstances where we do not believe our product poses an unacceptable risk to health. Recalls, suspensions or other notices relating to any products that we distribute would divert managerial and financial resources, and have an adverse effect on our reputation, financial condition and operating results.
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In addition, regulatory authorities may require us to, or we may voluntarily, suspend sales of a product if we become aware that the medical professionals to which we sell our products have not followed our instructions for application. For example, InfiniVive MD’s Exosome Serum contains conditioned media derived from AlloRx Stem Cells containing various secreted products including proteins, RNA and exosomes and must be applied topically by a professional. When such product is marketed and sold by us to plastic surgeons, cosmetic surgeons and aestheticians throughout the United States and internationally, we include instructions specifying that such product must be applied topically by these medical professionals. Administration outside of those specific directions could result in us running afoul of FDA rules and regulations. As further discussed below under “Our Products,” from June 2022 to July 2022, out of an abundance of caution, we voluntarily suspended sales of InfiniVive MD’s Exosome Serum in the United States in order to conduct an investigation into the potential improper administration of this product by medical professionals that have purchased this product directly from us or via distribution from other medical professionals. Although the investigation ultimately resulted in the conclusion that InfiniVive MD’s Exosome Serum was not being misused or misapplied, there can be no assurance that medical professionals have not or will not misuse or misapply our products, which could expose us to administrative or civil liability.
InfiniVive MD products may fail to achieve the broad degree of physician adoption and use or consumer demand necessary for commercial success.
InfiniVive MD products, which are used solely in a clinical setting, may fail to gain sufficient market acceptance by physicians, consumers and others in the medical aesthetics community. The commercial success of these products and any future products will depend significantly on the broad adoption and use of the resulting product by physicians for the treatment of aesthetic indications that we may seek to pursue. We are aware that other companies are seeking to develop alternative products and treatments, any of which could impact the demand for our InfiniVive MD products.
The degree and rate of physician adoption of our exosome serums and any future products depend on a number of factors, including the cost, profitability to our customers, consumer demand, characteristics and effectiveness of the product. Our success will also depend our ability to create compelling marketing programs and ability to overcome any biases physicians or consumers may have toward the use, safety and efficacy of existing products over our InfiniVive MD products. Moreover, our competitors may offer more compelling marketing or discounting programs than we are able to offer, including by bundling multiple aesthetic products to provide a more comprehensive offering than we can. We can provide no assurance that health professionals will continue to recommend our products at their current levels, or at all. Additionally, we may be unable to continue to grow our network of health professionals and therefore may not continue to achieve revenue growth through this channel.
With respect to consumer demand, treatment with InfiniVive MD products is an elective procedure, the cost of which must be borne by the consumer, and we do not expect costs related to the treatment to be reimbursable through any third-party payor, such as Medicaid, Medicare or commercial insurance. The decision by a consumer to undergo treatment with InfiniVive MD products for aesthetic indications may be influenced by a number of factors, including the cost, efficacy, safety, perception, marketing programs for, and physician recommendations of InfiniVive MD products versus competitive products or procedures. Moreover, consumer demand may fluctuate over time as a result of consumer sentiment about the benefits and risks of aesthetic procedures generally and InfiniVive MD products in particular, changes in demographics and social trends, and general consumer confidence and consumer discretionary spending, which may be impacted by the COVID-19 outbreak, economic and political conditions.
If our InfiniVive MD products or any future product candidates fail to achieve the broad degree of physician adoption necessary for commercial success or the requisite consumer demand, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our business.
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FDA and FTC may undertake enforcement action against our cosmetic products if they do not accept our advertising and marketing or if those products are used beyond the intended uses that we authorize.
If our products are marketed outside of their intended use, for example if they are advertised for the treatment, diagnosis, cure, prevention, or mitigation of a disease, then regulatory agencies may issue a warning letter or further investigate our marketing practices to ensure we are complying with advertising and promotional rules that apply to the product category.
If we fail to develop and maintain our InfiniVive MD brand, our business could suffer.
We believe that InfiniVive MD is a brand that has contributed to the success of our business since it was acquired by us in 2021, and we believe our continued success depends on our ability to maintain and grow the value of our InfiniVive MD brand. Maintaining, promoting and positioning our brand and reputation will depend on, among other factors, the success of our product offerings, product safety, quality assurance, marketing and merchandising efforts, our continued focus on delivering well-designed and effective products to our consumers and our ability to provide a consistent, high-quality consumer experience. Any negative publicity, regardless of its accuracy, could have an adverse effect on our business. Brand value is based on perceptions of subjective qualities, and any incident that erodes the loyalty of our consumers, suppliers or manufacturers, including changes to our products or packaging, adverse publicity or a governmental investigation, litigation or regulatory enforcement action, could significantly reduce the value of our brands and adversely affect our business, financial condition, results of operations and prospects.
Our InfiniVive MD brand and reputation may be diminished due to real or perceived quality, safety, efficacy or environmental impact issues with its products, which could have an adverse effect on our business, financial condition, results of operations and prospects.
Any loss of confidence on the part of consumers in our InfiniVive MD products or the ingredients used in our products, whether related to product contamination or product safety or quality failures, actual or perceived, environmental impacts, or inclusion of prohibited ingredients, or ingredients that are perceived to be “toxic”, or any societal apprehension about the use of stem cells in consumer products, could tarnish the image of our brand and could cause consumers to choose other products. Allegations of contamination or other adverse effects on product safety or efficacy or suitability for use by a particular consumer or on the environment, even if untrue, may require us to expend significant time and resources responding to such allegations and could, from time to time, result in a recall of a product from any or all of the markets in which the affected product was distributed. Any such issues or recalls could negatively affect our ability to achieve or maintain profitability and brand image.
We also have no control over our InfiniVive MD products once purchased by consumers. For example, consumers may store or use our InfiniVive MD products under conditions and for periods of time inconsistent with approved directions for use or the listed expiration date or required warnings or other governmental guidelines on our labels, which may adversely affect the quality and safety of our products.
If our InfiniVive MD products are found to be, or perceived to be, defective or unsafe, or if they otherwise fail to meet our consumers’ expectations, our relationships with consumers could suffer, the appeal of our brands could be diminished, we may need to recall some of our InfiniVive MD products and/or become subject to regulatory action, and we could lose sales or market share or become subject to boycotts or liability claims. In addition, safety or other defects in our competitors’ products could reduce consumer demand for our own products if consumers view them to be similar. Any such adverse effect could be exacerbated by our market positioning as a purveyor of cosmetic products and may significantly reduce our brand’s value. Issues regarding the safety, efficacy, quality or environmental impact of any of our products, regardless of the cause, may have an adverse effect on our brand, reputation and operating results. Negative publicity about us, our brand or our InfiniVive MD products could seriously damage our brand and reputation. Any loss of confidence on the part of consumers in the quality, safety, efficacy or environmental suitability of our products would be difficult and costly to overcome, even if such concerns were based on inaccurate or misleading information. If we do not maintain the favorable perception of our InfiniVive MD brand, our business, financial condition, results of operations and prospects could be adversely affected.
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The cosmetics industry is highly competitive, and if InfiniVive MD’s products are unable to compete effectively our results will suffer.
InfiniVive MD faces vigorous competition from companies throughout the world, including large multinational consumer products companies that have many cosmetics brands under ownership and standalone cosmetics brands. Competition in the cosmetics industry is based on the introduction of new products, pricing of products, quality of products and packaging, brand awareness, perceived value and quality, innovation, in-store presence and visibility, promotional activities, advertising, editorials, e-commerce and other activities. Any future direct to consumer products that we may develop, must compete with a high volume of new product introductions and existing products by diverse companies across several different distribution channels.
Many multinational consumer companies have greater financial, technical, or marketing resources, longer operating histories, greater brand recognition or larger customer bases than we do and may be able to respond more effectively to changing business and economic conditions than we can. Our competitors may attempt to gain market share by offering products at prices at or below the prices at which our InfiniVive MD products are typically offered, including through the use of large percentage discounts and “buy one and get one free” offers. Competitive pricing may require us to reduce our prices, which would decrease our profitability or result in lost sales. Our competitors, many of whom have greater resources than we do, may be better able to withstand these price reductions and lost sales.
Risks Related To The Dietary And Nutritional Supplements Industry And Fitore Products
Adulterated or misbranded products appearing on the market under the Fitore brand may subject us to costs or liabilities or damage our reputation and brand.
Adulterated or misbranded supplements sold under our Fitore brand in the future could contain harmful or unlawful ingredients or may not perform as intended. In the future, we could become involved in investigations with the FDA or other federal and state agencies as a result of adulterated or misbranded supplements. We may incur costs or liabilities resulting from an investigation or become involved in product liability litigation resulting from adulterated or misbranded supplements. Even if there is no customer harm, adulterated or misbranded products that do not perform as intended could damage our reputation and brand and lead to a loss of customer sales as a result.
We and our suppliers are subject to numerous laws and regulations that apply to the manufacture, sale and marketing of products that promote health and wellness, including cosmetics, dietary supplements, and other personal care products, and compliance with these laws and regulations, as they currently exist or as modified in the future, may increase our costs, limit or eliminate our ability to sell certain products, subject us or our suppliers to the risk of enforcement action, or otherwise adversely affect our business, results of operations and financial condition.
As a distributor of products that promote health and wellness, including cosmetics, dietary supplements, and other personal care products, we are subject to numerous health and safety laws and regulations. Our third-party manufacturers for Fitore products are also subject to such laws and regulations. These laws and regulations apply to many aspects of our business, including the manufacturing, packaging, labeling, distribution, advertising, sale, quality and safety of products we sell, as well as the health and safety of our team members and the protection of the environment. We are subject to regulation by various government agencies, including the FDA, the FTC, as well as various state and local agencies. For example, certain of our products are subject to numerous and extensive laws and regulations governing the type of claims we can make regarding our products, the product constituents that can be used to manufacture our products, and whether our product constituents or the products themselves require pre-market review or pre-market notification. Outside the United States, our activities and products are also subject to numerous similar statutes and regulations. Many of these laws and regulations involve a high level of subjectivity, are inherently fact-based and subject to interpretation, and vary significantly from market to market.
Dietary supplements are regulated under the Dietary Supplement Health and Education Act of 1994 (DSHEA), a statute which is administered by the FDA which amended the FFDCA. DSHEA expressly permits supplements to bear statements describing how a product affects the structure, function or general well-being of the body. However, no statement may expressly or implicitly represent that a supplement will diagnose, cure, mitigate, treat or prevent a disease. DSHEA has not been materially amended since it was enacted in 1994 but the newly constituted U.S. Congress or executive branch could decide to revisit whether changes are necessary to modernize this legislation.
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Our dietary supplement products are required to be manufactured in compliance with current cGMP requirements. As a result, the third-party manufacturing facilities used by us or any of our current or future suppliers must be compliant with cGMPs. These manufacturing facilities are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and international authorities for compliance with cGMPs and similar regulatory requirements. If we or our manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, our products may be deemed noncompliant, and we could face sanctions being imposed on us, including fines, injunctions, civil penalties, delays, operating restrictions, interruptions in supply, recalls, withdrawals, issuance of safety alerts and criminal prosecutions, any of which could have a material adverse impact on our business, financial condition, results of operations and prospects. Finally, we also could experience manufacturing delays if our contractors give greater priority to the manufacture and supply of other products over our products or otherwise do not satisfactorily perform according to the terms of their agreements with us.
The FDA has broad authority to enforce the provisions of the FFDCA applicable to the safety, labeling, manufacturing and promotion of dietary supplements, including powers to issue a public warning letter to a company, publicize information about illegal products, institute an administrative detention, request or order a recall of illegal products from the market and request the Department of Justice to initiate a seizure action, an injunction action or a criminal prosecution in the U.S. courts. Pursuant to the Food Safety Modernization Act (“FSMA”), the FDA also has the power to refuse the import of dietary supplement from a foreign supplier that is not appropriately verified as in compliance with all FDA laws and regulations. Moreover, the FDA has the authority to administratively suspend the registration of any facility producing dietary supplements, deemed to present a reasonable probability of causing serious adverse health consequences.
In connection with the marketing and advertisement of certain of the products we sell, we could be the target of claims relating to false or deceptive advertising, including under the auspices of the FTC and the consumer protection statutes of some states. Furthermore, in recent years, the FDA has been aggressive in enforcing its regulations with respect to nutrient content claims, unauthorized “health claims,” which are defined as claims that characterize the relationship between a food or food ingredient and a disease or health condition, and other claims that impermissibly suggest therapeutic benefits for certain products including dietary supplements. These events could interrupt the marketing and sales of our products, severely damage our brand reputation and public image, increase the cost of our products, result in product recalls, market withdrawals or litigation and impede our ability to deliver our products, any of which could result in a material adverse effect on our business, financial condition and results of operations.
As is common in the dietary supplements industry, we rely on our suppliers to ensure that the Fitore products that they manufacture for us comply with all applicable regulatory and legislative requirements. However, there is no assurance that our suppliers comply with such requirements and any claims of non-compliance could significantly damage our reputation and consumer confidence in our products.
We cannot predict the nature of future laws, regulations, interpretations or applications, or determine what effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on our business in the future. They could, however, increase our costs or require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional recordkeeping, expanded documentation of the properties of certain products, expanded or different labeling or scientific substantiation. Another example is that the FDA could require the production of efficacy data for nutritional supplements. Any or all of such requirements could have a material adverse effect on our business, financial condition and results or operation.
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If Fitore’s products cause undesirable side effects, our business may suffer.
Although many of the ingredients in Fitore’s current products are vitamins, minerals and other substances for which there is a long history of human consumption, they also contain innovative ingredients or combinations of ingredients. Although we believe all of such products and the combinations of ingredients in them will not result in adverse events when taken as directed, the products could have certain undesirable side effects if not taken as directed or if taken by a consumer that has certain medical conditions. In addition, such products may not have the effect intended if they are not taken in accordance with certain instructions, which include certain dietary restrictions. Furthermore, there can be no assurance that any of the products, even when used as directed, will have the effects intended or will not have harmful side effects in an unforeseen way or affect populations differently. If any of our Fitore products or products we develop or commercialize in the future are shown to be harmful or generate negative publicity from perceived harmful effects, our business, financial condition, results of operations and prospects would be harmed significantly.
Additional Risks Related To Our Supply Arrangements With Third-Party Foreign Medical Centers
FDA could prohibit us from exporting products for use in compassionate use programs or clinical studies in foreign jurisdictions.
Currently, we are exporting products for use in clinical studies for indications that are not subject to an FDA-authorized IND. In order to export the drug legally, we must comply with FDA regulations including 21 C.F.R. Part 312.110 and 21 C.F.R. Part 312.120. These FDA regulations require us to provide written certification to FDA regarding the countries that we plan to export the drug to and certify that the drug, among other things, complies with the foreign countries’ laws and that our clinical studies are in compliance with FDA’s regulations for foreign clinical studies that are not conducted under an IND. If FDA determines that we have not provided the proper written certification prior to export, or that our clinical studies are not in compliance with FDA rules, FDA can prohibit us from exporting the product. This could impact our revenue from our patient-sponsored studies as well as our ability to receive approval for use of AlloRx Stem Cell therapy in the United States.
FDA, FTC, and other regulatory agencies actively enforce against medical tourism companies and medical providers advertising to patients in the United States if the claims or procedures are not substantiated or in compliance with the local countries’ laws.
If one of our medical tourism partners does not take care to properly substantiate their claims or properly contextualize their claims made about their services, FTC can take enforcement action, sometimes in conjunction with foreign governments, against companies offering medical treatments in foreign countries. Enforcement can be in the form of civil money penalties or prohibitions from exporting the product to these jurisdictions.
A substantial portion of our sales of AlloRx Stem Cells for use in foreign clinical studies are completed on a purchase order basis without any written agreements. Such customers may issue fewer or smaller purchase orders than we expect under our current arrangements, which could negatively impact our revenues. In addition, although these purchase orders are generally not cancelable, such customers may decide to delay or cancel orders, which could also negatively impact our revenues.
Generally, under our arrangements with foreign third-party clinics and medical centers, customers must issue purchase orders for AlloRx Stem Cells. Although these purchase orders stipulate key terms including order quantity, price, payment terms, and delivery instructions, these arrangements are typically not governed by any written agreement and have no minimum purchase requirements. In addition, although orders covered by firm purchase orders are generally not cancelable, customers may decide to delay or cancel orders, and we may have difficulty enforcing the provisions of the purchase order. In the event that customers with whom we supply AlloRx Stem Cells, including foreign third-party clinics and medical centers, issue fewer or smaller purchase orders than we expect, or we experience any delays or cancellations in orders (due to current distress in the global economy caused by the COVID-19 pandemic or otherwise), our revenues could decline substantially. Any such decline could result in us incurring net losses, increasing our accumulated deficit and needing to raise additional capital to fund our operations.
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Risks Related to Ownership of our Common Stock
Our principal stockholders and management, including our Chief Science Officer and our former Chief Executive Officer in particular, own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of October 31, 2023, our executive officers, directors, director nominee, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 61.30% of our common stock. Subject to the terms of a Standstill Agreement, dated November 20, 2022, between the Company and Dr. Jack Zamora (the “Standstill Agreement”), Dr. Zamora, our former Chief Executive Officer and former Chair of the Board of Directors, beneficially owns approximately 31.2% of our common stock. Pursuant to the Standstill Agreement, Dr. Zamora granted an irrevocable proxy and power-of-attorney to our Chief Executive Officer, Christopher Furman, for so long as he is acting in such position, and our Chair of the Board, which such position is currently held by John Packs, to vote or act by written consent with respect to the shares of our common stock held by Dr. Zamora until the expiration of the Standstill Term (as defined below). See “Certain Relationships and Related-Party Transactions” for additional information regarding the Standstill Agreement.
This concentration of control creates a number of risks. This group of stockholders has the ability to exert significant influence over us through this ownership position. These stockholders may be able to exert significant influence over all matters requiring stockholder approval, including with respect to elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets or other major corporate transaction, and our stockholders may find it difficult to replace members of management should our stockholders disagree with the manner in which the Company is operated. Furthermore, this concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders.
Our listing differs significantly from an initial public offering conducted on a firm-commitment basis.
This is not an initial public offering of common stock conducted on a firm-commitment underwritten basis. This listing of our common stock on Nasdaq differs from a firm-commitment underwritten initial public offering in several significant ways, which include, but are not limited to, the following:
| ● | There are no underwriters engaged on a firm-commitment basis. Consequently, prior to the opening of trading on Nasdaq, there will be no traditional book building process and no price at which underwriters initially sold shares to the public to help inform efficient and sufficient price discovery with respect to the opening trades on Nasdaq. Therefore, buy and sell orders submitted prior to and at the opening of trading of our common stock on Nasdaq will not have the benefit of being informed by a published price range or a price at which the underwriters initially sold shares to the public, as would be the case in an initial public offering underwritten on a firm- commitment basis. Moreover, there will be no underwriters engaged on a firm-commitment underwritten basis assuming risk in connection with the initial resale of shares of our common stock. In an initial public offering underwritten on a firm-commitment basis, the underwriters may engage in “covered” short sales in an amount of shares representing the underwriters’ option to purchase additional shares. To close a covered short position, the underwriters purchase shares in the open market or exercise the underwriters’ option to purchase additional shares. In determining the source of shares to close the covered short position, the underwriters typically consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the underwriters’ option to purchase additional shares. Purchases in the open market to cover short positions, as well as other purchases underwriters may undertake for their own accounts, may have the effect of preventing a decline in the market price of shares. Given that there will be no underwriters’ option to purchase additional shares and no underwriters engaging in stabilizing transactions, there could be greater volatility in the public price of our common stock during the period immediately following the listing. See also “— Our shares of common stock have no prior public market. An active trading market may not develop or continue to be liquid and the market price of our shares of common stock may be volatile.” |
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| ● | There is not a fixed number of securities available for sale. Therefore, there can be no assurance that any Registered Stockholders or other existing stockholders will sell any or all of their common stock and there may initially be a lack of supply of, or demand for, our common stock on Nasdaq. Alternatively, we may have a large number of Registered Stockholders or other existing stockholders who choose to sell their common stock in the near term resulting in an oversupply of our common stock, which could adversely impact the public price of our common stock once listed on Nasdaq. | |
| ● | None of our Registered Stockholders or other existing stockholders have entered into contractual lock-up agreements or other contractual restrictions on transfer, however, our directors, named executive officers and certain other stockholders are subject to restrictions as to the number of shares of common stock each may dispose of in any given period. In a firm-commitment underwritten initial public offering, it is customary for an issuer’s officers, directors, and most of its other shareholders to enter into a 180-day contractual lock-up arrangement with the underwriters to help promote orderly trading immediately after listing. Consequently, any of our stockholders, including our directors and officers who own our common stock and other significant stockholders, may sell any or all of their common stock at any time (subject to any restrictions under applicable law), including immediately upon listing. If such sales were to occur in a significant quantum, it may result in an oversupply of our common stock in the market, which could adversely impact the public price of our common stock. See “—Our shares of common stock currently have no public market. An active trading market may not develop or continue to be liquid and the market price of our shares of common stock may be volatile.” With the exception of our directors, officers and certain other stockholders, none of our stockholders are party to any contractual lock-up agreement or other contractual restrictions on transfer. Sales of substantial amounts of our common stock in the public markets by our founders, affiliates, or non-affiliates, or the perception that such sales might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us.” | |
| ● | We will not conduct a traditional “roadshow” with underwriters prior to the opening of trading on Nasdaq. As a result, there may not be efficient price discovery with respect to our common stock or sufficient demand among investors immediately after our listing, which could result in a more volatile public price of our common stock. |
Such differences from a firm-commitment underwritten initial public offering could result in a volatile market price for our common stock and uncertain trading volume and may adversely affect your ability to sell your common stock
Our shares of common stock currently have no public market. An active trading market may not develop or continue to be liquid and the market price of our shares of common stock may be volatile.
We expect our shares of common stock to be listed and traded on Nasdaq. Prior to the listing on Nasdaq, there has not been a public market for our shares of common stock, and an active market for our shares of common stock may not develop or be sustained after the listing, which could depress the market price of our shares of common stock and could affect the ability of our stockholders to sell our shares of common stock. In the absence of an active public trading market, investors may not be able to liquidate their investments in our shares of common stock. An inactive market may also impair our ability to raise capital by selling our shares of common stock, our ability to motivate our employees through equity incentive awards and our ability to acquire other companies, products or technologies by using our shares of common stock as consideration.
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In addition, we cannot predict the prices at which our shares of common stock may trade on Nasdaq following the listing of our shares of common stock, and the market price of our shares of common stock may fluctuate significantly in response to various factors, some of which are beyond our control. In particular, as this listing is taking place through a novel process that is not a firm-commitment underwritten initial public offering, there will be no traditional book building process and no price at which traditional underwriters initially sold shares to the public to help inform efficient price discovery with respect to the opening trades on Nasdaq. On the day that our shares of common stock are initially listed on Nasdaq, Nasdaq will begin accepting, but not executing, pre-opening buy and sell orders and will begin to continuously generate the indicative Current Reference Price (as defined below) on the basis of such accepted orders. The Current Reference Price is calculated each second and, during a 10-minute “Display Only” period, is disseminated, along with other indicative imbalance information, to market participants by Nasdaq on its NOII and BookViewer tools. Following the “Display Only” period, a “Pre-Launch” period begins, during which the Advisor, in its capacity as our financial advisor, must notify Nasdaq that our shares are “ready to trade.” Once the Advisor has notified Nasdaq that our shares of common stock are ready to trade, Nasdaq will confirm the Current Reference Price for our shares of common stock, in accordance with the Nasdaq rules. If the Advisor then approves proceeding at the Current Reference Price, the applicable orders that have been entered will be executed at such price and regular trading of our shares of common stock on Nasdaq will commence, subject to Nasdaq conducting validation checks in accordance with Nasdaq rules. The Advisor will determine when our shares of common stock are ready to trade and approve proceeding at the Current Reference Price primarily based on considerations of volume, timing and price. In particular, the Advisor will determine, based primarily on pre-opening buy and sell orders, when a reasonable amount of volume will cross on the opening trade such that sufficient price discovery has been made to open trading at the Current Reference Price. If the Advisor does not approve proceeding at the Current Reference Price (for example, due to the absence of adequate preopening buy and sell interest), the Advisor will request that Nasdaq delay the open until such a time that sufficient price discovery has been made to ensure a reasonable amount of volume crosses on the opening trade. For more information, see “Plan of Distribution.”
Additionally, prior to the opening trade, there will not be a price at which underwriters initially sold shares of common stock to the public as there would be in a firm-commitment underwritten initial public offering. The absence of a predetermined initial public offering price could impact the range of buy and sell orders collected by Nasdaq from various broker-dealers. Consequently, upon listing on Nasdaq, the public price of our common stock may be more volatile than in a firm-commitment underwritten initial public offering and could decline significantly and rapidly.
Furthermore, because of our novel listing process on the Nasdaq Capital Market, Nasdaq’s rules for ensuring compliance with its initial listing standards, such as those requiring a valuation or other compelling evidence of value, are untested. In the absence of a prior active public trading market for our common stock, if the price of our common stock or our market capitalization falls below those required by Nasdaq’s eligibility standards, we may not be able to satisfy the ongoing listing criteria and may be required to delist.
In addition, because of our novel listing process, individual investors, retail or otherwise, may have greater influence in setting the opening public price and subsequent public prices of our common stock on Nasdaq and may participate more in our initial trading than is typical for a firm- commitment underwritten initial public offering. These factors could result in a public price of our common stock that is higher than other investors (such as institutional investors) are willing to pay, which could cause volatility in the trading price of our common stock and an unsustainable trading price if the price of our common stock significantly rises upon listing and institutional investors believe our common stock is worth less than retail investors, in which case the price of our common stock may decline over time. Further, if the public price of our common stock is above the level that investors determine is reasonable for our common stock, some investors may attempt to short our common stock after trading begins, which would create additional downward pressure on the public price of our common stock. To the extent that there is a lack of consumer awareness among retail investors, such a lack of consumer awareness could reduce the value of our common stock and cause volatility in the trading price of our common stock.
The public price of our common stock following the listing also could be subject to wide fluctuations in response to the risk factors described in this prospectus and others beyond our control, including:
| ● | the number of shares of our common stock publicly owned and available for trading; | |
| ● | overall performance of the equity markets and/or publicly-listed companies that offer competing services and products; | |
| ● | actual or anticipated fluctuations in our revenue or other operating metrics; | |
| ● | our actual or anticipated operating performance and the operating performance of our competitors; | |
| ● | changes in the financial projections we provide to the public or our failure to meet these projections; | |
| ● | failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors; |
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| ● | any major change in our Board, management, or key personnel; | |
| ● | the economy as a whole and market conditions in our industry; | |
| ● | rumors and market speculation involving us or other companies in our industry; | |
| ● | announcements by us or our competitors of significant innovations, new products, services, features, integrations or capabilities, acquisitions, strategic investments, partnerships, joint ventures, or capital commitments; | |
| ● | new laws or regulations or new interpretations of existing laws or regulations applicable to our business, in the U.S. or globally; | |
| ● | other events or factors, including those resulting from war, incidents of terrorism, or responses to these events and | |
| ● | sales or expected sales of our common stock by us and our officers, directors and principal stockholders. |
In addition, stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner often unrelated to the operating performance of those companies. These fluctuations may be even more pronounced in the trading market for our common stock shortly following the listing of our common stock on Nasdaq as a result of the supply and demand forces described above. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and harm our business, results of operations and financial condition.
If our common stock is listed on Nasdaq, we will be subject to the continued listing standards of Nasdaq, and our failure to satisfy these criteria may result in delisting of our common stock.
We expect our shares of common stock to be listed and traded on Nasdaq. Maintaining such listing will generally require that we maintain a minimum amount of stockholders’ equity, a minimum number of public stockholders and a minimum aggregate market value of shares publicly held, subject to certain exceptions. Nasdaq may also delist the securities of any issuer if the issuer’s common stock is selling for a substantial period of time at a low price per share and the issuer fails to effect a reverse split of such shares within a reasonable time after being notified that the Nasdaq deems such action to be appropriate under all the circumstances. In addition to its more quantitative standards, Nasdaq may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with the Nasdaq’s listing requirements; or if any other event occurs or any condition exists which makes continued listing on the Nasdaq, in its opinion, inadvisable.
If Nasdaq were to subsequently delist our common stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain additional financing to fund our operations.
If securities or industry analysts do not publish research or reports, or if they publish adverse or misleading research or reports, regarding us, our business or our market, our stock price and trading volume could decline.
The trading market for our common stock may be influenced by the research and reports that securities or industry analysts publish about us, our business or our market. We do not currently have and may never obtain research coverage by securities or industry analysts. If no or few securities or industry analysts commence coverage of us, our stock price would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue adverse or misleading research or reports regarding us, our business model, our intellectual property, our stock performance or our market, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
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Our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
| ● | variations in the level of expense related to the ongoing development of our product candidates or future development programs; | |
| ● | results of clinical trials, or the addition or termination of clinical trials or funding support by us or potential future partners; | |
| ● | our execution of any collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under potential future arrangements or the termination or modification of any such potential future arrangements; | |
| ● | any intellectual property infringement, misappropriation or violation lawsuit or opposition, interference or cancellation proceeding in which we may become involved; | |
| ● | additions and departures of key personnel; | |
| ● | strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; | |
| ● | if any of our product candidates receives regulatory approval, the terms of such approval and market acceptance and demand for such approved products; | |
| ● | regulatory developments affecting our product candidates or future products, or those of our competitors; and | |
| ● | changes in general market and economic conditions. |
If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
As a result of the restatement of our financial statements for the three and nine months ended July 31, 2022, our management believes that our internal control over financial reporting was not effective as of October 31, 2022 due to a material weakness related to our accounting for revenue and related expenses. If we are unable to remediate this material weakness and otherwise implement and maintain an effective system of internal control over financial reporting, we may not be able to timely and accurately report our financial results or prevent fraud in the future. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and, if we are successful in listing on Nasdaq or other public trading market, the trading price of our common stock.
As previously disclosed, subsequent to the fiscal year ended October 31, 2022, we restated our consolidated financial statements for the three and nine month periods ended July 31, 2022, included in our Registration Statement on Form 10, as amended (the “Form 10”), due to errors relating to a service contract with a customer that impacted the recognition of revenue and related expenses. Specifically, in consultation with our financial consultants, we determined that we had improperly recognized revenue from our Joint Operating Agreement (the “JOA”) with European Wellness and BioPep, as further described in “Business”, that should have been deferred. That error resulted in the overstatement of consulting revenue by $200,000 and related expenses in the amount of $177,147 in the consolidated statements of operations for the three and nine month periods ended July 31, 2022 and the understatement of deferred revenue in the consolidated balance sheets as of July 31, 2022 in the amount of $200,000. As a result of these errors, in December 2022, management determined that it was appropriate to restate the consolidated financial statements included in the Form 10.
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In addition, as a result of the errors discussed above, our management determined that our internal control over financial reporting was not effective as of October 31, 2022 due to a material weakness related to our accounting for revenue and related expenses.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to design, and implement required new or improved controls, or difficulties encountered in their implementation, could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements and cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by our independent registered public accounting firm, may reveal additional deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. For example, it was recently discovered that three 2022 stock option grants were inadvertently incorrectly documented and initially recorded by us with an exercise price per share below what then may have been determined to be the estimated fair market value of the underlying shares of common stock (the exercise prices have since been increased and properly recorded without any material impact on our financial statements), which would have violated the terms of the 2022 Plan and the Board’s authorization for such grants. Such documentation errors could result in violations of the Internal Revenue Code, including Section 409A thereof, which could have unintended tax consequences on us and impose material excise taxes on the stock option recipient. Furthermore, inferior internal control over financial reporting and disclosure controls and procedures could also cause investors to lose confidence in our reported financial information and other public disclosures, which could have a negative effect on the trading price of our stock. The requirements of being a public company may strain our resources or require us to expend capital to improve or increase our resources, result in litigation and divert management’s attention.
We are subject to certain reporting requirements of the Securities Act, the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and other applicable securities rules and regulations. Complying with these rules and regulations results in legal and financial compliance costs, makes some activities more difficult, time consuming or costly and increases demand on our systems and resources, including management. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight will be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may also need to hire additional employees or engage outside consultants to comply with these requirements and eliminate potential reporting errors, which will increase our costs and expenses.
We can give no assurance that our remedial measures will be sufficient to address the material weakness related to our accounting for revenue and related expenses discussed above or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting, disclosure controls and procedures, or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures in the future, those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements or other public disclosures.
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We have previously failed to timely file certain periodic reports with the SEC and as a result, the SEC revoked the registration of our common stock in 2020. Our failure to timely file required reports in the future poses significant risks to trading in our common stock and could materially and adversely affect our financial condition and results of operations.
In the past, we have not been able to, and may continue to be unable to produce timely financial statements, and file these financial statements as part of a periodic report in a timely manner with the SEC. We have failed to timely file with the SEC all requisite periodic reports beginning from the period ending October 31, 2015. Consequently, we were not compliant with the periodic reporting requirements under the Exchange Act beginning from the period ending October 31, 2015.
On September 29, 2020, the SEC instituted public administrative proceedings to determine whether to revoke or suspend registration, for a period not exceeding twelve months, the registration of each class of our securities for failure to make required periodic filings with the SEC. On October 8, 2020, the SEC revoked the registration of our common stock pursuant to Section 12(j) of the Exchange Act for failure to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder by failing to make required periodic filings with the SEC.
We cannot guarantee that in the future our reporting will always be timely. Our failure to timely file future periodic reports with the SEC could subject us to enforcement action by the SEC and stockholder lawsuits and could eventually result in the delisting of our common stock from Nasdaq, regulatory sanctions from the SEC, and/or the breach of covenants in our credit facilities or of any preferred equity or debt securities we may issue in the future, any of which could have a material adverse impact on our operations and your investment in our common stock, and our ability to register with the SEC public offerings of our securities for our benefit or the benefit of our security holders. Additionally, our failure to file our past periodic reports and future periodic reports has resulted in and could result in investors not receiving adequate information regarding the Company with which to make investment decisions. As a result, investors may not have access to current or timely financial information about our Company.
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation of the value of our common stock.
We have never declared or paid any cash dividends on our equity securities. We currently anticipate that we will retain future earnings, if any, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, debt instruments to which we may be party in the future may limit our ability to pay dividends. Any return to stockholders will therefore be limited to any appreciation in the value of our common stock, which is not certain.
Provisions in our third amended and restated articles of incorporation and amended and restated bylaws, and Nevada law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our common stock.
Our third amended and restated articles of incorporation and amended and restated bylaws contain provisions that could depress the market price of our common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions, among other things:
| ● | permit the number of directors to be increased or decreased by action of the majority of the Board; | |
| ● | authorize the Board to issue all or any part of our common stock, without action by the stockholders; and | |
| ● | prohibit cumulative voting. |
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In addition, certain provisions of Nevada law could also delay or make more difficult a merger, tender offer or proxy contest involving our company, including Sections 78.411 through 78.444 of the Nevada Revised Statutes, which prohibit a Nevada corporation from engaging in any business combination with any “interested stockholder” (as defined in the statute) for a period of two years after the date that the person first became an interested stockholder unless certain conditions are met.
Any provision of our articles of incorporation, bylaws or Nevada law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
General Risk Factors
The ongoing coronavirus pandemic has caused interruptions or delays of our business plan. Delays caused by the coronavirus pandemic and other healthcare emergencies may have a significant adverse effect on our business, including the manufacturing, clinical trial and other business activities performed by us or third parties with whom we conduct business.
In December 2019, a strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China, and on March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, quarantines and other public health safety measures. The extent to which the pandemic or any other healthcare crisis may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, but the development of clinical supply materials could be delayed and enrollment of patients in our studies may be delayed or suspended, as hospitals and clinics in areas where we are conducting trials shift resources to cope with the COVID-19 pandemic and may limit access or close clinical facilities due to the COVID-19 pandemic. Additionally, if our trial participants are unable to travel to our clinical study sites as a result of quarantines or other restrictions resulting from the COVID-19 pandemic, we may experience higher drop-out rates or delays in our clinical studies including obtaining data and patient reported outcomes in a timely manner. We have manufacturers and collaboration partners located in foreign jurisdictions, and travel restrictions have limited, and may continue to limit, our ability to visit their locations in person and conduct on-site inspections.
In addition, our future clinical trials may be affected by the COVID-19 pandemic and any related travel restrictions. Clinical trial progression, dosing, patient enrollment and related activities may be delayed due to concerns among patients about participating in clinical trials during a pandemic, and reporting of some clinical data may be incomplete or delayed if patients who enroll in our clinical trials are unable to fully participate in all necessary measurement protocols as a result of any hospital resource prioritization, patient participation concerns or other factors associated with the COVID-19 pandemic. Federal, state, and local guidelines for reopening in the United States and other countries may negatively impact our ability to enroll patients in any of our clinical programs. Some patients may have difficulty following certain aspects of clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.
We cannot predict the ultimate impact of the COVID-19 pandemic as consequences of such an event are highly uncertain and subject to change, at times on a daily or weekly basis. We do not yet know the full extent of potential delays or impacts on our clinical studies or on our business as a whole; however, the COVID-19 pandemic may materially disrupt or delay our business operations, further divert the attention and efforts of the medical community to coping with COVID-19, disrupt the marketplace in which we operate, and/or have a material adverse effect on our operations. Moreover, the various precautionary measures taken by many governmental authorities around the world in order to limit the spread of COVID-19 has had and may continue to have an adverse effect on the global markets and global economy generally, including on the availability and pricing of employees, resources, materials, manufacturing and delivery efforts and other aspects of the global economy. There have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. The COVID-19 pandemic could materially disrupt our business and operations, interrupt our sources of supply, hamper our ability to raise additional funds or sell our common stock, continue to slow down the overall economy or curtail consumer spending.
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The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver components or raw materials on a timely basis. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the coronavirus or treat its impact, among others.
Our internal computer systems, or those of any of our CROs, manufacturers, other contractors, consultants, collaborators or potential future collaborators, may fail or suffer security or data privacy breaches or other unauthorized or improper access to, use of, or destruction of our proprietary or confidential data, employee data, or personal data, which could result in additional costs, loss of revenue, significant liabilities, harm to our brand and material disruption of our operations.
Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and other contractors, consultants, collaborators and third-party service providers, are vulnerable to damage from computer viruses, cybersecurity threats, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failure. If such an event were to occur and cause interruptions in our operations or result in the unauthorized acquisition of or access to personally identifiable information or individually identifiable health information (violating certain privacy laws such as HIPAA, Health Information Technology for Economic and Clinical Health Act and GDPR), it could result in a material disruption of our drug discovery and development programs and our business operations, whether due to a loss of our trade secrets or other similar disruptions. Some of the federal, state and foreign government requirements include obligations of companies to notify individuals of security breaches involving particular personally identifiable information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships. Notifications and follow-up actions related to a security breach could impact our reputation, cause us to incur significant costs, including legal expenses and remediation costs. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the lost data. We also rely on third parties to manufacture our product candidates, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data, or inappropriate disclosure of confidential or proprietary information, we could be exposed to litigation and governmental investigations, the further development and commercialization of our product candidates could be delayed, and we could be subject to significant fines or penalties for any noncompliance with certain state, federal and/or international privacy and security laws.
Our insurance policies may not be adequate to compensate us for the potential losses arising from any such disruption, failure or security breach. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims made against us and could have high deductibles in any event, and defending a suit, regardless of its merit, could be costly and divert management attention.
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Our business activities may be subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery and anti-corruption laws of other countries in which we operate, as well as U.S. and certain foreign export controls, trade sanctions, and import laws and regulations. Compliance with these legal requirements could limit our ability to compete in foreign markets and subject us to liability if we violate them.
Due to our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we operate or plan to operate. Our business activities are subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits companies and their employees and third-party intermediaries from offering, promising, giving or authorizing the provision of anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, hospitals owned and operated by the government, and doctors and other hospital employees would be considered foreign officials under the FCPA. Recently the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents or contractors, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, disgorgement, and other sanctions and remedial measures, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international activities, our ability to attract and retain employees and our business, prospects, operating results and financial condition.
In addition, our products and technology are subject to U.S. and foreign export controls, trade sanctions and import laws and regulations including requirements to obtain licensure to properly operate in the local these territories. Governmental regulation of the import or export of our products and technology, or our failure to obtain any required import or export authorization for our products, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international markets or, in some cases, prevent the export of our products to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. If we fail to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons, or products targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export our products to existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell access to our products would likely adversely affect our business.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We lease three separate office or laboratory facilities for our business and operations. Our executive offices are located in the Cherry Creek neighborhood of Denver, where we occupy approximately 2,978 square feet of office space under a until December 31, 2026 at a rate of $7,693 per month, plus operating expenses. Our manufacturing and administrative offices and facilities are currently located at 4621 Technology Drive, Golden Colorado, where we lease approximately 3,100 square feet under a 10-year lease commencing July 1, 2020 and which provides us with several options to renew upon expiration for additional 5-year terms. The lease is with an affiliate of our Chief Science Officer. The rent is $5,645 per month plus taxes, insurance and utilities.
While we believe these premises are suitable for our current needs, we are also planning to lease a separate cGMP manufacturing facility that, if and when completed, will be used exclusively for the manufacture of AlloRx Stem Cells in order to meet potential future commercial demand for AlloRx Stem Cell therapy. In connection with the development of a new cGMP manufacturing facility, we intend to lease a facility and purchase highly scalable, fully automated closed system bioprocessing equipment, subject to available capital resources. For additional information, see “Item 1. Business—Manufacturing” above.
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Item 3. Legal Proceedings
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. No legal proceedings, government actions, administrative actions, investigations, or claims are currently pending against us or our officers and directors in which we are adverse. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our securities are not currently listed on any exchange or over-the-counter market, and there is no established public trading market for any class of our securities.
Holders
As of January 29, 2024, we had 4,430,535 shares of common stock outstanding, held of record by approximately 3,200 stockholders. There were no shares of preferred stock outstanding.
Dividends
Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to receive dividends as may be declared from time to time by our Board of Directors out of legally available funds. However, we have never paid cash dividends on any of our capital stock and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not intend to pay cash dividends to holders of our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
Except as otherwise disclosed in a Current Report on Form 8-K, the following sets forth information regarding all unregistered securities sold during the period covered by this Report.
On February 22, 2022, a note holder converted $3,000,000 in principal and $712,500 of interest related to the Senior Secured Convertible Promissory Note into 142,788 shares of the Common Stock of the Company at $26.00 per share. This conversion was completed pursuant to the exemption from registration contained in Section 3(a)(9) of the Securities Act.
On March 1, 2022, the Company issued 13,460 stock purchase options to an employee and a consultant to the Company. The options are exercisable at $26.00 per share. Those options vest as follows: 2,306 vested at the date of grant and 3,718 vest on each anniversary date until fully vested. The options are exercisable for a period of ten years. The options were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder.
On March 31, 2022, the holders of 136,059 shares of our Series A Convertible Preferred Stock converted those shares, along with accrued dividends payable thereon, into an aggregate of 569,463 shares of our Common Stock. These conversions were completed pursuant to the exemption from registration contained in Section 3(a)(9) of the Securities Act.
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On April 15, 2022, $320,000 in principal and $11,266 in accrued interest related to the 2021 Series Convertible Notes was converted into 12,741 shares of the Common Stock of the Company at $26 per share. These conversions were completed pursuant to the exemption from registration contained in Section 3(a)(9) of the Securities Act.
On May 31, 2022, we issued two convertible promissory notes to two accredited investors in the aggregate principal amount of $200,000 which accrue interest at a rate of 5.0% per annum. These notes were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act and Rule 506(b) promulgated thereunder.
On January 6, 2023, we sold $405,000 of its 8%, 2023 Series Convertible Notes - Stock Settled (the “January 2023 Notes”) and common stock purchase warrants (“January 2023 Warrants”) to five investors.
On various dates during March and April 2023, the Company sold $787,600 of its 8%, 2023 Series B Convertible Notes - Stock Settled (the “March 2023 Notes”) and common stock purchase warrants (“March 2023 Warrants”) to six investors.
On various dates during June and July 2023, the Company sold $525,000 of its 8%, 2023 Series B Convertible Notes - Stock Settled (the “June 2023 Notes”) and common stock purchase warrants (“June 2023 Warrants”) to three investors.
On November 16, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor, pursuant to which the Company issued and sold to the investor, in a private placement, (i) a senior secured convertible note (the “Note”) in the principal amount of $2,500,000, for a purchase price of $2,000,000 (reflecting a 20% original issue discount), and warrants to purchase shares of common stock of the Company (the “Warrants”).
On January 10, 2024, the “Company issued and sold to an accredited investor, in a private placement, (i) a senior secured convertible note in the principal amount of $1,250,000, for a purchase price of $1,000,000 (reflecting a 20% original issue discount), and warrants to purchase shares of common stock of the Company, pursuant to a securities purchase agreement, dated November 16, 2023.
In each transaction in which we relied on Section 4(a)(2) of the Securities Act and/or Rule 506(b) promulgated thereunder, we did not engage in any general solicitation or advertising and we offered the securities to a limited number of persons with whom we had pre-existing relationships. We exercised reasonable care to ensure that the purchasers of securities were not underwriters within the meaning of the Securities Act, including making reasonable inquiry prior to accepting any subscription, making written disclosure regarding the restricted nature of the securities and placing a legend on the certificates representing the shares. In each case, the offerees were provided with a subscription agreement detailing the restrictions on transfer of the shares and eliciting their investment intent. Further, stop transfer restrictions were placed with our transfer agent and a restrictive legend was placed on the certificate in connection with these offerings. In addition, sales in the transactions exempt under Rule 506(b) were made exclusively to what the Company reasonably believed were accredited investors as defined in Rule 501 of the Securities Act. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof. No underwriters were involved in the above transactions.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Report. This discussion and analysis and other parts of this Report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives and expectations for our business. Our actual results and the timing of selected events could differ materially from those described in or implied by these forward-looking statements as a result of several factors, including those set forth in the section titled “Item 1A. Risk Factors.” See also the section titled “Special Note Regarding Forward-Looking Statements.”
Overview
We are an innovative biotechnology company targeting autoimmune diseases and inflammatory disorders, with an ancillary focus in the research services and cosmeceutical fields. With respect to our regenerative medicine business, we are developing novel cellular therapeutic candidates intended to address significant unmet medical needs. In the United States, we are authorized to conduct two clinical trials under two FDA IND applications to assess the safety and efficacy of AlloRx Stem Cell therapy in PTHS and Long COVID, and expect to commence those trials sometime in 2024 pending receipt of sufficient working capital. We generate revenue from our other technologies through a number of other activities, including providing research services and through the sale of our stem cell products as well as cosmeceuticals through InfiniVive MD, our wholly-owned subsidiary, which helps to alleviate our capital expenses.
For additional details regarding our business, see the discussion under “Business” in Item 1 of Part I of this Report, which is incorporated by reference into this Part II, Item 7 of this Report.
Components of Operating Results
Revenue
We generate revenue primarily from our proprietary products and technologies, including through supplying AlloRx Stem Cells, CAFs, native fibroblasts and other stem cell products and technologies developed by us. We also generate consulting revenue from our JOA with European Wellness. In addition, our acquisitions of InfiniVive MD and Fitore provide us revenue through sales of topical cosmetic conditioned media and exosomes serums through InfiniVive MD and sales of dietary supplements, nutraceuticals and health products through Fitore. For a discussion of certain risk relating to the manufacture of dietary supplements, nutraceuticals and other health products, see “Item 1A. Risk Factors— Risks Related to the Dietary and Nutritional Supplements Industry and Fitore Products.”
Selling, General and Administrative Expenses
Selling, General and Administrative (“SG&A”) expenses consist of salaries and other related costs, legal fees relating to corporate matters, other professional fees for accounting, auditing, tax and consulting services, insurance costs, travel expenses, and facility-related expenses.
We expect that our SG&A expenses will increase in the future as we increase our headcount to support increased research and development activities relating to our clinical programs. We also expect to incur increased SG&A expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with stock exchange and SEC requirements, director and officer insurance costs, and investor and public relations costs.
Research and Development Expenses
All our research and development expenses to date have been incurred in connection with the discovery and development of our research products and product candidates. We expect our research and development expenses to increase significantly for the foreseeable future when we enter clinical trials and advance an increased number of our product candidates through pre-clinical and clinical development, including the conduct of our planned clinical trials.
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Research and development expenses consist of personnel-related costs, including salaries, benefits, and non-cash stock-based compensation, external research and development expenses incurred under arrangements with third parties, laboratory supplies, costs to acquire and license technologies aligned with our goal of translating engineered cells to medicines, facility and other allocated expenses, including rent, depreciation, and allocated overhead costs, and other research and development expenses. Where appropriate, we will allocate our third-party research and development expenses on a program-by-program basis.
The successful development of product candidates is highly uncertain and subject to numerous risks and uncertainties. For a discussion of certain risks related to the development of product candidates and costs of clinical trials, see “Item 1A. Risk Factors” herein.
Accordingly, at this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates and to obtain regulatory approval for one or more of these product candidates.
Other Income and Expenses
Other income/expense consisted of interest expense on our outstanding debt.
Going Concern
Our consolidated financial statements contained in this Report have been prepared assuming that we will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in our consolidated financial statements, we have an accumulated deficit as of October 31, 2023 of $28.1 million. We incurred net losses of $5.4 million and $6.9 million and used cash in operating activities of $2.0 million and $2.2 million for the years ended October 31, 2023 and 2022, respectively. We had a working capital deficit as of October 31, 2023. These factors raise substantial doubt about our ability to continue as a going concern.
We have commenced the execution of our long-range business plan and efforts to generate additional revenue; however, our current cash position may not be sufficient to support our daily operations for the next 12 months. Our ability to continue as a going concern is dependent upon our ability to further implement our business plan and generate additional revenue and our ability to raise additional funds through debt or equity financings.
The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Results of Operations for the year ended October 31, 2023 compared to the year ended October 31, 2022
The following discussion analyzes our operating results for the fiscal year ended October 31, 2023, which we refer to as “Fiscal 2023,” and compares those results to results for the fiscal year ended October 31, 2022, which we refer to as “Fiscal 2022. The discussion below also analyzes our liquidity and capital resources as of October 31, 2023 and material changes in those resources since the end of Fiscal 2022. We suggest that you read the following information in conjunction with our audited consolidated financial statements for the two years ended October 31, 2023 contained elsewhere in this Report.
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Comparison of the Years Ended October 31, 2023 and 2022
The following table summarizes our operating results for Fiscal 2023 and 2022:
| Year Ended October 31, | ||||||||
| 2023 | 2022 | |||||||
| Product sales | $ | 1,702,451 | $ | 2,662,793 | ||||
| Product sales, related parties | 36,000 | 30,500 | ||||||
| Consulting revenue | 25,000 | 600,000 | ||||||
| Total revenue | 1,763,451 | 3,293,293 | ||||||
| Less: Cost of goods sold | (298,051 | ) | (586,884 | ) | ||||
| Gross profit | 1,465,400 | 2,706,409 | ||||||
| General and administrative expenses | (6,062,758 | ) | (7,602,945 | ) | ||||
| Research and development | (206,406 | ) | (155,630 | ) | ||||
| Impairment expense | (577,852 | ) | (914,091 | ) | ||||
| Interest expense | (270,182 | ) | (198,450 | ) | ||||
| Other Project Income, Net | 191,746 | - | ||||||
| Unrealized Gain on Series 2023 Derivative/Warrant Liability | 103,335 | - | ||||||
| Loss on conversion of senior secured note payable | - | (695,342 | ) | |||||
| Net Loss | $ | (5,356,717 | ) | $ | (6,860,049 | ) | ||
| Deemed dividend on convertible preferred stock | - | (793,175 | ) | |||||
| Cumulative convertible preferred stock dividend requirement | - | (111,333 | ) | |||||
| Net Loss to Common Stockholders | $ | (5,356,717 | ) | $ | (7,764,557 | ) | ||
Net Loss
We recorded a net loss of $5,356,717 in Fiscal 2023, a decrease of $1,503,332 from Fiscal 2022, or 22%. The decreased loss in Fiscal 2023 was due to the significant decreases in general and administrative expenses and other expenses in Fiscal 2023, as discussed further below. Interest expense increased in Fiscal 2023 due to the addition of the 2023 series notes. We also recorded other project income and unrealized gains on derivative/warrant liability in Fiscal 2023. We expect to continue reporting losses until such time, if ever, we can improve the operation of our newly acquired subsidiaries and/or commercialize one or more of our product candidates and generate sales sufficient to offset our operating costs and expenses and interest expenses.
Net Loss to Common Stockholders
In connection with the sale of the Series A Convertible Preferred Stock in Fiscal 2020 and 2021, we determined that there was an embedded conversion feature associated with the value of the beneficial conversion feature. The initial embedded conversion feature was initially determined to be $930,577. For the year ended October 31, 2022, the accretion of this embedded conversion feature was $793,175 and has been recorded as a deemed dividend. Including the deemed dividend on the Series A Convertible Preferred Stock for the year ended October 31, 2022 and the cumulative dividend on that Preferred Stock, the net loss to common stockholders was $7,764,557, or $1.87 per share. Since the conversion happened in Fiscal 2022, there were no such amounts recorded for Fiscal 2023.
Product Sales
Total revenue in Fiscal 2023 decreased by $1,529,842, or 46%, from Fiscal 2022. Our revenue is generated by sales of research products, sales of AlloRx Stem Cells to foreign third-party clinics and medical centers, consulting revenue and sales from our subsidiaries, InfiniVive MD and Fitore.
During Fiscal 2023 and Fiscal 2022, research and development product sales were $574,293 and $1,072,312, respectively, a decrease in Fiscal 2023 of $498,019 or 46%. The decrease was attributable to biopharmaceutical institutions, university research labs and clinics purchasing less CAFs and native fibroblasts in Fiscal 2023. CAFs and native fibroblasts are used by such institutions for stem cell research and the development of advanced immunotherapy of cancer, and our sales to such institutions are generally completed on a purchase order basis and without minimum purchase obligations. As a result, sales volumes in a particular period may fluctuate based on the number of research programs then being pursued by such institutions. In addition, we believe that demand in the first half of Fiscal 2023 was impacted by strong sales of CAFs and native fibroblasts to such institutions in Fiscal 2022, as these institutions still had unused CAFs and native fibroblasts in their inventory.
Sales of AlloRx Stem Cells to foreign third-party clinics for the years ended October 31, 2023 and 2022 were $893,474 and $1,174,456 respectively, a decrease of $280,982 or 26%, again related to diminished sales volumes, as third-party clinics for which we supply AlloRx Stem Cells treated less patients during Fiscal 2023. We expect AlloRx Stem Cell sales internationally to increase over the next year as these products expand into additional foreign third-party clinics and medical centers and our current foreign third-party clinics and medical center customers increase their total monthly patients.
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For Fiscal 2023 and Fiscal 2022, InfiniVive MD revenue amounted to $204,414 and $236,788, respectively.
For Fiscal 2023 and Fiscal 2022, Fitore product revenue amounted to $66,270 and $209,737, respectively. Fitore revenues were lower in Fiscal 2023 due to reduced efforts at marketing Fitore products, compared to Fiscal 2022. We are currently selling Fitore products solely from remaining inventory and with minimal marketing efforts, and do not anticipate manufacturing any additional products in the foreseeable future or at all. In addition, we terminated the chief executive officer and all other employees of Fitore in June 2022; consequently, we expect that sales of Fitore products in the future will be limited.
Product Sales – Related Parties
Product sales to related parties are sales to the medical practice of Dr. Zamora, our former Chief Executive Officer. Such sales were consistent during Fiscal 2023 at $36,000, compared to Fiscal 2022 at $30,500.
Consulting Revenue
During Fiscal 2023 and Fiscal 2022, our consulting revenue was derived from our contract with European Wellness under which we agreed to assist in the discovery, development and commercialization of biological products related to regenerative medicine. During Fiscal 2022, we recognized $600,000 in revenue as we completed two milestones under the contract. During Fiscal 2023, we recognized $25,000 in consulting revenue under this agreement. In addition to the revenue that was recognized, we recorded deferred revenue of $650,000 related to those services during Fiscal 2022. During Fiscal 2023, we recorded an additional $285,005 in deferred revenue related to this agreement. As of July 31, 2023, upon the expiration of the contract, the company recognized as other project income $250,000 that was deemed by the amendment to the agreement as non-refundable, offset by $58,254 in project related expenses. Remaining deferred revenues will be recognized if and when related milestones under the contract are achieved.
Prior to the expiration of the agreement, we suspended deliverables under the agreement with European Wellness in April 2023 pending discussions regarding amounts believed to be owed to us under that agreement for work already completed. If those discussions are unsuccessful, we may not be able to collect all of the amounts believed to be owed to us or the other amounts originally expected to be received by us under the agreement, which could have an adverse effect on our revenue, cash flow, operating results and financial condition. While discussions are ongoing, management does not currently expect our agreement with European Wellness to be renewed or extended beyond its scheduled termination date. Regardless of whether the agreement is renewed or extended, however, we intend to continue to seek to recover all amounts believed to be owed to us under that agreement for work completed. With the termination of the contract with European Wellness, we expect our consulting revenue in the future will be limited unless and until an alternative consulting partnership or collaboration becomes available to us.
Cost of Goods Sold
Our cost of goods sold during Fiscal 2023 totaled $298,051 compared to $586,884 during the Fiscal 2022, a decrease of $288,883 or 49%, resulting in gross profit of $1,465,400 and $2,706,409 for Fiscal 2023 and Fiscal 2022, respectively. The gross profit percentages for the years ended October 31, 2023 and 2022 were 83% and 82%, respectively. Cost of goods sold, as a total revenue remained generally consistent for Fiscal 2023 and Fiscal 2022. The overall decrease in gross profit in Fiscal 2023 was primarily attributable to a $575,000 decrease in consulting revenue for that period compared to Fiscal 2022 as discussed above. Also contributing to the decrease in gross profit was a decrease in revenue from product sales, as discussed above under “Product Sales.”
Selling, General and Administrative Expenses
SG&A expenses decreased from $7,602,945 in Fiscal 2022 to $6,062,758 in Fiscal 2023. This decrease of $1,540,187 (20%) was primarily due to a decrease in stock-based compensation of $905,327 and a decrease in salary expense of $540,101 due to limited bonuses being authorized in Fiscal 2023.
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Research and Development
Research and development expenses for Fiscal 2023 and Fiscal 2022 were $206,406 and $155,630, respectively. During Fiscal 2023, the Company incurred expenses of $198,000 in preparation for upcoming clinical trials.
Impairment Expense
During Fiscal 2023, we recorded impairment expense of $243,795 against amortizable intangible assets related to our assessment of future cash flows within Fitore. Also during Fiscal 2023, we recorded impairment expense of $334,057 against amortizable intangible assets related to our assessment of future cash flows within InfiniVive.
During Fiscal 2022, we recorded an impairment expense of $914,091 related to the carrying value of the goodwill associated with the acquisition of Fitore on August 1, 2021. The evaluation of the goodwill as of July 31, 2022 was performed following the termination of the chief executive officer and all other employees of Fitore. While the termination of the chief executive officer and employees of Fitore did not constitute the discontinuation of Fitore’s operations, it was considered by management to be a material change in circumstance so as to warrant an evaluation of the goodwill.
Interest Expense
Interest expense for Fiscal 2023 was $270,182, an increase of $71,732 from the interest expense for Fiscal 2022 of $198,450. This increase is related to new notes issued in 2023 at 8%. The interest expense related to the remaining debt on our balance sheet of approximately $2.7 million is expected to be all non-cash interest expense.
Other Project Income, Net
On of July 31, 2023, upon the expiration of the European Wellness Agreement, the Company recognized $250,000 as other project income that was deemed as non-refundable by the amendment and offset by $58,254 in project related expenses. In accordance with ASC 606, the Company determined that it did not satisfy the performance obligations at a point in time (ASC paragraph 606-10-25-30) and did not recognize the aforementioned amount as revenue.
Unrealized Gain on Derivative/Warrant Liability
During Fiscal 2023, we issued $1,717,600 of the 8% Convertible Notes. In connection with these notes, the Company recognized a Derivative/Warrant liability. At October 31, 2023, this liability was marked to market, resulting in an unrealized gain of $103,335.
Loss on Conversion of Senior Secured Note Payable
During Fiscal 2022, we incurred a one-time loss of $695,342 due to the early conversion of the Senior Convertible Note Payable. Interest of $695,342 from the date of the note conversion to the note’s stated maturity date was converted to equity and was recorded as a loss on conversion of the note. The remaining principal amount and accrued interest on the note itself were converted to common stock at the same conversion rate.
Liquidity and Capital Resources
Overview
Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses as we advance the preclinical and clinical development of our programs. We expect that our sales, research and development, and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future programs and product candidates, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations for the next twelve months and beyond, which we hope to obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.
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We currently have no credit facility or other committed sources of capital. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
In order to meet our operational goals, we will need to obtain additional capital, which we will likely obtain through a variety of means, including through public or private equity, debt financings or other sources, including up-front payments and milestone payments from strategic collaborations. To the extent that we raise additional capital through the sale of convertible debt or equity securities, the ownership interest of our stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Such financing may result in dilution to stockholders, imposition of debt covenants, increased fixed payment obligations or other restrictions that may affect our business. If we raise additional funds through up-front payments or milestone payments pursuant to strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Working Capital
As of October 31, 2023, we had a working capital deficit of $1.7 million, comprised of current assets of $3.2 million and current liabilities of $4.9 million. The working capital at year-end Fiscal 2023 decreased $2.1 million from year-end Fiscal 2022. Current liabilities, consisting primarily of deferred revenue, accrued liabilities, lease obligations and short-term convertible notes payable – related party increased by approximately $2.3 million as of October 31, 2023, compared to October 31, 2022. Cash was reduced from $0.7 million as of October 31, 2022, to $0.1 million at October 31, 2023 as cash was used during Fiscal 2023 for operations and preparation for a proposed public offering of our securities.
As a result of our limited working capital position as of October 31, 2023, we continue to rely on cash from outside sources to meet our liquidity requirements. Our need for liquidity and capital in the next 12 months include:
| ● | advancing the clinical development of AlloRx Stem Cell therapy for the treatment of several indications; | |
| ● | pursuing the preclinical and clinical development of other current and future research programs and product candidates; | |
| ● | in-license or acquire the rights to other products, product candidates or technologies; | |
| ● | maintain, expand and protect our intellectual property portfolio; | |
| ● | hire additional personnel in research, manufacturing and regulatory and clinical development as well as management personnel; | |
| ● | seek regulatory approval for any product candidates that successfully complete clinical development; | |
| ● | expand our manufacturing capabilities; |
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| ● | expand our operational, financial and management systems and increase personnel, including personnel to support our operations as a public company; and | |
| ● | pay our other administrative expenses. |
As reported in Forms 8-K filed on November 22, 2023 and January 16, 2024, our working capital increased by a total of approximately $3 million subsequent to the end of the fiscal year. We expect to use the proceeds from the note for working capital and general corporate purposes.
We have filed a registration statement on Form S-1 with the SEC to register our securities for sale in a proposed direct listing. If that offering is successful, we intend to use the proceeds to initiate and conduct one or more clinical trials of our AlloRx Stem Cell therapy, for preclinical activities for other possible treatments with AlloRx, and for working capital and other general corporate purposes. If we are successful in completing a public offering of our securities, including our common stock, and obtaining a market for that stock, we may realize additional capital through the exercise of outstanding common stock purchase warrants. However, that will depend on the warrants being “in the money,” in addition to having a market for our stock. We may also endeavor to raise additional capital through the sale of equity or debt in one or more non-public offerings. We do not anticipate commencing any clinical trials of our AlloRx Stem Cell therapy pending receipt of substantial additional capital, estimated to be $4 million to $6 million to commence our contemplated Phase 1/2a clinical trials for PTHS and Long COVID, depending on whether we commence one or both trials.
Our working capital needs beyond the next 12 months include ongoing general and administrative expenses and research and development expenses, the latter of which are expected to increase if and when we commence one or more of our planned clinical trials. Our long-term capital requirements also include the cost of building a planned new cGMP biomanufacturing facility in 2024, which is estimated to cost approximately $1.0 to $3.0 million depending on the amount of anticipated production increase, available capital and manufacturing demands at that time.
Cash Flows
The following table summarizes our cash flows for Fiscal 2023 and 2022:
| Year Ended October 31, | ||||||||
| 2023 | 2022 | |||||||
| Net Cash Used in Operating Activities | $ | (1,968,835 | ) | $ | (2,216,620 | ) | ||
| Net Cash Used in Investing Activities | (195,432 | ) | (310,113 | ) | ||||
| Net Cash provided by (Used in) Financing Activities | 1,524,483 | (1,108,712 | ) | |||||
| Beginning Cash Balance | 741,538 | 4,376,983 | ||||||
| Ending Cash Balance | $ | 101,754 | $ | 741,538 | ||||
Operating Activities
Net cash used in operating activities during Fiscal 2023 was $1,968,835, compared to $2,216,620 during Fiscal 2022, representing a decrease in use of cash of $247,785.
Investing Activities
Cash used by investing activities during Fiscal 2023 was $195,432 compared to cash used by investing activities during Fiscal 2022 of $310,113, representing a decrease in cash used of $114,681. This change is primarily attributable to our reduced acquisition of property and equipment during Fiscal 2023.
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Financing Activities
Cash provided by financing activities during Fiscal 2023 was $1,524,483, while cash used by financing activities during Fiscal 2022 was $1,108,712. During Fiscal 2023, we issued $1,717,600 in 8% Convertible Notes and common stock purchase warrants, paid $130,138 in deferred offering costs and made capital lease principal payments of $62,979. During Fiscal 2022, we made capital lease principal payments of $75,698 and revolving line of credit principal payments of $58,596 and paid $1,174,418 of deferred offering costs in connection with our proposed public offering.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to stock-based awards and Goodwill and Other Intangible Assets. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Of our policies, the following are considered the most critical to an understanding of our consolidated financial statements as they require the application of the most subjective and complex judgment, involving critical accounting estimates and assumptions impacting our consolidated financial statements. We have applied our policies and critical accounting estimates consistently across our businesses.
Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.
Intangibles
Most of our identifiable intangible assets were recognized as part of business combinations we have executed in prior periods. Our identifiable intangible assets are considered definite life intangible assets and are comprised of, trademarks and trade names, customer relationships and patents. Definite life intangible assets are amortized using the straight-line method over their estimated period of useful life.
Our determination of the fair value of the intangible assets acquired involves the use of significant estimates and assumptions. We believe that the fair value assigned to the assets are based on reasonable assumptions and estimates that a market participant would use. Should conditions differ from management’s estimates at the time of the acquisition, including changes in volume or timing to current expectations of future revenue growth rates and forecasted margins, or changes in market factors outside of our control, such as discount rates, material write-downs of intangible assets may be required, which would adversely affect our operating results.
We monitor events and changes in circumstances that could indicate carrying amounts of intangible assets may not be recoverable. We review the carrying amounts of our intangible assets for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators may include any significant changes in the manner of our use of the assets or the strategy of our overall business, certain reorganization initiatives, significant negative industry or economic trends and significant decline in our share price for a sustained period.
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When such events or changes in circumstances occur, we compare the carrying amounts of the asset or assets groups with their respective estimated undiscounted future cash flows. If the asset or assets group are determined to be impaired, an impairment charge is recorded in the amount by which the carrying amount of the asset or assets group exceed their fair value.
Goodwill
Goodwill reflects the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. Goodwill is not amortized but rather is tested for impairment annually, or whenever events or circumstances present an indication of impairment.
Determining the fair value requires significant judgment, including judgments about the appropriate terminal growth rates, weighted average costs of capital and the amounts and timing of projected future cash flows. Fair value determinations are sensitive to changes in underlying assumptions, estimates, and market factors. Projected future cash flows are based on our most recent budget, forecasts and strategic plans as well as certain growth rate assumptions. Potential changes in our costs and operating structure
We will continue to monitor the fair value to determine whether events and changes in circumstances such as further deterioration in the business climate or operating results, further significant decline in our share price, changes in management’s business strategy or downward changes of our cash flows projections, warrant further interim impairment testing.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information required under this item.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and The Report of Independent Registered Public Accounting Firm required by this item are included in this Report on pages F-1 through F-27 and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with our Independent Registered Public Accounting Firm on any matter of accounting principles or financial disclosures.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation on Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by our Company is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is collected and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for our Company. In designing and evaluating our disclosure controls and procedures, management recognizes that no matter how well conceived and operated, disclosure controls and procedures can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
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Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Report (the “Evaluation Date”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective, at the reasonable assurance level, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As previously disclosed, following the fiscal year ended October 31, 2022, management identified a material weakness in our internal controls with respect to revenue recognition in the third quarter of fiscal 2022. Specifically, we improperly recognized revenue in accordance with the terms of a Joint Operating Agreement that was entered into in August 2021. Following a review of our revenue recognition policy and in discussion with our consultants, we concluded that the milestones for recognition of $200,000 of revenue and the related general and administrative expenses under that agreement were not met, that revenue had been improperly recognized, and that such revenue and the related expenses should have been deferred. This weakness resulted in the restatement of our financial statements for the three and nine months ended July 31, 2022 included in the Form 10. For additional information, see “Item 1A. Risk Factors” herein.
Subsequent to the fourth quarter of fiscal 2022, during the fiscal year ended October 31, 2023, management took steps to remediate the weakness discovered during the fourth quarter of fiscal 2022.
Management’s report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive officer, and our principal financial officer, and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| 1. | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
| 2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and | |
| 3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The scope of management’s assessment of the effectiveness of internal control over financial reporting includes our consolidated subsidiaries.
Our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2023, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of that date, our internal control over financial reporting was not effective.
Changes In Internal Control Over Financial Reporting
There were changes in our internal control over financial reporting that occurred during the year ended October 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. See the discussion above under Evaluation of Disclosure Controls and Procedures for a description of changes in our internal control over financial reporting initiated subsequent to the year ended October 31, 2023.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers, Directors, and Significant Employees
The following table sets forth information regarding our executive officers, directors, and significant employees as of January 29, 2024:
| Name | Age | Positions with the Company | ||
| Christopher M. Furman | 53 | Chief Executive Officer, Director | ||
Thomas W. Ohrt |
68 | Chief Financial Officer | ||
| James R. Musick | 75 | Chief Science Officer, Director | ||
| Caroline Mosessian | 58 | Chief Regulatory Officer, Director | ||
| Tiana States | 33 | Chief Manufacturing Officer | ||
| John Packs | 67 | Chair of the Board | ||
| Anthony Pearl | 52 | Independent Director Nominee (1) |
| (1) | The director nominee is expected to transition on to our Board upon the listing of our common stock on Nasdaq. |
Each of our directors is serving a term which expires at the next annual meeting of stockholders and until his or her successor is elected and qualifies or until such individual resigns or is removed. The officers serve at the will of the Board of Directors. There are no arrangements or understandings with major stockholders, customers, suppliers or others pursuant to which any of our executive management or our directors were selected.
Executive Officers and Directors
Christopher M. Furman
Mr. Furman was appointed as our Chief Executive Officer and a member of the Board on July 6, 2022. From December 2021 until joining our company, Mr. Furman was Managing Director at Virtus Investment Partners. He previously founded and served as a Managing Partner at Forum Capital Advisors, LLC, an asset management firm, from March 2018 until January 2021 and as Managing Director at ArrowMark Partners, an asset management firm, from September 2016 to March 2018. Prior to that, he served as the Managing Director at Janus Capital Group Inc., a publicly traded investment management company. Mr. Furman holds a Bachelor of Arts in Political Science from the University of Pittsburgh.
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We believe Mr. Furman is qualified to serve as a member of our Board of Directors because of his leadership experience in various executive roles, particularly his experience in publicly traded companies and capital markets.
Thomas Ohrt
Mr. Ohrt has served as our Chief Financial Officer since January 22, 2024 and previously served our Company’s Controller from January 3, 2022. From December 2019 to January 2022 Mr. Ohrt served as a consultant at SJM Financial, providing financial reporting services to various publicly traded and private companies. Mr. Ohrt retired, from October 2018 to December 2019. Prior to that, Mr. Ohrt served as President and Chief Financial Officer of Formation Energy, an Oil and Gas Investment firm, from April 2013 to October 2018. In addition to these positions, during his 35-year career in finance, Mr. Ohrt has served as Controller of a publicly traded pharmaceutical company, three startup software companies and two other energy-related companies. Mr. Ohrt received his BS in Accounting from Illinois State University.
James R. Musick, Ph.D
Dr. Musick, one of our founders, currently serves as our Chief Science Officer, a position he has held since April 2018, and as our CLIA Laboratory Director, a position he has held since April 2021. Dr. Musick has also served as a member of our Board of Directors since September 1989. Over the past three decades, Dr. Musick has held various executive positions with the Company, including Chair of the Board from March 2005 to November 2020, President and Chief Executive Officer from August 1999 to November 2020, and Chief Financial Officer from September 1999 to April 2018. Dr. Musick began his career at our Company as a Production Supervisor from April 1988 to May 1992 and occupied roles of increasing responsibility thereafter, including Chief Operating Officer. Dr. Musick holds a Bachelor of Arts and a Doctor of Philosophy in Biological Sciences from Northwestern University. In addition, Dr. Musick completed a program on Managing New Product Development at Northwestern University’s Kellogg School of Management.
We believe that Dr. Musick is qualified to serve as a member of our Board of Directors because of his extensive experience in various leadership roles and in the development of biopharmaceutical products at our Company, as well as the continuity that he brings to our Board of Directors as one of our founders.
Caroline Mosessian, PhD., DRSc.
Dr. Mosessian has served as our Chief Regulatory Officer since October 2021 and as a member of our Board of Directors since February 2021, including serving as Chair of our Board of Directors from May 2022 until January 19, 2023. She currently devotes approximately 85% of her working time on company affairs. She previously served as our Director of Regulatory Affairs from January 2021 until October 2021. Dr. Mosessian also currently serves as an adjunct Clinical Associate Professor at the University of Southern California, a position she has held since August 2000. She also currently sits on the IRB of Common Spirit Health, a nonprofit health system, and provides clinical, research and ethical advice on numerous clinical trial research projects. Dr. Mosessian also currently serves as the Principal/Founder of Innovative Strategies & Solutions, Inc., a management consulting firm in life sciences and healthcare industries, a position she has held since January 2015. Dr. Mosessian holds a Master of Science and a Doctor of Philosophy in Regulatory & Quality Management Systems as well as a Master of Science and a Doctor of Philosophy in Healthcare Management and Health Economics, all from the University of Southern California.
We believe Dr. Mosessian is qualified to serve on our Board of Directors because of her expansive knowledge in regulatory science and strategies in quality management and her vast experience with domestic and international regulatory bodies, including the FDA, EMA, and Health Canada, providing human research protection and clinical trial design for drug discovery and developments.
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John Packs
Mr. Packs was appointed as the Chair of our Board on January 19, 2023 and has served as a member of the Board since August 2022. Mr. Packs retired from American International Group (AIG) in July 2021, where he was employed beginning in August 2001. While at AIG, Mr. Packs served in various capacities including Senior Investment Officer-VALIC Funds at AIG Retirement Services from 2001 to July 2021, where he oversaw $32 billion in assets, and Senior Vice President-Product and Research at SunAmerica Asset Management from September 2009 to July 2021. Prior to that, Mr. Packs served as Senior Vice President-Investment Research at American General Financial Group from March 2000 until its acquisition by AIG in 2001. Prior to that Mr. Packs was a principal at Cypress Holding Company, an asset management company and a consultant at Allmerica Financial. Previously he was co-founder of College America Corporation, focused on college savings and educational tools. Mr. Packs served as a legislative aide specializing in foreign and defense policy in the U.S. Senate from May 1979- December 1984. Mr. Packs holds a Bachelor of Arts in economics from Tufts University and an MBA from Columbia University.
We believe that Mr. Pack’s previous experience as a fiduciary, including work in legal and regulatory affairs, and his work with various regulatory agencies, makes him qualified to serve as a director of our Company.
Director Nominees
Anthony Pearl
Mr. Pearl will become a member of our Board upon the listing of our common stock on Nasdaq. Mr. Pearl has served as the Chief Legal and Compliance Officer of Crown Resorts Limited, an Australian gaming and entertainment group, since August 2022. Prior to that, he served as General Counsel and Chief Compliance Officer of The Cosmopolitan of Las Vegas, a resort casino and hotel, from 2008 until July 2022. Mr. Pearl received a Bachelor of Arts in psychology and sociology from Rice University and a Juris Doctor from Harvard Law School.
We believe that Mr. Pearl’s previous executive and fiduciary experience, including work in legal affairs, and his financial experience, makes him qualified to serve as a director of our Company.
Significant Employees
Tiana States
Ms. States has served as our Chief Manufacturing Officer since December 2020. She has served in various capacities at the Company since December 2013. From April 2018 until December 2020, she served as our Chief Operating Officer. During her role as COO, Ms. States helped create and validate research and development products, development of nutraceuticals to support stem cell health, and move into a quality management system certified by ISO 9001:2015 and ISO 13485:2016. She established operations into cGMP compliance and diagnostics to CLIA certified. From August 2011 to May 2012, she performed academic cancer research at Colorado State University and governmental genetic research from USDA-ARS to help achieve overall high-quality regulations. Ms. States is an inventor and has contributed to six patent pending technologies assigned to our company. She is in the process of expanding current technologies and developing multiple other technologies for our company.
Family Relationships
There are no family relationships among any of our current executive officers or directors.
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Executive Committee
We currently have one standing committee of the Board of Directors, the executive committee. Our executive committee, comprised of Christopher Furman, Caroline Mosessian and James Musick, supports our Board of Directors in the performance of its duties and responsibilities between its regularly scheduled meetings. Subject to such limitations as the Board of Directors or applicable law may from time to time impose, the executive committee has and may exercise all powers and authority of the Board, except that the executive committee does not have power or authority to, among other things:
| ● | amend the Company’s articles of incorporation or bylaws; | |
| ● | fill vacancies on the Board of Directors; | |
| ● | adopt an agreement or plan of merger or consolidation; | |
| ● | declare a dividend; or | |
| ● | authorize the issuance of stock. |
Audit Committee Financial Expert
Our Board of Directors does not currently maintain an audit committee. Nor does our Board have an “audit committee financial expert,” as defined by SEC rule. Due to difficulty in attracting independent directors to our Board with our present capitalization, we do not deem it feasible to have an audit committee financial expert at this time.
Our Board of Directors expects to appoint additional independent directors in connection with our anticipated future public offering and anticipated listing on a national securities exchange and at that time, create an audit committee and identify and appoint independent directors to such committee, including an audit committee financial expert.
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served as a member of a compensation committee (or if no committee performs that function, the Board of Directors) of any other entity that has an executive officer serving as a member of our Board of Directors.
Code of Ethics
Our Board has adopted a Code of Conduct and Ethics which is applicable to all of the Company’s directors and officers, including our principal executive officer and principal financial officer.
A copy of the Company’s Code of Conduct Ethics may be obtained free of charge by making the request to the Company in writing or on the Company’s website at https://www.vitrobiopharma.com/pages/corporate-governance.
Item 11. Executive Compensation
This section discusses the material components of the executive compensation program for our named executive officers (NEOs) who are named in the subsection titled “—Summary Compensation Table.” In fiscal year 2023, our NEOs and their positions were as follows:
| ● | Christopher Furman, Chief Executive Officer; | |
| ● | Thomas Ohrt, Chief Financial Officer; | |
| ● | Nathan Haas, former Chief Financial Officer; | |
| ● | Caroline Mosessian, Chief Regulatory Officer; and | |
| ● | Jack Zamora, former Chief Executive Officer. |
Christopher Furman began serving as our Chief Executive Officer on July 6, 2022. Dr. Zamora ceased serving as our Chief Executive Officer on May 4, 2022.
Thomas Ohrt began serving as our Chief Financial Officer on January 22, 2024. Mr. Haas resigned as Chief Financial officer on January 18, 2024.
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs.
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Summary Compensation Table
The following table sets forth information concerning the compensation awarded to or earned by our NEOs during the two fiscal years ended October 31, 2023 and 2022:
Summary Compensation Table
The following table sets forth information concerning the compensation awarded to or earned by our NEOs during the two fiscal years ended October 31, 2023 and 2022:
SUMMARY COMPENSATION TABLE
| Name and Principal Position | Year | Salary ($)(1) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) (2),(3) | Non- Equity Incentive Plan Compensation ($) |
All Other Compensation ($) |
Total ($) |
||||||||||||||||||||||||
| Christopher Furman(4) | 2023 | 400,000 | - | — | - | 200,000 | (8) | — | 600,000 | |||||||||||||||||||||||
| Chief Executive Officer | 2022 | 129,231 | — | — | 4,957,603 | 400,000 | (5) | — | 5,486,834 | |||||||||||||||||||||||
| Thomas Ohrt(9) | 2023 | 150,762 | - | - | 50,164 | - | - | 200,926 | ||||||||||||||||||||||||
| Chief Financial Officer | 2022 | 124,028 | 75,000 | (5) | - | 59,909 | - | - | 258,937 | |||||||||||||||||||||||
| Nathan Haas) | 2023 | 175,000 | - | — | — | — | — | 175,000 | ||||||||||||||||||||||||
| Former Chief Financial Officer | 2022 | 177,356 | 175,000 | (5) | — | - | — | — | 352,356 | |||||||||||||||||||||||
| Caroline Mosessian | 2023 | — | - | — | — | — | 225,000 | (6) | 225,000 | |||||||||||||||||||||||
| Chief Regulatory Officer | 2022 | — | 5,000 | — | - | — | 261,833 | (6) | 266,833 | |||||||||||||||||||||||
| Jack Zamora (7) | 2023 | - | — | — | — | — | — | - | ||||||||||||||||||||||||
| Former Chief Executive Officer | 2022 | 204,674 | - | — | - | — | — | 204,674 | ||||||||||||||||||||||||
1Salary amounts represent actual amounts paid to or earned during the applicable year. See “— Narrative to the Summary Compensation Table—Annual Base Salary” below.
(2) The amounts shown represent the grant date fair values of option awards granted in 2022 and 2021 as computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 718. See Note 8 to our consolidated financial statements included elsewhere in this Report under the caption “—Stock-Based Compensation” for a discussion of the assumptions used in the calculation of these amounts.
(3) Includes the grant date fair values of both vested and, if any, unvested options.
(4) Mr. Furman has served as our Chief Executive Officer since July 6, 2022.
(5) Includes a cash bonus determined for fiscal year 2022 performance, but to be paid in 2023.
(6) Includes consulting fees paid to or earned by Dr. Mosessian, through her consulting firm, Innovative Strategies & Solutions, Inc., for her services to the Company during the applicable year.
(7) Dr. Zamora served as our Chief Executive Officer until May 4, 2022.
(8) Includes a cash bonus per employment agreement for fiscal year 2023 performance, but to be paid in 2024.
(9) Mr. Ohrt’s compensation amounts during Fiscal 2022 and 2023 were related to his service as the Company’s Controller. Mr. Ohrt was appointed Chief Financial Officer in January 2024.
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Narrative to Summary Compensation Table
2023 Salaries
The named executive officers receive a base salary to compensate them for services rendered to our company. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities.
Pursuant to the terms of Mr. Furman’s employment agreement dated July 6, 2022 (the “Furman Agreement”), Mr. Furman is paid an annual base salary of $400,000.
Pursuant to the terms of Mr. Ohrt’s employment letter dated January 3, 2022 (the “Ohrt Controller Letter”), Mr. Ohrt was paid an annual base salary of $150,000. Pursuant to the terms of Mr. Ohrt’s CFO employment letter, dated January 22, 2024, (the “Ohrt CFO Letter”), Mr. Ohrt is to be paid a base salary of $250,000.
Pursuant to the terms of Mr. Haas’s employment agreement dated October 1, 2021 (the “Haas Agreement”), Mr. Haas is paid an annual base salary of $175,000. Pursuant to the terms of Mr. Haas consulting agreement dated January 18, 2024 (the “Haas Consulting Agreement”), Mr. Haas individually, is paid a monthly consulting fee of $15,000. The Haas Consulting Agreement will have an initial term of four (4) months.
Pursuant to the terms of Dr. Mosessian’s consulting agreement dated October 1, 2021 (the “Mosessian Agreement”), Dr. Mosessian, through her consulting firm, Innovative Strategies & Solutions Inc., is paid annual consulting fees of $249,996.
Pursuant to the terms of Dr. Zamora’s employment agreement dated December 1, 2020 (the “Zamora Agreement”), Dr. Zamora was paid an annual base salary based on two components: (i) quarterly Gross Revenues multiplied by five (5%) percent plus (ii) the quarterly average daily amount of cash on hand multiplied by five (5%) percent, subject to a $500,000 annual cap. “Gross Revenues” is defined to mean all revenue of any kind which accrues or is owed to the Company during each fiscal year and is derived from any source.
2023 Bonuses
Mr. Furman
The Furman Agreement provides that Mr. Furman receive an annual performance bonus of up to 100% of his base salary upon the achievement of individual and/or Company performance objectives to be established each year by the Board and Mr. Furman but not less than $200,000 in 2023. In the event individual or Company performance objectives are exceeded in any given year, Mr. Furman is also eligible to receive a discretionary stretch bonus. For the fiscal year ended October 31, 2023, the Company determined that he was entitled to a bonus of $200,000 based on employment agreement.
Equity Compensation
We have granted stock options to our employees, including our named executive officers, in order to attract and retain them, as well as to align their interests with the interests of our stockholders. Below is a summary of the stock options granted to our named executive officers during fiscal years 2022 and 2023.
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Mr. Furman
On July 6, 2022, we granted 192,307 stock options to Mr. Furman, with an exercise price of $26.00 per share, in connection with his appointment as Chief Executive Officer of the Company. These options became immediately exercisable as to 38,461 shares and the remainder will vest in four equal annual installments, with accelerated vesting in the event of a change of control. The options are exercisable for 10 years from the grant date.
Mr. Ohrt
On October 1, 2021, we granted 2,307 stock options to Mr. Ohrt, with an exercise price of $13.00 per share, in connection with his services as a consultant to the Company. These options became immediately exercisable as to 25% of the shares and the remainder will vest in three equal annual installments, with accelerated vesting in the event of a change of control. The options are exercisable for 10 years from the grant date. On March 1, 2022, we granted 6,730 stock options to Mr. Ohrt with an exercise price of $26.00 in connection with his employment by the Company as its Controller. The shares immediately vested as to 1,154 shares, with 1,859 shares vesting on the first anniversary of the grant, 1,859 shares vesting on the second anniversary of the grant, and 1,858 shares vesting on the third anniversary of the grant.
Mr. Haas
On August 1, 2021, we granted 38,461 stock options to Mr. Haas in connection with his employment agreement to serve as Vice President of Finance of the Company. The options are exercisable at $13.00 per share, vest 20% on each anniversary of the date of grant and are exercisable for 10 years.
On October 1, 2021, we granted an additional 19,230 stock options to Mr. Haas in connection with his appointment as the Chief Financial Officer. These options are exercisable at $13.00 per share, vest 20% on each anniversary of the date of grant and are exercisable for 10 years.
Dr. Mosessian
On February 1, 2021, we granted 19,230 stock options to Dr. Mosessian in connection with her consulting agreement to serve as Director of Regulatory Affairs of the Company. The options are exercisable at $13.00 per share, vest 20% on December 31st of each year, beginning on December 31, 2021, and are exercisable for a period of 10 years.
On October 1, 2021, we granted 38,461 stock options to Dr. Mosessian in connection with her appointment as Chief Regulatory Officer of the Company. These options became immediately exercisable as to 19,230 shares and vest as to approximately 4,807 shares on each of October 1, 2022 and October 1, 2023 and 9,615 shares on October 1, 2024. The options are exercisable at $13.00 per share and are exercisable for a period of 10 years.
No options were exercised by any of our named executive officers during the fiscal years ended October 31, 2022 or 2023.
Other Elements of Compensation
Employee Benefits and Perquisites
Health and Welfare Plans and Perquisites. All of our current named executive officers are eligible to participate in our employee benefit plans, including our medical, dental, vision, disability and life insurance plans, in each case on the same basis as all of our other employees. We generally do not provide perquisites or personal benefits to our named executive officers.
No Tax Gross-Ups
Other than a gross-up payment with respect to any parachute payments, as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), paid to each of Mr. Haas, and Drs. Zamora and Musick pursuant to Section 4999 of the Code, we do not make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company.
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Equity Incentive Plan
We have adopted the 2022 Plan in order to facilitate the grant of cash and equity incentives to directors, employees (including our named executive officers) and consultants of our company and certain of its affiliates and to enable us to obtain and retain services of these individuals, which is essential to our long-term success. For additional information about the 2022 Plan, please see the section titled “Equity Incentive Plans” below.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning the number of shares of common stock underlying outstanding equity incentive awards for each NEO as of October 31, 2023:
| Option Awards | Stock Awards | ||||||||||||||||||||||||
| Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock not yet Vested (#)) | Market Value of Shares or Units not yet Vested ($) | ||||||||||||||||||
| Christopher Furman | 07/06/2022 | (1) | 76,922 | 115,385 | 26.00 | 07/06/2032 | — | — | |||||||||||||||||
| Thomas Ohrt | 10/01/2021 | (5) | 1,730 | 577 | 13.00 | 10/01/2031 | — | — | |||||||||||||||||
| 03/01/2022 | (6) | 3,012 | 3,718 | 26.00 | 03/01/2032 | — | — | ||||||||||||||||||
| Nathan Haas | 08/01/2021 | (2) | 23,076 | 15,385 | 13.00 | 08/01/2031 | — | — | |||||||||||||||||
| 10/01/2021 | (2) | 11,538 | 7,692 | 13.00 | 10/01/2031 | — | — | ||||||||||||||||||
| Caroline Mosessian | 02/01/2021 | (3) | 7,692 | 11,538 | 13.00 | 02/01/2031 | — | — | |||||||||||||||||
| 10/01/2021 | (4) | 28,846 | 9,615 | 13.00 | 10/01/2031 | — | — | ||||||||||||||||||
| Jack Zamora | 04/09/2020 | 25,615 | — | 7.54 | 04/09/2030 | — | — | ||||||||||||||||||
| 12/01/2020 | 38,461 | — | 13.00 | 12/01/2030 | — | — | |||||||||||||||||||
(1) On the date of grant, 20% of the options vested immediately, and the remaining options vest ratably over four years on each annual anniversary of the grant date.
(2) These options vest ratably over five years on each annual anniversary of the grant date.
(3) These options vest ratably over five years on December 31st of each year, beginning with December 31, 2021.
(4) On the date of grant, 50% of the options vested immediately, and the remaining options vested or will vest on each annual anniversary of the grant date as follows: (i) 4,807 shares on October 1, 2022, (ii) 4,807 shares on October 1, 2023 and (iii) 9,615 shares on October 1, 2024.
Executive Compensation Arrangements
Below is a description of the material terms of each employment contract, agreement, plan or arrangement that provides for the employment of and payments to our NEOs and other executive officers (including such payments to be made at, following or in connection with the resignation, retirement or other termination of such officer, or following a change in control).
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Christopher Furman
We entered into the Furman Agreement effective July 6, 2022. Pursuant to the Furman Agreement, Mr. Furman is entitled to a base salary of $400,000 per year. He will also be eligible to receive an annual bonus based on his performance as evaluated by our Board based on objective factors to be established by the parties, with the target for such bonus being established at 100% of his base salary but which bonus may exceed such target. In addition, as provided in the Furman Agreement, we have awarded Mr. Furman an option to purchase up to 192,307 shares of our common stock, of which 38,461 vested upon the date of grant and the remainder will vest in four equal annual installments over a four-year period beginning on the first-year anniversary of the date of grant so long as he remains employed by or otherwise continues providing services to our Company. The exercise price for each share of common stock underlying the option is $26.00 per share, the fair market value of the underlying shares of common stock on the date of grant.
Under the terms of the Furman Agreement, Mr. Furman’s employment may be terminated at any time. If he is terminated with “Cause”, as defined in the Furman Agreement and summarized below, we would be obligated to pay him his accrued salary and accrued and unused vacation and reimbursable expenses and continue his benefits to the date of termination. If he is terminated without Cause or resigns with “Good Reason”, as defined in the Furman Agreement and summarized below, we would be obligated to pay him the sum of (A) one year’s base salary at the then-applicable rate plus (B) an amount equal to the average of his annual bonus, if any, for the two years immediately preceding the date of termination plus (C) any stretch bonus determined by the Board to be earned by Mr. Furman prior to his termination (collectively, the “Severance Amount”). The Severance Amount would be payable in a lump sum. For purposes of the Furman Agreement, “Cause” shall mean (1) a material breach by CEO of the agreement; (2) failure by CEO to perform in any manner CEO’s material duties under the agreement after being given notice of such failure, along with an explanation of such failure of performance; (3) conviction of CEO of a felony, crime of moral turpitude, or another crime that has had an adverse, negative impact on our Company’s reputation or business (or a plea of guilty or nolo contendere thereto); (4) CEO securing any personal monetary profit not fully disclosed to and approved by the Board in connection with any transaction CEO entered into on behalf of our Company; (5) gross negligence, willful misconduct, or conduct which constitutes a breach of any fiduciary duty or duty of loyalty owed to our Company by CEO; or (6) material violation of any lawful Company policy, procedure, rule, regulation or Company directive. A resignation shall be deemed to be for “Good Reason” if (1) Mr. Furman’s title, authority, position, duties or responsibilities are materially diminished; (2) his base salary or annual bonus opportunity is materially diminished (other than a reduction of his base salary as part of a salary reduction plan applicable to all executive officers in a similar manner); (3) we change in any material way the geographic location at which Mr. Furman must perform services or reside; or (4) we commit a material breach of the Agreement.
Finally, the Furman Agreement contains a non-compete arrangement pursuant to which Mr. Furman has agreed not to compete with us anywhere in the United States for a period of 12-months following termination of his employment for any reason.
Thomas Ohrt
We entered into the Ohrt CFO Letter effective January 22, 2024. Pursuant to the Ohrt CFO Letter, Mr. Ohrt is entitled to a base salary of $250,000 per year. He will also be eligible to receive an annual bonus based on his performance as evaluated by our Board based on objective factors to be established by the parties, with the target for such bonus being established at 50% of his base salary.
Under the terms of the Ohrt CFO Letter, Mr. Ohrt’s employment may be terminated at any time. If he is terminated with “Cause”, as defined in the Furman Agreement and summarized below, we would be obligated to pay him his accrued salary and accrued and unused vacation and reimbursable expenses and continue his benefits to the date of termination. If he is terminated for reasons unrelated to performance, we would be obligated to pay him one year’s base salary at the then-applicable rate.
Nathan Haas
Mr. Haas resigned as the Chief Financial Officer of the Company on January 18, 2024. Prior to the resignation we previously entered into the Haas Agreement on October 1, 2021 for a five (5) year term which expires October 1, 2026 and will automatically be extended for one (1) year terms thereafter, unless otherwise terminated or not renewed pursuant to the terms of the Haas Agreement.
Pursuant to the Haas Agreement, Mr. Haas is entitled to a base salary of $175,000 per year. The Haas Agreement also provides for an annual bonus pursuant to which Mr. Haas may receive the Haas Annual Bonus. In connection with the execution of the Haas Agreement, Mr. Haas was granted stock options to purchase up to 19,230 shares of the Company’s common stock at an exercise price of $13.00 per share (the “Haas Initial Options”). The Haas Initial Options vest ratably over five (5) years with the vesting period having commenced October 1, 2021. The Haas Initial Options shall be exercisable for a period of 10 years. The Haas Initial Options will vest immediately upon a Change of Control.
Mr. Haas may also receive a one-time discretionary bonus (the “One-Time Bonus”) as determined by the Chief Executive Officer and the Company’s Board of Directors upon the Company’s successful fundraising and/or mergers and acquisitions activities, or Mr. Haas’s contributions to the furtherance of the Company’s objectives.
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If we terminate Mr. Haas’s employment with us without cause (as defined in the Haas Agreement) or Mr. Haas elects not to renew his then current term for good reason (as defined in the Haas Agreement), including a Change in Control, he will receive the following payments and benefits: (i) a payment in the amount of two (2) times his then-current annual base salary and any accrued vacation pursuant to the terms of the Haas Agreement; (ii) reimbursement any outstanding expenses owed at the end of the term of his employment (iii) an amount equal to two (2) times the average of the Haas Annual Bonus for the two (2) fiscal years preceding his termination, and (iv) the One-Time Bonus as determined by the Company’s Chief Executive Officer. In addition, any outstanding options granted to Mr. Haas will vest immediately and will be exercisable for the remaining term of such options.
Finally, the Haas Agreement contains a non-compete arrangement pursuant to which Mr. Haas has agreed not to compete with us anywhere in the United States or any other geographic area in which we are actively engaged in business for a period of 12-months following termination of his employment for any reason.
Caroline Mosessian
We entered into the Mosessian Agreement, through her consulting firm, Innovative Strategies & Solutions, Inc., on October 1, 2021. The Mosessian Agreement terminates on October 1, 2024 (the “Termination Date”), unless earlier terminated.
The Mosessian Agreement provides for annual consulting fees of $249,996. In connection with the execution of the Mosessian Agreement, on October 1, 2021, Dr. Mosessian was granted stock options to purchase up to 38,461 shares of the Company’s common stock at an exercise price of $13.00 per share, of which 19,232 vested immediately, 4,807 vest on the first anniversary, 4,807 vest on the second anniversary, and 9,615 vest on the 3rd anniversary of the grant date. These options are exercisable for a period of ten years.
Upon a Change of Control or any termination of the Mosessian Agreement prior to the Termination Date, Dr. Mosessian will be entitled to payment of her annual base compensation for the remainder of the term thereunder and all outstanding unvested options will vest immediately and will be exercisable for the remaining term of such options.
James Musick
We entered into an employment agreement with Dr. Musick on December 1, 2020 (the “Musick Agreement”) for a five (5) year term which expires December 1, 2025 and will automatically be extended for one (1) year terms thereafter, unless otherwise terminated or not renewed pursuant to the terms of the Musick Agreement.
The Musick Agreement provides for an annual bonus pursuant to which Dr. Musick may receive the Musick Annual Bonus. In connection with the execution of the Musick Agreement, Dr. Musick was granted stock options to purchase up to 38,461 shares of the Company’s common stock at an exercise price of $13.00 per share (the “Musick Initial Options”). The Musick Initial Options vest ratably over five (5) years with the vesting period having commenced December 1, 2020. The Musick Initial Options shall be exercisable for a period of 10 years. The Musick Initial Options will vest immediately upon a Change of Control.
Dr. Musick may also receive the One-Time Bonus as determined by the Chief Executive Officer and the Company’s Board of Directors on account of extraordinary success in furtherance of the Company’s business objectives.
If we terminate Dr. Musick’s employment with us without cause (as defined in the Musick Agreement) or Dr. Musick elects not to renew his then current term for good reason (as defined in the Musick Agreement), including a Change in Control, he will receive the following payments and benefits: (i) a payment in the amount of two (2) times his then-current annual base salary and any accrued vacation pursuant to the terms of the Musick Agreement; (ii) reimbursement any outstanding expenses owed at the end of the term of his employment (iii) an amount equal to two (2) times the average of the Musick Annual Bonus for the two (2) fiscal years preceding his termination, and (iv) the One-Time Bonus as determined by the Company’s Chief Executive Officer. In addition, any outstanding options granted to Dr. Musick will vest immediately and will be exercisable for the remaining term of such options.
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Finally, the Musick Agreement contains a non-compete arrangement pursuant to which Dr. Musick has agreed not to compete with us anywhere in the United States or any other geographic area in which we are actively engaged in business for a period of 12-months following termination of his employment for any reason.
Tiana States
We entered into an executive employment agreement with Tiana States on December 8, 2020 (the “States Agreement”) pursuant to which she serves as our Chief Manufacturing Officer. The States Agreement is for a five (5) year term which expires December 8, 2025 and will automatically be extended for one (1) year terms thereafter, unless otherwise terminated or not renewed pursuant to the terms of the States Agreement.
The States Agreement provides for an initial annual salary of $125,000, which has been increased to $150,000 by verbal agreement. The States Agreement also provides Ms. States the opportunity to receive an annual bonus up to 50% of her base salary, as determined by the Company’s Chief Executive Officer, as well as a stretch bonus as determined by the Chief Executive Officer and the Company’s Board of Directors on account of extraordinary success in furtherance of the Company’s business objectives.
In connection with the execution of the States Agreement, Ms. States was granted stock options to purchase up to 38,461 shares of the Company’s common stock at an exercise price of $13.00 per share (the “States Initial Options”). The States Initial Options vest ratably over five (5) years with the vesting period having commenced December 8, 2020 and will vest immediately upon a Change of Control. The States Initial Options shall be exercisable for a period of 10 years.
If we terminate Ms. States’ employment with us without cause (as defined in the States Agreement) or Ms. States resigns for good reason (as defined in the States Agreement), including a Change of Control, she will receive the following payments and benefits: (i) a payment in the amount of two (2) times her then-current annual base salary and any accrued vacation; (ii) an amount equal to two (2) times the average of the Ms. States’ annual bonus for the two (2) fiscal years preceding her termination, and (iii) the stretch bonus, if any, as determined by the Company’s Chief Executive Officer. In addition, any outstanding options granted to Ms. States will vest immediately and will be exercisable for the remaining term of such options.
Finally, the States Agreement contains a non-compete arrangement pursuant to which Ms. States has agreed not to compete with us anywhere in the United States or any other geographic area in which we are actively engaged in business for a period of 12-months following termination of his employment for any reason.
Jack Zamora
Dr. Zamora ceased serving as the Chief Executive Officer of the Company on May 4, 2022. Prior to the termination of Dr. Zamora’s employment without cause, we previously entered into the Zamora Agreement on December 1, 2020 for a five (5) year term which was to expire on December 1, 2025 (the “Initial Term”).
Under the Zamora Agreement, Dr. Zamora was paid an annual base salary based on two components: (i) quarterly Gross Revenues multiplied by five (5%) percent plus (ii) the quarterly average daily amount of cash on hand multiplied by five (5%) percent, subject to a $500,000 annual cap. “Gross Revenues” is defined to mean all revenue of any kind which accrues or is owed to the Company during each fiscal year and is derived from any source. The Zamora Agreement also provided for the Zamora Annual Bonus. In connection with the execution of the Zamora Agreement, Dr. Zamora was granted stock options to purchase up to 192,307 shares of the Company’s common stock at an exercise price of $13.00 per share (the “Zamora Initial Options”). As mentioned above, only 38,461 of these options vested prior to the time that Dr. Zamora was removed as the Chief Executive Officer. Dr. Zamora was also entitled to receive a one-time bonus (the “Transaction Bonus”) if the Company consummated any of the following (each a “Transaction”):
| ● | sale or other disposition of the Company’s equity securities representing more than 50% of then outstanding voting securities to any person who is not an affiliate of the Company; |
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| ● | a merger, consolidation or other reorganization of the Company; | |
| ● | direct or indirect sale, transfer, conveyance or other disposition, in one or more related transactions, of all or substantially all of the properties or assets of the Company to any person who is not an affiliate of the Company; or | |
| ● | any other transaction, the intent of which may reasonably and equitably be construed to effect a substantially equivalent to any of the aforementioned. |
The Transaction Bonus would be equal to (i) 2.5% of the value of the Transaction if the value is more than $500 million and up to $1.0 billion or (ii) 5.0% of the value of the Transaction if the value is more than $1.0 billion, provided that the Transaction is consummated during the Initial Term. A Transaction’s value shall equal the total proceeds and other consideration received by us and/or our stockholders, or total proceeds and other consideration paid by us, in each case, including cash, securities or notes, whether in lump sum or installments. The Transaction Bonus would be payable in either cash or securities of our company, or a combination thereof, depending on the nature of the Transaction. If the Transaction Bonus is paid in shares of our common stock, it will be valued at the 20-day VWAP as quoted on principal trading market of our common stock.
After the end of fiscal year 2022, in connection with the termination of Dr. Zamora’s employment, we entered into a mutual release and settlement agreement (the “Settlement Agreement”) with Dr. Zamora on November 20, 2022 (the “Settlement Effective Date”). Pursuant to the Settlement Agreement, the parties confirmed that Dr. Zamora’s termination was “without cause” and Dr. Zamora resigned as a director of the Company, effective on the Settlement Effective Date. As part of the Settlement Agreement, Dr. Zamora acknowledged that he had been paid all amounts owed to him by us under the Zamora Agreement and that his unvested options would be terminated.
Potential Payments and Benefits upon Termination or Change in Control
The Employment Agreements with each of Messrs. Furman and Haas and Dr. Mosessian provide for severance benefits as described above under “— Executive Compensation Arrangements.”
Director Compensation
Directors who also serves as employees of the Company do not receive additional compensation for their service as a director of the Company. The following table contains information concerning the compensation of our non-employee directors in Fiscal 2023:
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||
| John Packs | 15,000 | (1) | — | — | — | 15,000 | ||||||||||||||
(1) Mr. Packs earned $15,000 in fees for his services during fiscal year 2023, although such amounts will not be paid until 2024.
Equity Incentive Plans
The following summarizes the material terms of the 2022 Plan, which is the long-term incentive compensation plan in which our directors and named executive officers are currently eligible to participate.
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2022 Plan
Our Board adopted the 2022 Plan on February 7, 2022 and it was subsequently approved by a majority of our Common Stockholders on June 29, 2022. The 2022 Plan was amended by our Board in July 2022 to increase the number of shares reserved for issuance under the Plan from 153,846 shares to 346,154 shares of common stock (the “2022 Plan Amendment”). Pursuant to the terms of the 2022 Plan, stockholder approval of the 2022 Plan Amendment was not required. The principal purpose of the 2022 Plan is to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards. The material terms of the 2022 Plan, as amended by the 2022 Plan Amendment, are summarized below:
Number of Shares. 346,154 shares of common stock have been reserved for issuance under the 2022 Plan, of which 140,384 shares of common stock remain available for issuance.
Duration of the 2022 Plan. The 2022 Plan will remain in effect until February 7, 2032, unless terminated earlier by the Board.
Administration. The 2022 Plan will be administered by the Board or a committee appointed by the Board. Generally, it is expected that the compensation committee will administer the 2022 Plan. The compensation committee is comprised entirely of independent directors. The compensation committee may delegate its authority under the 2022 Plan, subject to certain limitations.
Eligibility. Awards may be granted to employees of the Company, its subsidiaries and affiliates, directors of the Company, and consultants or advisers who provide bona fide services to the Company, its subsidiaries and affiliates, as an independent contractor and who qualifies as a consultant or advisor under Instruction A.1.(a)(1) of Form S-8 under the Securities Act. The compensation committee will decide who should receive awards and what kind of awards they should receive. The 2022 Plan does not limit the number of employees and affiliates who may receive awards.
Clawback. The Company may require employees to reimburse any previously paid compensation provided under the 2022 Plan or an award agreement in accordance with any recoupment policy that may be adopted in the future.
Types of Awards. The compensation committee may grant the following types of awards under the 2022 Plan: stock options (including non-qualified stock options and incentive stock options), stock appreciation rights, restricted stock, stock awards, restricted stock units, performance shares, performance units, cash-based awards and substitute awards. A maximum of 153,846 incentive stock options may be issued under the Plan.
Adjustments. In the event of material changes in the outstanding number of shares of common stock or in the capital structure of the Company by reason of a stock split, stock or extraordinary dividend, a reverse stock split, or an extraordinary corporate transaction, such as any recapitalization, merger, consolidation, combination, exchange of shares or the like, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization or any partial or complete liquidation of the Company, the compensation committee shall make an appropriate adjustment in the number and class of shares that are authorized under the 2022 Plan, and in the number, class of and/or price of shares subject to outstanding awards granted under the 2022 Plan, as may be determined to be equitable by the compensation committee, in its sole discretion, subject to certain limitations and requirements as set forth in the 2022 Plan, to prevent dilution or enlargement of rights.
Change in Control. Generally, in the event of a change in control of the Company, as defined in the 2022 Plan, unless otherwise specified in the award agreement, accelerated vesting for awards will only occur if: (i) the awards are not continued or assumed (e.g., the awards are not equitably converted or substituted for awards of a successor entity) in connection with the change in control; or (ii) the participant has a qualifying termination of his or her service relationship (as defined in the award agreement) within two years following the date of the change in control. Unless otherwise specified in the award agreement, in the event that the awards are not so continued or assumed in connection with the change in control or in the event of a qualifying termination of his or her service relationship within two years following the date of the change in control, then upon such change in control or such qualifying termination (as the case may be): (1) all outstanding options and stock appreciation rights will become immediately exercisable in full during their remaining term; (2) any restriction periods and restrictions imposed on non-performance based restricted stock awards will lapse; (3) all outstanding awards of performance-based restricted stock, performance units and performance shares will be paid out assuming achievement of all relevant target performance goals; (4) all restricted stock units will vest and be paid; and (5) all outstanding cash-based awards shall be accelerated as of the effective date of the change in control (and, in the case of performance-based cash-based awards, based on an assumed achievement of all relevant target performance goals), and be paid.
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The compensation committee’s policies relating to vesting of awards in the event of a change in control are implemented in the award agreements approved by it from time to time.
Principles. The 2022 Plan contains several provisions intended to make sure that awards under the 2022 Plan comply with established principles of good corporate governance. These provisions include:
| ● | No Discounted Stock Options or Stock Appreciation Rights. Except for certain substitute awards, stock options and stock appreciation rights may not be granted with an exercise price of less than the fair market value of the common stock on the date the stock option or stock appreciation right is granted. This restriction may not be changed without stockholder approval. | |
| ● | No Stock Option or Stock Appreciation Rights Repricings. Stock options and stock appreciation rights may not be repriced absent stockholder approval. This provision applies to both direct repricings—lowering the exercise price of an outstanding stock option or stock appreciation right—and indirect repricings—canceling an outstanding stock option or stock appreciation right and granting a replacement stock option or stock appreciation right with a lower exercise price. |
| ● | No Cash Buyouts of Underwater Stock Options or Stock Appreciation Rights. The 2022 Plan does not permit cash buyouts of underwater stock options or stock appreciation rights without stockholder approval. | |
| ● | No Liberal Share Recycling. The 2022 Plan permits share recycling only if an award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part. The 2022 Plan expressly prohibits recycling shares in specified circumstances, including: shares tendered to the Company by a participant to pay the exercise price of stock options; shares forfeited to satisfy tax withholding obligations; shares that were subject to a stock-settled stock appreciation right granted under the 2022 Plan that were not issued upon the exercise of such stock appreciation right; and shares repurchased by the Company on the open market using the proceeds from the exercise of an award. | |
| ● | No Unvested Dividends or Dividend Units. The 2022 Plan prohibits the Company from paying dividends or dividend units on unvested awards. | |
| ● | Cap on Director Compensation: The total compensation paid to a single non-employee director in any calendar year, including the cash compensation and cash value of all equity awards granted to such director in such year, cannot exceed $1,000,000. | |
| ● | No Evergreen Provision. The 2022 Plan does not contain an “evergreen provision”—there is no automatic provision to replenish the shares of common stock authorized for issuance under the 2022 Plan. | |
| ● | No reload options. The 2022 Plan does not provide for the issuance of stock options or stock appreciation rights which, upon exercise, automatically entitle a participant to a new stock option or stock appreciation right. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial ownership of our common stock as of January 29, 2024 by:
| ● | each person whom we know to beneficially own more than 5% of our common stock; | |
| ● | each of our directors; | |
| ● | each of our named executive officers; and | |
| ● | all directors and executive officers as a group. |
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In accordance with the rules of the SEC, beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable pursuant to stock options and warrants that are exercisable within 60 days of January 29, 2024. Shares issuable pursuant to stock options and warrants are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the percentage of any other person.
We have based our calculation of the percentage of beneficial ownership on 4,430,545 shares of our common stock outstanding as of January 29, 2024.
Unless otherwise indicated, the address for each listed stockholder is: c/o Vitro Biopharma, Inc., 3200 Cherry Creek Drive South, Suite 410, Denver, Colorado 80209. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
| Name of Beneficial Owner |
Number of Shares Beneficially Owned (#) |
Percentage of Shares Beneficially Owned (%) |
||||||
| Named Executive Officer, Directors and Director Nominee: | ||||||||
| Christopher Furman | 1,391,442 | (1)(2) | 30.9 | |||||
| Thomas Ohrt | 4,742 | (3) | * | |||||
| Jack Zamora | 1,415,359 | (4) | 31.2 | |||||
| James Musick | 1,265,103 | (5)(6) | 27.4 | |||||
| Caroline Mosessian | 31,729 | (7) | * | |||||
| John Packs | — | — | ||||||
| Anthony Pearl | 15,817 | (8) | * | |||||
| All current executive officers and directors as a group (5 persons) | 2,677,632 | (9) | 55.8 | |||||
| All Other Greater than 5% Owners: | ||||||||
| James R. Musick Trust(10) | 874,169 | 19.7 | ||||||
| John Evans | 249,258 | (11) | 5.5 | |||||
* Less than 1%.
(1) Includes 76,922 shares issuable upon exercise of options which are exercisable within 60 days of October 31, 2023.
(2) Includes 1,314,520 shares over which the reporting person shares voting power by virtue of a proxy granted by Jack Zamora pursuant to the Standstill Agreement until the expiration of the Standstill Term.
(3) Thomas Ohrt was appointed as Chief Financial Officer of the Company on January 22, 2024. Nathan Haas the Company’s prior Chief Financial Officer resigned on January 18, 2024. Mr. Ohrt’s shares include 4,742 shares issuable upon exercise of options, all of which are exercisable within 60 days of October 31, 2023.
(4) Includes 64,076 shares issuable upon exercise of options and 36,763 shares issuable upon exercise of outstanding warrants, all of which are exercisable within 60 days of October 31, 2023. Pursuant to the Standstill Agreement, the reporting person granted an irrevocable proxy to 1,314,520 of these shares to Christopher Furman under certain conditions and until the expiration of the Standstill Term. See the Schedule 13D filed by Mr. Furman with the SEC on December 2, 2022 for additional information.
(5) Includes 180,768 shares issuable upon exercise of options that are exercisable within 60 days of October 31, 2023. Also includes 113,707 shares owned by the reporting person’s spouse.
(6) Includes 874,169 shares held in The James R. Musick Trust, a grantor trust. Dr. James Musick has sole voting and investment control of the shares held in The James R. Musick Trust.
(7) Includes 31,729 issuable upon exercise of options that are exercisable within 60 days of October 31, 2023.
(8) Includes 8,125 shares of common stock and 7,692 shares issuable upon exercise of outstanding warrants, all of which are exercisable within 60 days of October 31, 2023, held in the Pearl Family Trust, of which Anthony Pearl serves as the trustee and has sole voting and investment control.
(9) Includes 39,998 shares issuable upon exercise of outstanding warrants and 308,649 shares underlying options, all of which are exercisable within 60 days of October 31, 2023.
(10) Dr. James Musick, a director and our Chief Science Officer, has sole voting and investment control of the shares held in The James R. Musick Trust.
(11) Includes (i) 48,490 shares held by the reporting person’s spouse, of which he disclaims beneficial ownership and (ii) 130,767 shares issuable upon exercise of options that are exercisable within 60 days of October 31, 2023.
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Equity Compensation Plan Information
The following table sets forth information concerning equity compensation granted to various consultants and employees of the Company pursuant to individual compensation arrangements as of October 31, 2023:
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders | 13,462 | 13.00 | 332,692 | |||||||||
| Equity compensation plans not approved by security holders | 1,110,615 | $ | 8.32 | — | ||||||||
| Total | 1,124,077 | 8.32 | 332,692 | |||||||||
Information regarding the individual compensation arrangements pursuant to which outstanding options were granted to employees prior to October 31, 2023 is contained above under the section titled “Executive and Director Compensation.” In addition, the Company granted 6,730 options each to an employee and a consultant on March 1, 2022 as part compensation for their services to the Company.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The following information summarizes transactions since November 1, 2020 and any currently proposed transactions, to which we were or are to be a participant, in which (i) the amount involved exceeded or will exceed the lesser of (a) $120,000 or (b) 1% of the average of our total assets at year end for the last two completed fiscal years; and (ii) any of our directors, executive officers, persons who were directors or executive officers at the time of such transaction or holders of more than 5% of our common stock, or any affiliate or member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described under the section titled “Executive and Director Compensation” above.
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We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that we would pay or receive, as applicable, in arm’s-length transactions.
Promissory Notes
On November 1, 2020, we issued promissory notes (the “Promissory Notes”) to our Chief Science Officer and Director, in the aggregate principal amount of (i) $1,221,958 which accrues interest at a rate of 4.0% per annum and (ii) $767,288 which accrues interest at a rate of 6.0% per annum. The Promissory Notes, which were issued to the CSO in exchange for accrued compensation and interest on such accrued compensation and mature on December 31, 2025; provided, however, if certain conditions precedent have not been satisfied, the Promissory Notes will be automatically extended to the date which is 60 days after the satisfaction of such conditions precedent. As of October 31, 2022, approximately $2.0 million in aggregate principal amount was outstanding under the Promissory Notes. From November 1, 2018 through October 31, 2023, we accrued $284,747 in interest payments under the Promissory Notes.
10% Senior Secured Convertible Notes
In October 2021, our former Chief Executive Officer converted his holdings of our 10% senior secured convertible notes , into shares of our Common Stock as follows:
| Investor Name | Date of Issuance | Principal Amount | Accrued Interest | Maturity Date | Conversion Date | Share Received Upon Conversion | |||||||||||||
| Jack Zamora | 6/15/2018 | $ | 150,000 | 12/31/2021 | 10/10/2021 | 153,604 | |||||||||||||
| Jack Zamora | 7/27/2018 | $ | 100,000 | 12/31/2021 | 10/10/2021 | 113,342 | |||||||||||||
| Jack Zamora | 7/29/2019 | $ | 70,000 | 12/31/2021 | 10/10/2021 | 53,846 | |||||||||||||
Series A Units
Between November 2020 and October 2021, we sold approximately 36.3 Series A Units for cash proceeds in the aggregate amount of approximately $1,815,000 million. Each Series A Unit consisted of (i) 2,000 shares of Series A Convertible Preferred Stock, (ii) a Class A Warrant, exercisable for up to three (3) years from the issuance date, to purchase up to 100,000 shares of our common stock at an exercise price of $0.50 per share and (iii) a Class B Warrant, exercisable for up to five (5) years from the issuance date, to purchase up to 3,846 shares of our common stock at an exercise price of $26.00 per share. Our former CEO received approximately 1.73 Series A Units in October 2021 upon the conversion of advances payable to the former CEO in the amount of $86,464. Also, in October 2021, our Chief Financial Officer was issued four (4) Series A Units upon cancellation of a 5% Convertible Note (as defined below) in the aggregate principal amount of $0.2 million issued in August 2021 in connection with the Fitore Acquisition as described below.
Fitore Merger
Effective August 2021, we acquired Fitore (the “Fitore Acquisition”) for consideration consisting of six of our Series A Units, our convertible notes in the aggregate principal amount of $1,000,000 which accrue interest at a rate of 5% per annum (the “5% Convertible Notes”) and an aggregate of 153,846 shares of our common stock. Prior to, and up to the time of closing of, the acquisition, Dr. Zamora was our Chief Executive Officer, a member of our Board of Directors and the owner of less than 1% of our outstanding common stock and the owner of 30% of the outstanding stock of Fitore. Our Board of Directors was aware of the interest of Dr. Zamora in the transaction and he recused himself from any Board deliberations or votes with regard to the proposed acquisition in order to address the inherent conflicts of interest between our interests and those of Dr. Zamora. For a discussion of certain risks related to these inherent conflicts of interest, see “Risk Factors” herein.
| -126- |
Each Series A Unit issued in connection with the Fitore Acquisition consisted of (i) 2,000 shares of Series A Convertible Preferred Stock, (ii) a Class A Warrant, exercisable for up to three (3) years from the issuance date, to purchase 3,846 shares of our common stock at an exercise price of $13.00 per share and (iii) a Class B Warrant, exercisable for up to five (5) years from the issuance date, to purchase 3,846 shares of our common stock at an exercise price of $26.00 per share.
We issued 5% Convertible Notes in the aggregate principal amount of $1 million in connection with the Fitore Acquisition. The 5% Convertible Notes are convertible at the option of the holder at any time and are subject to mandatory conversion if (i) there exists a public market for the our common stock, (ii) the closing price of the common stock in the principal trading market has been $78.00 per share or higher for the preceding twenty (20) trading days, and the average daily trading volume during such 20 day period is at least 577 shares and (iii) either (A) there is an effective registration statement registering for resale the shares issuable upon conversion or (B) the shares issuable upon conversion are eligible to be resold by non-affiliates of the Company without restriction under Rule 144 under the Securities Act.
As of November 3, 2022, $480,000 in aggregate principal amount was outstanding under a single remaining 5% Convertible Note issued in connection with the Fitore Acquisition. From August 2021 through October 31, 2022, we accrued $29,904 in interest payments under the remaining 5% Convertible Note. From August 1, 2021 through April 15, 2022, we converted $11,265 in accrued interest into shares of Common Stock upon the conversion of two of the 5% Convertible Notes.
Pursuant to the terms of the Agreement and Plan of Merger with Fitore (the “Fitore Merger Agreement”), we issued the following consideration to our former Chief Executive Officer, who was a stockholder of Fitore, and our Chief Financial Officer, who was a stockholder and Chief Financial Officer of Fitore:
Jack Zamora, Former Chief Executive Officer
| Security | Number of Securities/Aggregate Principal Amount | Maturity Date | Conversion/Cancellation Date | |||||
| Common Stock | 46,154 | N/A | N/A | |||||
| Preferred Stock Units | 1.8 | N/A | N/A | |||||
| 5% Convertible Note | $ | 300,000 | 7/31/2024 | 04/15/2022 | ||||
Dr. Zamora’s note was converted on April 15, 2022 into 46,154 shares of Common Stock, which included the conversion of accrued interest of $10,561.
Nathan Haas, Former Chief Financial Officer
| Security | Number of Securities/Aggregate Principal Amount | Maturity Date | Conversion/Cancellation Date | |||||
| Common Stock | 30,769 | N/A | N/A | |||||
| Preferred Stock Units | 1.2 | N/A | N/A | |||||
| 5% Convertible Promissory Note | $ | 200,000 | 7/31/2024 | 10/22/21 | ||||
We canceled Mr. Haas’s note in October 2021 and he received four (4) Series A Units in connection with such cancellation. Each Series A Unit consisted of (i) 2,000 shares of Series A Convertible Preferred Stock, (ii) a Class A Warrant, exercisable for up to three (3) years from the issuance date, to purchase up to 3,846 shares of our common stock at an exercise price of $13.00 per share and (iii) a Class B Warrant, exercisable for up to five (5) years from the issuance date, to purchase up to 3,846 shares of our common stock at an exercise price of $26.00 per share.
| -127- |
Mr. Haas also entered into a confidentiality and proprietary rights agreement with us pursuant to which he agreed to maintain the confidentiality of certain information learned by him in the course of his employment with the Company. Pursuant to the terms of the Fitore Merger Agreement, we also have certain customary indemnification obligations to Mr. Haas in the event of any losses or damages arising out of certain breaches under the Fitore Merger Agreement.
Tanner Haas, Immediate Family Member of our Former Chief Financial Officer
Tanner Haas, who is Nathan Haas’s brother, was a stockholder and Chief Executive Officer of Fitore, received the following consideration pursuant to the Fitore Merger Agreement:
| Security | Number of Securities/Aggregate Principal Amount | Maturity Date | ||||
| Common Stock | 73,846 | N/A | ||||
| Preferred Stock Units | 2.9 | N/A | ||||
| 5% Convertible Promissory Note | $ | 480,000 | 7/31/2024 | |||
The consideration issued to the related parties was on the same terms and conditions as the non-affiliated parties.
InfiniVive MD Acquisition
Effective August 2021, we also acquired InfiniVive MD, a company solely owned by Dr. Zamora. Pursuant to the Agreement and Plan of Exchange (the “Exchange Agreement”) governing our acquisition of InfiniVive MD, Dr. Zamora exchanged 100% of his membership units in InfiniVive MD for 884,615 shares of our common stock. As with the merger with Fitore, our Board of Directors was aware of his interest in the transaction and Dr. Zamora recused himself from any Board deliberations related to the acquisition of InfiniVive MD in order to address the inherent conflict which existed in him owning that entity and serving as our Chief Executive Officer, a member of our Board of Directors and a stockholder of our company. Including the common stock that was issued in connection with the merger of Fitore, Dr. Zamora owned 3.4% of the voting power of our common stock before the acquisition. For a discussion of certain risks related to these inherent conflicts of interest, see “Item 1A. Risk Factors” herein.
Pursuant to the terms of the Exchange Agreement, we also have certain customary indemnification obligations to Dr. Zamora in the event of any losses or damages arising out of certain breaches under the Exchange Agreement.
Other Transactions with Former Chief Executive Officer
Set forth below are additional transactions that we have entered into with Dr. Jack Zamora, our former Chief Executive Officer and former director. As of January 29, 2024, Dr. Zamora beneficially owned approximately 31% of our voting stock.
Release and Settlement Agreement
On November 20, 2022 (the “Settlement Effective Date”), we entered into a Mutual Release and Settlement Agreement with our former Chief Executive Officer, Dr. Jack Zamora (the “Settlement Agreement”). Pursuant to the Settlement Agreement, Dr. Zamora’s termination was confirmed as being “without cause” and Dr. Zamora resigned as a director of the Company, effective on the Settlement Effective Date.
As part of the Settlement Agreement, the parties agreed to confidentiality and non-disparagement restrictions, as well as a release of any potential claims against each other. In addition, certain provisions of Dr. Zamora’s Employment Agreement that survive termination of employment were modified to provide that Dr. Zamora shall not, for a period of one year from the Settlement Effective Date, “directly or indirectly solicit any person who has been a customer or employee of the Company during the period of one (1) year prior to the Settlement Effective Date.” The Settlement Agreement also provides for the termination of all previous supply agreements between the Company and Dr. Zamora, effective immediately, with such previous agreements to be replaced by the Supply Agreement and the MOU described below. In addition, Dr. Zamora acknowledged the forfeiture of certain of his stock purchase options.
| -128- |
Supply Agreement
On the Settlement Effective Date, in connection with the Settlement Agreement, we entered into a Supply Agreement with Dr. Zamora (the “Supply Agreement”), pursuant to which we agreed to provide InfiniVive MD Exosome Serum and InfiniVive Daily Serum (the “Cosmetic Products”) to Dr. Zamora at his request. The provision of the Cosmetic Products under the Supply Agreement is subject to minimum and maximum quantity limitations. The Supply Agreement is effective for a period of five years, unless earlier terminated. The Company or Dr. Zamora may terminate the Supply Agreement immediately in prescribed circumstances, including if either party defaults with respect to its obligations under the Supply Agreement and, if the default is capable of being cured, does not cure such default within 30 days after receiving notice of such default. If the Supply Agreement is deemed terminated by Dr. Zamora for failure of the Company to supply the Cosmetic Products in accordance with its terms or by the Company without cause, the Standstill Agreement would be deemed terminated and of no further force or effect. As of January 23, 2023, Dr. Zamora has purchased approximately $15,750 of Cosmetic Products pursuant to the Supply Agreement.
Memorandum of Understanding
On the Settlement Effective Date, in connection with the Settlement Agreement, we also entered into a Memorandum of Understanding with Dr. Zamora (the “MOU”) in order to support clinical research for AlloRx. Under the MOU, the Company agreed to provide AlloRx at a specified price to international clinical research facilities or other clinics with which Dr. Zamora may become affiliated, provided that certain regulatory conditions are satisfied, including proof of satisfaction of applicable United States and local legal requirements. The MOU will be effective for a period of five years, unless earlier terminated or replaced by mutual written agreement between Dr. Zamora and the Company. The MOU may also be earlier terminated in the event any clinic or the Company materially breaches the terms and conditions of the MOU. In the event the MOU is terminated by Dr. Zamora for failure of the Company to supply AlloRx in accordance with its terms or by the Company without cause, the Standstill Agreement would be deemed terminated and of no further force or effect.
Revenues
Dr. Zamora is also a significant customer of ours in his capacity as a practicing physician. For the years ended October 31, 2023 and 2022, Dr. Zamora accounted for $36,000 and $30,500 in product sales, respectively.
Lease with Spouse of Chief Science Officer
The spouse of our Chief Science Officer, through entities she controls, leases office and lab space to our company. The rent is $5,645 per month plus taxes, insurance and utilities. We believe that the rental rate charged to us under this lease are consistent with commercial rental rates in the area.
Other Transactions
We have entered into employment agreements with our executive officers that, among other things, provide for certain compensatory and change in control benefits, as well as severance benefits. For a description of these agreements with our named executive officers, see the subsection titled “Executive and Director Compensation—Executive Compensation Arrangements.”
We have also granted stock options to our executive officers and certain of our directors. For a description of these equity awards, see the subsection titled “Executive and Director Compensation—Equity Compensation.”
| -129- |
Director Independence
Our Board of Directors currently consists of four members. Our Board of Directors has determined that only Mr. Packs qualifies as an independent director. Mr. Furman and Drs. Musick and Mosessian are not considered independent by virtue of their positions as executive officers of the Company. Dr. Zamora, who served as a director throughout fiscal year 2022 and until his resignation on November 20, 2022, was not considered independent as a result of his prior employment with the Company. Under the NYSE American’s listing standards, the definition of independence includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director nor any of his or her family members has engaged in various types of business dealings with us. In addition, as required by the NYSE American’s listing standards, our Board of Directors has made a subjective determination as to each independent director that no relationships exists that, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board of Directors reviewed and discussed information provided by the directors and us with regard to each director’s relationships as they may relate to us and our management.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Board appointed MaloneBailey LLP (“MaloneBailey”) as our independent registered public accounting firm for the fiscal year ended October 31, 2023, as well as for our fiscal year ending October 31, 2022.
Pre-Approval Policies and Procedures
Our Board of Directors does not presently have an Audit Committee. Notwithstanding this absence, it is our policy to pre-approve all audit and other services rendered by our independent registered public accounting firm. The independent auditors are required to periodically report to the Board of Directors regarding the extent of services provided by the independent registered public accounting firm in accordance with such pre-approval.
During the year ended October 31, 2023, the Board of Directors approved, in advance, all audit and non-audit services to be provided by MaloneBailey. The Board of Directors has determined that the non-audit services rendered by MaloneBailey during fiscal years 2023 and 2022 were compatible with maintaining the independence of the independent registered public accounting firm.
Independent Registered Certified Public Accounting Firm Fees and Services
The following table sets forth a summary of the fees billed by MaloneBailey for professional services rendered for the fiscal years ended October 31, 2023 and 2022:
| Fee Category | Fiscal Year 2023 | Fiscal Year 2022 | ||||||
| Audit Fees(1) | $ | 142,000 | $ | 126,000 | ||||
| Audit-Related Fees(2) | 97,000 | 37,500 | ||||||
| Tax Fees | — | — | ||||||
| All Other Fees(3) | — | — | ||||||
| Total Fees | $ | 239,000 | $ | 163,500 | ||||
(1) Audit fees consist of fees billed for professional services rendered for the audit of our Company’s financial statements and review of our interim financial statements included in quarterly reports and services that are normally provided by our auditors in connection with statutory and regulatory filings or engagements.
(2) Audit related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees”.
(3) All Other Fees consist of the aggregate fees billed in each of the last two fiscal years for the products and services provided by our auditors, other than the products and services included in Audit Fees, Tax Fees, and Audit-Related Fees.
| -130- |
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
| (a) | The following documents are filed as part of this Report: |
| (1) | The following consolidated financial statements of the Company are incorporated by reference in Part II, Item 8—See Index to Consolidated Financial Statements | |
| (2) | All financial statement schedules have been omitted because they are not applicable or not required or because the information is included elsewhere in the financial statements or the Notes thereto. | |
| (3) | See exhibits listed under Part (b) below. |
| (b) | Exhibits: |
| -131- |
| -132- |
| # | Indicates management contract or compensatory plan. |
| † | Certain portions of this document that constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10). |
| * | Filed or furnished herewith |
| + | The certifications attached as Exhibits 32.1 and 32.2 that accompanies this Report are not deemed filed with the SEC and are not to be incorporated by reference into any filing of the Registrant under the Securities Act or the Exchange Act, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing. |
ITEM 16. FORM 10-K SUMMARY
None.
| -133- |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on January 29, 2024.
| VITRO BIOPHARMA, INC. | ||
| By: | /s/ Christopher Furman | |
| Name: | Christopher Furman | |
| Title: | Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Christopher Furman | Chief Executive Officer (Principal | January 29, 2024 | ||
| Christopher Furman | Executive Officer), Director | |||
| /s/ Thomas Ohrt | Chief Financial Officer (Principal | January 29, 2024 | ||
| Thomas Ohrt | Financial Officer and Principal Accounting Officer) | |||
| /s/ James R. Musick | Chief Science Officer, Director | January 29, 2024 | ||
| James R. Musick | ||||
| /s/ Caroline Mosessian | Chief Regulatory Officer, Director | January 29, 2024 | ||
| Caroline Mosessian | ||||
| /s/ John Packs | Chair of the Board | January 29, 2024 | ||
| John Packs |
| -134- |
INDEX TO FINANCIAL STATEMents
| Page | ||
| VITRO BIOPHARMA, INC. | ||
| Audited Financial Statements | ||
| Years Ended October 31, 2023 and 2022 | ||
| Report of Independent Registered Public Accounting Firm (Firm ID |
F-2 | |
| Consolidated Balance Sheets as of October 31, 2023 and 2022 | F-3 | |
| Consolidated Statements of Operations for the Years Ended October 31, 2023 and 2022 | F-4 | |
| Consolidated Statement of Changes in Stockholders’ (Deficit) Equity for the Years Ended October 31, 2023 and 2022 | F-5 | |
| Consolidated Statements of Cash Flows for the Years Ended October 31, 2023 and 2022 | F-6 | |
| Notes to Consolidated Financial Statements | F-7 |
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Vitro Biopharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vitro Biopharma and its subsidiaries (collectively, the “Company”) as of October 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Board of Directors and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
www.malonebailey.com
We have served as the Company’s auditor since 2020.
January 29, 2024
| F-2 |
Vitro BioPharma, Inc.
Consolidated Balance Sheets
| October 31, 2023 | October 31, 2022 | |||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts Receivable, Net | ||||||||
| Inventory | ||||||||
| Prepaid Expense | ||||||||
| Prepaid project costs | ||||||||
| Deferred Offering Costs | ||||||||
| Total Current Assets | ||||||||
| Goodwill | ||||||||
| Intangible Assets, Net | ||||||||
| Property and Equipment, Net | ||||||||
| Patents | ||||||||
| Right of Use Asset – Operating Lease | ||||||||
| Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Accounts Payable | $ | $ | ||||||
| Deferred Revenue, Net | ||||||||
| Accrued Liabilities | ||||||||
| Accrued Liabilities – Related Party | ||||||||
| 2021 Series Convertible Notes Payable – Related Party | ||||||||
| Accrued Interest Payable – Related Party | ||||||||
| Current Maturities of Capital Lease Obligations | ||||||||
| Current Maturities of Operating Lease Obligations | ||||||||
| Total Current Liabilities | ||||||||
| Capital Lease Obligations, Net of Current Portion | ||||||||
| Operating Lease Obligation, Net of Current Portion | ||||||||
| Unsecured 6% Note Payable – Related Party | ||||||||
| Unsecured 4% Note Payable – Related Party | ||||||||
| 2021 Series Convertible Notes Payable – Related Party | ||||||||
| 2022 Series Convertible Notes Payable | ||||||||
| 2023 Series Convertible Notes Payable - Stock Settled, Net | ||||||||
| 2023 Series B Convertible Notes Payable – Stock Settled, Net | ||||||||
| Derivative/Warrant Liability | ||||||||
| Long Term Accrued Interest Payable | ||||||||
| Long Term Accrued Interest Payable – Related Party | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Preferred Stock, Shares Authorized, par value $; Series A Convertible Preferred Stock, Shares Authorized, and Outstanding, respectively | ||||||||
| Common stock, Shares Authorized, par value $, and Outstanding, respectively | ||||||||
| Additional Paid in Capital | ||||||||
| Less Treasury Stock | ( | ) | ( | ) | ||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ (Deficit) Equity | ( | ) | ||||||
| Total Liabilities and Stockholders’ (Deficit) Equity | $ | $ | ||||||
The consolidated financial statements should be read in connection with the notes to the consolidated financial statements.
| F-3 |
Vitro BioPharma, Inc.
Consolidated Statements of Operations
Year Ended October 31, 2023 | Year Ended October 31, 2022 | |||||||
| Product Sales | $ | $ | ||||||
| Product Sales, Related Parties | ||||||||
| Consulting Revenue | ||||||||
| Total Revenue | ||||||||
| Less Cost of Goods Sold | ( | ) | ( | ) | ||||
| Gross Profit | ||||||||
| Operating Costs and Expenses: | ||||||||
| Selling, General and Administrative | ||||||||
| Research and Development | ||||||||
| Impairment Expense | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other Expense: | ||||||||
| Interest Expense | ( | ) | ( | ) | ||||
| Other Project Income, Net | ||||||||
| Loss on Conversion of Senior Secured Note Payable | ( | ) | ||||||
| Unrealized Gain on Series 2023 Derivative/Warrant Liability | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Deemed Dividend on Series A Convertible Preferred Stock | ( | ) | ||||||
| Cumulative Series A Convertible Preferred Stock Dividend Requirement | ( | ) | ||||||
| Net Loss Available to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss per Common Share, Basic and Diluted | $ | ) | $ | ) | ||||
| Shares Used in Computing Net Loss per Common Share, Basic and Diluted | ||||||||
The consolidated financial statements should be read in connection with the notes to the consolidated financial statements.
| F-4 |
Vitro BioPharma, Inc.
Consolidated Statement of Changes in Stockholders’ (Deficit) Equity
For the Years Ended October 31, 2023 and 2022
| Preferred Stock | Common Stock | Additional | ||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid in Capital | Treasury Stock |
Accumulated Deficit | Total | |||||||||||||||||||||||||
| Balance at October 31, 2021 | $ | $ | $ | $ | ( |
) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock issued in connection with note conversion | - | |||||||||||||||||||||||||||||||
| Stock issued in connection with preferred stock conversions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Beneficial conversion feature on convertible preferred stock | - | - | - | |||||||||||||||||||||||||||||
| Deemed dividend on convertible preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at October 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( | ) | $ | ||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Forgiven Accrued Payables – Related Party | - | - | ||||||||||||||||||||||||||||||
| Payment for fractional warrants - recapitalization | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at October 31, 2023 | $ | $ | $ | $ | ( |
) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
The consolidated financial statements should be read in connection with the notes to the consolidated financial statements.
| F-5 |
Vitro BioPharma, Inc.
Consolidated Statements of Cash Flows
Year Ended October 31, 2023 | Year Ended October 31, 2022 | |||||||
| Operating Activities | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustment to Reconcile Net Loss: | ||||||||
| Other Project Income, Net | ( | ) | ||||||
| Unrealized Gain on Series 2023 Derivative/Warrant Liability | ( | ) | ||||||
| Loss on Conversion of Senior Secured Note Payable | ||||||||
| Depreciation Expense | ||||||||
| Amortization Expense | ||||||||
| Bad Debt Expense | ||||||||
| Impairment Expense | ||||||||
| Amortization of Operating Lease – ROU Asset | ||||||||
| Accretion of Debt Discount | ||||||||
| Stock Based Compensation | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid Expenses | ( | ) | ||||||
| Prepaid project costs | ( | ) | ||||||
| Accounts Payable | ||||||||
| Deferred Revenue, Net | ||||||||
| Operating Lease Obligation | ( | ) | ( | ) | ||||
| Accrued Liabilities | ||||||||
| Accrued Liabilities – Related Party | ( | ) | ||||||
| Accrued Interest | ||||||||
| Accrued Interest – Related Parties | ||||||||
| Other Assets | ( | ) | ||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Investing Activities | ||||||||
| Acquisition of Property and Equipment | ( | ) | ( | ) | ||||
| Patent Costs | ( | ) | ||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Financing Activities | ||||||||
| Deferred Offering Costs | ( | ) | ( | ) | ||||
| Issuance of 2022 Series Convertible Notes Payable | ||||||||
| Issuance of 2023 Series Convertible Notes Payable - Stock Settled | ||||||||
| Issuance of 2023 Series B Convertible Notes Payable – Stock Settled | ||||||||
| Capital Lease Principal Payments | ( | ) | ( | ) | ||||
| Payments on Revolving Line of Credit | ( | ) | ||||||
| Net Cash Provided by (Used in) Financing Activities | ( | ) | ||||||
| Total Cash Used During the Period | ( | ) | ( | ) | ||||
| Beginning Cash Balance | ||||||||
| Ending Cash Balance | $ | $ | ||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Income Taxes | $ | $ | ||||||
| Supplemental Schedule of Non-Cash Financing Activities: | ||||||||
| Premium on issuance of 2023 Series Notes Payable - Stock Settled | $ | $ | ||||||
| Derivative/Warrant Liability on 2023 Series Notes Payable | $ | $ | ||||||
| Discount on Derivative/Warrant Liability on 2023 Series Notes Payable | $ | $ | ||||||
| Forgiveness of Accrued Liabilities – Related Party | $ | $ | ||||||
| Premium on issuance of 2023 Series B Notes Payable – Stock Settled | $ | $ | ||||||
| Derivative/Warrant Liability on 2023 Series B Notes Payable | $ | $ | ||||||
| Discount on Derivative/Warrant Liability on 2023 Series B Notes Payable | $ | $ | ||||||
| Recognition of New Capital Leases | $ | $ | ||||||
| Beneficial Conversion Feature and Deemed Dividend on Convertible Preferred Stock | $ | $ | ||||||
| Deferred Offering Costs Recorded as Accounts Payable | $ | $ | ||||||
| Right of Use Asset and Operating Lease Obligation Recognized under ASC Topic 842 | $ | $ | ||||||
| Common Stock Issued for Conversion of Senior Secured Note Payable | $ | $ | ||||||
| Common Stock Issued for Conversion of Related Party Note Payable | $ | $ | ||||||
The consolidated financial statements should be read in connection with the notes to the consolidated financial statements.
| F-6 |
VITRO BIOPHARMA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2023 AND 2022
NOTE 1 – NATURE OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization and Description of Business
Vitro Biopharma, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on March 31, 1986, under the name Imperial Management, Inc. On December 17, 1986, the Company merged with Labtek, Inc., a Colorado corporation, with the Company being the surviving entity and the name of the Company was changed to Labtek, Inc. The name was then changed to Vitro Diagnostics, Inc. on February 6, 1987. From November of 1990 through July 31, 2000, the Company was engaged in the development, manufacturing, and distribution of purified human antigens (“Diagnostics”) and related technologies. The Company also developed cell technology including immortalization of certain cells, which allowed entry into other markets besides Diagnostics. In August 2000, the Company sold the Diagnostics business, following which it focused on developing therapeutic products, its stem cell technology, patent portfolio and proprietary technology and cell lines for applications in autoimmune disorders and inflammatory disease processes and stem cell research. On February 3, 2021, the Company filed an amendment to the articles of incorporation with the Nevada Secretary of State, changing the name of the Company to Vitro BioPharma, Inc.
Summary of Significant Accounting Policies
Basis of Presentation
On
June 23, 2023, the Board of Directors of the Company approved a
The accompanying consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Basis of Consolidation
The consolidated financial statements include the operations of the Company and its wholly owned subsidiaries, Fitore, Inc. (“Fitore”) and InfiniVive MD, LLC (“InfiniVive”).
Cash Equivalents
For the purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the Federal depository insurance coverage limits. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Concentrations
During
the years ended October 31, 2023 and 2022,
Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheets.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| F-7 |
Revenue Recognition
As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. To determine the appropriate amount of revenue to be recognized for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following steps: (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) each performance obligation is satisfied. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on the Company’s consolidated financial statements.
For each performance obligation identified in accordance with ASC 606, the Company determines at contract inception whether it satisfies the performance obligation over time (in accordance with paragraphs 606-10-25-27 through 25-29) or satisfies the performance obligation at a point in time (in accordance with paragraph 606-10-25-30). If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time.
Control is considered transferred over time if any one of the following criteria is met:
| ● | The customer simultaneously receives and consumes the benefits of the asset or service which the entity performs; | |
| ● | The entity’s performance creates or enhances an asset; or | |
| ● | The entity’s performance creates or enhances an asset that has no alternative use to the entity and the entity has the right to payment for work completed to date. |
For certain contracts to which the Company is party, it uses the recognition over time method to recognize revenue.
The Company recognizes revenue when performance obligations with the customer are satisfied. Product sales occur once control is transferred upon shipment to the customer at the time of the sale. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods and services. The Company’s revenue is primarily derived from the sources listed below:
Sale of research and development product: Sales of research and development product include the sale of stem cell medium.
Sale of therapeutic product: Includes cell culture media to be used in therapeutic treatment.
Shipping: Includes amounts charged to customers for shipping products.
Consulting Revenue: The Company has agreed to assist another party to develop an FDA-approved biological product. Revenues are recognized when certain contractual milestones are achieved.
Fitore product sales online: Includes internet sales, via the Fitore Nutrition website, of dietary supplements called Stemulife, Spectrum+, Easy Sleep and Thought Calmer.
InfiniVive product sales: InfiniVive, via call-in orders, sells exosomes and daily cosmetic serum.
| F-8 |
Disaggregation of revenue
The following table summarizes the Company’s revenue for the reporting periods, disaggregated by product or service type:
| Year
Ended October 31, 2023 | Year
Ended October 31, 2022 | |||||||
| Revenues: | ||||||||
| Research and development products | $ | $ | ||||||
| AlloRx Stem Cells to Foreign Third-Party Clinics | ||||||||
| Consulting revenue | ||||||||
| InfiniVive products | ||||||||
| Fitore products | ||||||||
| Total | $ | $ | ||||||
Deferred Revenue
The Company has recorded deferred revenue in connection with a Joint Operating Agreement (as subsequently amended, the “JOA”) executed between the Company and European Wellness/BIO PEP USA (“BIO PEP”). Pursuant to this JOA, which expired in accordance with its terms on July 31, 2023 and has not been to be renewed, the Company was obligated to use its best efforts to identify, develop and deliver various potential active pharmaceutical ingredients and to oversee the development of a recombinant cell line by a third-party service provider. The Company was also engaged to establish a Quality Management System to be utilized by BIO PEP in their pursuit of FDA authorizations. Prior to its expiration, our work under the JOA had been suspended since April 2023 pending discussions regarding amounts believed to be owed to us under that agreement for work already completed. If those discussions are unsuccessful, we may not be able to collect all of the amounts believed to be owed to us or the other amounts originally expected to be received by us under the agreement.
The
Company records as deferred revenue amounts for which the Company has been paid but for which it has not yet achieved and delivered related
milestones or when the level of effort required to complete performance obligations under an arrangement cannot be reasonably estimated
under the terms of the related agreement. Deferred revenue is classified as current or long-term based on when management estimates the
revenue will be recognized. As of October 31, 2023, the Company has net deferred $
The table below summarizes Deferred Revenues as of October 31, 2023:
| October 31, 2022 | Other Project Income Recognized | Net Revenue Deferred | October 31, 2023 | |||||||||||||
| Deferred Revenue | $ | $ | ( | ) | $ | $ | ||||||||||
| Total | $ | $ | ( | ) | $ | $ | ||||||||||
The table below summarizes Deferred Revenues as of October 31, 2022:
| October 31, 2021 | Revenue Recognized | Revenue Deferred | October 31, 2022 | |||||||||||||
| Deferred Revenue | $ | $ | ( | ) | $ | $ | ||||||||||
| Total | $ | $ | ( | ) | $ | $ | ||||||||||
During
the years ended October 31, 2023 and 2022, the Company recognized as revenue $ and $
| F-9 |
As
of October 31, 2023, upon the expiration of the European Wellness Agreement, the Company recognized $
Accounts Receivable
Accounts
receivable consists of amounts due from customers. The Company considers accounts more than 30 days old to be past due. The Company uses
the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The
Company generally does not require collateral for its accounts receivable. As of October 31, 2023 and 2022, total accounts receivable
amounted to $
As
of October 31, 2023, two customers accounted for
The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic income or loss per share) and potentially dilutive shares of common stock that are not anti-dilutive. For the years ended October 31, 2023 and 2022, the following number of potentially dilutive shares have been excluded from diluted net loss since such inclusion would be anti-dilutive:
| October 31, 2023 | October 31, 2022 | |||||||
| Stock options outstanding | ||||||||
| Shares to be issued in connection with exercise of warrants | ||||||||
| 2021 Series Convertible Notes Payable - Related Party – common shares | ||||||||
| 2022 Series Convertible Notes Payable - common shares | ||||||||
| 2023 Series Convertible Notes Payable – Stock Settlement | ||||||||
| 2023 Series Convertible Notes Payable – Stock Settled - warrants issuable | ||||||||
| 2023 Series B Convertible Notes Payable - Stock Settled | ||||||||
| 2023 Series B Convertible Notes Payable - Stock Settled - warrants issuable | ||||||||
| Total | ||||||||
| F-10 |
Inventory
Inventories, consisting of raw materials and finished goods, are stated at the lower of cost (using the specific identification method) or market. Inventories consisted of the following at the balance sheet dates:
| October 31, 2023 | October 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Total inventory | $ | $ | ||||||
The
Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment
of market conditions. During the years ended October 31, 2023 and 2022, the Company did
Patents
Costs
related to filing and pursuing patent applications (including direct application fees, and the legal and consulting expenses related
to making such applications) are capitalized as incurred and will not be amortized until a patent is granted at which time they will
be amortized. Capitalized patent costs recorded as of October 31, 2023 and 2022 were $
Leases
In
May 2023, the Company executed a new office lease for its executive offices, with the lease starting July 1, 2023. The Company recognized
an initial operating lease right-of-use asset of $
Deferred Offering Costs
The Company defers, as other current assets, the direct incremental costs of raising capital through equity offerings, until such time as the offering is completed or abandoned. At the time of the offering completion, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated.
Property and Equipment
Property,
equipment, and leasehold improvements are recorded at historical cost. The cost of property and equipment is depreciated over the estimated
useful lives, when placed in service (ranging from
Intangible Assets and Impairment
Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually.
The Company periodically reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
| F-11 |
Goodwill
Goodwill is the excess of acquisition cost over the fair value of the net assets of acquired businesses. The Company does not amortize goodwill but assesses goodwill for impairment at least annually or when there has been a material change in circumstances, using the market approach.
The Company accounts for expenses associated with shares issued for services using the fair value method following the guidance outlined in Section 718-10 of the FASB ASC for disclosure about stock-based compensation. This section requires a public entity to measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions). That cost is recognized over the period during which the service is provided. No compensation cost is recognized for equity instruments for which service is not provided or rendered.
Recent Accounting Standards
On August 5, 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, “Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40),” which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in GAAP. This ASU is effective for fiscal years beginning after December 31, 2023. The Company is evaluating the impact the adoption will have on the financial statements.
NOTE 2 – GOING CONCERN
The
accompanying financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going
concern. The Company has incurred net losses of approximately $
These factors raise substantial doubt about the Company’s ability to continue as a going concern. In view of these matters, realization of certain of the assets in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financial requirements, raise additional capital, and generate additional revenues and profit from operations.
Management plans to address the going concern include but are not limited to raising additional capital through an attempted public and/or private offering of equity securities, as well potentially issuing additional debt instruments. The Company also has various initiatives underway to increase revenue generation through diversified offerings of products and services related to its stem cell technology and analytical capabilities. The goal of these initiatives is to achieve profitable operations as quickly as possible. Various strategic alliances that are ongoing and under development are also critical aspects of management’s overall growth and development strategy. There is no assurance that these initiatives will yield sufficient capital to maintain the Company’s operations. There is no assurance that the ongoing capital raising efforts will be successful. Should management fail to successfully raise additional capital and/or fully implement its strategic initiatives, it may be compelled to curtail part or all of its ongoing operations.
The financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has historically financed its operations primarily through various private placements of debt and equity securities.
| F-12 |
NOTE 3 – FAIR VALUE MEASUREMENT
ASC Topic 820, “Fair Value Measurements and Disclosures”, establishes a hierarchy for inputs used in measuring fair value for financial assets and liabilities that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
● Level 1: Quoted prices available in active markets for identical assets or liabilities;
● Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; and
● Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash or valuation models.
The financial assets and liabilities are classified in the Consolidated Balance Sheets based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
As disclosed in Note 7, the two tranches’ of 2023 Series Convertible Notes Payable - Stock Settled Derivative/Warrant Liability required identification and quantification of fair value. The derivative liabilities described below only relate to the warrants included with the two tranches of the 2023 Series Convertible Notes Payable – Stock Settled debt. The estimated fair values as of the issuance date of the two tranches of notes are presented in Note 7.
As of October 31, 2023, the estimated fair values of the Company’s financial liabilities are presented in the following table:
| October 31, 2023 | ||||
| 2023 Series Convertible Notes Payable - Stock Settled - Derivative/Warrant Liability | $ | |||
| 2023 Series B Convertible Notes Payable – Stock Settled – Derivative/Warrant Liability | ||||
| Total | $ | |||
The following table presents a roll-forward of the fair value of the derivative liabilities associated with the Company’s warrants included with its 2023 Series Convertible Notes Payable, categorized as Level 3:
| Year Ended October 31, 2023 | Year Ended October 31, 2022 | |||||||
| Beginning Balance | $ | $ | ||||||
| Additions | ||||||||
| Total (gains) or losses (realized/unrealized) | ( | ) | ||||||
| Included in operations | ||||||||
| Ending Balance | $ | $ | ||||||
During
the year ended October 31, 2023, the unrealized gain on the Derivative Warrant Liability was $
The fair value of the warrants granted in connection with the two, tranches of 2023 Series Convertible Notes Payable-Stock Settled during the periods presented was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| October 31, 2023 | October 31, 2022 | |||||||
| Risk-free interest rate | % | |||||||
| Dividend yield | ||||||||
| Volatility factor | % | |||||||
| Weighted average expected life | ||||||||
| F-13 |
Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value
The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, and Convertible Notes Payable. The carrying values of cash, accounts receivable and accounts payable are representative of their fair values due to their short-term maturities. The carrying amount of the Company’s Convertible Notes Payable approximates fair value as they bear interest over the term of the loans.
NOTE 4 – PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, less accumulated depreciation at the balance sheet dates:
| October 31, 2023 | October 31, 2022 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Property and equipment | ||||||||
| Total cost | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation
expense for the years ended October 31, 2023 and 2022 was $
NOTE 5 – INTANGIBLE ASSETS
The following table sets forth the carrying amounts of intangible assets and goodwill including accumulated amortization as of October 31, 2023:
| Remaining Useful Life | Cost | Accumulated Amortization and Impairment | Net Carrying Value | |||||||||||||
| Trademarks and tradenames | $ | $ | ( | ) | $ | |||||||||||
| Patents, know-how and unpatented technology | ( | ) | ||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Total | ( | ) | ||||||||||||||
Remaining Useful Life | Cost | Impairment | Net Carrying Value | |||||||||||||
| Goodwill | $ | $ | ( | ) | $ | |||||||||||
| F-14 |
The following table sets forth the carrying amounts of intangible assets and goodwill including accumulated amortization as of October 31, 2022:
| Remaining Useful Life | Cost | Accumulated Amortization and Impairment | Net Carrying Value | |||||||||||||
| Trademarks and tradenames | $ | $ | ( | ) | $ | |||||||||||
| Patents, know-how and unpatented technology | ( | ) | ||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||
| Total | ( | ) | ||||||||||||||
Remaining Useful Life | Cost | Impairment | Net Carrying Value | |||||||||||||
| Goodwill | $ | $ | ( | ) | $ | |||||||||||
The table below presents anticipated future amortization expense related to the Company’s intangible assets for each of the succeeding five fiscal years ending October 31;
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | $ |
During
the years ended October 31, 2023 and 2022, the Company recorded amortization expense of $
NOTE 6 – LEASE OBLIGATIONS
The Company accounts for its leases in accordance with ASU No. 2016-02, Leases (Topic 842) (“ASC 842”). ASC 842 requires lessees to (i) recognize a right of use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments on the Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease related cash payments within operating and financing activities.
The
Company’s operating lease consists of a lease for office space. The Company’s finance lease activities consist of leases
for equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The office lease contains an option
to a renewal period of
In
May 2023, the Company executed a new office lease for
| F-15 |
The following table shows the classification and location of the Company’s leases in the Consolidated Balance Sheets:
| Leases | Balance Sheet Location | October 31, 2023 | October 31, 2022 | |||||||
| Assets | ||||||||||
| Noncurrent: | ||||||||||
| Operating | Right-of-use asset – operating lease | $ | $ | |||||||
| Property and equipment, net | ||||||||||
| Total Lease Assets | $ | $ | ||||||||
| Liabilities | ||||||||||
| Current: | ||||||||||
| Operating | Operating lease liabilities | $ | $ | |||||||
| Finance | Finance lease liabilities | |||||||||
| Noncurrent: | ||||||||||
| Operating | Operating lease liabilities | |||||||||
| Finance | Finance lease liabilities | |||||||||
| Total Lease Liabilities | $ | $ | ||||||||
The following table shows the classification and location and the Company’s lease costs in the Consolidated Statements of Operations:
| Statements of Operations | Years Ended October 31, | |||||||||
| Location | 2023 | 2022 | ||||||||
| Operating lease expense | General and administrative expense | $ | $ | |||||||
| Finance lease expense: | ||||||||||
| Interest on lease liability | Interest expense | |||||||||
| Total Lease expense | $ | $ | ||||||||
Minimum contractual obligations for the Company’s leases (undiscounted) as of October 31, 2023 were as follows:
| Operating | Finance | |||||||
| Fiscal year 2024 | $ | $ | ||||||
| Fiscal year 2025 | ||||||||
| Fiscal year 2026 | ||||||||
| Fiscal year 2027 | ||||||||
| Fiscal year 2028 | ||||||||
| Thereafter | ||||||||
| Total Lease Payments | $ | $ | ||||||
| Less Imputed interest | ( | ) | ( | ) | ||||
| Total lease liability | $ | $ | ||||||
The following table shows the weighted average remaining lease term and the weighted average discount rate for the Company’s leases as of the dates indicated:
| October 31, 2023 | October 31, 2022 | |||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||
| Weighted-average remaining lease term (in years) | ||||||||||||||||
| Weighted-average discount rate (1) | % | % | % | % | ||||||||||||
| (1) |
| F-16 |
The following table includes other quantitative information for the Company’s leases for the periods indicated:
| Years Ended October 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in measurement of lease liabilities | ||||||||
| Cash payments for operating leases | $ | $ | ||||||
| Cash payments for finance leases | $ | $ | ||||||
The
Company recorded amortization of the operating lease right-of-use asset of $
NOTE 7 – DEBT
The table below presents outstanding debt instruments as of October 31, 2023 and October 31, 2022:
| October 31, 2023 | October 31, 2022 | |||||||
| Short Term | ||||||||
| 2021 Series convertible notes – related party | $ | $ | ||||||
| Total Short-Term Debt | ||||||||
| Long Term | ||||||||
| Unsecured 6% note payable – related party | $ | $ | ||||||
| Unsecured 4% note payable – related party | ||||||||
| 2021 Series convertible notes – related party | ||||||||
| 2022 Series convertible notes | ||||||||
| 2023 Series convertible notes – stock settled | ||||||||
| Discount 2023 Series convertible notes | ( | ) | ||||||
| 2023 Series B convertible notes – stock settled | ||||||||
| Discount 2023 Series B convertible notes | ( | ) | ||||||
| Total Long-Term Debt | ||||||||
| Total Debt | $ | $ | ||||||
The table below presents the future maturities of outstanding debt obligations as of October 31, 2023:
| Fiscal year 2024 | $ | |||
| Fiscal year 2025 | ||||
| Fiscal year 2026 | ||||
| Fiscal year 2027 | ||||
| Fiscal year 2028 | ||||
| Total | $ |
Unsecured 6% Note Payable - Related Party
Interest
expense on this note was $
Unsecured 4% Note Payable - Related Party
Interest
expense on this note was $
2021 Series Convertible Notes - Related Party
The
remaining principal balance outstanding on the 2021 Series Convertible notes amounted to $
| F-17 |
Senior Secured Convertible Note Payable
The
outstanding balance of the note was $
2022 Series Convertible Notes
During
June and July, 2022, the Company issued a total of $
2023 Series Convertible Notes – Stock Settled
On
January 6, 2023, the Company sold $
On
various dates during March and April 2023, the Company sold $
On
various dates during June and July 2023, the Company sold $
The sale and purchase were made through a Convertible Note and Warrant Purchase Agreement (“Purchase Agreement”) entered into with each investor. The Company followed the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 480 “Distinguishing Liabilities from Equity” to account for the stock settled debt and ASC 815 “Derivatives and Hedging” to account for the derivative related to the notes and also to determine the number of warrants to be issued at the time of the issuance of the January 2023 Notes, March 2023 Notes, or the June 2023 Notes.
Each
of the January 2023 Notes, March 2023 Notes, and June 2023 Notes bear interest at the rate of eight per cent per annum and are payable
solely in shares of the Company’s common stock. Each of the January 2023 Notes, March 2023 Notes, and June 2023 Notes may be converted
at any time at the option of the holder and are payable in full at the earliest of (i) the completion of a “Qualified Financing,”
as defined below, (ii) a change in control, (iii) in the event of default, or (iv) the maturity date, which is five years from the date
of issuance. A Qualified Financing is defined in the Purchase Agreement as any financing completed after the date of issuance of either
the January 2023 Notes, March 2023 Notes, or June 2023 Notes involving the sale of the Company’s equity securities primarily for
capital raising purposes resulting in gross proceeds to the Company of at least $
The
Discounted Qualified Financing Price is defined as the per share price at which the shares of the Qualified Financing Securities are
sold in such Qualified Financing as determined for accounting purposes under GAAP, multiplied by . The Capped Price is the per share
price implied by a fully-diluted (on an as-converted to common stock basis), pre-money valuation of $
| F-18 |
Each
January 2023 Warrant issuable by the Company pursuant to the Purchase Agreement entitles the holder to purchase that number of fully
paid and nonassessable shares of the Company’s common stock determined (A) in the case following a Qualified Financing, by dividing
(i) the sum of the aggregate outstanding principal amount of the January 2023 Note plus all accrued and unpaid interest thereon at the
time of conversion multiplied by
Each
March 2023 Warrant and June 2023 Warrant issuable by the Company pursuant to the Purchase Agreement entitles the holder to purchase that
number of fully paid and nonassessable shares of the Company’s common stock determined (A) in the case following a Qualified Financing,
by dividing (i) the sum of the aggregate outstanding principal amount of the March 2023 Note plus all accrued and unpaid interest thereon
at the time of conversion by (ii) the quotient of the Discounted Qualified Financing Price divided by
Participation
Rights. Each of the January 2023 Notes, March 2023 Notes, and June 2023 Notes entitle the holder to purchase in a Qualified Financing
an amount of Qualified Financing Securities (as defined above) up to
The
Company contemplated ASC 480-10-30-7 related to the valuation of the embedded conversion feature contained in the January 2023 Notes,
March 2023 Notes, and June 2023 Notes. The Company deemed that the most likely scenario to be utilized for valuing the conversion feature
was a qualified financing. Therefore, the Company deemed that the January 2023 Notes, March 2023 Notes, and June 2023 were issued at
a premium related to the definition of Discounted Qualified Financing Price contained in the Purchase Agreement. The premium recognized
at the inception of January 2023 Notes was $
The
Company assessed the January 2023 Warrants, March 2023 Warrants, and June 2023 first under ASC 480. Based on the attributes of the January
2023 Warrants, March 2023 Warrants, and June 2023 Warrants, the Company determined that each are outside of the scope of ASC 480 and
proceeded to assess each under ASC 815 to determine if any are considered indexed to the Company’s own common stock. Because the
inputs which affect the number of shares to be issued upon exercise of the January 2023 Warrants, March 2023 Warrants, and June 2023
Warrants are not the inputs per 815-40-15-7E, none are deemed to be indexed to the Company’s own stock and have been recorded as
liabilities under ASC 815 (Note 3) at the fair market value. At issuance, the Company recorded a warrant liability related to the January
2023 Warrants of $
| F-19 |
The
combination of the $
The
combination of the $
The
combination of the $
During
the year ended October 31, 2023 the Company recorded $
NOTE 8– STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has authorized shares of $par value Preferred Stock, of which were designated as Series A Convertible Preferred Shares. As of October 31, 2023 and 2022, and shares of Series A Convertible Preferred Stock were issued and outstanding.
Activity for the year ended October 31, 2023
There were no sales or grants of preferred shares during the year ended October 31, 2023.
Activity for the year ended October 31, 2022
There were no sales of Series A Convertible Preferred Shares during the year ended October 31, 2022.
On
March 31, 2022, the holders of all shares of Series A Convertible Preferred Stock outstanding converted those shares into
shares of Common Stock of the Company at $
In
connection with the sale of the Series A Convertible Preferred Shares, the Company determined that there was an embedded conversion feature
associated with the preferred shares. The total intrinsic value of the beneficial conversion feature was determined to be $
Dividend
The
holders of the Series A Convertible Preferred Shares were entitled to receive dividends at an annual rate of
| F-20 |
Cumulative dividends earned as of October 31, 2023 and 2022 are set forth in the table below:
| Stockholders at Period End | Accumulated Dividends | |||||||
| Balance at October 31, 2021 | $ | |||||||
| Issued | ||||||||
| Converted | ( | ) | ( | ) | ||||
| Balance at October 31, 2022 | $ | |||||||
| Issued | ||||||||
| Converted | ||||||||
| Balance at October 31, 2023 | $ | |||||||
Common Stock
On June 23, 2023, the Board of Directors of the Company approved the Reverse Stock Split of the Company’s (a) authorized shares of Common Stock; and (b) issued and outstanding shares of Common Stock, which became effective on July 6, 2023.
As of October 31, 2023, the Company had authorized shares of $ par value common stock. As of October 31, 2023 and 2022, , and shares were issued and outstanding, respectively.
There were no grants of common shares during the year ended October 31, 2023.
Activity for the year ended October 31, 2022
On
February 22, 2022, the Company issued Common Shares at $
On
March 31, 2022, the Company issued Common Shares at $
On
April 15, 2022, the Company issued Common Shares in connection with the conversion of $
On
April 15, 2022, the Company issued Common Shares in connection with the conversion of $
Stock-Based Compensation
There were no grants of stock purchase options during the year ended October 31, 2023.
Activity for the year ended October 31, 2022
On March 1, 2022, the Company issued stock purchase options to an employee and a consultant to the Company. The options are exercisable at $ per share. Options granted on March 1, 2022, vest as follows of the total issued vested at the date of grant, of the total issued vest on each anniversary date until fully vested. The options are exercisable for a period of .
On July 6, 2022, the Company issued stock purchase options to the newly appointed Chief Executive Officer of the Company. The options are exercisable at $per share and vest as follows: vested at the date of grant and vest on each anniversary date so long as the executive remains affiliated with the Company. The options are exercisable for a period of .
| F-21 |
Grants during the year ended October 31, 2022, were all considered to be non-qualified.
| October 31, 2023 | October 31, 2022 | |||||||
| Risk-free interest rate | %- | % | ||||||
| Dividend yield | ||||||||
| Volatility factor | %- | % | ||||||
| Weighted average expected life | ||||||||
| Number of Shares | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Life (in years) | Aggregate intrinsic value | |||||||||||||
| Balance at October 31, 2021 | $ | $ | ||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options granted | - | |||||||||||||||
| Options expired | - | - | ||||||||||||||
| Options forfeited | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at October 31, 2022 | ||||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options expired | - | - | ||||||||||||||
| Options forfeited | ( | ) | ( | ) | ( | ) | - | |||||||||
| Balance at October 31, 2023 | $ | $ | ||||||||||||||
Stock based compensation expense related to options for the years ended October 31, 2023 and 2022 amounted to $ and $, respectively. As of October 31, 2023 and 2022, and options were exercisable, respectively. Unrecognized compensation expense related to outstanding options amounted to $ and $ as of October 31, 2023 and 2022, respectively.
Warrants
During the years ended October 31, 2023 and 2022 the Company did not issue any warrants.
A summary of the Company’s common stock underlying the outstanding warrants as of October 31, 2023 and 2022 is as follows:
Underlying Number of | Average Exercise Price | Weighted Average Life | ||||||||||
| Outstanding – October 31, 2021 | $ | |||||||||||
| Warrants A – Granted during the period | - | |||||||||||
| Warrants B – Granted during the period | - | |||||||||||
| Warrants A – Expired during the period | - | |||||||||||
| Warrants B – Expired during the period | - | |||||||||||
| Outstanding at October 31, 2022 | ||||||||||||
| Warrants A – Granted during the period | - | |||||||||||
| Warrants B – Granted during the period | - | |||||||||||
| Warrants A – Expired during the period | ( | ) | - | |||||||||
| Warrants B – Expired during the period | - | |||||||||||
| Outstanding – October 31, 2023 | $ | |||||||||||
| F-22 |
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Employment agreements
On
July 6, 2022, the Company hired Christopher Furman as its new Chief Executive Officer. Mr. Furman will receive an annual base salary
of $
On
December 1, 2021, the Company and John Evans entered into a Consulting Agreement (“Evans Consulting Agreement”). Under the
terms of the Evans Consulting Agreement, Mr. Evans is to provide advisory services to the CEO and CFO of the Company. The term of the
Evans Consulting Agreement is for
On
December 8, 2020, the Company entered into a new employment agreement with Tiana States, Chief Manufacturing Officer (the “States
Agreement”). Pursuant to the terms of the States Agreement, the Company agreed to pay Mrs. States a base salary of $
On
December 1, 2020, the Company entered into a new employment agreement with James Musick, Chief Science Officer (the “Musick Agreement”).
Pursuant to the terms of the Musick Agreement, the Company agreed to pay Dr. Musick a base salary of $
On
December 1, 2020, the Company entered into a new employment agreement with Dr. Jack Zamora, Chief Executive Officer and President (“Zamora
Agreement”) with a term of
On
October 1, 2021, the Company appointed Nathan Haas as the Chief Financial Officer and entered into an employment agreement with him.
Pursuant to the terms the Nathan Haas CFO Agreement, the Company agreed to pay Mr. Haas a base salary of $
| F-23 |
On
August 1, 2021, the Company entered into a new employment agreement (the “Tanner Haas Agreement”) with Tanner Haas, the chief
executive officer of Fitore at the time. The Company agreed to pay Mr. Haas a base salary of $
NOTE 10 – RELATED PARTY TRANSACTIONS
Settlement Agreement with Dr. Zamora
As part of the Settlement Agreement dated November 20, 2022 (the “Effective Date”), the parties agreed to confidentiality and non-disparagement restrictions, as well as a release of any potential claims against each other. In addition, certain provisions of Dr. Zamora’s Employment Agreement that survive termination of employment were modified to provide that Dr. Zamora shall not, for a period of one year from the Effective Date, “directly or indirectly solicit any person who has been a customer or employee of the Company during the period of one (1) year prior to the Effective Date.” The Settlement Agreement also provides for the termination of all previous supply agreements between the Company and Dr. Zamora, effective immediately, with such previous agreements to be replaced by the Supply Agreement described below.
Standstill Agreement
On the Effective Date, in connection with the Settlement Agreement, the Company entered into a Standstill Agreement with Dr. Zamora (the “Standstill Agreement”).
Supply Agreement
On the Effective Date, in connection with the Settlement Agreement, the Company entered into a Supply Agreement with Dr. Zamora (the “Supply Agreement”), pursuant to which the Company agreed to provide InfiniVive MD Exosome Serum and InfiniVive Daily Serum (the “Cosmetic Products”) to Dr. Zamora at his request. The provision of the Cosmetic Products under the Supply Agreement is subject to minimum and maximum quantity limitations. The Supply Agreement is effective for a period of five years, unless earlier terminated. The Company or Dr. Zamora may terminate the Supply Agreement immediately in prescribed circumstances, including if either party defaults with respect to its obligations under the Supply Agreement and, if the default is capable of being cured, does not cure such default within 30 days after receiving notice of such default. If the Supply Agreement is deemed terminated by Dr. Zamora for failure of the Company to supply the Cosmetic Products in accordance with its terms or by the Company without cause, the Standstill Agreement would be deemed terminated and of no further force or effect.
Memorandum of Understanding
On the Effective Date, in connection with the Settlement Agreement, the Company entered into a Memorandum of Understanding with Dr. Zamora (the “MOU”) in order to support clinical research for the Company’s AlloRx® stem cells (“AlloRx”). Under the MOU, the Company agreed to provide AlloRx at a specified price to international clinical research facilities or other clinics with which Dr. Zamora may become affiliated, provided that certain regulatory conditions are satisfied, including proof of satisfaction of applicable United States and local legal requirements. The MOU will be effective for a period of five years, unless earlier terminated or replaced by mutual written agreement between Dr. Zamora and the Company. The MOU may also be earlier terminated in the event any clinic or the Company materially breaches the terms and conditions of the MOU. In the event the MOU is terminated by Dr. Zamora for failure of the Company to supply AlloRx in accordance with its terms or by the Company without cause, the Standstill Agreement would be deemed terminated and of no further force or effect.
| F-24 |
Accounts Receivable and Revenues
Dr.
Zamora was also a significant customer of the Company in his capacity as a practicing physician. (See Note 9 for more information regarding
Dr. Zamora.) As of October 31, 2023 and 2022, Dr. Zamora owed the Company $
Accounts Payable and Other Accrued Liabilities
The
spouse of the Company’s Chief Science Officer, through an entity she controls, leases office and lab space to the Company. As of
October 31, 2023 and 2022, the Company owes this entity $
As
of October 31, 2023 and 2022, the Company owed an entity controlled by Dr. Zamora $
As
of October 31, 2023 and 2022, the Company owed the former CEO of Fitore $
Convertible Notes, Debt Discount and Accrued Interest
On
August 1, 2021, in connection with the acquisition of Fitore (Note 4), the Company issued 2021 Series Unsecured Convertible Notes in
the amount of $
Lease with Spouse of Chief Science Officer
The
spouse of our Chief Science Officer, through entities she controls, leases office and lab space to our company. The rent is $
Consulting Agreement with 5% Stockholder
On
December 1, 2021, we entered into a consulting agreement with John Evans (the “Consulting Agreement”), a greater than 5%
stockholder and our former Chief Financial Officer, pursuant to which Mr. Evans provides advisory services to our Chief Executive and
Chief Financial Officers. Under the Consulting Agreement,
The Consulting Agreement will terminate on December 1, 2025 (the “Agreement Termination Date”). If Mr. Evans is terminated by the Company for any reason prior to the Agreement Termination Date, or there occurs a Change in Control (as defined in the Consulting Agreement), Mr. Evans will be entitled to the continued payment of amounts due under the Consulting Agreement for the remaining term of the Consulting Agreement, as well as continued vesting of all outstanding options granted to Mr. Evans.
| F-25 |
NOTE 11 – INCOME TAXES
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Under the provisions of ASC 740, a deferred tax asset or liability (net of a valuation allowance) is provided in the financial statements by applying the provisions of applicable laws to measure the deferred tax consequences of temporary differences that will result in taxable or deductible amounts in future years as a result of events recognized in the financial statements in the current or ensuing years.
The Company has not recorded an income tax expense. The Company has a net operating loss and has provided a valuation allowance against net deferred tax assets due to uncertainties regarding the Company’s ability to realize these assets.
Significant components of the Company’s net deferred tax assets for federal and state income taxes at October 31, 2023 and 2022 consist of the following:
| Years Ended October 31, | ||||||||
| 2023 | 2022 | |||||||
| Net operating loss carryforward | $ | $ | ||||||
| Stock compensation | ||||||||
| Basis of shares in subsidiary | ||||||||
| Capitalized intangible costs | ( | ) | ( | ) | ||||
| Accruals and reserves | ||||||||
| Deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Effective income tax asset | $ | $ | ||||||
As
of October 31, 2023 and 2022, the Company has net operating loss carry forwards of approximately $
The valuation allowance is evaluated at the end of each year, considering positive and negative evidence about whether the asset will be realized. At that time, the allowance will either be increased or reduced; reduction could result in the complete elimination of the allowance if positive evidence indicates that the value of the deferred tax asset is no longer impaired, and the allowance is no longer required.
NOTE 12 – SUBSEQUENT EVENTS
On
November 16, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited
investor, pursuant to which the Company issued and sold to the investor, in a private placement, (i) a senior secured convertible note
(the “Note”) in the principal amount of $
| F-26 |
Interest
on the Note will accrue commencing on the earlier of the maturity date or upon an event of default,
In connection with the Purchase Agreement, the Company entered into a registration rights agreement with the investor (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement for the resale of the shares underlying the Note and the Warrants with the Securities and Exchange Commission within 30 days of execution of the Registration Rights Agreement and to have such registration statement declared effective by the maturity date of the Note.
On
November 16, 2023, the Company entered into a consulting agreement (the “Consulting Agreement”) with Alchemy Advisory LLC
(“Alchemy”), pursuant to which the Company engaged Alchemy as a strategy business consultant for a term of six months. Pursuant
to the Consulting Agreement, the Company paid Alchemy a fee of $
In connection with the foregoing, the Company relied upon the exemption from registration provided under Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving a public offering.
On
January 10, 2024, the “Company issued and sold to an accredited investor, in a private placement, (i) a senior secured convertible
note in the principal amount of $
The
January 10, 2024
| F-27 |