Overview
MetaStat
is a precision medicine company dedicated to improving survival of
patients with aggressive cancer. Despite significant advances in
the war against cancer, effective treatment and prevention of
cancer metastasis remains an unmet medical need.
The metastatic spread of cancer
is
responsible for over 90% of solid tumor cancer-related deaths. Our
therapeutic focus targets a critical metastatic pathway in solid
tumors responsible for driving tumor resistance and the spread of
aggressive cancer. We are leveraging our core expertise in
understanding the tumor microenvironment and drivers of the
metastatic cascade to develop anti-metastatic therapeutics pared
with companion diagnostics tests. MetaStat’s goal is to
transform the treatment of aggressive cancer into a manageable
disease through therapies that
target
the metastatic spread of cancer
and improve
survival.
MetaStat’s
drug discovery program is focused on developing novel
first-in-class drug candidates that target the MENA pathway.
Elevated expression of the MENA protein splice-derived variants or
isoforms in tumors have been shown in clinical studies to be
significantly associated with metastasis and decreased survival. We
are discovering and developing therapeutic product candidates based
on a different approach making the MENA protein a druggable target.
We are not targeting MENA directly, but rather the MAPKAPK2 pathway
responsible for activation of MENA. Our diagnostic tests are
clinically validated as prognostic markers of metastasis and
identify patients at risk for recurrence who are likely to benefit
from our anti-metastatic therapy.
In
2017, we demonstrated inhibition of the MAPKAPK2 kinase reverses
MENA-induced metastatic phenotypes to MENA-null levels in studies
of metastatic Triple Negative Breast Cancer (TNBC) and fibroblast
cell lines. In February 2018, we announced top-line results from
preclinical studies showing dissemination and cancer metastasis was
reduced by 50% or more
in
vivo
following inhibition of MAPKAPK2 in preclinical models
of aggressive breast cancer. Administration of the MAPKAPK2
inhibitor alone significantly blocked distant metastasis similar to
the published effects of MENA deficiency in the MMTV-PyMT mouse
model. MAPKAPK2 is a downstream terminal serine-threonine kinase in
the p38/MAPK signaling pathway and is associated with inflammatory
disease, metastasis and in the resistance mechanism to antitumor
agents. Several biopharmaceutical companies have advanced p38
inhibitors into clinical studies, however, none have been approved
due to adverse side effects likely associated with the role of p38
in the regulation of more than 60 substrates with different
physiological functions. We believe MAPKAPK2 is a more attractive
drug target because it is a terminal kinase with fewer substrates
and is downstream of p38 in the p38/MAPK pathway. The goal of our
small molecule discovery program over the next 12-18 months is to
identify 1-2 lead candidates to advance into investigational new
drug (IND)-enabling studies for clinical development. We
intend to develop our drugs for use as a monotherapy or in
combination with other medications to treat patients with
MENA-positive solid tumors. Our MENA
diagnostic assay will be used to
screen patient’s tumors for expression of MENA INV, the
pro-metastatic MENA splice-variant for inclusion in clinical
studies of our anti-metastatic drug candidates. We plan to
study a range of MENA-positive cancers including pancreatic,
glioblastoma, bladder, colorectal and triple negative breast
cancer.
The
MENA
diagnostic assay is
a tissue-based quantitative immunofluorescence (QIF) test that
measures expression of the pro-metastatic MENA splice-variant,
which is significantly associated with poor outcomes and metastasis
in Early Stage Breast Cancer (ESBC) and Squamous Cell Carcinoma of
the Lung. We intend to use this test as a companion precision
medicine diagnostic assay to select patients for treatment with our
anti-metastatic therapeutic. In April 2018, we completed methods
development and optimization utilizing our proprietary monoclonal
antibody (mAbs) specific for the pro-metastatic MENA protein
splice-valiant. In January 2017, results from a preclinical study
were published in
Molecular Cancer
Therapeutics
(Oudin
et
al
., 2017) demonstrating a novel mechanism for taxane
resistance in MENA-positive metastatic TNBC. Results from this
study demonstrated MENA
expression conferred resistance to
the taxane paclitaxel and treatment failed to attenuate growth of
MENA driven metastatic lesions. The MENA biomarker is common to
most epithelial solid tumors. Analysis of data from The Cancer
Genome Atlas (TCGA) RNAseq database show expression of
pro-metastatic MENA protein splice-variant is common to many solid
tumors and higher levels are found in more aggressive tumors with
poor 5-year survival rates including pancreatic adenocarcinoma and
BRCA mutation-positive breast cancer.
Our CLIA-certified diagnostic, MetaSite
Breast
™, is an immunohistochemistry test (IHC)
that measures micro-anatomical intravasation sites (TMEM) within
the tumor microenvironment which are clinically validated as
prognostic markers of metastasis in hormone receptor-positive (HR+)
ESBC. In November 2017, results
a second
prospective-retrospective validation study were published in
npj Breast Cancer
(
Sparano
et al., 2017)
demonstrating the clinical validity of MetaSite
Breast
™
assay in patients with HR+
HER2-negative breast cancer for early recurrence within 5 years of
diagnosis. In addition, the study demonstrated MetaSite
Breast
™
provides complementary prognostic
information to Oncotype Dx Recurrence Score. High MetaSite Scores
were associated with a 9.7-fold higher risk of distant recurrence
and 6.1-fold higher risk of overall recurrence if the Oncotype Dx
Recurrence Score was low.
In July
2017, results from a study published in
Science Translational
Medicine
(Karagiannis
et
al
., 2017) showed neoadjuvant
chemotherapy (NAC) can induce breast cancer metastasis through a
TMEM-mediated mechanism.
This study suggests that MetaSite
Breast
™
might also be useful in predicting
the development of pro-metastatic changes in the tumor
microenvironment in response to NAC. There are currently no tests
that can monitor or predict response to NAC.
Business Strategy
Our goal is to
become a leading precision medicine company focused on improving
the survival of patients with aggressive cancer. Our research team
is discovering and developing and therapeutics and companion
diagnostics that target a critical metastatic pathway responsible
for driving tumor resistance and the spread of aggressive cancer.
Key elements of our integrated
therapeutic and companion diagnostic (Rx/Dx)
development
strategy are to:
●
Continue advancing our
therapeutic discovery and development program focused on the MENA
protein isoform drug target.
Our therapeutic strategy is
based on directly targeting the MENA pathway through inhibition of
MENA expression or activity and indirectly, through inhibition of
the MAPKAPK2 pathway responsible for activation of
MENA.
●
Explore business
development and collaborative research opportunities with
innovative companies developing compelling new modalities.
We intend to seek out and work with groups developing new
technologies that address previously considered undruggable targets
including RNA interference (RNAi), CRISPR, and targeted protein
degradation.
●
Pursue development and
regulatory strategy-based treatment of patients with MENA-positive
cancer.
We intend to pursue a pan-cancer development and
regulatory strategy for our anti-metastatic therapeutics based on
seeking accelerated approval for treatment of patients whose cancer
are positive for MENA expression rather than the location of the
body in which the tumor originated.
●
Develop
the
MENA diagnostic assay as a
companion diagnostic test to identify and select appropriate
patient populations with MENA-positive solid tumors most likely to
benefit from our targeted anti-metastatic
therapy
. Companion
diagnostic tests are used as a companion to a therapeutic drug to
determine the applicability to a specific patient and if that
patient is likely to respond. The MENA diagnostic assay will enable
accelerated drug development and reduced risk by allowing for
selection of responder patient populations to ant-MENA drug
therapy
.
●
Expand the market opportunity for the MENA diagnostic assay to
include prognostic diagnostic and companion diagnostic
applications.
Complete clinical validation of MENA
diagnostic assay as a prognostic marker for risk of distant
metastasis in patients with early stage solid cancers and for use
as a predictive marker for drug response to Receptor Tyrosine
Kinase (RTK) inhibitors that target EGFR, HGFR, IGF-R1 and other
key receptors, as well as cytotoxic chemotherapeutics, including
anti-microtubule agents, such as docetaxel, paclitaxel and
albumin-bound paclitaxel.
●
Commercialize our therapeutics and diagnostic assays
.
Through our exclusive license agreements and company sponsored
patent applications we own the world-wide rights to our products.
We seek commercialization partners that have existing
commercialization infrastructure, established distribution
channels, and strong relationships with our target audience in the
medical community. Our goal is to avoid the cost and risk
associated with building a new sales and marketing infrastructure.
Initially, we plan to build the necessary commercial infrastructure
only when needed to supplement partnerships and not economically
available through third party vendors. As profitability and market
penetration grow, we may supplement our strategic partnership or
contract sales organization (CSO) strategy with a phased-in
internal sales and marketing efforts.
Scientific Background and Technology
Our product
candidates target the MENA pathway, where MENA INV, the
pro-metastatic MENA splice-variant, MENA INV, plays a critical role
in solid tumors by promoting tumor dissemination, metastasis and
cancer cell resistance. The MENA pathway is a novel mechanism and
represents first-in-class target for drug development.
MENA is a naturally
occurring pro-motility protein which plays a key role in cell
migration and embryogenesis. It belongs to the Ena/VASP
(enabled/VASO) family being encoded by the MENA gene located on
chromosome 1. MENA facilitates and organizes formation, extension
and navigation of growing nerve fibers through tissue to link with
other neurons, forming the proper circuits needed for a functional
nervous system. Ena/VASP proteins such as MENA are involved in
these embryonic processes where dynamic actin reorganization is
necessary, such as neural closure, phagocytosis, hemostasis,
chemotaxis, cell migration, cell-cell and cell-matrix adhesions,
fibrillogenesis, or fibroblastic motility. MENA expression
decreases from embryonic to adult life and MENA INV is largely
absent from normal tissue.
The MENA gene can
be alternatively spliced to produce multiple splice-variants or
isoforms of which the MENA 11a and MENA INV isoforms dominate.
Alternative splicing is the process by which exons within a
pre-mRNA transcript of a gene are differentially spliced, resulting
in multiple protein isoforms being encoded by a single gene.
Post-transcriptional processing of the MENA gene provides an
opportunity for gene regulation and increases the functional
informational capacity of the gene. These small differences in MENA
structure produce large differences in MENA protein function. The
MENA gene corresponds to a 570-amino acid protein with the MENA INV
isoform containing a supplementary exon corresponding to a 19-amino
acid addition to the EVH1 domain of the protein. MENA 11a contains
a supplementary exon corresponding to a 21-amino acid addition to
the EVH2 domain of the protein. The invasive MENA isoform, MENA
INV, and the less dangerous MENA isoform, MENA 11a, play distinct
roles in cancer morphology. MENA INV promotes invasion and
metastasis by helping cancer cells subvert normal regulatory
networks regulating cell motility and increases sensitivity to the
chemo-attractant EGF by up to forty (40x) times. MENA INV
attenuates RTK signaling allowing cancer cells to respond to lower
EGF concentrations. MENA INV expressing tumor cells are
significantly less cohesive and have discontinuous cell-cell
contacts compared to MENA 11a expressing tumor cells. In
preclinical studies published in
Breast Cancer Research
(Roussos
et al.
, 2010), PyMT mice
that express MENA all succumb to systemic metastasis while the
majority of MENA-null knockout mice that lack expression of the
MENA protein and its splice-variants survive. Illustrated below is
Kaplan-Meir survival curve showing percentage of mice from each
genotype (n=12-25) that are not moribund (mice that did not
developed tumors or mice that had small tumors that did not
immobilized them). MENA knockout mice had significantly improved
survival compared to wild type mice that express MENA
(p=0.01).
Source:
Breast Cancer
Research
2010
12:R101 (Roussos
et
al
.; licensee
BioMed Central Ltd. 2010;
https://doi.org/10.1186/bcr2784
)
Aggressive tumors
hijack this embryonic motility mechanism through upregulation of
MENA and overexpression of the alternatively spliced mRNA
pro-metastatic MENA INV isoform. Consequently, MENA is
overexpressed in primary and metastatic cancers, and is
particularly overexpressed in migratory and disseminating
subpopulations of tumor cells. Until now the development of
anti-metastatic therapies has been slow and historically hampered
by the lack of understanding of the biology behind the metastatic
cascade. Our proprietary and patented platform technologies are
derived from novel ways of observing cancer cell behavior in living
functioning tumors in live animals and are based on the discovery
of a common pathway for the development of aggressive or metastatic
cancer in solid epithelial-based tumors. These discoveries are the
result of nearly 20 years of study and collaboration among four
scientific/academic institutions, including Massachusetts Institute
of Technology (MIT), Albert Einstein College of Medicine (AECOM),
Cornell University (Cornell), and the IFO-Regina Elena Cancer
Institute in Rome, Italy (IFO-Regina). This collaboration has
enabled us to understand the underlying biology, including the
direct mechanisms of action and specific micro-environmental
factors that drive systemic metastasis and drug resistance to
certain cancer treatments.
Recently, it was
discovered MENA is activated through the p38/MAPK pathway and
inhibition of MAPKAPK2 kinase results in a reversal of the
MENA-dependent phenotypes
in
vitro
and
in vivo
.
In 2017, we demonstrated inhibition of the p38/MAPK pathway
reverses MENA-dependent phenotypes of invasion, fibronectin
deposition, and metastasis
in
vitro
in cell line studies using MDA-MB-231 metastatic
Triple Negative Breast Cancer (TNBC) and MVD7 fibroblasts
engineered to express MENA at levels equivalent to that found
in vivo
. In February 2018,
we announced cancer metastasis was reduced by 50% or more
in vivo
following
inhibition of MAPKAPK2 in studies using orthotopic MDA-MD-231
transplant and syngeneic MMTV-PyMT models of MENA-positive
aggressive breast cancer.
Novelty and Innovative Medicine Targeting First-in-Class
Mechanism
Novel first-in-class drugs are innovative medicines that use a
novel mechanisms of action that serve unmet medical need. MENA and
its splice variants are found in the cytoplasm and not on the
surface of cells and have historically been considered to be
undrugable by conventional means such as mAbs and small molecules.
Our ability to target this novel first-in-class mechanism in made
possible through indirect inhibition of MAPKAPK2-dependent MENA
activation.
Our unique
therapeutic approach is to target this critical metastatic pathway
and block tumor cell dissemination and the metastatic spread of
cancer which is responsible for more than 90% of solid tumor
cancer-related deaths. Despite the number and variety of clinically
available anticancer therapies there are currently no approved
MAPKAPK2 inhibitors or anti-metastatic drugs.
The
biopharmaceutical industry has increasingly focused on the same
core set of targets as evidenced by the exploding immune-oncology
space, with 2,000 active clinical programs and greater than 150
PD-L1/PD-1 checkpoint inhibitor mAbs in development. Current cancer
therapies, including newer targeted therapies and immunotherapies
are still evaluated for efficacy predominantly by their ability to
reduce tumor size and induce pathologic complete response (pCR).
Unfortunately, reduction of tumor size is not predictive of
anti-metastatic effect which explains why patients with pathologic
complete response (pCR) can undergo disease recurrence. We are
addressing an untapped field in oncology through discovering and
developing first-in-class anti-metastatic therapies targeting the
novel MENA pathway.
Kinases
and their Role in Cancer
Kinases
are enzymes that play an important role in regulating cellular
functions, signaling pathways and communication of cells with their
environments. Dysregulated protein kinases are implicated in a
large number of diseases including cancer and autoimmune diseases.
Many cancers are driven by genetic mutations that cause abnormal
activity of kinases which contribute to uncontrolled cell growth.
Kinase inhibitors act by blocking the abnormal activity of these
enzymes and has proven to be a highly successful therapeutic
strategy. Since the first approval in 2001, kinase inhibitors have
become an important therapeutic class playing a central role in
precision medicine and forming the backbone of targeted therapies
in oncology. A total of 39 kinase inhibitors have been
approved by the Federal Drug Administration or FDA with an
estimated 2016 combined annual sales of $20 billion.
The
p38/MAPK signaling pathway has been a therapeutic target
for inflammatory disease and cancer for many years because of its
involvement in pro-inflammatory cytokine production, metastasis and
cell-cycle regulation. Several biopharmaceutical companies have
advanced p38 inhibitors into clinical studies, however, none have
been approved due to adverse side effects likely associated with
the role of p38 in the regulation of more than 60 substrates with
different physiological functions. Recently, p38/MAPK has been
implicated in activation of the MENA pathway. The MAPKAPK2
serine/threonine-specific terminal kinase is a more favorable
downstream target in the p38/MARK signaling pathway. Compared to
upstream kinases in the pathway, MAPKAPK2 has considerably fewer
substrates and fewer off-target effects. Unlike preclinical studies
of p38 knockout mice, the health and fertility of MAPKAPK2 mice are
unaffected. In addition, MAPKAPK2 deficient mice were shown to have
reduced joint damage in a collagen-induced arthritis model and no
indication of asthma in a lung ovalbumin sensitization
model.
The
success of individual kinase inhibitors can be limited by the
development of drug resistance. The mechanisms of acquired drug
resistance include target receptor mutation, activation of
secondary bypass pathways or histologic transformation. Our
therapeutic strategy is likely to bypass the selection pressures
responsible for driving resistance since neither MAPKAPK2 nor MENA
gene knockouts are embryonically lethal. Furthermore, our
inhibitors target tumor cell phenotypes associated with the
metastatic spread of cancer unlike most cytotoxic chemotherapeutic
drugs which are used to kill tumor cells.
For
these reasons we believe developing MAPKAPK2 kinase inhibitors
represent a particularly promising approach as a therapeutic
strategy to target the MENA pathway.
MENA and its Role in Driving Resistance Mechanisms to Anti-tumor
Therapies
Taxane-based anti-microtubule drugs, including paclitaxel and
docetaxel are widely used and highly efficacious as single
chemotherapy agents or in combination with other chemotherapeutic
drugs to treat breast, lung, ovarian, pancreatic and other cancers.
Taxanes interfere with the normal breakdown of microtubules which
are critical cytoskeletal structures that mediate cell
division.
In vitro
and
in vivo
studies have demonstrated increased expression of
the pro-metastatic MENA splice-variant desensitize cells to
taxane-based treatments.
In January 2017, results from a
preclinical study published in
Molecular Cancer Therapeutics
(Oudin et
al., 2017) demonstrated a novel mechanism for taxane resistance in
MENA-positive metastatic TNBC. These results showed
MENA
INV
expression conferred resistance to the taxane paclitaxel and
treatment failed to attenuate growth of MENA driven metastatic
lesions. MENA
INV expression alters
the ratio of dynamic and stable microtubule populations in
paclitaxel-treated cells. MENA INV expression also increases MAPK
signaling in response to paclitaxel treatment. Decreasing MAPK
signaling through administration of a MAPKAPK2 inhibitor could
restore paclitaxel sensitivity by driving microtubule stabilization
in MENA INV-expressing cells. These results reveal a novel
mechanism of taxane resistance in highly metastatic breast cancer
cells and identify a potential combination therapy to overcome such
resistance.
In July 2017, results published in
Science Translational
Medicine
(Karagiannis
et
al
., 2017) from a preclinical
study of mice transplanted with MMTV-PyMT breast cancers
demonstrated paclitaxel treatment promotes dissemination of
circulating tumor cells (CTCs) and metastasis in a MENA-dependent
manner.
From Neoadjuvant chemotherapy induces breast
cancer metastasis through a TMEM-mediated mechanism,
By Karagiannis
et al.
,
Science Translational
Medicine
05 Jul 2017;Vol. 9,
Issue 397, eaan0026
DOI: 10.1126/scitranslmed.aan0026. Reprinted with
permission from American Association for the Advancement of Science
(AAAS)
.
As shown above MENA knockout recipient mice (MENA-/-) grafted with
MENA-positive MMTV-PyMT tumors do not develop CTCs or lung
metastases after treatment with vehicle control or paclitaxel. In
comparison, recipient mice (MENA+/+) grafted with MENA-positive
MMTV-PyMT tumors develop CTCs and lung metastasis with significant
increases in CTC dissemination and lung metastasis after paclitaxel
treatment. This study also demonstrated patients treated with
neoadjuvant chemotherapy consisting of paclitaxel followed by
doxorubicin plus cyclophosphamide undergo pro-metastatic changes in
their tumor microenvironment that can induce breast cancer
metastasis through a MetaSite (TMEM)-mediated mechanism. We believe
there is a substantial opportunity for anti-MENA therapeutics to be
used in combination with taxane therapy to overcome MENA-dependent
paclitaxel resistance and/or block paclitaxel-induced tumor cell
dissemination. Further, we believe our MetaSite
Breast
™ assay and MENA diagnostic assay could be
used to monitor or predict response to taxane-based
NAC.
MENA has also been shown to constitutively associate with the
tyrosine phosphatase PTP1B to mediate a novel negative feedback
mechanism that attenuates RTK signaling. On EGF stimulation,
complexes containing MENA and PTP1B are recruited to the EGF
receptor, or EGFR, causing receptor dephosphorization (the removal
of phosphate groups that can prevent ligation) and leading to
decreased motility responses. When the pro-metastatic MENA protein
splice-variant is expressed, PTP1B recruitment to the EGFR is
impaired, providing a mechanism for growth factor sensitization to
EGF, as well as HGF and IGF, and increased resistance to EGFR and
Met inhibitors. MENA INV disrupts this negative feedback mechanism
to drive sensitivity to EGF, HGF, and IGF growth factors and
resistance to RTK inhibitors that target EGFR, HGFR (c-Met), and
IGF-R1. Disruption of this attenuation by MENA INV sensitizes tumor
cells to low growth factor concentrations, thereby increasing the
migration and invasion responses that contribute to metastasis. We
believe there is a substantial opportunity for anti-MENA
therapeutics to be used in combination with EGFR, HGFR and IGF-R1
inhibitors to overcome drug resistance and/or increase the
proportion of patients who respond to these medications. Further,
we believe our MENA diagnostic assay could be used to predict
initial response to RTK inhibitors and monitor for the development
of therapeutic resistance.
Cancer Background
Cancer is a complex
disease characterized most simply by uncontrolled growth and spread
of abnormal cells. Cancer remains one of the world's most serious
health problems and is the second most common cause of death in the
United States after heart disease. The American Cancer Society, or
ACS estimates in 2018, there will be nearly 1.74 million new cases
of cancer and approximately 610,000 deaths from cancer in the
United States alone.
When
dealing with cancer, patients and physicians need to develop
strategies for local, regional, and distant control of the disease.
Ultimately, however, aggressive cancer that spreads or
“metastasizes" to other parts of the body is responsible for
more than 90% of all cancer related deaths in patients with such
common types of solid tumors as breast, lung, prostate and colon.
The most common methods of treating cancer are surgery, radiation
and drug therapy, or a combination of these methods, with varying
degrees of benefit and side effects that may not always justify the
expense and burden of the therapy. Our therapeutic drugs target the
MENA pathway, common to a type of cancer called carcinoma which are
malignancies of epithelial tissue and represent approximately
80-90% of all cancer cases. Our product candidates have the
potential to have broad pan-cancer applicability.
Prior
to the advent of personalized medicine, most cancer patients with a
specific type and stage of cancer received the same treatment,
which historically consisted of cytotoxic chemotherapies, including
taxanes, such as paclitaxel and docetaxel. These chemotherapies
kill rapidly proliferating cancer cells through non-specific
mechanisms, such as deterring cell metabolism or causing damage to
cellular components required for survival and rapid growth. While
these drugs have been effective in the treatment of some cancers,
many unmet medical needs remain. This approach is not optimal as
some treatments worked well for some patients but not for others.
Differences in the genome and how these genes are expressed, called
the expressome, explain many of these differences in response to
treatment. The convergence between understanding the expressome and
our ability to identify and develop biomarkers for certain disease
is accelerating growth and interest in personalized medicine and
the attractiveness of our intergraded Rx/Dx strategy.
Advances
in personalized medicine and cancer treatment are progressing
rapidly and are enabling a shift in clinical treatment from a
one-size-fits-all approach to one that is highly individualized.
Recently, more targeted therapies and immunotherapies have
represented some of the most promising agents in development for
the treatment of cancer. Targeted therapies are drugs that block
the growth and spread of cancer by interfering with specific
molecules that are involved in the growth, progression and spread
of cancer. Targeted therapies, such as RTK inhibitors that
selectively target kinase signaling pathways, are designed to
preferentially kill cancer cells and spare normal cells, improve
efficacy and minimize side effects. RTK inhibitors typically have
less severe side effects than cytotoxic chemotherapies, however, a
main limitation is that a significant number of patients do not
respond to treatment, and the emergence of secondary drug
resistance for those patients that do show an initial benefit. The
use of predictive biomarkers allows oncologists to better
understand and overcome drug resistance through the clinical
assessment of rational therapeutic drug combinations.
We believe identification of patients with our
MetaSite
Breast
™ and MENA diagnostic tests followed by
combination therapy with our MAPKAPK2 inhibitor anti-MENA
therapeutics have the potential to overcome drug resistance and
protect patients from chemotherapy-induced tumor cell
dissemination.
Product Pipeline
MetaStat’s
product development programs are focused on developing novel
first-in-class drug candidates and companion diagnostic tests that
target the MENA pathway.
Therapeutics (Rx)
MENA is activated through the p38/MAPK pathway and inhibition of
MAPKAPK2 kinase results in a reversal of the MENA-dependent
phenotypes
in vitro
and
in vivo
in studies of metastatic TNBC and
fibroblast cell lines. In February 2018, we announced top-line
results from preclinical studies showing cancer metastasis was
reduced by 50% or more
in
vivo
following inhibition of MAPKAPK2 in models of
aggressive breast cancer. MetaStat will present results from these
in vitro
and
in vivo
studies at the American
Association of Cancer Research (AACR) Cancer Dormancy and Residual
Disease conference to be held June 19-22, 2018 in Montreal, QC,
Canada.
MAPKAPK2
is a downstream terminal serine/threonine-specific kinase in the
p38/MAPK signaling pathway and is associated with inflammatory
disease, metastasis and in the resistance mechanism to antitumor
agents. Currently our discovery efforts are focused on
lead-optimization of non-ATP competitive inhibitors screened for
efficacy in inhibiting MENA activity with superior selectivity and
potency to the ATP-competitive research tools used in our
preclinical proof-of-concept studies. The goal of our small
molecule discovery program over the next 12-18 months is to
identify 1-2 lead candidates to advance into investigational new
drug (IND)-enabling studies for clinical
development.
The
goal of treatment with anti-MENA therapeutics is to reduce the
activity or expression of the pro-metastatic MENA splice variant
and thereby reverse the MENA-dependent cancer phenotypes of drug
resistance, tumor cell invasion, dissemination, and metastasis. In
targeting the movement of tumor cells from the primary site to
distant sites, we are directly addressing the major contributor to
the deaths of cancer patients. Since elevated expression of
pro-metastatic MENA splice variant also drives resistance to
certain RTK inhibitors and cytotoxic chemotherapeutics,
co-administration of an effective anti-MENA therapeutic provides an
opportunity to expand the utility and effectiveness of these drugs
by addressing a significant challenge to the clinical management of
advanced cancers. We intend to develop our drugs for use as a
monotherapy or in combination with other medications to treat
patients with MENA-positive solid tumors. Our MENA
diagnostic assay
will be used to screen patient’s tumors for expression of the
pro-metastatic MENA splice-variant for inclusion in clinical
studies of our anti-metastatic drug candidates.
We plan to study a range of
MENA-positive cancers including pancreatic, glioblastoma, bladder,
colorectal and triple negative breast cancer.
Diagnostics (Dx)
MENA Diagnostic Assay
The
MENA
diagnostic assay is
a tissue-based quantitative immunofluorescence (QIF) test that
measures expression of the pro-metastatic MENA protein
splice-variant which is significantly associated with poor outcomes
and metastasis in Early Stage Breast Cancer (ESBC) and Squamous
Cell Carcinoma of the Lung.
We
intend to use the MENA diagnostic assay as a companion diagnostic
test to select patients for treatment with our anti-metastatic
therapeutic. In April 2018, we completed methods development and
optimization utilizing our proprietary monoclonal antibody specific
for the pro-metastatic MENA protein splice-valiant. In January
2017, Oudin
et al.
,
published results from a preclinical study demonstrating a novel
mechanism for taxane resistance in MENA-positive metastatic
Triple-negative Breast Cancer (TNBC). Results from this study
demonstrated MENA
expression conferred resistance to
the taxane paclitaxel and treatment failed to attenuate growth of
MENA driven metastatic lesions. Data from an analysis of TCGA
RNAseq database show expression of the pro-metastatic MENA protein
splice-variant is common to many solid tumors and higher levels are
found in more aggressive tumors with poor 5-year survival rates
including pancreatic adenocarcinoma and BRCA mutation-positive
breast cancer.
Companion diagnostic to predict RTK inhibitor drug
response
MENA
participates in a mechanism that attenuates RTK signaling by
interacting with the tyrosine phosphatase PTP1B and the 5‟
inositol phosphatase SHIP2. Elevated expression of MENA INV
disrupts this regulation, and results in a pro-metastatic phenotype
characterized by increased RTK activation signaling from low ligand
stimulation and resistance to targeted RTK inhibitors. A main
limitation of therapies that selectively target kinase signaling
pathways is a significant number of patients do not respond and for
those patients that do respond the emergence of secondary drug
resistance after an initial benefit. We believe the MENA diagnostic
assay has the potential to be used as a highly actionable clinical
biomarker and/or companion diagnostic to predict response to
targeted RTK inhibitors.
Companion diagnostic to predict anti-microtubule drug
response
In
January 2017, results from a preclinical study published in
Molecular Cancer
Therapeutics
(Oudin et al., 2017) demonstrated a novel
mechanism for taxane resistance in MENA-positive metastatic TNBC.
These results demonstrated MENA
expression
conferred resistance to the taxane paclitaxel and treatment failed
to attenuate growth of MENA driven metastatic lesions. There is a
significant clinical need to develop biomarkers that predict
response to initial treatment or the development of secondary
resistance to taxane-based chemotherapy, while minimizing the risk
of unnecessary side effects. We believe the MENA
diagnostic assay
has the potential to be used as a
highly actionable clinical biomarker and/or companion diagnostic to
predict response to taxane-based drugs.
Liquid blood-based biopsy
There is excitement within the oncology community about the promise
of liquid biopsy assays for their potential to improve cancer
diagnosis and optimize patient care. Should the prognostic and
predictive role of the MENA diagnostic assay
be clinically validated using FFPE tissue for
patients treated with RTKs and taxane-based chemotherapies, we
believe there will be a compelling need for the development of a
blood-based version of the MENA diagnostic
assay. In addition to allowing for repeat
non-invasive testing, a blood-based MENA diagnostic
assay would be especially useful for
patients with advanced cancer undergoing multiple cycles of
treatment to predict initial drug response or the development of
secondary resistance. We intend to evaluate the potential for
developing the blood-based version of the MENA diagnostic
assay through collaborative research
and development partnerships with companies developing compatible
exosome and/or CTC technology platforms.
MetaSite Breast™ Assay
Our
CLIA-certified diagnostic, MetaSite
Breast
™, is an
immunohistochemistry test (IHC) that measurs micro-anatomical
intravasation sites (TMEM)
at blood
vessels
within the tumor microenvironment which are
clinically validated as prognostic markers of metastasis in hormone
receptor-positive (HR+) early stage breast cancer (ESBC). The
MetaSite
Breast
™ test
has been analytically validated under CLIA, tested in 6 clinical
studies in over 1,700 patients, and is available for clinical use
in most states. The MetaSite
Breast
™ test is a tissue-based
IHC assay performed on formalin-fixed paraffin-embedded, or
FFPE tissue from a biopsy that directly identifies and
quantifies the active sites of the metastatic process. The
MetaSite
Breast
™ test
is intended for patients with early stage (stage 1-3) invasive
breast cancer who have node-negative or node-positive (1-3),
ER-positive, HER2-negative disease.
Mechanism of action for use as a prognostic diagnostic to predict
risk of cancer metastasis
In order for breast cancer tumor cells to enter a blood vessel
(intravasate), three types of cells must self-assemble in
apposition to each other in individual three-cell structures
located at blood vessels within the tumor
microenvironment. This structure termed a
“MetaSite™”, is composed of a M2 tumor associated
macrophage (protumoral macrophage or type of immune cell), a tumor
cell that expresses the pro-metastatic MENA splice variant and an
endothelial cell (cells that lines blood vessels). We have
demonstrated in clinical studies the number of MetaSites™
correlates with increased risk of cancer metastasis.
This structure termed a “MetaSite™”, is composed
of an endothelial cell (cells that lines blood vessels), a
protumoral tumor associated macrophage (a type of immune cell), and
a tumor cell that expresses the MENA protein. We have demonstrated
in clinical studies that the number of MetaSites™ correlates
with increased risk of cancer metastasis.
MetaSite Breast™ Clinical Studies
In November 2017, the results
of a second
prospective-retrospective validation study were published in
npj Breast Cancer
(
Sparano
et al., 2017)
demonstrating the clinical validity of the MetaSite
Breast
™
assay in patients with HR+
HER2-negative breast cancer for early recurrence within 5 years of
diagnosis.
The ECOG 2197 Cohort Study
is a prospectively designed retrospective study (n=600) in an
independent cohort of ESBC patients treated with surgery, 4 cycles
of adjuvant chemotherapy (doxorubicin 60 mg/m2 and cyclophosphamide
600 mg/m2 (AC) or docetaxel 60 mg/m2 (AT)) and endocrine therapy.
Results from this study revealed a significant positive association
between continuous MetaSite Score and distant recurrence-free
interval (DRFI) p=0.001 and recurrence-free interval (RFI)
p=0.00006 in HR-positive HER2-negative disease in years 0-5 and by
MetaSite Score tertiles for DRFI (p=0.04) and RFI (p=0.01).
Proportional hazards models including clinical covariates (N0 vs.
N1; T1 vs. T2; high vs. int. vs. low grade) also revealed
significant positive associations for continuous MetaSite Score
with RFI (p=0.04), and borderline association with DRFI
(p=0.08).
In addition, the study demonstrated MetaSite
Breast
™
provides complementary prognostic
information to Oncotype Dx Recurrence Score. High MetaSite Scores
were associated with a 9.7-fold higher risk of distant recurrence
(95% confidence intervals [CI] 1.8, 54.1) and 6.1-fold higher risk
of overall recurrence (95% CI 1.3, 27.8) if the Oncotype Dx
Recurrence Score was low (RS<18).
Patients with intermediate MetaSite Score
(MS=6-17) and low Recurrence Score (RS<18) results had
approximately 4.7-fold greater risk (HR=4.7, 95%CI=0.9-24.2) of
distant metastasis compared to patients with low MetaSite Score
(MS<6) results.
In July 2017, results from a study published in
Science Translational
Medicine
(Karagiannis
et
al
., 2017) showed neoadjuvant
chemotherapy (NAC) can induce breast cancer metastasis through a
TMEM-mediated mechanism.
The result of this study suggests
that MetaSite
Breast
™
might also be useful in predicting
the development of pro-metastatic changes in the tumor
microenvironment in response to NAC. There are currently no tests
that can monitor or predict response to NAC.
In
December 2016, we presented results from the Kaiser Permanente
Cohort Study conducted by MetaStat, that demonstrated MetaSite
Score was a statically significant predictor of distant metastasis
and a binary cutpoint was able to discriminate high and low risk
patient groups when adjusted for clinical factors. Independent
verification and clinical validation of MetaStat’s fully
automated and analytically validated tissue-based MetaSite
Breast
™ test for risk
of cancer metastasis in HR-positive HER2-negative ESBC. The Kaiser
Permanente Cohort Prognostic Study is a case-control nested cohort
of 3,760 patients diagnosed with ESBC from the Kaiser Permanente
Northwest Health Care System in which 464 tumor samples were tested
using the MetaSite
Breast™
assay. MetaSite Score was
a statistically significant predictor of distant metastasis
(p=0.039) in patients with HR-positive HER2-negative disease. Using
predefined cutpoints based on tertiles for the control group in the
overall study population (n=282), MetaSite Score was significantly
associated with distant metastasis for the high (MS>41) versus
low (MS<13) score tertiles (OR=2.94; 95%CI=1.62-5.41, P=0.0005)
and the intermediate (MS=13-41) versus low score tertiles (OR=2.24;
95%CI=1.23-4.13, P=0.009). A binary cut-point for the high-risk
group (MS>14) was significant with a 2-fold higher risk (OR=2.1,
95%CI=1.06-3.96) of distant metastasis versus the low risk group
and adjusted for clinical covariates (P=0.036).
In
December 2015, we presented results from the analytic validation
study of our fully-automated commercial MetaSite
Breast
™ assay at the Tumor
Metastasis meeting of the American Associations for Cancer Research
(AACR). The reliability of our commercial MetaSite
Breast
™ test was supported by
confirming the test’s analytical accuracy, reproducibility,
and precision. Reproducibility across operators, instruments and
different sections of a tumor sample ranged from 91% to 97% and
analytical precision was found to be greater than 97% with a mean
percent coefficient of variation (%CV) of 6.6% (n=35). Our
commercial MetaSite
Breast
™ assay showed a high
degree of analytical accuracy with the reference standard with AUCs
of 0.84 and 0.90 for low and high risk cut-points, respectively.
The gold standard method was originally developed at AECOM, where
results from their study published in August 2014 in the
Journal of the National Cancer
Institute
(Rohan
et
al
., 2014) demonstrated the number of MetaSites™ in
tumors was predictive of metastatic disease in ER-positive breast
cancer.
In
December 2015, we presented results from the analytic validation
study of our fully-automated commercial MetaSite
Breast
™ assay at the Tumor
Metastasis meeting of the American Associations for Cancer Research
(AACR). The reliability of our commercial MetaSite
Breast
™ test was supported by
confirming the test’s analytical accuracy, reproducibility,
and precision. Reproducibility across operators, instruments and
different sections of a tumor sample ranged from 91% to 97% and
analytical precision was found to be greater than 97% with a mean
percent coefficient of variation (%CV) of 6.6% (n=35). Our
commercial MetaSite
Breast
™ assay showed a high
degree of analytical accuracy with the reference standard with AUCs
of 0.84 and 0.90 for low and high risk cut-points, respectively.
The gold standard method was originally developed at AECOM, where
results from their study published in August 2014 in the
Journal of the National Cancer
Institute
(Rohan
et
al
., 2014) demonstrated the number of MetaSites™ in
tumors was predictive of metastatic disease in ER-positive breast
cancer.
In September 2015,
we announced topline data from a prospectively defined
case-controlled nested cohort of 3,760 patients with invasive
ductal carcinoma of the breast diagnosed between 1980 and 2000
followed through 2010 from the Kaiser Permanente Northwest health
care system. Of the 3,760 patients treated in this cohort, we
received 573 breast cancer tissue blocks of which 481, representing
259 case-controlled pairs, were usable and included in the study.
In this study, the MetaSite
Breast
™ Score was found to be
significantly and directly associated with increased risk of
distant metastasis in ER-positive, HER2-negative invasive breast
cancer for both high (>35 MetaSites™) versus low (<12
MetaSites™) MetaSite™ scores (OR = 3.4; 95% CI =
2.8-4.1; P=0.0002) as well as between intermediate (12-35
MetaSites™) and low MetaSite™ scores (OR=3.24; 95% CI =
2.6-3.9; P=0.0006). This study demonstrated the MetaSite
Breast
™ Score
predicted risk of distant metastasis in ER-positive, HER2-negative
early stage invasive breast cancer independent of traditional
clinical factors. Data from this study was presented at the San
Antonio Breast Cancer Symposium (SABCS) in December
2016.
In August 2014, the
positive results of a 481-patient clinical study demonstrating the
prognostic utility of the MetaSite
Breast
™ assay was published in
the
Journal of the National
Cancer Institute
(Rohan
et
al.
, 2014) In a case-controlled nested
prospective-retrospective study, a cohort of 3,760 patients was
examined with invasive ductal breast carcinoma diagnosed between
1980 and 2000 and followed through 2010. The association between
the MetaSite™ score from the MetaSite
Breast
™ assay and risk of
distant metastasis was prospectively examined. A total
of 481 blocks representing 259 case-controlled pairs were usable
and selected for inclusion in this study. Control and case subjects
had very similar distributions with respect baseline
characteristics such as age and tumor size. Results from
this study demonstrated a statistically significant association
between increasing MetaSite™ score and risk of metastasis in
the ER-positive, HER2-negative subpopulation (N=295) (OR high vs.
low tertile = 2.70, 95% CI=1.39 to 5.26, Ptrend 0.004; OR per
10-unit increase in MetaSite™ score = 1.16, 95% CI = 1.03 to
1.30). The absolute risk of distant metastasis for the low, medium
and high-risk groups was estimated to be 5.9% (95% CI=5.1-6.9%),
14.1% (95% CI=13.0-15.0%), and 30.3% (95% CI=26.1-35.4%),
respectively. Statistical significance was not achieved in the
triple negative (TNC) (N=98) or HER2-positive subpopulations
(N=75). The conclusion from this study was the MetaSite™
score predicted the risk of distant metastasis in ER-positive,
HER2-negative breast cancer patients independently of traditional
clinicopathologic features such as age and tumor size.
In April 2009, the positive results of a clinical
study using the MetaSite
Breast
™ assay on patient tumor samples with
invasive breast cancer was published in
Clinical Cancer
Research
(Robinson
, et al.
, 2009). In this case-controlled 5-year
retrospective study, a cohort of 60 patients with invasive ductal
breast carcinoma, including 30 patients who developed metastatic
disease was studied using the MetaSite
Breast
™ assay. The results from this
study demonstrated MetaSite™ score density was statistically
significantly greater in patients who subsequently developed
systemic metastasis compared with the patients who had only
localized breast cancer (median, 105 vs. 50, respectively;
P=0.00006). For every 10-unit increase in MetaSites™ the odds
ratio of systemic metastasis increased by 1.9 (95% confidence
interval, 1.1-3.4). The number of MetaSites™ observed per
patient ranged from 12 to 240 and the odds of metastasis nearly
doubled for every increase of 10
MetaSites™. Importantly, the MetaSite™ score
density was not correlated with tumor size, lymph node metastasis,
lymphovascular invasion, or hormone receptor
status.
Competition
The life
sciences, biotechnology and molecular diagnostic industries are
characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary technologies and
products. Any therapeutic, companion diagnostic and prognostic
diagnostic product candidates that we are able to successfully
develop and commercialize will compete with both existing therapies
and diagnostics and new therapies and diagnostics that may become
available in the future. While we believe that our technology and
scientific knowledge provide us with competitive advantages, we
face potential competition from many different sources, including
pharmaceutical, specialty pharmaceutical and biotechnology
companies, both large and small molecular diagnostic companies,
academic institutions and governmental agencies and public and
private research institutions, among others.
We plan to
compete in segments of the pharmaceutical, biotechnology and other
related markets that pursue personalized medicine approaches to
treating cancer. There are many companies presently developing
therapies for cancer in the field of precision medicines, including
divisions of large pharmaceutical companies, specialty
pharmaceutical and biotechnology companies of various sizes,
including Pfizer Inc., Merck & Co., Inc., Novartis
Pharmaceuticals Corp., F. Hoffmann-La Roche Ltd, Bristol-Myers
Squibb Company, Eli Lilly and Company, AstraZeneca, PLC, Amgen,
Inc., Biogen, Inc., Genentech, Inc., Celgene Corp., Bayer AG,
Takeda Pharmaceutical Company Limited, through its wholly owned
subsidiary ARIAD Pharmaceuticals, Inc., Clovis Oncology, Inc.,
Ignyta, Inc., and Deciphera Pharmaceuticals LLC, among many
others.
We believe our
main diagnostic competition will be from a number of private and
public companies that offer molecular diagnostic tests, including
gene profiling and expression in multiple cancers indications,
including companies such as Genomic Health, Inc., Agendia Inc.,
BioTheranostics, Inc., Exact Sciences, Inc. GenomeDx Biosciences
Inc., Hologic Inc., Myriad Genetics, Inc., NanoString Technologies
Inc., NeoGenomics, Inc., Novartis AG, Qiagen N.V., Roche
Diagnostics, a division of Roche Holding, Ltd, Siemens AG, Veridex
LLC, a Johnson & Johnson company, Celera Corporation, and GE
Healthcare, a business unit of General Electric Company, as well as
others. Commercial laboratories, such as Laboratory Corporation of
America Holdings and Quest Diagnostics Incorporated, with strong
distribution networks for diagnostic tests, may also compete with
us. We may also face competition from Illumina, Inc. and Thermo
Fisher Scientific Inc., both of which have announced their
intention to enter the clinical diagnostics market as well as other
companies and academic and research institutions. We may also face
completion from companies focused on liquid biopsies and pan-cancer
clinical diagnostics, such as Danaher Corporation and its Cepheid,
Inc. subsidiary, Foundation Medicine, Inc., Guardant Health, MDx
Health, Inc., Metamark Inc., Natera Inc. and Response Genetics,
Inc., among many others.
Our competitors
may develop and market therapeutic, companion diagnostic and
prognostic diagnostic products or other novel technologies that are
more effective, safer, more convenient or less costly than any that
may be commercialized by us, or may obtain regulatory approval for
their products more rapidly than we may obtain approval for ours.
Many of our present and potential competitors have widespread brand
recognition, distribution and substantially greater financial and
technical resources and development, production and marketing
capabilities than we do. If we are unable to compete successfully,
we may be unable to gain market acceptance and therefore revenue
from our therapeutics and diagnostics may be limited.
Patents and Intellectual Property
We believe that
clear and extensive patent coverage and protection of the
proprietary nature of our technologies is central to our success.
Our intellectual property strategy is intended to develop and
maintain a competitive position and long-term value through a
combination of patents, patent applications, copyrights,
trademarks, and trade secrets. We have invested and will continue
to invest in our intellectual property portfolio, which has been
partially accomplished in conjunction with the resources of our
Licensors. This applies to both domestic and international patent
coverage.
Four (4) patents
in the United States, and three (3) international patents have been
issued covering key aspects of our core MENA biomarker technologies
for epithelial-based solid tumors including breast, lung, prostate
and colorectal. These patents expire between 2028 and
2031.
We have and
intend to continue to file additional patent applications to
strengthen our therapeutic and diagnostic intellectual property
rights, as well as seek to add to our intellectual property
portfolio through licensing, partnerships, joint development and
joint venture agreements.
Our employees
and key technical consultants working for us are required to
execute confidentiality and assignment agreements in connection
with their employment and consulting relationships. Confidentiality
agreements provide that all confidential information developed or
made known to others during the course of the employment,
consulting or business relationship shall be kept confidential
except in specified circumstances. Additionally, our employment
agreements provide that all inventions conceived by such employee
while employed by us are our exclusive property. We cannot provide
any assurance that employees and consultants will abide by the
confidentiality and assignment terms of these agreements. Despite
measures taken to protect our intellectual property, unauthorized
parties might copy aspects of our technology or obtain and use
information that we regard as proprietary.
As part of our
intellectual property strategy, we are reviewing our license
agreements and related patents and patent applications to determine
applicability with our integrated Rx/Dx product development
strategy.
License Agreements
In August 2010, we
entered into a License Agreement (the “License
Agreement”) with AECOM, MIT, Cornell and IFO-Regina. The
License Agreement covers patents and patent applications, patent
disclosures, cell lines and technology surrounding discoveries in
the understanding of the underlying mechanisms of systemic
metastasis in solid epithelial cancers, including our core
diagnostic technologies, including the MetaSite
Breast
™ and MENA diagnostic
assays. The License Agreement calls for certain
customary payments such as a license signing fee, reimbursement of
patent expenses, annual license maintenance fees, milestone
payments, and the payment of royalties on sales of products or
services covered under the agreement. See “Contractual
Obligations” in the “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
section for more information regarding our financial obligations
related to the License Agreement.
Effective March
2012, we entered into a second license agreement (the “Second
License Agreement”) with AECOM. The Second License Agreement
covers patent and patent applications, patent disclosures, and
other technology surrounding discoveries in the understanding of
the underlying mechanisms of systemic metastasis in solid
epithelial cancers, including the isolation (capture of), gene
expression profile (the “Human Invasion Signature”) and
chemotherapeutic resistance of metastatic cells. The Second License
Agreement requires certain customary payments such as a license
signing fee, reimbursement of patent expenses, annual license
maintenance fees, milestone payments, and the payment of royalties
on sales of products or services covered under such agreements. See
“Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Second License Agreement.
Pursuant to both
the License Agreement and the Second License Agreement, we have the
right to initiate legal proceedings on our behalf or in the
Licensors’ names, if necessary, against any infringer, or
potential infringer, of a licensed intellectual property who
imports, makes, uses, sells or offers to sell products. Any
settlement or recovery received from any such proceeding shall be
divided eighty percent (80%) to us and twenty percent (20%) to the
Licensors after we deduct from any such settlement or recovery our
actual counsel fees and out-of-pocket expenses relative to any such
legal proceeding. If we decide not to initiate legal proceedings
against any such infringer, then the Licensors shall have the right
to initiate such legal proceedings. Any settlement or recovery
received from any such proceeding initiated by the Licensors shall
be divided twenty percent (20%) to us and eighty percent (80%) to
the Licensors after the Licensors deduct from any such settlement
or recovery their actual counsel fees and out-of-pocket expenses
relative to any such legal proceeding.
Effective
December 2013, we entered into two separate worldwide exclusive
license agreements with MIT and its David H. Koch Institute for
Integrative Cancer Research at MIT and its Department of Biology,
AECOM, and Montefiore Medical Center (“Montefiore” and,
together with MIT and AECOM, the “Alternative Splicing
Licensors”). The diagnostic license agreement (the
“Alternative Splicing Diagnostic License Agreement”)
and the therapeutic license agreement (the “Alternative
Splicing Therapeutic License Agreement” and, together with
the Diagnostic License Agreement, the “2014 Alternative
Splicing License Agreements”) covers pending patent
applications, patent disclosures, and technology surrounding
discoveries of alternatively spliced mRNA and protein isoform
markers for the treatment and/or prevention of cancer through the
epithelial-mesenchymal transition (EMT) in epithelial solid tumor
cancers. The 2014 Alternative Splicing License Agreements call for
certain customary payments such as a license signing fee,
reimbursement of patent expenses, annual license maintenance fees,
milestone payments, and the payment of royalties on sales of
products or services covered under the agreement. See
“Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Alternative Splicing License Agreements.
Further,
pursuant to the 2014 Alternative Splicing License Agreements, we
have the right to initiate legal proceedings on our behalf or in
the Licensors’ names, if necessary, against any infringer, or
potential infringer, of any licensed intellectual property who
imports, makes, uses, sells or offers to sell products. Any
settlement or recovery received from any such proceeding shall be
divided 80% to us and 20% to the Licensors after we deduct from any
such settlement or recovery our actual counsel fees and
out-of-pocket expenses relative to any such legal proceeding. If we
decide not to initiate legal proceedings against any such
infringer, then the Licensors shall have the right to initiate such
legal proceedings. Any settlement or recovery received from any
such proceeding initiated by the Licensors shall be divided 20% to
us and 80% to the Licensors after the Licensors deduct from any
such settlement or recovery their actual counsel fees and
out-of-pocket expenses relative to any such legal
proceeding.
Effective June
2014, we entered into a License Agreement (the “Antibody
License Agreement”) with MIT. The Antibody License Agreement
covers proprietary technology and know-how surrounding monoclonal
and polyclonal antibodies specific to the Mena protein and its
isoforms. The Antibody License Agreement calls for certain
customary payments such as a license signing fee, reimbursement of
patent expenses, annual license maintenance fees, milestone
payments, and the payment of royalties on sales of products or
services covered under the agreement. See
“Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Antibody License Agreement. As part of our intellectual property
strategy, we have terminated certain license agreements and patent
applications related to non-core technologies.
Partnerships and Collaborations
In connection
with our business strategy, we may enter into exclusive and/or
non-exclusive research and development and other collaboration or
partnership agreements.
Celgene Corporation
On August 22, 2016,
we executed a pilot materials transfer agreement (the
“MTA”) with Celgene Corporation (“Celgene”)
to conduct a mutually agreed upon pilot research project (the
“Pilot Project”). On September 29, 2016, we entered
into an amendment (the “Amendment”) to the MTA (the
“Amendment,” and together with the MTA, the
“Research Agreement”), which provided for milestone
payments to MetaStat of up to approximately $973,000. Under the
terms of the Research Agreement, Celgene pr
ovided certain proprietary materials to the
Company and the Company evaluated Celgene’s proprietary
materials in the Company’s metastatic cell line
(
in
vitro
) and animal
(
in
vivo
) nonclinical
models
.
The Pilot Project was
successfully completed in January 2018.
See Note 11 for
accounting treatment related to the Research
Agreement.
Albert Einstein College of Medicine and Montefiore Medical
Center
Effective January
9, 2015, we executed a collaboration agreement (the
“Collaboration Agreement”) with AECOM and Montefiore
Medical Center (“Montefiore,” and together with AECOM,
the “Institutions”) to collaborate on research projects
(the “Research Projects”) including conducting studies
that establish the clinical validity and clinical utility of
MetaStat’s prognostic diagnostic tests, including the
MetaSite
Breast
™
test, the MENA diagnostic assay, and a combined test. The term of
the Collaboration Agreement is five years, which may be terminated
by either party with thirty days written notice.
National Institutes of Health, National Cancer
Institute
Effective September
21, 2016, we executed an agreement with the National Institutes of
Health, National Cancer Institute (the “NCI"), whereby the
NCI will contract with MetaStat to perform the MetaSite
Breast
™ and MENA
diagnostic analysis of breast cancer tumor tissue as part of a
clinical study. In addition, MetaStat will collaborate with the
Department of Cancer Epidemiology and Genetics (DCEG) at the NCI on
interpretation of the study analysis and dissemination of
results.
Government Regulation
Regulation by
governmental authorities in the United States, at the federal,
state and local level, and in and other countries is a significant
factor in the research and clinical development, testing,
manufacture, commercialization, marketing and advertising,
distribution and post-approval monitoring and reporting, among
others of both pharmaceuticals and diagnostic tests.
Therapeutic Regulation
United States Drug Approval Process
In the United
States, the FDA regulates drugs under the FDCA, and implementing
regulations. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state, local and
foreign statutes and regulations requires the expenditure of
substantial time and financial resources. Failure to comply with
the applicable U.S. requirements at any time during the product
development process, approval process or after approval, may
subject an applying company to a variety of administrative or
judicial sanctions.
Before a drug may
be marketed in the U.S., the FDA generally requires the
following:
●
completion of
preclinical laboratory tests, animal studies and formulation
studies in compliance with good laboratory practice, or GLP,
regulations;
●
submission of an
Investigational New Drug or IND application to the FDA, which must
become effective before human clinical trials may
begin;
●
approval of each
phase of the proposed clinical trials and related informed consents
by an IRB, at each clinical site where such trial will be
performed;
●
performance of
adequate and well-controlled human clinical trials in accordance
with good clinical practice, or GCP, standards and regulations to
establish the safety and efficacy of the proposed drug for each
indication;
●
submission of a
New Drug Application, or NDA to the FDA;
●
satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the product is produced to assess compliance
with current good manufacturing practice, or cGMP, requirements and
to assure that the facilities, methods and controls are adequate to
preserve the drug’s identity, strength, quality and purity;
and
●
FDA
review and approval of the NDA.
Preclinical Studies and IND
Preclinical studies
include laboratory evaluation of product chemistry and formulation,
as well as
in vitro
and
animal studies to assess the potential for AEs and, in some cases,
to establish a rationale for therapeutic use. The conduct of
preclinical studies is subject to federal regulations and
requirements, including GLP regulations for safety/toxicology
studies. An IND sponsor must submit the results of the preclinical
tests, together with manufacturing information, analytical data,
any available clinical data or literature and plans for clinical
trials, among other things, to the FDA as part of an IND. Some
long-term preclinical testing, such as animal tests of reproductive
AEs and carcinogenicity, may continue after the IND is submitted.
An IND automatically becomes effective 30 days after receipt by the
FDA, unless before that time the FDA raises concerns or questions
related to one or more proposed clinical trials and places the
trial on clinical hold. In such a case, the IND sponsor and the FDA
must resolve any outstanding concerns before the clinical trial can
begin. As a result, submission of an IND may not result in the FDA
allowing clinical trials to commence.
Clinical Trials
Clinical trials
involve the administration of the investigational new drug to human
subjects under the supervision of qualified investigators in
accordance with GCP requirements, which include, among other
things, the requirement that all research subjects provide their
informed consent in writing before their participation in any
clinical trial. Clinical trials are conducted under written
protocols detailing, among other things, the objectives of the
trial, the parameters to be used in monitoring safety, and the
safety and effectiveness criteria to be evaluated. A protocol for
each clinical trial and any subsequent protocol amendments must be
submitted to the FDA as part of the IND. In addition, an IRB at
each institution participating in the clinical trial must review
and approve the plan for any clinical trial before it commences at
that institution, and the IRB must conduct continuing review. The
IRB must review and approve, among other things, the study protocol
and informed consent information to be provided to study subjects.
An IRB must operate in compliance with FDA regulations. In
addition, a sponsor must provide information regarding most
clinical trials to be disclosed on http://clinicaltrials.gov, a
website maintained by the National Institutes of
Health.
Human clinical
trials are typically conducted in three sequential phases that may
overlap or be combined:
●
Phase 1: The
drug is initially introduced into healthy human subjects or
patients with the target disease or condition and tested for
safety, dosage tolerance, absorption, metabolism, distribution,
excretion and, if possible, to gain an early indication of its
effectiveness;
●
Phase 2: The
drug is administered to a limited patient population to identify
possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the product for specific targeted diseases
and to determine dosage tolerance and optimal dosage;
and
●
Phase 3: The
drug is administered to an expanded patient population in adequate
and well-controlled clinical trials to generate sufficient data to
statistically confirm the efficacy and safety of the product for
approval for specified indications, to establish the overall
risk-benefit profile of the product and to provide adequate
information for the labeling of the product.
Progress reports
detailing the results of the clinical trials must be submitted at
least annually to the FDA, and more frequently if serious adverse
events, or AEs occur. The FDA or the sponsor may suspend or
terminate a clinical trial at any time on various grounds,
including a finding that the research subjects are being exposed to
an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical trial at its institution if the
clinical trial is not being conducted in accordance with the
IRB’s requirements or if the drug has been associated with
unexpected serious harm to patients.
Pursuant to the
21st Century Cures Act, which was enacted on December 13, 2016, the
manufacturer of an investigational drug for a serious or
life-threatening disease is required to make available, such as by
posting on its website, its policy on evaluating and responding to
requests for expanded access. This requirement applies on the later
of 60 days after the date of enactment or the first initiation of a
Phase 2 or Phase 3 trial of the investigational drug.
Marketing Approval
Assuming
successful completion of the required clinical testing, the results
of the preclinical studies and clinical trials, together with
detailed information relating to the product’s chemistry,
manufacture, controls and proposed labeling, among other things,
are submitted to the FDA as part of an NDA requesting approval to
market the product for one or more indications. Under federal law,
the submission of most NDAs is subject to a substantial application
user fee.
The FDA
generally conducts a preliminary review of all NDAs to determine if
they are sufficiently complete to permit substantive review within
the first 60 days after submission before accepting them for
filing. The FDA may request additional information in connection
with this preliminary review rather than accept an NDA for filing.
In this event, the application must be resubmitted with the
additional information. The resubmitted application is subject to
further review before the FDA accepts it for filing. Once the
submission is accepted for filing, the FDA begins an in-depth
substantive review. The FDA has agreed to specified performance
goals in the review of NDAs. Under these goals, the FDA has
committed to review most such applications for non-priority
products within 10 months, and most applications for priority
review products, that is, drugs that the FDA determines represent a
significant improvement over existing therapy, within six months.
The FDA may also refer applications for novel drugs or products
that present difficult questions of safety or efficacy to an
advisory committee, typically a panel that includes clinicians and
other experts, for review, evaluation and a recommendation as to
whether the application should be approved. The FDA is not bound by
the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions. The FDA is not
required to adhere its review time goals, and its review could
experience delays that cause those goals to not be
met.
Before approving
an NDA, the FDA typically will inspect the facility or facilities
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 cGMP requirements and are
adequate to assure consistent production of the product within
required specifications. In addition, before approving an NDA, the
FDA will typically inspect one or more clinical sites to assure
compliance with GCP and integrity of the clinical data
submitted.
The testing and
approval process for each product candidate requires substantial
time, effort and financial resources, and each may take many years
to complete. Data obtained from preclinical and clinical activities
are not always conclusive and may be susceptible to varying
interpretations, which could delay, limit or prevent regulatory
approval. The FDA may not grant approval of an application for a
product candidate on a timely basis, or at all. Further, applicants
often encounter difficulties or unanticipated costs in their
efforts to develop product candidates and secure necessary
governmental approvals, which could delay or preclude the marketing
of those products.
After the
FDA’s evaluation of the NDA and inspection of the
manufacturing facilities, the FDA may issue an approval letter or a
complete response letter. An approval letter authorizes commercial
marketing of the drug with specific prescribing information for
specific indications. A complete response letter generally outlines
the deficiencies in the submission and may require substantial
additional testing or information in order for the FDA to
reconsider the application. If and when those deficiencies have
been addressed to the FDA’s satisfaction in a resubmission of
the NDA, the FDA may then issue an approval letter. The FDA has
committed to reviewing such resubmissions in two or six months
depending on the type of information included. Even with submission
of this additional information, the FDA ultimately may decide that
the application does not satisfy the regulatory criteria for
approval and refuse to approve the NDA.
Programs for Expedited Review and Approval
The FDA has
developed certain programs and designations that enable NDAs for
product candidates meeting specified criteria to be eligible for
certain expedited review and approval processes such as fast track
designation, priority review, accelerated approval, and
breakthrough therapy designation. Even if a product qualifies for
one or more of these programs, the FDA may later decide that the
product no longer meets the conditions for qualification or decide
that the time period for FDA review or approval will not be
shortened. These include Fast Track Designation, Priority Review,
Accelerated Approval, and Breakthrough Therapy
Designation.
In addition to
the expedited review and approval programs and designations, the
FDA also recognizes certain other designations and alternative
approval pathways that afford certain benefits, such as the orphan
drug designation and alternative types of NDAs under the
Hatch-Waxman Act.
Under the Orphan
Drug Act, the FDA may grant orphan drug designation to drugs
intended to treat a rare disease or condition, which is generally
defined as a disease or condition that affects fewer than 200,000
individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. After the FDA grants orphan
drug designation, the generic identity of the drug and its
potential orphan use are disclosed publicly by the FDA. Orphan drug
designation does not convey any advantage in, or shorten the
duration of, the regulatory review and approval process. The first
NDA applicant to receive FDA approval for a particular active
moiety to treat a particular disease with FDA orphan drug
designation is entitled to a seven-year exclusive marketing period
in the United States for that product and for that indication.
During the seven-year exclusivity period, the FDA may not approve
any other applications to market the same drug for the same orphan
indication, except in limited circumstances, such as a showing of
clinical superiority to the product with orphan drug exclusivity,
such that it is shown to be safer, more effective or makes a major
contribution to patient care. Orphan drug exclusivity does not
prevent the FDA from approving a different drug for the same
disease or condition, or the same drug for a different disease or
condition. Among the other benefits of orphan drug designation are
tax credits for certain research and a waiver of the NDA
application user fee.
The FDA
regulates combinations of products that cross FDA centers, such as
drug, biologic or medical device components that are physically,
chemically or otherwise combined into a single entity, as a
combination product. The FDA center with primary jurisdiction for
the combination product will take the lead in the premarket review
of the product, with the other center consulting or collaborating
with the lead center. The 21st Century Cures Act, or Cures Act,
amended the provisions of the FDCA relating to the regulation of
combination products to, among other things, require the FDA to
conduct the premarket review of any combination product under a
single application whenever appropriate.
In practice, the
FDA’s Office of Combination Products, or OCP, determines
which center will have primary jurisdiction for the combination
product based on the combination product’s “primary
mode of action.” A mode of action is the means by which a
product achieves an intended therapeutic effect or action. The
primary mode of action is the mode of action that provides the most
important therapeutic action of the combination product, or the
mode of action expected to make the greatest contribution to the
overall intended therapeutic effects of the combination
product.
It is often
difficult for the OCP to determine with reasonable certainty the
most important therapeutic action of the combination product. In
those difficult cases, the OCP will consider consistency with other
combination products raising similar types of safety and
effectiveness questions, or which center has the most expertise to
evaluate the most significant safety and effectiveness questions
raised by the combination product.
If a combination
product sponsor disagrees with OCP’s primary mode of action
determination, the Cures Act permits the sponsor to request that
the FDA provide a substantive rationale for its determination. The
sponsor can then propose one or more studies to establish the
relevance of the chemical action in achieving the product’s
primary mode of action and the FDA and the sponsor will collaborate
to reach agreement on the design of such studies within 90 calendar
days. If the sponsor conducts the agreed-upon studies, the FDA must
consider the resulting data when reevaluating the product’s
primary mode of action.
Post-Market Drug Regulation
If the FDA
approves a drug product for commercial marketing, it may limit the
approved indications for use of the product, require that
contraindications, warnings or precautions be included in the
product labeling, require that post-approval studies, including
Phase 4 clinical trials, be conducted to further assess a
drug’s safety and/or other factors after approval, require
testing and surveillance programs to monitor the product after
commercialization and/or patients using the product for observation
of the product’s long-term effects, or impose other
conditions, including distribution restrictions or other risk
management mechanisms, including Risk Evaluation and Mitigation
Strategies, or REMS, which can materially affect the potential
market and profitability of the product. Any approved product is
also subject to requirements relating to recordkeeping, periodic
reporting, product sampling and distribution, advertising and
promotion, labeling, and reporting of adverse experiences with the
product. The FDA may prevent or limit further marketing of a
product based on the results of post-market studies or surveillance
programs. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and
additional labeling claims, are subject to further testing
requirements and FDA review and re-approval.
In addition,
drug manufacturers and other entities involved in the manufacture
and distribution of approved drugs are required to register their
establishments with the FDA and state agencies and are subject to
periodic unannounced inspections by the FDA and these state
agencies for compliance with cGMP requirements. Changes to the
manufacturing process are strictly regulated and often require
prior FDA approval before being implemented. FDA regulations also
require investigation and correction of any deviations from cGMP
and impose reporting and documentation requirements upon drug
developers and their manufacturers. Accordingly, manufacturers must
continue to expend time, money and effort in the areas of
production and quality control to maintain cGMP
compliance.
Once an approval
is granted, the FDA may withdraw the 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
AEs 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 or other
restrictions under a REMS program. Other potential consequences of
a failure to comply with regulatory requirements during or after
the FDA approval process include, among other things:
●
restrictions on
the marketing or manufacturing of the product, product recalls or
complete withdrawal of the product from the market;
●
fines, warning
or untitled letters or holds on post-approval clinical
trials;
●
refusal of the
FDA to approve pending applications or supplements to approved
applications, or suspension or revocation of product license
approvals;
●
product seizure
or detention, or refusal to permit the import or export of
products; or
●
consent decrees,
injunctions or the imposition of civil or criminal
penalties.
The FDA strictly
regulates marketing, labeling, advertising and promotion of
products that are placed on the market. Drugs may be promoted only
for the approved indications and in accordance with the provisions
of the approved label. The FDA and other agencies actively enforce
the laws and regulations prohibiting the promotion of off label
uses, and a company that is found to have improperly promoted off
label uses may be subject to significant liability.
Diagnostic Regulation
The United States
Food and Drug Administration, or the FDA, regulates the sale or
distribution, in interstate commerce, of medical devices, including
in vitro
diagnostic test
kits or IVDs, such as our companion diagnostics. Devices subject to
FDA regulation must undergo pre-market review prior to
commercialization unless the device is of a type exempted from such
review. Additionally, medical device manufacturers must comply with
various regulatory requirements under the Federal Food, Drug and
Cosmetic Act, or FDCA, and regulations promulgated under that Act,
including quality system review regulations, unless exempted from
those requirements for particular types of devices. Entities that
fail to comply with FDA requirements can be liable for criminal or
civil penalties, such as recalls, detentions, orders to cease
manufacturing and restrictions on labeling and
promotion.
Clinical
laboratory services, such as our prognostic diagnostic tests are
currently not subject to FDA regulation, but IVDs and
analyte-specific reagents and equipment used by these laboratories
may be subject to FDA regulation. Clinical laboratory tests that
are developed and validated by a laboratory for use in examinations
the laboratory performs itself are called “home brew”
tests or more recently, Laboratory Developed Tests, or LDTs. LDTs
are subject to the Clinical Laboratory Improvement Amendments of
1988, or CLIA.
Beginning in
January 2006, the FDA began indicating its belief that LDTs were
subject to FDA regulation as devices and issued a series of
guidance documents intending to establish a framework by which to
regulate certain laboratory tests. In September 2006, the FDA
issued draft guidance on a new class of tests called "In Vitro
Diagnostic Multivariate Index Assays", or IVDMIAs. Under this draft
guidance, specific tests could be classified as either a Class II
or a Class III medical device, which may require varying levels of
FDA pre-market review depending on intended use and the level of
control necessary to assure the safety and effectiveness of the
test. In July 2007, the FDA posted revised draft guidance that
addressed some of the comments submitted in response to the
September 2006 draft guidance. In May 2007, the FDA issued a
guidance document "Class II Special Controls Guidance Document:
Gene Expression Profiling Test System for Breast Cancer Prognosis."
This guidance document was developed to support the classification
of gene expression profiling test systems for breast cancer
prognosis into Class II. In addition, the Secretary of the
Department of Health and Human Services, or HHS, requested that its
Advisory Committee on Genetics, Health and Society make
recommendations about the oversight of genetics testing. A final
report was published in April 2008. In June 2010, the FDA announced
a public meeting to discuss the agency's oversight of LDTs prompted
by the increased complexity of LDTs and their increasingly
important role in clinical decision making and disease management.
The FDA indicated that it is considering a risk-based application
of oversight to LDTs. The public meeting was held in July 2010 and
further public comments were submitted to the FDA in September
2010. In June 2011, the FDA issued draft guidance regarding
"Commercially Distributed In Vitro Diagnostic Products Labeled for
Research Use Only or Investigational Use Only," which was finalized
in November 2013.
In October 2014,
the FDA published two draft guidance documents that, if finalized,
would implement a regulatory approach for most LDTs. In the draft
guidance documents, the FDA stated that it had serious concerns
regarding the lack of independent review of the evidence of
clinical validity of LDTs and asserted that the requirements under
CLIA do not address the clinical validity of any LDT. The draft
guidance documents proposed to impose a risk-based, phased-in
approach for LDTs similar to the existing framework for
in vitro
diagnostic
devices. In January 2017, the FDA released a discussion paper
synthesizing public comments on the 2014 draft guidance documents
and outlining a possible approach to regulation of LDTs. The
discussion paper has no legal status and does not represent a final
version of the LDT draft guidance documents. In the discussion
paper, the FDA states that there is “a growing consensus that
additional oversight of LDTs is necessary.” Similar to the
FDA’s 2014 draft guidance, the FDA’s discussion paper
proposes a risk-based framework that would require most LDTs to
comply with most of the FDA’s regulatory requirements for
medical devices. Unlike the draft guidance, however, the discussion
paper proposes to exempt currently marketed LDTs from premarket
review, requiring only new or modified tests to be approved or
cleared by the agency. In addition, the FDA proposed requiring LDTs
to comply with only a subset of the medical device Quality System
Regulation, or QSRs and proposed other changes from the 2014 draft
guidance. We cannot predict whether the FDA will take action to
regulate LDTs under the new administration or what approach the FDA
will seek to take.
Legislative
proposals have been introduced in Congress or publicly circulated,
each of which would implement differing approaches to the
regulation of LDTs. We cannot predict the ultimate form of any such
guidance or regulation and the potential impact on our prognostic
diagnostic tests or materials used to perform our prognostic
diagnostic tests. If pre-market review is required, our business
could be negatively impacted until such review is completed and
clearance to market or approval is obtained. FDA could
require we seek pre-market clearance or approval for tests
currently under development delaying product commercialization or
following product launch to require that we stop selling our tests.
If our tests are allowed to remain on the market but there is
uncertainty about our tests, if they are labeled investigational by
the FDA, or if labeling claims the FDA allows us to make are
limited, orders or reimbursement may decline. The regulatory
approval process may involve, among other things, successfully
completing additional clinical trials and submitting a pre-market
clearance notice or filing a pre-market application, or PMA with
the FDA. If pre-market review is required by the FDA, there can be
no assurance that our tests will be cleared or approved on a timely
basis, if at all, nor can there be assurance that labeling claims
will be consistent with our current claims or adequate to support
continued adoption of and reimbursement for our tests. Ongoing
compliance with FDA regulations would increase the cost of
conducting our business, and subject us to inspection by the FDA
and to the requirements of the FDA and penalties for failure to
comply with these requirements. We may also decide voluntarily to
pursue FDA pre-market review of our tests if we determine that
doing so would be appropriate.
While we expect
all materials used in our tests to qualify according to CLIA
regulations, we cannot be certain that the FDA might not enact
rules or guidance documents which could impact our ability to
purchase materials necessary for the performance of our tests.
Should any of the reagents obtained by us from vendors and used in
conducting our tests be affected by future regulatory actions, our
business could be adversely affected by those actions, including
increasing the cost of testing or delaying, limiting or prohibiting
the purchase of reagents necessary to perform testing.
Regulation of Medical Devices and In Vitro Diagnostic Devices
(IVDs) – Companion Diagnostics
We may seek to
develop or seek to partner with third parties to develop
in vitro
companion
diagnostics for use in selecting the patients that we believe will
respond to certain drugs. We expect our MENA companion diagnostic
tests will be regulated by the FDA as an IVD, companion diagnostic.
As defined by the FDA, an IVD companion diagnostic is a medical
device that provides information that is essential for the safe and
effective use of a corresponding drug or biological product. An IVD
companion diagnostic helps a health care professional determine
whether a therapeutic product’s benefits to patients will
outweigh any potential side effects or risks.
In August 2014, the
FDA issued guidance that addresses issues critical to developing
in vitro
companion
diagnostics. The guidance states that if safe and effective use of
a therapeutic product depends on an
in vitro
diagnostic, then the FDA
generally will require approval or clearance of the diagnostic at
the same time that the FDA approves the therapeutic product. In
July 2016, the FDA issued a draft guidance intended to assist
sponsors of the drug therapeutic and
in vitro
companion diagnostic device
on issues related to co-development of the products. The FDA
generally requires
in
vitro
companion diagnostics intended to select the patients
intended to receive a cancer treatment to obtain approval of a PMA
approval, for that diagnostic simultaneously with approval of the
drug.
To be
commercially distributed in the United States, a medical device,
including IVDs, must receive either 510(k) clearance, de novo
authorization, or PMA approval from the FDA prior to marketing.
There are three classes of medical devices recognized by the FDA,
Class I (low risk), Class II (moderate risk), and Class III (high
risk).
Class I devices
are those for which reasonable assurance of safety and
effectiveness can be provided by adherence to the FDA’s
general controls for medical devices, which include applicable
portions of the FDA’s Quality System Regulation, or QSR,
requirements, facility registration and product listing; reporting
of adverse medical events or AEs; and appropriate, truthful, and
non-misleading labeling, advertising and promotional materials.
Many Class I devices are exempt from premarket regulation; however,
some Class I devices require premarket clearance by the FDA through
the 510(k) premarket notification process discussed
below.
Class II devices
are subject to the FDA’s general controls, and any other
special controls, such as performance standards, post-market
surveillance, and FDA guidelines, deemed necessary by the FDA to
provide reasonable assurance of the devices’ safety and
effectiveness. Premarket review and clearance by the FDA for Class
II devices are accomplished through the 510(k) premarket
notification procedure, although some Class II devices are exempt
from the 510(k) requirements. Premarket notifications are subject
to user fees unless a specific exemption applies. To obtain 510(k)
clearance, a manufacturer must submit a premarket notification
demonstrating that the proposed device is “substantially
equivalent” to a predicate device, which is a previously
cleared 510(k) device or a preamendment device that was in
commercial distribution before May 28, 1976, for which the FDA has
not yet called for the submission of a PMA. In determining
substantial equivalence, the FDA assesses whether the proposed
device has the same intended use and technical characteristic as
the predicate device, or whether the proposed device has different
technological characteristics, but the information submitted in the
premarket notification demonstrates the device is as safe and
effective as a legally marketed device and does not raise different
questions of safety and effectiveness than the predicate device.
The FDA may request additional information, including clinical
data. Under the FDCA, a manufacturer must submit a premarket
notification at least 90 days before introducing a device into
interstate commerce, but the FDA’s review of the premarket
notification can take significantly longer. If the FDA determines
that the device is substantially equivalent to the predicate
device(s), the subject device may be marketed. However, if the FDA
determines that a device is not substantially equivalent to the
predicate device(s), then the device would be regulated as a Class
III device, discussed below. If a manufacturer obtains a 510(k)
clearance for its device and then makes a modification that could
significantly affect the device’s safety or effectiveness, a
new premarket notification must be submitted to the
FDA.
Class III
devices are those deemed by the FDA to pose the greatest risk, such
as those for which reasonable assurance of the device’s
safety and effectiveness cannot be assured solely by the general
controls and special controls described above and that are
life-sustaining or life-supporting. Some preamendment Class III
devices for which the FDA has not yet required a PMA require the
FDA’s clearance of a premarket notification in order to be
marketed. However, most Class III devices are required to undergo
the PMA process in which the manufacturer must demonstrate
reasonable assurance of the safety and effectiveness of the device
to the FDA’s satisfaction. A PMA application must provide
valid scientific evidence, typically extensive preclinical and
clinical trial data, and information about the device and its
components regarding, among other things, device design,
manufacturing, and labeling. PMA applications (and supplemental PMA
applications) are subject to significantly higher user fees than
510(k) premarket notifications. Some PMA applications are exempt
from a user fee, for example, a small business’s first
PMA.
A PMA for an IVD
typically includes data from preclinical studies and
well-controlled clinical trials. Preclinical data for an IVD
includes many different tests, including how reproducible the
results are when the same sample is tested multiple times by
multiple users at multiple laboratories. The clinical data need to
establish that the test is safe and effective for the proposed
intended use in the indicated population. In addition, the PMA must
include information regarding the test’s clinical utility,
meaning that an IVD provides information that is clinically
meaningful. Such information must be provided even if the clinical
significance of the biomarker is obvious. The applicant may also
rely upon published literature or submit data to the FDA to show
clinical utility.
A PMA also must
provide information about the device and its components regarding,
among other things, device design, manufacturing and labeling. The
sponsor must pay an application fee to the FDA upon submission of a
PMA, which is approximately $250,000 for 2017. As part of the PMA
review, the FDA will typically inspect the manufacturer’s
facilities for compliance with QSR requirements, which impose
elaborate testing, control, documentation and other quality
assurance procedures.
Upon submission,
the FDA determines if the PMA is sufficiently complete to permit a
substantive review, and, if so, the FDA accepts the application for
filing. The FDA then commences an in-depth review of the PMA. The
entire process can typically take multiple years from submission of
the PMA to approval but may take longer. The review time is often
significantly extended as a result of the FDA asking for more
information or clarification of information already provided. The
FDA also may respond with a not approvable determination based on
deficiencies in the PMA application and require additional clinical
trial or other data that are often expensive and time-consuming to
generate and can substantially delay approval.
During the
review period, an FDA advisory committee, typically a panel of
clinicians, may be convened to review the PMA application and
recommend to the FDA whether, or upon what conditions, the device
should be approved. Although the FDA is not bound by the advisory
panel decision, the panel’s recommendation is important to
the FDA’s overall decision-making process.
If the
FDA’s evaluation of the PMA is favorable, the FDA typically
issues an approvable letter requiring the applicant’s
agreement to specific conditions, such as changes in labeling, or
specific additional information, such as submission of final
labeling, in order to secure final approval of the PMA. If the FDA
concludes that the applicable criteria have been met, the FDA will
issue a PMA approval for the approved indications, which can be
more limited than those originally sought by the applicant. The PMA
approval can include post-approval conditions that the FDA believes
necessary to ensure the safety and effectiveness of the device,
including, among other things, restrictions on labeling, promotion,
sale and distribution. Failure to comply with the conditions of
approval can result in an enforcement action, including the loss or
withdrawal of the approval.
Even after
approval of a PMA, a new PMA or PMA supplement may be required in
the event of a modification to the device, its labeling or its
manufacturing process. Supplements to a PMA often require the
submission of the same type of information required for an original
PMA, except that the supplement is generally limited to the
information needed to support the proposed change from the product
covered by the original PMA.
After a PMA
application is submitted and found to be sufficiently complete, the
FDA begins an in-depth review of the submitted information. During
this review period, the FDA may request additional information or
clarification of information already provided. The FDA also may
convene an advisory panel of outside experts to review and evaluate
the application and provide recommendations to the FDA as to the
approvability of the device. In addition, the FDA generally will
conduct a pre-approval inspection of the manufacturing facility to
ensure compliance with the QSR. The FDA can delay, limit, or deny
approval of a PMA application for many reasons.
Failure to
comply with applicable regulatory requirements can result in
enforcement action by the FDA, which may include any of the
following sanctions: public warning letters, fines, injunctions,
civil or criminal penalties, recall or seizure of products,
operating restrictions, partial suspension or total shutdown of
production, delays in or denial of 510(k) clearance or PMA
applications for new products, challenges to existing 510(k)
clearances or PMA applications, and a recommendation by the FDA to
disallow a device manufacturer from entering into government
contracts. The FDA also has the authority to request repair,
replacement, or refund of the cost of any device manufactured or
distributed. In the event that a supplier fails to maintain
compliance with a device manufacturer’s quality requirements,
the manufacturer may have to qualify a new supplier and could
experience manufacturing delays as a result. We believe that
products we may develop in the future for use as companion
diagnostic tests are likely to be regulated as Class III devices
requiring PMA approval.
Clinical Trials and IDEs
A clinical trial
is almost always required to support a PMA. For significant risk
devices, the FDA regulations require that human clinical
investigations conducted in the U.S. be approved via an
Investigational Device Exemption, or IDE, which must be approved
before clinical testing may commence. In some cases, one or more
smaller IDE studies may precede a pivotal clinical trial intended
to demonstrate the safety and efficacy of the investigational
device. A 30-day waiting period after the submission of each IDE is
required prior to the commencement of clinical testing in humans.
The FDA may disapprove, or approve with conditions, the IDE within
the 30-day period. If disapproved, the clinical trial may not begin
until the deficiencies noted by the FDA are addressed, and another
IDE is submitted to the FDA for approval. If approved with
conditions, the sponsor must address the conditions prior to
commencement of the trial. If the FDA does not respond to the
sponsor within the 30-day period, the IDE is deemed approved and
the clinical study may commence.
IVD trials
usually do not require an IDE approval, so long as, among other
things, the results of the IVD test are not used diagnostically
without confirmation of the test results by another, medically
established diagnostic product or procedure. For a trial where the
IVD result directs the therapeutic care of patients with cancer, we
believe that the FDA would likely consider the investigation to
require an IDE application.
An IDE
application must be supported by appropriate data, such as
laboratory test results, showing that it is safe to test the device
in humans and that the testing protocol is scientifically sound.
The IDE application must also include a description of product
manufacturing and controls, and a proposed clinical trial protocol.
The FDA typically grants IDE approval for a specified number of
patients. All clinical studies of investigational devices,
regardless of whether IDE approval is required, require approval
from an institutional review board, or IRB.
During the
clinical trial, the sponsor must comply with the FDA’s IDE
requirements for investigator selection, trial monitoring,
reporting and record keeping. The investigators must obtain patient
informed consent, rigorously follow the investigational plan and
study protocol, control the disposition of investigational devices
and comply with all reporting and record keeping requirements.
These IDE requirements apply to all investigational devices,
whether considered significant or nonsignificant risk. Prior to
granting PMA approval, the FDA typically inspects the records
relating to the conduct of the study and the clinical data
supporting the PMA for compliance with applicable
requirements.
Clinical trials
must be conducted: (i) in compliance with federal regulations; (ii)
in compliance with good clinical practice, or GCP, an international
standard intended to protect the rights and health of patients and
to define the roles of clinical trial sponsors, investigators, and
monitors; and (iii) under protocols detailing the objectives of the
trial, the parameters to be used in monitoring safety, and the
effectiveness criteria to be evaluated.
The FDA may
order the temporary, or permanent, discontinuation of a clinical
trial at any time, or impose other sanctions, if it believes that
the clinical trial either is not being conducted in accordance with
FDA requirements or presents an unacceptable risk to the clinical
trial patients. An IRB may also require the clinical trial at a
study site to be halted, either temporarily or permanently, for
failure to comply with the IRB’s requirements, or may impose
other conditions.
Although the QSR
does not fully apply to investigational devices, the requirement
for controls on design and development does apply. The sponsor also
must manufacture the investigational device in conformity with the
quality controls described in the IDE application and any
conditions of IDE approval that the FDA may impose with respect to
manufacturing.
Investigational
IVDs may only be distributed for use in an investigation, and the
labeling must prominently contain the statement “For
Investigational Use Only. The performance characteristics of this
product have not been established.”
Expedited Access Pathway Program
In April 2015,
the FDA issued a final guidance document establishing the Expedited
Access Pathway, or EAP program. The EAP program is intended to
speed patient access to devices (including companion diagnostics)
that demonstrate the potential to address unmet medical needs for
life threatening or irreversibly debilitating diseases or
conditions and are subject to PMA approval or de novo
authorization. In order to be accepted into the EAP program, a
sponsor must demonstrate to the FDA’s satisfaction that the
device is intended to treat or diagnose a life-threatening or
irreversibly debilitating disease or condition and that it
addresses an unmet need. The sponsor must also submit an acceptable
draft Data Development Plan. Once accepted into the program, the
FDA intends to engage with sponsors of EAP devices earlier and more
interactively during the device’s development, assessment,
and review. The FDA will also work with the device sponsor to try
to reduce the time and cost from development to an approval
decision. Elements of the EAP program may include priority review,
interactive review, senior management involvement, and assignment
of a case manager.
Post-Market Device Regulation
After a device
obtains FDA approval and is on the market, numerous regulatory
requirements apply. These requirements include the QSR, labeling
regulations, the FDA’s general prohibition against promoting
products for unapproved or “off-label” uses, the
Medical Device Reporting regulation, which requires that
manufacturers report to the FDA if their device may have caused or
contributed to a death or serious injury or malfunctioned in a way
that would likely cause or contribute to a death or serious injury
if it were to recur, and the Reports of Corrections and Removals
regulation, which requires manufacturers to report recalls and
field actions to the FDA if initiated to reduce a risk to health
posed by the device or to remedy a violation of the
FDCA.
The FDA enforces
these requirements by inspection and market surveillance. If the
FDA finds a violation, it can institute a wide variety of
enforcement actions, ranging from a public warning letter to more
severe sanctions such as fines, injunctions and civil penalties;
recall or seizure of products; operating restrictions, partial
suspension or total shutdown of production; refusing requests for
PMA approval of new products; withdrawing PMA approvals already
granted; and criminal prosecution.
Clinical Laboratory Improvement Amendments of 1988, or CLIA –
Prognostic Diagnostics
LDTs, such as
our prognostic diagnostic tests, are subject to the Clinical
Laboratory Improvement Amendments of 1988, or CLIA, and are not
currently regulated as medical devices under the FDCA. Under CLIA,
a laboratory is any facility which performs laboratory testing on
specimens derived from humans for the purpose of providing
information for the diagnosis, prevention or treatment of disease,
or the impairment of, or assessment of health. We have a current
certificate of accreditation under CLIA to perform high complexity
testing of our prognostic diagnostic tests for breast
cancer.
As a clinical
reference laboratory as defined under CLIA, we are required to hold
a certificate applicable to the type of work we perform and comply
with certain standards. CLIA further regulates virtually all
clinical laboratories by requiring they be certified by the federal
government and comply with various operational, personnel,
facilities administration, quality, and proficiency requirements
intended to ensure that their clinical laboratory testing services
are accurate, reliable, and timely. Laboratories must register and
list their tests with The Centers for Medicare & Medicaid
Services, or CMS, the agency that oversees CLIA. CLIA compliance
and certification is also a prerequisite to be eligible to bill for
services provided to governmental payor program beneficiaries and
for many private payors. CLIA is user-fee funded. Therefore, all
costs of administering the program must be covered by the regulated
facilities, including certification and survey cost.
To renew our
CLIA certificate, we will be subject to survey and inspection every
two years to assess compliance with program standards and may be
subject to additional inspections without prior notice. The
standards applicable to the testing which we perform may change
over time. We cannot assure that we will be able to operate
profitably should regulatory compliance requirements become
substantially costlier in the future. If our clinical reference
laboratory falls out of compliance with CLIA requirements, we may
be subject to sanctions such as suspension, limitation or
revocation of our CLIA certificate, as well as directed plan of
correction, state on-site monitoring, civil money penalties, civil
injunctive suit or criminal penalties. Additionally, we must
maintain CLIA compliance and certification to be eligible to bill
for tests provided to Medicare beneficiaries. If we were to be
found out of compliance with CLIA program requirements and
subjected to sanction, our business would be harmed.
CLIA provides
that a state may adopt laboratory regulations that are more
stringent than those under federal law, and a number of states have
implemented their own more stringent laboratory regulatory
requirements. State laws may require that laboratories meet certain
personnel qualifications, specify certain quality control
procedures, meet facility requirements, or prescribe record
maintenance requirements.
If regulated by
the FDA, we believe that our LDTs would likely be regulated as
either Class II or Class III devices. Accordingly, premarket
review—either a 510(k), de novo application, or a
PMA—would likely be required for our tests if the FDA no
longer applies its enforcement discretion to LDTs and our tests do
not qualify as grandfathered tests that are exempted from premarket
review. While the data requirements are typically greater for Class
III devices, the data required for Class II devices has increased,
and it is likely that some amount of clinical data (retrospective
or prospective or both) would be required for any type of
submission to the FDA. Ongoing compliance with FDA regulations
would increase the cost of conducting our business, subject us to
inspection by the FDA and to the requirements of the FDA and
penalties for failure to comply with the requirements of the FDA.
We cannot assure you that our current prognostic diagnostic
products and other future products will not require 510(k)
clearance or PMA approval in the future, or, in such an event, that
such approval or clearance would be forthcoming. Should any of the
clinical laboratory device reagents obtained by us from vendors and
used in conducting our home brew test be affected by future
regulatory actions, we could be adversely affected by those
actions, including increased cost of testing or delay, limitation
or prohibition on the purchase of reagents necessary to perform
testing.
Massachusetts and Other States’ Laboratory
Testing
Our clinical
reference laboratory is located in Boston, Massachusetts.
Accordingly, we are required to be licensed by Massachusetts, under
Massachusetts laws and regulations, as well as CLIA under CMS
regulations, which both establish standards for:
●
Day-to-day
operation of a clinical laboratory, personnel standards including
training and competency of all laboratory staff;
●
Physical
requirements of a facility, including, policies and procedures; and
safety;
●
Quality control,
including quality assurance; and proficiency testing.
In 2015, we
received the necessary certifications and licenses from both CLIA
and Massachusetts for our clinical reference laboratory to perform
testing services of our prognostic diagnostic breast cancer
tests.
If a laboratory
is not in compliance with Massachusetts statutory or regulatory
standards, or CLIA regulations as mandated by CMS, the
Massachusetts State Department of Health and/or CMS may suspend,
limit, revoke or annul the laboratory’s Massachusetts
license, and CLIA certification, censure the holder of the license
or assess civil money penalties. Additionally, statutory or
regulatory noncompliance may result in a laboratory’s
operator being found guilty of a misdemeanor. In the event that we
should be found not to be in compliance with Massachusetts or CLIA
laboratory requirements, we could be subject to such sanctions,
which could harm our business.
California, New
York, Florida, Maryland, Pennsylvania and Rhode Island require
out-of-state laboratories, which accept specimens from those states
to be licensed in each state. We have received licensing from
Massachusetts, California, Florida, Pennsylvania and Rhode Island
and are currently seeking licensing from New York and Maryland.
From time to time, we may become aware of other states that require
out-of-state laboratories to obtain licensure in order to accept
specimens from the state, and it is possible that other states do
have such requirements or will have such requirements in the
future. If we identify any other state with such requirements or if
we are contacted by any other state advising us of such
requirements, we intend to follow instructions from the state
regulators as to how we should comply with such
requirements.
Additional Regulations and Environmental Matters
Health Insurance Portability and Accountability Act (HIPAA) and
HITECH
Under the
administrative simplification provisions the federal Health
Insurance Portability and Accountability Act of 1996, or HIPAA, as
amended by the Health Information Technology for Economic and
Clinical Health Act, or the HITECH Act, the United States
Department of Health and Human Services (HHS) issued regulations
that establish uniform standards governing the conduct of certain
electronic health care transactions and protecting the privacy and
security of protected health information used or disclosed by
health care providers and other covered entities, such as MetaStat.
Three principal regulations with which we are required to comply
have been issued in final form under HIPAA: privacy regulations,
security regulations, and standards for electronic transactions,
which establish standards for common health care transactions. The
privacy and security regulations were extensively amended in 2013
to incorporate requirements from the HITECH Act.
The privacy
regulations cover the use and disclosure of protected health
information by health care providers and other covered entities.
They also set forth certain rights that an individual has with
respect to his or her protected health information maintained by a
health care provider, including the right to access or amend
certain records containing protected health information, or to
request restrictions on the use or disclosure of protected health
information. The security regulations establish requirements for
safeguarding the confidentiality, integrity, and availability of
protected health information that is electronically transmitted or
electronically stored.
The HITECH Act,
among other things, established certain protected health
information security breach notification requirements. A covered
entity must notify affected individual(s) and the HHS when there is
a breach of unsecured protected health information. The HIPAA
privacy and security regulations establish a uniform federal
“floor” that health care providers must meet and do not
supersede state laws that are more stringent or provide individuals
with greater rights with respect to the privacy or security of, and
access to, their records containing protected health information.
Massachusetts, for example, has a state law that protects the
privacy and security of personal information of Massachusetts
residents that is more prescriptive than HIPAA.
These laws
contain significant fines and other include civil and criminal
penalties for wrongful use or disclosure of protected health
information. Additionally, to the extent that we submit electronic
health care claims and payment transactions that do not comply with
the electronic data transmission standards established under HIPAA
and the HITECH Act, payments to us may be delayed or
denied.
We have policies
and procedures to comply with these regulations. The requirements
under these regulations may change periodically and could have an
adverse effect on our business operations if compliance becomes
substantially costlier than under current
requirements.
In addition to
federal privacy regulations, there are a number of state and
international laws governing confidentiality of health information
that may be applicable to our operations. The United States
Department of Commerce, the European Commission and the Swiss
Federal Data Protection and Information Commissioner have agreed on
a set of data protection principles and frequently asked questions
(the "Safe Harbor Principles") to enable U.S. companies to satisfy
the requirement under European Union and Swiss law that adequate
protection is given to personal information transferred from the
European Union or Switzerland to the United States. The European
Commission and Switzerland have also recognized the Safe Harbor
Principles as providing adequate data protection.
New laws
governing privacy may be adopted in the future as well. We have
taken steps to comply with health information privacy requirements
to which we are aware that we will be subject. However, we cannot
provide assurance that we will be in compliance with diverse
privacy requirements in all of the jurisdictions in which we do
business. Failure to comply with privacy requirements could result
in civil or criminal penalties, which could have a materially
adverse impact on our business.
Federal and State Physician Self-Referral Prohibitions
We will be
subject to the federal physician self-referral prohibitions,
commonly known as the Stark Law, and to similar state restrictions
such as the California's Physician Ownership and Referral Act, or
PORA. Together these restrictions generally prohibit us from
billing a patient or any governmental or private payer for any test
when the physician ordering the test, or any member of such
physician's immediate family, has an investment interest in or
compensation arrangement with us, unless the arrangement meets an
exception to the prohibition. Both the Stark Law and PORA contain
an exception for compensation paid to a physician for personal
services rendered by the physician. We would be required to refund
any payments we receive pursuant to a referral prohibited by these
laws to the patient, the payer or the Medicare program, as
applicable.
Both the Stark
Law and certain state restrictions such as PORA contain an
exception for referrals made by physicians who hold investment
interests in a publicly traded company that has stockholders’
equity exceeding $75 million at the end of its most recent fiscal
year or on average during the previous three fiscal years, and
which satisfies certain other requirements. In addition, both the
Stark Law and certain state restrictions such as PORA contain an
exception for compensation paid to a physician for personal
services rendered by the physician.
However, in the
event that we enter into any compensation arrangements with
physicians, we cannot be certain that regulators would find these
arrangements to be in compliance with Stark, PORA or similar state
laws. In such event, we would be required to refund any payments we
receive pursuant to a referral prohibited by these laws to the
patient, the payer or the Medicare program, as
applicable.
Sanctions for a
violation of the Stark Law include the following:
●
denial of
payment for the services provided in violation of the
prohibition;
●
refunds of
amounts collected by an entity in violation of the Stark
Law;
●
a
civil penalty of up to $15,000 for each service arising out of the
prohibited referral;
●
possible
exclusion from federal healthcare programs, including Medicare and
Medicaid; and
●
a
civil penalty of up to $100,000 against parties that enter into a
scheme to circumvent the Stark Law’s
prohibition.
These
prohibitions apply regardless of the reasons for the financial
relationship and the referral. No finding of intent to violate the
Stark Law is required for a violation. In addition, under an
emerging legal theory, knowing violations of the Stark Law may also
serve as the basis for liability under the Federal False Claims
Act.
Further, a
violation of PORA is a misdemeanor and could result in civil
penalties and criminal fines. Finally, other states have
self-referral restrictions with which we have to comply that differ
from those imposed by federal and California law. It is possible
that any financial arrangements that we may enter into with
physicians could be subject to regulatory scrutiny at some point in
the future, and we cannot provide assurance that we will be found
to be in compliance with these laws following any such regulatory
review.
Federal, State and International Anti-kickback Laws
The Federal
Anti-Kickback Law makes it a felony for a provider or supplier,
including a laboratory, to knowingly and willfully offer, pay,
solicit or receive remuneration, directly or indirectly, in order
to induce business that is reimbursable under any federal health
care program. A violation of the Anti-kickback Law may result in
imprisonment for up to five years and fines of up to $250,000 in
the case of individuals and $500,000 in the case of organizations.
Convictions under the Anti-kickback Law result in mandatory
exclusion from federal health care programs for a minimum of five
years. In addition, HHS has the authority to impose civil
assessments and fines and to exclude health care providers and
others engaged in prohibited activities from Medicare, Medicaid and
other federal health care programs.
Actions which
violate the Anti-kickback Law or similar laws may also involve
liability under the Federal False Claims Act, which prohibits the
knowing presentation of a false, fictitious or fraudulent claim for
payment to the United States Government. Actions under the Federal
False Claims Act may be brought by the Department of Justice or by
a private individual in the name of the government.
Although the
Anti-kickback Law applies only to federal health care programs, a
number of states have passed statutes substantially similar to the
Anti-kickback Law pursuant to which similar types of prohibitions
are made applicable to all other health plans and third-party
payers.
Federal and
state law enforcement authorities scrutinize arrangements between
health care providers and potential referral sources to ensure that
the arrangements are not designed as a mechanism to induce patient
care referrals and opportunities. The law enforcement authorities,
the courts and the United States Congress have also demonstrated a
willingness to look behind the formalities of a transaction to
determine the underlying purpose of payments between health care
providers and actual or potential referral sources. Generally,
courts have taken a broad interpretation of the scope of the
Anti-kickback Law, holding that the statute may be violated if
merely one purpose of a payment arrangement is to induce future
referrals.
In addition to
statutory exceptions to the Anti-kickback Law, regulations provide
for a number of safe harbors. If an arrangement meets the
provisions of a safe harbor, it is deemed not to violate the
Anti-kickback Law. An arrangement must fully comply with each
element of an applicable safe harbor in order to qualify for
protection.
Among the safe
harbors that may be relevant to us is the discount safe harbor. The
discount safe harbor potentially applies to discounts provided by
providers and suppliers, including laboratories, to physicians or
institutions where the physician or institution bills the payer for
the test, not when the laboratory bills the payer directly. If the
terms of the discount safe harbor are met, the discounts will not
be considered prohibited remuneration under the Anti-kickback Law.
We anticipate that this safe harbor may be potentially applicable
to any agreements that we enter into to sell tests to hospitals
where the hospital submits a claim to the payer.
The personal
services safe harbor to the Anti-kickback Law provides that
remuneration paid to a referral source for personal services will
not violate the Anti-kickback Law provided all of the elements of
that safe harbor are met. One element is that, if the agreement is
intended to provide for the services of the physician on a
periodic, sporadic or part-time basis, rather than on a full-time
basis for the term of the agreement, the agreement specifies
exactly the schedule of such intervals, their precise length, and
the exact charge for such intervals. Failure to meet the terms of
the safe harbor does not render an arrangement illegal. Rather,
such arrangements must be evaluated under the language of the
statute, taking into account all facts and
circumstances.
In the event
that we enter into relationships with physicians, hospitals and
other customers, there can be no assurance that our relationships
with those physicians, hospitals and other customers will not be
subject to investigation or a successful challenge under such laws.
If imposed for any reason, sanctions under the Anti-kickback Law or
similar laws could have a negative effect on our
business.
Other Federal and State Fraud and Abuse Laws
In addition to
the requirements that are discussed above, there are several other
health care fraud and abuse laws that could have an impact on our
business. For example, provisions of the Social Security Act permit
Medicare and Medicaid to exclude an entity that charges the federal
health care programs substantially in excess of its usual charges
for its services. The terms “usual charge” and
“substantially in excess” are ambiguous and subject to
varying interpretations.
Further, the
Federal False Claims Act prohibits a person from knowingly
submitting a claim, making a false record or statement in order to
secure payment or retaining an overpayment by the federal
government. In addition to actions initiated by the government
itself, the statute authorizes actions to be brought on behalf of
the federal government by a private party having knowledge of the
alleged fraud. Because the complaint is initially filed under seal,
the action may be pending for some time before the defendant is
even aware of the action. If the government is ultimately
successful in obtaining redress in the matter or if the plaintiff
succeeds in obtaining redress without the government’s
involvement, then the plaintiff will receive a percentage of the
recovery. Finally, the Social Security Act includes its own
provisions that prohibit the filing of false claims or submitting
false statements in order to obtain payment. Violation of these
provisions may result in fines, imprisonment or both, and possible
exclusion from Medicare or Medicaid programs.
Corporate Practice of Medicine
Numerous states
have enacted laws prohibiting business corporations, such as
MetaStat, from practicing medicine and employing or engaging
physicians to practice medicine, generally referred to as the
prohibition against the corporate practice of medicine. These laws
are designed to prevent interference in the medical decision-making
process by anyone who is not a licensed physician. For example,
California’s Medical Board has indicated that determining
what diagnostic tests are appropriate for a particular condition
and taking responsibility for the ultimate overall care of the
patient, including providing treatment options available to the
patient, would constitute the unlicensed practice of medicine if
performed by an unlicensed person. Violation of these corporate
practice of medicine laws may result in civil or criminal fines, as
well as sanctions imposed against us and/or the professional
through licensure proceedings. Typically, such laws are only
applicable to entities that have a physical presence in the
state.
Compliance with Environmental Laws
We expect to be
subject to regulation under federal, state and local laws and
regulations governing environmental protection and the use,
storage, handling and disposal of hazardous substances. The cost of
complying with these laws and regulations may be significant. Our
planned activities may require the controlled use of potentially
harmful biological materials, hazardous materials and chemicals. We
cannot eliminate the risk of accidental contamination or injury to
employees or third parties from the use, storage, handling or
disposal of these materials. In the event of contamination or
injury, we could be held liable for any resulting damages, and any
liability could exceed our resources or any applicable insurance
coverage we may have.
Other Regulations
The U.S.
Occupational Safety and Health Administration has established
extensive requirements relating to workplace safety for health care
employers, including requirements to develop and implement programs
to protect workers from exposure to blood-borne pathogens by
preventing or minimizing any exposure through needle stick or
similar penetrating injuries.
Foreign Regulation
To obtain
marketing approval of a drug under European Union regulatory
systems, we may submit marketing authorization applications, or
MAAs, either under a centralized or decentralized procedure. The
centralized procedure provides for the grant of a single marketing
authorization that is valid for all European Union member states.
The centralized procedure is compulsory for medicines produced by
specified biotechnological processes, products designated as orphan
medicinal products, and products with a new active substance
indicated for the treatment of specified diseases, and optional for
those products that are highly innovative or for which a
centralized process is in the interest of patients. Under the
centralized procedure in the European Union, the maximum timeframe
for the evaluation of an MAA is 210 days, excluding clock stops,
when additional written or oral information is to be provided by
the applicant in response to questions asked by the Scientific
Advice Working Party of the Committee of Medicinal Products for
Human Use, or the CHMP. Accelerated evaluation might be granted by
the CHMP in exceptional cases, when a medicinal product is expected
to be of a major public health interest, defined by three
cumulative criteria comprising the seriousness of the disease, such
as heavy disabling or life-threatening diseases, to be treated; the
absence or insufficiency of an appropriate alternative therapeutic
approach; and anticipation of high therapeutic benefit. In this
circumstance, the European Medicines Agency, or EMA, ensures that
the opinion of the CHMP is given within 150 days.
The EMA grants
orphan drug designation to promote the development of products that
may offer therapeutic benefits for life-threatening or chronically
debilitating conditions affecting not more than five in 10,000
people in the European Union. In addition, orphan drug designation
can be granted if the drug is intended for a life threatening,
seriously debilitating or serious and chronic condition in the
European Union and without incentives it is unlikely that sales of
the drug in the European Union would be sufficient to justify
developing the drug. Orphan drug designation is only available if
there is no other satisfactory method approved in the European
Union of diagnosing, preventing or treating the condition, or if
such a method exists, the proposed orphan drug will be of
significant benefit to patients. Orphan drug designation provides
opportunities for free protocol assistance, fee reductions for
access to the centralized regulatory procedures before and during
the first year after marketing authorization and between 6 and 10
years of market exclusivity following drug approval.
The
decentralized procedure for submitting an MAA provides an
assessment of an application performed by one-member state, known
as the reference member state, and the approval of that assessment
by one or more other member states, known as concerned member
states. Under this procedure, an applicant submits an application,
or dossier, and related materials, including a draft summary of
product characteristics, and draft labeling and package leaflet, to
the reference member state and concerned member states. The
reference member state prepares a draft assessment and drafts of
the related materials within 120 days after receipt of a valid
application. Within 90 days of receiving the reference member
state’s assessment report, each concerned member state must
decide whether to approve the assessment report and related
materials. If a member state cannot approve the assessment report
and related materials on the grounds of potential serious risk to
public health, the disputed points may eventually be referred to
the European Commission, whose decision is binding on all member
states. Prior to submitting an MAA for use of drugs in pediatric
populations, the EMA requires submission of, or a request for
waiver or deferral of, a Pediatric Investigation Plan.
In the European
Union, new chemical entities qualify for eight years of data
exclusivity upon marketing authorization and an additional two
years of market exclusivity. This data exclusivity, if granted,
prevents regulatory authorities in the European Union from
assessing a generic (abbreviated) application for eight years,
after which generic marketing authorization can be submitted but
not approved for two years. Even if a compound is considered to be
a new chemical entity and the sponsor is able to gain the
prescribed period of data exclusivity, another company nevertheless
could also market another version of the drug if such company can
complete a full MAA with a complete human clinical trial database
and obtain marketing approval of its product.
Healthcare Reform
Containing
healthcare expenditures is a major trend in the U.S. and the rest
of the world. Both government authorities and third-party payors
have attempted to control costs by limiting coverage and the amount
of reimbursement for particular medical products, including
therapeutics and diagnostics, implementing reductions in Medicare
and other healthcare funding, and applying new payment
methodologies. For example, in March 2010, the Affordable Care Act
or ACA was enacted, which, among other things, subjected drug
manufacturers to new annual fees based on pharmaceutical
companies’ share of sales to federal healthcare 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;
creation of the Independent Payment Advisory Board, which has
authority to recommend certain changes to the Medicare program that
could result in reduced payments for prescription drugs; and
establishment of a Center for Medicare Innovation at the CMS to
test innovative payment and service delivery models to lower
Medicare and Medicaid spending.
The
recent presidential and congressional elections in the U.S. could
result in significant changes in, and uncertainty with respect to,
legislation, regulation and government policy that could
significantly impact our business and the healthcare industry.
While it is not possible to predict whether and when any such
changes will occur, a variety of initiatives to repeal or
significantly reform key provisions of the ACA have been introduced
in Congress or otherwise proposed. Most notably, Congress enacted
legislation in 2017 that eliminates the ACA’s
“individual mandate” beginning in 2019, which may
significantly impact the number of covered lives participating in
exchange plans. We expect that the new U.S. President and
Congress will continue to seek to modify, repeal, or otherwise
invalidate all, or certain provisions of the ACA. Any changes will
likely take time to unfold, and could have an impact on coverage
and reimbursement for healthcare items and services covered by
plans that were authorized by the ACA. However, we cannot predict
the ultimate content, timing or effect of any healthcare reform
legislation or the impact of potential legislation on
us.
In
addition, other legislative changes have also been proposed and
adopted in the U.S. to reduce healthcare expenditures. These
changes include aggregate reductions of Medicare payments to
providers of 2% per fiscal year that, due to subsequent legislative
amendments, will remain in effect through 2025 unless additional
action is taken by Congress. The American Taxpayer Relief Act of
2012 was signed into law in January 2013, which, among other
things, further reduced Medicare payments to several types of
providers, including hospitals, imaging centers and cancer
treatment centers, and increased the statute of limitations period
for the government to recover overpayments to providers to five
years from three. Recently there has been heightened scrutiny over
the manner in which manufacturers set prices for their marketed
products.
We expect that additional federal and state 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 therapeutic and diagnostic products or additional
pricing pressures. Other potentially significant changes in policy
include the possibility of modifications and elimination of
programs and reductions in staffing at the FDA and other government
agencies, and initiatives to contain or reduce governmental
spending in the healthcare area, including Medicare and Medicaid
reimbursement. We cannot predict what future healthcare
initiatives will be introduced or implemented at the federal or
state level, or how any future legislation or regulation may affect
us.
Reimbursement
Sales of any of our
therapeutic and companion diagnostic product candidates that may be
approved will depend, in part, on the extent to which the cost of
the products will be covered by government and third-party payers.
Third party payers may limit coverage to an approved list of
products, or formulary, which might not include all drug products
approved by the FDA for an indication. Any product candidates for
which we obtain marketing approval may not be considered medically
necessary or cost-effective by third party payers, and we may need
to conduct expensive pharmacoeconomic studies in the future to
demonstrate the medical necessity and/or cost effectiveness of any
such product.
The reimbursement
environment is evolving as regulators and payors try to establish
new rules and frameworks for the reimbursement of molecular
diagnostic tests. There has been an increased interest in
implementing cost containment programs to limit government-paid
health care costs, including price controls and restrictions on
reimbursement. Continued interest in and adoption of such controls
and measures and tightening of restrictive policies in
jurisdictions with existing controls and measures, could limit
payments for product candidates we are developing.
Our prognostic
diagnostic tests are expected to be offered as a clinical
laboratory service. Revenue for clinical laboratory diagnostics may
come from several sources, including commercial third-party payers,
such as insurance companies and health maintenance organizations
(HMOs), government payers, such as Medicare and Medicaid in the
United States, patient self-pay and, in some cases, from hospitals
or referring laboratories who, in turn, may bill third-party
payers.
The proportion
of private payers compared to government payers such as
Medicaid/Medicare will impact the average selling price
(discounting), length of payables, and losses due to uncollectible
accounts receivable. Working with relevant medical societies and
other appropriate constituents to obtain appropriate reimbursement
amounts by all payers will be key. The objective of this effort
will be to ensure the amount paid by Medicare and other payers for
our assays accurately reflects the technology costs, the benefit
that the analysis brings to patients, and its positive impact on
healthcare economics. In order to gain broad reimbursement
coverage, we expect substantial resources will need to be devoted
to educating payers such as Kaiser Permanente, Aetna, United
Healthcare, and others on the following attributes of our
prognostic diagnostic assays, including, but not limited
to:
●
test
performance (specificity, selectivity, size of the risk
groups);
●
clinical utility
and effectiveness;
●
peer-reviewed
publication and consistent study outcomes;
●
patient and
physician demand; and
●
improved health
economics.
Billing codes
are the means by which Medicare and private insurers identify
certain medical services that are provided to patients in the
United States. CPT codes are established by the American Medical
Association (AMA). The amounts reimbursed by Medicare for the CPT
codes are established by the Centers for Medicare & Medicaid
Services (CMS) using a relative value system, with recommendations
from the AMA's Relative Value Update Committee and professional
societies representing the various medical
specialties.
Reimbursement
for our prognostic diagnostic tests will be based on:
●
eligibility for
reimbursement under well-established medical billing CPT code
88361;
●
reimbursement
under the CPT miscellaneous procedure code; or
●
qualification
under any applicable new molecular diagnostic codes currently under
consideration.
As part of our
longer-term reimbursement strategy, we or any potential partners
may choose to apply for a unique CPT code once our prognostic
diagnostic assays are commercially available and health economic
data have been established.
Well-established medical billing CPT code 88361
CPT code 88361
is specific to computer-assisted image analysis and went into
effect in 2004. Our prognostic diagnostic tests involve both a
technical and professional component. The technical component
involves preparation of the patient sample and scanning the image,
while the professional component involves the physician's reading
and evaluation of the test results. Since our prognostic diagnostic
tests will be billed as a service, we anticipate payments for both
the professional and technical components. The actual payment
varies based upon a geographic factor index for each state and may
be higher or lower than the Medicare national amounts in particular
cases based on geographic location.
CMS coding
policy defines the unit of service for each IHC stain charge is one
unit per different antigen tested and individually reported, per
specimen. Medicare contractors cannot bill for multiple service
units of CPT code 88361 (Immunohistochemistry, each antibody) for
“cocktail” stains containing multiple antibodies in a
single “vial” applied in a single procedure, even if
each antibody provides distinct diagnostic information. We believe
this CMS policy is not applicable to our procedure because our
multiple stain reaction involves multiple separate steps of
multiple primary antibodies binding followed by
counterstaining.
CPT Miscellaneous Procedure Code
Tests that are
billed under a non-specific, unlisted procedure code are subject to
manual review of each claim. Claims are paid at a rate established
by the local Medicare carrier in Massachusetts and based upon the
development and validation costs of developing the assays, the
costs of conducting the tests, the reimbursement rates paid by
other payers and the cost savings impact of the tests. Because
there is no specific code or national fee schedule rate for the
test, payment rates established by the local Medicare contractor
may be subject to review and adjustment at any time.
Sales
and Marketing
We have not yet
established a sales and marketing infrastructure. For any of our
therapeutic or companion diagnostic product candidates for which we
may in the future receive marketing approvals, we may seek to
commercialize the product ourselves or through one or more
strategic commercialization collaborations.
Our prognostic
diagnostic tests are expected to be offered as a clinical
laboratory service through our CLIA-certified laboratory located in
Boston, Massachusetts. We plan to implement a de-risked
commercialization strategy based on non-exclusive agreements with
strategic distribution partners and/or CSOs in the U.S. and
distributors in Europe and throughout the
rest-of-world.
We aim to enter
into agreements with commercialization or strategic partners that
have existing commercialization infrastructure, established
distribution channels, and strong relationships with our target
audience in the medical community. We aim to avoid the cost and
risk associated with building a new sales and marketing
infrastructure.
Manufacturing
We do not own or
operate, and currently have no plans to establish, any
manufacturing facilities. We expect to rely on third parties for
the manufacture of any therapeutic product candidates for
preclinical and clinical testing, as well as for commercial
manufacture of any products that we may commercialize.
Our
state-of-the-art CLIA-certified reference laboratory is located at
27 Drydock Avenue in Boston, MA. Our CLIA-certified laboratory is
our primary location for our diagnostic testing and data analysis
of patient tumor samples. Although the science behind our
diagnostic technology is cutting edge and sophisticated, a key
competitive advantage of our approach is that we have simplified
our testing methods and procedures based on established
immunohistochemical, or IHC, and quantitative immunofluorescence,
or QIF techniques and utilize common inexpensive
materials.
The MENA diagnostic
assays use widely available QIF techniques to identify individual
cell types, allowing the test to interrogate tumor cells separately
within tumor microenvironment rather than measuring homogenous
biopsies containing tumor and non-tumor cell types. This staining
technique uses antibodies that recognize or detect MENA. The
antibodies used are detected by labeling the different antibody
types different fluorescent dyes that allow the operator to measure
and quantify the levels selectively within the tumor cells on the
slide. We believe this approach to diagnosis and prognosis of
cancer is more cost effective than many genomic-based approaches
currently on the market that utilize heterogeneous mixtures of
tumor and stromal cells in patient samples. We believe the most
economical way to enter the market with the MENA diagnostic assay
will be through contract manufacturing the manufacturing of MENA
mAbs and other QIFs.
The MetaSite
Breast
™ assay uses
widely available IHC dyeing techniques to identify individual cell
types. This staining technique uses antibodies that recognize
individual cell types. By attaching different dye colors to
different antibody types, the operator can view different cell
types on a single slide. We believe this approach to diagnosis and
prognosis of cancer is more cost effective than many genomic-based
approaches currently on the market. We believe the most economical
way to enter the market with the MetaSite
Breast
™ test will be through
contract manufacturing for these IHCs.
Employees
We currently
have six full-time employees. In addition, we utilize outside
consultants to support certain elements of our research and
development, information technology, and general and administrative
operations. From time to time we have also engaged several
consulting firms involved with public relations, investor relations
and other functions.
Insurance
We have general
and umbrella liability insurance, employment practices liability
insurance as well as directors and officers (D&O) insurance in
amounts that we believe comply with industry
standards.
We operate in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. Certain factors may have
a material adverse effect on our business, prospects, results of
operations, financial condition and cash flows, and you should
carefully consider them. Accordingly, in evaluating our business,
we encourage you to consider the following discussion of risk
factors, in its entirety, in addition to other information
contained in this Annual Report on Form 10-K and our other public
filings with the SEC. Other events that we do not currently
anticipate or that we currently deem immaterial may also affect our
business, prospects, financial condition and results of operations.
If any of the following risks actually occur, our business,
prospects, operating results and financial condition could suffer
materially. In such event, the trading price of our common stock
could decline and you might lose all or part of your
investment.
Risks Relating to Our Financial Condition and Capital
Resources
If we are unable to continue as a going concern, our securities
will have little or no value.
The report of our independent registered public accounting firm
that accompanies our audited consolidated financial statements
for the years ended February 28, 2018 and February 28, 2017 contain
a going concern qualification in which such firm expressed
substantial doubt about our ability to continue as a going concern.
As of February 28, 2018, and February 28, 2017, we had an
accumulated deficit of approximately $29.5 million and $26.3
million, respectively. At February 28, 2018, we have a negative
working capital. We currently anticipate that our cash and cash
equivalents will not be sufficient to fund our operations for
the next twelve months, without raising additional capital. Our
continuation as a going concern is dependent upon continued
financial support from our shareholders, the ability of us to
obtain necessary equity and/or debt financing to continue
operations, and the attainment of profitable operations. These
factors raise substantial doubt regarding our ability to continue
as a going concern. Although we are actively working to obtain
additional funding, we cannot make any assurances that additional
financings will be available to us and, if available, completed on
a timely basis, on acceptable terms or at all. If we are unable to
complete an equity or debt offering, or otherwise obtain sufficient
financing when and if needed, it would negatively impact our
business and operations, which would likely cause the price of our
common stock to decline. It could also lead to the reduction or
suspension of our operations and ultimately force us to cease our
operations.
We are at an early stage of development as a company and do not
have, and may never have, any products that generate
revenue.
We
are a pre-commercial precision medicine company. At this time,
we do not have any commercial products or laboratory services that
generate revenue. Our business has evolved into a fully
integrated precision medicine company focused on discovering and
developing anti-metastatic drugs and paired companion diagnostics
based on the MENA pathway from a pure play prognostic diagnostic
company. We are not profitable and have incurred losses in each
year since our inception and expect to continue to incur losses for
the foreseeable future.
Our therapeutic and companion diagnostic product candidates are at
early stages of development, have not obtained regulatory marketing
approval, have never generated any sales and require extensive
testing before commercialization. Our limited operating history may
adversely affect our ability to implement our business strategy and
achieve our business goals, which include, among others, the
following activities:
●
develop our therapeutic or diagnostic product
candidates;
●
obtain the human and financial resources necessary to develop,
test, commercialize and market our product candidates;
●
continue to build and maintain an intellectual property portfolio
covering our technology and our product candidates;
●
satisfy the requirements of clinical trial protocols, including
patient enrollment, establish and demonstrate the clinical
efficacy, safety and utility of our product candidates and obtain
necessary regulatory approvals;
●
commercialize and
market our product candidates that receive
regulatory approvals to achieve acceptance and use by the medical
community in general;
●
develop and maintain successful collaboration, strategic and other
relationships for the development and commercialization of our
product candidates; and
●
manage our cash flows and any growth we may experience in an
environment where costs and expenses relating to clinical trials,
regulatory approvals and commercialization continue to
increase.
Additionally, our prognostic diagnostic product candidates will
require additional development, analytical validation, clinical
evaluation, additional state and CLIA licensing, potential
regulatory review, significant sales and marketing efforts and
substantial investment or collaboration before they could provide
any product revenue.
If we are unsuccessful in accomplishing these objectives, we may
not be able to successfully develop product candidates, raise
capital,
generate significant revenue, or any revenue at
all,
grow our business or continue our
operations.
Even if we achieve profitability in the future,
we may not be able to sustain profitability in subsequent periods.
Our prior losses, combined with expected future losses, have had
and will continue to have an adverse effect on our
stockholders’ equity and working capital.
We will require additional debt or equity financing to fund our
operations, but may not be able to obtain such financing on
satisfactory terms or at all.
We have
financed our operations primarily through equity and debt
financings. We will require additional debt or equity financing in
the future to maintain our business and fund our operations. Our
ability to secure additional financing will depend on a variety of
factors, many of which are beyond our control, including our
operational performance, economic conditions of the U.S., other
companies that may also seek funding and investors’ and
lenders’ perceptions of, and demand for, debt and equity
securities of our company. As a result, we cannot assure you that
we will be able to access capital from external sources on
satisfactory terms and conditions, or at all. If we are unable to
promptly obtain additional financing, we will not be able to
maintain our business as anticipated or to fund future operations,
and our business, financial condition and results of operations
would be materially and adversely affected.
We have a history of net losses, and we expect to incur net losses
for the foreseeable future and we expect to continue to incur
significant expenses to develop and commercialize our
products.
We have
incurred substantial net losses since our inception. For the fiscal
year ended February 28, 2018 and February 28, 2017, we incurred net
losses of approximately $3.2 million and approximately $2.9
million, respectively. From our inception in July 2009 through
February 28, 2018, we had an accumulated deficit of approximately
$29.5 million. To date, we have not achieved, and we may never
achieve, revenue sufficient to offset expenses. We expect to devote
substantially all of our resources to research and development and
commercialization of our therapeutic and companion diagnostic
product offerings. We expect to incur additional losses in the
future, and we may never achieve profitability.
We expect our losses to continue as a result of costs relating to
ongoing research and development primarily for our therapeutic drug
discovery and companion diagnostic programs, clinical studies,
operational expenses, and other commercialization costs. These
losses have had, and will continue to have, an adverse effect on
our working capital, total assets and stockholders’ equity.
Because of the numerous risks and uncertainties associated with our
commercialization efforts, we are unable to predict when we will
become profitable, if ever. Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a quarterly
or annual basis.
We have incurred significant indebtedness under our non-convertible
promissory bridge notes with shareholders.
On
March 30, 2018, we issued (i) senior non-convertible promissory
bridge notes in the aggregate principal amount of $2,084,028, of
which $834,027 was paid through the exchange of an outstanding
promissory note (the “Senior Notes”) and (ii) junior
non-convertible promissory bridge notes in the aggregate principal
amount of $1,294,900 (the “Junior Notes” and, together
with the Senior Notes, the “Notes”). The Notes mature
on September 30, 2018, accrue interest at a rate of ten percent
(10%) per annum and may not be prepaid by the Company prior to the
maturity without the consent of the holder. The
principal amount plus all accrued and unpaid interest thereon shall
automatically exchange (the “Automatic Exchange”),
without any action of the holder, into such number of fully paid
and non-assessable securities (e.g. shares and warrants) to be
issued in a Qualified Offering. “Qualified Offering”
means one or a series of offerings of equity or equity-linked
securities resulting in aggregate gross proceeds of at least
$6,628,927 to the Company, including the Automatic Exchange of the
Notes into the Qualified Offering.
Our ability to complete the Qualified Financing or repay or to
refinance our indebtedness depends on our future performance and
ability to raise additional sources of cash, which is subject to
economic, financial, competitive and other factors beyond our
control. If we are unable to generate sufficient cash to service
our indebtedness we may be required to adopt one or more
alternatives, such as restructuring our debt or obtaining
additional equity capital on terms that may be onerous or highly
dilutive or selling assets. If we desire to refinance our
indebtedness, our ability to do so will depend on the capital
markets and our financial condition at such time. We may not be
able to engage in any of these activities or engage in these
activities on desirable terms, which could result in a default on
our debt obligations.
Risks Relating to Our
Business and
Strategy
We expect to continue to incur significant research and development
expenses, which may make it difficult for us to achieve and
maintain profitability.
Our operations have consumed substantial amounts of cash since
inception. We expect to need substantial additional funding to
pursue our development programs and launch and commercialize any
product candidates for which we receive regulatory approval, which
may include building internal sales and marketing forces to address
certain markets.
In past years, we have incurred significant costs in connection
with the development of our prognostic diagnostic tests and in
recent years, we have incurred significant costs in connection with
the development of
our driver-based biomarkers for
anti-metastatic drugs and companion diagnostics.
Our research and development expenses were
a
pproximately
$1.3 million and
$1.0 million for the fiscal years ended February 28, 2018 and
February 28, 2017, respectively.
We expect our research and development expenses to increase and
remain high for the
foreseeable future as we continue to
develop our therapeutics and companion diagnostics and move them
into the clinic. Additionally, we may not be able to
successfully monetize or commercialization our
prognostic diagnostic tests.
As a result,
we will need to generate significant revenue in order to achieve
profitability. Our failure to achieve revenue or profitability
in the future could cause the market price of our common stock to
decline. Our prior losses, combined with expected future losses,
have had and will continue to have an adverse effect on our
stockholders’ equity and working capital.
Our research and development efforts are based on a rapidly
evolving area of science, and our approach to development is novel
and may never lead to marketable products.
Biopharmaceutical
product development is generally a highly speculative undertaking
and involves substantial risk. The field of personalized medicine,
in which we engage, is an emerging field, and the scientific
discoveries that form the basis of our therapeutic and companion
diagnostic product development efforts are relatively new. Further,
the scientific evidence to support the feasibility of developing
product candidates based on those discoveries is both preliminary
and limited. The failure of the scientific underpinnings of our
business model to produce viable product candidates would
substantially harm our operations and prospects.
If we are unable to commercialize and generate sales from our
products or successfully develop and commercialize other product
candidates, our revenue will be insufficient for us to achieve
profitability.
We are a pre-commercial biotechnology company. We do not have
any commercial products or laboratory services that generate
revenue. Our
therapeutic and companion diagnostics programs
are in an early stage of development. Our future success is
substantially dependent on our ability to successfully develop,
obtain regulatory approval for, and then successfully commercialize
our therapeutic and companion diagnostic product products resulting
from these programs and any others we may develop or acquire in the
future, which may never occur.
Before
we could generate any revenues from our therapeutic and companion
diagnostic product candidates, we must complete the following
activities for each of them, any one of which we may not be able to
successfully complete:
●
conduct substantial preclinical development;
●
manage preclinical and clinical activities;
●
achieve regulatory approval;
●
manage manufacturing activates and establish manufacturing
relationships;
●
develop our companion diagnostics and conduct clinical testing and
achieve regulatory approvals for use of our companion diagnostics
with corresponding therapeutics;
●
build a commercial sales and marketing infrastructure, if we choose
to market any such products ourselves, or enter into a
collaboration to access sales and marketing functions;
●
develop and implement marketing and reimbursement strategies;
and
●
invest significant additional cash in each of the above
activities.
If we
are unable to commercialize and generate sales of our product
candidates, or successfully develop, monetize or commercialization
our
prognostic diagnostic
tests
, we will not produce sufficient revenue to become
profitable.
We may not be successful in our efforts to build a pipeline of
product candidates.
A key element of our product development strategy is to exploit the
MENA platform to build a pipeline of drug candidates and paired
companion diagnostic tests and progress those product candidates
through preclinical and clinical development for the treatment
patients with aggressive cancer in solid tumors indications. We may
not be able to develop product candidates that are safe and
effective. Even if we are successful in building a product
pipeline, the potential product candidates that we identify may not
be suitable for clinical development for a number of reasons,
including causing harmful side effects or demonstrating other
characteristics that indicate a low likelihood of receiving
marketing approval or achieving market acceptance. If our methods
of identifying potential product candidates fail to produce a
pipeline of potentially viable product candidates, then our success
as a business will be dependent on the success of fewer potential
product candidates, which introduces risks to our business model
and potential limitations to any success we may
achieve.
We may expend our limited resources to pursue a particular product
candidate or indication that does not produce any commercially
viable products and may fail to capitalize on 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 operational resources, we must focus
our efforts on particular product candidates for specific
indications. As a result, we may forego or delay pursuit of
opportunities with other product candidates or for other
indications that later prove to have greater commercial potential.
Further, our resource allocation decisions may result in our use of
funds for research and development programs and product candidates
for specific indications that 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 to such product candidate.
Any such failure to properly assess potential product candidates
could result in missed opportunities and/or our focus on product
candidates with low market potential, which would harm our business
and financial condition.
Drug development involves a lengthy and expensive process with
uncertain outcomes, and any of our preclinical development and
clinical trials or studies could produce unsuccessful results or
fail at any stage in the testing process.
Preclinical
development and clinical testing is expensive and can take many
years to complete. The outcomes are inherently uncertain, and
failure can occur at any time during the preclinical development
and clinical trial process. Additionally, any positive results of
preclinical studies and early clinical trials of a product
candidate may not be predictive of the results of later-stage
clinical trials, such that product candidates may reach later
stages of clinical trials and fail to show the desired safety and
efficacy traits despite having shown indications of those traits in
earlier studies. A number of companies in the pharmaceutical and
biopharmaceutical industry have suffered significant setbacks in
advanced clinical trials due to lack of efficacy or adverse safety
profiles, notwithstanding promising results in earlier trials. The
results of any preclinical development and clinical trials we
conduct may be delayed or unsuccessful for a variety of
reasons.
If we experience delays or difficulties in the enrollment of
patients in clinical trials, those clinical trials could take
longer than expected to complete and our receipt of necessary
regulatory approvals could be delayed or prevented.
If any of our product candidates enter the clinical development
stage, we may not be able to initiate or continue clinical trials
for our product candidates if we are unable to locate and enroll a
sufficient number of eligible patients to participate in these
trials as required by the FDA or similar regulatory authorities
outside the United States. In particular, because we are primarily
focused on patients with molecularly defined cancers, which may
have relatively low incidence rates, our pool of suitable patients
may be smaller and more selective and our ability to enroll a
sufficient number of suitable patients may be limited or take
longer than anticipated. Additionally, some of our competitors have
ongoing clinical trials for product candidates that treat the same
indications that our product candidates target, and patients who
would otherwise be eligible for our clinical trials may instead
enroll in clinical trials of our competitors’ product
candidates.
The
inability to enroll a sufficient number of patients for our
clinical trials would result in significant delays and could
require us to abandon our clinical trials altogether. Enrollment
delays in our clinical trials would likely result in increased
development costs, and we may not have or be able to obtain
sufficient cash to fund such increased costs when needed, which
could result in the further delay or termination of the
trials.
The approval processes of regulatory authorities are lengthy, time
consuming, expensive and inherently unpredictable. If we are unable
to obtain approval for our product candidates from applicable
regulatory authorities, we will not be able to market and sell
those product candidates in those countries or regions and our
business will be substantially harmed.
The
time required to obtain approval by the FDA and comparable foreign
authorities is unpredictable, but typically takes many years
following the commencement of clinical trials and depends upon
numerous factors, including the substantial discretion of the
regulatory authorities. We have not submitted an NDA or similar
filing or obtained regulatory approval for any product candidate in
any jurisdiction and it is possible that none of our existing
product candidates or any product candidates we may seek to develop
in the future will ever obtain regulatory approval.
Our
product candidates could fail to receive regulatory approval for
many reasons, including any one or more of the
following:
●
the FDA or comparable foreign regulatory authorities may disagree
with the design or implementation of our clinical
trials;
●
we may be unable
to demonstrate to the satisfaction of the FDA or comparable foreign
regulatory authorities that a product candidate is safe and
effective for its proposed indication
;
●
the results of
clinical trials may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory authorities
for approval
;
●
we may be unable
to demonstrate that a product candidate’s clinical and other
benefits outweigh its safety risks
;
●
the FDA or
comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical studies or clinical
trials
;
●
the data
collected from clinical trials of our product candidates may not be
sufficient to support the submission of an NDA or other submission
or to obtain regulatory approval in the United States or
elsewhere
;
●
the FDA or
comparable foreign regulatory authorities may fail to hold to
previous agreements or commitments;
●
the FDA or
comparable foreign regulatory authorities may fail to approve the
manufacturing processes or facilities of third-party manufacturers
with which we contract for clinical and commercial
supplies;
●
the FDA or
comparable foreign regulatory authorities may fail to approve our
companion diagnostics;
●
invest significant additional cash in each of the above activities;
and
●
the approval
policies or regulations of the FDA or comparable foreign regulatory
authorities may significantly change in a manner rendering our
clinical data insufficient for approval
.
The
time and expense of the approval process, as well as the
unpredictability of clinical trial results and other contributing
factors, may result in our failure to obtain regulatory approval to
market, in one or more jurisdictions, any of our or future product
candidates, which would significantly harm our business, results of
operations and prospects.
In
order to market and sell our products in any jurisdiction, we or
our third-party collaborators must obtain separate marketing
approvals in that jurisdiction and comply with its regulatory
requirements. The approval procedure can vary drastically among
countries, and each jurisdiction may impose different testing and
other requirements to obtain and maintain marketing approval.
Further, the time required to obtain those approvals may differ
substantially among jurisdictions. Approval by the FDA or an
equivalent foreign authority does not ensure approval by regulatory
authorities in any other countries or jurisdictions. As a result,
the ability to market and sell a product candidate in more than one
jurisdiction can involve significant additional time, expense and
effort to undertake separate approval processes, and could subject
us and our collaborators to the numerous and varying post-approval
requirements of each jurisdiction governing commercial sales,
manufacturing, pricing and distribution of our product candidates.
We or any third parties with whom we may collaborate may not have
the resources to pursue those approvals, and we or they may not be
able to obtain any approvals that are pursued. The failure to
obtain marketing approval for our product candidates in foreign
jurisdictions could severely limit their potential markets and our
ability to generate revenue.
In
addition, even if we were to obtain regulatory approval in one or
more jurisdictions, regulatory authorities may approve any of our
product candidates for fewer or more limited indications than we
request, may not approve the prices we may propose to charge for
our products, may grant approval contingent on the performance of
costly post-marketing clinical trials, or may approve a product
candidate with labeling that does not include the claims necessary
or desirable for the successful commercialization of that product
candidate. Any of the foregoing circumstances could materially harm
the commercial prospects for our product candidates.
Our product candidates may cause undesirable side effects or have
other properties that could delay or prevent their regulatory
approval, limit the commercial profile of the approved labeling, or
result in significant negative consequences following marketing
approval, if any.
Results of future clinical trials of our product candidates could
reveal a high and/or unacceptable severity and frequency of these
or other side effects. In such an event, our trials could be
suspended or terminated, and the FDA or comparable foreign
regulatory authorities could order us to cease further development
of, or deny approval of, our product candidates for any or all
targeted indications. Further, any observed drug-related side
effects could affect patient recruitment or the ability of enrolled
patients to complete the trial or result in potential product
liability claims. Any of these occurrences could materially harm
our business, financial condition and
prospects.
Additionally,
if any of our product candidates receives marketing approval, and
we or others later identify undesirable side effects caused by our
products, a number of potentially significant negative consequences
could result, including:
●
regulatory
authorities may withdraw approvals of such product;
●
regulatory
authorities may require additional warnings in the product’s
labeling;
●
we may be
required to create a medication guide for distribution to patients
that outlines the risks of such side effects;
●
we could be sued
and held liable for harm caused to patients; and
●
our reputation
may suffer
.
Any of
these events could prevent us from achieving or maintaining market
acceptance of the particular product, if approved, and could
significantly harm our business, results of operations and
prospects.
Failure to successfully validate, develop and obtain regulatory
approval for our companion diagnostics could harm our business
strategy and operational results.
As one
of the central elements of our business strategy, we seek to
identify
appropriate patient
populations most likely to benefit from our anti-metastatic drugs
as well as next generation RTK inhibitors and anti-microtubule
drugs being developed by potential pharmaceutical and biotechnology
partners
. In order to assist in identifying those subsets of
patients, a companion diagnostic, which is a test or measurement
that evaluates the presence of biomarkers in a patient, could be
used. We anticipate that the development of companion diagnostics
concurrently with our
therapeutic
agents or with our drugs from potential strategic partners
will
help us more accurately identify the patients who
belong to the target subset, both during the clinical trials and in
connection with the commercialization of product
candidates.
Companion
diagnostics are subject to regulation by the FDA and comparable
foreign regulatory authorities as medical devices and require
separate regulatory clearance or approval prior to their
commercialization. We may be dependent on the sustained cooperation
and effort of any third-party collaborators with whom we may
partner in the future to develop and obtain clearance or approval
for these companion diagnostics, and we may not be able to
establish arrangements with any such third-party collaborators for
the development and production of companion diagnostics when needed
or on terms that are beneficial to us, or at all. We and our
potential future collaborators may encounter difficulties in
developing and obtaining approval for these companion diagnostics,
including issues relating to the selectivity and/or specificity of
the diagnostic, analytical validation, reproducibility, or clinical
validation.
Since
the FDA generally requires concurrent approval of a companion
diagnostic and therapeutic product, any delay or failure by us or
our potential future collaborators to develop or obtain regulatory
clearance or approval of any companion diagnostics could delay or
prevent approval of our related product candidates. The occurrence
of any delay or failure could adversely affect and/or delay the
development or commercialization of our product
candidates.
If we are unable to execute our sales and marketing strategy for
our products and are unable to gain market acceptance, we may be
unable to generate sufficient revenue to sustain our
business.
We are
a pre-commercial precision medicine company and have yet to begin
to generate revenue from our product candidates. Our therapeutic
and companion diagnostic product candidates are in an early stage
of development, and, if we obtain marketing approval for any of
products in the future, which we anticipate would not occur for
several years, if at all. Additionally, we are seeking to monetize
or
commercialize through
strategic partnerships our
prognostic diagnostic tests
through our CLIA-certified laboratory, located in Boston,
Massachusetts.
Although we believe that our
prognostic diagnostic tests
represent a promising commercial
opportunity, we may never gain significant market acceptance and
therefore may never generate substantial revenue or profits for us.
We will need to establish a market for our prognostic diagnostic
tests and build that market through physician education, awareness
programs and the publication of clinical data. Gaining acceptance
in medical communities requires, among other things, publication in
leading peer-reviewed journals of results from studies using our
current tests and/or our planned cancer tests. The process of
publication in leading medical journals is subject to a peer review
process and peer reviewers may not consider the results of our
studies sufficiently novel or worthy of publication. Failure to
have our studies published in peer-reviewed journals would limit
the adoption of our current tests and our planned tests. Our
ability to successfully market our prognostic diagnostic tests that
we may develop will depend on numerous factors,
including:
●
conducting validation studies of such tests in collaboration with
key thought leaders to demonstrate their use and value in important
medical decisions such as treatment selection;
●
conducting clinical utility studies of such tests to demonstrate
economic usefulness to providers and payers;
●
whether our current or future partners, support our
offerings;
●
the success of the sales force and marketing effort;
●
whether healthcare providers believe such diagnostic tests provide
clinical utility;
●
whether the medical community accepts that such diagnostic tests
are sufficiently sensitive and specific to be meaningful in patient
care and treatment decisions; and
●
whether private health insurers, government health programs and
other third-party payers will cover such diagnostic tests and, if
so, whether they will adequately reimburse us.
Failure to achieve significant market acceptance of our products
would materially harm our business, financial condition and results
of operations.
If third-party payers, including managed care organizations and
Medicare, do not provide reimbursement for our products, our
commercial success could be compromised.
Physicians and patients may decide not to order our prognostic
diagnostic tests unless third-party payers, such as managed care
organizations as well as government payers such as Medicare and
Medicaid, pay a substantial portion or all of the test’s
price. There is significant uncertainty concerning third-party
reimbursement of any test incorporating new technology, including
our prognostic diagnostic tests and any of our future diagnostic
tests. Reimbursement by a third-party payer may depend on a
number of factors, including a payer’s determination that
tests using our technologies are:
●
not experimental or investigational;
●
appropriate for the specific patient;
●
supported by peer-reviewed publications; and
●
provide a clinical utility.
Uncertainty surrounds third-party payor coverage and adequate
reimbursement of any diagnostic test incorporating new technology,
including tests developed using our technologies. Technology
assessments of new medical tests conducted by research centers and
other entities may be disseminated to interested parties for
informational purposes. Third-party payors and health care
providers may use such technology assessments as grounds to deny
coverage for a test or procedure. Technology assessments can
include evaluation of clinical utility studies, which define how a
test is used in a particular clinical setting or situation. Because
each payor generally determines for its own enrollees or insured
patients whether to cover or otherwise establish a policy to
reimburse our cancer diagnostic tests, seeking payor approvals is a
time-consuming and costly process. We cannot be certain that
coverage for our current tests and our planned future tests will be
provided in the future by additional third-party payors or that
existing agreements, policy decisions or reimbursement levels will
remain in place or be fulfilled under existing terms and
provisions. If we cannot obtain coverage and adequate reimbursement
from private and governmental payors such as Medicare and Medicaid
for our current tests, or new tests or test enhancements that we
may develop in the future, our ability to generate revenue could be
limited, which may have a material adverse effect on our financial
condition, results of operations and cash flows. Further, we may
experience delays and interruptions in the receipt of payments from
third-party payors due to missing documentation and/or other
issues, which could cause delay in collecting our
revenue.
In addition, to the extent that our testing is ordered for Medicare
inpatients and outpatients, only the hospital may receive payment
from the Medicare program for the technical component of pathology
services and any clinical laboratory services that we perform,
unless the testing is ordered at least 14 days after discharge and
certain other requirements are met. We therefore must look to the
hospital for payment for these services under these circumstances.
If hospitals refuse to pay for the services or fail to pay in a
timely manner, our ability to generate revenue could be limited,
which may have a material adverse effect on our financial
condition, results of operations and cash flows.
Additionally,
there is significant uncertainty related to the third-party
coverage and reimbursement of newly approved drugs and companion
diagnostics. Market acceptance and sales of any of our product
candidates that obtain regulatory approval in domestic or
international markets will depend significantly on the availability
of adequate coverage and reimbursement from third-party payers and
may be affected by existing and future healthcare reform
measures.
In some
foreign countries, particularly in the European Union, the pricing
of prescription pharmaceuticals is subject to governmental control.
In these countries, pricing negotiations with governmental
authorities can be a long and expensive process after the receipt
of marketing approval for a product candidate. To obtain
reimbursement or pricing approval in some countries, we may be
required to conduct additional clinical trials that compare the
cost-effectiveness of our product candidates to other available
therapies. If reimbursement of our product candidates is
unavailable or limited in scope or amount in a particular country,
or if pricing is set at unsatisfactory levels, we may be unable to
achieve or sustain profitability for sales of any of our product
candidates that are approved for marketing in that
country.
Long payment cycles of Medicare, Medicaid and/or other third-party
payers, or other payment delays, could hurt our cash flows and
increase our need for working capital.
Medicare and Medicaid have complex billing and documentation
requirements that we will need to satisfy in order to receive
payment, and the programs can be expected to carefully audit and
monitor our compliance with these requirements. We will also need
to comply with numerous other laws applicable to billing and
payment for healthcare services, including, for example, privacy
laws. Failure to comply with these requirements may result in,
among other things, non-payment, refunds, exclusion from government
healthcare programs, and civil or criminal liabilities, any of
which may have a material adverse effect on our revenue and
earnings. In addition, failure by third-party payors to properly
process our payment claims in a timely manner could delay our
receipt of payment for our products and services, which may have a
material adverse effect on our cash flows and
business.
We expect to rely on third parties to conduct preclinical and
clinical trials of our therapeutic and companion diagnostic product
candidates. If these third parties do not successfully carry out
their contractual duties or meet expected deadlines, we may not be
able to obtain regulatory approval for or commercialize our product
candidates and our business could be substantially
harmed.
We
rely, and expect to continue to rely, upon third-party
collaborators, including CROs to execute our preclinical
development and clinical trials and to monitor and manage data
produced by and relating to those trials. However, we may not be
able to establish arrangements with collaborators and CROs when
needed or on terms that are acceptable to us, or at all, which
could negatively affect our development efforts with respect to our
drug product candidates and materially harm our business,
operations and prospects.
Our research and development and commercialization efforts for our
prognostic diagnostic tests will be hindered if we are not able to
contract with third parties for access to clinical
samples.
Under standard clinical practice, tumor biopsies removed from
patients are typically chemically preserved and embedded in
paraffin wax and stored. Our clinical development relies on our
ability to secure access to these archived tumor biopsy samples, as
well as information pertaining to their associated clinical
outcomes. Generally, the agreements under which we gain access to
archival samples are nonexclusive. Other companies study archival
samples and often compete with us for access. Additionally, the
process of negotiating access to archived samples is lengthy since
it typically involves numerous parties and approval levels to
resolve complex issues such as usage rights, institutional review
board approval, privacy rights, publication rights, intellectual
property ownership and research parameters. If we are not able to
negotiate access to clinical samples with hospitals, clinical
partners, pharmaceutical companies, or companies developing
therapeutics on a timely basis, or at all, or if other laboratories
or our competitors secure access to these samples before us, our
ability to research, develop and commercialize future products will
be limited or delayed. In addition, access to these clinical
samples may be costly, and involve large upfront acquisition costs,
which may have a material adverse effect on our cash flows and
business.
We may experience delays in our clinical studies that could
adversely affect our financial position and our commercial
prospects.
Any delays in completing our preclinical development and clinical
studies for any of our product candidates may delay our ability to
raise additional capital or to generate revenue, and we may have
insufficient capital resources to support our
operations. Even if we have sufficient capital
resources, the ability to become profitable will be delayed if
there are problems with the timing or completion of our clinical
studies.
We are conducting,
and expect to conduct,
certain preclinical development, validation
studies and clinical studies alone and/or in collaboration with
select academic institutions and other third-party institutions
through services and collaboration agreements. We may experience
delays that are outside of our control in connection with such
services and collaboration agreements, including, but not limited
to, receiving tissue samples, accompanying medical and clinical
data, preparation, review and sign-off of results and/or
manuscripts in a timely fashion. Any delays in completing our
clinical studies and publishing of results in peer-reviewed
journals will delay our commercialization efforts and may
materially harm our business, financial condition and results of
operations.
If we cannot maintain our current clinical collaborations and enter
into new collaborations, our product development could be
delayed.
We rely on, and expect to continue to rely on, clinical
collaborators, including CROs to perform portions of our clinical
trial functions. If any of our collaborators were to breach or
terminate its agreement with us or otherwise fail to conduct the
contracted activities successfully and in a timely manner, the
research, development or commercialization of the products
contemplated by the collaboration could be delayed or terminated.
If any of our collaboration agreements are terminated, or if we are
unable to renew those agreements on acceptable terms, we would be
required to seek alternatives. We may not be able to negotiate
additional collaborations on acceptable terms, if at all, and these
collaborations may not be successful.
Our success in the future depends in part on our ability to enter
into agreements with other leading cancer organizations. This can
be difficult due to internal and external constraints placed on
these organizations. Some organizations may limit the number of
collaborations they have with any one company so as to not be
perceived as biased or conflicted. Organizations may also have
insufficient administrative and related infrastructure to enable
collaborations with many companies at once, which can prolong the
time it takes to develop, negotiate and implement collaboration.
Additionally, organizations often insist on retaining the rights to
publish the clinical data resulting from the collaboration. The
publication of clinical data in peer-reviewed journals is a crucial
step in commercializing and obtaining reimbursement for products
such as ours, and our inability to control when, if ever, results
are published may delay or limit our ability to derive sufficient
revenue from any product that may result from a
collaboration.
From time to time we expect to engage in discussions with potential
clinical collaborators, which may or may not lead to
collaborations. However, we cannot guarantee that any discussions
will result in clinical collaborations or that any clinical
studies, which may result will be completed in a reasonable time
frame or with successful outcomes. If news of discussions regarding
possible collaborations become known in the medical community,
regardless of whether the news is accurate, failure to announce a
collaboration agreement or the entity’s announcement of a
collaboration with an entity other than us could result in adverse
speculation about us, our products or our technology, resulting in
harm to our reputation and our business.
Clinical utility studies are important in demonstrating to both
customers and payers a test’s clinical relevance and value.
If we are unable to identify collaborators willing to work with us
to conduct clinical utility studies, or the results of those
studies do not demonstrate that a product provides clinically
meaningful information and value, commercial adoption of such test
may be slow, which would negatively impact our
business.
Clinical
utility studies show when and how to use a clinical test and
describe the particular clinical situations or settings in which it
can be applied and the expected results. Clinical utility studies
also show the impact of the product results on patient care and
management. Clinical utility studies are typically performed with
collaborating oncologists or other physicians at medical centers
and hospitals, analogous to a clinical trial, and generally result
in peer-reviewed publications. Sales and marketing representatives
use these publications to demonstrate to customers how to use a
clinical test, as well as why they should use it. These
publications are also used with payers to obtain coverage for a
test, helping to assure there is appropriate reimbursement. We
anticipate commencing clinical utility studies for our prognostic
diagnostic tests following product launch. We will need to conduct
additional studies for our prognostic diagnostic tests, and other
tests we plan to introduce, to increase the market adoption and
obtain coverage and adequate reimbursement. Should we not be able
to perform these studies, or should their results not provide
clinically meaningful data and value for oncologists and other
physicians, adoption of our product could be impaired, and we may
not be able to obtain coverage and adequate reimbursement for
them.
If our sole laboratory facility becomes inoperable, we will be
unable to perform our research and development and commercial
activities, and our business will be harmed.
Our state-of-the-art research and development and commercial
laboratory facility located in Boston, Massachusetts received CLIA
certification and licensing from Massachusetts, California,
Florida, Pennsylvania and Rhode Island. We are seeking licensing
from other states including New York and Maryland, in order to
process samples from such states, however we cannot guarantee that
we will receive the necessary certifications and approvals in a
timely fashion. Delays in receiving the necessary state
certifications may delay commercialization efforts in these states
and may materially harm our business, financial condition and
results of operations.
The laboratory facility may be harmed or rendered inoperable by
natural or man-made disasters, including earthquakes, flooding,
fire and power outages, or loss of our commercial lease, which may
render it difficult or impossible for us to perform our testing
services for some period of time. The inability to perform our
research and development and/or commercial activities even for a
short period of time, may result in the loss of customers or harm
our reputation or relationships with scientific or clinical
collaborators, and we may be unable to regain those customers or
repair our reputation in the future. Although we possess
insurance for damage to our property and the disruption of our
business, this insurance may not be sufficient to cover all of our
potential losses and may not continue to be available to us on
acceptable terms, or at all.
In order to rely on a third party to perform our tests, we could
only use another facility with established CLIA certification and
state licensure under the scope of which our diagnostic tests could
be performed following validation and other required
procedures. We cannot assure you that we would be able to find
another CLIA-certified and state-licensed laboratory facility
willing to license, transfer or adopt our diagnostic tests and
comply with the required procedures, or that such partner or
laboratory would be willing to perform the tests for us on
commercially reasonable terms.
In order to establish a redundant laboratory facility, we would
have to spend considerable time and money securing adequate space,
constructing the facility, recruiting and training employees, and
establishing the additional operational and administrative
infrastructure necessary to support a second
facility. Additionally, any new clinical laboratory facility
opened by us would be subject to certification under
CLIA, licensing by several states, including New York,
California, Florida, Maryland, Pennsylvania and Rhode Island, which
can take a significant amount of time and result in delays in our
ability to begin operations.
We may experience limits on our revenue if oncologists and other
physicians decide not to order our prognostic diagnostic tests or
our future tests, we may be unable to generate sufficient revenue
to sustain our business.
If medical practitioners do not order our prognostic diagnostic
assays or any future tests developed by us, we will likely not be
able to create demand for our products in sufficient volume for us
to become profitable. To generate demand, we will need to
continue to make oncologists, surgeons, pathologists and other
health care professionals aware of the benefits, value and clinical
utility of our diagnostic tests and any products we may develop in
the future through published papers, presentations at scientific
conferences and one-on-one education by our sales force. We
need to hire or outsource commercial, scientific, technical and
other personnel to support this process. Some physicians may decide
not to order our test due to its price, part or all of which may be
payable directly by the patient if the applicable payer denies
reimbursement in full or in part. Even if patients recommend their
physicians use our diagnostic tests, physicians may still decide
not to order them, either because they have not been made aware of
their utility or they wish to pursue a particular course of
treatment and/or therapy regardless. If only a small portion
of the physician population decides to use our tests, we will
experience limits on our revenue and our ability to achieve
profitability. In addition, we will need to demonstrate our
ability to obtain adequate reimbursement coverage from third-party
payers.
We may experience limits on our revenue if patients decide not to
use our prognostic diagnostic tests.
Some patients may decide not to order our prognostic diagnostic
tests due to its price, part or all of which may be payable
directly by the patient if the applicable payer denies
reimbursement in full or in part. Even if medical
practitioners recommend that their patients use our test, patients
may still decide not to use our prognostic diagnostic tests, either
because they do not want to be made aware of the likelihood of
metastasis or they wish to pursue a particular course of therapy
regardless of test results. If only a small portion of the patient
population decides to use our test, we will experience limits on
our revenue and our ability to achieve profitability.
If we are unable to develop our product candidates to keep pace
with rapid technological, medical and scientific change, our
operating results and competitive position would be
harmed.
In recent years, there have been numerous advances in technologies
relating to the diagnosis, prognosis and treatment of
cancer. These advances require us to continuously develop new
products and enhance existing products to keep pace with evolving
standards of care. Several new cancer drugs have been
approved, and a number of new drugs in clinical development may
increase patient survival time. There have also been advances in
methods used to identify patients likely to benefit from these
drugs based on analysis of biomarkers. Our tests could become
obsolete unless we continually innovate and expand our products to
demonstrate benefit in the diagnosis, monitoring or prognosis of
patients with cancer. New treatment therapies typically have
only a few years of clinical data associated with them, which
limits our ability to develop cancer diagnostic tests based on for
example, biomarker analysis related to the appearance or
development of resistance to those therapies. If we cannot
adequately demonstrate the applicability of our current tests and
our planned tests to new treatments, by incorporating important
biomarker analysis, sales of our tests could decline, which would
have a material adverse effect on our business, financial condition
and results of operations.
If we become subject to product liability claims, the damages may
exceed insurance coverage levels.
We could be subject to product liability lawsuits based on the use
of our product candidates in clinical testing or, if obtained,
following marketing approval and commercialization. If product
liability lawsuits are brought against us, we may incur substantial
liabilities and may be required to cease clinical testing or limit
commercialization of our product candidates. We plan to obtain
liability insurance for our product candidates as each is entered
into clinical studies, large population validation studies and/or
any other studies where such liability insurance is
needed.
We cannot predict all of the possible harms or side effects that
may result from the use of our products and, therefore, the amount
of insurance coverage we currently hold, or that we or our
collaborators may obtain, may not be adequate to protect us from
any claims arising from the use of our products that are beyond the
limit of our insurance coverage. If we cannot protect against
potential liability claims, we or our collaborators may find it
difficult or impossible to commercialize our products, and we may
not be able to renew or increase our insurance coverage on
reasonable terms, if at all. The marketing, sale and use of our
products and our planned future products could lead to the filing
of product liability claims against us if someone alleges that our
products failed to perform as designed. We may also be subject to
liability for errors in the test results we provide to physicians
or for a misunderstanding of, or inappropriate reliance upon, the
information we provide. A product liability or professional
liability claim could result in substantial damages and be costly
and time-consuming for us to defend.
Any product liability or professional liability claim brought
against us, with or without merit, could increase our insurance
rates or prevent us from securing insurance coverage. Additionally,
any product liability lawsuit could damage our reputation, result
in the recall of tests, or cause current partners to terminate
existing agreements and potential partners to seek other partners,
any of which could impact our results of operations.
Our dependence on commercialization partners for sales of our
prognostic diagnostic tests could limit our success in realizing
revenue growth.
We are seeking to monetize or commercialize through
the use of distribution and
commercialization partners for the sales, marketing and
distribution, billing, collection and reimbursement efforts, and to
do so we must enter into agreements with these partners to sell,
market or commercialize our tests. We may experience launch delays
as a result of the timing of clinical data, establishment of a
final product profile, and the lead time required to
execute commercialization agreements. These agreements may
contain exclusivity provisions and generally cannot be terminated
without cause during the term of the agreement. We may need to
attract additional partners to expand the markets in which we sell
tests. These partners may not commit the necessary resources to
market and sell our cancer diagnostics tests to the level of our
expectations, and we may be unable to locate suitable alternatives
should we terminate our agreement with such partners or if such
partners terminate their agreement with us. Any relationships we
form with commercialization partners are subject to change over
time. If current or future commercialization partners do not
perform adequately, or we are unable to locate commercialization
partners, we may not realize revenue growth.
If we are unable to develop adequate sales, marketing or
distribution capabilities or enter into agreements with third
parties to perform some of these functions, we will not be able to
commercialize our products effectively.
We likely will have a limited infrastructure in sales, marketing
and distribution. Initially, we are not planning to directly market
and distribute our products. We may not be able to enter into
sales, marketing and distribution capabilities of our own or enter
into such arrangements with third parties in a timely manner or on
acceptable terms.
Our sales force collaborator with marketing and distribution rights
to one or more of our products may not commit enough resources to
the marketing and distribution of our products, limiting our
potential revenue from the commercialization of these products.
Disputes may arise delaying or terminating the commercialization or
sales of our diagnostic tests that may result in significant legal
proceedings that may harm our business, limit our revenue and our
ability to achieve profitability.
We depend on third parties for the supply of tissue samples and
other biological materials that we use in our research and
development efforts. If the costs of such tissue samples and
materials increase or our third-party suppliers terminate their
relationship with us, our business may be materially
harmed.
We
have relationships and plan to enter into new relationships with
suppliers and institutions that provide us with tissue samples,
tissue microarrays (TMA’s), and other biological materials
including antibodies that we use in developing and validating our
product candidates. If one or more suppliers terminate their
relationship with us or are unable to meet our requirements for
samples, we will need to identify other third parties to provide us
with samples and biological materials, which could result in a
delay in our research and development activities, clinical studies
and negatively affect our business. In addition, as we grow, our
research and academic institution collaborators may seek additional
financial contributions from us, which may negatively affect our
results of operations.
We rely on a limited number of suppliers or, in some cases, a sole
supplier, for some of our laboratory instruments and materials and
may not be able to find replacements in the event our supplier no
longer supplies that equipment.
We expect to rely on several vendors, including, but not limited to
Perkin Elmer, ThermoFisher Scientific and VisioPharm AS to supply
some of the laboratory equipment and software on which we perform
our diagnostic tests. We will periodically forecast our needs
for laboratory equipment and software and enter into standard
purchase orders or leasing arrangements based on these
forecasts. We believe that there are relatively few equipment
manufacturers that are currently capable of supplying the equipment
necessary for our prognostic diagnostics tests. Even if we
were to identify other suppliers, there can be no assurance that we
will be able to enter into agreements with such suppliers on a
timely basis on acceptable terms, if at all. If we should
encounter delays or difficulties in securing from key vendors the
quality and quantity of equipment and software we require for our
diagnostic tests, we may need to reconfigure our test process,
which would result in delays in commercialization or an
interruption in sales. If any of these events occur, our
business and operating results could be harmed. Additionally,
if key vendors including Perkin Elmer and other vendors deem us to
have become uncreditworthy, they have the right to require
alternative payment terms from us, including payment in
advance. We may also be required to indemnify key vendors
including Perkin Elmer and other vendors against any damages caused
by any legal action or proceeding brought by a third party against
such vendors for damages caused by our failure to obtain required
approval with any regulatory agency.
We may also rely on several sole suppliers for certain laboratory
materials such as reagents, which we use to perform our diagnostic
tests. Although we believe that we will be able to develop
alternate sourcing strategies for these materials, we cannot be
certain that these strategies will be effective. If we should
encounter delays or difficulties in securing these laboratory
materials, delays in commercialization or an interruption in sales
could occur.
We currently rely, and expect to continue to rely, on third-party
suppliers for critical materials needed to perform research and
development activities of our product candidates and our planned
future products and any problems experienced by them could result
in a delay or interruption of their supply to us.
We currently purchase raw materials, including Mabs and testing
reagents for our therapeutic and diagnostic product discovery and
development efforts under purchase orders and do not have long-term
commercial contracts with the suppliers of these materials. If
suppliers were to delay or stop producing our materials or
reagents, or if the prices they charge us were to increase
significantly, or if they elected not to sell to us, we would need
to identify other suppliers. We could experience delays in our
research and development efforts and delays in performing our
prognostic diagnostic tests while finding another acceptable
supplier, which could impact our results of operations. The changes
could also result in increased costs associated with qualifying the
new materials or reagents and in increased operating costs.
Further, any prolonged disruption in a supplier’s operations
could have a significant negative impact on our ability to perform
our prognostic diagnostic tests in a timely manner. Some of the
components used in our current or planned products are currently
sole-source, and substitutes for these components might not be able
to be obtained easily or may require substantial design or
manufacturing modifications. Any significant problem experienced by
one of our sole source suppliers may result in a delay or
interruption in the supply of components to us until that supplier
cures the problem or an alternative source of the component is
located and qualified. Any delay or interruption would likely lead
to a delay or interruption in our operations. The inclusion of
substitute components must meet our product specifications and
could require us to qualify the new supplier with the appropriate
government regulatory authorities.
Our success depends on retention of key personnel and the hiring of
additional key personnel. The loss of key members of our executive
management team could adversely affect our business.
We are dependent on our management team members, including Douglas
A. Hamilton, our president and chief executive officer. Our future
success also will depend in large part on our continued ability to
attract and retain other highly qualified personnel. We intend to
recruit and hire other senior executives, scientific, technical and
management personnel, as well as personnel with expertise in sales
and marketing including reimbursement, clinical testing, and
governmental regulation. Such a management transition subjects us
to a number of risks, including risks pertaining to coordination of
responsibilities and tasks, creation of new management systems and
processes, differences in management style, effects on corporate
culture, and the need for transfer of historical
knowledge.
In addition, Douglas A. Hamilton has not previously been the chief
executive officer of a public or private company. While he has had
experience as a chief financial officer, chief operating officer
and other executive level positions in public companies, a lack of
significant experience in being the chief executive officer of a
public company could have an adverse effect on our ability to
quickly respond to problems or effectively manage issues
surrounding the operation of a public company. Our success in
implementing our business strategy depends largely on the skills,
experience and performance of key members of our executive
management team and others in key management positions. The
collective efforts of our executive management and others working
with them as a team are critical to us as we continue to develop
our technologies, diagnostic tests, research and development
efforts and sales and marketing programs. As a result of the
difficulty in locating qualified new management, the loss or
incapacity of existing members of our executive management team
could adversely affect our operations. If we were to lose one or
more of our key employees, we could experience difficulties in
finding qualified successors, competing effectively, developing our
technologies and implementing our business strategy. We do not
maintain “key person” life insurance on any of our
employees.
In addition, we rely on collaborators, consultants and advisors,
including scientific and clinical advisors, to assist us in our
research and development and commercialization strategy. Our
collaborators, consultants and advisors are generally employed by
employers other than us and may have commitments under agreements
with other entities that may limit their availability to
us.
The loss of a key employee, the failure of a key employee to
perform in his or her current position or our inability to attract
and retain skilled employees could result in our inability to
continue to grow our business or to implement our business
strategy.
There is a scarcity of experienced professionals in our industry.
If we are not able to retain and recruit personnel with the
requisite technical skills, we may be unable to successfully
execute our business strategy.
The specialized nature of our industry results in an inherent
scarcity of experienced personnel in the field. Our future success
depends upon our ability to attract and retain highly skilled
personnel, including scientific, technical, commercial, business,
regulatory and administrative personnel, necessary to support our
anticipated growth, develop our business and perform certain
contractual obligations. Given the scarcity of professionals with
the scientific knowledge that we require and the competition for
qualified personnel among life science businesses, we may not
succeed in attracting or retaining the personnel we require to
continue and grow our operations.
Our operations may involve hazardous materials, and compliance with
environmental laws and regulations is expensive.
Our future research and development and commercial activities may
involve the controlled use of hazardous materials, including
chemicals that cause cancer, volatile solvents, radioactive
materials and biological materials including human tissue samples
that have the potential to transmit diseases. Our operations
may also produce hazardous waste products. We are subject to a
variety of federal, state and local regulations relating to the
use, handling and disposal of these materials. We generally
may contract with third parties for the disposal of such substances
and may store certain low level radioactive waste at our facility
until the materials are no longer considered
radioactive. While we believe that we will comply with then
current regulatory requirements, we cannot eliminate the risk of
accidental contamination or injury from these materials. We
may be required to incur substantial costs to comply with current
or future environmental and safety regulations. If an accident
or contamination occurred, we would likely incur significant costs
associated with civil penalties or criminal fines and in complying
with environmental laws and regulations.
If we use biological and hazardous materials in a manner that
causes injury, we could be liable for damages.
Our activities may require the controlled use of potentially
harmful biological materials, hazardous materials and chemicals and
may in the future require the use of radioactive compounds. We
cannot eliminate the risk of accidental contamination or injury to
employees or third parties from the use, storage, handling or
disposal of these materials. In the event of contamination or
injury, we could be held liable for any resulting damages, and any
liability could exceed our resources or any applicable insurance
coverage we may have. Additionally, we are subject on an
ongoing basis to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these
materials and specified waste products. The cost of compliance
with these laws and regulations might be significant and could
negatively affect our operating results. In the event of an
accident or if we otherwise fail to comply with applicable
regulations, we could lose our permits or approvals or be held
liable for damages or penalized with fines.
Security breaches, loss of data and other disruptions could
compromise sensitive information related to our business or prevent
us from accessing critical information and expose us to liability,
which could adversely affect our business and our
reputation.
We expect to along with certain third-party vendors that we
contract with to collect and store sensitive data, including
legally protected health information, credit card information,
personally identifiable information about our employees, customers
and patients, intellectual property, and our proprietary business
information and that of our customers, payers and collaboration
partners. We expect to manage and maintain our
applications and data utilizing a combination of on-site systems,
managed data center systems and cloud-based data center systems.
These applications and data encompass a wide variety of
business-critical information including research and development
information, commercial information and business and financial
information. We face four primary risks relative to protecting this
critical information, including loss of access risk, inappropriate
disclosure risk and inappropriate modification risk combined with
the risk of our being able to identify and audit our controls over
the first three risks.
The secure processing, storage, maintenance and transmission of
this critical information will be vital to our operations and
business strategy. As such we plan to devote significant resources
to protecting such information. Although we plan to take measures
to protect sensitive information from unauthorized access or
disclosure, our information technology and infrastructure, and that
of our third-party vendors, may be vulnerable to attacks by hackers
or viruses or breached due to employee error, malfeasance or other
disruptions. Any such breach or interruption could compromise our
networks and the information stored there could be accessed by
unauthorized parties, publicly disclosed, lost or stolen. Any such
access, disclosure or other loss of information could result in
legal claims or proceedings, liability under laws that protect the
privacy of personal information, such as the Health Insurance
Portability and Accountability Act of 1996, and regulatory
penalties. Unauthorized access, loss or dissemination could also
disrupt our operations, including our ability to process tests,
provide test results, bill payers or patients, process claims and
appeals, provide customer assistance services, conduct research and
development activities, collect, process and prepare company
financial information, provide information about our tests and
other patient and physician education and outreach efforts through
our website, manage the administrative aspects of our business and
damage our reputation, any of which could adversely affect our
business.
In
addition, the interpretation and application of consumer,
health-related and data protection laws in the U.S., Europe and
elsewhere are often uncertain, contradictory and in flux. It is
possible that these laws may be interpreted and applied in a manner
that is inconsistent with our practices. If so, this could result
in government-imposed fines or orders requiring that we change our
practices, which could adversely affect our business. Complying
with these various laws could cause us to incur substantial costs
or require us to change our business practices and compliance
procedures in a manner adverse to our
business.
We depend on our information technology and telecommunications
systems, and any failure of these systems could harm our
business.
We depend on information technology or IT, and telecommunications
systems for significant aspects of our operations. In addition, we
expect to outsource aspects of our billing and collections to a
third-party provider, whom maybe dependent upon telecommunications
and data systems provided by outside vendors and information we
provide on a regular basis. These information technology and
telecommunications systems will support a variety of functions,
including test processing, sample tracking, quality control,
customer service and support, billing and reimbursement, research
and development activities and our general and administrative
activities. Information technology and telecommunications systems
are vulnerable to damage from a variety of sources, including
telecommunications or network failures, malicious human acts and
natural disasters. Moreover, despite network security and back-up
measures we plan to implement, some or all of our servers are
potentially vulnerable to physical or electronic break-ins,
computer viruses and similar disruptive problems. Despite the
precautionary measures we plan on taking to prevent unanticipated
problems that could affect our information technology and
telecommunications systems, failures or significant downtime of our
information technology or telecommunications systems or those used
by our third-party service providers could prevent us from
processing tests, providing test results to oncologists,
pathologists, billing payers, processing reimbursement appeals,
handling patient or physician inquiries, conducting research and
development activities and managing the administrative aspects of
our business. Any disruption or loss of information technology or
telecommunications systems on which critical aspects of our
operations depend could have an adverse effect on our
business.
We may acquire other businesses or form joint ventures or make
investments in other companies or technologies that could harm our
operating results, dilute our stockholders’ ownership,
increase our debt or cause us to incur significant
expense.
As part of our business strategy, we may pursue acquisitions of
businesses and assets. We also may pursue strategic alliances and
joint ventures that leverage our core technology and expertise to
expand our offerings or distribution. We have minimal experience
with acquiring and integrating other companies or assets and
limited experience with forming strategic alliances and joint
ventures. We may not be able to find suitable partners or
acquisition candidates, and we may not be able to complete such
transactions on favorable terms, if at all. If we make any
acquisitions, we may not be able to integrate these acquisitions
successfully into our existing business, and we could assume
unknown or contingent liabilities. Any future acquisitions also
could result in significant write-offs or the incurrence of debt
and contingent liabilities, any of which could have a material
adverse effect on our financial condition, results of operations
and cash flows. Integration of an acquired company also may disrupt
ongoing operations and require management resources that would
otherwise focus on developing our existing business. We may
experience losses related to investments in other companies, which
could have a material negative effect on our results of operations.
We may not identify or complete these transactions in a timely
manner, on a cost-effective basis, or at all, and we may not
realize the anticipated benefits of any acquisition, technology
license, strategic alliance or joint venture.
To finance any acquisitions or joint ventures, we may choose to
issue shares of our common stock or securities convertible into
shares of our common stock as consideration, which would dilute the
ownership of our stockholders. If the price of our common stock is
low or volatile, we may not be able to acquire other companies or
fund a joint venture project using our stock as consideration.
Alternatively, it may be necessary for us to raise additional funds
for acquisitions through public or private financings. Additional
funds may not be available on terms that are favorable to us, or at
all.
Declining general economic or business conditions may have a
negative impact on our business.
Continuing concerns over United States health care reform
legislation and energy costs, geopolitical issues, the availability
and cost of credit and government stimulus programs in the United
States and other countries have contributed to increased volatility
and diminished expectations for the global economy. These factors,
combined with low business and consumer confidence and high
unemployment, precipitated an economic slowdown and recession. If
the economic climate does not improve, or it deteriorates, our
business, including our access to patient samples and the
addressable market for diagnostic tests that we may successfully
develop, as well as the financial condition of our suppliers and
our third-party payers, could be adversely affected, resulting in a
negative impact on our business, financial condition and results of
operations.
International expansion of our business exposes us to business,
regulatory, political, operational, financial and economic risks
associated with doing business outside of the United
States.
Our business strategy contemplates potential international
expansion, including partnering with academic and commercial
testing partners for research and development and clinical studies,
and commercializing our diagnostic tests outside the United States
and expanding relationships with international payers and
distributors. Doing business internationally involves a number of
risks, including:
●
multiple, conflicting and changing laws and regulations such as tax
laws, export and import restrictions, employment laws, regulatory
requirements and other governmental approvals, permits and
licenses;
●
competition from local and regional product offerings;
●
failure by us or our distributors to obtain regulatory approvals
for the use of our tests in various countries;
●
difficulties in staffing and managing foreign
operations;
●
complexities associated with managing multiple payer reimbursement
regimes, government payers or patient self-pay
systems;
●
logistics and regulations associated with shipping tissue samples,
including infrastructure conditions and transportation
delays;
●
limits in our ability to penetrate international markets if we are
not able to process tests locally;
●
lack of intellectual property protection in certain
markets;
●
financial risks, such as longer payment cycles, difficulty
collecting accounts receivable, the impact of local and regional
financial crises on demand and payment for our tests and exposure
to foreign currency exchange rate fluctuations;
●
natural disasters, political and economic instability, including
wars, terrorism, and political unrest, outbreak of disease,
boycotts, curtailment of trade and other business restrictions;
and
●
regulatory and compliance risks that relate to maintaining accurate
information and control over the activities of our sales force and
distributors that may fall within the purview of the FCPA, its
books and records provisions or its anti-bribery
provisions.
Any of these factors could significantly harm our future
international expansion and operations and, consequently, our
revenue and results of operations.
If we cannot compete successfully with our competitors, we may be
unable to generate, increase or sustain revenue or achieve and
sustain profitability.
We believe our principal competition for our prognostic
diagnostic assays will come from existing diagnostic methods
used by pathologists and oncologists. These methods have been used
for many years and are therefore difficult to change or supplement.
In addition, companies offering capital equipment and kits or
reagents to local pathology laboratories represent another source
of potential competition. These kits are used directly by the
pathologist, which potentially facilitates adoption more readily
than tests like ours that are performed outside the pathology
laboratory.
We
also face competition from companies that offer products or have
conducted research to profile genes, gene expression or protein
expression in breast, lung, prostate and colorectal cancer,
including public companies such as Genomic Health Inc., Agendia
Inc., GE Healthcare, a business unit of General Electric Company,
Hologic Inc., Myriad Genetics Inc., NanoString Technologies Inc.,
Novartis AG, Qiagen N.V., and Response Genetics Inc., and many
other public and private companies. We also face competition from
commercial laboratories with strong distribution networks for
diagnostic tests, such as Laboratory Corporation of America
Holdings and Quest Diagnostics Incorporated. We may also face
competition from Illumina Inc. and ThermoFisher Scientific Inc.,
both of which have announced their intention to enter the clinical
diagnostics market. Other potential competitors include companies
that develop diagnostic tests such as Roche Diagnostics, a division
of Roche Holding Ltd., Siemens AG and Veridex LLC, a Johnson &
Johnson company, as well as other companies and academic and
research institutions.
Others may invent and commercialize technology platforms such as
next generation sequencing approaches that will compete with our
test. Projects related to cancer genomics have received government
funding, both in the United States and internationally. As more
information regarding cancer genomics becomes available to the
public, we anticipate that more products aimed at identifying
targeted treatment options will be developed and that these
products may compete with ours. In addition, competitors may
develop their own versions of our tests in countries where we did
not apply for patents, where our patents have not been issued or
where our intellectual property rights are not recognized and
compete with us in those countries, including encouraging the use
of their test by physicians or patients in other
countries.
The list price of our test may change
as well as the list price of our competitor’s products. Any
increase or decrease in pricing could impact reimbursement of and
demand for our tests. Many of our present and potential competitors
have widespread brand recognition and substantially greater
financial and technical resources and development, production and
marketing capabilities than we do. Others may develop
lower
-
priced tests that could be viewed by physicians
and payers as functionally equivalent to our tests or offer tests
at prices designed to promote market penetration, which could force
us to lower the list prices of our tests and impact our operating
margins and our ability to achieve sustained profitability. Some
competitors have developed tests cleared for marketing by the FDA.
There may be a marketing differentiation or perception that an
FDA
-
cleared test is more desirable than our
diagnostic test, and that may discourage adoption of and
reimbursement for our diagnostic test. If we are unable to
compete successfully against current or future competitors, we may
be unable to increase market acceptance for and sales of our tests,
which could prevent us from increasing or sustaining our revenue or
achieving sustained profitability and could cause the market price
of our common stock to decline.
Regulatory Risks Relating to Our Business
Healthcare policy changes, including recently enacted legislation
reforming the U.S. healthcare system, may have a material adverse
effect on our financial condition and results of
operations.
There have been, and may continue to be, legislative and regulatory
proposals at the federal and state levels and in foreign
jurisdictions directed at broadening the availability and
containing or lowering the cost of healthcare. The continuing
efforts of the government, insurance companies, managed care
organizations and other payers to contain or reduce costs of
healthcare may adversely affect our ability to set prices for our
products that would allow us to achieve or sustain profitability.
In addition, governments may impose price controls on any of our
product candidates that obtain marketing approval, which may
adversely affect our future profitability.
In the United States, there have been and continue to be a number
of legislative initiatives to contain healthcare costs. For
example, in March 2010, the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation
Act, or the ACA, was passed, which substantially changed the way
health care is financed by both governmental and private insurers,
and significantly impacted the U.S. pharmaceutical and medical
device industries and clinical laboratories. Among other things,
beginning in 2013 through December 31, 2015, each medical device
manufacturer was required to pay sales tax in an amount equal to
2.3% of the price for which such manufacturer sells its medical
devices that are listed with the FDA. The medical device tax has
been suspended by Congress since 2016 but is scheduled to be
re-imposed in 2020. Various proposals have been put forth,
including by the FDA, to regulate LDTs, as medical devices.
Although none of our diagnostic assays are currently listed with
the FDA, we cannot assure you that the tax will not apply to
services such as our laboratory operations in the
future.
Other significant measures contained in the ACA include, for
example, coordination and promotion of research on comparative
clinical effectiveness of different technologies and procedures,
initiatives to revise Medicare payment methodologies, such as
bundling of payments across the continuum of care by providers and
physicians, and initiatives to promote quality indicators in
payment methodologies. The ACA also includes significant new fraud
and abuse measures, including required disclosures of financial
arrangements with physician customers, lower thresholds for
violations and increasing potential penalties for such violations.
In addition to the ACA, various healthcare reform proposals have
also emerged from federal and state governments.
The current U.S. President and other U.S. lawmakers have made
statements about potentially repealing and/or replacing the
ACA and efforts are currently underway in the U.S. Congress to
consider legislative actions to that end. Notably, Congress enacted
legislation in 2017 that eliminates the ACA’s individual
insurance mandate beginning in 2019, which may significantly impact
the number of covered lives participating in exchange plans. We are
monitoring the impact of the ACA and proposals to repeal, replace
or refine the ACA to enable us to determine the trends and changes
that may potentially impact our business over time.
In
addition, other legislative changes have been proposed and adopted
in the United States since the ACA was enacted. These changes
include aggregate reductions of Medicare payments to providers of
2% per fiscal year, which went into effect on April 1, 2013 and,
due to subsequent legislative amendments to the statute, will
remain in effect through 2025 unless additional Congressional
action is taken. On January 2, 2013, the American Taxpayer Relief
Act of 2012 was signed into law, which, among other things, further
reduced Medicare payments to several types of providers, including
hospitals, imaging centers and cancer treatment centers, and
increased the statute of limitations period for the government to
recover overpayments to providers from three to five years.
Recently there has also 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 bills 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.
Moreover, payment methodologies, including payment for companion
diagnostics, may be subject to changes in healthcare legislation
and regulatory initiatives. For example, CMS began bundling the
Medicare payments for certain laboratory tests ordered while a
patient received services in a hospital outpatient setting.
Additionally, on April 1, 2014, the Protecting Access to Medicare
Act of 2014, or PAMA, was signed into law, which, among other
things, significantly alters the current payment methodology under
the CLFS. Under the new law, starting January 1, 2017 and every
three years thereafter (or annually in the case of advanced
diagnostic lab tests), clinical laboratories must report laboratory
test payment data for each Medicare-covered clinical diagnostic lab
test that it furnishes during a time period to be defined by future
regulations. The reported data must include the payment rate
(reflecting all discounts, rebates, coupons and other price
concessions) and the volume of each test that was paid by each
private payer (including health insurance issuers, group health
plans, Medicare Advantage plans and Medicaid managed care
organizations). Beginning in 2018, the Medicare payment rate for
each clinical diagnostic lab test, with some exceptions, will be
equal to the weighted median private payer payment for the test, as
calculated using data collected by applicable laboratories during
the data collection period and reported to CMS during a specified
data reporting period. Also, under PAMA, CMS is required to adopt
temporary billing codes to identify new clinical diagnostic
laboratory tests and advanced diagnostic laboratory tests that do
not already have unique diagnostic codes, and that have been
cleared or approved by the FDA.
We
expect that additional federal and state 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
therapeutic and diagnostic products or additional pricing
pressures. Other potentially significant changes in policy include
the possibility of modifications and elimination of programs and
reductions in staffing at the FDA and CMS, and initiatives to
contain or reduce governmental spending in the healthcare area,
including Medicare and Medicaid reimbursement. We cannot
predict what future healthcare initiatives will be introduced or
implemented at the federal or state level, or how any future
legislation or regulation may affect us. Any taxes imposed by
federal legislation and the expansion of the government’s
role in the U.S. healthcare industry generally, as well as changes
to the reimbursement amounts paid by payors for our existing and
future services, may reduce our profits and have a material adverse
effect on our business, financial condition, results of operations,
and cash flows.
If the FDA were to begin regulating our prognostic diagnostic tests
we could experience significant delays in commercializing our
prognostic diagnostics, be forced to stop our sales, experience
significant delays in commercializing any future products, incur
substantial costs and time delays associated with meeting
requirements for pre-market clearance or approval as well as
experience decreased demand for our prognostic diagnostic tests and
demand for reimbursement of our prognostic diagnostic
tests.
Clinical laboratory tests, like our prognostic diagnostic tests
including the MetaSite
Breast
™
and MENA diagnostic
assays, are regulated under the Clinical
Laboratory Improvement Amendments of 1988, or CLIA, as administered
through the CMS, as well as by applicable state
laws. Diagnostic kits that are sold and distributed through
interstate commerce are regulated as medical devices by
FDA. Clinical laboratory tests that are developed and
validated by a laboratory for its own use are called Laboratory
Development Tests, or “LDTs". Most LDTs currently are
not subject to FDA regulation, although reagents or software
provided by third parties and used to perform LDTs may be subject
to regulation. We believe that our prognostic diagnostic tests
are not a diagnostic kit and we also believe that they are
LDTs. As a result, we believe our prognostic diagnostic tests
should not be subject to regulation under established FDA
policies.
At various times since 2006, the FDA has issued guidance documents
or announced draft guidance regarding initiatives that may require
varying levels of FDA oversight of our tests. In October 2014,
the FDA issued draft guidance that sets forth a proposed risk-based
regulatory framework that would apply varying levels of FDA
oversight to LDTs. In January 2017, the FDA released a discussion
paper synthesizing public comments on the 2014 draft guidance
documents and outlining a possible approach to regulation of LDTs.
The discussion paper has no legal status and does not represent a
final version of the LDT draft guidance documents. It is unclear at
this time if or when the draft guidance will be finalized, and even
then, the new regulatory requirements are proposed to be phased-in
consistent with the schedule set forth in the guidance. If this
draft guidance is finalized as presently written, it includes an
oversight framework that would require pre-market review for high
and moderate risk LDTs
Legislative proposals addressing oversight of genetic testing and
LDTs have been introduced in previous Congresses and we expect that
new legislative proposals will be introduced from time to time in
the future. We cannot provide any assurance that FDA regulation,
including pre-market review, will not be required in the future for
our tests, whether through finalization of guidance issued by the
FDA, new enforcement policies adopted by the FDA or new legislation
enacted by Congress. It is possible that legislation will be
enacted into law or guidance could be issued by the FDA which may
result in increased regulatory burdens for us to continue to offer
our tests or to develop and introduce new tests. If pre-market
review is required, our business could be negatively impacted until
such review is completed and clearance or approval is obtained, and
the FDA could require that we stop selling our tests pending
pre-market clearance or approval. If our tests are allowed to
remain on the market but there is uncertainty about the regulatory
status of our tests, if they are labeled investigational by the
FDA, or if labeling claims the FDA allows us to make are more
limited than the claims we currently make, orders or reimbursement
may decline. The regulatory approval process may involve, among
other things, successfully completing additional clinical studies
and submitting a pre-market clearance notice or filing a pre-market
approval application with the FDA. If pre-market review is required
by the FDA, there can be no assurance that our tests will be
cleared or approved on a timely basis, if at all. Ongoing
compliance with FDA regulations would increase the cost of
conducting our business, and subject us to inspection by and the
regulatory requirements of the FDA, for example registration and
listing and medical device reporting, and penalties for failure to
comply with these requirements. We may also decide voluntarily to
pursue FDA pre-market review of our tests if we determine that
doing so would be appropriate.
We cannot predict the ultimate timing or form of final FDA guidance
or regulations addressing LDTs and the potential impact on our
diagnostic tests, our diagnostic tests in development or the
materials used to perform our tests. While we expect to qualify all
materials used in our tests according to CLIA regulations, we
cannot be certain that the FDA will not enact rules or
guidance documents which could impact our ability to purchase
certain materials necessary for the performance of our tests, such
as products labeled for research use only. Should any of the
reagents obtained by us from suppliers and used in conducting our
tests be affected by future regulatory actions, our business could
be adversely affected by those actions, including increasing the
cost of testing or delaying, limiting or prohibiting the purchase
of reagents necessary to perform testing.
Testing of potential products may be required and there is no
assurance of FDA or any other regulatory approval.
The FDA and comparable agencies in foreign countries impose
substantial requirements upon the introduction of both therapeutic
and diagnostic biomedical products, through lengthy and detailed
laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures. Satisfaction of
these requirements typically takes several years or more and varies
substantially based upon the type, complexity, and novelty of the
product. The effect of government regulation and the need for FDA
approval may be to delay marketing of new products for a
considerable period of time, to impose costly procedures upon our
activities, and to provide an advantage to larger companies that
compete with us. There can be no assurance that FDA or other
regulatory approval for any products developed by us will be
granted on a timely basis or at all. Any such delay in obtaining,
or failure to obtain, such approvals would materially and adversely
affect the marketing of any contemplated products and the ability
to earn product revenue. Further, regulation of manufacturing
facilities by state, local, and other authorities is subject to
change. Any additional regulation could result in limitations or
restrictions on our ability to
utilize any of our technologies, thereby adversely
affecting our operations. Human diagnostic and pharmaceutical
products are subject to rigorous preclinical testing and clinical
studies and other approval procedures mandated by the FDA and
foreign regulatory authorities. Various federal and foreign
statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and
marketing of pharmaceutical products. The process of obtaining
these approvals and the subsequent compliance with appropriate
United States and foreign statutes and regulations are
time-consuming and require the expenditure of substantial
resources. In addition, these requirements and processes vary
widely from country to country. Among the uncertainties and risks
of the FDA approval process are the following: (i) the possibility
that studies and clinical studies will fail to prove the safety and
efficacy of the product, or that any demonstrated efficacy will be
so limited as to significantly reduce or altogether eliminate the
acceptability of the product in the marketplace, (ii) the
possibility that the costs of development, which can far exceed the
best of estimates, may render commercialization of the drug
marginally profitable or altogether unprofitable, and (iii) the
possibility that the amount of time required for FDA approval of a
product may extend for years beyond that which is originally
estimated. In addition, the FDA or similar foreign regulatory
authorities may require additional clinical studies, which could
result in increased costs and significant development delays.
Delays or rejections may also be encountered based upon changes in
FDA policy and the establishment of additional regulations during
the period of product development and FDA review. Similar delays or
rejections may be encountered in other
countries.
If we were required to conduct additional clinical studies prior to
marketing our prognostic diagnostic tests, those studies could lead
to delays or failure to obtain necessary regulatory approvals and
harm our ability to become profitable.
If the FDA decides to regulate our prognostic diagnostic tests, it
may require additional pre-market clinical testing before clearing
or approving our prognostic diagnostic tests for commercial sales.
Such pre-market clinical testing could delay the commencement or
completion of clinical testing, significantly increase our test
development costs, delay commercialization of any future tests, and
potentially interrupt sales of our tests. Although, we plan on
performing our future clinical studies at such FDA standards, there
is no assurance that such clinical studies will meet certain FDA
standards. Many of the factors that may cause or lead to a delay in
the commencement or completion of clinical studies may also
ultimately lead to delay or denial of regulatory clearance or
approval. The commencement of clinical studies may be delayed due
to access to adequate tissue samples and corresponding clinical
data, insufficient patient enrollment, which is a function of many
factors, including the size of the patient population, the nature
of the protocol, the proximity of patients to clinical sites and
the eligibility criteria for the clinical trial. Moreover, the
clinical trial process may fail to demonstrate that our breast
cancer tests and our planned future tests are effective for the
proposed indicated uses, which could cause us to abandon a test
candidate and may delay development of other tests.
We may find it necessary to engage CROs to perform data collection
and analysis and other aspects of our clinical studies, which might
increase the cost and complexity of our studies. We may also depend
on clinical investigators, medical institutions, academic
institutions and contract research organizations to perform the
studies. If these parties do not successfully carry out their
contractual duties or obligations or meet expected deadlines, or if
the quality, completeness or accuracy of the clinical data they
obtain is compromised due to the failure to adhere to our clinical
protocols or for other reasons, our clinical studies may have to be
extended, delayed, repeated or terminated. Many of these factors
would be beyond our control. We may not be able to enter into
replacement arrangements without undue delays or considerable
expenditures. If there are delays in testing or approvals as a
result of the failure to perform by third parties, our research and
development costs would increase, and we may not be able to obtain
regulatory clearance or approval for our tests. In addition, we may
not be able to establish or maintain relationships with these
parties on favorable terms, if at all. Each of these outcomes would
harm our ability to market our tests, or to achieve sustained
profitability.
Complying with numerous regulations pertaining to our business is
an expensive and time-consuming process, and any failure to comply
could result in substantial penalties.
We believe our prognostic diagnostic tests are subject to CLIA, a
federal law that regulates clinical laboratories that perform
testing on specimens derived from humans for the purpose of
providing information for the diagnosis, prevention or treatment of
disease. CLIA is intended to ensure the quality and
reliability of clinical laboratories in the United States by
mandating specific standards in the areas of personnel
qualifications, administration, and participation in proficiency
testing, patient test management, quality control, quality
assurance and inspections. Effective October 2015, we received
a certificate of accreditation under CLIA to perform testing of our
prognostic diagnostic tests for breast cancer. In order to
renew the certificate of accreditation, we will be subject to
survey and inspection every two years. Moreover, CLIA
inspectors may make random inspections of our laboratory outside of
the renewal process. The failure to comply with CLIA requirements
can result in enforcement actions, including the revocation,
suspension, or limitation of our CLIA certificate of accreditation,
as well as a directed plan of correction, state on-site monitoring,
civil money penalties, civil injunctive suit and/or criminal
penalties. We must maintain CLIA compliance and certification to be
eligible to bill for tests provided to Medicare beneficiaries. If
we were to be found out of compliance with CLIA program
requirements and subjected to sanctions, our business and
reputation could be harmed. Even if it were possible for us to
bring our laboratory back into compliance, we could incur
significant expenses and potentially lose revenue in doing so.
Additionally, we will seek to have our laboratory accredited by the
College of American Pathologists, or CAP, one of six CLIA-approved
accreditation organizations.
In addition, our laboratory is located in Boston, Massachusetts and
is required by state law to have a Massachusetts state license; as
we expand our geographic focus, we may need to obtain laboratory
licenses from additional states.
In addition, we need to have licenses from other states including
the states of California, New York, Pennsylvania, Florida, Maryland
and Rhode Island among others to test specimens from patients in
those states or received from ordering physicians in those states.
Other states may have similar requirements or may adopt similar
requirements in the future. Finally, we may be subject to
regulation in foreign jurisdictions if we seek to expand
international distribution of our tests outside the United
States.
If we were to lose our CLIA certification or appropriate state
license(s), whether as a result of a revocation, suspension or
limitation, we would no longer be able to sell our prognostic
diagnostic tests, or other diagnostic tests, which would
significantly harm our business. If we were to lose our license in
other states where we are required to hold licenses, we would not
be able to test specimens from those states.
We are subject, directly or indirectly, to federal and state
healthcare fraud and abuse laws, false claims laws, physician
payments transparency and health information privacy and security
laws. If we are unable to comply with any such laws, we could face
substantial penalties.
We are subject to various federal and state fraud and abuse laws,
including, without limitation, anti-kickback and false claims
statutes. Including, but not limited to:
●
Medicare billing and payment regulations applicable to clinical
laboratories;
●
the federal Medicare and Medicaid Anti-kickback Law and state
anti-kickback prohibitions;
●
the federal physician self-referral prohibition, commonly known as
the Stark Law, and the state equivalents;
●
the federal Health Insurance Portability and Accountability Act of
1996;
●
the Medicare civil money penalty and exclusion requirements;
and
●
the federal civil and criminal False Claims Act.
We have and will continue to adopt policies and procedures designed
to comply with these laws, including policies and procedures
relating to financial arrangements between us and physicians who
refer patients to us. In the ordinary course of our business,
we conduct internal reviews of our compliance with these
laws. Our compliance is also subject to governmental
review. The growth of our business and sales organization may
increase the potential of violating these laws or our internal
policies and procedures. The risk of our being found in
violation of these laws and regulations is further increased by the
fact that many of them have not been fully interpreted by the
regulatory authorities or the courts, and their provisions are open
to a variety of interpretations. Any action brought against us
for violation of these laws or regulations, even if we successfully
defend against it, could cause us to incur significant legal
expenses and divert our management’s attention from the
operation of our business. If our operations are found to be
in violation of any of these laws and regulations, we may be
subject to any applicable penalty associated with the violation,
including civil and criminal penalties, damages and fines, we could
be required to refund payments received by us, and we could be
required to curtail or cease our operations. Any of the
foregoing consequences could seriously harm our business and our
financial results.
Our corporate compliance program cannot guarantee that we are in
compliance with all potentially applicable
regulations.
The
development, manufacturing, pricing, sales, and reimbursement of
our products, together with our general operations, are subject to
extensive regulation by federal, state and other authorities within
the United States and numerous entities outside of the United
States. While we have developed and instituted a corporate
compliance program based on what we believe are the current best
practices, we cannot assure you that we are or will be in
compliance with all potentially applicable regulations. If we
fail to comply with any of these regulations, we could be subject
to a range of regulatory actions, including suspension or
termination of clinical studies, the failure to approve a product
candidate, restrictions on our products or manufacturing processes,
withdrawal of products from the market, significant fines, or other
sanctions or litigation.
Risks Relating to our Intellectual Property
If we are unable to protect our intellectual property, we may not
be able to compete effectively.
We rely upon a combination of patents, patent applications, trade
secret protection, and confidentiality agreements to protect the
intellectual property related to our technologies, products and
services. Our success will depend in part on our ability to obtain
or license patents and enforce patent protection of our products
and licensed technologies, as well as the ability of the Licensors
to enforce patent protection covering the patents which we license
pursuant to the License Agreement, Second License Agreement, the
Alternative Splicing License Agreements, and the Antibody License
Agreement or other such license agreements we may enter into both
in the United States and other countries to prevent our competitors
from developing, manufacturing and marketing products based on our
technology.
The
patent positions of biotechnology and molecular diagnostic
companies, such as us, are generally uncertain and involve complex
legal and factual questions. We will be able to protect our
intellectual property rights from unauthorized use by third parties
only to the extent that our licensed technologies are covered by
any valid and enforceable patents or are effectively maintained as
trade secrets. We could incur substantial costs in seeking
enforcement of any eventual patent rights against infringement, and
we cannot guarantee that patents that we obtain, or in-license will
successfully preclude others from using technology that we rely
upon. We have applied and intend to apply for patents in the
United States and other countries covering our technologies and
products as and when we deem appropriate. However, these
applications may be challenged or may fail to result in issued
patents. We cannot predict the breadth of claims that maybe
allowed and issued in patents related to biotechnology
applications. The laws of some foreign countries do not
protect intellectual property rights to the same extent as the laws
of the United States, and many companies have encountered
significant problems in protecting and defending such rights in
foreign jurisdictions. For example, methods of treating humans
are not patentable in many countries outside of the United
States.
The coverage claimed in a patent application can be significantly
narrowed before a patent is issued, both in the United States and
other countries. We do not know whether any of the pending or
future patent applications will result in the issuance of
patents. Any patents we or the Licensors obtain may not be
sufficiently broad to prevent others from using our technologies or
from developing competing therapeutic products based on our
technology or proprietary therapies. Once any such patents
have issued, we cannot predict how the claims will be construed or
enforced. Furthermore, others may independently develop
similar or alternative technologies or design around our
patents.
To the extent patents have been issued or may be issued, we do not
know whether these patents will be subject to further proceedings
that may limit their scope, provide significant proprietary
protection or competitive advantage, or cause them to be
circumvented or invalidated. Furthermore, patents that have or
may issue on our or the Licensors patent applications may become
subject to dispute, including interference, reissue or
reexamination proceedings in the United States, or opposition
proceedings in foreign countries. Any of these proceedings
could result in the limitation or loss of rights.
We may rely on trade secret protection for our confidential and
proprietary information. We have taken measures to protect our
proprietary information and trade secrets, but these measures may
not provide adequate protection. While we seek to protect our
proprietary information by entering into confidentiality agreements
with employees, collaborators and consultants, we cannot assure
that our proprietary information will not be disclosed, or that we
can meaningfully protect our trade secrets. In addition,
competitors may independently develop or may have already developed
substantially equivalent proprietary information or may otherwise
gain access to our trade secrets.
The pending patent applications that we have in-licensed or that we
may in-license in the future may not result in issued patents, and
we cannot assure you that our issued patents or any patents that
might ultimately be issued by the United States Patent and
Trademark Office, or USPTO will protect our technology. Any patents
that may be issued to us might be challenged by third parties as
being invalid or unenforceable, or third parties may independently
develop similar or competing technology that avoids our patents. We
cannot be certain that the steps we have taken will prevent the
misappropriation and use of our intellectual property, particularly
in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
Inventions,
and the intellectual property rights covering them, that are
discovered under research, material transfer or other such
collaboration agreements may become solely owned by us in some
cases, jointly owned by us and the other party to such agreements
in some cases and may become the exclusive property of other party
to such agreements in other cases. Under some circumstances, it may
be difficult to determine which party owns a particular invention,
or whether it is jointly owned, and disputes could arise regarding
ownership of those inventions. These disputes could be costly and
time consuming and an unfavorable outcome could have a significant
adverse effect on our business if we were not able to protect or
license rights to these inventions.
Unauthorized uses of our proprietary intellectual property by any
such research collaborators, and publications by our research
collaborators and scientific advisors containing such information,
either with our permission or in contravention of the terms of
their agreements with us, may limit or harm our ability to obtain
patent protection for our product candidates or protect our
proprietary information, which could materially harm our business,
prospects, financial condition and results of
operations.
Patent policy and rule changes could increase the uncertainties and
costs surrounding the prosecution of our patent applications and
the enforcement or defense of our issued patents.
Changes in either the patent laws or interpretation of the patent
laws in the United States and other countries may diminish the
value of our patents or narrow the scope of our patent protection.
The laws of foreign countries may not protect our rights to the
same extent as the laws of the United States. Publications of
discoveries in the scientific literature often lag behind the
actual discoveries, and patent applications in the United States
and other jurisdictions are typically not published until 18 months
after filing, or in some cases not at all. We therefore cannot be
certain that we or our licensors were the first to make the
invention claimed in our owned and licensed patents or pending
applications, or that we or our licensor were the first to file for
patent protection of such inventions. Assuming the other
requirements for patentability are met, in the United States prior
to March 15, 2013, the first to make the claimed invention is
entitled to the patent, while outside the United States, the first
to file a patent application is entitled to the patent. After March
15, 2013, under the Leahy-Smith America Invents Act, or the
Leahy-Smith Act, enacted on September 16, 2011, the United States
has moved to a first to file system. The Leahy-Smith Act also
includes a number of significant changes that affect the way patent
applications will be prosecuted and may also affect patent
litigation. The effects of these changes are currently unclear as
the USPTO must still implement various regulations, the courts have
yet to address any of these provisions and the applicability of the
act and new regulations on specific patents discussed herein have
not been determined and would need to be reviewed. In general, the
Leahy-Smith Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of our issued patents,
all of which could have a material adverse effect on our business
and financial condition.
Litigation or third-party claims of intellectual property
infringement could impair our ability to develop and commercialize
our products successfully.
Our research, development and commercialization activities, as well
as any product candidates or products resulting from those
activities, may infringe or be alleged to infringe a patent or
other form of intellectual property under which we do not hold a
license or other rights. Third parties may assert that we are
employing their proprietary technology without authorization. Our
success will depend in part on our ability to avoid infringing
patents and proprietary rights of third parties, and not breaching
any licenses that we have entered into with regard to our
technologies. A number of pharmaceutical companies,
biotechnology companies, independent researchers, universities and
research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the
technologies owned by or licensed to us. For instance, a
number of patents may have issued and may issue in the future on
tests and technologies that we have developed or intend to
develop. If patents covering technologies required by our
operations are issued to others, we may have to rely on licenses
from third parties, which may not be available on commercially
reasonable terms, or at all.
We have no knowledge of any infringement or patent litigation,
threatened or filed at this time. It is possible that we may
infringe on intellectual property rights of others without being
aware of the infringement. If a patent holder believes that
one of our product candidates infringes on our patent, it may sue
we even if we have received patent protection for our
technology. Third parties may claim that we are employing our
proprietary technology without authorization. In addition,
third parties may obtain patents that relate to our technologies
and claim that use of such technologies infringes these
patents. Regardless of their merit, such claims could require
us to incur substantial costs, including the diversion of
management and technical personnel, in defending ourselves against
any such claims or enforcing our patents. In the event that a
successful claim of infringement is brought against us, we may be
required to pay damages and obtain one or more licenses from third
parties. We may not be able to obtain these licenses at a
reasonable cost, or at all. Defense of any lawsuit or failure
to obtain any of these licenses could adversely affect our ability
to develop and commercialize our products. Although we carry
general liability insurance, our insurance may not cover potential
claims of this type. The occurrence of any of the above events
could prevent us from continuing to develop and commercialize one
or more of our product candidates or practice our related methods,
and our business could materially suffer.
Our rights to use technologies licensed from third parties are not
within our control, and we may not be able to develop,
commercialize, and sell our products if we lose our existing rights
or cannot obtain new rights on reasonable terms.
We license technology necessary to develop certain products from
third parties. For example, we license technology from MIT,
AECOM, Cornell and IFO-Regina located in Rome, Italy, that we may
use in certain product candidates and that we may use to develop
certain additional product candidates. As a result, our
current business plans are dependent upon our satisfaction of
certain conditions to the maintenance of those license agreements
and the rights we license under them. Each of the license
agreements provides that we are subject to diligence obligations
relating to the development and commercialization of product
candidates, milestone payments, royalty payments and other
obligations. In addition to these license agreements, we may seek
to enter into additional agreements with other third parties in the
future granting similar license rights with respect to other
potential product candidates. If we fail to comply with any of the
conditions or obligations or otherwise breach the terms of any of
these license agreements, or any future license agreement we may
enter on which our business or product candidates are dependent,
the licensor may have the right to assert a claim for damages
against us or terminate the applicable agreement in whole or in
part and thereby extinguish our rights to the licensed technology
and intellectual property and/or any rights we have acquired to
develop and commercialize certain product candidates. If we become
liable for material damages under any of these license agreements,
this could materially harm our business, prospects, financial
condition and results of operations. Similarly, the loss of the
rights licensed to us under these license agreements, or any future
license agreement that we may enter granting us rights on which our
business or product candidates are dependent, would eliminate our
ability to further develop the applicable product candidates and
would materially harm our business, prospects, financial condition
and results of operations.
Our liquidity issues in the past have sometimes caused a delay in
payment under our existing license agreements. Our business may
suffer if we are unable to meet our obligations, financial or
otherwise, under our existing license agreements and if these
licenses terminate if the licensors fail to abide by the terms of
the licenses or fail to prevent infringement by third parties if
the licensed patents or other rights are found to be invalid or if
we are unable to enter into necessary additional licenses on
acceptable terms.
We may be subject to claims that our employees, consultants, or
independent contractors have wrongfully used or disclosed
confidential information of third parties or that our employees
have wrongfully used or disclosed alleged trade secrets of their
former employers.
We employ certain individuals who were previously employed at
universities, medical institutions, other diagnostic and
biotechnology companies, including potential competitors. Although
we try to ensure that our employees, consultants, and independent
contractors do not use the proprietary information or know-how of
others in their work for us, and we are not currently subject to
any claims that our employees, consultants, or independent
contractors have wrongfully used or disclosed confidential
information of third parties, we may in the future be subject to
such claims. Litigation may be necessary to defend against these
claims. If we fail in defending any such claims, in addition to
paying monetary damages, we may lose valuable intellectual property
rights or personnel, which could adversely impact our business.
Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction
to management and other employees.
We may be subject to claims challenging the inventorship of our
patents and other intellectual property.
Although we are not currently experiencing any claims challenging
the inventorship of our licensed patents, or ownership of our
intellectual property, we may in the future be subject to claims
that former employees, collaborators or other third parties have an
interest in our licensed patents, future patent applications or
other intellectual property as an inventor or co-inventor. For
example, we may have inventorship disputes arise from conflicting
obligations of consultants or others who are involved in developing
our products or services including clinical studies. Litigation may
be necessary to defend against these and other claims challenging
inventorship. If we fail in defending any such claims, in addition
to paying monetary damages, we may lose valuable intellectual
property rights, such as exclusive ownership of, or right to use,
valuable intellectual property. Such an outcome could have a
material adverse effect on our business. Even if we are successful
in defending against such claims, litigation could result in
substantial costs and be a distraction to management and other
employees.
We may desire, or be forced, to seek additional licenses to use
intellectual property owned by third parties, and such licenses may
not be available on commercially reasonable terms or at
all.
A third party may hold intellectual property, including patent
rights, that are important or necessary to the development or
commercialization of our product candidates or to practice our
related methods, in which case we would need to obtain a license
from that third party or develop a different method relating to the
product candidate that does not infringe the applicable
intellectual property, which may not be possible. Additionally, we
may identify product candidates that we believe are promising and
whose composition of matter, use or manufacture are covered by the
intellectual property rights of third parties. In such a case, we
may desire to seek a license to pursue the development and
commercialization of those product candidates. Any license that we
may desire to obtain, or that we may be forced to pursue, may not
be available when needed on commercially reasonable terms, or at
all. Any inability to secure a license that we need, or desire
could have a material adverse effect on our business, financial
condition and prospects.
Changes in U.S. patent law could diminish the value of patents in
general, thereby impairing our ability to protect our
products.
As is the case with other diagnostic and biopharmaceutical
companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining and enforcing patents in
the diagnostic and biopharmaceutical industry involves both
technological and legal complexity. Therefore, obtaining and
enforcing diagnostic and biotechnology patents is costly, time
consuming, and inherently uncertain. In addition, the United States
has recently enacted and is currently implementing wide-ranging
patent reform legislation. Recent U.S. Supreme Court rulings have
narrowed the scope of patent protection available in certain
circumstances and weakened the rights of patent owners in certain
situations. In addition to increasing uncertainty with regard to
our ability to obtain patents in the future, this combination of
events has created uncertainty with respect to the value of
patents, once obtained. Depending on future actions by the U.S.
Congress, the federal courts, and the USPTO, the laws and
regulations governing patents could change in unpredictable ways
that would weaken our ability to obtain new patents or to enforce
our existing patents and patents that we might obtain in the
future.
Our collaborators may assert ownership or commercial rights to
inventions we develop from our use of the biological materials,
which they provide to us, or otherwise arising from the
collaboration.
We collaborate with several institutions, universities, medical
centers, physicians and researchers in scientific matters and
expect to continue to enter into additional collaboration
agreements. In certain cases, we do not have written agreements
with certain of such collaborators, or the written agreements we
have do not cover intellectual property rights. Also, we rely on
numerous third parties to provide us with tissue samples and
biological materials that we use to develop products. If we cannot
successfully negotiate sufficient ownership and commercial rights
to any inventions that result from our use of a third-party
collaborator’s materials, or if disputes arise with respect
to the intellectual property developed with the use of a
collaborator’s samples, or data developed in a
collaborator’s study, we may be limited in our ability to
capitalize on the market potential of these inventions or
developments.
We may be involved in lawsuits or administrative proceedings to
protect or enforce our patents or the patents of our licensors,
which could be expensive, time-consuming and
unsuccessful.
Competitors may infringe our patents or the patents of our current
or potential licensors. We cannot predict if, when or where a third
party may infringe one or more of our issued patents. To attempt to
stop infringement or unauthorized use, we may need to enforce one
or more of our patents, which can be expensive and time-consuming,
a significant diversion of employee resources, and distract our
management. There is no assurance such action will ultimately be
successful in halting third party infringing activities, for
example, through a permanent injunction, or that we would be fully
or even partially financially compensated for any harm to our
business caused by such third-party infringement. Even if such
action were initially successful, it could be overturned upon
appeal. Even if we are successful in proving in a court of law that
a third party is infringing one or more of our issued patents we
may be forced to enter into a license or other agreement with the
infringing third party on terms less commercially acceptable to us
than if the license or agreement were negotiated under conditions
between those of a willing licensee and a willing licensor. We may
not become aware of a third-party infringer within legal timeframes
that would enable us to seek adequate compensation, or at all,
thereby possibly losing the ability to be compensated for any harm
to our business. Such a third-party may be operating in a foreign
country where the infringer is difficult to locate, where we do not
have issued patents and/or the patent laws may be more difficult to
enforce. If we pursue any litigation, a court may decide that a
patent of ours or our licensor’s is not of sufficient breath,
is invalid, or is unenforceable, or may refuse to stop the other
party from using the relevant technology on the grounds that our
patents do not cover the technology in question. Further, the legal
systems of certain countries, particularly certain developing
countries, do not favor the enforcement of patents, which could
reduce the likelihood of success of any infringement proceeding we
pursue in any such jurisdiction. An adverse result in any patent
litigation could put one or more of our patents at risk of being
invalidated, held unenforceable, or interpreted narrowly and could
put our pending patent applications at risk of not issuing, which
could limit our ability to exclude competitors from directly
competing with us in the applicable jurisdictions.
Certain
administrative proceedings may be provoked by third parties before
the USPTO and certain foreign patent offices, such as interference
proceedings, opposition proceedings, re-examination proceedings,
inter party review, post-grant review, derivation proceedings and
pre-grant submissions, in which third parties may challenge the
validity or breadth of claims contained in our patents or those of
our licensors. An adverse result in any such administrative
proceeding could put one or more of our patents at risk of being
canceled or invalidated or interpreted narrowly and could put our
pending patent applications at risk of not issuing, which could
limit our ability to exclude competitors from directly competing
with us in the applicable jurisdictions.
Interference proceedings provoked by third parties or brought by us
or the USPTO may be necessary to determine the priority of
inventions with respect to our patents or patent applications or
those of our licensors. Derivation proceedings may be brought by us
or a third party to determine whether a patent or application was
filed by the true inventor. An unfavorable outcome in an
interference or derivation proceeding could require us to cease
using the related technology or to attempt to license rights to use
it from the prevailing party. Our business could be harmed if the
prevailing party does not offer us a license on commercially
reasonable terms, or at all. Litigation, interference, or
derivation proceedings may have undesirable outcomes and, even if
successful, may result in substantial costs, be a significant
diversion of employee resources, and distract our
management.
We may not be able to protect our intellectual property rights
throughout the world.
Filing, prosecuting, and defending patents on products and services
in all countries throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries
outside the United States can be less extensive than those in the
United States. 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 United States. Consequently, we may
not be able to prevent third parties from practicing our inventions
in all countries outside the United States, or from selling or
importing products made using our inventions in and into the United
States or other jurisdictions. Competitors may use our technologies
in jurisdictions where we have not obtained patent protection to
develop their own products and may also export infringing products
to territories where we have patent protection, but enforcement is
not as strong as that in the United States. These products may
compete with our products and our patents or other intellectual
property rights may not be effective or sufficient to prevent them
from competing.
Many
companies have encountered significant problems in protecting and
defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents,
trade secrets, and other intellectual property protection,
particularly those relating to biotechnology products, which could
make it difficult for us to stop the infringement of our patents or
marketing of competing products in violation of our proprietary
rights generally. Proceedings to enforce our patent rights in
foreign jurisdictions, whether or not successful, 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 our patent applications at
risk of not issuing 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, our efforts to enforce
our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual
property that we develop or license.
Risks Relating to our Securities
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely
continue to be highly volatile, as is the stock market in general
and the market for OTC or “bulletin board” quoted
stocks in particular. Market prices for securities of
early-stage life sciences companies have historically been
particularly volatile. Some of the factors that may materially
affect the market price of our common stock are beyond our control,
may include, but are not limited to:
●
progress, or lack of progress, in developing and commercializing
our current tests and our planned future cancer diagnostic
tests;
●
favorable or unfavorable decisions about our tests from government
regulators, insurance companies or other third-party
payers;
●
changes in key personnel and our ability to recruit and retain
qualified research and development personnel;
●
changes in investors’ and securities analysts’
perception of the business risks and conditions of our
business;
●
changes in our relationship with key collaborators;
●
changes in the market valuation or earnings of our competitors or
companies viewed as similar to us;
●
depth of the trading market in our common stock;
●
termination of the lock-up agreements or other restrictions on the
ability of our existing stockholders to sell shares;
●
changes in our capital structure, such as future issuances of
securities or the incurrence of additional debt;
●
the granting or exercise of employee stock options or other equity
awards;
●
realization of any of the risks described under this section
entitled “Risk Factors”; and
●
general market and economic conditions.
In addition, the equity markets have experienced significant price
and volume fluctuations that have affected the market prices for
the securities for a number of reasons, including reasons that may
be unrelated to our business or operating performance. These broad
market fluctuations may result in a material decline in the market
price of our common stock and you may not be able to sell your
shares at prices you deem acceptable. In the past, following
periods of volatility in the equity markets, securities class
action lawsuits have been instituted against public companies. Such
litigation, if instituted against us, could result in substantial
cost and the diversion of management attention.
We cannot assure you that our common stock will become liquid or
that it will be listed on a national securities exchange. In
addition,
there may
not be sufficient liquidity in the market for our securities in
order for investors to sell their securities.
Currently, our common stock trades on the OTCQB venture stage
marketplace for early stage and developing U.S. and international
companies. Investors may find it difficult to obtain accurate
quotations as to the market value of our common stock. In
addition, if we fail to meet the criteria set forth in SEC
regulations, by law, various requirements would be imposed on
broker-dealers who sell its securities to persons other than
established customers and accredited investors. Consequently,
such regulations may deter broker-dealers from recommending or
selling our common stock, which may further affect its
liquidity. In addition, there is currently only a limited
public market for our common stock and there can be no assurance
that a trading market will develop further or be maintained in the
future.
In order to raise sufficient funds to expand our operations, we may
have to issue additional securities at prices which may result in
substantial dilution to our shareholders.
If we raise additional funds through the sale of equity or
convertible debt, our current stockholders’ percentage
ownership will be reduced. In addition, these transactions may
dilute the value of our outstanding securities. We may have to
issue securities that may have rights, preferences and privileges
senior to our common stock. We cannot provide assurance that
we will be able to raise additional funds on terms acceptable to
us, if at all. If future financing is not available or is not
available on acceptable terms, we may not be able to fund our
future needs, which would have a material adverse effect on our
business plans, prospects, results of operations and financial
condition.
Future sales of our common stock, or the perception that future
sales may occur, may cause the market price of our common stock to
decline, even if our business is doing well.
Sales of substantial amounts of our common stock, or the perception
that these sales may occur, could materially and adversely affect
the price of our common stock and could impair our ability to raise
capital through the sale of additional equity
securities. As of February 28, 2018, we had outstanding
5,877,383 shares of common stock, 3,935,863 which are
restricted securities that may be sold only in accordance with the
resale restrictions under Rule 144 of the Securities Act of 1933,
as amended. In addition, as of February 28, 2018, we had
outstanding 300,000 restricted stock units, outstanding convertible
preferred stock, convertible into 4,298,579 shares of common stock,
outstanding options to purchase 1,286,770 shares of our common
stock, outstanding warrants to purchase 3,060,118 shares of our
common stock, and outstanding convertible debt convertible into
562,082 shares of our common stock. Shares issued upon the exercise
of stock options and warrants will be eligible for sale in the
public market, except that affiliates will continue to be subject
to volume limitations and other requirements of Rule 144 under the
Securities Act. The issuance or sale of such shares could depress
the market price of our common stock.
In the future, we also may issue our securities if we need to raise
additional capital. The number of new shares of our common stock
issued in connection with raising additional capital could
constitute a material portion of the then-outstanding shares of our
common stock.
Rule 144 Related Risk
The SEC adopted amendments to Rule 144 which became effective on
February 15, 2008 that apply to securities acquired both before and
after that date. Under these amendments, a person who has
beneficially owned restricted shares of our common stock for at
least six months would be entitled to sell their securities
provided that: (i) such person is not deemed to have been one of
our affiliates at the time of, or at any time during the three
months preceding a sale, (ii) we are subject to the Exchange Act
periodic reporting requirements for at least 90 days before the
sale and (iii) if the sale occurs prior to satisfaction of a
one-year holding period, we provide current information at the time
of sale. Persons who have beneficially owned restricted shares of
our common stock for at least six months but who are our affiliates
at the time of, or at any time during the three months preceding a
sale, would be subject to additional restrictions, by which such
person would be entitled to sell within any three-month period only
a number of securities that does not exceed the greater of either
of the following:
●
1% of the total number of securities of the same class then
outstanding; or closing or bid price requirements;
●
the average weekly trading volume of such securities during the
four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale;
provided, in each case, that we are subject to the Exchange Act
periodic reporting requirements for at least three months before
the sale. Such sales by affiliates must also comply with the manner
of sale, current public information and notice provisions of Rule
144.
Restrictions on the reliance of Rule 144 by shell companies or
former shell companies.
We are a former shell company. Historically, the SEC staff has
taken the position that Rule 144 is not available for the resale of
securities initially issued by companies that are, or previously
were, blank check companies. The SEC has codified and expanded this
position in amendments to Rule 144 which became effective in
February 2008 by prohibiting the use of Rule 144 for resale of
securities issued by any shell companies (other than
business-combination related shell companies) or any issuer that
has been at any time previously a shell company. The SEC has
provided an important exception to this prohibition, however, if
the following conditions are met:
●
The issuer of the securities that was formerly a shell company has
ceased to be a shell company;
●
The issuer of the securities is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange
Act;
●
The issuer of the securities has filed all Exchange Act reports and
material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to
file such reports and materials), other than Current Reports on
Form 8-K; and
●
At least one year has elapsed from the time that the issuer has
filed current comprehensive disclosure with the SEC reflecting its
status as an entity that is not a shell company.
As a result, it is possible that pursuant to Rule 144, stockholders
may not be able to sell our shares without registration if one of
the aforementioned conditions are not satisfied.
We have not attracted, and do not expect to attract, the attention
of major brokerage firms.
Additional risks may exist since we became public through a
“reverse takeover.” Securities analysts of major
brokerage firms have not provided, and may not in the future
provide coverage of our securities since there is little incentive
to brokerage firms to recommend the purchase of our common
stock. No assurance can be given that brokerage firms will
want to conduct any secondary offerings on our behalf in the
future.
We have incurred and will continue to incur significant increased
costs as a result of operating as a public company, and our
management will be required to devote substantial time to new
compliance initiatives.
As a public company, we are subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended, the Dodd-Frank
Wall Street Reform and Consumer Protection Act, or the Dodd-Frank
Act, the listing requirements of the OTCQB venture stage
marketplace and other applicable securities rules and regulations.
Compliance with these rules and regulations has increased and will
continue to increase our legal and financial compliance costs, make
some activities more difficult, time-consuming or costly, and
increase demand on our systems and resources. The Sarbanes-Oxley
Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over
financial reporting. 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 may be required. As a result,
management’s attention may be diverted from other business
concerns, which could harm our business and operating results.
Further, there are significant corporate governance and executive
compensation related provisions in the Dodd-Frank Wall Street
Reform and Consumer Protection Act, enacted in 2010, that require
the SEC to adopt additional rules and regulations in these areas
such as “say on pay” and proxy access. Recent
legislation permits smaller “emerging growth companies”
to implement many of these requirements over a longer period. We
intend to take advantage of this new legislation but cannot
guarantee that we will not be required to implement these
requirements sooner than budgeted or planned and thereby incur
unexpected expenses. Stockholder activism, the current political
environment and the current high level of government intervention
and regulatory reform may lead to substantial new regulations and
disclosure obligations, which may lead to additional compliance
costs and impact the manner in which we operate our business in
ways we cannot currently anticipate.
In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty
for public companies, increasing legal and financial compliance
costs and making some activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We intend to invest resources to comply with
evolving laws, regulations and standards, and this investment may
result in increased general and administrative expenses and a
diversion of management’s time and attention from
revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due
to ambiguities related to practice, regulatory authorities may
initiate legal proceedings against us and our business may be
harmed.
Additionally, we may be subject to increased corporate governance
requirements in connection with the listing of our common stock on
a national securities exchange, such as the NASDAQ Capital Market,
which may lead to additional compliance costs and impact the manner
in which we operate our business.
If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our
financial results. As a result, current and potential investors
could lose confidence in our financial reporting, which could harm
our business and have an adverse effect on our stock
price.
Effective internal controls over financial reporting are necessary
for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to
prevent fraud. Any failure to implement required new or improved
controls, or difficulties encountered in their implementation could
cause us to fail to meet our reporting obligations. In addition,
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we
are required to annually furnish a report by our management on our
internal control over financial reporting. Such report must
contain, among other matters, an assessment by our principal
executive officer and our principal financial officer on the
effectiveness of our internal control over financial reporting,
including a statement as to whether or not our internal control
over financial reporting is effective as of the end of our fiscal
year. This assessment must include disclosure of any material
weakness in our internal control over financial reporting
identified by management. In addition, under current SEC
rules, we may be required to obtain an attestation from our
independent registered public accounting firm as to our internal
control over financial reporting for our annual report on Form 10-K
covering our next fiscal year. Performing the system and process
documentation and evaluation needed to comply with Section 404 is
both costly and challenging. During the course of our testing
we may identify deficiencies which we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act of
2002 for compliance with the requirements of Section 404. In
addition, if we fail to maintain the adequacy of our internal
controls, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002. Failure to achieve and
maintain an effective internal control environment could also cause
investors to lose confidence in our reported financial information,
which could have a material adverse effect on the price of our
common stock.
Our common stock is considered “penny
stock”.
The SEC has adopted regulations, which generally define
“penny stock” to be an equity security that has a
market price of less than $5.00 per share, subject to specific
exemptions. The market price of our common stock is currently
less than $5.00 per share and therefore may be a “penny
stock.” Brokers and dealers effecting transactions in
“penny stock” must disclose certain information
concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable
to purchase the securities. These rules may restrict the
ability of brokers or dealers to sell the common stock and may
affect your ability to sell shares.
The market for penny stocks has experienced numerous frauds and
abuses, which could adversely impact investors in our
stock.
Our common stock trades on the OTCQB venture stage marketplace for
early stage and developing U.S. and international companies. OTCQB
securities and other “bulletin board” securities are
frequent targets of fraud or market manipulation, both because of
their generally low prices and because OTCQB and other bulletin
board” reporting requirements are less stringent than those
of national securities exchanges, including the NASDAQ Capital
Market.
Patterns of fraud and abuse include:
●
Control of the market for the security by one or a few
broker-dealers that are often related to the promoter or
issuer;
●
Manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases;
●
“Boiler room” practices involving high pressure sales
tactics and unrealistic price projections by inexperienced sales
persons;
●
Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
●
Wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with
consequent investor losses.
Our quarterly operating results may fluctuate
significantly.
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:
●
the rate of adoption and/or continued use of our current tests and
our planned future tests by healthcare practitioners;
●
variations in the level of expenses related to our development and
commercialization programs;
●
addition or reduction of resources for product
commercialization;
●
addition or termination of clinical validation studies and clinical
utility studies;
●
any intellectual property infringement lawsuit in which we may
become involved;
●
third party payer determinations affecting our tests;
and
●
regulatory developments affecting our tests.
We expect operating results to be subject to quarterly
fluctuations. Our net loss and other operating results will be
affected by numerous factors, including:
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.
Because we do not expect to pay cash dividends to our common
stockholders for the foreseeable future, you must rely on
appreciation of our common stock price for any return on your
investment. Even if we change that policy, we may be restricted
from paying dividends on our common stock.
We do not intend to pay cash dividends on shares of our common
stock for the foreseeable future. Any determination to pay
dividends in the future will be at the discretion of our board of
directors and will depend upon results of operations, financial
performance, contractual restrictions, restrictions imposed by
applicable law and other factors our board of directors deems
relevant. Accordingly, you will have to rely on capital
appreciation, if any, to earn a return on your investment in our
common stock. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock.
Cumulative dividends on the Series B Preferred Stock accrue at the
rate of 8% of the Stated Value per annum, payable quarterly on
March 31, June 30, September 30, and December 31 of each year, from
and after the date of the initial issuance. Dividends
are payable in kind in additional shares of Series B Preferred
Stock valued at the Stated Value or in cash at the sole option of
the Company. At February 28, 2018 and February 28, 2017, the
dividend payable to the holders of the Series B Preferred Stock
amounted to approximately $42,000 and approximately $16,000,
respectively. During the year ended February 28, 2018 and February
28, 2017, the Company issued 13.0520 and 34.5085 shares of Series B
Preferred Stock, respectively, for payment of dividends amounting
to approximately $72,000 and approximately $190,000,
respectively.
Our ability to use our net operating loss carryforwards and certain
other tax attributes may be limited.
Our ability to utilize our federal net operating loss,
carryforwards and federal tax credits may be limited under Sections
382 and 383 of the Internal Revenue Code of 1986, as amended, or
the Code. The limitations apply if an “ownership
change,” as defined by Section 382 of the Code, occurs.
If we have experienced an “ownership change” at any
time since our formation, we may already be subject to limitations
on our ability to utilize our existing net operating losses and
other tax attributes to offset taxable income. In addition, future
changes in our stock ownership (including in connection with this
or future offerings, as well as other changes that may be outside
of our control), may trigger an “ownership change” and,
consequently, limitations under Sections 382 and 383 of the
Code. As a result, if we earn net taxable income, our ability to
use our pre-change net operating loss carryforwards and other tax
attributes to offset United States federal taxable income may be
subject to limitations, which could potentially result in increased
future tax liability to us. As of February 28, 2018, we had federal
net operating loss tax credit carryforwards of approximately
$21.7
million, which could be limited if we have
experienced or do experience any “ownership changes.”
We have not completed a study to assess whether an “ownership
change” has occurred or whether there have been multiple
“ownership changes” since our formation, due to the
complexity and cost associated with such a study, and the fact that
there may be additional ownership changes in the
future.
We could be subject to securities class action
litigation.
In the past, securities class action litigation has often been
brought against a company following a decline in the market price
of its securities. This risk is especially relevant for us because
early-stage life sciences and diagnostic companies have experienced
significant stock price volatility in recent years. If we face such
litigation, it could result in substantial costs and a diversion of
management’s attention and resources, which could harm our
business.