As filed with the Securities and Exchange Commission on
September 6, 2007
Registration
No.
333-140672
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Amendment No. 4
to
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BIOHEART, INC.
(Exact name of Registrant as specified in its Charter)
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Florida
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8731
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65-0945967
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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13794 NW 4th Street, Suite 212
Sunrise, Florida 33325
(954) 835-1500
(Address, including zip code, and telephone number,
including area code, of registrants principal executive
offices)
William M. Pinon
President and Chief Executive Officer
Bioheart, Inc.
13794 NW 4th Street, Suite 212
Sunrise, Florida 33325
(954) 835-1500
(Name, address, including zip code, and telephone number,
including area code, of Agent for Service)
Copies to:
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David E. Wells, Esq.
Hunton & Williams LLP
1111 Brickell Avenue, Suite 2500
Miami, Florida 33131
(305) 810-2500
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James A. Lebovitz, Esq.
Dechert LLP
2929 Arch Street
Philadelphia, Pennsylvania 19104
(215) 994-4000
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Approximate Date of Commencement of Proposed Sale to the
Public:
As soon as practicable after the effective date of
this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following box.
o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Aggregate
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Amount of
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Title of Each Class of Securities to be Registered
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Offering Price(1)
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Registration Fee(2)
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Common stock, par value $0.001 per share
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$70,000,000
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$4,820
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(1)
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Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457(o) under the Securities Act.
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(2)
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Includes $4,052 previously paid.
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The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information
in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not
permitted.
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Prospectus
Subject to
Completion, Dated September 6, 2007
3,575,000 Shares
Common Stock
This is our initial public offering of shares of our common
stock. We are offering 3,575,000 shares. We expect the
initial public offering price to be between $14.00 and $16.00
per share.
Currently no public market exists for shares of our common
stock. We have applied to have our common stock quoted on the
NASDAQ Global Market under the symbol BHRT.
Investing in our common stock involves risks.
See Risk Factors beginning on page 8 of this
prospectus.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to Bioheart, Inc.
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$
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$
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Bioheart, Inc. has granted the underwriters a 30-day option to
purchase up to an additional 536,250 shares of common stock to
cover over-allotments.
Merriman Curhan
Ford & Co.
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Dawson James
Securities, Inc.
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The date of this Prospectus
is ,
2007
TABLE OF CONTENTS
Through and
including ,
2007 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. We
are offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of our
common stock. In this prospectus, unless otherwise stated or the
context otherwise requires, references to Bioheart,
we, us, our company, and
similar references refer to the consolidated operations of
Bioheart, Inc. and its subsidiaries.
For investors outside of the United States: Neither we nor
any of the underwriters have done anything that would permit
this offering or possession or distribution of this prospectus
in any jurisdiction where action for that purpose is required,
other than in the United States. Persons outside the United
States who come into possession of this prospectus must inform
themselves about, and observe any restrictions relating to, the
offering of the shares of common stock and the distribution of
this prospectus outside of the United States.
PROSPECTUS SUMMARY
This summary highlights selected information described more
fully elsewhere in this prospectus. This summary may not contain
all the information that is important to you. Before investing
in our common stock, you should read the entire prospectus,
including Risk Factors, Special
Note Regarding Forward-Looking Statements and our
consolidated financial statements and related notes. The
consolidated financial statements and related notes included in
this prospectus have been prepared in accordance with accounting
principles generally accepted in the United States. Unless
otherwise stated, all figures assume no exercise of the
underwriters option to purchase additional common
shares.
Our Business
We are a biotechnology company focused on the discovery,
development and, subject to regulatory approval,
commercialization of autologous cell therapies for the treatment
of chronic and acute heart damage. Our lead product candidate is
MyoCell, an innovative clinical therapy designed to populate
regions of scar tissue within a patients heart with
autologous muscle cells, or cells from the patients body,
for the purpose of improving cardiac function in chronic heart
failure patients. The core technology used in MyoCell has been
the subject of human clinical trials conducted over the last six
years involving 84 enrollees and 70 treated patients. Our most
recent clinical trials of MyoCell include the SEISMIC Trial, a
completed 40 patient Phase II clinical trial in various
countries in Europe, and the MYOHEART Trial, a completed 20
patient Phase I dose escalation trial in the United States.
Interim results of the SEISMIC and MYOHEART Trials were
announced in January 2007 and updated interim results are
disclosed in this prospectus. We have been cleared by the U.S.
Food and Drug Administration, or the FDA, to proceed with a 330
patient, multicenter Phase II/III trial of MyoCell in North
America, Europe and Israel, or the MARVEL Trial. We intend to
seek to have final data available for the MARVEL Trial by the
third quarter of 2009. If the results of the MARVEL Trial
demonstrate statistically significant evidence of the safety and
efficacy of MyoCell, we anticipate having a basis to ask the FDA
to consider the MARVEL Trial a pivotal trial. The SEISMIC,
MYOHEART and MARVEL Trials have been designed to test the safety
and efficacy of MyoCell in treating patients with severe,
chronic damage to the heart. Upon regulatory approval of
MyoCell, we intend to generate revenue from the sale of MyoCell
cell culturing services for treatment of patients by
interventional cardiologists.
In our pipeline, we have multiple product candidates for the
treatment of heart damage, including Bioheart Acute Cell
Therapy, an autologous, adipose cell treatment for acute heart
damage, and MyoCell II with SDF-1, a therapy utilizing
autologous cells genetically modified to express additional
growth factors. We hope to demonstrate that our various product
candidates are safe and effective complements to existing
therapies for chronic and acute heart damage.
MyoCell
MyoCell is a clinical therapy intended to improve cardiac
function and designed to be utilized months or even years after
a patient has suffered severe heart damage due to a heart attack
or other cause. We believe that MyoCell has the potential to
become a leading treatment for severe, chronic damage to the
heart due to its perceived ability to satisfy, at least in part,
what we believe to be an unmet demand for more effective and/or
more affordable therapies for chronic heart damage. MyoCell uses
myoblasts, cells that are precursors to muscle cells, from the
patients own body. The myoblasts are removed from a
patients thigh muscle, isolated, grown through our
proprietary cell culturing process, and injected directly in the
scar tissue of a patients heart. An interventional
cardiologist performs this minimally invasive procedure using an
endoventricular catheter. We have entered into an agreement with
a Johnson & Johnson company to use its
NOGA
®
Cardiac Navigation System along with its
MyoStar
tm
injection catheter for the delivery of MyoCell in the MARVEL
Trial.
When injected into scar tissue within the heart wall, myoblasts
have been shown to be capable of engrafting in the damaged
tissue and differentiating into mature skeletal muscle cells. In
a number of clinical
1
and animal studies, the engrafted skeletal muscle cells have
been shown to express various proteins that are important
components of contractile function. By using myoblasts obtained
from a patients own body, we believe MyoCell is able to
avoid certain challenges currently faced by other types of
cell-based clinical therapies including tissue rejection and
instances of the cells differentiating into cells other than
muscle. Although a number of therapies have proven to improve
the cardiac function of a damaged heart, no currently available
treatment has demonstrated an ability to generate new muscle
tissue within the scarred regions of a heart.
Our clinical trials of MyoCell to date, including the SEISMIC
Trial and the MYOHEART Trial, have been primarily targeted to
patients with severe, chronic damage to the heart who are in
Class II or Class III heart failure according to the
New York Heart Association, or NYHA, heart failure
classification system. The NYHA system classifies patients in
one of four categories based on how limited they are during
physical activity. NYHA Class II heart failure patients
have a mild limitation of activity and are generally comfortable
at rest or with mild exertion while NYHA Class III heart
failure patients suffer from a marked limitation of activity and
are generally comfortable only at rest.
If the final SEISMIC Trial data is available in the first
quarter of 2008 and is generally consistent with the interim
data, we intend to seek, in the second quarter of 2008, approval
from various European regulatory bodies to market MyoCell to
treat the subclass of patients who would meet the eligibility
criteria for participation in the SEISMIC Trial and who are in
NYHA Class III heart failure, whose condition appears to be
deteriorating despite optimal medical therapy and for whom no
other promising treatment alternatives have been identified
(i.e., generally the sickest 30% of NYHA Class III heart
failure patients), or the Class III Subgroup. We intend to
seek to enroll and treat all of the clinical patients in the
MARVEL Trial by the end of the fourth quarter of 2008. If we
meet that enrollment timeline, we would expect final trial
results in the third quarter of 2009. If the final safety and
efficacy results provide what we believe is significant proof
that MyoCell is safe and effective, we anticipate submitting
such data to the FDA to obtain regulatory approval of MyoCell.
In addition to studies we have sponsored, we understand that
myoblast-based clinical therapies have been the subject of at
least eleven clinical trials involving more than 325 enrollees,
including at least 235 treated patients. Although we believe
many of the trials are different from the trials sponsored by us
in a number of important respects, it is our view that the
trials have advanced the cell therapy industrys
understanding of the potential opportunities and limitations of
myoblast-based therapies.
We believe the market for treating patients in NYHA
Class II or NYHA Class III heart failure is
significant. According to the American Heart Association Heart
Disease Statistics 2007 Update, or the AHA
Statistics, and the European Society of Cardiology Task Force
for the treatment of chronic heart failure in the United States
and Europe there are approximately 5.2 million and
9.6 million, respectively, patients with heart failure. The
AHA Statistics further indicate that after heart failure is
diagnosed, the one-year mortality rate is high, with one in five
dying and that 80% of men and 70% of women under age 65 who have
heart failure will die within eight years. We believe that
approximately 60% of heart failure patients are in either NYHA
Class II or NYHA Class III heart failure based upon a
1999 study entitled Congestive Heart Failure Due to
Diastolic or Systolic Dysfunction Frequency and
Patient Characteristics in an Ambulatory Setting by
Diller, PM, et. al.
Our operations are still in the development stage and we have
yet to successfully develop and obtain regulatory approval of
any drug, device or therapy. Our net loss for 2006 was
approximately $13.2 million and, as of June 30, 2007,
we have accumulated a deficit during our development stage of
approximately $69.6 million.
2
Our Business Strategy
Our principal objective is to become a leading company that
discovers, develops and commercializes novel, autologous cell
therapies and related devices, for the treatment of chronic and
acute heart damage. To achieve this objective, we plan to pursue
the following key strategies:
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seek to successfully commercialize our lead product candidate,
MyoCell;
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develop our sales and marketing capabilities in advance of
regulatory approval, if any;
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continue to develop and seek to successfully commercialize our
pipeline of cell-based therapy and related device candidates;
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continue to refine our MyoCell cell culturing processes to
further reduce our costs and processing times;
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expand and enhance our intellectual property rights; and
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license, acquire and/or develop complementary products and
technologies.
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Risk Factors
We face numerous risks that could materially affect our
business, results of operations or financial condition and your
investment in the common stock. These risks, include, without
limitation:
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the timely success and completion of our clinical trials;
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the occurrence of any unacceptable side effects during or after
preclinical and clinical testing of our product candidates,
including patient deaths in addition to the six that have
previously occurred during our clinical trials of MyoCell;
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regulatory approval of our product candidates;
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our ability to secure additional financing to meet future
capital requirements;
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our dependence on the success of our lead product candidate;
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our inability to predict the extent of our future losses or if
or when we will become profitable;
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our ability to protect our intellectual property rights;
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our ability to meet our obligations on our outstanding
indebtedness to BlueCrest Capital Finance, L.P., which
indebtedness imposes certain restrictions on how we conduct our
business and is secured by all of our assets except our
intellectual property; and
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intense competition.
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These risks and others are discussed more fully in Risk
Factors beginning on page 8.
Pipeline
In addition to MyoCell, we have multiple cell therapies and
related devices for the treatment of chronic and acute heart
damage in various stages of development. We have also acquired
the rights to use certain devices for the treatment of heart
damage. We intend to allocate our capital, material and
personnel resources among MyoCell and the product candidates
described below, a number of which may have complementary
therapeutic applications. For each product candidate, we have
developed or are in the process of developing a regulatory
approval plan. Assuming such proposed plans are able to be
followed, we do not anticipate that the regulatory approval of
MyoCell will be necessary for further development of our other
product candidates.
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Bioheart Acute Cell Therapy (commenced animal studies in
first quarter of 2007 and anticipate filing Investigational New
Drug, or IND, application in fourth quarter of
2007)
Autologous cell therapy for the
treatment of acute myocardial infarction, or MI, using cells
processed by the TGI 1200.
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3
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TGI 1200 Adipose Tissue Processing System (upon approval
of IND application for Bioheart Acute Cell Therapy, anticipate
seeking cost reimbursement for use in connection with clinical
trials of Bioheart Acute Cell Therapy)
Fully
automated device for the rapid processing of patient derived fat
tissue. We have licensed the rights to use for the treatment of
acute MI and heart failure.
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MyoCell II with
SDF-1
(IND application
filed in May 2007)
Cell therapy treatment
for chronic heart damage; autologous myoblasts are modified to
express
SDF-1
protein
in an effort to stimulate angiogenesis and/or recruitment of
stem cells.
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MyoCath (Phase II clinical
trials)
Disposable endoventricular catheter
used for the delivery of biologic solutions to the myocardium.
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MyoCath II (anticipate commencing animal studies in
the third quarter of 2007)
Second generation
disposable endoventricular catheter modified to provide
multidirectional cell injection and used for the delivery of
biologic solutions to the myocardium.
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BioPace (preclinical)
Cell-therapy
treatment for chronic abnormal heart rhythm due to electrical
disturbances in the upper chambers of the heart.
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Allocell (preclinical)
Cell-therapy
treatment for chronic heart damage using myoblasts obtained from
third person donors, or allogenic myoblasts.
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Our Corporate Information
We were incorporated in the state of Florida in August 1999. Our
principal executive offices are located at 13794 NW
4th Street, Suite 212, Sunrise, Florida 33325 and
our telephone number is (954) 835-1500. Information about
our company is available on our corporate web site at
www.bioheartinc.com. Information contained on our web site does
not constitute part of, and is not incorporated by reference in,
this prospectus.
Unless otherwise indicated, all share numbers and per share
prices in this prospectus give effect to a reverse stock split
that will become effective prior to the closing of this
offering. Upon the effectiveness of the reverse stock split,
every 1.6187 shares of our common stock will be combined
into 1 share of our common stock.
MyoCell
®
,
MyoCath
®
,
MyoCell II with
SDF-1
tm
,
MyoCath
II
tm
,
BioPace
tm
and
Allocell
tm
are trademarks of Bioheart, Inc. TGI
100
tm
and TGI
1200
tm
are trademarks of Tissue Genesis, Inc.
MyoStar
tm
and
NOGA
®
are trademarks of Cordis Corporation, a Johnson & Johnson
company. This prospectus also includes trademarks, trade names
and service marks of other companies. Use or display by us of
other parties trademarks, trade names or service marks is
not intended to and does not imply a relationship with, or
endorsement or sponsorship of us by, these other parties.
This prospectus contains market data and industry forecasts that
were obtained from industry publications, third-party market
research and publicly available information. These publications
generally state that the information contained therein has been
obtained from sources believed to be reliable, but the accuracy
and completeness of such information is not guaranteed. While we
believe the information from these publications is reliable, we
have not independently verified, and make no representation as
to the accuracy of, such information.
4
THE OFFERING
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Issuer
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Bioheart, Inc.
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Common stock offered by us
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3,575,000 shares
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Common stock to be outstanding after this offering
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16,908,345 shares
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Over-allotment option
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536,250 shares
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Use of proceeds
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We expect to use the net proceeds from this offering:
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to fund the MARVEL Trial;
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for projected payments pursuant to our license
agreements and to further develop and protect our intellectual
property portfolio;
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to fund an initial Phase I clinical trial of
MyoCell II with
SDF-1;
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to fund the further development, preclinical testing
and/or Phase I clinical testing of our pipeline product
candidates;
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to fund the development of a sales and marketing
force;
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to repay accrued interest on certain debt
obligations; and
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for other general corporate purposes.
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See Use of Proceeds.
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Dividend policy
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We have not declared or paid any cash dividends on our capital
stock and do not anticipate paying any cash dividends in the
foreseeable future. See Dividend Policy and
Description of Capital Stock.
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Proposed NASDAQ Global Market symbol
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BHRT
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Risk factors
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You should carefully read and consider the information set forth
under Risk Factors and all other information set
forth in this prospectus before investing in our common stock.
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Except as otherwise noted, the number of shares of our common
stock to be outstanding after this offering excludes
888,124 shares reserved for future issuance under our
Officers and Employees Stock Option Plan and our Directors and
Consultants Stock Option Plan.
Unless otherwise indicated, all information contained in this
prospectus assumes:
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that the underwriters do not exercise their option to purchase
up to 536,250 additional shares of our common stock to cover
over-allotments, if any;
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that we will consummate a 1-for-1.6187 reverse stock split prior
to the closing of this offering; and
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the amendment and restatement of our Articles of Incorporation,
which will become effective at the closing of this offering.
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5
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data should be read
in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our financial statements and related notes that are included
elsewhere in this prospectus. We derived the summary
consolidated statement of operations data for the years ended
December 31, 2004, 2005 and 2006 from our audited financial
statements and notes thereto that are included elsewhere in this
prospectus. We derived the summary consolidated statement of
operations data for the years ended December 31, 2002 and
2003 from our audited financial statements that do not appear in
this prospectus. We derived the consolidated statement of
operations data for the six months ended June 30, 2006 and
2007 and the consolidated balance sheet data as of June 30,
2007 from our unaudited financial statements that are included
elsewhere in this prospectus. The unaudited interim financial
statements have been prepared on the same basis as our audited
annual financial statements and, in our opinion, reflect all
adjustments, which include only normal recurring adjustments,
necessary to present fairly the results of operations for the
periods ended June 30, 2006 and 2007 and our financial
condition as of June 30, 2007. The historical results are
not necessarily indicative of the results to be expected for any
future periods and the results for the six months ended
June 30, 2007 should not be considered indicative of
results expected for the full fiscal year.
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Six Months Ended
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Year Ended December 31,
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June 30,
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2002
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2003
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2004
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2005
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2006
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2006
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2007
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(Unaudited)
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(In thousands, except per share data)
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Statement of Operations Data:
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Revenues
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$
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2
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$
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46
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$
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86
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$
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135
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$
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106
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$
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75
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$
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208
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Cost of sales
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30
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46
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87
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73
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44
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34
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Gross profit
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2
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16
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40
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48
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33
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31
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174
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Expenses:
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Research and development
|
|
|
7,361
|
|
|
|
3,502
|
|
|
|
3,787
|
|
|
|
4,534
|
|
|
|
6,878
|
|
|
|
2,669
|
|
|
|
3,186
|
|
|
Marketing, general and administrative
|
|
|
1,946
|
|
|
|
2,523
|
|
|
|
1,731
|
|
|
|
2,831
|
|
|
|
6,372
|
|
|
|
1,325
|
|
|
|
1,751
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
31
|
|
|
|
34
|
|
|
|
46
|
|
|
|
91
|
|
|
|
30
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
9,307
|
|
|
|
6,056
|
|
|
|
5,552
|
|
|
|
7,411
|
|
|
|
13,341
|
|
|
|
4,024
|
|
|
|
5,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(9,305
|
)
|
|
|
(6,040
|
)
|
|
|
(5,512
|
)
|
|
|
(7,363
|
)
|
|
|
(13,308
|
)
|
|
|
(3,993
|
)
|
|
|
(4,855
|
)
|
|
Net interest income (expense)
|
|
|
47
|
|
|
|
2
|
|
|
|
(7
|
)
|
|
|
36
|
|
|
|
127
|
|
|
|
58
|
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(9,258
|
)
|
|
|
(6,038
|
)
|
|
|
(5,519
|
)
|
|
|
(7,327
|
)
|
|
|
(13,181
|
)
|
|
|
(3,935
|
)
|
|
|
(5,040
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,258
|
)
|
|
$
|
(6,038
|
)
|
|
$
|
(5,519
|
)
|
|
$
|
(7,327
|
)
|
|
$
|
(13,181
|
)
|
|
$
|
(3,935
|
)
|
|
$
|
(5,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(1.54
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(0.60
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(1.10
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic and
diluted
|
|
|
6,007
|
|
|
|
8,022
|
|
|
|
9,189
|
|
|
|
10,653
|
|
|
|
12,015
|
|
|
|
11,654
|
|
|
|
13,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a summary of our consolidated
balance sheet as of June 30, 2007:
|
|
|
|
|
on an actual basis;
|
|
|
|
|
on a pro forma basis to give effect to the sale by us of shares
of our common stock at an assumed initial public offering price
of $15.00 per share, the mid-point of the range set forth
on the cover page of this prospectus, and the receipt of net
proceeds of this offering, after deducting underwriting
discounts and commissions and estimated offering expenses
payable by us. Each $1.00 increase (decrease) in the
assumed initial public offering price of $15.00 per share
would increase (decrease) each of cash and cash
equivalents, working capital, total assets and total
shareholders equity by approximately $3.3 million,
assuming that the number of shares offered by us, as set forth
on the cover page of this
|
|
6
|
|
|
|
|
prospectus, remains the same, and after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007
|
|
|
|
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(in thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,916
|
|
|
$
|
61,130
|
|
Working capital
|
|
|
5,054
|
|
|
|
53,443
|
|
Total assets
|
|
|
17,905
|
|
|
|
64,601
|
|
Notes payable current
|
|
|
6,194
|
|
|
|
6,194
|
|
Note payable long term
|
|
|
3,806
|
|
|
|
3,806
|
|
Deficit accumulated during the development stage
|
|
|
(69,553
|
)
|
|
|
(69,553
|
)
|
Total shareholders equity
|
|
|
5,699
|
|
|
|
52,570
|
|
7
RISK FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider the risks and uncertainties
described below together with all of the other information
included in this prospectus, including the financial statements
and related notes appearing at the end of this prospectus before
deciding to invest in our common stock. If any of the following
risks actually occur they would harm our business, prospects,
financial condition and results of operations, possibly
materially. In this event, the market price of our common stock
could decline and you could lose part or all of your investment.
Please read Special Note Regarding Forward-Looking
Statements.
Risks Related to Our Financial Position and Potential Need
for Additional Financing
We are a development stage life sciences company with a
limited operating history and a history of net losses and
negative cash flows from operations. We may never be profitable,
and if we incur operating losses and generate negative cash
flows from operations for longer than expected, we may be unable
to continue operations.
We are a development stage life sciences company and have a
limited operating history, limited capital, limited sources of
revenue and have incurred losses since inception. Our operations
to date have been limited to organizing our company, developing
and engaging in clinical trials of our lead product candidate,
MyoCell, expanding our pipeline of complementary product
candidates through internal development and third party
licenses, expanding and strengthening our intellectual property
position through internal programs and third party licenses and
recruiting management, research and clinical personnel.
Consequently, you may have difficulty in predicting our future
success or viability due to our lack of operating history. As of
June 30, 2007, we have accumulated a deficit during our
development stage of approximately $69.6 million. Our lead
product candidate has not received regulatory approval or
generated any material revenues and is not expected to generate
any material revenues until early 2009, if ever. Since
inception, we have generated substantial net losses, including
net losses of approximately $13.2 million,
$7.3 million and $5.5 million in 2006, 2005 and 2004,
respectively and substantial negative cash flows from
operations. We anticipate that we will continue to incur
significant and increasing net losses and negative cash flows
from operations for the foreseeable future as we:
|
|
|
|
|
continue the SEISMIC Trial and the MYOHEART Trial and commence
the MARVEL Trial;
|
|
|
|
continue research and development and undertake new clinical
trials with respect to our pipeline product candidates,
including clinical trials related to MyoCell II with SDF-1;
|
|
|
|
apply for regulatory approvals;
|
|
|
|
make capital expenditures to increase our research and
development and cell culturing capabilities;
|
|
|
|
add operational, financial and management information systems
and personnel and develop and protect our intellectual property;
|
|
|
|
make payments pursuant to license agreements upon achievement of
certain milestones; and
|
|
|
|
establish sales and marketing capabilities to commercialize
products for which we obtain regulatory approval, if any.
|
Our limited experience in conducting and managing preclinical
development activities, clinical trials and the application
process necessary to obtain regulatory approvals might prevent
us from successfully designing or implementing a preclinical
study or clinical trial. If we do not succeed in conducting and
managing our preclinical development activities or clinical
trials, or in obtaining regulatory approvals, we might not be
able to commercialize our product candidates, or might be
significantly delayed in doing so, which will materially harm
our business.
None of the products that we are currently developing has been
approved by the FDA or any similar regulatory authority in any
foreign country. Our ability to generate revenues from any of
our product candidates will depend on a number of factors,
including our ability to successfully complete clinical trials,
8
obtain necessary regulatory approvals and implement our
commercialization strategy. In addition, even if we are
successful in obtaining necessary regulatory approvals and
bringing one or more product candidates to market, we will be
subject to the risk that the marketplace will not accept those
products. We may, and anticipate that we will need to,
transition from a company with a research and development focus
to a company capable of supporting commercial activities and we
may not succeed in such a transition.
Because of the numerous risks and uncertainties associated with
our product development and commercialization efforts, we are
unable to predict the extent of our future losses or when or if
we will become profitable. Our failure to successfully
commercialize our product candidates or to become and remain
profitable could depress the market price of our common stock
and impair our ability to raise capital, expand our business,
diversify our product offerings and continue our operations.
Our outstanding indebtedness to BlueCrest Capital Finance,
L.P. imposes certain restrictions on how we conduct our
business. In addition, all of our assets, except our
intellectual property, are pledged to secure this indebtedness.
If we fail to meet our obligations to BlueCrest Capital, our
payment obligations may be accelerated and the collateral
securing the debt may be sold to satisfy these
obligations.
Pursuant to a Loan and Security Agreement, dated May 31,
2007, BlueCrest Capital Finance, L.P., or BlueCrest Capital,
agreed to provide us a
three-year,
$5.0 million term loan, or the BlueCrest Loan. For the
first three months of the BlueCrest Loan, we are only required
to make payments of interest. Commencing in October 2007, we are
required to make 33 equal monthly payments of principal and
interest. Interest accrues at an annual rate of 12.85%. In the
event we seek to repay the BlueCrest Loan prior to maturity, we
are subject to a prepayment penalty equal to 3% of the
outstanding principal if paid during the first year of the
BlueCrest Loan, 2% of the outstanding principal if paid during
the second year of the BlueCrest Loan and 1% of the outstanding
principal if paid during the third year of the BlueCrest Loan.
As collateral to secure our repayment obligations to BlueCrest
Capital, we have granted it a first priority security interest
in all of our assets, excluding our intellectual property but
including the proceeds from any sale of any of our intellectual
property.
The Loan and Security Agreement contains various provisions that
restrict our operating flexibility. Pursuant to the agreement,
we may not, among other things:
|
|
|
|
|
incur additional indebtedness, except for certain permitted
indebtedness. Permitted indebtedness is defined to include
accounts payable incurred in the ordinary course of business,
leases of equipment or property incurred in the ordinary course
of business not to exceed, in the aggregate, $250,000, any
unsecured debt less than $20,000 or any debt not secured by the
collateral pledged to BlueCrest Capital that is subordinated to
the rights of BlueCrest Capital pursuant to a subordination
agreement satisfactory to BlueCrest Capital in its sole
discretion;
|
|
|
|
make any principal, interest or other payments arising under or
in connection with our loan from Bank of America or any other
debt subordinate to the BlueCrest Loan;
|
|
|
|
incur additional liens on any of our assets, including any liens
on our intellectual property, except for certain permitted liens
including but not limited to
non-exclusive
licenses
or
sub-licenses
of our
intellectual property in the ordinary course of business and
licenses or sub-licenses of intellectual property in connection
with joint ventures and corporate collaborations (provided that
any proceeds from such licenses be used to pay down the
BlueCrest Loan);
|
|
|
|
voluntarily prepay any debt prior to maturity, except for
accounts payable incurred in the ordinary course of business,
leases of equipment or property incurred in the ordinary course
of business not to exceed, in the aggregate, $250,000 and any
unsecured debt less than $20,000. However, in the event that
this offering closes before January 31, 2008 and the net
proceeds from this offering exceed $30 million, we may
prepay our debt to Bank of America;
|
|
|
|
convey, sell, transfer or otherwise dispose of property, except
for sales of inventory in the ordinary course of business, sales
of obsolete or unneeded equipment and transfers or our
intellectual property
|
9
|
|
|
|
|
related to product candidates other than MyoCell or
MyoCell II with
SDF-1
to a currently
operating or newly formed wholly owned subsidiary;
|
|
|
|
merge with or acquire any other entity if we would not be the
surviving person following such transaction;
|
|
|
|
pay dividends (other than stock dividends) to our shareholders;
|
|
|
|
redeem any outstanding shares of our common stock or any
outstanding options or warrants to purchase shares of our common
stock except in connection with a share repurchase pursuant to
which we offer to pay our then existing shareholders not more
than $250,000;
|
|
|
|
enter into transactions with affiliates other than on
arms-length terms; and
|
|
|
|
make any change in any of our business objectives, purposes and
operations which has or could be reasonably expected to have a
material adverse effect on our business.
|
These provisions could have important consequences for us,
including (i) making it more difficult for us to obtain
additional debt financing from another lender, or obtain new
debt financing on terms favorable to us, because such new lender
will have to be willing to be subordinate to BlueCrest Capital,
(ii) causing us to use a portion of our available cash for
debt repayment and service rather than other perceived needs
and/or (iii) impacting our ability to take advantage of
significant, perceived business opportunities. Our failure to
timely repay our obligations under the BlueCrest Loan or meet
the covenants set forth in the Loan and Security Agreement could
give rise to a default under the agreement. In the event of an
uncured default, the agreement provides that all amounts owed to
BlueCrest Capital are immediately due and payable and that
BlueCrest Capital has the right to enforce its security interest
in the assets securing the BlueCrest Loan. In such event,
BlueCrest Capital could take possession of any or all of our
assets in which they hold a security interest, and dispose of
those assets to the extent necessary to pay off our debts, which
would materially harm our business.
We have a substantial amount of debt and may incur
substantial additional debt, which could adversely affect our
ability to pursue certain business objectives, obtain financing
in the future and/or react to changes in our business.
In addition to the BlueCrest Loan, on June 1, 2007, we
borrowed $5.0 million from Bank of America, N.A., or the
Bank of America Loan. Accordingly, as of the date of this
prospectus, we have an aggregate of $10.0 million in
principal amount of outstanding indebtedness. We have committed
to repay the Bank of America Loan shortly after this offering
and intend to use approximately $0.5 million of the
proceeds of this offering to satisfy our interest obligations
under the Bank of America Loan and related agreements. We
anticipate that the BlueCrest Loan will need to be serviced and
repaid with existing cash, cash generated by this offering or
cash generated from other security or loan placements, if any.
If we are unable to generate cash through additional financings,
we may have to delay or curtail research, development and
commercialization programs.
In addition to the limitations imposed on our operational
flexibility by the BlueCrest Loan as described above, the
BlueCrest Loan and any other indebtedness incurred by us could
have significant additional negative consequences, including,
without limitation:
|
|
|
|
|
requiring the dedication of a portion of our available cash to
service our indebtedness, thereby reducing the amount of our
cash available for other purposes, including funding our
research and development programs and other capital expenditures;
|
|
|
|
increasing our vulnerability to general adverse economic and
industry conditions;
|
|
|
|
limiting our ability to obtain additional financing;
|
|
|
|
limiting our ability to react to changes in technology or our
business; and
|
|
|
|
placing us at a possible competitive disadvantage to less
leveraged competitors.
|
10
Based upon an assumed initial public offering price of $15.00
per share (the mid-point of the range set forth on the cover
page of this prospectus), we expect to raise net proceeds of
$46.9 million in this offering.
We may need substantial additional funding and may be
unable to raise capital when needed. An inability to obtain
additional financing on acceptable terms could adversely affect
our business, financial condition, results of operations, and
could even prevent us from continuing our business.
We are seeking to raise at least $46.9 million of net
proceeds in this offering. Even if we secure approximately
$46.9 million of proceeds in connection with this offering,
our demand for capital may be significantly higher than
anticipated. We may require substantial future capital in order
to continue the research and development, preclinical and
clinical programs, and regulatory activities necessary to obtain
regulatory approval of our product candidates. In addition,
subject to obtaining regulatory approval for any of our product
candidates, we expect to incur significant commercialization
expenses for product sales and marketing, manufacturing the
product and/or securing commercial quantities of product from
manufacturers and product distribution.
The extent of our need for additional capital will depend on
numerous factors, including, but not limited to:
|
|
|
|
|
the scope, rate of scientific progress, results and cost of our
clinical trials and other research and development activities;
|
|
|
|
the costs and timing of seeking FDA and other regulatory
approvals;
|
|
|
|
our ability to obtain sufficient third-party insurance coverage
or reimbursement for our product candidates;
|
|
|
|
the effectiveness of commercialization activities (including the
volume and profitability of any sales achieved);
|
|
|
|
our ability to establish additional strategic, collaborative and
licensing relationships with third parties with respect to the
sales, marketing and distribution of our products, research and
development and other matters and the economic and other terms
and timing of any such relationships;
|
|
|
|
the ongoing availability of funds from foreign governments to
build new manufacturing facilities;
|
|
|
|
the costs involved in any potential litigation that may occur;
|
|
|
|
decisions by us to pursue the development of new product
candidates or technologies or to make acquisitions or
investments; and
|
|
|
|
the effect of competing products, technologies and market
developments.
|
We have no commitments or arrangements from third parties for
any additional financing to fund the research and development
and commercialization of any of our product candidates. We may
need to seek substantial additional financing through public
and/or private financing, which may include equity and/or debt
financings, and through other arrangements, including
collaborative arrangements. However, financing may not be
available when we need it, or may not be available on acceptable
terms. Our ability to obtain additional debt financing may be
limited by the amount of, terms and restrictions of our then
current debt. For instance, we do not anticipate repaying the
BlueCrest Loan until its scheduled maturity in June 2010.
Accordingly, until such time, we will generally be restricted
from, among other things, incurring additional indebtedness or
liens, with limited exceptions. See We have a
substantial amount of debt... and Our
outstanding indebtedness to BlueCrest Capital Finance, L.P.
imposes certain restrictions... Additional debt financing,
if available, may involve restrictive covenants that limit or
further limit our operating and financial flexibility and
prohibit us from making distributions to shareholders. If we
raise additional funds by issuing equity, equity-related or
convertible securities, the economic, voting and other rights of
our existing shareholders, including investors who purchase
shares in this offering, may be diluted, and those securities
may have rights superior to those of our common stock. If we
obtain additional capital through collaborative arrangements, we
may be required to relinquish greater rights to our technologies
or product candidates than
11
we might otherwise have or become subject to restrictive
covenants that may affect our business. If we are unable to
raise additional funds when we need them, we may be required to
delay, scale back or eliminate expenditures for our development
programs, curtail efforts to commercialize our product
candidates or reduce the scale of our operations, any of which
could adversely affect our business, financial condition,
results of operations, and could even prevent us from continuing
our business at all.
Risks Related to Product Development
All of our product candidates are in an early stage of
development and we may never succeed in developing and/or
commercializing them. We depend heavily on the success of our
lead product candidate, MyoCell. If we are unable to
commercialize MyoCell or any of our other product candidates or
experience significant delays in doing so, our business may
fail.
We have invested a significant portion of our efforts and
financial resources in our lead product candidate, MyoCell, and
depend heavily on its success. MyoCell is currently being tested
in clinical trials. Even if MyoCell progresses through clinical
trials as we anticipate, we do not expect MyoCell to be
commercially available until, at the soonest, the second quarter
of 2008. We need to devote significant additional research and
development, financial resources and personnel to develop
commercially viable products, obtain regulatory approvals and
establish a sales and marketing infrastructure.
We are likely to encounter hurdles and unexpected issues as we
proceed in the development of MyoCell and our other product
candidates. There are many reasons that we may not succeed in
our efforts to develop our product candidates, including the
possibility that:
|
|
|
|
|
our product candidates will be deemed ineffective, unsafe or
will not receive regulatory approvals;
|
|
|
|
our product candidates will be too expensive to manufacture or
market or will not achieve broad market acceptance;
|
|
|
|
others will hold proprietary rights that will prevent us from
marketing our product candidates; or
|
|
|
|
our competitors will market products that are perceived as
equivalent or superior.
|
Our approach of using cell-based therapy for the treatment
of heart damage is risky and unproven and no products using this
approach have received regulatory approval in the United States
or Europe.
No company has yet been successful in its efforts to obtain
regulatory approval in the United States or Europe of a
cell-based therapy product for the treatment of heart damage.
Cell-based therapy products, in general, may be susceptible to
various risks, including undesirable and unintended side
effects, unintended immune system responses, inadequate
therapeutic efficacy or other characteristics that may prevent
or limit their approval by regulators or commercial use. Many
companies in the industry have suffered significant setbacks in
advanced clinical trials, despite promising results in earlier
trials. One of our competitors exploring the use of skeletal
myoblasts has announced its intent to cease to enroll new
patients in its European Phase II clinical trial based on the
determination of its monitoring committee that there was a low
likelihood that the trial would result in the hypothesized
improvement in heart function. Although our clinical research to
date suggests that MyoCell may improve the contractile function
of the heart, we have not yet been able to demonstrate a
mechanism of action and additional research is needed to
precisely identify such mechanism.
If our clinical trials are unsuccessful or significantly
delayed, or if we do not complete our clinical trials, we will
not receive regulatory approval for or be able to commercialize
our product candidates.
Our lead product candidate, MyoCell, is still in clinical
testing and has not yet received approval from the FDA or any
similar foreign regulatory authority for any indication. MyoCell
may never receive regulatory approval or be commercialized in
the United States or other countries. Although we intend to seek
regulatory approval of MyoCell in the United States based upon
the results of the Phase II/III MARVEL Trial, there can be
no assurances that the FDA will consider the MARVEL Trial
pivotal. Accordingly, we may be required to conduct additional
trials prior to obtaining commercial approval, if ever, in the
United States.
12
We cannot market any product candidate until regulatory agencies
grant approval or licensure. In order to obtain regulatory
approval for the sale of any product candidate, we must, among
other requirements, provide the FDA and similar foreign
regulatory authorities with preclinical and clinical data that
demonstrate to the satisfaction of regulatory authorities that
our product candidates are safe and effective for each
indication under the applicable standards relating to such
product candidate. The preclinical studies and clinical trials
of any product candidates must comply with the regulations of
the FDA and other governmental authorities in the United States
and similar agencies in other countries.
Even if we achieve positive interim results in clinical trials,
these results do not necessarily predict final results, and
positive results in early trials may not be indicative of
success in later trials. For example, MyoCell has been studied
in a limited number of patients to date. Even though our early
data has been promising, we have not yet completed any
large-scale pivotal trials to establish the safety and efficacy
of MyoCell. A number of participants in our clinical trials have
experienced serious adverse events adjudicated or determined by
trial investigators to be potentially attributable to MyoCell.
See Risk Factors Our product candidates may
never be commercialized due to unacceptable side effects and
increased mortality that may be associated with such product
candidates. There is a risk that safety concerns relating
to our product candidates or cell-based therapies in general
will result in the suspension or termination of our clinical
trials.
We may experience numerous unforeseen events during, or as a
result of, the clinical trial process that could delay or
prevent regulatory approval and/or commercialization of our
product candidates, including the following:
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the FDA or similar foreign regulatory authorities may find that
our product candidates are not sufficiently safe or effective or
may find our cell culturing processes or facilities
unsatisfactory;
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officials at the FDA or similar foreign regulatory authorities
may interpret data from preclinical studies and clinical trials
differently than we do;
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our clinical trials may produce negative or inconclusive results
or may not meet the level of statistical significance required
by the FDA or other regulatory authorities, and we may decide,
or regulators may require us, to conduct additional preclinical
studies and/or clinical trials or to abandon one or more of our
development programs;
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the FDA or similar foreign regulatory authorities may change
their approval policies or adopt new regulations;
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there may be delays or failure in obtaining approval of our
clinical trial protocols from the FDA or other regulatory
authorities or obtaining institutional review board approvals or
government approvals to conduct clinical trials at prospective
sites;
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we, or regulators, may suspend or terminate our clinical trials
because the participating patients are being exposed to
unacceptable health risks or undesirable side effects;
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we may experience difficulties in managing multiple clinical
sites;
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enrollment in our clinical trials for our product candidates may
occur more slowly than we anticipate, or we may experience high
drop-out rates of subjects in our clinical trials, resulting in
significant delays;
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we may be unable to manufacture or obtain from third party
manufacturers sufficient quantities of our product candidates
for use in clinical trials; and
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our product candidates may be deemed unsafe or ineffective, or
may be perceived as being unsafe or ineffective, by healthcare
providers for a particular indication.
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In the SEISMIC Trial, we have continued to experience delays
attributable to slower than anticipated enrollment of patients.
We may continue to experience difficulties in enrolling patients
in our clinical trials, which could increase the costs or affect
the timing or outcome of these trials and could prevent us from
completing these trials.
13
Failures or perceived failures in our clinical trials would
delay and may prevent our product development and regulatory
approval process, make it difficult for us to establish
collaborations, negatively affect our reputation and competitive
position and otherwise have a material adverse effect on our
business.
Our product candidates may never be commercialized due to
unacceptable side effects and increased mortality that may be
associated with such product candidates.
Possible side effects of our product candidates may be serious
and life-threatening. A number of participants in our clinical
trials of MyoCell have experienced serious adverse events
potentially attributable to MyoCell, including six patient
deaths and 18 patients experiencing irregular heartbeats. A
serious adverse event is generally an event that results in
significant medical consequences, such as hospitalization,
disability or death, and must be reported to the FDA. The
occurrence of any unacceptable serious adverse events during or
after preclinical and clinical testing of our product candidates
could temporarily delay or negate the possibility of regulatory
approval of our product candidates and adversely affect our
business. Both our trials and independent trials have reported
the occurrence of irregular heartbeats in treated patients, a
significant risk to patient safety. We and our competitors have
also, at times, suspended trials studying the effects of
myoblasts, at least temporarily, to assess the risk of irregular
heartbeats and it has been reported that one of our competitors
studying the effect of myoblast implantation prematurely
discontinued a study because of the high incidence of irregular
heartbeats. While we believe irregular heartbeats may be
manageable with the use of certain prophylactic measures
including an implantable cardioverter defibrillator, or ICD, and
anti-arrhythmic drug therapy, these risk management techniques
may not prove to sufficiently reduce the risk of unacceptable
side effects. Although our early results suggest that patients
treated with MyoCell do not face materially different health
risks than heart failure patients with similar levels of damage
to the heart who have not been treated with MyoCell, we are
still in the process of seeking to demonstrate that our product
candidates do not pose unacceptable health risks. We have not
yet treated a sufficient number of patients to allow us to make
a determination that serious unintended consequences will not
occur.
We depend on third parties to assist us in the conduct of
our preclinical studies and clinical trials, and any failure of
those parties to fulfill their obligations could result in costs
and delays and prevent us from obtaining regulatory approval or
successfully commercializing our product candidates on a timely
basis, if at all.
We engage consultants and contract research organizations to
help design, and to assist us in conducting, our preclinical
studies and clinical trials and to collect and analyze data from
those studies and trials. The consultants and contract research
organizations we engage interact with clinical investigators to
enroll patients in our clinical trials. As a result, we depend
on these consultants and contract research organizations to
perform the studies and trials in accordance with the
investigational plan and protocol for each product candidate and
in compliance with regulations and standards, commonly referred
to as good clinical practice, for conducting,
recording and reporting results of clinical trials to assure
that the data and results are credible and accurate and the
trial participants are adequately protected, as required by the
FDA and foreign regulatory agencies. We may face delays in our
regulatory approval process if these parties do not perform
their obligations in a timely or competent fashion or if we are
forced to change service providers. We were recently informed by
our contract research organization for the MYOHEART Trial that
it is going out of business. Although we do not intend to engage
a replacement full service contract research organization, we
are seeking to engage alternate service providers to assist us
to complete the data management and verification processes. To
the extent we are unable to timely engage sufficient alternative
service providers, we may experience delays in our projected
timeline for receiving final results from the MYOHEART Trial.
The risk of delays is heightened for our clinical trials
conducted outside of the United States, where it may be more
difficult for us to ensure that studies are conducted in
compliance with foreign regulatory requirements. Any third
parties that we hire to conduct clinical trials may also provide
services to our competitors, which could compromise the
performance of their obligations to us. If these third parties
do not successfully carry out their duties or meet expected
deadlines, or if the quality, completeness or accuracy of the
data they obtain is compromised due to their failure to adhere
to our clinical trial protocols or for other reasons, our
clinical trials may be extended, delayed or terminated or may
otherwise prove to be unsuccessful. If there are delays or
14
failures in clinical trials or regulatory approvals as a result
of the failure to perform by third parties, our development
costs will increase, and we may not be able to obtain regulatory
approval for our product candidates. In addition, we may not be
able to establish or maintain relationships with these third
parties on favorable terms, if at all. If we need to enter into
replacement arrangements because a third party is not performing
in accordance with our expectations, we may not be able to do so
without undue delays or considerable expenditures or at all.
Risks Related to Government Regulation and Regulatory
Approvals
Our cell-based product candidates are based on novel
technologies and the FDA and regulatory agencies in other
countries have limited experience reviewing product candidates
using these technologies.
We are subject to the risks of failure inherent in the
development of product candidates based on new technologies. The
novel nature of our product candidates creates significant
challenges in regards to product development and optimization,
government regulation, third party reimbursement and market
acceptance. These include:
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the scientific basis of our technology could be determined to be
less sound than we believe;
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the time and effort required to solve novel technical problems
could delay the development of our product candidates;
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the FDA and regulatory agencies in other countries have
relatively limited experience with therapies based upon cellular
medicine generally and, as a result, the pathway to regulatory
approval for our cell-based product candidates may be more
complex and lengthy; and
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the healthcare community has relatively little experience with
therapies based upon cellular medicine and, accordingly,
following regulatory approval, if any, our product candidates
may not become widely accepted by physicians, patients, third
party payors or the healthcare community.
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As a result, the development and commercialization pathway for
our cell-based therapies may be subject to increased
uncertainty, as compared to the pathway for new conventional
drugs.
We are subject to numerous risks associated with seeking
regulatory approval of MyoCell pursuant to a protocol that
requires the use of a catheter system which is still subject to
FDA approval. The catheter system we intend to use in connection
with our MARVEL Trial is owned by an unaffiliated third party.
Although we have entered into a two-year supply agreement for
delivery of the catheter system for use in the MARVEL Trial, we
are subject to a number of risks not addressed by the parties in
the supply agreement.
We have been cleared by the FDA to proceed under the protocol
for our MARVEL Trial, which protocol requires participating
trial investigators to use Biosense Websters, a Johnson
& Johnson company,
NOGA
®
Cardiac Navigation System along with the
MyoStar
tm
injection catheter, or MyoStar, or collectively with the
NOGA
®
Cardiac Navigation System, the MyoStar System, for the delivery
of MyoCell to patients enrolled in the trial. We further
anticipate that if MyoCell receives regulatory approval, such
approval will require MyoCell to be injected with a catheter
system that has also secured regulatory approval. Accordingly,
the commercial deployment of MyoCell is dependent upon MyoStar,
MyoCath or some other catheter system securing regulatory
approval for use with MyoCell. Although MyoStar has received CE
mark approval in Europe, neither MyoStar, MyoCath nor any other
catheter system is commercially available in the United States
and they may only be used pursuant to FDA approved
investigational protocols. Notwithstanding the devotion of
considerable resources to the development and testing of MyoStar
and MyoCath, they may never receive additional or any,
respectively, regulatory approval that will allow for their
commercial use with MyoCell.
We are not affiliated with Biosense Webster, the Cordis
Corporation or any other Johnson & Johnson company. Although
we entered into a supply agreement with Biosense Webster on
May 10, 2007 pursuant to which it has agreed to deliver
MyoStar to us for a two year period at an agreed upon price as
and when
15
required by the MARVEL Trial, we currently have no right to
control the further development, clinical testing and/or
refinement of MyoStar. Biosense Webster currently has the right
to make the following types of decisions without consulting with
or even considering our views, which decisions could directly or
indirectly negatively impact our efforts and/or ability to
secure regulatory approval of MyoCell:
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the terms and conditions under which MyoStar will be made
available for use to trial investigators, if at all, after the
term of the supply agreement;
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the terms and conditions under which the diagnostic consoles
that are part of the
NOGA
®
Cardiac Navigation System will be made available for use to
trial investigators, if at all;
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the modification or not of the MyoStar System or any of its
components and its protocol for use as a result of information
obtained during trials;
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the license or sale of the MyoStar System related intellectual
property to a third party, potentially including our competitors;
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the use of the MyoStar System or any of its components in
myoblast-based clinical therapies other than ours; and
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the suspension or abandonment of other clinical trials involving
MyoStar.
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The unavailability of the MyoStar System, for any reason, would
have a material adverse effect on our product development and
commercialization efforts as we will be unable to recover the
time and money expended on the MARVEL Trial prior to such
determination of unavailability.
We must comply with extensive government regulations in
order to obtain and maintain marketing approval for our products
in the United States and abroad. If we do not obtain regulatory
approval for our product candidates, we may be forced to cease
our operations.
Our product candidates are subject to extensive regulation in
the United States and in every other country where they will be
tested or used. These regulations are wide-ranging and govern,
among other things:
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product design, development, manufacture and testing;
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product safety and efficacy;
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product labeling;
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product storage and shipping;
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record keeping;
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pre-market clearance or approval;
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advertising and promotion; and
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product sales and distribution.
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We cannot market our product candidates until we receive
regulatory approval. The process of obtaining regulatory
approval is lengthy, expensive and uncertain. Any difficulties
that we encounter in obtaining regulatory approval may have a
substantial adverse impact on our business and cause our stock
price to decline significantly.
In the United States, the FDA imposes substantial requirements
on the introduction of biological products and many medical
devices 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 and the time required to do so may
vary substantially based upon the type and complexity of the
biological product or medical device.
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In addition, product candidates that we believe should be
classified as medical devices for purposes of the FDA regulatory
pathway may be determined by the FDA to be biologic products
subject to the satisfaction of significantly more stringent
requirements for FDA approval.
The requirements governing the conduct of clinical trials and
cell culturing and marketing of our product candidates outside
the United States vary widely from country to country. Foreign
approvals may take longer to obtain than FDA approvals and can
require, among other things, additional testing and different
clinical trial designs. Foreign regulatory approval processes
generally include all of the risks associated with the FDA
approval processes. Some foreign regulatory agencies also must
approve prices of the products. Regulatory approval in one
country does not ensure regulatory approval in another, but a
failure or delay in obtaining regulatory approval in one country
may negatively impact the regulatory process in others. We may
not be able to file for regulatory approvals and may not receive
necessary approvals to market our product candidates in any
foreign country. If we fail to comply with these regulatory
requirements or fail to obtain and maintain required approvals
in any foreign country, we will not be able to sell our product
candidates in that country and our ability to generate revenue
will be adversely affected.
We cannot assure you that we will obtain FDA or foreign
regulatory approval to market any of our product candidates for
any indication in a timely manner or at all. If we fail to
obtain regulatory approval of any of our product candidates for
at least one indication, we will not be permitted to market our
product candidates and may be forced to cease our operations.
Even if some of our product candidates receive regulatory
approval, these approvals may be subject to conditions, and we
and our third party manufacturers will in any event be subject
to significant ongoing regulatory obligations and
oversight.
Even if any of our product candidates receives regulatory
approval, the manufacturing, marketing and sale of our product
candidates will be subject to stringent and ongoing government
regulation. Conditions of approval, such as limiting the
category of patients who can use the product, may significantly
impact our ability to commercialize the product and may make it
difficult or impossible for us to market a product profitably.
Changes we may desire to make to an approved product, such as
cell culturing changes or revised labeling, may require further
regulatory review and approval, which could prevent us from
updating or otherwise changing an approved product. If our
product candidates are approved by the FDA or other regulatory
authorities for the treatment of any indications, regulatory
labeling may specify that our product candidates be used in
conjunction with other therapies. For instance, we currently
anticipate that prior implantation of an ICD and treatment with
optimal drug therapy will be required at least initially as a
condition to treatment with MyoCell.
Once obtained, regulatory approvals may be withdrawn for a
number of reasons, including the later discovery of previously
unknown problems with the product. Regulatory approval may also
require costly post-marketing follow-up studies, and failure of
our product candidates to demonstrate sufficient efficacy and
safety in these studies may result in either withdrawal of
marketing approval or severe limitations on permitted product
usage. In addition, numerous additional regulatory requirements
relating to, among other processes, the labeling, packaging,
adverse event reporting, storage, advertising, promotion and
record-keeping will also apply. Furthermore, regulatory agencies
subject a marketed product, its manufacturer and the
manufacturers facilities to continual review and periodic
inspections. Compliance with these regulatory requirements are
time consuming and require the expenditure of substantial
resources.
If any of our product candidates is approved, we will be
required to report certain adverse events involving our products
to the FDA, to provide updated safety and efficacy information
and to comply with requirements concerning the advertisement and
promotional labeling of our products. As a result, even if we
obtain necessary regulatory approvals to market our product
candidates for any indication, any adverse results,
circumstances or events that are subsequently discovered, could
require that we cease marketing the product for that indication
or expend money, time and effort to ensure full compliance,
which could have a material adverse effect on our business.
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In response to recent events regarding questions about the
safety of certain approved prescription products, including the
lack of adequate warnings, the FDA and the U.S. Congress
are currently considering new regulatory and legislative
approaches to advertising, monitoring and assessing the safety
of marketed drugs, including legislation authorizing the FDA to
mandate labeling changes for approved products, particularly
those related to safety. It is possible that congressional and
FDA initiatives pertaining to ensuring the safety of marketed
biologics and similar initiatives in other countries, or other
developments pertaining to the pharmaceutical industry, could
require us to expend additional resources to comply with such
initiatives and could adversely affect our operations.
In addition, the FDA and similar foreign governmental
authorities have the authority to require the recall of
commercialized products in the event of any failure to comply
with applicable laws and regulations or defects in design or
manufacture. In the event any of our product candidates receives
approval and is commercialized, a government-mandated or
voluntary product recall by us could occur as a result of
component failures, device malfunctions, or other negative
events such as serious injuries or deaths, or quality-related
issues such as cell culturing errors or design or labeling
defects. Recalls of any of our potential products could divert
managerial and financial resources, harm our reputation and
adversely affect our financial condition, results of operations
and stock price.
Any failure by us, or by any third parties that may manufacture
or market our products, to comply with the law, including
statutes and regulations administered by the FDA or other U.S.
or foreign regulatory authorities, could result in, among other
things, warning letters, fines and other civil penalties,
suspension of regulatory approvals and the resulting requirement
that we suspend sales of our products, refusal to approve
pending applications or supplements to approved applications,
export or import restrictions, interruption of production,
operating restrictions, closure of the facilities used by us or
third parties to manufacture our product candidates, injunctions
or criminal prosecution. Any of the foregoing actions could have
a material adverse effect on our business.
We must comply with federal, state and foreign laws,
regulations and other rules relating to the healthcare business,
and, if we do not fully comply with such laws, regulations and
other rules, we could face substantial penalties.
We are, or will be directly or indirectly through our customers,
subject to extensive regulation by the federal government, the
states and foreign countries in which we may conduct our
business. The laws that directly or indirectly affect our
ability to operate our business include the following:
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the federal Medicare and Medicaid Anti-Kickback law, which
prohibits persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or
indirectly, in cash or in kind, to induce either the referral of
an individual or furnishing or arranging for a good or service,
for which payment may be made under federal healthcare programs
such as Medicare and Medicaid;
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other Medicare laws, regulations, rules, manual provisions and
policies that prescribe the requirements for coverage and
payment for services performed by our customers, including the
amount of such payment;
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the Federal False Claims Act, which imposes civil and criminal
liability on individuals and entities who submit, or cause to be
submitted, false or fraudulent claims for payment to the
government;
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the Federal False Statements Act, which prohibits knowingly and
willfully falsifying, concealing or covering up a material fact
or making any materially false statement in connection with
delivery of or payment for healthcare benefits, items or
services; and
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state and foreign law equivalents of the foregoing.
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If our operations are found to be in violation of any of the
laws, regulations, rules or policies described above or any
other law or governmental regulation to which we or our
customers are or will be subject, or if the interpretation of
the foregoing changes, we may be subject to civil and criminal
penalties, damages, fines, exclusion from the Medicare and
Medicaid programs and the curtailment or restructuring of our
operations.
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Similarly, if our customers are found non-compliant with
applicable laws, they may be subject to sanctions, which could
also have a negative impact on us. Any penalties, damages,
fines, curtailment or restructuring of our operations would
adversely affect our ability to operate our business and our
financial results. The risk of our being found in violation of
these laws is 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, and additional legal or regulatory change. Any
action against us for violation of these laws, even if we
successfully defend against it, could cause us to incur
significant legal expenses, divert our managements
attention from the operation of our business and damage our
reputation.
Our business involves the use of hazardous materials that
could expose us to environmental and other liability.
Our facility in Sunrise, Florida is subject to various local,
state and federal laws and regulations relating to the use and
disposal of hazardous or potentially hazardous substances,
including chemicals and micro-organisms used in connection with
our research and development activities. In the United States,
these laws include the Occupational Safety and Health Act, the
Toxic Test Substances Control Act and the Resource Conservation
and Recovery Act. Although we believe that our safety procedures
for handling and disposing of these materials comply with the
standards prescribed by these regulations, we cannot assure you
that accidental contamination or injury to employees and third
parties from these materials will not occur. Although we have
insurance coverage of up to $250,000 to cover claims arising
from our use and disposal of these hazardous substances, the
insurance that we currently hold may not be adequate to cover
all liabilities relating to our use and disposal of hazardous
substances.
Risks Related to Commercialization of our Product
Candidates
If we are successful in securing regulatory approval of
MyoCell utilizing a protocol that requires the use of MyoStar,
we will be subject to numerous risks associated with
commercializing a therapy that requires the use of a product
that we do not control.
Except for the agreement pursuant to which Biosense Webster has
agreed to deliver MyoStar to us in connection with the
MARVEL Trial, we have no agreement in place with Biosense
Webster that defines our relationship with them and our
prospective customers. Accordingly, Biosense Webster currently
has the right to make the following types of decisions without
consulting with or even considering our views, which decisions
could directly or indirectly negatively impact our efforts
and/or ability to commercialize MyoCell:
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the temporary or permanent suspension of production, marketing
or distribution of the MyoStar System;
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the terms and conditions under which the MyoStar System will be
made available to customers, if at all;
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the modification or refinement of the MyoStar System and its
protocols for use as a result of information obtained from
patients; and
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the branding and/or use of the MyoStar System in conjunction
with myoblast-based clinical therapies other than ours.
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Similarly, we have no control over the intellectual property
rights underlying MyoStar or the MyoStar System, no ability to
protect or defend any such intellectual property rights and no
ability to prevent Biosense Webster from licensing or selling
these intellectual property rights to one of our competitors.
The healthcare community has relatively little experience
with therapies based on cellular medicine and, accordingly, if
our product candidates do not become widely accepted by
physicians, patients, third party payors or the healthcare
community, we may be unable to generate significant revenue, if
any.
We are developing cell-based therapy product candidates for the
treatment of heart damage that represent novel and unproven
treatments and, if approved, will compete with a number of more
conventional
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products and therapies manufactured and marketed by others,
including major pharmaceutical companies. We cannot predict or
guarantee that physicians, patients, healthcare insurers, third
party payors or health maintenance organizations, or the
healthcare community in general, will accept or utilize any of
our product candidates. We anticipate that, if approved, we will
market MyoCell primarily to interventional cardiologists, who
are generally not the primary care physicians for patients who
may be eligible for treatment with MyoCell. Accordingly, our
commercial success may be dependent on third party physicians
referring their patients to interventional cardiologists for
MyoCell treatment.
If we are successful in obtaining regulatory approval for any of
our product candidates, the degree of market acceptance of those
products will depend on many factors, including:
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our ability to provide acceptable evidence and the perception of
patients and the healthcare community, including third party
payors, of the positive characteristics of our product
candidates relative to existing treatment methods, including
their safety, efficacy, cost effectiveness and/or other
potential advantages;
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the incidence and severity of any adverse side effects of our
product candidates;
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the availability of alternative treatments;
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the labeling requirements imposed by the FDA and foreign
regulatory agencies, including the scope of approved indications
and any safety warnings;
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our ability to obtain sufficient third party insurance coverage
or reimbursement for our products candidates;
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the inclusion of our products on insurance company coverage
policies;
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the willingness and ability of patients and the healthcare
community to adopt new technologies;
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the procedure time associated with the use of our product
candidates;
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our ability to manufacture or obtain from third party
manufacturers sufficient quantities of our product candidates
with acceptable quality and at an acceptable cost to meet
demand; and
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marketing and distribution support for our products.
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Failure to achieve market acceptance would limit our ability to
generate revenue and would have a material adverse effect on our
business. In addition, if any of our product candidates achieve
market acceptance, we may not be able to maintain that market
acceptance over time if competing products or technologies are
introduced that are received more favorably or are more
cost-effective.
There is substantial uncertainty as to the coverage that
may be available and the reimbursement rates that may be
established for our product candidates. Any failure to obtain
third party coverage or an adequate level of reimbursement for
our product candidates will likely have a material adverse
effect on our business.
If we successfully develop, and obtain necessary regulatory
approvals for, our product candidates we intend to sell them
initially in Europe and the United States. We have not yet
submitted any of our product candidates to the Center for
Medicare and Medicaid Services, or CMS, or any private or
governmental third party payor in the United States to determine
whether or not our product candidates will be covered under
private or public health insurance plans or, if they are
covered, what coverage or reimbursement rates may be available.
Although we believe hospitals may be entitled to some procedure
reimbursement for MyoCell, we cannot assure you that such
reimbursement will be adequate or available at all.
In Europe, the pricing of prescription pharmaceutical products
and services and the level of government reimbursement generally
are subject to governmental control. Reimbursement and
healthcare payment systems in European markets vary
significantly by country, and may include both
government-sponsored healthcare and private insurance. In these
countries, pricing negotiations with governmental authorities
can take six to twelve months or longer after the receipt of
marketing approval for a product. To obtain reimbursement or
pricing approval in some countries, we may be required to
conduct one or more clinical
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trials that compare the cost effectiveness of our product
candidates to other available therapies. Conducting one or more
clinical trials for this purpose would be expensive and result
in delays in commercialization of our product candidates. We may
not obtain coverage or reimbursement or pricing approvals from
countries in Europe in a timely manner, or at all. Any failure
to receive coverage or reimbursement or pricing approvals from
one or more European countries could effectively prevent us from
selling our product candidates in those countries, which could
materially adversely affect our business.
In the United States, our revenues will depend upon the coverage
and reimbursement rates and policies established for our product
candidates by third party payors, including governmental
authorities, managed-care providers, public health insurers,
private health insurers and other organizations. These third
party payors are increasingly attempting to contain healthcare
costs by limiting both coverage and the level of reimbursement
for new healthcare products approved for marketing by the FDA or
regulatory agencies in other countries. As a result, significant
uncertainty exists as to whether newly approved medical products
will be eligible for coverage by third party payors or, if
eligible for coverage, what the reimbursement rates will be for
those products. Furthermore, cell-based therapies like MyoCell
may be more expensive than pharmaceuticals, due to, among other
things, the higher cost and complexity associated with the
research, development and production of these therapies. This,
in turn, may make it more difficult for us to obtain adequate
reimbursement from third party payors, particularly if we cannot
demonstrate a favorable cost-benefit relationship. Third party
payors may also deny coverage or offer inadequate levels of
reimbursement for our potential products if they determine that
the product has not received appropriate clearances from the FDA
or other government regulators or is experimental, unnecessary
or inappropriate. Accordingly, we cannot assure you that
adequate third party coverage or reimbursement will be available
for any of our product candidates to allow us to successfully
commercialize these product candidates.
Coverage and reimbursement rates for our product candidates may
be subject to increased restrictions both in the United States
and in other countries in the future. Coverage policies and
reimbursement rates are subject to change and we cannot
guarantee that current coverage policies and reimbursement rates
will be applicable to our product candidates in the future.
U.S. federal, state and foreign agencies and legislatures
from time to time may seek to impose restrictions on coverage,
pricing, and reimbursement level of drugs, devices and
healthcare services in order to contain healthcare costs.
We have only limited experience culturing our cell-based
product candidates, and we may not be able to culture our
product candidates in quantities sufficient for clinical studies
or for commercial sale. We also face certain risks in connection
with our use of third party manufacturers and cell culturing
service providers.
We may encounter difficulties in the production of our
cell-based product candidates, including MyoCell, due to our
limited experience internally culturing our product candidates.
We have a cell culturing facility in Sunrise, Florida, which we
believe has the capacity to meet substantially all of our
projected demand for MyoCell in the United States for the
balance of 2007. We began culturing cells at this facility for
preclinical uses in the third quarter of 2006. Prior to such
date, we outsourced our various cell culturing needs. We
anticipate that we will begin culturing cells at this facility
for clinical uses upon commencement of the MARVEL Trial. We have
no experience in culturing our product candidates for the number
of patients that will be required for later stage clinical
studies or commercialization and may be unable to culture
sufficient quantities of our product candidates for our clinical
trials or our commercial needs on a timely and cost-effective
basis. Difficulties arising from our limited cell culturing
experience could reduce sales of our products, increase our
costs or cause production delays, any of which could adversely
affect our results of operations.
We intend to further optimize our processing times by building
our facilities or contracting with a small number of cell
culturing facilities in strategic regional locations. We
anticipate that a portion of the funds necessary to construct
new manufacturing facilities may be made available to us by the
governments of the countries where we seek to build such
facilities. To the extent these funds are not available to us,
we may be unable to construct these facilities or may need to
seek additional capital.
21
We anticipate that we will continue to use third party cell
culturing service providers, including Pharmacell and Cambrex
Bioscience, to supply a portion of our cell-based product
candidates, including MyoCell, for clinical trials and
commercial sales outside of the United States. We may not be
able to, and in our Phase I/ II clinical trial experienced
delays because we were not at times able to, obtain sufficient
quantities of MyoCell from third party cell culturing service
providers. In addition, our third party cell culturing providers
may be unable to culture commercial quantities of our product
candidates on a timely and cost-effective basis. The term of our
supply agreement with Pharmacell expires six months following
the end of completion of the SEISMIC and MARVEL Trials unless
terminated earlier. We cannot be certain that we will be able to
maintain our relationships with our third party cell culturing
service providers, including Pharmacell, or establish
relationships with other cell culturing service providers on
commercially acceptable terms.
We currently use and expect to continue to use third party
manufacturers to supply our device product candidates, including
MyoCath. Our contract with our only MyoCath manufacturer is
scheduled to terminate in September 2007. We anticipate either
renegotiating our contract with this manufacturer or negotiating
a new agreement with another manufacturer. The transition to a
replacement contract manufacturer has additional risks,
including those risks associated with the development by the
replacement contract manufacturer of sufficient levels of
expertise in the manufacturing process. If we are unable to
renegotiate this agreement or enter into a replacement agreement
with another contract manufacturer on reasonable terms and in a
timely manner, or if any replacement contract manufacturer is
unable to develop sufficient manufacturing expertise in a timely
manner, we could experience shortages of clinical trial
materials, which could adversely affect our business.
Our cell culturing facility and those of our contract
manufacturers and other cell culturing service providers will be
subject to ongoing, periodic inspection by the FDA to confirm
that the facilities comply with the FDAs current Good
Manufacturing Practices, or cGMP, if the facility manufactures
biologics, and quality system regulations if the facility
manufactures devices. Foreign regulatory agencies, for example,
the International Standards Organization and the European
authorities related to obtaining a CE mark on a
device in Europe, may also impose similar requirements on us and
conduct similar inspections of the facilities that manufacture
our product candidates. Failure to follow and document adherence
to such cGMP regulations or other regulatory requirements by us
or our contract manufacturers or third party cell culturing
service providers may lead to significant delays in the
availability of our product candidates for commercial use or
clinical study, may result in the delay or termination of a
clinical trial, or may delay or prevent filing of applications
for or our receipt of regulatory approval of our product
candidates. If we or such third parties fail to comply with
applicable regulations, the FDA or other regulatory authorities
could impose sanctions on us, including fines, injunctions,
civil penalties, denial of marketing approval of our product
candidates, delays, suspension or withdrawal of approvals,
license revocation, seizures or recalls of our product
candidates, operating restrictions and criminal prosecutions.
Any of these events could adversely affect our financial
condition, profitability and ability to develop and
commercialize products on a timely and competitive basis.
If we are unable to establish sales and marketing
capabilities or enter into agreements with third parties to
market and sell our product candidates, we may be unable to
generate product revenues.
We do not have a sales and marketing force and related
infrastructure and have limited experience in the sales,
marketing and distribution of our product candidates. To achieve
commercial success for any approved product, we must either
develop a sales and marketing force or outsource these functions
to third parties. Currently, we intend to internally develop a
direct sales and marketing force in both Europe and the United
States as we approach commercial approval of our product
candidates. The development of our own sales and marketing force
will result in us incurring significant costs before the time
that we may generate revenues. We may not be able to attract,
hire, train and retain qualified sales and marketing personnel
to build a significant or effective marketing and sales force
for sales of our product candidates.
Product liability and other claims against us may reduce
demand for our products or result in substantial damages. We
anticipate that we will need to obtain and maintain additional
or increased insurance
22
coverage, and we may not be able to obtain or maintain
such coverage on commercially reasonable terms, if at
all.
A product liability claim, a clinical trial liability claim or
other claim with respect to uninsured liabilities or for amounts
in excess of insured liabilities could have a material adverse
effect on our business. Our business exposes us to potential
liability risks that may arise from the clinical testing of our
product candidates in human clinical trials and the manufacture
and sale of any approved products. Any clinical trial liability
or product liability claim or series of claims or class actions
brought against us, with or without merit, could result in:
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liabilities that substantially exceed our existing clinical
trial liability insurance, or any clinical trial liability or
product liability insurance that we may obtain in the future,
which we would then be required to pay from other sources, if
available;
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an increase in the premiums we pay for our clinical trial
liability insurance and any clinical trial liability or product
liability insurance we may obtain in the future or the inability
to renew or obtain clinical trial liability or product liability
insurance coverage in the future on acceptable terms, or at all;
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withdrawal of clinical trial volunteers or patients;
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damage to our reputation and the reputation of our products,
including loss of market share;
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regulatory investigations that could require costly recalls or
product modifications;
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litigation costs; and
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diversion of managements attention from managing our
business.
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Although we have clinical trial liability insurance, our current
clinical trial liability insurance is subject to deductibles and
coverage limitations. This insurance currently covers claims of
up to $5 million each and up to $10 million in the
aggregate each year. Our current clinical trial liability
insurance may not continue to be available to us on acceptable
terms, if at all, and, if available, the coverage may not be
adequate to protect us against future clinical trial liability
claims. We are currently seeking to increase our clinical trial
liability insurance coverage.
We do not currently have product liability insurance because
none of our product candidates has yet been approved for
commercialization. While we plan to seek product liability
insurance coverage if any of our product candidates are sold
commercially, we cannot assure you that we will be able to
obtain product liability insurance on commercially acceptable
terms, if at all, or that we will be able to maintain such
insurance at a reasonable cost or in sufficient amounts to
protect against potential losses.
Claims may be made by consumers, healthcare providers, third
party strategic collaborators or others selling our products if
one of our products or product candidates causes, or appears to
have caused, an injury. We may be subject to claims against us
even if an alleged injury is due to the actions of others. For
example, we rely on the expertise of physicians, nurses and
other associated medical personnel to perform the medical
procedures and processes related to our product candidates. If
these medical personnel are not properly trained or are
negligent in using our product candidates, the therapeutic
effect of our product candidates may be diminished or the
patient may suffer injury, which may subject us to liability. In
addition, an injury resulting from the activities of our
suppliers may serve as a basis for a claim against us.
We do not intend to promote, or to in any way support or
encourage the promotion of, our product candidates for off-label
or otherwise unapproved uses. However, if our product candidates
are approved by the FDA or similar foreign regulatory
authorities, we cannot prevent a physician from using them for
any off-label applications. If injury to a patient results from
such an inappropriate use, we may become involved in a product
liability suit, which will likely be expensive to defend.
These liabilities could prevent or interfere with our clinical
efforts, product development efforts and any subsequent product
commercialization efforts, all of which could have a material
adverse effect on our business.
23
Our success will depend in part on establishing and
maintaining effective strategic partnerships, collaborations and
licensing agreements.
Our strategy for the development, testing, culturing and
commercialization of our product candidates relies on
establishing and maintaining numerous collaborations with
various corporate partners, consultants, scientists,
researchers, licensors, licensees and others, including the
collaborations described in this prospectus. While we are
continually in discussions with a number of companies,
universities, research institutions, consultants, scientists,
researchers, licensors, licensees and others to establish
additional relationships and collaborations, which are typically
complex and time consuming to negotiate, document and implement,
we may not reach definitive agreements with any of them. Even if
we enter into these arrangements, we may not be able to maintain
these relationships or establish new ones in the future on
acceptable terms.
Furthermore, any collaboration that we enter into may not be
successful. The success of our collaboration arrangements, if
any, will depend heavily on the efforts and activities of our
collaborators. Possible future collaborations have risks,
including the following:
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our collaboration agreements are likely to be for fixed terms
and subject to termination by our collaborators in the event of
a material breach or lack of scientific progress by us;
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our collaborators are likely to have the first right to maintain
or defend our intellectual property rights and, although we
would likely seek to secure the right to assume the maintenance
and defense of our intellectual property rights if our
collaborators do not, our ability to do so may be compromised by
our collaborators acts or omissions;
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our collaborators may utilize our intellectual property rights
in such a way as to invite litigation that could jeopardize or
invalidate our intellectual property rights or expose us to
potential liability;
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our collaborators may underfund or not commit sufficient
resources to the testing, marketing, distribution or development
of our product candidates; and
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our collaborators may develop alternative products either on
their own or in collaboration with others, or encounter
conflicts of interest or changes in business strategy or other
business issues, which could adversely affect their willingness
or ability to fulfill their obligations to us.
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These arrangements also may require us to grant certain rights
to third parties, including exclusive marketing rights to one or
more products, or may have other terms that are burdensome to
us, and may involve the issuance of our securities. If any of
our partners terminates its relationship with us or fails to
perform its obligations in a timely manner, the development or
commercialization of our technology and product candidates may
be substantially delayed. Further, disputes may arise with our
collaborators about inventorship and corresponding rights in
know-how and inventions resulting from the joint creation or use
of intellectual property by us and our collaborators.
We have provided a non-affiliated Korean entity certain
technology to manufacture MyoCell and MyoCath and face the risk
that such action and/or the actions of the Korean entity may
materially damage our business, expose us to liability and/or
result in the termination of various intellectual property
licenses that are important to us.
On February 1, 2005, we entered into a joint venture
agreement with Bioheart Korea, Inc., pursuant to which we and
Bioheart Korea agreed to create a joint venture company called
Bioheart Manufacturing which intends to provide cell culturing
services in Korea. We do not have operating control over
Bioheart Manufacturing. In addition, our minority interest in
Bioheart Manufacturing and our agreements to provide Bioheart
Korea certain technologies are governed, in part, by South
Korean laws and do not define in a comprehensive manner our
various contractual and legal rights. As a result, at times our
various rights have been subject to varying interpretations, and
we may encounter comparable challenges in the future. We have
also had limited operational experience with Bioheart
Manufacturing and Bioheart Korea and are still in the process of
defining our relationship with them and how we will work
together.
24
Our agreements to provide Bioheart Manufacturing with the
technology to manufacture MyoCell and MyoCath are subject to
varying interpretations that may increase our risk of disputes
with Bioheart Manufacturing, Bioheart Korea and certain parties
that licensed to us certain technology related to MyoCell and/or
MyoCath. We also face the risk that Bioheart Manufacturing may
not utilize or may not be perceived as utilizing our
intellectual property rights in accordance with the terms of our
agreements with them and/or our agreements with various third
parties that have licensed technology to us. For instance, a
complaint filed against us by Peter K. Law, Ph.D. and Cell
Transplants Asia appears to question our rights to provide
certain intellectual property to Bioheart Manufacturing and/or
Bioheart Manufacturings right to use certain intellectual
property. See Legal Proceedings below for a
description of the complaint and the reasons we believe the
complaint should be dismissed. If Bioheart Manufacturing were to
misuse our intellectual property rights, such misuse could,
among other things, materially damage our business, expose us to
potential liability and/or result in the termination of various
intellectual property licenses that are important to us.
Risks Related to Our Intellectual Property
We have licensed and therefore do not own the intellectual
property that is critical to our business. Any events or
circumstances that result in the termination or limitation of
our rights under any of the agreements between us and the
licensors of our intellectual property could have a material
adverse effect on our business.
The intellectual property that is critical to our business has
been licensed to us by various third parties. The operative
terms of some of our material license agreements are vague or
subject to interpretations which may increase the risks of
dispute with our licensors.
Under certain of our patent license agreements, we are subject
to development, payment, commercialization and other obligations
and, if we fail to comply with any of these requirements or
otherwise breach those agreements, our licensors may have the
right to terminate the license in whole or in part, terminate
the exclusive nature of the license to the extent such license
is exclusive or otherwise limit our rights thereunder, which
could have a material adverse effect on our business. For
instance, we are obligated to:
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pay aggregate fees of $8 million to Cell Transplants
International, LLC, or Cell Transplants International, upon
commencement of a U.S. Phase II human clinical trial of
MyoCell and upon FDA approval of patented technology for heart
muscle regeneration;
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make certain payments to the Cleveland Clinic in the aggregate
amount of $2.25 million upon our achievement of certain
development and commercialization objectives in connection with
the development of MyoCell II with SDF-1; and
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deliver 160 units of MyoCath to a corporation that is now a
division of Abbott Laboratories.
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On March 9, 2007, Peter K. Law, Ph.D. and Cell Transplants
Asia, Limited, an entity wholly owned by Dr. Law, filed a
complaint against us and Howard J. Leonhardt, individually, in
the United States District Court for the Western District of
Tennessee alleging, among other things, certain breaches of our
licensing agreement with them. On July 26, 2007, the court
granted the motion to dismiss Mr. Leonhardt in his
individual capacity but denied the motion to dismiss the claims
against us. Dr. Law and Cell Transplants International are
the licensors of the primary patent protecting MyoCell. Please
see Legal Proceedings below for a description of the
allegations made in the complaint. While the complaint does not
appear to challenge our rights to license this patent and we
believe this lawsuit is without merit, this litigation, if not
resolved to the satisfaction of both parties, may adversely
impact our relationship with Dr. Law and could, if resolved
unfavorably to us, adversely affect our MyoCell
commercialization efforts and have a significant impact on our
results of operations and financial condition.
Any termination or limitation of, or loss of exclusivity under,
our exclusive or conditionally exclusive license agreements
would have a material adverse effect on us and could delay or
completely terminate our product development efforts.
25
We generally do not have the right under our material
license agreements to control the protection of the patents
licensed thereunder and, as a result, our licensors may take
actions and make decisions that could materially adversely
affect our business.
Under our material license agreements, including, but not
limited to, our license agreement for the primary patent for
MyoCell, our licensors generally have the right to control the
filing, prosecution, maintenance and defense of all licensed
patents and patent applications and, if a third party infringes
on any of those licensed patents, to control any legal or other
proceedings instituted against that third party for
infringement. As a result, our licensors may take actions or
make decisions relating to these matters with which we do not
agree or which could have a material adverse effect on our
business. Likewise, our licensors may in the future grant
licenses outside the field of heart damage treatment to third
parties to use the patents and other intellectual property to
which we have rights under our exclusive or conditionally
exclusive license agreements. Should our licensors elect not to
pursue the filing, prosecution or maintenance of a licensed
patent application or patent or institute legal or other
proceedings against a third party for infringements of those
patents, then we may be required to undertake these proceedings
alone or jointly with others, who may have interests that are
different from ours. Under certain of our license agreements, we
have no right to undertake these proceedings even if our
licensors refuse to do so. As a result, we may have no control
or only limited control over the prosecution, maintenance,
defense and enforcement of patent applications and patents that
are critical to our business. In that regard, certain of our
license agreements require that we contribute to the costs of
filing, prosecuting, maintaining, defending and enforcing the
licensed patent applications, patents and other intellectual
property, whether or not we agree with those actions. Further,
such actions typically require the expenditure of considerable
time and money. See Business Technology
In-Licenses and Other Agreements for further information
regarding our rights to control the protection of our patents
under our material license agreements.
We do not have patent protection for MyoCell outside of
the United States and we may not be able to effectively enforce
our intellectual property rights in certain countries, which
could have a material adverse effect on our business.
We are seeking or intend to seek regulatory approval to market
our product candidates in a number of foreign countries,
including various countries in Europe. MyoCell, however, is not
protected by patents outside of the United States, which means
that competitors will be free to sell products that incorporate
the same technologies that are used in MyoCell in those
countries, including in European countries, which we believe may
be one of the largest potential markets for these product
candidates. In addition, the laws and practices in some of those
countries, or others in which we may seek to market our other
product candidates in the future, may not protect intellectual
property rights to the same extent as in the United States. We
or our licensors may not be able to effectively obtain, maintain
or enforce rights with respect to the intellectual property
relating to our product candidates in those countries. Our lack
of patent protection in one or more countries, or the inability
to obtain, maintain or enforce intellectual property rights in
one or more countries, could adversely affect our ability to
commercialize our products in those countries and otherwise have
a material adverse effect on our business.
Our success depends on the protection of our intellectual
property rights, particularly the patents that have been
licensed to us, and our failure to secure and maintain these
rights would materially harm our business.
Our commercial success depends to a significant degree on our
ability to:
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obtain and/or maintain protection for our product candidates
under the patent laws of the United States and other countries;
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defend and enforce our patents once obtained;
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obtain and/or maintain appropriate licenses to patents, patent
applications or other proprietary rights held by others with
respect to our technology, both in the United States and other
countries;
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26
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maintain trade secrets and other intellectual property rights
relating to our product candidates; and
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operate without infringing upon the patents and proprietary
rights of third parties.
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The degree of intellectual property protection for our
technology is uncertain, and only limited intellectual property
protection may be available for our product candidates, which
may prevent us from gaining or keeping any competitive advantage
against our competitors. Although we believe the patents that
have been licensed or sublicensed to us, and the patent
applications that we own or that have been licensed to us,
generally provide us a competitive advantage, the patent
positions of biotechnology, biopharmaceutical and medical device
companies are generally highly uncertain, involve complex legal
and factual questions and have been the subject of much
litigation. Neither the U.S. Patent and Trademark Office nor the
courts have a consistent policy regarding the breadth of claims
allowed or the degree of protection afforded under many
biotechnology patents. Even if issued, patents may be
challenged, narrowed, invalidated or circumvented, which could
limit our ability to stop competitors from marketing similar
products or limit the length of term of patent protection we may
have for our products. Further, a court or other government
agency could interpret our patents in a way such that the
patents do not adequately cover our current or future product
candidates. Changes in either patent laws or in interpretations
of patent laws in the United States and other countries may
diminish the value of our intellectual property or narrow the
scope of our patent protection.
In particular, we cannot assure you that:
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we or the owners or other inventors of the patents that we own
or that have been licensed to us or that may be issued or
licensed to us in the future were the first to file patent
applications or to invent the subject matter claimed in patent
applications relating to the technologies upon which we rely;
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others will not independently develop similar or alternative
technologies or duplicate any of our technologies;
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any of our patent applications will result in issued patents;
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the patents and the patent applications that we own or that have
been licensed to us or that may be issued or licensed to us in
the future will provide a basis for commercially viable products
or will provide us with any competitive advantages, or will not
be challenged by third parties;
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the patents and the patent applications that have been licensed
to us are valid and enforceable;
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we will develop additional proprietary technologies that are
patentable;
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we will be successful in enforcing the patents that we own or
that have been licensed to us and any patents that may be issued
or licensed to us in the future against third parties; or
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the patents of third parties will not have an adverse effect on
our ability to do business.
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Accordingly, we may fail to secure meaningful patent protection
relating to any of our existing or future product candidates or
discoveries despite the expenditure of considerable resources.
Further, there may be widespread patent infringement in
countries in which we may seek patent protection, including
countries in Europe, which may instigate expensive and time
consuming litigation which could adversely affect the scope of
our patent protection. In addition, others may attempt to
commercialize products similar to our product candidates in
countries where we do not have adequate patent protection.
Failure to obtain adequate patent protection for our product
candidates, or the failure by particular countries to enforce
patent laws or allow prosecution for alleged patent
infringement, may impair our ability to be competitive. The
availability of infringing products in markets where we have
patent protection, or the availability of competing products in
markets where we do not have adequate patent protection, could
erode the market for our product candidates, negatively impact
the prices we can charge for our product candidates, and harm
our reputation if infringing or competing products are
manufactured to inferior standards.
27
The patent we believe is the primary basis for the
protection of MyoCell is scheduled to expire in the United
States in July 2009 and if we are unable to secure a patent term
extension, we will have to seek to protect MyoCell through a
combination of patents on other aspects of our technology and
trade secrets, which may not prove to be effective.
We anticipate that we will seek to collaborate with the owners
of the patent, Dr. Peter Law and Cell Transplants
International, to extend the term of this patent. In the event
MyoCell is approved by the FDA prior to the patent expiration
date and certain other material conditions are satisfied, we
believe that this patent will be eligible for a five-year
extension of its term until July 2014. It is likely, however,
that the FDA will not complete review of and grant approval for
MyoCell before this patent expires. In such event, a regular
patent term extension will not be available, but Dr. Law
and Cell Transplants International could request a one-year
interim extension of the patent term during the period beginning
six months before and ending fifteen days before the patent
expiration. The request for interim extension must satisfy a
number of material conditions including those conditions
necessary to receive a regular patent term extension. Under
certain circumstances the patent owner can request up to four
additional one-year interim extensions. However, we cannot
assure you that Dr. Law and Cell Transplants International
will seek to obtain, or will be successful in obtaining, any
regular or interim patent term extension.
Once this patent expires, competitors will not be prevented from
developing or marketing their own similar or identical
compositions for the treatment of muscle degeneration, assuming
they receive the requisite regulatory approval.
Our most important license agreement with respect to
MyoCath is co-exclusive and the co-licensor of the intellectual
property, a division of Abbott Laboratories, may also seek to
commercialize MyoCath.
In June 2003, we assigned our exclusive license to the primary
patent protecting MyoCath to Advanced Cardiovascular Systems,
Inc., or ACS, originally a subsidiary of Guidant Corporation and
now d/b/a Abbott Vascular, a division of Abbott Laboratories. In
connection with this agreement, ACS granted to us a
co-exclusive, irrevocable, fully paid-up license to this patent
for the life of the patent. Because our license is co-exclusive
with ACS, ACS may, parallel to our efforts, seek to
commercialize MyoCath if MyoCath secures regulatory approval.
Accordingly, even if ACS does nothing to assist us to secure
regulatory approval of MyoCath, ACS may become a direct
competitor in the MyoCath manufacturing and supply business. In
addition, pursuant to our agreement with ACS, we are prohibited
from contracting with third parties for the distribution of
MyoCath.
Our proposed pathway for securing regulatory approval of
Bioheart Acute Cell Therapy is dependent on Tissue Genesis
timely and successful completion of a Device Master File for the
TGI 1200.
We have developed a proposed pathway for seeking regulatory
approval of Bioheart Acute Cell Therapy, which pathway depends
on Tissue Genesis timely completing its Device Master File for
the TGI 1200. A Device Master File is a voluntary submission to
the FDA to provide confidential detailed information on a
specific manufacturing facility, process, methodology, or
component used in the manufacture, processing, or packaging of a
medical device. Based upon our discussions with Tissue Genesis,
we anticipate that the detailed information to be contained in
the Device Master File to be filed by Tissue Genesis will be
used in support of our IND application for Bioheart Acute Cell
Therapy which, assuming favorable preclinical test results, we
hope to file in the fourth quarter of 2007. We have no control
over the content of the Device Master File and limited influence
on the timing of its submission to the FDA. Our dependence upon
Tissue Genesis to timely complete the Device Master File places
us in a position where we cannot reliably predict our ability to
meet our projected development timeline for Bioheart Acute Cell
Therapy.
28
We have limited recourse available in the event that
patents necessary for the use by our customers of the TGI 1200
product candidate, certain disposable products used in
conjunction with this product candidate or processes or cells
derived from this product candidate directly or indirectly
infringe any patent rights of a third party.
Our customers use of the TGI 1200 product candidate,
certain disposable products used in conjunction with this
product candidate and processes or cells derived from this
product candidate may be determined to directly or indirectly
infringe on patent rights held by third parties, including
Thomas Jefferson University, or Third Party Patent Rights.
The recourse available to us in the event that these patents are
determined to directly or indirectly infringe any of the Third
Party Patent Rights is limited by the terms of our exclusive
license and distribution agreement with Tissue Genesis. Pursuant
to this agreement, Tissue Genesis has agreed that we and our
customers will not be liable for damages for directly or
indirectly infringing any Third Party Patent Rights for the
treatment of acute heart attacks. Tissue Genesis has, subject to
certain conditions, also agreed to indemnify and hold harmless
us and our customers from all claims that the products infringe
any patents, copyrights or trade secret rights of a third party.
However, if our use of the products is enjoined or if Tissue
Genesis wishes to minimize its liability, Tissue Genesis may, at
its option and expense, either:
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substitute a substantially equivalent non-infringing product for
the infringing product;
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modify the infringing product so that it no longer infringes but
remains functionally equivalent; or
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obtain for us the right to continue using such item.
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If none of the foregoing is feasible, Tissue Genesis is required
to accept a return of the infringing product and refund to us
the amount paid for such product. Any termination of our right
to use, lease or sell the TGI 1200, certain disposable products
used in conjunction with this product candidate and/or the
processes or cells derived from this product candidate or any
inability by Tissue Genesis to refund to us the amounts we paid
for such products could have a material adverse effect on us.
Patent applications owned by or licensed to us may not
result in issued patents, and our competitors may commercialize
the discoveries we attempt to patent.
The patent applications that we own and that have been licensed
to us, and any future patent applications that we may own or
that may be licensed to us, may not result in the issuance of
any patents. The standards that the U.S. Patent and Trademark
Office and foreign patent offices use to grant patents are not
always applied predictably or uniformly and can change.
Consequently, we cannot be certain as to the type and scope of
patent claims to which we may in the future be entitled under
our license agreements or that may be issued to us in the
future. These applications may not be sufficient to meet the
statutory requirements for patentability and therefore may not
result in enforceable patents covering the product candidates we
want to commercialize. Further, patent applications in the
United States that are not filed in other countries generally
are not published until at least 18 months after they are
first filed and patent applications in certain foreign countries
generally are not published until many months after they are
filed. Scientific and patent publication often occurs long after
the date of the scientific developments disclosed in those
publications. As a result, we cannot be certain that we or any
of our licensors was or will be the first creator of inventions
covered by our (or their) patents or applications or the first
to file such patent applications. As a result, our issued
patents and patent applications could become subject to
challenge by third parties that created such inventions or filed
patent applications before us or our licensors, resulting in,
among other things, interference proceedings in the U.S. Patent
and Trademark Office to determine priority of discovery or
invention. Interference proceedings, if resolved adversely to us
or our licensors, could result in the loss of or significant
limitations on patent protection for our products or
technologies. Even in the absence of interference proceedings,
patent applications now pending or in the future filed by third
parties may prevail over the patent applications that have been
or may be owned by or licensed to us or that we or our licensors
may file in the future or may result in patents that issue
alongside patents issued to us or our licensors or that may be
issued or licensed to us in
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the future, leading to uncertainty over the scope of the patents
owned by or licensed to us or that may in the future be owned by
us or our freedom to practice the claimed inventions.
Our patents may not be valid or enforceable, and may be
challenged by third parties.
We cannot assure you that the patents that have been issued or
licensed to us would be held valid by a court or administrative
body or that we would be able to successfully enforce our
patents against infringers, including our competitors. The
issuance of a patent is not conclusive as to its validity or
enforceability, and the validity and enforceability of a patent
is susceptible to challenge on numerous legal grounds.
Challenges raised in patent infringement litigation brought by
or against us may result in determinations that patents that
have been issued or licensed to us or any patents that may be
issued to us or our licensors in the future are invalid,
unenforceable or otherwise subject to limitations. In the event
of any such determinations, third parties may be able to use the
discoveries or technologies claimed in these patents without
paying licensing fees or royalties to us, which could
significantly diminish the value of our intellectual property
and our competitive advantage. Even if our patents are held to
be enforceable, others may be able to design around our patents
or develop products similar to our products that are not within
the scope of any of our patents.
In addition, enforcing the patents that have been licensed to us
and any patents that may be issued to us in the future against
third parties may require significant expenditures regardless of
the outcome of such efforts. Our inability to enforce our
patents against infringers and competitors may impair our
ability to be competitive and could have a material adverse
effect on our business.
Issued patents and patent licenses may not provide us with
any competitive advantage or provide meaningful protection
against competitors.
We own, hold licenses or hold sublicenses to an intellectual
property portfolio consisting of approximately 19 patents and 19
patent applications in the United States, and approximately
twelve patents and 51 patent applications in foreign countries,
for use in the field of heart muscle regeneration. However, the
discoveries or technologies covered by these patents and patent
licenses may not have any value or provide us with a competitive
advantage and many of these discoveries or technologies may not
be applicable to our product candidates at all. With the
exception of the technology related to MyoCell, we have devoted
limited resources to identifying competing technologies that may
have a competitive advantage relative to ours, especially those
competing technologies that are not perceived as infringing on
our intellectual property rights. In addition, the standards
that courts use to interpret and enforce patent rights are not
always applied predictably or uniformly and can change,
particularly as new technologies develop. Consequently, we
cannot be certain as to how much protection, if any, will be
afforded by these patents with respect to our products if we or
our licensors attempt to enforce these patent rights and those
rights are challenged in court.
The existence of third party patent applications and patents
could significantly limit our ability to obtain meaningful
patent protection. If patents containing competitive or
conflicting claims are issued to third parties, we may be
enjoined from pursuing research, development or
commercialization of product candidates or may be required to
obtain licenses, if available, to these patents or to develop or
obtain alternative technology. If another party controls patents
or patent applications covering our product candidates, we may
not be able to obtain the rights we need to those patents or
patent applications in order to commercialize our product
candidates or we may be required to pay royalties, which could
be substantial, to obtain licenses to use those patents or
patent applications. We believe we will need to, among other
things, license additional intellectual property to
commercialize a number of our product candidates, including
MyoCell II with
SDF-1,
in the form we
believe may prove to be the most safe and/or effective.
In addition, issued patents may not provide commercially
meaningful protection against competitors. Other parties may
seek and/or be able to duplicate, design around or independently
develop products having effects similar or identical to our
patented product candidates that are not within the scope of our
patents. For example, we believe that a number of our
competitors have proposed catheter designs that are apparently
intended to avoid infringing upon our catheter related
technology.
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Limitations on patent protection in some countries outside the
United States, and the differences in what constitutes
patentable subject matter in these countries, may limit the
protection we have under patents issued outside of the United
States. We do not have patent protection for our product
candidates in a number of our target markets and, under our
license agreements, we may not have the right to initiate
proceedings to obtain patents in those countries. The failure to
obtain adequate patent protection for our product candidates in
any country would impair our ability to be commercially
competitive in that country.
Litigation or other proceedings relating to patent and
other intellectual property rights could result in substantial
costs and liabilities and prevent us from commercializing our
product candidates.
Our commercial success depends significantly on our ability to
operate in a way that does not infringe or violate the
intellectual property rights of third parties in the United
States and in foreign countries. Except for the complaint filed
against us by Dr. Law and Cell Transplants Asia, we are not
currently a party to any litigation or other adverse proceeding
with regard to our patents or intellectual property rights.
However, the biotechnology, biopharmaceutical and medical device
industries are characterized by a large number of patents and
patent filings and frequent litigation based on allegations of
patent infringement. Competitors may have filed patent
applications or have been issued patents and may obtain
additional patents and proprietary rights related to products or
processes that compete with or are similar to ours. We may not
be aware of all of the patents potentially adverse to our
interests that may have been issued to others. Because patent
applications can take many years to issue, there may be
currently pending applications, unknown to us, which may later
result in issued patents that our product candidates or
proprietary technologies may infringe. Third parties may claim
that our products or related technologies infringe their
patents. Further, we, or our licensors, may need to participate
in interference, opposition, protest, reexamination or other
potentially adverse proceedings in the U.S. Patent and Trademark
Office or in similar agencies of foreign governments with
regards to our patents and intellectual property rights. In
addition, we or our licensors may need to initiate suits to
protect our intellectual property rights.
Certain of our competitors in the field have acquired patents
which might be used to attempt to prevent commercialization of
MyoCell. We are aware of at least three such patent families. We
believe the patents in these three families are narrow, and that
we do not infringe any valid claims of these patents in our
current practice. The U.S. Patent and Trademark Office has
commenced a re-examination relating to one of these patent
families. There is no assurance that we will receive a favorable
ruling in this proceeding. In the event that the proceeding
fails to result in limitation of the claims of the subject
patent, such outcome may have a material adverse effect on our
business, financial condition and results of operation.
Litigation or any other proceeding relating to intellectual
property rights, even if resolved in our favor, may cause us to
incur significant expenses, divert the attention of our
management and key personnel from other business concerns and,
in certain cases, result in substantial additional expenses to
license technologies from third parties. Some of our competitors
may be able to sustain the costs of complex patent litigation
more effectively than we can because they have substantially
greater resources. An unfavorable outcome in any patent
infringement suit or other adverse intellectual property
proceeding could require us to pay substantial damages,
including possible treble damages and attorneys fees,
cease using our technology or developing or marketing our
products, or require us to seek licenses, if available, of the
disputed rights from other parties and potentially make
significant payments to those parties. There is no guarantee
that any prevailing party would offer us a license or that we
could acquire any license made available to us on commercially
acceptable terms. Even if we are able to obtain rights to a
third partys patented intellectual property, those rights
may be non-exclusive and therefore our competitors may obtain
access to the same intellectual property. Ultimately, we may be
unable to commercialize our product candidates or may have to
cease some of our business operations as a result of patent
infringement claims, which could materially harm our business.
We cannot guarantee that our products or technologies will not
conflict with the intellectual property rights of others.
If we need to redesign our products to avoid third party
patents, we may suffer significant regulatory delays associated
with conducting additional studies or submitting technical, cell
culturing, manufacturing or other information related to any
redesigned product and, ultimately, in obtaining regulatory
approval. Further,
31
any such redesigns may result in less effective and/or less
commercially desirable products if the redesigns are possible at
all.
Additionally, any involvement of us in litigation in which we or
our licensors are accused of infringement may result in negative
publicity about us or our products, injure our relations with
any then-current or prospective customers and marketing partners
and cause delays in the commercialization of our products.
If we are not able to protect and control unpatented trade
secrets, know-how and other technological innovation, we may
suffer competitive harm.
In addition to patented intellectual property, we also rely on
unpatented technology, trade secrets, confidential information
and proprietary know-how to protect our technology and maintain
our competitive position, especially when we do not believe that
patent protection is appropriate or can be obtained. Trade
secrets are difficult to protect. In order to protect
proprietary technology and processes, we rely in part on
confidentiality and intellectual property assignment agreements
with our employees, consultants and others. These agreements
generally provide that the individual must keep confidential and
not disclose to other parties any confidential information
developed or learned by the individual during the course of the
individuals relationship with us except in limited
circumstances. These agreements generally also provide that we
shall own all inventions conceived by the individual in the
course of rendering services to us. These agreements may not
effectively prevent disclosure of confidential information or
result in the effective assignment to us of intellectual
property, and may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information or other
breaches of the agreements. In addition, others may
independently discover trade secrets and proprietary information
that have been licensed to us or that we own, and in such case
we could not assert any trade secret rights against such party.
Enforcing a claim that a party illegally obtained and is using
trade secrets that have been licensed to us or that we own is
difficult, expensive and time-consuming, and the outcome is
unpredictable. In addition, courts outside the United States may
be less willing to protect trade secrets. Costly and
time-consuming litigation could be necessary to seek to enforce
and determine the scope of our proprietary rights, and failure
to obtain or maintain trade secret protection could have a
material adverse effect on our business. Moreover, some of our
academic institution licensors, collaborators and scientific
advisors have rights to publish data and information to which we
have rights. If we cannot maintain the confidentiality of our
technologies and other confidential information in connection
with our collaborations, our ability to protect our proprietary
information or obtain patent protection in the future may be
impaired, which could have a material adverse effect on our
business.
Other Risks Related to Our Business
Our operations are consolidated primarily in one facility.
A disaster at this facility is possible and could result in a
prolonged interruption of our business.
All of our administrative operations and substantially all of
our U.S. cell culturing operations are located at our facilities
in Sunrise, Florida. Our business is and will continue to be
influenced by local economic, financial and other conditions
affecting the South Florida area. This may include prolonged or
severe inclement weather in the South Florida area or a
catastrophic event such as a hurricane, tropical storm or
tornado, all of which are common events in Florida. In 2005, two
named storms made landfall in the South Florida area. Hurricane
and tropical storm damage could adversely affect our financial
condition in a number of ways. Although we have a back-up
generator and fuel tank capable of powering our offices for an
estimated five to seven days in the event of a power outage,
damage to our offices, road inaccessibility, flooding and
employee dislocation could result in our inability to advance
our research efforts or provide cell culturing services,
temporary closure and the inability of our employees to report
for work.
We depend on attracting and retaining key management and
scientific personnel and the loss of these personnel could
impair the development of our products candidates.
Our success depends on our continued ability to attract, retain
and motivate highly qualified management, clinical and
scientific personnel and on our ability to develop and maintain
important relationships with
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academic institutions, clinicians and scientists. In March 2007,
we hired Mr. William M. Pinon to serve as our
President and Chief Executive Officer and appointed
Mr. Howard J. Leonhardt, who served as our Chief
Executive Officer from inception until March 2007, as our
Executive Chairman and Chief Technology Officer. We are highly
dependent upon our senior scientific staff, many of whom have
developed very specialized expertise in their position. The loss
of services of one or more members of our senior scientific
staff could significantly delay or prevent the successful
completion of our clinical trials or commercialization of our
product candidates. The employment of each of our employees with
us is at will, and each employee can terminate his
or her employment with us at any time. We do not have a
succession plan in place for any of our officers and key
employees. Although we are seeking to secure key
person insurance on Mr. Leonhardt and Mr. Pinon,
we do not carry insurance on any of our other key employees and,
accordingly, their death or disability may have a material
adverse effect on our business.
The competition for qualified personnel in the life sciences
field is intense. We will need to hire additional personnel,
including regulatory and sales personnel, as we continue to
expand our development activities. We may not be able to attract
and retain quality personnel on acceptable terms given our
geographic location and the competition for such personnel among
life sciences, biotechnology, pharmaceutical and other
companies. If we are unable to attract new employees and retain
existing employees, we may be unable to continue our development
and commercialization activities and our business may be harmed.
If we acquire other businesses and technologies our
performance may suffer.
If we are presented with opportunities, we may seek to acquire
additional businesses and/or technologies. The acquisition of
businesses and technologies may require significant expenditures
and management resources that could otherwise be available for
development of other aspects of our business and, despite the
expenditures and use of resources, we may not immediately seek
to further develop such technologies or seek to develop such
technologies at all. In the past, we have expended resources to
acquire rights to future product candidates which we have not
chosen to develop to date as we have focused our efforts on the
development of our lead product candidate. Future acquisitions
may require the issuance of additional shares of stock or other
securities which would further dilute your investment or the
incurrence of additional debt and liabilities which could create
additional expenses, any of which may negatively impact our
financial results and result in restrictions on our business
that may harm our future outlook and cause our stock price to
decline.
We may not be able to effectively manage our future
growth.
If we are able to commercialize one or more of our product
candidates, we may not be able to manage future growth following
such commercialization because:
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we may be unable to effectively manage our personnel and
financial operations;
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we may be unable to hire or retain key management and staff; and
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commercial success may stimulate competitive challenges that we
may be unable to meet, resulting in declining market share and
sales of our products.
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Although certain members of our management team have prior
experience in successfully developing, seeking regulatory
approval for and commercializing medical products, we have never
successfully developed, obtained regulatory approval for and
commercialized any drug, device or therapy or operated our
business outside of the development stage and our ability to
successfully do so is unproven. Any inability to manage our
growth effectively could adversely affect our business.
Expansion into international markets is important to our
long-term success, and our inexperience in operations outside
the United States increases the risk that our international
operations may not be successful.
We believe that our future growth depends on obtaining
regulatory approvals to sell our product candidates in foreign
countries and our ability to sell our product candidates in
those countries. It is our intention to initially seek
regulatory approval of MyoCell in certain countries in Europe.
We and our
33
management team have only limited experience with operations
outside the United States. We believe that many of the risks we
face in the United States are heightened in international
markets because, among other things, our existing management
team has devoted the vast majority of their professional careers
to businesses located in the United States. As a result, our
management team may be more likely than their European
counterparts to inaccurately assess, estimate or project:
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whether the foreign regulatory authorities will require, among
other things, additional testing and different clinical designs
than the FDA;
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the amount, type and relative statistical significance of the
safety and efficacy data that the foreign regulatory authorities
will require prior to granting regulatory approval of our
product candidates;
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which countries will adopt reimbursement policies that are
favorable to us;
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the number of patients that will be eligible to use MyoCell if
it ever receives regulatory approval; and
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subject to regulatory approval of our product candidates,
whether the international marketplace will accept our product
candidates.
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In addition, our goal of selling our products into international
markets will require management attention and resources and is
subject to inherent risks, which may adversely affect us,
including:
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unusual or burdensome foreign laws or regulations and unexpected
changes in regulatory requirements, including potential
restrictions on the transfer of funds;
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no or less effective protection of our intellectual property;
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foreign currency risks;
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political instability, including adverse changes in trade
policies between countries in which we may maintain operations;
and
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longer accounts receivable payment cycles and difficulties in
collecting payments.
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These factors and other factors could adversely affect our
ability to execute our international marketing strategy or
otherwise have a material adverse effect on our business.
Because we have operated as a private company, we have no
experience complying with public company obligations. Compliance
with these requirements will increase our costs and require
additional management resources, and we may still fail to
comply.
We will incur significant additional legal, accounting,
insurance and other expenses as a result of being a public
company that we have not incurred as a private company. For
example, laws and regulations affecting public companies,
including the provisions of the Sarbanes-Oxley Act of 2002, or
the Sarbanes-Oxley Act, and rules related to corporate
governance and other matters subsequently adopted by the
Securities and Exchange Commission, or the SEC, and the NASDAQ
Global Market will result in substantially increased costs to
us, including legal and accounting costs, and may divert our
managements attention from other matters that are
important to our business. These rules and any related
regulations that may be proposed in the future will likely make
it more difficult or more costly for us to obtain certain types
of insurance, including directors and officers
liability insurance, and we may be forced to accept reduced
policy limits and coverage or incur substantially higher costs
to obtain the same or similar coverage. The impact of these
laws, rules and regulations could also make it more difficult
for us to attract and retain qualified persons to serve on our
board of directors, our board committees or as executive
officers. We cannot predict or estimate the amount of the
additional costs we may incur, but we expect our operating
results will be adversely affected by the costs of operating as
a public company.
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Our internal control over financial reporting may be
insufficient to detect in a timely manner misstatements that
could occur in our financial statements in amounts that may be
material.
In connection with the audit of our financial statements for the
year ended December 31, 2005, we identified a significant
deficiency in our internal control over financial reporting
which constituted a material weakness. A material weakness is a
significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that
a material misstatement of the annual or interim financial
statements will not be prevented or detected. The significant
deficiency related to our year-end closing methodologies and was
based on the number and size of year-end adjustments we
recorded. As of December 31, 2006, our management
determined that this material weakness and significant
deficiency was remedied through, among other things, our
addition of a chief financial officer and a corporate
controller. We may still experience material weaknesses and
significant deficiencies in the future, which, if not
remediated, may render us unable to prevent or detect in a
timely manner material misstatements that could occur in our
monthly or interim financial statements.
Failure to achieve and maintain effective internal control
over financial reporting in accordance with Section 404 of
the Sarbanes-Oxley Act could have a material adverse effect on
our business.
As a public company, within the next 24 months, we will be
required to document and test our internal financial control
procedures in order to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act, which will require
annual management assessments of the effectiveness of our
internal control over financial reporting and a report by our
independent auditors that both addresses managements
assessments and provides for the independent auditors
assessment of the effectiveness of our internal control over
financial reporting. During the course of our testing, we may
identify deficiencies which we may not be able to remediate in
time to meet our deadline for compliance with Section 404,
and we may also identify inaccuracies or deficiencies in our
financial reporting that could require revisions to or
restatement of prior period results. Testing and maintaining
internal control over financial reporting also will involve
significant costs and can divert our managements attention
from other matters that are important to our business. We may
not be able to conclude on an ongoing basis that our internal
control over financial reporting is effective in accordance with
Section 404, and our independent registered public
accounting firm may not be able or willing to issue a favorable
assessment of our conclusions. Failure to achieve and maintain
an effective internal control environment could harm our
operating results and could cause us to fail to meet our
reporting obligations and could require that we restate our
financial statements for prior periods, any of which could cause
investors to lose confidence in our reported financial
information and cause a decline, which could be material, in the
trading price of our common stock.
We face intense competition in the biotechnology and
healthcare industries.
We face, and will continue to face, intense competition from
pharmaceutical, biopharmaceutical, medical device and
biotechnology companies developing heart failure treatments both
in the United States and abroad, as well as numerous academic
and research institutions, governmental agencies and private
organizations engaged in drug discovery activities or funding
both in the United States and abroad. We also face competition
from entities and healthcare providers using more traditional
methods, such as surgery and pharmaceutical regimens, to treat
heart failure. We believe there are a substantial number of
heart failure products under development by numerous
pharmaceutical, biopharmaceutical, medical device and
biotechnology companies, and it is likely that other competitors
will emerge. We are also aware of several competitors developing
cell- based therapies for the treatment of heart damage,
including MG Biotherapeutics, LLC (a joint venture between
Genzyme Corporation and Medtronic, Inc.), Mytogen, Inc., Baxter
International, Inc., Osiris Therapeutics, Inc., Viacell, Inc.,
Cytori Therapeutics, Inc. and potentially others. We also
recognize that there may be competitors and competing
technologies, therapies and/or products that we are not aware of.
These third parties also compete with us in recruiting and
retaining qualified personnel, establishing clinical trial sites
and registering patients for clinical trials, as well as
acquiring or licensing intellectual property and technology.
Many competitors have more experience than we do in research and
development, marketing, cell culturing, manufacturing,
preclinical testing, conducting clinical trials, obtaining FDA
and
35
foreign regulatory approvals and marketing approved products.
The competitors, some of which have their own sales and
marketing organizations, have greater financial and technical
resources than we do and may be better equipped than we are to
sell competing products, obtain patents that block or otherwise
inhibit our ability to further develop and commercialize our
product candidates, obtain approvals from the FDA or other
regulatory agencies for products more rapidly than we do, or
develop treatments or cures that are safer or more effective
than those we propose to develop. In addition, academic
institutions, governmental agencies, and other public and
private organizations conducting research in the field of heart
damage may seek patent protection with respect to potentially
competitive products or technologies and may establish exclusive
collaborative or licensing relationships with our competitors.
MyoCell is a clinical therapy designed to be utilized at least a
few months after a patient has suffered heart damage. Our
competitors may discover technologies and techniques for the
acute treatment of heart failure, which, if successful in
treating heart failure shortly after its occurrence, may reduce
the market size for treatments for chronic heart damage,
including MyoCell.
Our industry is subject to rapid technological
change.
Our industry is subject to rapid technological change and our
cellular-based therapies involve new and rapidly developing
technology. Our competitors may discover and develop new
technologies and techniques, or enter into partnerships with
collaborators in order to develop, competing products that are
more effective or less costly than the product candidates we
hope to secure regulatory approval for. In light of the
industrys limited experience with cell-based therapies and
the dedication of significant resources to a better
understanding of this field, we expect these cell-based
technologies to undergo significant change in the future. For
example, some of our competitors are exploring whether the use
of cells, other than myoblasts, is safer or more effective than
MyoCell. If there is rapid technological development or new
product introductions, our current and future product candidates
or methods may become obsolete or noncompetitive before or after
we commercialize them.
We have a contingent liability under California law due to
our issuances of some securities that may have violated
California securities laws.
We believe that we may have issued options to purchase common
stock to certain of our employees, directors and consultants in
California in violation of the registration or qualification
provisions of applicable California securities laws. As a
result, we intend to make a rescission offer to these persons
pursuant to a registration statement we expect to file after
this offering under the Securities Act of 1933, as amended, or
the Securities Act, and pursuant to California securities laws.
We will make this offer to all persons who have a continuing
right to rescission, which we believe to include two persons. In
the rescission offer, in accordance with California law, we will
offer to repurchase all options issued to these persons at 77%
of the option exercise price times the number of option shares,
plus interest at the rate of 7% from the date the options were
granted. Based upon the number of options that may be subject to
rescission as of September 1, 2007, assuming that all such
options are tendered in the rescission offer, we estimate that
our total rescission liability would be up to approximately
$350,000. However, as we believe there is only a remote
likelihood the rescission offer will be accepted by any of these
persons in an amount that would result in a material expenditure
by us, no liability has been recorded in our financial
statements.
Risks Related to This Offering
There is no prior public market for our stock. Our stock
price may be volatile and you may be unable to sell your shares
at or above the offering price.
There previously has been no public market for our common stock.
The initial public offering price for our shares was determined
by negotiations between us and representatives of the
underwriters and does not purport to be indicative of prices
that will prevail in the trading market. The market price of our
common
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stock could be subject to wide fluctuations in response to many
risk factors described in this section and other matters,
including:
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publications of clinical trial results by clinical investigators
or others about our products and competitors products
and/or our industry;
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changes by securities analysts in financial estimates of our
operating results and the operating results of our competitors;
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publications of research reports by securities analysts about
us, our competitors or our industry;
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fluctuations in the valuation of companies perceived by
investors to be comparable to us;
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actual or anticipated fluctuations in our quarterly or annual
operating results;
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retention and departures of key personnel;
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our failure or the failure of our competitors to meet
analysts projections or guidance that we or our
competitors may give to the market;
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strategic decisions by us or our competitors, such as
acquisitions, divestitures, spin-offs, joint ventures, strategic
investments or changes in business strategy;
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the passage of legislation or other regulatory developments
affecting us or our industry;
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speculation in the press or investment community; and
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natural disasters, terrorist acts, acts of war or periods of
widespread civil unrest.
|
Furthermore, the stock markets have experienced extreme price
and volume fluctuations that have affected and continue to
affect the market prices of equity securities of many companies,
especially life sciences and pharmaceutical companies. These
fluctuations often have been unrelated or disproportionate to
the operating performance of those companies. These broad market
and industry fluctuations, as well as general economic,
political and market conditions, may negatively affect the
market price of our common stock. As a result, the market price
of our common stock is likely to be similarly volatile and
investors in our common stock may experience a decrease, which
could be substantial, in the value of their stock. In the past,
many companies that have experienced volatility in the market
price of their stock have been subject to securities class
action litigation. We may be the target of this type of
litigation in the future. Securities litigation against us could
result in substantial costs and divert our managements
attention from other business concerns, which could have a
material adverse effect on our business.
Our existing shareholders, including Mr. Leonhardt,
have significant control of our management and affairs, which
they could exercise against your best interests.
Immediately following the completion of this offering, based on
shares outstanding as of September 1, 2007, our executive
officers and directors and persons and entities that were our
shareholders prior to this offering will beneficially own an
aggregate of approximately 78.9% of our outstanding common
stock, or approximately 76.4% of our outstanding common stock if
the underwriters over-allotment option is exercised in
full. In particular, Mr. Leonhardt will own approximately
27.1% of our outstanding common stock immediately following this
offering, or approximately 26.3% of our outstanding common stock
if the underwriters over-allotment option is exercised in
full, in each case based on shares outstanding as of
September 1, 2007. As a result, Mr. Leonhardt
currently has, and will continue to have, a significant
influence over the outcome of all corporate actions requiring
shareholder approval. Consequently, this concentration of
ownership may have the effect of delaying or preventing a change
of control, including a merger, consolidation or other business
combination involving us, or discouraging a potential acquirer
from making a tender offer or otherwise attempting to obtain
control, even if such a change of control would benefit our
other shareholders. The interests of these shareholders may not
coincide with our interests or the interests of other
shareholders.
37
An active trading market for our common stock may not
develop.
This is our initial public offering of common stock, and prior
to this offering there has been no public market for our common
stock. The initial public offering price for our common stock
will be determined through negotiations with the representatives
of the underwriters. Although we have applied to have our common
stock approved for quotation on the NASDAQ Global Market, an
active trading market for our common stock may never develop or
be sustained following this offering. If an active market for
our common stock does not develop, it may be difficult for you
to sell shares you purchase in this offering without depressing
the market price for our common stock.
If you purchase shares of common stock sold in this
offering, you will experience immediate and substantial
dilution. You may also experience dilution in the future.
The initial public offering price per share is substantially
higher than the net tangible book value per share immediately
after the offering. As a result, you will pay a price per share
that substantially exceeds the book value of our assets after
subtracting our liabilities. Assuming an offering price of
$15.00, the midpoint of the range set forth on the cover of this
prospectus, you will incur immediate and substantial dilution of
$12.03 in the net tangible book value per share of the common
stock from the price you paid. We also have outstanding stock
options to purchase 2,102,008 shares of our common stock at
a weighted average exercise price of $5.23 per share as of
the end of the second quarter of 2007 and outstanding warrants
to purchase 2,050,924 shares of our common stock at a
weighted average exercise price of $7.50 per share as of
the end of the second quarter of 2007. To the extent that
options and warrants with an exercise price less than the
initial public offering price are exercised, there will be
further dilution.
Under certain of our patent license agreements, including our
license agreements with Cell Transplants International and the
Cleveland Clinic, we are required to make certain large
milestone payments upon our achievement of certain development
and commercialization objectives. We may be required to or, to
the extent we do not have the cash resources necessary to
satisfy our obligations may seek to, issue shares or other
securities in satisfaction of our financial obligations under
these license agreements. To the extent we issue shares at a
price per share less than the initial public offering price per
share, you will incur dilution in the net tangible book value
per share.
Following this offering, a substantial number of our
shares of common stock will become available for sale in the
public market, which may cause the market price of our stock to
decline.
Sales of our common stock in the public market following this
offering, or the perception that those sales may occur, could
cause the market price of our common stock to decline.
Immediately upon completion of this offering, we will have
16,908,345 outstanding shares of common stock based on
shares outstanding as of September 1, 2007. In general, the
shares sold in this offering will be freely tradable without
restriction, assuming they are not held by our affiliates. The
remaining 13,333,345 shares of common stock outstanding
after this offering will be available for sale in the public
markets, pursuant to Rule 144 or Rule 701 under the
Securities Act, although 8,007,347 shares held by our directors,
officers and greater than 1% shareholders are subject to a
180 day lock-up period following the completion of this
offering (subject to extension for up to an additional
34 days under limited circumstances as described under
Underwriting).
In addition, we intend to file one or more registration
statements to register shares of common stock subject to
outstanding stock options and warrants and common stock reserved
for issuance under our Officers and Employees Stock Option Plan
and Directors and Consultants Stock Option Plan. We expect these
additional registration statements to become effective
immediately upon filing.
Furthermore, immediately after completion of this offering, the
holders of 13,006 shares of our outstanding common stock
will also have the right to require that we register those
shares under the Securities Act on several occasions and will
also have the right to include those shares in any registration
statement we file with the SEC, subject to exceptions, which
would enable those shares to be sold in the public markets,
subject to the restrictions under lock-up agreements referred to
above.
38
Any or all shares subject to the lock-up agreements may be
released, without notice to the public, for sale in the public
markets prior to expiration of the lock-up period at the
discretion of Merriman Curhan Ford & Co.
Our management has broad discretion in the use of the net
proceeds from this offering and may not use them
effectively.
As of the date of this prospectus, we cannot specify with
certainty the amount of net proceeds from this offering that we
will spend on particular uses. Although our management currently
intends to use the net proceeds in the manner described in
Use of Proceeds, it will have broad discretion in
the application of the net proceeds. The failure by our
management to apply these funds effectively could adversely
affect our ability to continue to maintain and expand our
business.
Anti-takeover provisions of Florida law, our articles of
incorporation and our bylaws may prevent or delay an acquisition
of us that shareholders may consider favorable or attempts to
replace or remove our management that could be beneficial to our
shareholders.
Our articles of incorporation and bylaws contain provisions,
such as the right of our directors to issue preferred stock from
time to time with voting, economic and other rights superior to
those of our common stock without the consent of our
shareholders, all of which could make it more difficult for a
third party to acquire us without the consent of our board of
directors. In addition, our bylaws impose restrictions on the
persons who may call special shareholder meetings. Furthermore,
the Florida Business Corporation Act contains an
affiliated transaction provision that prohibits a
publicly-held Florida corporation from engaging in a broad range
of business combinations or other extraordinary corporate
transactions with an interested shareholder unless,
among others, (i) the transaction is approved by a majority
of disinterested directors before the person becomes an
interested shareholder; (ii) the interested shareholder has
owned at least 80% of the corporations outstanding voting
shares for at least five years; or (iii) the transaction is
approved by the holders of two-thirds of the corporations
voting shares other than those owned by the interested
shareholder. An interested shareholder is defined as a person
who together with affiliates and associates beneficially owns
more than 10% of the corporations outstanding voting
shares. The Florida Business Corporation Act also prohibits the
voting of shares in a publicly-held Florida corporation that are
acquired in a control share acquisition unless the
holders of a majority of the corporations voting shares
(exclusive of shares held by officers of the corporation, inside
directors or the acquiring party) approve the granting of voting
rights as to the shares acquired in the control share
acquisition or unless the acquisition is approved by the
corporations Board of Directors. These provisions may have
the effect of delaying or preventing a change of control of our
company even if this change of control would benefit our
shareholders.
We do not intend to pay cash dividends on our common stock
in the foreseeable future and, accordingly, capital appreciation
of our common stock, if any, will be a shareholders sole
source of gain from an investment in our common stock.
Our policy is to retain earnings to provide funds for the
operation and expansion of our business and, accordingly, we
have never declared or paid any cash dividends on our common
stock or other securities and do not currently anticipate paying
any cash dividends in the foreseeable future. Consequently,
shareholders will need to sell shares of our common stock to
realize a return on their investments, if any and this capital
appreciation, if any, will be a shareholders sole source
of gain from an investment in the common stock. The declaration
and payment of dividends by us are subject to the discretion of
our Board of Directors and the restrictions specified in our
articles of incorporation and by applicable law. In addition,
under the terms of the BlueCrest Loan, we are restricted from
paying cash dividends to our shareholders while this loan is
outstanding. Any future determination to pay cash dividends will
depend on our results of operations, financial condition,
capital requirements, contractual restrictions and other factors
deemed relevant by our Board of Directors.
39
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus may contain forward-looking statements that are
based on our managements beliefs and assumptions and on
information currently available to our management. Any such
forward-looking statements would be contained principally in
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Business. Forward-looking statements include
information concerning our possible or assumed future results of
operations, business strategies, financing plans, competitive
position, industry environment, potential growth opportunities
and the effects of regulation. Forward-looking statements
include all statements that are not historical facts and can be
identified by terms such as anticipates,
believes, could, estimates,
expects, hopes, intends,
may, plans, potential,
predicts, projects, should,
will, would or similar expressions.
The forward-looking statements in this prospectus include, among
other things, statements about:
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the initiation and completion of clinical trials;
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the announcement of data concerning the results of clinical
trials for MyoCell;
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our estimates regarding future revenues and timing thereof,
expenses, capital requirements and needs for additional
financing;
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our ongoing and planned discovery programs, preclinical studies
and additional clinical trials;
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the timing of and our ability to obtain and maintain regulatory
approvals for our product candidates;
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the rate and degree of market acceptance and clinical utility of
our products;
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our ability to quickly and efficiently identify and develop
product candidates;
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our commercialization, marketing and manufacturing capabilities
and strategy; and
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our intellectual property position.
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Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed
or implied by the forward-looking statements. We discuss many of
these risks in greater detail in Risk Factors. Given
these uncertainties, you should not place undue reliance on
these forward-looking statements. Also, forward-looking
statements represent our managements beliefs and
assumptions only as of the date of this prospectus. You should
read this prospectus and the documents that we reference in this
prospectus and have filed as exhibits to the registration
statement, of which the prospectus is a part, completely and
with the understanding that our actual future results may be
materially different from what we expect.
Except as required by law, we assume no obligation to update
these forward-looking statements publicly, or to update the
reasons actual results could differ materially from those
anticipated in these forward-looking statements, even if new
information becomes available in the future. The forward-looking
statements contained in this prospectus are not eligible for the
safe harbor protection provided by the Private Securities
Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended.
40
USE OF PROCEEDS
Based upon an assumed initial public offering price of
$15.00 per share (the mid-point of the range set forth on
the cover page of this prospectus), we estimate that our net
proceeds from the sale of shares of our common stock in this
offering, after deducting underwriting discounts and commissions
and estimated offering costs of approximately $6.8 million
payable by us, will be approximately $46.9 million (or
$54.4 million if the underwriters exercise their
over-allotment option in full). Of the $6.8 million of
estimated offering costs, approximately $1.3 million has
been paid as of June 30, 2007. A $1.00 increase
(decrease) in the assumed initial public offering price of
$15.00 per share would increase (decrease) the net
proceeds to us from this offering by $3.3 million, assuming
the number of shares offered by us, as set forth on the cover
page of this prospectus, remains the same and after deducting
the estimated underwriting discounts and commissions and
estimated expenses payable by us.
We intend to use the net proceeds of this offering to fund the
growth of our business, including:
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approximately $17.0 million for the MARVEL Trial, which we
currently estimate will be sufficient to complete this clinical
trial;
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approximately $4.3 million for projected payments pursuant
to our license agreements and to further develop and protect our
intellectual property portfolio;
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approximately $2.3 million to commence Phase I
clinical trials of MyoCell II with
SDF-1,
which we
currently estimate will be sufficient to complete an initial
Phase I clinical trial;
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approximately $3.2 million for the further development,
preclinical testing and/or commencement of Phase I clinical
testing of our other pipeline product candidates, which we
anticipate will be used in the next 24 months;
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approximately $2.8 million for development of a sales and
marketing force; and
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approximately $0.5 million for the repayment of accrued
interest on the Bank of America Loan.
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We intend to use the balance of the proceeds for general
corporate purposes, including working capital needs and for
potential acquisitions of new technologies or businesses or the
establishment of new partnerships and joint ventures
complementary to our business.
The enumerated uses of the proceeds of this offering described
above include all the offering proceeds we expect to utilize to
make payments under our existing license agreements,
collaborative agreements, partnerships and joint ventures. We do
not have any agreements or understandings relating to the
acquisition of technologies or businesses or the establishment
of new partnerships or joint ventures with respect to which we
anticipate using the proceeds of this offering.
The amounts and timing of our actual expenditures may vary
significantly from our expectations depending upon numerous
factors, including our results of operation, financial condition
and capital requirements. Accordingly, we will retain the
discretion to allocate the net proceeds of this offering among
the identified uses described above, and we reserve the right to
change the allocation of the net proceeds among the uses
described above. Pending their use, we intend to invest the net
proceeds in short-term, interest-bearing, investment-grade
securities.
The foregoing description of use of proceeds does not include
approximately $5.0 million of funds which we currently hold
in an interest bearing account which we intend to use for the
repayment of principal on the Bank of America Loan. The proceeds
of the Bank of America Loan, which bears interest at the prime
rate plus 1.5% and which is scheduled to mature in February
2008, are anticipated to be used for general corporate purposes.
Shortly after the closing of this offering, we have committed to
repay any outstanding amounts borrowed pursuant to the Bank of
America Loan.
41
DIVIDEND POLICY
Our policy is to retain earnings to provide funds for the
operation and expansion of our business and, accordingly, we
have never declared or paid any cash dividends on our common
stock or other securities and do not currently anticipate paying
any cash dividends in the foreseeable future. Consequently,
shareholders will most likely need to sell shares of our common
stock to realize a return on their investments, if any and this
capital appreciation, if any, will be a shareholders sole
source of gain from an investment in the common stock. The
declaration and payment of dividends by us are subject to the
discretion of our Board of Directors and the restrictions
specified in our articles of incorporation and by applicable
law. In addition, under the terms of the BlueCrest Loan, we are
restricted from paying cash dividends to our shareholders while
this loan is outstanding. Any future determination to pay cash
dividends will depend on our results of operations, financial
condition, capital requirements, contractual restrictions and
other factors deemed relevant by our Board of Directors.
42
CAPITALIZATION
The following table presents our cash and cash equivalents and
our capitalization as of June 30, 2007:
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on an actual basis;
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on a pro forma basis to give effect to the sale by us of shares
of our common stock at an assumed initial public offering price
of $15.00 per share, the mid-point of the range set forth
on the cover page of this prospectus, and the receipt of net
proceeds of this offering, after deducting underwriting
discounts and commissions and estimated offering expenses
payable by us. Each $1.00 increase (decrease) in the
assumed initial public offering price of $15.00 per share
would increase (decrease) each of cash and cash equivalents,
working capital, total assets and total shareholders
equity by approximately $3.3 million, assuming that the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same, and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
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The pro forma information below is illustrative only and our
capitalization table following the completion of this offering
will be adjusted based on the actual initial public offering
price and other terms of this offering determined at pricing.
You should read this table together with the sections of this
prospectus entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our financial statements and the related notes included
elsewhere in this prospectus.
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As of
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June 30, 2007
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Actual
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Pro Forma
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(In thousands, except
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share numbers)
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(Unaudited)
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Cash and cash equivalents
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$
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12,916
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$
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61,130
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Note payable long term
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3,806
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3,806
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Shareholders equity:
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Preferred stock ($0.001 par value): 3,088,898 shares authorized,
actual; 5,000,000 shares authorized, pro forma; none
issued and outstanding, actual and pro forma
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$
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|
$
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Common stock ($0.001 par value): 24,711,188 shares
authorized, actual; 50,000,000 shares authorized, pro
forma; 13,332,295 shares issued and outstanding, actual;
16,907,295 shares issued and outstanding, pro forma
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13
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17
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Additional paid-in capital
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75,239
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122,106
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Deficit accumulated during the development stage
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(69,553
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)
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(69,553
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)
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Total shareholders equity
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5,699
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52,570
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Total capitalization
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$
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9,505
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|
$
|
56,376
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The table above reflects a 1-for-1.6187 reverse stock split that
will become effective prior to the closing of this offering.
The table above excludes as of June 30, 2007:
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an aggregate of 2,102,008 shares of common stock issuable
upon exercise of outstanding options under our stock option
plans, with a weighted average exercise price of $5.23 per
share;
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an aggregate of 969,362 additional shares of common stock
reserved for future awards under our stock option plans; and
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an aggregate of 2,050,924 shares of common stock issuable
upon the exercise of outstanding warrants with a weighted
average exercise price of $7.50 per share.
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43
From July 1, 2007 through September 1, 2007, we issued
options to purchase an aggregate of 81,547 shares of our
common stock with an exercise price of $8.47 per share. We
also issued, in this same period, an aggregate of 1,050 shares
of our common stock upon the exercise of options with an
exercise price of $5.67 per share.
DILUTION
If you invest in our common stock, your interest will be diluted
to the extent of the difference between the initial public
offering price per share of our common stock in this offering
and the pro forma net tangible book value per share of our
common stock after completion of this offering.
Our net tangible book value as of June 30, 2007 was
approximately $1.8 million, or approximately $0.13 per
share of our common stock. Net tangible book value per share is
determined at any date by subtracting our total liabilities from
our total tangible assets (total assets less intangible assets)
and dividing the difference by the number of our shares of
common stock deemed to be outstanding at that date. Dilution in
net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of
common stock in this offering and the net tangible book value
per share of common stock immediately after completion of this
offering.
After giving effect to the sale of 3,575,000 shares offered
by us in this offering at an assumed initial public offering
price of $15.00 per share, the midpoint of the range set
forth on the cover page of this prospectus, and after deducting
estimated underwriting discounts and commissions and our
estimated offering expenses, our pro forma net tangible book
value as of June 30, 2007 would have been approximately
$50.2 million, or approximately $2.97 per share of
common stock. This represents an immediate increase in pro forma
net tangible book value of $2.84 per share to existing
shareholders and an immediate dilution in pro forma net tangible
book value of $12.03 per share to new investors. The
following table illustrates this per share dilution:
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Assumed initial public offering price per share
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$
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15.00
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Net tangible book value per share as of June 30, 2007
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$
|
0.13
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|
|
|
|
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|
Pro forma increase in net tangible book value per share
attributable to this offering
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|
$
|
2.84
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|
|
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|
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|
|
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Pro forma net tangible book value per share after this offering
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$
|
2.97
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|
|
|
|
|
|
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Dilution per share to new investors
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|
|
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|
$
|
12.03
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The following table summarizes as of June 30, 2007, the
number of shares of our common stock purchased from us, the
total consideration paid to us, and the average price per share
paid to us by our existing shareholders and to be paid by new
investors purchasing shares of our common stock in this offering
based on an assumed public offering price of $15.00 per
share, before deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
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Shares Purchased
|
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|
Total Consideration
|
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|
Average
|
|
|
|
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|
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Price per
|
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|
|
Number
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|
Percentage
|
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|
Amount
|
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|
Percentage
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|
Share
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
Existing shareholders
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13,332,295
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78.9%
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$
|
55,592,574
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|
50.9%
|
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|
$
|
4.17
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|
New investors
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|
3,575,000
|
|
|
|
21.1%
|
|
|
|
53,625,000
|
|
|
|
49.1%
|
|
|
|
15.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
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16,907,295
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100.0%
|
|
|
|
109,217,574
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|
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|
100.0%
|
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|
$
|
6.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of shares of common stock outstanding in the table
above is based on the number of shares outstanding as of
June 30, 2007, reflects a 1-for-1.6187 reverse stock split
that will become effective prior to the closing of this offering
and excludes:
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|
|
an aggregate of 2,102,008 shares of common stock issuable
upon exercise of outstanding options under our stock option
plans, with a weighted average exercise price of $5.23 per
share;
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44
|
|
|
|
|
|
an aggregate of 969,362 additional shares of common stock
reserved for future awards under our stock option plans; and
|
|
|
|
|
|
an aggregate of 2,050,924 shares of common stock issuable
upon the exercise of outstanding warrants with a weighted
average exercise price of $7.50 per share.
|
|
From July 1, 2007 through September 1, 2007, we issued
options to purchase an aggregate of 81,547 shares of our
common stock with an exercise price of $8.47 per share. We
also issued, in this same period, an aggregate of 1,050 shares
of our common stock upon the exercise of options with an
exercise price of $5.67 per share.
Because the exercise price of the outstanding options and
warrants is below the anticipated offering price, investors
purchasing common stock in this offering will suffer additional
dilution when and if these options or warrants are exercised.
See Management Our Stock Option Plans
for further information regarding our equity incentive plans.
A $1.00 increase (decrease) in the assumed initial
public offering price of $15.00 per share would increase
(decrease) our pro forma net tangible book value by
$3.3 million and the pro forma net tangible book value per
share after completion of this offering by $0.20 per share,
assuming the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same, and after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us.
If the underwriters exercise their over-allotment option in
full, the net tangible book value per share after completion of
this offering would be $3.30 per share, the increase in net
tangible book value per share to existing shareholders would be
$3.17 per share and the dilution in net tangible book value
to new investors would be $11.70 per share.
45
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present selected consolidated historical
financial data. We derived the selected consolidated statement
of operations data for the years ended December 31, 2004,
2005 and 2006 and consolidated balance sheet data as of
December 31, 2005 and 2006 from our audited financial
statements and notes thereto that are included elsewhere in this
prospectus. We derived the selected consolidated statement of
operations data for the years ended December 31, 2002 and
2003 and the consolidated balance sheet data as of
December 31, 2002, 2003 and 2004 from our audited financial
statements that do not appear in this prospectus. We derived the
consolidated statement of operations data for the six months
ended June 30, 2006 and 2007 and the consolidated balance
sheet data as of June 30, 2007 from our unaudited financial
statements that are included elsewhere in this prospectus. The
unaudited interim financial statements have been prepared on the
same basis as our audited annual financial statements and, in
our opinion, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the results
of operations for the periods ended June 30, 2006 and 2007
and our financial condition as of June 30, 2007. The
historical results are not necessarily indicative of the results
to be expected for any future periods and the results for the
six months ended June 30, 2007 should not be considered
indicative of results expected for the full fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2
|
|
|
$
|
46
|
|
|
$
|
86
|
|
|
$
|
135
|
|
|
$
|
106
|
|
|
$
|
75
|
|
|
$
|
208
|
|
Cost of sales
|
|
|
|
|
|
|
30
|
|
|
|
46
|
|
|
|
87
|
|
|
|
73
|
|
|
|
44
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2
|
|
|
|
16
|
|
|
|
40
|
|
|
|
48
|
|
|
|
33
|
|
|
|
31
|
|
|
|
174
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
7,361
|
|
|
|
3,502
|
|
|
|
3,787
|
|
|
|
4,534
|
|
|
|
6,878
|
|
|
|
2,669
|
|
|
|
3,186
|
|
Marketing, general and administrative
|
|
|
1,946
|
|
|
|
2,523
|
|
|
|
1,731
|
|
|
|
2,831
|
|
|
|
6,372
|
|
|
|
1,325
|
|
|
|
1,751
|
|
Depreciation and amortization
|
|
|
|
|
|
|
31
|
|
|
|
34
|
|
|
|
46
|
|
|
|
91
|
|
|
|
30
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
9,307
|
|
|
|
6,056
|
|
|
|
5,552
|
|
|
|
7,411
|
|
|
|
13,341
|
|
|
|
4,024
|
|
|
|
5,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(9,305
|
)
|
|
|
(6,040
|
)
|
|
|
(5,512
|
)
|
|
|
(7,363
|
)
|
|
|
(13,308
|
)
|
|
|
(3,993
|
)
|
|
|
(4,855
|
)
|
Net interest income (expense)
|
|
|
47
|
|
|
|
2
|
|
|
|
(7
|
)
|
|
|
36
|
|
|
|
127
|
|
|
|
58
|
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(9,258
|
)
|
|
|
(6,038
|
)
|
|
|
(5,519
|
)
|
|
|
(7,327
|
)
|
|
|
(13,181
|
)
|
|
|
(3,935
|
)
|
|
|
(5,040
|
)
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,258
|
)
|
|
$
|
(6,038
|
)
|
|
$
|
(5,519
|
)
|
|
$
|
(7,327
|
)
|
|
$
|
(13,181
|
)
|
|
$
|
(3,935
|
)
|
|
$
|
(5,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(1.54
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(0.60
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(1.10
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic and diluted
|
|
|
6,007
|
|
|
|
8,022
|
|
|
|
9,189
|
|
|
|
10,653
|
|
|
|
12,015
|
|
|
|
11,654
|
|
|
|
13,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of
|
|
|
|
|
|
|
June 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,231
|
|
|
$
|
635
|
|
|
$
|
182
|
|
|
$
|
5,158
|
|
|
$
|
5,025
|
|
|
$
|
12,916
|
|
Working capital (deficit)
|
|
|
554
|
|
|
|
(784
|
)
|
|
|
(2,000
|
)
|
|
|
4,210
|
|
|
|
3,204
|
|
|
|
5,054
|
|
Total assets
|
|
|
2,540
|
|
|
|
921
|
|
|
|
729
|
|
|
|
5,869
|
|
|
|
6,508
|
|
|
|
17,905
|
|
Notes payable-current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,194
|
|
Note payable-long term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,806
|
|
Deficit accumulated during the development stage
|
|
|
(32,449
|
)
|
|
|
(37,877
|
)
|
|
|
(44,005
|
)
|
|
|
(51,332
|
)
|
|
|
(64,513
|
)
|
|
|
(69,553
|
)
|
Total shareholders equity (deficit)
|
|
|
788
|
|
|
|
(554
|
)
|
|
|
(1,857
|
)
|
|
|
4,586
|
|
|
|
4,311
|
|
|
|
5,699
|
|
47
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis by our management of
our financial condition and results of operations should be read
in conjunction with our consolidated financial statements and
the accompanying notes included elsewhere in this prospectus.
This discussion and other parts of this prospectus contain
forward-looking statements that involve risks and uncertainties,
such as statements of our plans, objectives, expectations and
intentions. Our actual results could differ materially from
those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are
not limited to, those discussed in Risk Factors.
Moreover, past financial and operating performances are not
necessarily reliable indicators of future performance and you
are cautioned in using our historical results to anticipate
future results or to predict future trends.
Overview
We are a biotechnology company focused on the discovery,
development and, subject to regulatory approval,
commercialization of autologous cell therapies for the treatment
of chronic and acute heart damage. Our lead product candidate is
MyoCell, an innovative clinical therapy designed to populate
regions of scar tissue within a patients heart with muscle
tissue for the purpose of improving cardiac function in chronic
heart failure patients. Since our inception in August 1999, our
principal activities have included:
|
|
|
|
|
developing and engaging in clinical trials of our lead product
candidate, MyoCell, and our MyoCath product candidate;
|
|
|
|
expanding our pipeline of complementary product candidates
through internal development and third party licenses;
|
|
|
|
expanding and strengthening our intellectual property position
through internal programs and third party licenses; and
|
|
|
|
recruiting management, research and clinical personnel.
|
Our principal objective is to become a leading company that
discovers, develops and commercializes novel, autologous cell
therapies, and related devices, for the treatment of heart
damage. To achieve this objective, we plan to pursue the
following key strategies:
|
|
|
|
|
obtain initial regulatory approval of MyoCell by targeting
patients with severe heart damage;
|
|
|
|
obtain regulatory approval of MyoCell to treat patients with
less severe heart damage;
|
|
|
|
continue to develop our pipeline of cell-based therapies and
related devices for the treatment of chronic and acute heart
damage;
|
|
|
|
develop our sales and marketing capabilities in advance of
regulatory approval, if any;
|
|
|
|
continue to refine our MyoCell cell culturing processes to
further reduce our costs and processing times;
|
|
|
|
expand and enhance our intellectual property rights; and
|
|
|
|
license, acquire and/or develop complementary products and
technologies.
|
We completed the MyoCell implantation procedure on the final
patient in the SEISMIC Trial in July 2007. If the final SEISMIC
Trial data is available in the first quarter of 2008 and is
generally consistent with the interim data we intend to seek, in
the second quarter of 2008, approval from various European
regulatory bodies to market MyoCell to treat the Class III
Subgroup.
In November 2006, we submitted our amended IND application
setting forth the proposed protocol for the MARVEL Trial to the
FDA. As further amended, this study is planned to include
330 patients, including 110 controls, at 20 sites
in the United States and Canada and up to 15 sites in Europe and
Israel. In August 2007, we received clearance from the FDA to
proceed with the MARVEL Trial.
48
We are a development stage company and our lead product
candidate has not received regulatory approval or generated any
material revenues and is not expected to until early 2009, if
ever. We have generated substantial net losses and negative cash
flow from operations since inception and anticipate incurring
significant and increasing net losses and negative cash flows
from operations for the foreseeable future as we continue
clinical trials, undertake new clinical trials, apply for
regulatory approvals, make capital expenditures, add information
systems and personnel, make payments pursuant to our license
agreements upon our achievement of certain milestones, continue
development of additional product candidates using our
technology, establish sales and marketing capabilities and incur
the additional cost of operating as a public company. In
particular, we expect that our research and development and
general and administrative expenses will increase substantially
from prior periods. As of June 30, 2007, our deficit
accumulated during our development stage was approximately
$69.6 million. From inception in August 1999 through
June 30, 2007, we have financed our operations through
private placements of our common stock in which we have raised
an aggregate of $55.6 million.
We conduct operations in one business segment. We may organize
our business into more discrete business units when and if we
generate significant revenue from the sale of our product
candidates. Substantially all of our revenue since inception has
been generated in the United States, and the majority of our
long-lived assets are located in the United States.
Financial Operations Overview
We have not generated any material revenues from our lead
product candidate. The revenues we have recognized to date are
related to (i) sales of MyoCath to ACS in connection with
the testing of MyoCell, (ii) fees associated with our
assignment to ACS of our rights relating to the primary patent
covering MyoCath, or the Primary MyoCath Patent, and
(iii) revenues generated from a paid registry trial in
Mexico.
In June 2003, we entered into agreements with ACS pursuant to
which we assigned to ACS our rights relating to the Primary
MyoCath Patent, committed to deliver 160 units of MyoCath and
sold other related intellectual property for aggregate
consideration of $900,000. We initially recorded payments
received by us pursuant to these agreements as deferred revenue.
We are recognizing the $900,000 as revenue on a pro rata basis
as the catheters are delivered.
We do not anticipate that our revenues will materially increase
unless and until our lead product candidate, MyoCell, receives
regulatory approval. Our revenue may vary substantially from
quarter to quarter and from year to year. We believe that
period-to-period comparisons of our results of operations are
not meaningful and should not be relied upon as indicative of
our future performance.
Cost of sales consists primarily of the costs associated with
the production of MyoCath and the costs associated with the
culturing of cells for paid registry trials.
Our research and development expenses consist of costs incurred
in identifying, developing and testing our product candidates.
These expenses consist primarily of costs related to our
clinical trials, the acquisition of intellectual property
licenses and preclinical studies. We expense research and
development costs as incurred.
Clinical trial expenses include costs related to the culture and
preparation of cells in connection with our clinical trials,
costs of contract research, costs of clinical trial facilities,
costs of delivery systems, salaries and related expenses for
clinical personnel and insurance costs. Preclinical study
expenses include costs of contract research, salaries and
related expenses for personnel, costs of development biopsies,
costs of delivery systems and costs of lab supplies.
49
We are focused on the development of a number of autologous
cell-based therapies, and related devices, for the treatment of
heart damage. Accordingly, many of our costs are not
attributable to a specifically identified product candidate. We
use our employee and infrastructure resources across several
projects, and we do not account for internal research and
development costs on a product candidate by product candidate
basis. From inception through June 30, 2007, we incurred
aggregate research and development costs of approximately
$48.6 million related to our product candidates. We
estimate that at least $11.5 million and $19.9 million
of these expenses relate to our preclinical and clinical
development of MyoCell, respectively, and at least
$1.8 million and $3.3 million of these expenses relate
to our preclinical and clinical development of MyoCath,
respectively.
Clinical trials and preclinical studies are time-consuming and
expensive. Our expenditures on current and future preclinical
and clinical development programs are subject to many
uncertainties. We generally test our products in several
preclinical studies and then conduct clinical trials for those
product candidates that we determine to be the most promising.
As we obtain results from clinical trials, we may elect to
discontinue or delay trials for some product candidates in order
to focus our resources on more promising product candidates.
Completion of clinical trials may take several years or more,
but the length of time generally varies substantially according
to the type, size of trial and intended use of the product
candidate.
Due to the risks inherent in the clinical trial process,
development completion dates and costs vary significantly for
each product candidate, are difficult to estimate and are likely
to change as clinical trials progress. We currently estimate
that, in addition to the costs we have incurred through
June 30, 2007, it will cost us approximately $800,000 to
complete the SEISMIC Trial and approximately $17.0 million
to complete the MARVEL Trial.
The cost of clinical trials may vary significantly over the life
of a project as a result of a variety of factors, including the
number of patients who participate in the clinical trials, the
number of sites included in the clinical trials, the length of
time required to enroll trial participants, the efficacy and
safety profile of our product candidates and the costs and
timing of and our ability to secure regulatory approvals.
|
|
|
Marketing, General and Administrative
|
Our marketing, general and administrative expenses primarily
consist of the costs associated with our general management and
clinical marketing and trade programs, including, but not
limited to, salaries and related expenses for executive,
administrative and marketing personnel, rent, insurance, legal
and accounting fees, consulting fees, travel and entertainment
expenses, conference costs and other clinical marketing and
trade program expenses.
Stock-based compensation reflects our recognition as an expense
of the value of stock options and other equity instruments
issued to our employees and non-employees over the vesting
period of the options.
We have granted to our employees options to purchase common
stock at exercise prices equal to the fair market value of the
underlying stock at the time of each grant, as determined by our
Board of Directors, with input from management.
In valuing the common stock, our Board of Directors considered a
number of factors, including, but not limited to:
|
|
|
|
|
our financial position and historical financial performance;
|
|
|
|
the illiquidity of our capital stock as a private company;
|
|
|
|
arms length sales of our common stock;
|
|
|
|
the development status of our product candidates;
|
|
|
|
the business risks we face;
|
50
|
|
|
|
|
vesting restrictions imposed upon the equity awards;
|
|
|
|
an evaluation and benchmark of our competitors; and
|
|
|
|
the prospects of a liquidity event, such as a public offering.
|
At the date of each option grant, our Board of Directors
determined that the exercise price for each option was
equivalent to the fair value of our common stock on such date.
Our Board of Directors believes it properly valued our common
stock in all periods, although we understand that the judgments
required in such efforts necessarily involve an element of
subjectivity. Contemporaneous valuations of our common stock by
an unrelated party were not obtained because we were focusing
our financial resources on expanding our business, and believed
that our Board of Directors had considerable experience in the
valuation of emerging companies.
Using these factors, we granted stock options in 2005, during
the first two quarters of 2006 and during part of the third
quarter of 2006 at an exercise price of $5.67 per share. In part
of the third quarter of 2006 and the fourth quarter of 2006, we
granted stock options at an exercise price of $7.69 per share.
During the first half of 2007, we granted options at an exercise
price of $8.47 per share.
In December 2006 and February 2007, as part of our preparation
for this offering and our 2005 and 2006 year-end audits,
management retrospectively analyzed the fair value of our common
stock as of December 31, 2005, September 30, 2006 and
December 31, 2006. In performing these analyses, management
utilized both a discounted cash flow methodology and a market
multiple methodology. In preparing the discounted cash flow
analysis, the key assumptions included a discount rate between
48% and 49%, an annual growth rate between 4% and 5% and a
marketability discount of 30%. As part of the market multiples
analysis, management developed a list of 19 companies that were
considered comparable to us, and derived appropriate valuation
multiples based on financial statements and stock data from the
comparable companies. Those valuation multiples were then used
to determine an implied total-invested-capital value for our
company. From this amount, management derived a per share value
for our common stock and then discounted the value of our common
stock using a marketability discount of 30%. Based in part upon
these analyses, we believe that our prior valuations of our
common stock during these periods are appropriate.
During 2005, 2006 and the first half of 2007, we recognized
stock-based compensation expense of $2.0 million,
$4.8 million and $695,000, respectively. A substantial
portion of the expense recognized in 2006 relates to our
issuance of common stock, stock options and stock warrants to an
employee as part of a settlement in August 2006. We intend to
grant stock options and other stock-based compensation in the
future and we may therefore recognize additional stock-based
compensation in connection with these future grants. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
Critical Accounting Policies
This discussion and analysis of our financial condition and
results of operations are based on our consolidated financial
statements which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. We base our
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions. While our critical accounting policies are described
in Note 1 to our financial statements appearing elsewhere
in this prospectus, we believe the following policies are
important to understanding and evaluating our reported financial
results:
Prior to January 1, 2006, we accounted for stock-based
compensation arrangements with employees under the intrinsic
value method specified in Accounting Principles Board Opinion
No. 25, or APB No. 25. Statement of Financial
Accounting Standards, or SFAS, No. 123,
Accounting for
Stock-Based Compensation,
51
as amended by SFAS No. 148,
Accounting for
Stock-Based Compensation Transition and Disclosure,
established the use of the fair value based method of
accounting for stock-based compensation arrangements, under
which compensation cost is determined using the fair value of
stock-based compensation determined as of the grant date, and is
recognized over the periods in which the related services are
rendered. SFAS No. 123 permitted companies to elect to
continue using the intrinsic value accounting method specified
in APB No. 25 to account for stock-based compensation
related to option grants and stock awards to employees. In 2005,
we elected to retain the intrinsic value based method for such
grants and awards and disclosed the pro forma effect of using
the fair value based method to account for our stock-based
compensation in Note 1 to our financial statements. Option
grants to non-employees are valued using the fair value based
method prescribed by SFAS No. 123 and expensed over
the period services are provided.
In December 2004, the Financial Accounting Standards Board, or
FASB, issued SFAS No. 123 (revised 2004)
Share-Based Payment, or SFAS No. 123R.
SFAS No. 123R eliminates, among other items, the use
of the intrinsic value method of accounting and requires
companies to recognize the cost of employee services received in
exchange for awards of equity instruments, based on the grant
date fair value of those awards, in the financial statements.
SFAS No. 123R became effective for us as of
January 1, 2006, resulting in an increase in our
stock-based compensation expense. We expense amounts related to
employee stock options granted after January 1, 2006
utilizing the Black-Scholes option pricing model to measure the
fair value of stock options. We amortize the estimated fair
value of employee stock option grants over the vesting period.
Additionally, we are required to apply the provisions of
SFAS No. 123R on a modified prospective basis to
awards granted before January 1, 2006. Stock-based
compensation expense for 2006 and future periods will include
the unamortized portion of employee stock options granted prior
to January 1, 2006. Our future equity-based compensation
expense will also depend on the number of equity instruments
granted and the estimated value of the underlying common stock
at the date of grant.
Since inception, we have not generated any material revenues
from our lead product candidate. In accordance with Staff
Accounting Bulletin No. 101,
Revenue Recognition in
Financial Statements,
as amended by SEC Staff Accounting
Bulletin No. 104,
Revenue Recognition,
our
revenue policy is to recognize revenues from product sales and
service transactions generally when persuasive evidence of an
arrangement exists, the price is fixed or determined, collection
is reasonably assured and delivery of product or service has
occurred.
We initially recorded payments received by us pursuant to our
agreements with ACS as deferred revenue. Revenues are recognized
on a pro rata basis as the catheters are delivered pursuant to
those agreements.
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Research and Development Activities
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Research and development expenditures, including payments to
collaborative research partners, are charged to expense as
incurred. We expense amounts paid to obtain patents or acquire
licenses as the ultimate recoverability of the amounts paid is
uncertain.
Results of Operations
We are a development stage company and our lead product
candidate has not received regulatory approval or generated any
material revenues and is not expected to until early 2009, if
ever. We have generated substantial net losses and negative cash
flow from operations since inception and anticipate incurring
significant and increasing net losses and negative cash flows
from operations for the foreseeable future as we continue
clinical trials, undertake new clinical trials, apply for
regulatory approvals, make capital expenditures, add information
systems and personnel, make payments pursuant to our license
agreements upon our achievement of certain milestones, continue
development of additional product candidates using our
technology, establish sales and marketing capabilities and incur
the additional cost of operating as a public company. In
particular, we expect that our research and development and
marketing, general and administrative expenses will increase
substantially from prior periods.
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Comparison of Six Months Ended June 30, 2007 and
June 30, 2006
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We recognized revenues of $208,000 in the six months ended
June 30, 2007, an increase of $133,000 from revenues of
$75,000 in the six months ended June 30, 2006. Our primary
source of revenue continues to be sales of MyoCath catheters to
ACS. In June 2007, we delivered 30 MyoCath catheters to ACS
pursuant to our agreement with them, recognized $191,000 of
revenue and a corresponding decrease to deferred revenue. In the
first six months of 2006, we recognized $57,000 of revenue upon
delivery of MyoCath catheters to ACS and a corresponding charge
to deferred revenue.
Cost of sales was $34,000 in the six months ended June 30,
2007 as compared to $44,000 in the six months ended
June 30, 2006. The costs attributable to the catheters
delivered in the first half of 2007 was less than the cost
attributable to the catheters delivered in the first half of
2006.
Research and development expenses were $3.2 million in the
six months ended June 30, 2007, an increase of $500,000
from research and development expenses of $2.7 million in
the six months ended June 30, 2006. Of the expenses
incurred in the first half of 2007, approximately $963,000
relates to the MYOHEART and SEISMIC Trials, approximately
$507,000 relates to advanced research and business development
and approximately $402,000 relates to start-up costs for the
MARVEL Trial.
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Marketing, General and Administrative
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Marketing, general and administrative expenses were
$1.8 million in the six months ended June 30, 2007, an
increase of $500,000, or approximately 32.1%, from marketing,
general and administrative expenses of $1.3 million in the
six months ended June 30, 2006. The increase in marketing,
general and administrative expenses is primarily attributable to
increases in legal fees, professional recruiting fees, salary
expense for our Chief Financial Officer hired in August 2006 and
our Chief Executive Officer hired in March 2007 and lease
expenses for additional office space.
Interest income consists of interest earned on our cash and cash
equivalents. Interest income was $116,000 in the six months
ended June 30, 2007 compared to interest income of $58,000
in the six months ended June 30, 2006. The increase in
interest income was primarily attributable to higher cash
balances in the first half of 2007 as compared to the first half
of 2006 resulting from sales of our common stock in the third
and fourth quarters of 2006 and the first quarter of 2007.
Interest expense consists of interest incurred on our
outstanding indebtedness and the amortization of related
deferred loan costs. On June 1, 2007, we entered into both
the BlueCrest Loan in the principal amount of $5,000,000 and the
Bank of America Loan in the principal amount of $5,000,000.
Interest expense attributable to these loans was $300,000 in the
six months ended June 30, 2007.
In the six months ended June 30, 2007, we incurred a loss
from operations of $5.0 million as compared to a loss from
operations of $3.9 million in the six months ended
June 30, 2006.
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Comparison of Years Ended December 31, 2006 and
December 31, 2005
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Total revenues were $106,000 and $135,000 in 2006 and 2005,
respectively. In 2006, we generated revenue primarily from
$82,000 of sales of MyoCath and $20,000 from a paid registry
trial in Mexico.
Cost of sales was $73,000 in 2006 as compared to $87,000 in
2005. Our cost of sales in 2006 consisted primarily of $55,000
of costs associated with the production of MyoCath and $18,000
of costs associated with the culturing of cells for the paid
registry trial in Mexico. The decrease in cost of sales in 2006
as compared to 2005 was primarily attributable to our decreased
sales of MyoCath in 2006.
Research and development expenses were $6.9 million in
2006, an increase of $2.4 million, or 51.7%, from research
and development expenses of $4.5 million in 2005. Our
increase in research and development expenses in 2006 was
primarily attributable to $1.5 million of expenses
recognized in connection with the licensing agreement with the
Cleveland Clinic, stock-based compensation costs of $303,000 and
increased clinical costs of $192,000. Approximately
$2.7 million of the expenses incurred in 2006 were related
to the MYOHEART Trial and the SEISMIC Trial, including $952,000
of fees paid to our clinical trial investigators, $632,000 of
costs related to cell culturing and $576,000 of clinical site
expenses.
On February 1, 2006, we entered into a patent licensing
agreement with the Cleveland Clinic pursuant to which we
acquired worldwide exclusive licenses to five pending U.S.
patent applications related to our MyoCell II with SDF-1 product
candidate. Pursuant to this agreement, we paid Cleveland Clinic
an upfront license fee of $250,000 and additional license fees
of $1.25 million in 2006.
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Marketing, General and Administrative
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Marketing, general and administrative expenses were
$6.4 million in 2006, an increase of $3.6 million, or
125%, from marketing, general and administrative expenses of
$2.8 million in 2005. The increase in marketing, general
and administrative expenses during 2006 was primarily
attributable to the $3.5 million of stock-based
compensation costs related to the issuance of common stock,
stock options and stock warrants to a related party pursuant to
a settlement.
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Total Net Interest Income
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Total net interest income was $127,000 in 2006 compared to total
net interest income of $37,000 in 2005. The increase in total
net interest income was primarily attributable to higher cash
balances resulting from sales of our common stock received in
the third and fourth quarters of 2006.
In 2006, we incurred a loss from operations of
$13.2 million, which was $5.9 million greater than the
loss from operations incurred in 2005.
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Comparison of Years Ended December 31, 2005 and
December 31, 2004
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Total revenues were $135,000 in 2005, an increase of $49,000
from total revenues of $86,000 in 2004. The increase in revenues
is primarily attributable to sales of MyoCath to ACS in 2005.
54
Cost of sales was $87,000 in 2005, an increase of $41,000 from
cost of sales of $46,000 in 2004. The increase in cost of sales
is primarily attributable to increased sales of MyoCath to ACS
in 2005.
Research and development expenses were $4.5 million in
2005, an increase of $700,000, or 18.4%, from research and
development expenses of $3.8 million in 2004, primarily
attributable to an increase in the number of patients
participating in our clinical trials in 2005. Approximately
$2.5 million of the expenses incurred in 2005 were related
to the MYOHEART and SEISMIC Trials, including costs related to
cell culturing, cell shipping, investigator fees, and clinical
site expenses. Approximately $1.2 million of the expenses
incurred in 2005 were related to our preclinical studies.
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Marketing, General and Administrative
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Marketing, general and administrative expenses were
$2.8 million in 2005, an increase of $1.1 million, or
64.7%, from marketing, general and administrative expenses of
$1.7 million in 2004. The increase in marketing, general
and administrative expenses was primarily due to stock-based
compensation expense of $1.2 million in 2005 compared to
$149,000 in 2004.
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Total Net Interest Income
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Total net interest income was $37,000 in 2005 compared to total
net interest expense of $7,000 in 2004.
In the year ended December 31, 2005, we incurred a loss
from operations of $7.3 million, which is $1.8 million
greater than the loss from operations incurred in the year ended
December 31, 2004.
Liquidity and Capital Resources
In 2007, we continued to finance our considerable operational
cash needs with cash generated from financing activities.
Net cash used in operating activities was $4.2 million in
the six months ended June 30, 2007 as compared to
$3.0 million of cash used in the six months ended
June 30, 2006.
Our use of cash for operations in the first six months of 2007
was primarily attributable to net losses of $5.0 million, a
decrease in deferred revenue of $191,000 and an increase in
prepaid expenses of $154,000. Partially offsetting these uses of
cash were stock based compensation of $695,000 and an increase
in accounts payable of $213,000. Our use of cash for operations
in the first six months of 2006 was primarily attributable to
net losses of $3.9 million, which was partially offset by
stock based compensation of $482,000 and an increase in accrued
expenses of $293,000.
Net cash used in investing activities was $41,000 in the six
months ended June 30, 2007 as compared to $49,000 in the
six months ended June 30, 2006. All of the cash utilized in
investing activities for the six months ended June 30, 2007
and 2006 related to our acquisition of property and equipment.
Net cash provided by financing activities was $12.2 million
during the six months ended June 30, 2007. In June 2007, we
borrowed funds pursuant to both the BlueCrest Loan and the Bank
of America Loan, each in the principal amount of
$5.0 million. We also generated $4.0 million from our
issuance of common stock. These sources of cash were partially
offset by $1.1 million related to the payment of offering
costs related to our planned initial public offering and
$745,000 related to the payment of costs incurred in connection
with obtaining the BlueCrest Loan and Bank of America Loan. We
did not generate or use any cash related to financing activities
in the six months ended June 30, 2006.
55
Net cash used in operating activities was $7.8 million in
the year ended December 31, 2006 as compared to
$5.8 million of cash used in the year ended
December 31, 2005 and $5.0 million of cash used in the
year ended December 31, 2004, primarily due to net losses
of $13.2 million, $7.3 million and $5.5 million
in 2006, 2005 and 2004, respectively.
The cash used in the year ended December 31, 2006 was
reduced by the following items:
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$3.3 million of cash conserved by our issuance of equity
instruments in lieu of cash in connection with a settlement
agreement; and
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$1.2 million of cash conserved by our issuance of
stock-based compensation in lieu of cash compensation.
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Net cash used in investing activities was $203,000 in the year
ended December 31, 2006 as compared to $326,000 in the year
ended December 31, 2005 and $59,000 in the year ended
December 31, 2004. All of the cash utilized in investing
activities for 2006, 2005 and 2004 related to our acquisition of
property and equipment.
Net cash provided by financing activities was $7.9 million
during the year ended December 31, 2006 as compared to
$11.1 million of cash provided by financing activities in
the year ended December 31, 2005 and $4.6 million of
cash provided by financing activities in the year ended
December 31, 2004. In 2006, we generated $8.1 million
of cash from our issuance of common stock, which source of cash
was partially offset by $224,000 related to the payment of
deferred offering costs related to our planned initial public
offering. Substantially all of the cash provided by financing
activities from January 1, 2004 to December 31, 2006
has been generated from our issuance of common stock in various
private placements. Since our inception in August 1999 through
December 31, 2006, we have received aggregate net proceeds
of $51.6 million from these private placements.
During 2006, we agreed to pay $153,000 in cash and issued equity
instruments with a fair value of $3.3 million in connection
with a settlement with one of our officers. We also issued
common stock with a fair value of $100,000 and warrants with a
fair value of $145,000 during this same period in exchange for
distribution rights and licenses of intellectual property.
Existing Capital Resources and Future Capital Requirements
At December 31, 2006 and June 30, 2007, we had cash
and cash equivalents totaling $5.0 million and
$12.9 million, respectively. Assuming that we secure
$46.9 million of net proceeds in connection with this
offering, we believe that the net proceeds together with our
existing cash and cash equivalents will be sufficient to fund
our currently budgeted cash needs for at least the next
24 months.
On May 31, 2007, we entered into a Loan and Security
Agreement with BlueCrest Capital pursuant to which they agreed
to provide us a three year, $5.0 million term loan. The
transaction closed on June 1, 2007. For the first
three months of the BlueCrest Loan, we are only required to
make payments of interest. Commencing in October 2007 we are
required to make 33 equal monthly payments of principal and
interest. Interest accrues at an annual rate of 12.85%. As
consideration for providing us the BlueCrest Loan, we issued to
BlueCrest Capital a warrant to purchase 65,030 shares of our
common stock at an exercise price of $7.69 per share. The
warrant, which is not exercisable until the date that is one
year following the date the warrant was issued, has a ten year
term, unless we close an initial public offering of our common
stock or undertake a merger with or into a publicly traded
corporation or similar transaction during 2007, in which case
the warrant will have a five year term. This warrant had a fair
value of $432,635, which amount will be accounted for as
additional paid in capital and reflected as a component of
deferred loan costs to be amortized as interest expense over the
term of the BlueCrest Loan using the effective interest method.
We also paid BlueCrest Capital a fee of $100,000 to cover
diligence and other costs and expenses incurred in connection
with the loan.
We may voluntarily prepay the BlueCrest Loan in whole but not in
part. However, we are subject to a prepayment penalty equal to
3% of the outstanding principal if paid during the first year of
the BlueCrest
56
Loan, 2% of the outstanding principal if paid during the second
year of the BlueCrest Loan and 1% of the outstanding principal
if paid during the third year of the BlueCrest Loan. As
collateral to secure our repayment obligations to BlueCrest
Capital, we have granted them a first priority security interest
in all of our assets, excluding our intellectual property but
including the proceeds from any sale of any of our intellectual
property.
Pursuant to the agreement, we may not, among other things:
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incur additional indebtedness, except for certain permitted
indebtedness. Permitted indebtedness is defined to include
accounts payable incurred in the ordinary course of business,
leases of equipment or property incurred in the ordinary course
of business not to exceed, in the aggregate, $250,000, any
unsecured debt less than $20,000 or any debt not secured by the
collateral pledged to BlueCrest that is subordinated to the
rights of BlueCrest pursuant to a subordination agreement
satisfactory to BlueCrest in its sole discretion;
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make any principal, interest or other payments arising under or
in connection with our loan from Bank of America or any other
debt subordinate to the BlueCrest Loan;
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incur additional liens on any of our assets, including any liens
on our intellectual property, except for certain permitted liens
including but not limited to non-exclusive licenses or
sub-licenses of our intellectual property in the ordinary course
of business and licenses or sub-licenses of intellectual
property in connection with joint ventures and corporate
collaborations (provided that any proceeds from such licenses be
used to pay down the BlueCrest Loan);
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voluntarily prepay any debt prior to maturity, except for
accounts payable incurred in the ordinary course of business,
leases of equipment or property incurred in the ordinary course
of business not to exceed, in the aggregate, $250,000 and any
unsecured debt less than $20,000. However, in the event that
this offering closes before January 31, 2008 and the net
proceeds from this offering exceed $30 million, we may
prepay our debt to Bank of America;
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convey, sell, transfer or otherwise dispose of property, except
for sales of inventory in the ordinary course of business, sales
of obsolete or unneeded equipment and transfers or our
intellectual property related to product candidates other than
MyoCell or MyoCell II with
SDF-1
to a currently
operating or newly formed wholly owned subsidiary;
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merge with or acquire any other entity if we would not be the
surviving person following such transaction;
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pay dividends (other than stock dividends) to our shareholders;
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redeem any outstanding shares of our common stock or any
outstanding options or warrants to purchase shares of our common
stock except in connection with a share repurchase pursuant to
which we offer to pay our then existing shareholders not more
than $250,000;
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enter into transactions with affiliates other than on
arms-length terms; and
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make any change in any of our business objectives, purposes and
operations which has or could be reasonably expected to have a
material adverse effect on our business.
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We also are subject to certain affirmative covenants, including
but not limited to, maintaining the collateral in good operating
condition and providing BlueCrest with certain financial
information on a periodic basis.
In the event of an uncured event of default under the Loan and
Security Agreement, all amounts owed to BlueCrest Capital are
immediately due and payable and BlueCrest Capital has the right
to enforce its security interest in the assets securing the
BlueCrest Loan. Events of default include, among others, our
failure to timely make payments of principal when due, our
uncured failure to timely pay any other amounts owing to
BlueCrest Capital under the Loan and Security Agreement, our
material breach of the representations and warranties contained
in the Loan and Security Agreement, any material misstatement in
any financial statement, report or certificate delivered under
the Loan and Security Agreement, our uncured breach of any
filing of a notice of lien with respect to any of the collateral
securing the BlueCrest Loan, the entry of a money judgment
against us in excess of $100,000, a change of control of the
company, the entry of a court order that
57
prevents us from conducting all or any material part of our
business and our default in the payment of any debt to any of
our other lenders in excess of $100,000 or any other default or
breach under any agreement relating to such debt which gives the
holders of such debt the right to accelerate the debt.
On June 1, 2007, we entered into a loan agreement with Bank
of America pursuant to which Bank of America agreed to provide
us with an eight month, $5.0 million term loan, or the Bank
of America Loan, to be used for working capital purposes. The
Bank of America Loan bears interest at the prime rate plus 1.5%.
The prime rate was 8.25% as of June 30, 2007. As consideration
for the Bank of America Loan, we paid Bank of America a fee of
$100,000.
We did not pledge any assets to Bank of America as security for
this loan. However, Mr. and Mrs. Leonhardt have provided a
$1.1 million limited personal guarantee of the Bank of
America Loan and have pledged securities accounts with Bank of
America to back-up this limited personal guarantee. Two of our
other directors, including Dr. William Murphy and
Mr. Richard Spencer, III, or the Director Guarantors, have
provided collateral valued at $750,000 and $1.5 million,
respectively, to secure the Bank of America Loan. In addition,
one of our current shareholders, or the Shareholder Guarantor
and collectively with Mr. and Mrs. Leonhardt and the
Director Guarantors referred to herein as the Guarantors, has
provided collateral valued at $2.2 million to secure the
Bank of America Loan. The parties have agreed that, in the event
of any calls against the personal guarantee provided by
Mr. Leonhardt and his spouse and/or the collateral provided
by the Guarantors, Bank of America will attempt to first proceed
against the assets pledged by Mr. and Mrs. Leonhardt and
the Director Guarantors prior to proceeding against the
collateral provided by the Shareholder Guarantor. Each Director
Guarantors and the Shareholder Guarantors exposure
under the Bank of America Loan is limited to the collateral it
provided to Bank of America.
Under the terms of the Bank of America Loan, Bank of America is
entitled to receive a semi-annual payment of interest and all
outstanding principal and accrued interest by the maturity date.
We and Bank of America have agreed with BlueCrest Capital that
we will not individually make any payments due under the Bank of
America Loan while the BlueCrest Loan is outstanding except from
the proceeds of this offering provided that this offering closes
before January 31, 2008 and the net proceeds of this
offering are at least $30 million, or a Qualified Offering.
For our benefit, the Guarantors have agreed to provide Bank of
America in the aggregate up to $5.5 million of funds and/or
securities to make these payments.
We have agreed to reimburse the Guarantors with interest for any
and all payments made by them under the Bank of America Loan as
well as to pay them certain cash fees in connection with their
provision of security for the Bank of America Loan. We have
agreed to pay these amounts to the Guarantors upon the earlier
of the closing of a Qualified Offering or our repayment in full
of the BlueCrest Loan. In addition, we issued to each Guarantor
warrants to purchase 3,250 shares, or the Subject Shares, of our
common stock at an exercise price of $7.69 per share for
each $100,000 of principal amount of the Bank of America Loan
guaranteed by such Guarantor. The number of Subject Shares may
increase to 3,707 shares per $100,000 guaranteed in the
event the Bank of America Loan is not repaid prior to
September 30, 2007. In the event that as of the first
anniversary, second anniversary and third anniversary of the
closing date of the Bank of America Loan, we have not reimbursed
the Guarantors in full for payments made by them in connection
with the Bank of America Loan, the number of Subject Shares per
$100,000 guaranteed will increase to 4,634, 6,178 and 9,267
shares, respectively. The warrants have a
ten-year
term and are
not exercisable until the date that is one year following the
date the warrants were issued. In total 180,350 warrants were
issued to the Guarantors which had an aggregate fair value of
$1,199,832, which amount was accounted for as additional paid in
capital and reflected as a component of deferred loan costs to
be amortized as interest expense over the term of the Bank of
America Loan using the effective interest method.
At closing:
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In exchange for the $1.1 million limited personal
guarantee, we issued to Mr. and Mrs. Leonhardt a warrant to
purchase an aggregate of 35,745 Subject Shares (subject to
adjustment as set forth above).
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In exchange for the pledge of collateral valued at
$1.5 million, we issued to Mr. Spencer a warrant to
purchase an aggregate of 48,743 Subject Shares (subject to
adjustment as set forth above).
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In exchange for the pledge of collateral valued at $750,000, we
issued to Dr. Murphy a warrant to purchase an aggregate of
24,372 Subject Shares (subject to adjustment as set forth above).
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In exchange for the pledge of collateral valued at
$2.2 million, we issued to the Shareholder Guarantor
warrants to purchase an aggregate of 71,490 Subject Shares
(subject to adjustment as set forth above).
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Until the closing of this offering, each of the Guarantors has
the right, between October 5, 2007 and October 15,
2007, to compel us to repay (i) the BlueCrest Loan or
(ii) both the BlueCrest Loan and the Bank of America Loan.
Shortly after this offering, we have committed to repay any
outstanding amounts under the Bank of America Loan using funds
currently held in an interest bearing account and, to a limited
extent, the proceeds of this offering.
In addition, to the extent that as of the third anniversary of
the closing of the Bank of America Loan we owe any amounts to
the Shareholder Guarantor under its loan guarantee agreement
with us, Mr. and Mrs. Leonhardt have agreed to repay these
amounts to the Shareholder Guarantor and, in exchange, assume
the Shareholder Guarantors rights to be indemnified by us
under the loan guarantee agreement. As consideration for
agreeing to assume this obligation, we have issued to Mr. and
Mrs. Leonhardt an additional warrant to purchase 35,745
shares, or the Put Shares, of our common stock at an exercise
price of $7.69 per share. The number of Put Shares may
increase to 40,774 shares in the event the Bank of America Loan
is not repaid prior to September 30, 2007. In the event
that as of the first anniversary, second anniversary and third
anniversary of the closing date of the Bank of America Loan, we
have not reimbursed the Shareholder Guarantor in full for
payments made by them in connection with the Bank of America
Loan, the number of Put Shares will increase to 50,967, 67,956,
and 101,934 shares, respectively. We have also agreed that, in
the event Mr. and Mrs. Leonhardt do, in fact, repay our
obligations to the Shareholder Guarantor, the Put Shares will be
increased as of the date Mr. and Mrs. Leonhardt become
obligated to repay such amounts by the product of
(i) 101,934 and (ii) the quotient obtained by dividing
the amount to be repaid by Mr. and Mrs. Leonhardt by
$2.2 million. The warrant has a ten-year term and is not
exercisable until the date that is one year following the date
the warrants were issued. This warrant had a fair value of
$237,805, which amount was accounted for as additional paid in
capital and reflected as a component of deferred loan costs to
be amortized as interest expense over the term of the Bank of
America Loan using the effective interest method.
Our lead product candidate has not received regulatory approval
or generated any material revenues. We do not expect to generate
any material revenues or cash from sales of our lead product
candidate until early 2009, if ever. We have generated
substantial net losses and negative cash flow from operations
since inception and anticipate incurring significant and
increasing net losses and negative cash flows from operations
for the foreseeable future. To date, we have relied on proceeds
from the private placement of our common stock and our
incurrence of debt to provide the funds necessary to conduct our
research and development activities and to meet our other cash
needs.
We expect that our expenses and capital expenditures will
increase significantly during 2007 and beyond as a result of a
number of factors, including:
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costs related to our continuation of clinical trials with
respect to MyoCell;
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costs related to our continued research and development and new
clinical trials with respect to our pipeline product candidates;
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costs of applying for regulatory approvals;
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capital expenditures to increase our research and development
and cell culturing capabilities;
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costs associated with our addition of operational, financial and
management information systems and personnel and development and
protection of our intellectual property;
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our obligations to make payments pursuant to license agreements
upon achievement of certain milestones; and
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costs associated with our establishment of sales and marketing
capabilities to commercialize products for which we obtain
regulatory approval, if any.
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59
The magnitude of our future expenditures and cash requirements
will depend on numerous factors, including, but not limited to:
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the scope, rate of scientific progress, results and cost of our
clinical trials and other research and development activities;
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the costs and timing of seeking FDA and other regulatory
approvals;
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our ability to obtain sufficient third-party insurance coverage
or reimbursement for our product candidates;
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the effectiveness of commercialization activities (including the
volume and profitability of any sales achieved);
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our ability to establish additional strategic, collaborative and
licensing relationships with third parties with respect to the
sales, marketing and distribution of our products, research and
development and other matters and the economic and other terms
and timing of any such relationships;
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the ongoing availability of funds from foreign governments to
build new manufacturing facilities;
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the costs involved in any potential litigation that may occur;
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decisions by us to pursue the development of new product
candidates or technologies or to make acquisitions or
investments; and
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the effect of competing products, technologies and market
developments.
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See Risk Factors We may need substantial
additional funding and may be unable to raise capital when
needed, which would force us to delay or curtail the development
or commercialization of our product candidates. An inability to
obtain additional financing could adversely affect our business,
financial condition, results of operations, and could even
prevent us from continuing our business at all.
Effects of Being a Public Company
After completion of this offering, we will become subject to the
periodic reporting requirements of the Exchange Act and the
other rules and regulations of the SEC. We will also be subject
to various other regulatory requirements, including the
Sarbanes-Oxley
Act of
2002. In addition, upon completion of this offering, we will
become subject to the rules of the NASDAQ Global Market.
We are working with our legal and accounting advisors to
identify those areas in which changes should be made to our
financial and management control systems to manage our growth
and our obligations as a public company. These areas include
corporate governance, corporate control, internal audit,
disclosure controls and procedures and financial reporting and
accounting systems. We have made, and will continue to make,
changes in these and other areas, including our internal control
over financial reporting.
In addition, compliance with reporting and other requirements
applicable to public companies will create additional costs for
us and will require the time and attention of management. We
currently expect to incur an estimated $2.0 million of
incremental operating expenses in our first year of being a
public company and an estimated $1.9 million per year
thereafter. The incremental costs are estimates and actual
incremental expenses could be materially different from these
estimates. We cannot estimate with reasonable certainty the
amount of the additional costs we may incur, the timing of such
costs or the degree of impact that our managements
attention to these matters will have on our business.
60
Commitments and Contingencies
The table below summarizes our commitments and contingencies at
December 31, 2006. The information in the table reflects
future unconditional payments and is based on the terms of the
relevant agreements and appropriate classification of items
under generally accepted accounting principles currently in
effect.
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Payments Due by Period
(1)
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Less than
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12
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13-36
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37+
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Total
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Months
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Months
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Months
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Operating lease obligations
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$
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371,000
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$
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116,000
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$
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244,000
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$
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11,000
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Royalty payments
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$
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1,890,000
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$
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210,000
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$
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420,000
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$
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1,260,000
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(1)
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Amounts reflected do not include any commitments incurred after
December 31, 2006. On June 1, 2007, we closed the
$5.0 million senior BlueCrest Loan. The BlueCrest Loan has
a term of 36 months and bears interest at an annual rate of
12.85%. The first three months require payment of interest only
in an amount of $54,000 per month. The remaining 33 months
require equal principal and interest payments of $181,000 per
month. On June 1, 2007, we closed on the $5.0 million
Bank of America Loan. The Bank of America Loan bears interest at
an annual rate of prime plus 1.5%. Interest is payable six
months following the date of the loan with the remainder payable
upon maturity. The Bank of America Loan is scheduled to mature
upon the sooner to occur of (i) the date that is eight
months following the date of the loan; or (ii) five
business days after the closing of this offering, if we raise
net proceeds of at least $30 million. Total interest
payable over the maximum term of this loan is estimated to be
$500,000. We have committed to repay the Bank of America Loan
shortly after the closing of this offering.
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We have entered into several operating lease agreements for
facilities and equipment, primarily for our office building and
cell culturing facility in Sunrise, Florida. Terms of certain
lease arrangements include renewal options, payment of executory
costs such as real estate taxes, insurance, common area
maintenance and escalation clauses.
Under our licensing agreement and related agreements with
Dr. Law and his affiliate, Cell Transplants International,
we are required to pay to Cell Transplants International a
$3 million payment upon commencement of a bona fide U.S.
Phase II human clinical trial that utilizes technology
claimed under the patent for heart muscle regeneration licensed
to us by Dr. Law and a $5 million payment upon FDA
approval of patented technology for heart muscle regeneration.
In addition, we are required to pay royalties to Cell
Transplants International equal to 5% of gross sales in the
territories where the licensed patents are issued for products
and services that read directly on the claims of the licensed
patents.
Our licensing agreement with the Cleveland Clinic requires us to
make certain milestone payments to the Cleveland Clinic upon
expected milestones including: (a) $200,000 upon FDA or
foreign equivalent approval of an IND application covering
product candidates derived from the licensed patents,
(b) $300,000 upon full enrollment of an FDA approved Phase
I clinical trial, (c) $750,000 upon full enrollment of the
last clinical trial needed prior to a Biologic License
Application submission to the FDA or foreign equivalent and
(d) $1.0 million upon the first commercial sale of an
FDA approved product derived from the licensed patent. At the
option of the Cleveland Clinic, we may be required to pay
one-half of any milestone payment in shares of our common stock.
The number of shares payable will be based upon the market value
of our common stock on the date of the milestone payment. To the
extent we do not complete a milestone activity by the target
completion date, we will be required to pay $100,000, or the
Extension Fee, to extend the target completion date for an
additional one year period, or the Extension Period. If such
milestone activity is achieved during the first six months of
the Extension Period, the Extension Fee will be credited against
the applicable milestone payment. We will also be required to
pay Cleveland Clinic royalty fees equal to 5% of net sales of
any products derived from the licensed patents.
In June 2000, we entered into an exclusive license agreement
with the William Beaumont Hospital to use certain patents for
the whole life of the patents in future projects. The royalty on
the gross sales of products and services that directly rely upon
the claims of these patents ranges between 2% and 4% of gross
sales depending on aggregate gross sales in the applicable
period. The patents expire in 2015. This agreement also calls
for a minimum royalty fee ranging from $10,000 per year to
$200,000 per year for the term of the agreement, which is
the remaining useful life of the patents.
61
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to investors.
Quantitative and Qualitative Disclosure About Market Risks
Our exposure to market risk is limited to interest income
sensitivity, which is affected by changes in the general level
of U.S. interest rates, particularly because the majority of our
investments are expected to be in short-term debt securities.
The primary objective of our investment activities is to
preserve principal while at the same time maximizing the income
we receive without significantly increasing risk. To reduce
risk, we maintain our portfolio of cash, cash equivalents and
short-term
and
long-term
investments
in a variety of
interest-bearing
instruments, including U.S. government and agency securities,
high-grade
U.S.
corporate bonds, asset-backed securities, commercial paper and
money market funds. We do not have any derivative financial
investments in our investment portfolio. Due to the nature of
our investments and expected investments, we believe that we are
not subject to any material market risk exposure.
Recent Accounting Pronouncements
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
, on
January 1, 2007. Previously, we had accounted for tax
contingencies in accordance with Statement of Financial
Accounting Standards 5,
Accounting for Contingencies.
As
required by Interpretation No. 48, we recognize the
financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely
than not sustain the position following an audit. For tax
positions meeting the
more-likely-than-not
threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the
relevant tax authority. At the adoption date, we applied
Interpretation No. 48 to all tax positions for which the
statute of limitations remained open. As a result of the
implementation of Interpretation No. 48, we did not
recognize any change in the liability for unrecognized tax
benefits.
The amount of unrecognized tax benefits as of January 1,
2007 was $0. There have been no material changes in unrecognized
tax benefits since January 1, 2007.
We are subject to income taxes in the U.S. federal jurisdiction,
and the State of Florida. Tax regulations within each
jurisdiction are subject to the interpretation of the related
tax laws and regulations and require significant judgment to
apply. With few exceptions, we are no longer subject to U.S.
federal, state and local income tax examinations by tax
authorities for the years before 1999.
We are not currently under examination by any federal or state
jurisdiction.
Should we record a liability for unrecognized tax benefits in
the future, corresponding interest and penalty accruals will be
recognized in operating expenses.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements,
or SFAS No. 157.
SFAS No. 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS No. 157 does not
require any new fair value measurements, but provides guidance
on how to measure fair value by providing a fair value hierarchy
used to classify the source of the information.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. We do not expect the adoption of
SFAS No. 157 to have a material effect on our consolidated
financial statements.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities,
or SFAS No. 159.
SFAS No. 159 allows an entity the irrevocable option
to elect fair value for the initial and subsequent measurement
for certain financial assets and liabilities on a
contract-by-contract
basis. Subsequent changes in fair value of these financial
assets and liabilities would be recognized in earnings when they
occur. SFAS No. 159 is effective for fiscal years
beginning after
62
November 15, 2007. We do not expect the adoption of SFAS
No. 159 to have a material effect on our consolidated
financial statements.
A variety of proposed or otherwise potential accounting
standards are currently under study by
standard-setting
organizations and various regulatory agencies. Because of the
tentative and preliminary nature of these proposed standards,
management has not determined whether implementation of such
proposed standards would be material to the Companys
consolidated financial statements.
63
BUSINESS
Overview
We are a biotechnology company focused on the discovery,
development and, subject to regulatory approval,
commercialization of autologous cell therapies for the treatment
of chronic and acute heart damage. Our lead product candidate is
MyoCell, an innovative clinical therapy designed to populate
regions of scar tissue within a patients heart with muscle
tissue from the patients body for the purpose of improving
cardiac function in chronic heart failure patients. The core
technology used in MyoCell has been the subject of human
clinical trials conducted over the last six years involving
84 enrollees and 70 treated patients. Our most recent
clinical trials of MyoCell include the SEISMIC Trial, a
completed 40 patient Phase II clinical trial in
various countries in Europe, and the MYOHEART Trial, a completed
20 patient Phase I dose escalation trial in the United
States. Interim results of the SEISMIC and MYOHEART Trials were
announced in January 2007 and updated interim results are
disclosed in this prospectus. We have been cleared by the FDA to
proceed with a 330 patient, multicenter Phase II/III
trial of MyoCell in North America, Europe and Israel, or the
MARVEL Trial. We intend to seek to have final data available for
the MARVEL Trial by the third quarter of 2009. If the results of
the MARVEL Trial demonstrate statistically significant evidence
of the safety and efficacy of MyoCell, we anticipate having a
basis to ask the FDA to consider the MARVEL Trial a pivotal
trial. The SEISMIC, MYOHEART and MARVEL Trials have been
designed to test the safety and efficacy of MyoCell in treating
patients with severe, chronic damage to the heart. Upon
regulatory approval of MyoCell, we intend to generate revenue
from the sale of MyoCell cell culturing services to patients for
treatment of patients by interventional cardiologists.
In our pipeline, we have multiple product candidates for the
treatment of heart damage, including Bioheart Acute Cell
Therapy, an autologous, adipose cell treatment for acute heart
damage, and MyoCell II with
SDF-1,
a proposed
therapy utilizing autologous cells genetically modified to
express additional growth factors. We hope to demonstrate that
our various product candidates are safe and effective
complements to existing therapies for chronic and acute heart
damage.
MyoCell is a clinical therapy intended to improve cardiac
function and designed to be utilized months or even years after
a patient has suffered severe heart damage due to a heart attack
or other cause. We believe that MyoCell has the potential to
become a leading treatment for severe, chronic damage to the
heart due to its perceived ability to satisfy, at least in part,
what we believe to be an unmet demand for more effective and/or
more affordable therapies for chronic heart damage. MyoCell uses
myoblasts, cells that are precursors to muscle cells, from the
patients own body. The myoblasts are removed from a
patients thigh muscle, isolated, grown through our
proprietary cell culturing process, and injected directly in the
scar tissue of a patients heart. An interventional
cardiologist performs this minimally invasive procedure using an
endoventricular catheter. We have entered into an agreement with
a Johnson & Johnson company to use its
NOGA
®
Cardiac Navigation System along with its
MyoStar
tm
injection catheter for the delivery of MyoCell in the MARVEL
Trial.
When injected into scar tissue within the heart wall, myoblasts
have been shown to be capable of engrafting in the damaged
tissue and differentiating into mature skeletal muscle cells. In
a number of clinical and animal studies, the engrafted skeletal
muscle cells have been shown to express various proteins that
are important components of contractile function. By using
myoblasts obtained from a patients own body, we believe
MyoCell is able to avoid certain challenges currently faced by
other types of
cell-based
clinical
therapies including tissue rejection and instances of the cells
differentiating into cells other than muscle. Although a number
of therapies have proven to improve the cardiac function of a
damaged heart, no currently available treatment has demonstrated
an ability to generate new muscle tissue within the scarred
regions of a heart.
Interim data from the MYOHEART and SEISMIC Trials were presented
by the lead investigator of each trial on January 18, 2007
at the Third Annual International Conference on Cell Therapy for
Cardiovascular Diseases and the subject SEISMIC Trial data was
subsequently published in EuroIntervention Supplement B by
the lead investigator and other contributing authors (including
our VP of Clinical Affairs
64
and Physician Relations). The purpose of each trial is to assess
the safety and efficacy of MyoCell delivered via MyoCath. The
lead investigator for the MYOHEART Trial presented one-month
safety data for all 20 of the treated patients, and three and
six-month interim efficacy data for a subset of the treated
patients. Although not statistically significant due, in part,
to the limited number of patients treated, the lead investigator
indicated that the safety of MyoCell is strongly suggested and
the preliminary efficacy data demonstrated a trend towards an
improvement in scores for
six-minute
walk
distance, or
Six-Minute
Walk Distance, and an improvement in quality of life, or Quality
of Life. The lead investigator for the SEISMIC Trial presented
data for 16 treated patients and nine control group patients for
which at least
one-month
follow-up
data was available. He reported on three efficacy endpoints:
Six-Minute
Walk
Distance scores, NYHA Class and left ventricular ejection
fraction, or LVEF. In the EuroIntervention article summarizing
the same data presented by the lead investigator, the authors
noted that, although complete efficacy data are not yet
available and safety data are not yet fully adjudicated, these
preliminary results suggested that myoblast therapy for heart
failure is largely safe and effective. The authors further
indicated that (i) the risk of irregular heartbeats is
largely manageable with close observation and prophylactic use
of ICDs and anti-arrhythmic drug therapy and (ii) when
irregular heart beats do occur, they typically appear during the
first months following implantation and can largely be mitigated
with appropriate medical management. According to the authors,
patients treated with MyoCell also tend to show improvement in
quality of life and mechanical function over time, as evidenced
by previously completed clinical studies and the initial
reported trends from the interim SEISMIC Trial data. As
described in greater detail below in the Section entitled
Clinical Trials and Planned Clinical Trials, as of
May 2007, 17 treated patients in the MYOHEART and SEISMIC Trials
have experienced serious adverse events, including three patient
deaths, in the follow-up period. However, other than irregular
heartbeats, patients in these clinical trials have not
experienced a larger number of serious adverse events than would
be expected to be experienced by patients of similar clinical
status.
We continue to receive interim data from the MYOHEART and
SEISMIC Trials, which data, summarized in more detail below,
appears to be generally consistent with the interim data
presented in January.
We believe additional testing must be completed before we will,
if ever, have sufficient data to apply for and reasonably expect
to receive regulatory approval of MyoCell. However, if the final
SEISMIC Trial data is available in the first quarter of 2008 and
is generally consistent with the interim data, we intend to
seek, in the second quarter of 2008, approval from various
European regulatory bodies to market MyoCell to treat the
Class III Subgroup. We intend to seek to enroll and treat
all of the clinical patients in the MARVEL Trial by the end of
the fourth quarter of 2008. If we meet that enrollment timeline,
we would expect final trial results in the third quarter of
2009. If the final safety and efficacy results provide what we
believe is significant evidence that MyoCell is safe and
effective, we anticipate submitting such data to the FDA to
obtain regulatory approval of MyoCell. However, we face the
risks that future clinical test results will not assist us in
demonstrating the safety and efficacy of MyoCell and that the
results of subsequent testing will not corroborate earlier
results.
In addition to studies we have sponsored, we understand that
myoblast-based
clinical
therapies have been the subject of at least eleven clinical
trials involving more than 325 enrollees, including at least 235
treated patients. Although we believe many of the trials are
different from the trials sponsored by us in a number of
important respects, it is our view that the trials have advanced
the cell therapy industrys understanding of the potential
opportunities and limitations of myoblast-based therapies.
We believe the market for treating patients in NYHA
Class II or NYHA Class III heart failure is
significant. According to the AHA Statistics and the European
Society of Cardiology Task Force for the Treatment of Chronic
Heart Failure, in the United States and Europe there are
approximately 5.2 million and 9.6 million,
respectively, patients with heart failure. The AHA Statistics
further indicate that, after heart failure is diagnosed, the
one-year mortality rate is high, with one in five dying and that
80% of men and 70% of women under age 65 who have heart failure
will die within eight years. We believe that approximately 60%
of heart failure patients are in either NYHA Class II or
NYHA Class III heart failure based upon a 1999 study
entitled Congestive Heart Failure Due to Diastolic or
Systolic Dysfunction Frequency and Patient
Characteristics in an Ambulatory Setting by Diller, PM,
et. al.
65
Business Strategy
Our principal objective is to become a leading company that
discovers, develops and commercializes novel, autologous cell
therapies, and related devices, for the treatment of chronic and
acute heart damage. To achieve this objective, we plan to pursue
the following key strategies:
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Obtain initial regulatory approval of MyoCell by targeting
patients with severe heart damage.
In July 2007, we treated
the final patient in the SEISMIC Trial, which is comprised of 40
patients, including 26 treated patients. If the final SEISMIC
Trial data is available in the first quarter of 2008 as we
anticipate and is generally consistent with the interim data, we
intend to seek, in the second quarter of 2008, approval from
various European regulatory bodies to market MyoCell to treat
the Class III Subgroup. By targeting a class of patients
for whom existing therapies are very expensive, unavailable or
not sufficiently effective, we hope to expedite regulatory
approval of MyoCell. Assuming our U.S. clinical trial experience
is comparable to our experience to date in European trials, we
anticipate utilizing a similar strategy in our efforts to secure
U.S. regulatory approval of our lead product candidate.
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Obtain regulatory approval of MyoCell to treat patients with
less severe heart damage.
If we obtain initial regulatory
approval of MyoCell for the Class III Subgroup, we intend
to continue to sponsor clinical trials in an effort to
demonstrate that MyoCell should receive regulatory approval to
treat all patients in NYHA Class II or NYHA Class III heart
failure and, provided we believe we have a reasonable basis to
support such an indication, we intend to seek regulatory
approval for these patients.
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Continue to develop our pipeline of cell-based therapies and
related devices for the treatment of chronic and acute heart
damage.
In parallel with our efforts to secure regulatory
approval of MyoCell, we intend to continue to develop and test
other product candidates for the treatment of chronic and acute
heart damage. These efforts are expected to initially focus on
our Bioheart Acute Cell Therapy, TGI 1200, MyoCell II
with
SDF-1,
MyoCath and
MyoCath II product candidates.
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Develop our sales and marketing capabilities.
In advance
of any regulatory approval of our lead product candidate, we
intend to internally build a sales force which we anticipate
will market MyoCell primarily to interventional cardiologists.
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Continue to refine our MyoCell cell culturing processes.
We are seeking to automate a significant portion of our cell
culturing processes in an effort to further reduce our culturing
costs and processing times. In addition, we are seeking to
further optimize our processing times by building our
facilities, or contracting with a small number of cell culturing
facilities, in strategic regional locations.
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Expand and enhance our intellectual property rights.
We
intend to continue to expand and enhance our intellectual
property rights.
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License, acquire and/or develop complementary products and
technologies.
We intend to strengthen and expand our product
development efforts through the license, acquisition and/or
development of products and technologies that support our
business strategy.
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Industry Background
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Myocardial Infarction (Heart Attack)
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Myocardial infarction, or MI, commonly known as a heart attack,
occurs when a blockage in a coronary artery severely restricts
or completely stops blood flow to a portion of the heart. When
blood supply is greatly reduced or blocked for more than a short
period of time, heart muscle cells die. If the healthy heart
muscle cells do not replace the dead cells within approximately
two months, the injured area of the heart becomes unable to
function properly. In the healing phase after a heart attack,
white blood cells migrate into the affected area and remove the
dead heart muscle cells. Then, fibroblasts, the connective
tissue cells of the human body, proliferate and form a collagen
scar in the affected region of the heart. Following a heart
attack, the hearts ability to maintain normal function
will depend on the location and amount of damaged tissue. The
remaining initially undamaged heart muscle tissue must perform
more work to adequately maintain cardiac
66
output. Because the uninjured region is then compelled to work
harder than normal, the heart can progressively deteriorate
until it is unable to pump adequate blood to oxygenate the body
properly leading to heart failure and ultimately death.
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Congestive Heart Failure (CHF)
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Congestive heart failure, or CHF, is a debilitating condition
that occurs as the heart becomes progressively less able to pump
an adequate supply of blood throughout the body resulting in
fluid accumulation in the lungs, kidneys and other body tissues.
Persons suffering from NYHA Class II or worse heart failure
experience high rates of mortality, frequent hospitalization and
poor quality of life. CHF has many causes, generally beginning
in patients with a life-long history of high blood pressure or
after a patient has suffered a major heart attack or some other
heart-damaging event. CHF itself may lead to other complicating
factors such as pulmonary hypertension, edema, pulmonary edema,
liver dysfunction and kidney failure. Although medical therapy
for CHF is improving, it remains a major debilitating condition.
According to the American Heart Association Heart Disease
Statistics 2007 Update, the estimated, total direct
and indirect costs of heart failure in the United States in 2006
were approximately $33.2 billion.
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Classifying Heart Failure
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The NYHA heart failure classification system provides a simple
and widely recognized way of classifying the extent of heart
failure. It places patients in one of four categories based on
how limited they are during physical activity. NYHA Class I
heart failure patients have no limitation of activities and
suffer no symptoms from ordinary activities. NYHA Class II
heart failure patients have a mild limitation of activity and
are generally comfortable at rest or with mild exertion. NYHA
Class III heart failure patients suffer from a marked
limitation of activity and are generally comfortable only at
rest. NYHA Class IV heart failure patients generally suffer
discomfort and symptoms at rest and should remain confined to a
bed or chair.
The risk of hospitalization and death increases as patients
progress through the various stages of heart failure. The risk
of hospitalization due to heart failure for patients in NYHA
Class II, NYHA Class III and NYHA Class IV is
approximately 1.2, 2.3 and 3.7 times greater than for patients
in NYHA Class I heart failure according to a 2006 American
Heart Journal article entitled Higher New York Heart
Association Classes and Increased Mortality and Hospitalization
in Patients with Heart Failure and Preserved Left Ventricular
Function by Ahmed, A et al. Similarly, according to this
same article, the risk of death from all causes for patients in
NYHA Class II, NYHA Class III and NYHA Class IV
is approximately 1.5, 2.6 and 8.5 times greater than for
patients in NYHA Class I heart failure.
The following chart illustrates the various stages of heart
failure, their NYHA classifications and the associated current
standard of treatment.
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NYHA
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Class
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NYHA Functional Classification
(1)
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Specific Activity Scale
(2)(3)
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Current Standard of Treatment
(4)
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I
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Symptoms only with above normal physical activity
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Can perform more than 7 metabolic equivalents
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ACE Inhibitor, Beta-Blocker
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II
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Symptoms with normal physical activity
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|
Can perform more than 5 metabolic equivalents
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ACE Inhibitor, Beta-Blocker, Diuretics
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III
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Symptoms with minimal physical activity
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Can perform more than 2 metabolic equivalents
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ACE Inhibitor, Beta-Blocker, Diuretics, Digoxin, Bi-ventricular
pacers
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IV
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Symptoms at rest
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Cannot perform more than 2 metabolic equivalents
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|
ACE Inhibitor, Beta-Blocker, Diuretics, Digoxin, Hemodynamic
Support, Mechanical Assist Devices, Bi-ventricular pacers,
Transplant
|
67
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(1)
|
Symptoms include fatigue, palpitations, shortness of breath and
chest pain; normal activity is equivalent to walking one flight
of stairs or several blocks.
|
|
(2)
|
Based upon the Goldman Activity Classification of Heart Failure,
which classifies severity of heart failure based on estimated
metabolic cost of various activities; the four classes of the
Goldman Activity Classification system correlate to the NYHA
Classes.
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(3)
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7 metabolic equivalents = shovel snow, carry 24 lbs. up 8
stairs, recreational sports; 5 metabolic equivalents = garden,
rake, dance, walk 4 mph on level ground, have intercourse; 2
metabolic equivalents = shower without stopping, strip and make
bed, dress without stopping.
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(4)
|
Source: American College of Cardiology/ American Heart
Association 2005 Guideline Update for the Diagnosis and
Management of Chronic Heart Failure in the Adult.
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Diagnosis and Management of Heart Failure
|
Heart disease has been the leading cause of death from 1950
through 2003 within the United States according to the U.S.
Department of Health and Human Services. In addition, heart
failure is the single most frequent reason for hospitalization
in the elderly according to a 2007 study entitled
Long-Term Costs and Resource Use in Elderly Participants
with Congestive Heart Failure by Liao, L., et al. The
American College of Cardiology/ American Heart Association 2005
Guideline Update for the Diagnosis and Management of Chronic
Heart Failure in the Adult, or the ACC/ AHA Guidelines, provides
recommendations for the treatment of chronic heart failure in
adults with normal or low LVEF. The treatment escalates and
becomes more invasive as the heart failure worsens. Current
treatment options for severe, chronic heart damage include, but
are not limited to, heart transplantation and other surgical
procedures, bi-ventricular pacers, drug therapies, ICDs, and
ventricular assist devices. Therapies utilizing drugs, ICDs and
bi-ventricular pacers are currently by far the most commonly
prescribed treatments for patients suffering from NYHA
Class II or NYHA Class III heart failure. Since the
therapies generally each address a particular feature of heart
disease or a specific subgroup of heart failure patients, the
therapies are often complementary and used in combination.
Drug Therapies.
The ACC/ AHA Guidelines recommend that
most patients with heart failure should be routinely managed
with a combination of ACE inhibitors, beta-blockers and
diuretics. The value of these drugs has been established by the
results of numerous large-scale clinical trials and the evidence
supporting a central role for their use is, according to the
ACC/ AHA Guidelines, compelling and persuasive. ACE inhibitors
and beta blockers have been shown to improve a patients
clinical status and overall sense of well being and reduce the
risk of death and hospitalization. Side effects of ACE
inhibitors include hypotension, worsening kidney function,
potassium retention, cough and angioedema. Side effects of
beta-blockers include fluid retention, fatigue, bradycardia and
heart block and hypotension.
Bi-ventricular Pacers.
The ACC/ AHA Guidelines recommend
bi-ventricular pacers for persons who, in addition to suffering
from heart failure, have left and right ventricles that do not
contract in sync, known as ventricular dyssynchrony and who have
a LVEF less than or equal to 35%, sinus rhythm and NYHA
Class III or NYHA Class IV symptoms despite
recommended optimal medical therapy. Bi-ventricular pacers are
surgically implanted electrical generators that function
primarily by stimulating the un-damaged portion of the heart to
beat more strongly using controlled bursts of electrical
currents in synchrony. Compared with optimal medical therapy
alone, bi-ventricular pacers have been shown in a number of
clinical trials to significantly decrease the risk of all-cause
hospitalization and all-cause mortality as well as to improve
LVEF, NYHA Class and Quality of Life. According to the ACC/ AHA
Guidelines, there are certain risks associated with the
bi-ventricular pacer including risks associated with
implantation and device-related problems.
Implantable Cardioverter Defibrillators.
ACC/ AHA
Guidelines recommend ICDs primarily for patients who have
experienced a life-threatening clinical event associated with a
sustained irregular heartbeat and in patients who have had a
prior heart attack and a reduced LVEF. ICDs are surgically
implanted devices that continually monitor patients at high risk
of sudden heart attack. When an irregular rhythm is detected,
the device sends an electric shock to the heart to restore
normal rhythm. In 2001, ICDs were implanted in approximately
62,000 and 18,000 patients in the United States and Europe,
respectively. Although ICDs have not demonstrated an ability to
improve cardiac function, according to the ACC/ AHA Guidelines,
ICDs are highly effective in preventing sudden death due to
irregular heartbeats. However, according to the ACC/ AHA
68
Guidelines, frequent shocks from an ICD can lead to a reduced
quality of life, whether triggered appropriately or
inappropriately. In addition, according to the ACC/ AHA
Guidelines, ICDs have the potential to aggravate heart failure
and have been associated with an increase in heart failure
hospitalizations.
Heart Transplantation and Other Surgical Procedures.
According to the ACC/ AHA Guidelines, heart transplantation
is currently the only established surgical approach for the
treatment of severe heart failure that is not responsive to
other therapies. Heart transplantation is a major surgical
procedure in which the diseased heart is removed from a patient
and replaced with a healthy donor heart. Heart transplantation
has proven to dramatically improve cardiac function in a
majority of the patients treated and most heart transplant
recipients return to work, travel and normal activities within
three to six months after the surgery. In addition, the risk of
hospitalization and mortality for transplant recipients is
dramatically lower than the risk faced by patients in NYHA
Class III or NYHA Class IV heart failure. Heart
transplants are not, for a variety of reasons, readily available
to all patients with severe heart damage. The availability of
heart transplants is limited by, among other things, cost and
donor availability. In addition to the significant cost involved
and the chronic shortage of donor hearts, one of the serious
challenges in heart transplantation is potential rejection of
the donor heart. For many heart transplant recipients, chronic
rejection significantly shortens the length of time the donated
heart can function effectively and such recipients are generally
administered costly anti-rejection drug regimens which can have
adverse and potentially severe side effects.
There are a number of alternate surgical approaches for the
treatment of severe heart failure under development, including
cardiomyoplasty, a surgical procedure where the patients
own body muscle is wrapped around the heart to provide support
for the failing heart, the Batista procedure, a surgical
procedure that reduces the size of an enlarged heart muscle so
that the heart can pump more efficiently and vigorously, and the
Dor procedure. According to the ACC/ AHA Guidelines, both
cardiomyoplasty and the Batista procedure have failed to result
in clinical improvement and are associated with a high risk of
death. The Dor procedure involves surgically removing scarred,
dead tissue from the heart following a heart attack and
returning the left ventricle to a more normal shape. While the
early published single-center experience with the Dor procedure
demonstrated early and late improvement in NYHA Class and LVEF,
according to the ACC/ AHA Guidelines, this procedures role
in the management of heart failure remains to be defined.
Ventricular Assist Devices.
Ventricular assist devices
are mechanical heart pumps that replace or assist the pumping
role of the left ventricle of a damaged heart too weak to pump
blood through the body. Ventricular assist devices are primarily
used as a bridge for patients on the waiting list for a heart
transplant and have been shown in published studies to be
effective at halting further deterioration of the patients
condition and decreasing the likelihood of death before
transplantation. In addition, ventricular assist devices are a
destination therapy for patients who are in NYHA Class IV
heart failure despite optimal medical therapy and who are not
eligible for heart transplant. According to the ACC/ AHA
Guidelines, device related adverse events are reported to be
numerous and include bleeding, infection, blood clots and device
failure. In addition, ventricular assist devices are very
expensive, with the average first-year cost estimated at
$222,460.
We believe the heart failure treatment industry generally has a
history of adopting therapies that have proven to be safe and
effective complements to existing therapies and using them in
combination with existing therapies. It is our understanding
that there is no one or two measurement criteria, either
quantitative or qualitative, that define when a therapy for
treating heart failure will be deemed safe and effective by the
FDA. We believe that the safety and efficacy of certain existing
FDA approved therapies for heart damage were demonstrated based
upon a variety of endpoints, including certain endpoints (such
as LVEF) that individually did not demonstrate large numerical
differences between the treated patients and untreated patients.
For instance, the use of bi-ventricular pacers with optimal drug
therapy has proven to significantly decrease the risk of
all-cause hospitalization and all-cause-mortality as well as to
improve LVEF, NYHA Class and quality of life as compared to the
use of optimal drug therapy alone. In the Multicenter InSync
Randomized Clinical Evaluation (MIRACLE) trial, one of the
first large studies to measure the therapeutic benefits of
bi-ventricular pacing, 69% of the patients in the treatment
group experienced an improvement in NYHA Class by one or more
classes at six-month follow-up versus a 34% improvement in the
control group. However, patients in the treatment group
experienced on average only a 2.1% improvement in LVEF as
compared with a 1.7% improvement for patients in the control
group. Although a number of the therapies described above have
69
proven to improve the cardiac function of a damaged heart, no
currently available heart failure treatment has demonstrated an
ability to generate new muscle tissue within the scarred regions
of a heart.
Our Proposed Solution
Our lead product candidate is MyoCell. We believe MyoCell has
the potential to become a leading treatment for severe chronic
damage to the heart due to its perceived ability to satisfy, at
least in part, what we believe to be a presently unmet demand
for more effective and/or more affordable therapies for chronic
heart damage.
The human heart does not have cells that naturally repair or
replace damaged heart muscle. Accordingly, the human body
cannot, without medical assistance, repopulate regions of scar
tissue within the heart with functioning muscle. MyoCell is a
clinical therapy designed to improve cardiac function by
populating regions of scar tissue within a patients heart
with myoblasts derived from a biopsy of a patients thigh
muscle. Myoblasts are precursors to muscle cells that have the
capacity to fuse with other myoblasts or with damaged muscle
fibers to regenerate skeletal muscle. When injected into scar
tissue within the heart wall, myoblasts have been shown to be
capable of engrafting in the damaged tissue and differentiating
into mature skeletal muscle cells. In a number of clinical and
animal studies, the engrafted skeletal muscle cells have been
shown to express various proteins that are important components
of contractile function. By using myoblasts obtained from a
patients own body, we believe MyoCell is able to avoid
certain challenges currently faced by other cell-based clinical
therapies intended to be used for the treatment of chronic heart
damage including tissue rejection and instances of the cells
differentiating into cells other than muscle.
Our clinical research to date suggests that MyoCell may improve
the contractile function of the heart. However, we have not yet
been able to demonstrate a mechanism of action. The engrafted
skeletal muscle tissues are not believed to be coupled with the
surrounding heart muscle by the same chemicals that allow heart
muscle cells to contract simultaneously. The theories regarding
why contractile function may improve include:
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the engrafted muscle tissue can contract in unison with the
other muscles in the heart by stretching or by the channeling of
electric currents;
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the myoblasts acquire certain characteristics of heart muscle or
fuse with them; and/or
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the injected myoblasts release various proteins that indirectly
result in a limit on further scar tissue formation.
|
As part of the MyoCell therapy, a general surgeon removes
approximately five to ten grams of thigh muscle tissue from the
patient utilizing local anesthesia, typically on an outpatient
basis. The muscle tissue is then express-shipped to a cell
culturing site. At the cell culturing site, our proprietary
techniques are used to isolate and remove myoblasts from the
muscle tissue. We typically produce enough cells to treat a
patient within approximately 21 days of his or her biopsy.
Such production time is expected to continue to decrease as we
continue to refine our cell culturing processes. After the cells
are subjected to a variety of tests, the cultured cells are
packaged in injectate media and express shipped to the
interventional cardiologist. Within four days of packaging, the
cultured myoblasts are injected via catheter directly into the
scar tissue of the patients heart. The injection process
takes on average about one hour and can be performed with or
without general anesthesia. Following treatment, patients
generally remain in the hospital for approximately
48-72 hours for monitoring.
The MyoCell injection process is a minimally invasive procedure
which presents less risk and considerably less trauma to a
patient than conventional (open) heart surgery. Patients
are able to walk immediately following the injection process and
require significantly less time in the hospital compared with
surgically treated patients. In the 70 patients who have
received MyoCell injections delivered via percutaneous catheter,
only two minor procedure-related events (2.9%) have been
reported. In both cases, however, no complications
70
resulted from the event, with the patients in each case
remaining asymptomatic at all times during and after the
procedure.
We use a number of proprietary processes to create therapeutic
quantities of myoblasts from a patients thigh muscle
biopsy. We have developed and/or licensed what we believe are
proprietary or patented techniques to:
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transport muscle tissue and cultured cells;
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disassociate muscle tissue with manual and chemical processes;
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separate myoblasts from other muscle cells;
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culture and grow myoblasts;
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identify a cell population with the propensity to engraft,
proliferate and adapt to the cardiac environment, including
areas of scar tissue; and
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maintain and test the cell quality and purity.
|
We have also developed and/or licensed a number of proprietary
and/or patented processes related to the injection of myoblasts
into damaged heart muscle, including the following:
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|
package the cultured cells in a manner that facilitates shipping
and use by the physician administering MyoCell;
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methods of using MyoCath;
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the use of an injectate media that assists in the engraftment of
myoblasts;
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cell injection techniques utilizing contrast media to assist in
the cell injection process; and
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cell injection protocols related to the number and location of
injections.
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Assuming we secure regulatory approval of MyoCell for the
treatment of all NYHA Class II and NYHA Class III
patients, we believe MyoCell will provide a treatment
alternative for the millions of NYHA Class II and NYHA
Class III patients in the United States and Europe who
either do not qualify for or have access to heart transplant
therapy. Furthermore, we anticipate that the time incurred and
cost of identifying patients qualified to receive MyoCell as
well as the cost of MyoCell, including any ICD, drug and
bi-ventricular pacer therapies that are simultaneously
prescribed, if any, will be less expensive than the current cost
of heart transplant therapy. Moreover, MyoCell is less invasive
than a heart transplant and is not subject to the tissue
rejection and immune system suppression issues associated with
heart transplants.
We believe there is still a large population of patients
exhibiting symptoms consistent with NYHA Class II and NYHA
Class III heart failure that is seeking an effective or
more effective therapy for chronic heart damage than ICDs,
bi-ventricular pacers and drug therapies. We hope to demonstrate
that MyoCell is complementary to various therapies using ICDs,
bi-ventricular pacers and drugs. In the MYOHEART and SEISMIC
Trials, enrolled patients are required to have an ICD and to be
on optimal drug therapy to be included in the study. While we do
not require patients to have previously received a
bi-ventricular pacer to participate in our clinical trials, we
plan to accept patients in our MARVEL Trial who have had prior
placement of a bi-ventricular pacer. We are hopeful that the
results of our future clinical trials will demonstrate that
MyoCell is complementary to existing therapies for treating
heart damage.
Clinical Trials and Planned Clinical Trials of MyoCell
Several clinical trials have been conducted for the purpose of
demonstrating the safety and efficacy of MyoCell and MyoCath. We
have sponsored five clinical trials and one registry study of
MyoCell involving 84 enrollees, including 70 treated patients
and 14 control patients who received only optimal medical
therapy. In addition to studies we have sponsored, we believe
myoblast-based clinical therapies have been the subject of at
least eleven clinical trials involving more than 325 enrollees,
including at least 235 treated patients. We believe additional
testing must be completed before we will, if ever, have
sufficient data to apply for and reasonably
71
expect to receive regulatory approval of MyoCell. We face the
risks that future clinical trial results will not assist us in
demonstrating the safety and efficacy of MyoCell and that the
results of subsequent testing will not corroborate earlier
results.
The following table summarizes our planned, ongoing and
completed clinical trials of MyoCell. In addition to delivery
via MyoCath, MyoCell has been tested in certain trials using
MyoStar and Medtronics
TransAccess
tm
catheter, or the TransAccess catheter.
U.S. Focused Clinical Trials
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Number of
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|
Clinical Trial
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|
Clinical Trial
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Patients
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Sites
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Objective
|
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Status
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MARVEL
(Phase II/III
Clinical Trial)
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330
anticipated,
including
110
controls
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20 sites in the United States and Canada and up to 15 sites
in Europe and Israel anticipated
|
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Designed to be a double-blind, randomized, placebo-controlled,
multicenter trial to evaluate the safety and efficacy of MyoCell
delivered via MyoStar
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Six-month interim data anticipated in the second quarter of 2009
and final trial results anticipated in the third quarter of 2009
|
MYOHEART
(Phase I Clinical Trial)
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20
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5 sites in the United States
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Phase I dose escalation study to assess safety, feasibility and
efficacy of MyoCell delivered via MyoCath
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Trial commenced in 2003; treatment of all 20 patients completed
in October 2006; monitoring patients through twelve month
follow-up; interim three-month data received in January 2007;
interim six-month data disclosed in this prospectus; final
twelve-month data anticipated to be presented in January 2008
|
European Clinical Trials
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|
Number of
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|
Clinical Trial
|
|
|
|
|
Clinical Trial
|
|
Patients
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|
Sites
|
|
Objective
|
|
Status
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SEISMIC
(Phase II
Clinical Trial)
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40,
including
14 controls
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12 sites in the Netherlands, Germany, Belgium, Spain, Poland and
the United Kingdom
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Phase II European study to assess the safety and efficacy
of MyoCell delivered via MyoCath
|
|
Trial commenced in November 2005; treatment of all patients
completed in July 2007; final results anticipated in the first
quarter of 2008
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Phase I/ II
Clinical Trial
|
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15
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|
3 sites in the Netherlands, Germany and Italy
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Phase I/II European study to assess the safety and efficacy
of MyoCell
|
|
Trial commenced in 2002; twelve-month follow-up completed in
June 2004
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Netherlands
Pilot Trial
|
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5
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1 site in the Netherlands
|
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Pilot study to assess safety and feasibility of MyoCell
|
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Trial commenced in 2001; six-month follow- up completed in
October 2003
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2002 Trial
|
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3
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|
1 site in the Netherlands
|
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Designed to evaluate the safety and efficacy of MyoCell
delivered via the TransAccess catheter
|
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Trial commenced in 2002; discontinued upon Transvasculars
acquisition by Medtronic
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72
Other Clinical Trials
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|
Number of
|
|
Clinical Trial
|
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|
|
Clinical Trial
|
|
Patients
|
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Sites
|
|
Objective
|
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Status
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Partial
Reimbursement
Registry Studies
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Up to 10
in the next
two years
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6 sites in Korea, Mexico, Switzerland, The Bahamas, Singapore
and South Africa anticipated
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Designed to generate additional safety and efficacy data and
revenues
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|
Requisite regulatory approval to conduct trials received at all
sites; contracts in place with an institution in each of Mexico,
the Bahamas, Switzerland and Korea; implantation of one patient
in Mexico complete
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Metrics Used to Evaluate
Safety and Efficacy of Heart Failure Treatments
The performance of therapies used to treat damage to the heart
is assessed using a number of metrics, which compare data
collected at the time of initial treatment to data collected
when a patient is re-assessed at follow-up. The time periods for
follow-up are usually three, six and twelve months. Statistical
data is often accompanied by a p-value, which is the
mathematical probability that the data are the result of random
chance. A result is considered statistically significant if the
p-value is less than or equal to 5%. The common metrics used to
evaluate the efficacy of these therapies include:
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Metric
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Description
|
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NYHA Class
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|
The NYHA heart failure classification system is a functional and
therapeutic classification system based on how much cardiac
patients are limited during physical activity.
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Six-Minute Walk Distance
|
|
Six-Minute Walk Distance is an objective evaluation of
functional exercise capacity which measures the distance a
patient can walk in six minutes. The distance walked during this
test has been shown to correlate with the severity of heart
failure.
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LVEF
|
|
LVEF is a measure of the hearts efficiency and can be used
to estimate the function of the left ventricle, which pumps
blood to the rest of the body. The LVEF is the amount of blood
pumped divided by the amount of blood the ventricle contains. A
normal LVEF is more than 55% of the blood volume. Damage to the
heart impairs the hearts ability to efficiently pump and
therefore reduces LVEF.
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Quality of Life
|
|
Quality of Life is evaluated by patient questionnaire, which
measures subjective aspects of health status in heart failure
patients.
|
Number of Hospital
Admissions and Mean
Length of Stay
|
|
The Number of Hospital Admissions and Mean Length of Stay
measure the aggregate number of times that a patient is admitted
to the hospital during a defined period and the number of days a
patient remains in the hospital during each such admission.
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Total Days Hospitalized
|
|
The Total Days Hospitalized measures the aggregate number of
days a patient is admitted to the hospital during a defined
period.
|
End-Systolic Volume
|
|
End-Systolic Volume is a measurement of the adequacy of cardiac
emptying, related to the function of the heart during
contraction.
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End-Diastolic Volume
|
|
End-Diastolic Volume is the amount of blood in the ventricle
immediately before a cardiac contraction begins and is used as a
measurement of the function of the heart at rest.
|
LV Volume
|
|
Left Ventricular Volume, or LV Volume, is measured in terms of
left ventricular End-Diastolic Volume and left ventricular
End-Systolic Volume. Both measure the reduction in volume of
blood in the left ventricle of the heart following expansion and
contraction, respectively. Reduction in volume generally is
reflective of positive ventricular remodeling and improvement in
the hearts ability to circulate oxygenated blood through
the arteries.
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73
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Metric
|
|
Description
|
|
|
|
Wall Motion
|
|
Wall Motion is a test designed to show whether the heart is
receiving adequate quantities of oxygen-rich blood. Wall motion
is generally measured by a stress echocardiography test.
|
Cardiac Output
|
|
Cardiac Output is a measure of the amount of blood that is
pumped by the heart per unit time, measured in liters per minute.
|
BNP Level
|
|
B-Type Natriuretic Peptide, or BNP, is a substance secreted from
the ventricles or lower chambers of the heart in response to
changes in pressure that occur when heart failure develops and
worsens. The level of BNP in the blood increases when heart
failure symptoms worsen and decreases when the heart failure
condition is stable.
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|
|
MARVEL Phase II/III Clinical Trial in the United States
Canada, Israel and certain countries in Europe
|
The MARVEL Trial is designed to be a double-blind, randomized,
placebo-controlled multicenter trial to evaluate the safety and
efficacy of MyoCell delivered via MyoStar. We submitted our
amended IND application setting forth the proposed protocol for
this clinical trial to the FDA in November 2006. In July 2007,
we submitted to the FDA an additional amendment to the trial
protocol and, in August 2007, we received clearance from the FDA
to proceed with the trial. We intend to seek to have final data
available for the MARVEL Trial by the third quarter of 2009. If
the results of the MARVEL Trial demonstrate statistically
significant evidence of the safety and efficacy of MyoCell, we
anticipate having a basis to ask the FDA to consider the MARVEL
Trial a pivotal trial, although there can be no assurances that
the FDA will consider the trial pivotal. This study is planned
to include 330 patients, including 110 controls, at
20 sites in the United States and Canada and up to
15 sites in Europe and Israel. We currently anticipate that
our primary and secondary endpoints will be measured at three
months and six months following treatment.
We anticipate that all of the patients selected for enrollment
in the MARVEL Trial will have (i) symptoms associated with
NYHA Class II or NYHA Class III heart failure,
(ii) suffered a previous heart attack at least 90 days
prior to the date of treatment, (iii) a LVEF of less than
or equal to 35%, (iv) been on optimal drug therapy for at
least two months prior to enrollment and (v) had prior
placement of an ICD at least 60 days prior to enrollment.
We anticipate that patients will be required to use Amiodarone,
an anti-arrhythmic drug therapy, at least 24 hours prior to
MyoCell implantation.
We anticipate that the patients will be divided into three
groups. Patients in the first group will undergo treatment
consisting of 16 injections of an aggregate dosage of
approximately 800 million myoblast cells. Patients in the
second group will undergo treatment consisting of 16 injections
of an aggregate dosage of approximately 400 million
myoblast cells. Patients in the third group will receive 16
placebo injections.
74
We anticipate the MARVEL Trial will measure the following safety
and efficacy endpoints of the MyoCell treatment:
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Primary Safety
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Primary Efficacy
|
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Secondary Efficacy
|
|
Tertiary Efficacy
|
Endpoint
|
|
Endpoints
|
|
Endpoints
|
|
Endpoints
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|
Number of serious adverse events in treatment group as compared
to control group
|
|
Change in Six-Minute Walk Distance from baseline to six months
as compared to control group, or
Quality of Life scores assessed using Minnesota Living with
Heart Failure questionnaire from baseline to six months as
compared to control group
|
|
Total Days Hospitalized in treatment group as compared to
control group
Cause-specific hospitalizations in treatment group as compared
to control group
Proportion of patients with an improved NYHA Class from
baseline to six months as compared to control group
Total days alive out of hospital over the six-month study
period
Change in LVEF from baseline to six months as compared to
control group
Change in LV Volume and wall motion from baseline to six months
as compared to control group
Change in BNP Level from baseline to six months as compared to
control group
|
|
Total cost and healthcare utilization within six months
Time to death or CHF hospitalization
Change in degree of mitral regurgitation from baseline to six
months
Change in Six-Minute Walk Distance from baseline to three
months as compared to control group
Quality of Life scores assessed using Minnesota Living with
Heart Failure questionnaire from baseline to three months as
compared to control group
Proportion of patients with improved NYHA Class from baseline
to three months as compared to control group
|
We intend to seek to enroll and treat all of the clinical
patients in the MARVEL Trial by the end of the fourth quarter of
2008. If we meet that enrollment timeline, we would expect final
trial results in the third quarter of 2009. If the results of
the MARVEL Trial demonstrate statistically significant evidence
of the safety and efficacy of MyoCell, we anticipate having a
basis to ask the FDA to consider the MARVEL Trial a pivotal
trial.
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|
MYOHEART Phase I Dose Escalation Clinical Trial in the
United States
|
In October 2006, we completed the MyoCell implantation procedure
on the final patient in our 20 patient Phase I dose escalation
MYOHEART Trial in the United States. The purpose of the MYOHEART
Trial was to assess the safety, feasibility and efficacy of
MyoCell delivered via MyoCath. We divided the patients into four
cohorts of five and each group received a progressively
increasing dose of myogenic cells, ranging from 25 million
(first cohort) to 675 million (fourth cohort). Safety
endpoints were the evaluation of the nature and frequency of
serious adverse events during the twelve month period following
MyoCell treatment. The
75
MYOHEART Trial was conducted at five clinical sites.
Dr. Warren Sherman, the lead investigator, as well as two
of the other MYOHEART Trial investigators, Dr. Nicolas
Chronos and Dr. Stephen Ellis, are members of our
Scientific Advisory Board.
All of the patients selected for enrollment in the MYOHEART
Trial had (i) symptoms associated with NYHA Class II
or NYHA Class III heart failure, (ii) suffered a
previous heart attack at least twelve weeks prior to the date of
treatment, (iii) a LVEF of between 20% to 40%,
(iv) been on optimal drug therapy and (v) prior
placement of an ICD at least one month prior to enrollment. The
patients in the MYOHEART Trial did not take Amiodarone to reduce
the potential incidence of irregular heartbeats.
We have summarized below the interim safety and efficacy data
from the MYOHEART Trial available to us as of May 17, 2007.
Due, in part, to the limited number of patients treated in the
MYOHEART Trial, this trial was not designed to, and to our
knowledge does not, conclusively demonstrate the statistical
significance of any of the efficacy endpoints. We do not
currently have or expect to have in the next few months
sufficient data to independently calculate whether or not the
results described below are statistically significant (i.e.,
p-value less than or equal to .05). However, we have certain
data that suggest preliminary p-values indicative of
significance for some, but not all, of the interim data related
to Six Minute Walk Distance and Quality of Life.
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Six-Minute Walk Distance:
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|
for the 18 surviving patients able to complete the test at three
months, patients treated in the first, second, third and fourth
cohorts demonstrated a 6%, 10%, 22% and 13% respective
improvement relative to their cohort baseline in their mean
Six-Minute Walk Distance at three months as depicted in the
chart below; and
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76
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|
for the 14 surviving patients able to complete the test at six
months, patients treated in the first, second, third and fourth
cohorts demonstrated a 5%, 23%, 6% and 9% respective improvement
relative to their cohort baseline in their mean Six-Minute Walk
Distance at six months as depicted in the chart below.
|
One surviving patient was too ill to complete the test at three
months. Four surviving patients were unable to complete the test
at six months for various reasons, including knee replacement
surgery, hip pain, inability to walk without crutches and
sprained ankles.
77
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Quality of Life.
Relative to a baseline Quality of Life
score, for the 17, 14 and ten patients for whom we had three,
six and twelve-month data available, respectively, there was
reported improvement in mean Quality of Life scores at three
months, six months and twelve months as depicted in the chart
below.
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78
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LVEF.
As depicted in the chart below, LVEF scores for the
19 surviving patients at three months improved, on average, from
23.7% at baseline to 24.8% at three months following treatment
and LVEF scores for the 18 surviving patients at six months
following treatment improved, on average, from 23.7% at baseline
to 25.6% at six months following treatment. For the 19, 18 and
13 patients for whom we had three, six and twelve-month data
available, the chart below depicts the mean increase or decrease
in LVEF for each cohort at three, six and twelve months:
|
79
Please note that the foregoing discussion summarizes our
internal interim analysis of the available efficacy data as of
the dates indicated. The data has not yet been peer reviewed nor
have our validation processes with respect to the above data
been completed. Accordingly, this interim data is subject to
change as we continue to collect data and undertake the
processes necessary to confirm the accuracy of the data.
In line with our expectations for the study, as of May 17,
2007, 16 serious adverse events were reported in eight patients
during follow-up. Two of the 20 patients died, adjudicated as
possibly related to MyoCell. Six patients experienced irregular
heartbeats, four of which have been adjudicated as possibly
related to MyoCell. Of these six patients experiencing irregular
heartbeats, three patients had previously suffered from this
condition prior to MyoCell implantation.
At the January 18, 2007 Third Annual International
Conference on Cell Therapy for Cardiovascular Diseases,
Dr. Sherman presented one month safety data for all 20 of
the patients treated in the MYOHEART Trial. He also presented
three-month, six-month and twelve-month interim efficacy data on
the Six-Minute Walk Distance, Quality of Life and LVEF endpoints
for as many as 16, 14 and 10, respectively, of the patients
treated depending on the data then available for the particular
endpoint.
With regards to efficacy, Dr. Sherman indicated in his
presentation that the interim data from the MYOHEART Trial
demonstrates a preliminary trend towards an improvement in
Six-Minute Walk Distance scores and an improvement of Quality of
Life. In addition, although not statistically significant due,
in part, to the limited number of patients treated,
Dr. Sherman indicated in his January presentation that the
safety of MyoCell is strongly suggested by the MYOHEART results
available at that time. There have been no additional serious
adverse events reported since the interim safety data presented
by Dr. Sherman in January 2007.
We believe the interim safety and efficacy data as of
May 17, 2007 summarized above is generally consistent with
the data presented by Dr. Sherman in January 2007. We
expect to receive and present final twelve month data from this
trial in January 2008.
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SEISMIC Phase II clinical trial in Europe
|
The purpose of the SEISMIC Trial is to assess the safety and
efficacy of MyoCell delivered via MyoCath. 26 patients, or the
Treatment Group Patients, will receive a dosage of between
150 million and 800 million myoblast cells and 14
patients will comprise the control group, or the Control Group
Patients. The primary efficacy endpoint is the change in LVEF at
three-month and six-month follow-up as compared to baseline LVEF
and secondary efficacy endpoints include change in NYHA Class,
change in Six-Minute Walk Distance, the effect of MyoCell
treatment on hospitalizations or the need for medical treatment
outside of hospitalizations and improvements in global
contractility, wall thickness, coronary perfusion and change in
scar size. The primary safety endpoint is the relative incidence
of serious adverse events at three-month and six-month follow-up
experienced by the Treatment Group Patients as compared to the
Control Group Patients. Serious adverse events are defined to
include any adverse events that are fatal, life-threatening,
result in permanent impairment or surgery to preclude permanent
impairment of a body function, or require in-patient
hospitalization that is not specifically required by the
clinical trial protocol or is elective. Secondary safety
endpoints include the Number of Hospital Admissions and Mean
Length of Stay in the six-month period following MyoCell
treatment in the Treatment Group Patients as compared to the
Control Group Patients.
All of the patients selected for enrollment in the SEISMIC Trial
have (i) symptoms associated with NYHA Class II or
NYHA Class III heart failure, (ii) suffered a previous
heart attack at least 90 days prior to the date of
treatment, (iii) a LVEF of between 20% to 45%,
(iv) been on optimal drug therapy for at least two months
prior to enrollment and (v) had prior placement of an ICD
at least six months prior to enrollment. All of the patients in
the SEISMIC Trial were prescribed Amiodarone to reduce the
potential incidence of irregular heartbeats. In Europe, twelve
cardiology centers in six countries, including the Netherlands,
Germany, Belgium, Spain, Poland and the United Kingdom are
conducting the SEISMIC Trial. One of the SEISMIC Trial
investigators, Pr. Nicholas Peters, MD, PhD, is a member of our
Scientific Advisory Board.
80
We originally anticipated that up to 46 patients would be
randomized as part of the SEISMIC Trial, with 30 of these
patients allocated to the treatment arm of the study so that
approximately two-thirds of the patients would be randomized as
Treatment Group Patients. As of July 31, 2007, we have 40
patients in follow-up, including 26 Treatment Group Patients and
14 Control Group Patients. We had previously made the
determination to close enrollment of patients in the SEISMIC
Trial at the end of March 2007 so that we could focus on
commencement of the MARVEL Trial and, accordingly, we expect the
final SEISMIC Trial results to include data on a total of 26
Treatment Group Patients and 14 Control Group Patients.
We have summarized below the interim safety and efficacy data
from the SEISMIC Trial available to us as of May 14, 2007.
Due, in part, to the limited number of patients treated in the
SEISMIC Trial, this trial was not designed to and, to our
knowledge does not, conclusively demonstrate the statistical
significance of any of the efficacy endpoints. We do not
currently have or expect to have in the next few months
sufficient data to independently calculate whether or not the
results described below are statistically significant (i.e.,
p-value less than or equal to .05).
For the efficacy metrics Six-Minute Walk Distance, NYHA Class
and LVEF, we have presented mean and median data measured at
baseline and at three and six months following treatment for
each Treatment Group Patient and Control Group Patient for which
we have follow-up data for such metric at the measurement point,
or the Follow-Up Patients. The baseline data presented in the
following tables only includes the baseline measurements for the
Follow-Up Patients, or the Subset Baseline, and, accordingly,
excludes the baseline measurements for patients for whom we do
not have available follow-up data at this time. The median for
each of the metrics presented is the midpoint of the data after
sorting all of the data in ascending order.
Six-Minute Walk Distance:
The table below presents the mean and median Six-Minute Walk
Distance data measured at the Subset Baseline and at three and
six months following treatment for each Follow-Up Patient. The
three-month data includes the test results of two Control Group
Patients who completed the Six-Minute Walk Distance Test more
than three months following MyoCell implantation and the
six-month data includes the test results of two Treatment Group
Patients who completed the Six-Minute Walk Distance Test more
than six months following MyoCell implantation.
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Six-Minute Walk Distance Data (Meters)
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Treatment Group
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Treatment Group
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Control Group Subset
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Control Group
|
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|
|
Subset Baseline
|
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|
Follow-Up Data
|
|
|
Baseline
|
|
|
Follow-Up Data
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Three-Month Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Follow-Up Patients
|
|
|
17
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|
|
|
17
|
|
|
|
9
|
|
|
|
9
|
|
|
Mean
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414
±
84.7
|
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|
|
470
±
70.7
|
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|
397
±
132.7
|
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|
448
±
99.3
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Median
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|
437
±
84.7
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471
±
70.7
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430
±
191
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446
±
99.3
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|
Six-Month Data
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|
|
|
|
|
|
|
|
|
|
|
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|
# of Follow-Up Patients
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|
|
13
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|
|
|
13
|
|
|
|
7
|
|
|
|
7
|
|
|
Mean
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|
419
±
90.4
|
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|
|
461
±
89.6
|
|
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|
446
±
88.6
|
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|
484
±
226.0
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Median
|
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|
437
±
90.4
|
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|
|
477
±
89.6
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|
430
±
88.6
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|
432
±
226.0
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|
NYHA Class:
The table below presents the mean and median NYHA Class data
measured at the Subset Baseline and at three and six months
following treatment for each Follow-Up Patient. The three-month
data includes the test results of three Control Group Patients
whose NYHA class was measured more than three months following
MyoCell implantation and the six-month data includes the test
results of three Treatment Group Patients whose NYHA class was
measured more than six months following MyoCell implantation.
81
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|
NYHA Class Data
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|
|
|
|
Treatment Group
|
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|
Treatment Group
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|
Control Group
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|
Control Group
|
|
|
|
Subset Baseline
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|
|
Follow-Up Data
|
|
|
Subset Baseline
|
|
|
Follow-Up Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Follow-Up Patients
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|
|
17
|
|
|
|
17
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|
|
|
10
|
|
|
|
10
|
|
|
Mean
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|
2.4
±
0.51
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|
|
2.2
±
0.53
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|
2.2
±
0.42
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|
2.4
±
0.52
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Median
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|
|
2.0
±
0.51
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|
|
|
2.0
±
0.53
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|
|
|
2.0
±
0.42
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|
|
|
2.0
±
0.52
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|
Six-Month Data
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Follow-Up Patients
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|
|
13
|
|
|
|
13
|
|
|
|
7
|
|
|
|
7
|
|
|
Mean
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|
2.5
±
0.52
|
|
|
|
2.2
±
0.69
|
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|
|
2.3
±
0.46
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|
|
|
2.5
±
0.53
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Median
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|
|
3.0
±
0.52
|
|
|
|
2.0
±
0.69
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|
|
2.0
±
0.38
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|
|
2.0
±
0.53
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At three months following treatment, 27% of the Treatment Group
Patients had improved by at least one NYHA Class. In contrast,
none of the Control Group Patients had improved by at least one
NYHA Class at three months following treatment. At six months
following treatment, 38% of the Treatment Group Patients had
improved by at least one NYHA Class. In contrast, 13% of the
Control Group Patients improved by at least one NYHA Class at
six months following treatment.
LVEF:
The table below presents the mean and median LVEF data measured
at the Subset Baseline and at three and six months following
treatment for each Follow-Up Patient. The three-month data
includes the test results of one Treatment Group Patient whose
LVEF class was measured more than three months following MyoCell
implantation and the six-month data includes the test results of
two Treatment Group Patients whose LVEF class was measured more
than six months following MyoCell implantation.
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|
|
|
|
|
|
|
|
|
|
LVEF Data
|
|
|
|
|
|
Treatment Group
|
|
|
Treatment Group
|
|
|
Control Group Subset
|
|
|
Control Group
|
|
|
|
Subset Baseline
|
|
|
Follow-Up Data
|
|
|
Baseline
|
|
|
Follow-Up Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Follow-Up Patients
|
|
|
13
|
|
|
|
13
|
|
|
|
8
|
|
|
|
8
|
|
|
Mean
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|
|
31.1
±
10.1
|
|
|
|
29.3
±
8.0
|
|
|
|
32.8
±
11.1
|
|
|
|
35.8
±
12.5
|
|
|
Median
|
|
|
28.0
±
10.1
|
|
|
|
27.0
±
8.0
|
|
|
|
32.5
±
11.1
|
|
|
|
38.0
±
12.5
|
|
Six-Month Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Follow-Up Patients
|
|
|
7
|
|
|
|
7
|
|
|
|
6
|
|
|
|
6
|
|
|
Mean
|
|
|
31.7
±
11.5
|
|
|
|
28.0
±
14.7
|
|
|
|
33.8
±
12.5
|
|
|
|
32.7
±
9.3
|
|
|
Median
|
|
|
28.0
±
11.5
|
|
|
|
25.0
±
14.7
|
|
|
|
34.0
±
12.5
|
|
|
|
31.0
±
9.3
|
|
82
The table below presents, as of May 14, 2007, the baseline
measurement data we had available with respect to Six-Minute
Walk Distance, NYHA Class and LVEF for 22 Treatment Group
Patients and 13 Control Group Patients, or Full Population
Baseline Data, as follows:
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|
|
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|
|
Full Population Baseline Data
|
|
|
|
|
|
Treatment Group
|
|
|
Control Group
|
|
|
|
|
|
|
|
|
# of Patients
|
|
|
22
|
|
|
|
13
|
|
|
Six Minute Walk (Meters)
|
|
|
|
|
|
|
|
|
|
Mean
|
|
|
414
±
98.5
|
|
|
|
430
±
191
|
|
|
Median
|
|
|
437
±
98.5
|
|
|
|
430
±
191
|
|
NYHA Class
|
|
|
|
|
|
|
|
|
|
Mean
|
|
|
2.4
±
0.49
|
|
|
|
2.2
±
0.44
|
|
|
Median
|
|
|
2.0
±
0.49
|
|
|
|
2.0
±
0.44
|
|
LVEF
|
|
|
|
|
|
|
|
|
|
Mean
|
|
|
30.0
±
9.3
|
|
|
|
33.8
±
12.9
|
|
|
Median
|
|
|
28.5
±
9.3
|
|
|
|
32.5
±
12.9
|
|
Please note that the foregoing discussion summarizes our
internal interim analysis of the available efficacy data as of
the dates indicated. The data has not yet been peer reviewed nor
have our validation processes with respect to the above data
been completed. Accordingly, this interim data is subject to
change as we continue to collect data and undertake the
processes necessary to confirm the accuracy of the data.
As of May 14, 2007, we have safety data available for 22
Treatment Group Patients and 13 Control Group Patients. Nine of
the 22 Treatment Group Patients (40.9%) experienced fifteen
serious adverse events, including one patient death from
multiple organ failure 30 days following MyoCell treatment
determined by the investigator as possibly attributable to
MyoCell. Nine of the fifteen total serious adverse events
experienced by the Treatment Group Patients involved irregular
heartbeats, eight of which have been investigator determined to
be possibly attributable to MyoCell. However, one-third of the
patients experiencing irregular heartbeats following MyoCell
treatment did not comply with the trials protocol for
Amiodarone use and all of these patients had experienced
irregular heartbeats prior to MyoCell implantation. Five Control
Group Patients have experienced 21 serious adverse events,
including 14 events involving irregular heartbeats. The
Independent Data Safety and Monitoring Board for the SEISMIC
Trial reviewed the serious adverse events experienced by the
Treatment Group Patients and has not asked us to alter or
terminate the trial and is expected to continue to monitor the
occurrence of any serious adverse events.
Interim data from the SEISMIC Trial, including interim safety
data and interim efficacy data on the Six-Minute Walk Distance,
NYHA Class and LVEF endpoints, was presented by Professor
Patrick Serruys, MD, PhD, the lead investigator, at the Third
Annual International Conference on Cell Therapy for
Cardiovascular Diseases on January 18, 2007 and the subject
SEISMIC Trial data was subsequently published in
EuroIntervention Supplement B by Pr. Serruys and other
contributing authors (including our VP of Clinical Affairs and
Physician Relations) with respect to the 16 Treatment Group
Patients and nine Control Group Patients, for which at least one
month follow-up data was available. The 16 Treatment Group
Patients received an average a dosage of 598 +/-110 million
myoblast cells.
In the EuroIntervention article summarizing the same data
presented by Pr. Serruys, the authors noted that, although
complete efficacy data are not yet available and safety data are
not yet fully adjudicated, these preliminary results suggest
that myoblast therapy for heart failure is largely safe and
effective. The authors further indicated that the risk of
irregular heartbeats is largely manageable with close
observation and prophylactic use of ICDs and anti-arrhythmic
drug therapy and that when irregular heart beats do occur, they
typically appear during the first months following implantation
and can largely be mitigated with appropriate medical
management. According to the authors, patients treated with
MyoCell also tend to show improvement in quality of life and
mechanical function over time, as evidenced by previously
completed clinical studies and the initial reported trends from
the interim SEISMIC Trial data. We believe the interim safety
83
and efficacy data as of May 14, 2007 summarized above is
generally consistent with the data presented by Pr. Serruys in
January 2007.
We expect final six-month data for the balance of the SEISMIC
Trial patients to be available during the first quarter of 2008.
If the final SEISMIC Trial data is generally consistent with the
interim data, in the second quarter of 2008, we intend to seek
approval from various European regulatory bodies to market
MyoCell and MyoCath to treat the Class III Subgroup.
|
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|
Phase I/ II Clinical Trials in Europe
|
We were one of the financial sponsors of a five patient pilot
clinical trial of MyoCell in 2002. The primary endpoint of the
study was to assess the safety and feasibility of MyoCell,
measured by occurrence of serious adverse events at six months
following treatment. The secondary endpoint was to assess
improvement of LVEF at one, three and six months following
treatment. The trial was performed in the Netherlands by
physicians at the Thorax Center of the Erasmus Medical Center.
Each patient enrolled in this clinical trial had
(i) symptoms associated with NYHA Class II, NYHA
Class III or NYHA Class IV heart failure,
(ii) suffered a previous heart attack at least four weeks
prior to the date of treatment and (iii) a LVEF between 20%
to 45%. Patients received injections of between 25 million
and 293 million myoblast cells.
For the five patients who participated in the trial, it was
reported that, on average, the patients LVEF increased
from 36
±
11% at the
baseline to 41
±
9% at
three months (p = .009) and 45
±
8% at six months (p =
.23).
Although not statistically significant due, in part, to the
limited number of patients treated, of these patients, we noted
that:
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|
|
100% and 60% of the patients improved one NYHA Class at three
months and six months following therapy, respectively;
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40% of the patients improved two NYHA Classes at both three
months and six months following therapy;
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100% of the patients LVEF improved by at least 4% at three
months following therapy; and
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60% of the patients LVEF improved by at least 20% at six
months following therapy.
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All of the MyoCell injection procedures in the pilot clinical
trial were without complication and no serious adverse events
occurred during the follow-up period. One patient who
experienced irregular heart contractions received an ICD within
six months of the injection procedure.
The results of this pilot clinical trial were published by the
physicians conducting the trial in the Journal of the American
College of Cardiology in December 2003. In the published
article, the physicians concluded that the pilot study was the
first to demonstrate the potential and feasibility of
percutaneous skeletal myoblast delivery as a stand-alone
procedure for myocardial repair in patients with post-heart
attack heart failure. The physicians further concluded that more
data was needed to confirm safety.
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Phase I/ II Clinical Trial
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We conducted a non-randomized, multicenter 15 patient Phase I/
II clinical trial of MyoCell at institutions located in the
Netherlands, Germany and Italy in 2003 to assess the safety of
MyoCell and its effect on global ventricular function. As part
of this clinical trial, we also assessed the safety and
feasibility of MyoCell delivery via MyoCath. Each patient
enrolled in the Phase I/ II clinical trial had (i) symptoms
associated with NYHA Class II or NYHA Class III heart
failure, (ii) suffered a previous heart attack at least
four weeks prior to the date of treatment, (iii) a LVEF of
between 20% to 40% and (iv) been using beta-blocker therapy
unless these drugs were not tolerated or clearly
contraindicated. Following treatment of the first six patients
participating in this clinical trial, we amended the trial
protocol to require that patients have placement of an ICD at
least one month prior to enrollment and use of Amiodarone to
reduce the potential incidence of irregular heartbeats at least
two months prior to and for at least two months following the
84
MyoCell implantation. Patients received injections of between
40 million and 448 million myoblast cells, with an
average dosage of
214
±
117 million
myoblast cells.
The primary efficacy endpoint of the Phase I/ II clinical trial
was the effect of MyoCell on global ventricular function at
three, six and twelve months following implantation as
determined by, among other things, NYHA Class, LVEF,
End-Diastolic Volume, End-Systolic Volume, Cardiac Output and
Wall Motion as measured by stress echocardiography at rest and
at low dose. The primary safety endpoint was the clinical status
of the patient as measured by, among other things, a comparison
of serious adverse events occurring before and following MyoCell
implantation.
The clinical trial investigators observed a tendency towards
statistically significant improvement in systolic function at
six and twelve-month follow-up. Efficacy data from this trial is
summarized in more detail in the following table:
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Endpoints
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Baseline
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3-month
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p-value
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6-month
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p-value
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12-month
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p-value
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NYHA
Class
(1)
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2.8
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2.1
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1.6
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1.9
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LVEF
(2)
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36.3
±
8.0
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34.3
±
9.1
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0.3
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34
±
7.8
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0.3
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38.7
±
9.4
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0.4
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End-Diastolic
Volume
(2)
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225
±
83
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186
±
59
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0.03
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214
±
37
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0.7
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197
±
30
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0.4
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End-Systolic
Volume
(2)
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145
±
64
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124
±
49
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0.05
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143
±
37
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0.9
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122
±
29
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0.2
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Cardiac
output
(3)
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4.6
±
0.91
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N/A
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N/A
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5.6
±
1.6
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0.06
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5.4
±
1.5
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0.05
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Wall motion as measured by stress echocardiography at
rest
(1)
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3.0
±
0.5
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2.9
±
0.6
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0.65
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2.8
±
0.6
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0.95
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2.8
±
0.7
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0.70
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Wall motion as measured by stress echocardiography at low
dose
(3)
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2.8
±
0.4
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2.6
±
0.5
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0.65
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2.5
±
0.5
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0.95
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2.5
±
0.6
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0.70
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(1)
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Matched data provided for 13 of the 15 patients.
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(2)
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Matched data provided for eight of the 15 patients.
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(3)
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Matched data provided for five of the 15 patients.
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Although the data showed a decrease in End-Diastolic Volume,
trends towards a reduction in End-Systolic Volume and an
increase in LVEF, the data cannot be considered statistically
significant. The clinical trial investigators were, however,
able to conclude from this data that global left ventricular
function remained stable and that no further deterioration of
the left ventricles occurred during the twelve months following
treatment, which, given the clinical status of the patient
group, was determined by the researchers to be a significant
observation.
Although not statistically significant due, in part, to the
limited number of patients treated, we noted that:
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85% and 62% of the 13 surviving patients improved one NYHA Class
at six months and twelve months following therapy, respectively;
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31% and 23% of the 13 surviving patients improved two NYHA
Classes at six months and twelve months following therapy,
respectively;
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of the eleven patients for which we have six-month data
regarding LVEF, 36% of such patients LVEF improved by at
least 4% and 9% of such patients LVEF improved by at least
20% at six months following therapy; and
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of the twelve patients for which we have twelve-month data
regarding LVEF, 50% of such patients LVEF improved by at
least 4% and 17% of such patients LVEF improved by at
least 20% at twelve months following therapy.
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Eleven serious adverse events were reported in nine of the 15
patients during follow-up, seven of which were investigator
determined to be possibly attributable to MyoCell. Two of the
seven serious adverse events potentially attributable to MyoCell
were death, which occurred relatively shortly after receiving
the MyoCell therapy. In the course of describing the cause of
death, electrophysiologists who reviewed and analyzed the data
indicated that one of the deaths was most likely attributable to
irregular heart contractions brought on by the MyoCell injection
procedure. The cause of death for the other patient is unknown
as permission for histology and autopsy analysis were denied by
the patients family. Following these patient deaths, we
85
requested an assessment by an independent European Data Safety
Monitoring Board who, following their investigation and our
incorporation of their recommendations to, among other things,
require prior placement of an ICD and require holter and ICD
readings every week for the first month following the MyoCell
injection procedure, supported the continuation of the trial.
The other five serious adverse events possibly attributable to
MyoCell also involved irregular heart contractions. These
patients recovered and no other adverse events were reported for
such patients.
The results of this trial were presented at the 2005 Annual
Meeting of the American College of Cardiology.
In May 2002, we initiated a clinical trial of MyoCell in the
Netherlands in collaboration with Transvascular, Inc., or the
2002 Trial, to evaluate the safety and efficacy of MyoCell using
the investigational TransAccess catheter. Three patients were
treated in this clinical trial, which was discontinued for
reasons unrelated to the trial following the acquisition of
Transvascular by Medtronic in August 2003. All of the patients
selected for enrollment in the 2002 Trial had (i) symptoms
associated with NYHA Class II, NYHA Class III or NYHA
Class IV heart failure, (ii) suffered a previous heart
attack at least four weeks prior to the date of treatment,
(iii) a LVEF of between 20% to 40%, (iv) been on
optimal drug therapy and (v) prior placement of an ICD at
least one month prior to enrollment. The primary safety endpoint
of the study was the clinical status of the patient as measured
by, among other things, a comparison of serious adverse events
occurring before and following MyoCell implantation. The primary
efficacy endpoints were the same endpoints used in the Phase I/
II trial we conducted in Europe. Twelve month follow-up on these
three patients showed one death adjudicated by the physicians
conducting the trial as unrelated to MyoCell, with the other two
patients event-free.
Paid Registry Studies
We have taken steps to initiate paid registry studies of MyoCell
and MyoCath in six centers and countries, including Korea,
Mexico, Switzerland, The Bahamas, Singapore and South Africa and
finalized contracts with an institution in each of Korea,
Mexico, Switzerland and The Bahamas. A paid registry study is a
research study conducted at a private hospital or research
institution in accordance with a specific protocol approved by
the appropriate regulators in the country and agreed to by
contract between us and the institution conducting the study.
The institution conducting the registry study and/or the
patients enrolled in the trial reimburse us for some or all of
the costs of cell culturing, biopsy processing and MyoCath.
These registry studies are primarily designed to generate
revenues and to gather additional clinical research data
regarding the safety and efficacy of MyoCell and MyoCath.
As of August 1, 2007, one patient has undergone the MyoCell
implantation procedure at the Mexico center.
Other Trials of Myoblast Implantation in the Heart
In addition to studies we have sponsored, we believe
myoblast-based clinical therapies have been the subject of at
least eleven clinical trials involving more than 325 enrollees,
including at least 235 treated patients. In an article published
by Pr. Serruys and other contributing authors (including our VP
of Clinical Affairs and Physician Relations) in EuroIntervention
Supplement B, the authors, summarily commented on the state of
the field based upon their review of preclinical studies and at
least seven Phase I or Phase II clinical trials involving, in
the aggregate, at least 80 treated patients. The authors noted
that previous data derived from pre-clinical studies
demonstrated that the implantation of autologous skeletal
myoblasts may lead to replacement of non-functioning scar tissue
in the heart with functional contractile tissue and consistent
improvement in global LVEF, regional wall motion and viability.
The authors further noted that results from the Phase I or II
clinical trials reviewed suggest that skeletal myoblast
implantation during coronary artery bypass graft
(CABG) surgery may lead to similar effects, as do recent
studies using percutaneous delivery of myoblasts as a
stand-alone procedure. We believe that the results
86
of these clinical trials, as well as the results of our clinical
trials to date and the results of the MAGIC Trial discussed
below, generally provide support for our theory that MyoCell may
add a new dimension to the interventional management of
deterioration of cardiac function in patients with severe heart
damage.
MG Therapeutics Myoblast Autologous Grafting in Ischemic
Cardiomyopathy (MAGIC) Trial
The following summary of the results of the Myoblast Autologous
Graft in Ischemic Cardiomyopathy (MAGIC) clinical trial
sponsored by MG Biotherapeutics, LLC is based upon a
presentation given by Philippe Menasché, M.D., Ph.D. at the
American Heart Associations Scientific Sessions 2006 and
news reports of the presentation.
Dr. Menasché reported that the MAGIC trial was a Phase
II, randomized, double blind, placebo-controlled multicenter
clinical trial in various countries in Europe to assess the
safety and efficacy of skeletal myoblast implantation injected
during CABG surgery into the scarred region of the heart. 97
patients were enrolled in the MAGIC trial before it was
discontinued after an analysis by an independent data-monitoring
board indicated the trial was unlikely to show that the
treatment was superior to placebo on the primary efficacy
endpoints: (i) functional improvements in Wall motion and
(ii) LVEF, as measured by echocardiography six months
following myoblast implantation. The secondary efficacy
endpoints included End-Systolic Volume and End-Diastolic Volume
at six months
Dr. Menasché reported that the 97 patients were
randomized into three groups. The high-dose group (30 patients)
received direct injections of myoblasts in and around the
scarred area totaling about 800 million myoblasts via 30
injections, the low-dose group (33 patients) received direct
injections of about 400 million myoblasts and the third
group, the placebo group (34 patients), received injections of
the suspension medium without active cells.
Dr. Menasché reported that all of the patients
selected for enrollment in the MAGIC trial had (i) suffered
a heart attack at least four weeks prior to myoblast
implantation, (ii) a LVEF between 15% and 35% and
(iii) a planned CABG. All patients in the MAGIC trial
received ICDs before hospital discharge.
Although the study failed to find any significant differences in
Wall Motion or LVEF as measured by echocardiography, a
significant decrease, or improvement, was documented (by 12-13%
from baseline preoperative values) of LV Volume in patients
receiving the high dose of cells whereas there were no
significant changes in the placebo group. Reduction in LV volume
generally is reflective of positive ventricular remodeling and
improvement in the hearts ability to circulate oxygenated
blood through the arteries. Because LV Volumes are often
predictors of outcomes, we believe that finding may be
clinically relevant. Furthermore, LVEF was also measured by
radionuclide or nuclear angiography in a subgroup of 48 patients
and was then found to be significantly increased in those that
had received the high dose of myoblasts compared with the
placebo group. In these patients, Dr. Menasché
reported that the absolute change in LVEF in the high-dose group
was 3%, significantly greater than in the placebo group, where
LVEF was unchanged from baseline at six months.
The primary safety endpoints of the study were the nature and
frequency of serious adverse events and ventricular arrhythmias
during the six months following myoblast implantation. There
were no statistically significant differences between either the
high-dose or low-dose treatment and placebo groups in terms of
major adverse cardiac events and irregular heartbeats when
measured over six months. Serious adverse event rates and
irregular heartbeats were no different between the groups and
none of the deaths in the myoblast groups were attributable to
the procedure or to irregular heartbeats.
We were surprised and were happy to show there was
apparently no increased risk in the procedure, and we also were
encouraged by what appeared to be happening with the heart
volume, noted Dr. Menasché.
Pipeline
In addition to MyoCell, we have multiple cell therapies and
related devices for the treatment of chronic and acute heart
damage in various stages of development. We have also acquired
the rights to use certain devices for the treatment of heart
damage. We intend to allocate our capital, material and
personnel resources among MyoCell and the product candidates
described below, a number of which may have complementary
therapeutic applications. For each product candidate, we have
developed or are in the process of developing a
87
regulatory approval plan. Assuming such proposed plans are able
to be followed, we do not anticipate that the regulatory
approval of MyoCell will be necessary for our further
development of our other product candidates.
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Candidate
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Proposed Use or Indication
|
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Status/Phase
|
|
Comments
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Bioheart Acute Cell Therapy
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Acute, autologous cell therapy treatment for acute MI
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Preclinical
|
|
Animal studies expected to be completed by September 2007;
subject to favorable test results and completion by Tissue
Genesis of the Device Master File for TGI 1200 by September
2007, anticipate filing IND application in the fourth quarter of
2007
|
TGI 1200 Adipose Tissue Processing System
|
|
Fully automated device for the rapid processing of patient
derived fat tissue
|
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Tissue Genesis performing validation studies and preparing
Device Master File
|
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Upon approval of IND application for Bioheart Acute Cell
Therapy, anticipate seeking cost reimbursement for supplying TGI
1200 and related disposable kits for use in connection with
Bioheart Acute Cell Therapy clinical trials, Tissue Genesis
anticipates seeking 510(k) and CE Mark approval in the third
quarter of 2007.
|
MyoCell II with SDF-1
|
|
Autologous cell therapy treatment for severe chronic damage to
the heart; cells modified to express angiogenic factors
|
|
IND application filed in May 2007
|
|
Upon approval of IND application, anticipate commencing Phase I
clinical trials during the first quarter of 2008
|
MyoCath
|
|
Disposable endoventricular catheter used for the delivery of
biologic solutions to the myocardium
|
|
Used in European Phase II clinical trials of MyoCell; used in
Phase I clinical trials of MyoCell
|
|
Anticipate seeking certification to apply the CE Mark for
commercial sale and distribution within the European Union in
the first quarter of 2008 provided we enter into a long term
manufacturing contract with an entity that satisfies the
requirements of the International Standards Organization
|
MyoCath II
|
|
Second generation disposable endoventricular catheter modified
to provide multidirectional cell injection and used for the
delivery of biologic solutions to the myocardium
|
|
Preclinical
|
|
Laboratory studies currently being conducted; anticipate
commencing animal studies by the third quarter of 2007
|
BioPace
|
|
Treatment of chronic abnormal heart rhythm due to electrical
disturbances in the upper chambers of the heart
|
|
Preclinical
|
|
Preclinical development by Bioheart
|
AlloCell
|
|
Allogenic cell-therapy treatment for severe chronic damage to
the heart
|
|
Preclinical
|
|
Preclinical development by Bioheart
|
88
Bioheart Acute Cell Therapy
and TGI 1200 Adipose Tissue Processing System
We are seeking to develop Bioheart Acute Cell Therapy, a patient
derived cell therapy for the treatment of acute MI. Unlike
MyoCell, which is intended to be used to treat severe heart
damage months or even years after a heart attack, Bioheart Acute
Cell Therapy is being designed to be used for the treatment of
muscle damage immediately following a heart attack. We hope to
demonstrate that the injection of endothelial progenitor and
stem cells derived from fat tissue by the TGI 1200 is a safe and
effective means of limiting or reversing some of the effects of
acute MI and preventing or slowing a patients progression
from MI to CHF. Fat tissue is an abundant and readily available
source of endothelial progenitor and stem cells and is easily
extractable from a patient using minimally invasive techniques.
If approved, we intend to market the Bioheart Acute Cell Therapy
primarily to interventional cardiologists.
We have secured the exclusive, worldwide right to sell or lease
to medical practitioners and related healthcare entities the
following items for the treatment of acute MI:
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the TGI 1200 and certain disposable products used in conjunction
with the TGI 1200, or the TGI 1200 Licensed Products;
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the processes that use the TGI Licensed Products, or the TGI
Licensed Processes; and
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|
the cells derived using the TGI Licensed Products and/or TGI
Licensed Processes.
|
The TGI 1200 system is a compact, fully automated cell isolation
device for the rapid processing of patient-derived fat tissue to
separate, isolate and produce large yields of endothelial
progenitor and stem cells. The fat tissue is extracted from the
patient using a minor liposuction-like procedure and processed
using the TGI 1200. We anticipate that the TGI 1200 will process
cells within a one-hour time period.
We have developed a proposed pathway for seeking securing
regulatory approval of Bioheart Acute Cell Therapy. Preclinical
studies involving pigs testing the safety and efficacy of
Bioheart Acute Cell Therapy commenced in the first quarter of
2007 at Indiana University and are projected to be completed by
the third quarter of 2007. Assuming favorable preclinical test
results and provided that Tissue Genesis completes its Device
Master File for the TGI 1200 by September 2007, we anticipate
submitting to the FDA an IND with respect to Bioheart Acute Cell
Therapy in the fourth quarter of 2007. Provided we secure FDA
approval of the Phase I protocol set forth in the IND by
November 2007, we anticipate commencing Phase I trials of
Bioheart Acute Cell Therapy by the first quarter of 2008.
Until the TGI 1200 is readily available for research and
clinical applications, we are manually isolating and separating
endothelial progenitor and stem cells from fat tissue using
Tissue Genesis TGI 100 Wound Dressing Kit and its related
manual cell isolation techniques. We are currently in the
process of negotiating a research agreement with Indiana
University. To date, we have provided training as well as the
TGI 100 Wound Dressing Kits and catheters to Indiana University
for use in connection with these preclinical studies.
Tissue Genesis has finalized the design of the TGI 1200 and is
performing validation studies to seek to demonstrate that the
TGI 1200 produces a pulpy composition comparable to the TGI 100.
We expect the TGI 1200 to be available for research and clinical
applications once Tissue Genesis completes the validation
studies, which are projected to be completed by August 2007.
Tissue Genesis has informed us that it anticipates seeking
510(k) and CE Mark approval by the end of the third quarter of
2007. Tissue Genesis has informed us that it has entered into an
agreement for the manufacture of the TGI 1200. Upon approval of
our IND application for Bioheart Acute Cell Therapy, we
anticipate that we will seek cost reimbursement for supplying
TGI 1200 and the related disposable kits for use in connection
with our clinical trials of Bioheart Acute Cell Therapy.
MyoCell II with SDF-1
Our MyoCell II with SDF-1 product candidate, which has recently
completed preclinical testing, is intended to be an improvement
to MyoCell. In February 2006, we signed a patent licensing
agreement with the Cleveland Clinic of Cleveland, Ohio which
gave us exclusive license rights to pending patent applications
in connection with MyoCell II with SDF-1. We expect this
collaboration to give us access to the extensive
89
underlying animal studies supporting the patent applications. In
addition, in connection with our establishment of this
relationship with the Cleveland Clinic, Dr. Marc Penn, the
Medical Director of the Cardiac Intensive Care Unit at the
Cleveland Clinic and a staff cardiologist in the Departments of
Cardiovascular Medicine and Cell Biology, joined our Scientific
Advisory Board.
We anticipate that MyoCell II with SDF-1 will be similar to
MyoCell, except that the myoblast cells to be injected will be
modified prior to injection by an adenovirus vector or non-viral
vector so that they will release extra quantities of the SDF-1
protein, which expresses angiogenic factors. Following injury
which results in inadequate blood flow to the heart, such as a
heart attack, the human body naturally increases the level of
SDF-1 protein in the heart. By modifying the myoblasts to
express additional SDF-1 prior to injection, we are seeking to
increase the SDF-1 protein levels present in the heart. We are
seeking to demonstrate that the presence of additional
quantities of SDF-1 protein released by the myoblasts will
stimulate the recruitment of the patients existing stem
cells to the cell transplanted area and, thereafter, the
recruited stem cells will assist in the tissue repair and blood
vessel formation process. Preclinical animal studies showed a
definite improvement of cardiac function when the myoblasts were
modified to express additional SDF-1 protein prior to injection
as compared to when the myoblasts were injected without
modification.
We filed an IND application in May 2007 for Phase I clinical
trials of MyoCell II with SDF-1 and received comments from the
FDA in August 2007. Assuming FDA approval of the protocol for a
Phase I Trial of MyoCell II with SDF-1 in the fourth quarter of
2007, we hope to begin enrolling patients in the Phase I Trial
during the first quarter of 2008.
MyoCath and MyoCath
II
MyoCath is a disposable endoventricular catheter used for the
delivery of biologic solutions to a targeted treatment site
within the myocardium, the inner wall of the heart. MyoCath
provides for multiple injections to a pre-determined needle
insertion depth with a single core needle of 25 gauge diameter
that can be advanced and retracted from the tip of the catheter.
MyoCath is intended for use with commercially available
Becton-Dickinson 1 milliliter and 3 milliliter syringes.
Although we hope to prove that MyoCell can be administered with
a variety of different catheters, such as MyoStar, MyoCath has
been specifically designed to be used for the delivery of
MyoCell and has been used as the delivery mechanism in the
majority of our clinical trials to date.
We are also developing MyoCath II, a second generation catheter.
MyoCath II provides a modified injection needle which has a
closed tip and side holes that result in multidirectional cell
injection rather than injection solely from the tip of the
needle. We are seeking to determine whether MyoCath II will
increase the bioretention of the cells injected in the heart and
disperse the cells more efficiently throughout the scar tissue.
We anticipate commencing animal studies of MyoCath II during the
third quarter of 2007. Tricardia, LLC has granted us a
sublicenseable license to certain patents and patent
applications covering the modified injection needle we intend to
use as part of MyoCath II, which license is exclusive with
respect to products developed under these patents for the
delivery of therapeutic compositions to the heart.
It is our hope that MyoCath and/or MyoCath II will prove to be
more cost effective than, and as safe and effective as, other
catheters at delivering MyoCell. Although MyoCath and MyoCath II
have been designed for use with MyoCell, we believe that there
are a number of other clinical therapies to treat heart disease
currently in development by other companies that could be
delivered via MyoCath and/or MyoCath II including gene, protein,
cytokine and growth factor therapies. Three clinical trials have
been initiated by biopharmaceutical companies and other
institutions utilizing MyoCath to deliver growth factors in an
effort to increase blood supply to a damaged heart.
BioPace
BioPace is an autologous cell-based therapy intended to be used
as a biological pacemaker for the treatment of sino-atrial nodal
dysfunction disease, a disease in which the natural pacemaker
cells of the heart do not properly function due to electrical
disturbances in the upper chambers of the heart and which
results in an abnormal heart rhythm. The sino-atrial node is the
impulse generating tissue located in the right atrium of
90
the heart. As part of the BioPace therapy, cells from the
sino-atrial node are removed from the right atrium of a
patients heart and cultured in our temperature controlled
cell culturing facility. These cells are cultured in vitro in a
solution containing oxygen and nutrients. While the cells are
being cultured, we anticipate the patient will receive an
external pacemaker to pace the remaining portions of the
patients sino-atrial node. The cultured cells are then
implanted into the myocardial tissue of the right ventricle to
provide biological pacing for the heart. We are currently
establishing a preclinical development plan for BioPace.
Allocell
We anticipate that Allocell will be similar to MyoCell, except
that the myoblast cells to be injected will be taken from third
party donors. Like MyoCell, we hope to demonstrate that
allogenic myoblasts are a safe and effective treatment of severe
heart damage. We anticipate that Allocell may be administered in
conjunction with immunosuppressive drugs to reduce the risk of
tissue rejection. We are exploring the storage life of myoblast
cells and the feasibility of maintaining an inventory of
Allocell from which interventional cardiologists can select to
perform the myoblast implantation procedure.
We believe our license agreement with Dr. Law and Cell
Transplants International provides us a conditionally exclusive
license in the United States to certain patents that include
claims we believe cover the use of cultured allogenic myoblast
cells for the administration to diseased muscle within the field
of heart muscle repair and angiogenesis.
We are currently establishing a preclinical development plan for
Allocell.
Collaboration with Biosense Webster involving MyoStar and the
MyoStar System
We have been cleared by the FDA to proceed under the protocol
for the MARVEL Trial, which protocol will require participating
trial investigators to use MyoStar for the delivery of MyoCell
to patients enrolled in the trial.
MyoStar is a multi-electrode, percutaneous catheter with a
deflectable tip and injection needle designed to inject agents
into the heart. The tip of the catheter is equipped with a
Biosense Webster location sensor and a retractable, hollow
27-gauge
needle for
fluid delivery. Use of the MyoStar is coupled with the NOGA
XP Cardiac Navigation System, which is a 510(k) cleared
electroanatomical mapping system used to create a 3D real-time
mapping of a patients heart. The location information
displayed on the NOGA display screen is the location of the
catheter tip sensor, which allows for precise targeting of
injections into infracted tissue.
We are not affiliated with Biosense Webster, the Cordis
Corporation or any other Johnson and Johnson company. On
May 10, 2007, we entered into a supply agreement with
Biosense Webster pursuant to which they have agreed to:
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deliver MyoStar to us at an agreed upon price as and when
required for the MARVEL Trial;
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facilitate our purchasing access to its FDA approved mapping and
reference catheters, Nogastar and Reference Patch, respectively
by setting us up as an approved purchaser; and
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providing technical training on the MyoStar System.
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This supply agreement will terminate upon the earlier of
(i) two years and (ii) three months after treatment of
the last patient enrolled in the MARVEL Trial. In addition,
either party may terminate the agreement upon 30 days
notice if the principal investigator for the MARVEL Trial
becomes unable or unwilling to continue performance of the trial.
Except as set forth above, we have no right to control the
further development, clinical testing and/or refinement of
MyoStar or the MyoStar System. See Risk
Factors
We are subject to numerous risks
associated with seeking regulatory approval of MyoCell pursuant
to a protocol that requires the use of a catheter system which
is still subject to FDA approval. The catheter system we intend
to use in connection with our MARVEL Trial is owned by an
unaffiliated third party. Although we have entered into a
two-year
supply
91
agreement for delivery of the catheter system for use in the
MARVEL Trial, we are subject to a number of risks not addressed
by the parties in the supply agreement
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Research
We supervise and perform experimental work in the areas of
improving cell culturing, cell engraftment, and other advanced
research projects related to our product candidates from our
Sunrise cell culturing facility. The primary focus of a
substantial majority of our employees is advancing our clinical
trials, preclinical studies, research and product development.
In addition, we work with a number of third parties within and
outside the United States on various research and product
development projects, including:
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preclinical small and large animal testing for lead product
candidate enhancements and pipeline product candidate
development; and
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contract research for clinical and preclinical testing of our
pipeline product candidates.
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Cell Culturing
We have an approximately 2,000 square foot cell culturing
facility at our headquarters in Sunrise, Florida. We began
culturing cells at this facility for preclinical uses in the
third quarter of 2006. We anticipate that we will begin
culturing cells at this facility for clinical uses upon
commencement of the MARVEL Trial. We believe our cell
culturing facility and processes comply with cGMP. We anticipate
that this facility will manufacture approximately 90% of the
capacity needed in the United States through 2007 for the
MARVEL Trial.
Over the last two years, we have significantly improved our
ability to:
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culture in excess of 800 million myoblast cells per biopsy;
and
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produce cell cultures with a high percentage of viable myoblast
cells.
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Accordingly, we have been able to increase the maximum dosage of
myoblast cells injected as part of the MyoCell therapy to
approximately 800 million myoblast cells, which we believe
will be the most effective therapeutic dose. We expect that we
will seek to further refine our MyoCell cell culturing
processes. We are seeking to automate a significant portion of
our cell culturing processes in an effort to reduce our
culturing costs and processing times. We have licensed patents
from Dr. Law relating to this automation process.
We have historically met and, with respect to the cell culturing
of our product candidates in Europe, expect to meet, our cell
culturing needs by contracting with third party manufacturers.
In December 2006, we entered into a non-exclusive supply
agreement with Pharmacell BV, or Pharmacell. We anticipate that
approximately 90% of MyoCell inventory to be cultured or
purchased in Europe between the date of this prospectus and the
end of 2007 will be cultured by Pharmacell at their facility in
Massetricht, Netherlands, which opened in June 2006. Pursuant to
the supply agreement, Pharmacell has agreed to provide us with
MyoCell cell culturing at its cost plus a certain percentage per
culture. We have no minimum purchase obligation under the supply
agreement. The supply agreement expires six months following the
completion of the SEISMIC and MARVEL Trials unless
terminated earlier. Either party may terminate the supply
agreement upon the other partys insolvency or the other
partys material default or breach of any provision of the
supply agreement.
We also have cell culturing contracts with Cambrex Bioscience
for the culturing of cells at their facilities in Maryland,
United States and Verviers, Belgium. Pursuant to our agreements
with Cambrex Bioscience, we do not have any minimum purchase
commitment and, while Cambrex has agreed to use reasonable
efforts to meet our manufacturing needs, they have not
guaranteed that they will be able to do so. We compensate
Cambrex for its cell culturing services on a per patient basis
at a fixed cost per culture and at hourly rates for services
they provide to us not directly related to the scheduling and
processing of a biopsy.
92
For the balance of 2007, we expect that we will meet our cell
culturing needs in Europe pursuant to our agreement with
Pharmacell as well as from our Florida facility and pursuant to
our agreement with Cambrex Bioscience.
We are seeking to further optimize our processing times by
building facilities or contracting with a small number of cell
culturing facilities in strategic regional locations. We have
established and/or are currently evaluating establishing joint
venture manufacturing relationships in Korea, China and
Australia. We anticipate that a portion of the funds necessary
to construct new manufacturing facilities may be made available
to us by the governments of the countries where we seek to build
such facilities.
Manufacturing
We have entered into a contract with Bolton Medical for the
manufacture of MyoCath. Pursuant to our contract with Bolton
Medical, Bolton Medical has the right to manufacture not less
than 200 catheters per year at a fixed per-unit cost. We
have further agreed that we will not use any third-party
manufacturer for MyoCath other than Bolton Medical or Guidant
Corporation or its affiliates. Either party may terminate the
agreement upon the other partys uncured material breach of
the agreement and in the event of bankruptcy. Unless terminated
earlier, this agreement will terminate in September 2007.
Supply Agreements
In June 2007, we entered into an agreement with BioLife
Solutions, Inc., or BioLife, pursuant to which BioLife agreed to
sell and we agreed to purchase all of our preservation media
products during the term of the agreement. The initial term of
the agreement is for ten years and is subject to renewal for
additional one-year periods thereafter. Pursuant to the
agreement, the purchase prices we will be required to pay for
these products will be at various discounts to the prevailing
list prices. We are also required to pay BioLife an annual fee,
which we do not believe is material. Upon the occurrence of
certain events, including, but not limited to, BioLifes
uncured material breach of the agreement, the cessation of
BioLifes business operations, or BioLifes inability
to supply us with the quantities of products we request in any
two calendar quarters under the term of the agreement, BioLife
has agreed to grant us a non-transferable, non-exclusive,
worldwide, fully
paid-up,
royalty free
license to its intellectual property, including its formulation
and manufacturing processes to permit us to manufacture, or
cause to be manufactured, the preservation media products
subject to this agreement. Either party may terminate the
agreement upon the other partys uncured material breach of
the agreement.
Third Party Reimbursement
Government and private insurance programs, such as Medicare,
Medicaid, health maintenance organizations and private insurers,
fund the cost of a significant portion of medical care in the
United States. As a result, government imposed limits on
reimbursement of hospitals and other healthcare providers have
significantly impacted their spending budgets and buying
decisions. Under certain government insurance programs, a
healthcare provider is reimbursed a fixed sum for services
rendered in treating a patient, regardless of the actual cost of
such treatment incurred by the healthcare provider. Private
third party reimbursement plans are also developing increasingly
sophisticated methods of controlling healthcare costs through
redesign of benefits and exploration of more cost-effective
methods of delivering healthcare. In general, we believe that
these government and private measures have caused healthcare
providers to be more selective in the purchase of medical
products.
As of the date of this prospectus, CMS has agreed to reimburse
certain of the centers that are participating in the
MYOHEART Trial for costs deemed routine in
nature for patients suffering from heart failure. Examples of
these reimbursable costs include, but are not limited to, costs
associated with physical examination of the patients,
x-rays,
holter
monitoring, MUGA scan and echocardiography. However, at present,
CMS reimbursement does not cover the cost of MyoCell
implantation.
Reimbursement for healthcare costs outside the United States
varies from country to country. In European countries, the
pricing of prescription pharmaceutical products and services and
the level of
93
government reimbursement are subject to governmental control. In
these countries, pricing negotiations with governmental
authorities can take six to twelve months or longer after the
receipt of marketing approval for a product. To obtain
reimbursement or pricing approval in some countries, we may be
required to conduct one or more clinical trials that compares
the cost effectiveness of our product candidates to other
available therapies. Conducting one or more clinical trials
would be expensive and result in delays in commercialization of
our product candidates.
Research Grants
Historically, part of our research and development efforts have
been indirectly funded by research grants to various centers
and/or physicians that have participated in our MyoCell and
MyoCath clinical trials. As part of our development strategy, we
intend to continue to seek to develop research partnerships with
centers and/or physicians.
Patents and Proprietary Rights
We own or hold licenses or hold sublicenses to an intellectual
property portfolio consisting of approximately 19 patents
and 19 patent applications in the United States, and
approximately twelve patents and 57 patent applications in
foreign countries, for use in the field of heart muscle
regeneration. We have described our most material license and
sublicense agreements below in the section entitled
Business Technology
In-Licenses
and Other
Agreements. References in this prospectus to
our patents and patent applications and other
similar references include the patents and patent applications
that are owned by, or licensed or sublicensed to us, and
references to patents and patent applications that are
licensed to us and other similar references refer to
patents, patent applications and other intellectual property
that are licensed or sublicensed to us.
Our intellectual property strategy emphasizes method, product
and device patents. We rely primarily on one U.S. patent
for MyoCell, or the Primary MyoCell Patent, one U.S. patent
for MyoCath, or the Primary MyoCath Patent and a number of
patents for MyoCath II. We rely on four pending
U.S. patent applications and corresponding foreign patent
applications for MyoCell II with
SDF-1
and three
U.S. patents for BioPace. For most of our other product
candidates, we rely on one primary patent, multiple patents in
combination and/or proprietary processes.
The following provides a description of our key patents and
pending applications and is not intended to represent an
assessment of claims, limitations or scope.
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Expiration Date Assuming
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Patent
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Subject Matter
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Related Product(s)
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No Patent Extension
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US5,130,141
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Compositions for and methods of treating muscle degeneration and
weakness
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MyoCell; MyoCell II with SDF-1
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July 14, 2009
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US5,972,013
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Direct Pericardial Access Device with Deflecting Mechanism and
Method
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MyoCath; MyoCath II
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Sep. 19, 2017
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US6,241,710
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Hypodermic Needle with Weeping Tip and Method of Use
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MyoCath II
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Dec. 20, 2019
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US6,547,769
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Catheter Apparatus with Weeping Tip and Method of Use
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MyoCath II
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Dec. 20, 2019
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US6,855,132
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Apparatus with Weeping Tip and Method of Use
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MyoCath II
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Dec. 20, 2019 (with 101 day adjustment: Mar. 30,
2020)
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US6,949,087
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Apparatus with Weeping Tip and Method of Use
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MyoCath II
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Dec. 20, 2019
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Patent Application
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Subject Matter
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Related Product(s)
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US2004/0161412
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Cell-Based VEGF Delivery
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MyoCell II with SDF-1
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WO 04/056186 (US03/34411)(PCT)
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Cell-Based VEGF Delivery
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MyoCell II with SDF-1
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US2004/0037811
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Stromal Cell-Derived Factor-1 Mediates Stem Cell Homing and
Tissue Regeneration in Ischemic Cardiomyopathy
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MyoCell II with SDF-1
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WO 04/017978
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Stromal Cell-Derived Factor-1 Mediates Stem Cell
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MyoCell II with SDF-1
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(US03/26013) (PCT)
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Homing and Tissue Regeneration in Ischemic Cardiomyopathy
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Patent life determination depends on the date of filing of the
application or the date of patent issuance and other factors as
promulgated under the patent laws. Under the U.S. Drug
Price Competition and Patent Term Restoration Act of 1984, as
amended, a patent which claims a product, use or method of
manufacture covering drugs and certain other products, including
biologic products, may be extended for up to five years to
compensate the patent holder for a portion of the time required
for research and FDA review of the product. Only one patent
applicable to an approved drug or biologic product is eligible
for a patent term extension. This law also establishes a period
of time following approval of a drug or biologic product during
which the FDA may not accept or approve applications for certain
similar or identical drugs or biologic products from other
sponsors unless those sponsors provide their own safety and
efficacy data.
We anticipate that we will seek to collaborate with the owners
of the patent, Dr. Law and Cell Transplants International,
to extend the term of this patent. In the event MyoCell is
approved by the FDA prior to the patent expiration date and
certain other material conditions are satisfied, we believe that
this patent will be eligible for a five-year extension of its
term until July 2014. It is likely, however, that the FDA will
not complete review of and grant approval for MyoCell before
this patent expires. In such event, a regular patent term
extension will not be available, but Dr. Law and Cell
Transplants International could request a one-year interim
extension of the patent term during the period beginning six
months before and ending fifteen days before the patent
expiration. The request for interim extension must satisfy a
number of material conditions including those conditions
necessary to receive a regular patent term extension. Under
certain circumstances the patent owner can request up to four
additional one-year interim extensions. However, we cannot
assure you that Dr. Law and Cell Transplants International
will seek to obtain, or will be successful in obtaining, any
regular or interim patent term extension.
MyoCell is not protected by patents outside of the United
States, which means that competitors will be free to sell
products that incorporate the same or similar technologies that
are used in MyoCell without infringing our patent rights in
those countries, including in European countries, which we
believe may be one of the largest potential markets for MyoCell.
As a result, MyoCell, if approved for use in any of these
countries, may be vulnerable to competition. In addition, many
of the patent and patent applications that have been licensed to
us that pertain to our other product candidates do not cover
certain countries within Europe.
Our commercial success will depend to a significant degree on
our ability to:
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defend and enforce our patents and/or compel the owners of the
patents licensed to us to defend and enforce such patents;
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obtain additional patent and other proprietary protection for
MyoCell and our other product candidates;
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obtain and/or maintain appropriate licenses to patents, patent
applications or other proprietary rights held by others with
respect to our technology, both in the United States and other
countries;
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preserve trade secrets and other intellectual property rights
relating to our product candidates; and
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operate without infringing the patents and proprietary rights of
third parties.
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In addition to patented intellectual property, we also rely on
trade secrets and proprietary know-how to protect our technology
and maintain our competitive position, especially when we do not
believe that patent protection is appropriate or can be
obtained. Our policy is to require each of our employees,
consultants and advisors to execute a confidentiality and
inventions assignment agreement before beginning their
employment, consulting or advisory relationship with us. The
agreements generally provide that the individual must keep
confidential and not disclose to other parties any confidential
information developed or learned by the individual during the
course of the individuals relationship with us except in
limited circumstances. These agreements generally also provide
that we shall own all inventions conceived by the individual in
the course of rendering services to us. Moreover, some of our
academic institution licensors, collaborators and scientific
advisors have rights to publish data and information to which we
have rights, which may impair our ability to protect our
proprietary information or obtain patent protection in the
future.
We work with others in our research and development activities
and one of our strategies is to enter into collaborative
agreements with third parties to develop our proposed products.
Disputes may arise about inventorship and corresponding rights
in know-how and inventions resulting from the joint creation or
use of intellectual property by us and our licensors,
collaborators, consultants and others. In addition, other
parties may circumvent any proprietary protection we do have. As
a result, we may not be able to maintain our proprietary
position.
Except for the complaint filed against us by Dr. Law and
Cell Transplants Asia, we are not currently a party to any
litigation or other adverse proceeding with regard to our
patents or intellectual property rights. However, if we become
involved in litigation or any other adverse intellectual
property proceeding, for example, as a result of an alleged
infringement, or a third party alleging an earlier date of
invention, we may have to spend significant amounts of money and
time and, in the event of an adverse ruling, we could be subject
to liability for damages, including treble damages, invalidation
of our intellectual property and injunctive relief that could
prevent us from using technologies or developing products, any
of which could have a significant adverse effect on our
business, financial condition and results of operation. In
addition, any claims relating to the infringement of third party
proprietary rights, or earlier date of invention, even if not
meritorious, could result in costly litigation, lengthy
governmental proceedings, divert managements attention and
resources and require us to enter royalty or license agreements
which are not advantageous, if available at all.
See Risk Factors Risks Related to Our
Intellectual Property for a discussion of additional risks
we face with respect to our intellectual property rights.
Technology
In-Licenses
and Other
Agreements
Primary MyoCell
Patent
The Primary MyoCell Patent includes claims we believe cover a
composition for the treatment of muscle degeneration, comprised
of cultured myogenic cells for use in their administration to
diseased muscle. The Primary MyoCell Patent expires in the
United States in July 2009. In the event MyoCell is approved by
the FDA prior to the patent expiration date and certain other
material conditions are satisfied, we believe that this patent
will be eligible for a five-year extension of its term until
July 2014. It is likely, however, that the FDA will not complete
review of and grant approval for MyoCell before this patent
expires. In such event, a regular patent term extension will not
be available, but Dr. Law and Cell Transplants
International could request a one-year interim extension of the
patent term during the period beginning six months before and
ending fifteen days before the patent expiration. The request
for interim extension must satisfy a number of material
conditions including those conditions necessary to receive a
regular patent term extension. Under certain circumstances the
patent owner can request up to four additional one-year interim
extensions.
In February 2000, we entered into a License Agreement, or the
Law License Agreement, with Dr. Law and Cell Transplants
International pursuant to which Dr. Law and Cell
Transplants International granted us a conditionally exclusive
license (i.e., a non-exclusive license with a right of
first refusal) to certain patent and patent applications,
including the Primary MyoCell Patent, or, collectively, the Law
Patents, for the life of such Law Patents as well as future
developments related to heart muscle regeneration and
angiogenesis for the
96
purpose of developing a commercially viable product within the
field of heart muscle repair and angiogenesis, or, collectively,
the Law IP. We are not permitted to sublicense our rights under
the Law License Agreement to third parties. If Dr. Law or
Cell Transplants International desires to license or otherwise
convey any rights in and to any of the Law Patents, including
the Primary MyoCell Patent, or any of their technology,
inventions or other patent rights in the field of heart muscle
regeneration or angiogenesis to a third party, we have a right
of first refusal, exercisable within thirty days, to obtain
either an exclusive or non-exclusive license for such rights.
Dr. Law and Cell Transplants International have agreed that
they will not consider any such third party offer if the
aggregate consideration offered is less than $14 million.
Pursuant to the Law License Agreement, the exercise price of our
right of first refusal will be equal to the lesser of the price
offered by the third party or $25 million.
Under the Law License Agreement, we are required to pay to Cell
Transplants International a $3 million payment upon
commencement of a bona fide U.S. Phase II human
clinical trial that utilizes technology claimed under the
Primary MyoCell Patent and a $5 million payment upon FDA
approval of patented technology for heart muscle regeneration.
In addition, we are required to pay royalties to Cell
Transplants International equal to 5% of gross sales in the
territories where the licensed patents are issued for products
and services that are covered by the Law IP.
Dr. Law and Cell Transplants International have agreed to
use reasonably diligent and prompt efforts to enforce the
patents licensed pursuant to the Law License Agreement by
instituting litigation against all third parties to whom
Dr. Law and/or Cell Transplants International have a
reasonable basis for claiming infringement. Dr. Law and
Cell Transplants International are entitled to any and all
damages recovered in connection with any such litigation. We do
not have the right to initiate or exercise any control over the
prosecution, maintenance, defense or enforcement of the Law IP.
See Risk Factors Risks Related to Our
Intellectual Property for a discussion of additional risks
we face with respect to our intellectual property rights.
Our interpretation of certain terms of the Law License
Agreement, as well as our performance of certain obligations
under the Law License Agreement, have been disputed by
Dr. Law and Cell Transplants Asia, as described in
Legal Proceedings.
Primary MyoCath
Patent
The Primary MyoCath Patent includes device claims that we
believe covers, among other things, the structure of MyoCath.
The Primary MyoCath Patent expires in the United States in
September 2017. A patent application for the Primary MyoCath
Patent has been filed in Europe and is currently pending.
In January 2000, we entered into a license agreement with
Comedicus, Incorporated pursuant to which Comedicus granted us a
royalty-free, fully
paid-up,
non-exclusive
and irrevocable license to the Primary MyoCath Patent in
exchange for a payment of $50,000. This agreement was amended in
August 2000 to provide us an exclusive license to the Primary
MyoCath Patent in exchange for a payment of $100,000 and our
loan of $250,000 to Comedicus. Pursuant to this amendment we
also received the right, but not the obligation, with
Comedicus consent, which consent is not to been
unreasonably withheld, to defend the Primary MyoCath Patent
against third party infringers.
In June 2003, we entered into agreements with ACS pursuant to
which we assigned our rights under the license agreement with
Comedicus, as amended, committed to deliver 160 units of
MyoCath and sold certain of our other catheter related
intellectual property, or, collectively, with the Primary
MyoCath Patent, the Catheter IP, for aggregate consideration of
$900,000. In connection with these agreement, ACS granted to us
a
co-exclusive,
irrevocable, fully
paid-up
license to the
Catheter IP for the life of the patents related to the
Catheter IP.
ACS has the exclusive right, at its own expense, to file,
prosecute, issue, maintain, license, and defend the Catheter IP,
and the primary right to enforce the Catheter IP against third
party infringers. If ACS fails to enforce the Catheter IP
against a third party infringer within a specified period of
time, we have the right to do so at our expense. The party
enforcing the Catheter IP is entitled to retain any recoveries
resulting from such
97
enforcement. The asset purchase agreement only pertains to the
Catheter IP developed or acquired by us prior to June 24,
2003. Our subsequent catheter related developments and/or
acquisitions, such as MyoCath II, were not sold or licensed
to ACS.
MyoCell II with
SDF-1
Patents
To develop our MyoCell II with
SDF-1
product
candidate, we intend to rely primarily on patents we have
licensed from the Cleveland Clinic in addition to the Primary
MyoCell Patent. These patents relate to methods of repairing
damaged heart tissue by transplanting myoblasts that express
SDF-1
and other
therapeutic proteins capable of recruiting other stem cells
within a patients own body to the cell transplant area. We
believe we will also need to, among other things, license some
additional intellectual property to commercialize
MyoCell II with
SDF-1
in the form we
believe may prove to be the most safe and/or effective.
In February 2006, we signed a patent licensing agreement with
the Cleveland Clinic which provides us with the worldwide,
exclusive rights to four pending U.S. patent applications and
certain corresponding foreign filings in the following
jurisdictions: Australia, Brazil, Canada, China, Europe and
Japan, or, collectively, the Cleveland Clinic IP, related to
methods of repairing damaged heart tissue by transplanting
myoblasts that express SDF-1 and other therapeutic proteins
capable of recruiting other stem cells within a patients
own body to the cell transplant area. The term of our agreement
with the Cleveland Clinic extends to the date on which the last
of the Cleveland Clinic IP expires, at which time our license
will become irrevocable, paid up and royalty-free. Certain terms
of this patent licensing agreement were amended in March 2007.
We have paid the Cleveland Clinic aggregate fees of
$1.5 million and are required to pay an annual maintenance
fee of $150,000.
In addition, we are required to make payments upon our
achievement of certain milestone activities which we have agreed
to use commercially reasonable efforts to complete by target
dates agreed to by the parties. The table below sets forth the
milestone activity, required milestone payment and target
completion date.
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Milestone
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Milestone Activity
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Payment
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Target Completion Date
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FDA or foreign equivalent approval of an IND application
covering product candidates derived from the Cleveland Clinic IP
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$
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200,000
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60 days following completion of FDA required safety study, or
IND Target Completion Date
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Full enrollment of an FDA approved Phase I clinical trial
for the first product candidate derived from the Cleveland
Clinic IP
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$
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300,000
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One year following IND Target Completion Date
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Full enrollment of the last clinical trial needed prior to a
Biologic License Application submission to the FDA or foreign
equivalent related to the first product candidate derived from
the Cleveland Clinic IP
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$
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750,000
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Two years following IND Target Completion Date
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First commercial sale of an FDA approved product derived from
the Cleveland Clinic IP
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$
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1,000,000
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Four years following IND Target Completion Date
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In August 2007, we received correspondence from the FDA
requesting certain additional information regarding the IND
application for MyoCell II submitted in May 2007. To provide
this information, we will need to complete an additional safety
study of MyoCell II with SDF-1, which we hope to complete by the
end of the third quarter of 2007.
To the extent we do not complete a milestone activity by the
target completion date, we will be required to pay $100,000, or
the Extension Fee, to extend the target completion date for an
additional one year period, or the Extension Period. If such
milestone activity is achieved during the first six months of
the Extension
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Period, the Extension Fee will be credited against the
applicable milestone payment. We will also be required to pay
Cleveland Clinic royalty fees equal to 5% of net sales of any
product derived from the Cleveland Clinic IP until the
expiration of the patents. In addition, in the event we do not
complete a milestone activity by the target completion date and
fail to achieve such milestone activity within 90 days of
receiving written notice from the Cleveland Clinic, our license
to the Cleveland Clinic IP will automatically convert into a
non-exclusive license. In the event such milestone activity
remains uncompleted one year following the target completion
date and is not completed within 90 days of receiving
written notice from the Cleveland Clinic, our license to the
Cleveland Clinic IP will automatically terminate.
Pursuant to our license agreement with the Cleveland Clinic, we
are permitted to sublicense the Cleveland Clinic IP. However,
prior to enrollment of the first human in an FDA approved
clinical trial, we are required to pay Cleveland Clinic 20% of
all revenue received from our granting of sublicenses to the
Cleveland Clinic IP. Following enrollment of the first human in
an FDA approved clinical trial, we will be required to pay
Cleveland Clinic 10% of all revenue received from our granting
of sublicenses to the Cleveland Clinic IP. These sublicense fees
do not include amounts paid by a sublicensee to us relating to,
among other things, net sales of products derived from the
Cleveland Clinic IP.
The Cleveland Clinic has agreed to diligently prosecute and
maintain the rights to the Cleveland Clinic IP and has the
right, but not the obligation, to prosecute and/or defend, at
its own expense, any infringement of, and/or challenge to, the
patent rights. To the extent the Cleveland Clinic determines not
to initiate suit against any infringer, we have the right, but
not the obligation, to commence litigation for such alleged
infringement. Any damages recovered will be treated as royalties
received by us from sublicensees and shared by us and the
Cleveland Clinic accordingly.
In addition to the Cleveland Clinics right to terminate
due to our failure to complete milestone activities as described
above, the Cleveland Clinic may terminate our agreement with the
Cleveland Clinic if we breach the agreement and fail to cure
such breach within a specified cure period. The agreement also
will terminate automatically in the event of our bankruptcy.
Upon the Cleveland Clinics termination of the agreement
due to our default, breach or bankruptcy, we have granted the
Cleveland Clinic an automatic, non-exclusive, no-cost, royalty
free license, with the right to sublicense, to any patents
created by us and our affiliates during the term of the license
agreement that are required for the development of product
candidates derived from the Cleveland Clinic IP. Upon such
termination, we have also granted the Cleveland Clinic the
exclusive right to negotiate for a license on a worldwide basis,
in the field of use and upon commercially reasonable terms, to
license any patent rights created by us or our affiliates that
may be useful for the development of the product candidates
derived from the Cleveland Clinic IP.
In April 2006, we entered into an agreement with Tricardia, LLC
pursuant to which Tricardia granted us a sublicenseable license
to certain patents and patent applications in the United States,
Australia, Canada, Europe and Japan covering the modified
injection needle we intend to use as part of MyoCath II, or
the MyoCath II Patents, in exchange for a one time payment
of $100,000. Our license covers and is exclusive with respect to
products developed under the MyoCath II Patents for the
delivery of therapeutic compositions to the heart. Unless
earlier terminated by mutual consent of the parties, our
agreement with Tricardia will terminate upon the expiration date
of the last MyoCath II Patent.
Tricardia has the obligation to take all actions necessary to
file, prosecute and maintain the MyoCath II Patents. We are
required to reimburse Tricardia, on a pro-rata basis with other
licensees of Tricardia of the MyoCath II Patents, for all
reasonable out-of-pocket costs and expenses incurred by
Tricardia in prosecuting and maintaining the MyoCath II
Patents. To the extent we do not wish to incur the cost of any
undertaking or defense of any opposition, interference or
similar proceeding involving the MyoCath II Patents with
respect to any jurisdiction, the license granted to us pursuant
to agreement will be automatically amended to exclude such
jurisdiction.
Tricardia also has the first right, but not the obligation, to
take any actions necessary to prosecute or prevent any
infringement or threatened infringement of the MyoCath II
Patents. To the extent Tricardia
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determines not to initiate suit against any infringer, we have
the right, but not the obligation, to commence litigation for
such alleged infringement. Our share of any recovery will equal
50% in the event Tricardia commences litigation and 90% in the
event we commence litigation.
On December 12, 2006, or the Effective Date, we entered
into an agreement with Tissue Genesis, or the Tissue Genesis
Agreement, that provides us an exclusive, worldwide right to
individually use or to sell or lease to medical practitioners
and related healthcare entities the following items, for the
treatment of acute MI and heart failure, or the Field of Use:
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the TGI 1200 and certain disposable products used in
conjunction with the devices, or, the TGI Licensed Product
Candidates;
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processes that use the TGI Licensed Product Candidates, or the
TGI Licensed Processes; and
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the cells derived using the TGI Licensed Product Candidates
and/or the TGI Licensed Processes, or the TGI Licensed Cells.
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Under the Tissue Genesis Agreement, we are restricted from
transferring or sublicensing our rights to distribute and use,
respectively, the TGI Licensed Product Candidates and related
technology, or the TGI Product Candidate Technology.
Under the Tissue Genesis Agreement, we have agreed to diligently
pursue commercialization of the TGI Licensed Product Candidates
for the treatment of acute MI and heart failure. We have also
agreed to use commercially reasonable efforts to obtain FDA
approval for the TGI Licensed Product Candidates within five
years of the Effective Date and to make the first sale of a TGI
Licensed Product Candidate within seven years of the Effective
Date. Tissue Genesis has agreed to provide us with reasonable
assistance to obtain regulatory approvals.
Tissue Genesis has agreed to sell us equipment and disposables
on pricing terms as favorable as the terms offered to any other
direct customer. Tissue Genesis has agreed to provide us with
any reasonably available information and instructions related to
the operation and maintenance of any equipment we purchase.
We have granted Tissue Genesis an exclusive, worldwide license
to use, for purposes other than the treatment of acute MI and
heart failure, any improvements we make to the TGI Product
Candidate Technology. Tissue Genesis has granted us a right of
first refusal to acquire any improvements made or acquired by
Tissue Genesis to the TGI Licensed Product Candidates or TGI
Product Candidate Technology.
We may terminate the Tissue Genesis Agreement for any reason
upon 90 days written notice to Tissue Genesis. In the event
we terminate the Tissue Genesis Agreement, the warrant we
granted Tissue Genesis (described below) will immediately become
fully vested. In the event we fail to obtain FDA approval for a
TGI Licensed Product Candidate within seven years of the
Effective Date, our exclusive license and distribution right
will automatically become non-exclusive. In the event we fail to
obtain FDA approval for a TGI Licensed Product Candidate within
eight years of the Effective Date, our license and distribution
right will automatically terminate. In the event we pay Tissue
Genesis royalties of less than $1 million over any one year
royalty period at any time after two years following the receipt
of FDA approval for a TGI Licensed Product Candidate, our
exclusive license and distribution right will automatically
terminate 30 days after receipt of notice from Tissue
Genesis unless we demonstrate that we continue to pursue
commercialization and FDA approval of TGI Licensed Product
Candidates and have spent at least the following cumulative
amounts toward our commercialization and FDA approval efforts:
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$500,000 within two years of the Effective Date;
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$1,250,000 within three years of the Effective Date;
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$2,000,000 within four years of the Effective Date; and
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an additional $100,000 each year after four years of the
Effective Date.
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Tissue Genesis also has the right to terminate the agreement if
we are in material breach thereof and we do not cure the breach
within 30 days of receiving written notice of such breach.
We have the right, but not the obligation, to request that
Tissue Genesis commence litigation against a third party
infringer of the patents, including certain patents licensed by
Tissue Genesis from Thomas Jefferson University, or the TJU
Patents, necessary for our customers use of the TGI
Licensed Product Candidates, the TGI Licensed Processes and the
TGI Licensed Cells within the Field of Use. In the event
(i) Tissue Genesis fails to bring suit within 120 days
of receipt of our written request, which request must be
accompanied by an opinion of counsel as to the alleged
infringement and (ii) sales of the infringing products
reduce our net sales of the TGI Licensed Product Candidates by
at least $250,000 per year, we will be relieved of our
obligation to pay Tissue Genesis royalty fees until Tissue
Genesis initiates litigation against the third party infringer
or obtains discontinuance of the infringement. If requested by
Tissue Genesis, we may be required to pay for one third of the
expenses, including legal fees, of any such litigation. To the
extent we are required to contribute to the costs of litigation,
we will have the right to participate in the prosecution of the
alleged infringement and to receive one third of any damages
recovered by Tissue Genesis.
As consideration for the license, we have issued to Tissue
Genesis 13,006 shares of our common stock and granted
Tissue Genesis a warrant to purchase 1,544,450 shares of
our common stock at an exercise price of $7.69 per share. The
warrant is scheduled to vest and become exercisable as follows:
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617,780 shares will vest upon our successful completion of any
internationally recognized Phase I clinical trial of a TGI
Licensed Product Candidate;
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463,335 shares will vest upon the earlier of our net sales of
$10 million of TGI Licensed Product Candidates or our
receipt of $2 million of net profits from the sale of TGI
Licensed Product Candidates; and
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463,335 shares will vest upon the earlier of our net sales of
$100 million of TGI Licensed Product Candidates or our
receipt of $20 million of net profits from the sale of TGI
Licensed Product Candidates.
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In the event we merge or are acquired, the warrant will
immediately become fully vested as to all 1,544,450 shares.
Any vested portion of the warrant will be exercisable at any
time and from time to time until December 31, 2026.
We have also agreed to pay Tissue Genesis royalty fees equal to
2% of net sales of any TGI Licensed Product Candidate, TGI
Licensed Processes and TGI Licensed Cells, up until such time as
the items are no longer qualified for legal protection by a
valid patent claim.
Tissue Genesis has agreed that we and our customers will not be
liable for damages for directly or indirectly infringing various
patents, including the TJU patents necessary for our
customers use of the TGI Licensed Product Candidates, the
TGI Licensed Processes and the TGI Licensed Cells for the
treatment of acute MI. Tissue Genesis has, subject to certain
conditions, also agreed to indemnify and hold harmless us and
our customers from all claims that the products infringe any
patents, copyrights or trade secret rights of a third party.
However, if our use of the products is enjoined or if Tissue
Genesis wishes to minimize its liability, Tissue Genesis may, at
its option and expense, either:
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substitute a substantially equivalent non-infringing product for
the infringing product;
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modify the infringing product so that it no longer infringes but
remains functionally equivalent; or
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obtains for us the right to continue using such item.
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If none of the foregoing is feasible, Tissue Genesis is required
to accept a return of the infringing product and refund to us
the amount paid for such product. Our agreement with Tissue
Genesis provides that Tissue Genesis entire liability and
obligation with respect to claims of infringement are limited to
the liabilities and obligations described above.
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In June 2000, we entered into an agreement with William Beaumont
Hospital, or WBH, pursuant to which WBH granted to us a
worldwide, exclusive, non-sublicenseable license to two U.S.
method patents covering the inducement of human adult myocardial
cell proliferation in vitro, or the WBH IP. We utilize the
methods under these patents in connection with our BioPace and
certain other product candidates in development. We do not have
rights to patents outside the United States relating to BioPace.
In addition to a payment of $55,000 we made to acquire the
license, we are required to pay WBH an annual license fee of
$10,000 and royalties ranging from 2% to 4% of net sales of
products that are covered by the WBH IP. In order to maintain
these exclusive license rights, our aggregate royalty payments
in any calendar year must exceed a minimum threshold as
established by the agreement. The minimum threshold was $30,000
and $50,000 for 2004 and 2005, respectively. This minimum
threshold increased to $100,000 in 2006 and will increase to
$200,000 for 2007 and thereafter. To the extent that our annual
net sales of products covered by the WBH IP do not exceed the
minimum threshold for such year, we have the option of paying
any shortfall in cash to WBH by the end of the applicable year
or having our license to the WBH IP become non-exclusive. In
addition to the patents licensed from WBH, we purchased a
U.S. patent and its corresponding Japanese filing, which
are directed to biological pacemakers, by assignment from
Angeion Corporation on September 1, 2000.
As of the date of this prospectus, we have not made any payments
to WBH other than the initial payment to acquire the license.
Accordingly, WBH may terminate the license to the WBH IP at any
time at their sole option. We are currently in negotiations with
WBH to amend the terms of the license agreement. Unless earlier
terminated by WBH or by either party upon the other partys
breach of the agreement, the agreement will terminate upon the
expiration date of the last patent covered by the WBH Agreement.
Sales and Marketing
In advance of any expected commercial approval of our lead
product candidate, we intend to internally develop a direct
sales and marketing force in both Europe and the United States.
We anticipate the team will be comprised of salespeople,
clinical and reimbursement specialists and product marketing
managers.
We intend to market MyoCell to interventional cardiologists. In
the typical healthcare system the interventional cardiologist
functions as a gate keeper for determining the
course of appropriate medical care for our target patient
population.
We anticipate our marketing efforts will be focused on informing
interventional cardiologists of the availability of a our
treatment alternative through the following channels of
communication: (i) articles published in medical journals
by widely recognized interventional cardiologists, including
cardiologists that have participated in our clinical trials;
(ii) seminars and speeches featuring widely recognized
interventional cardiologists; and (iii) advertisements in
medical journals.
Collaborative Arrangements for Seeking Regulatory Approvals
and Distribution of Products Outside of the United States and
Europe
On November 19, 2001, we entered into an agreement with
Getz Brothers Co., Ltd. pursuant to which we appointed Getz
Brothers as the exclusive distributor of all of our products in
Japan. Pursuant to this agreement, during the three-year period
following the Reimbursement Date (as defined below), Getz
Brothers has agreed to purchase a minimum number of units of our
products per year at prices to be negotiated upon our receipt of
approval from the Japanese Ministry of Health, Labor and Welfare
to sell our products in Japan, or the Japan Regulatory Approval.
Under this distribution agreement, Getz Brothers has agreed to
use its best efforts to obtain government approval for, promote
and distribute our products in Japan using generally the same
channels and methods, exercising the same diligence and adhering
to the same standards which Getz Brothers employs for its own
products and other medical products it distributes. To assist
Getz Brothers in registering and marketing our products in
Japan, we have agreed to provide them with, among other things,
written materials necessary to obtain the Japan Regulatory
Approval, information on our
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marketing and promotional plans for our products, certificates
of analysis concerning any products purchased by Getz Brothers,
certificates of free sale, trademark authorizations and any
other documents they may reasonably request.
This agreement with Getz Brothers terminates five years
following the date that the necessary Japanese regulatory
authorities approve reimbursement for MyoCell, or the
Reimbursement Date. Getz Brothers may terminate the agreement
upon 30 days written notice. In the event that the
Reimbursement Date does not occur by November 19, 2009, we
may terminate the agreement upon 30 days written notice. If
our agreement with Getz Brothers is not terminated prior to the
end of the five year period following the Reimbursement Date,
the agreement will be automatically renewed for additional
one-year periods unless either party provides 180 days
advance written notice to the other party of its desire not to
renew the agreement.
We may also terminate this agreement at any time upon
180 days notice subject to our one-time payment of a
buy-out fee to Getz Brothers. If we exercise this buy-out option
prior to our receipt of the Japan Regulatory Approval, the
payment to Getz Brothers will be equal to the greater of
(i) $5 million and (ii) two times the sum of Getz
Brothers expenditures incurred in connection with seeking
regulatory approvals and conducting clinical trials for our
product candidates. If we exercise this buy-out option
subsequent to our receipt of the Japan Regulatory Approval, the
payment to Getz Brothers will be equal to the greater of
(ii) $10 million and (ii) the product of 24 and
the monthly average of Getz Brothers gross revenues
received from sales of our products during the six months
preceding our exercise of this buy-out option.
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Other Countries in Asia and Australia/ Oceania
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On November 19, 2001, we entered into an agreement with
Getz Brothers pursuant to which we appointed Getz Brothers as
the exclusive distributor of all of our products in the
countries of Australia, Bangladesh, Burma, Cambodia, China, Hong
Kong, Indonesia, Laos, Malaysia, New Zealand, Pakistan,
Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam,
or, collectively, the Territory. Pursuant to this agreement,
during the three-year period following the date that the
necessary regulatory authorities approve reimbursement for our
MyoCell therapy within the Territory, Getz Brothers has agreed
to purchase a minimum number of units of our products per year
at prices to be negotiated upon our first receipt of approval
from the appropriate regulatory agencies to sell our products in
the Territory. Under this agreement, Getz Brothers has agreed to
use its best efforts to obtain government approval for, promote
and distribute our products in the Territory using generally the
same channels and methods, exercising the same diligence and
adhering to the same standards which Getz Brothers employs for
its own products and other medical products it distributes. To
assist Getz Brothers in registering and marketing our products
in the Territory, we have agreed to provide them with, among
other things, written materials necessary to obtain the
requisite regulatory approvals, information on our marketing and
promotional plans for our products, certificates of analysis
concerning any products purchased by Getz Brothers, certificates
of free sale, trademark authorizations and any other documents
they may reasonably request.
This agreement with Getz Brothers terminates on
November 19, 2007. The agreement will be automatically
renewed at the end of the initial term for additional one-year
periods unless either party provides 180 days advance
written notice to the other party of its desire not to renew the
agreement. We may also terminate the agreement at any time upon
180 days notice subject to our one-time payment of a
buy-out fee to Getz Brothers equal to the greater of
(i) $200,000, (ii) 1.5 times the sum of Getz
Brothers expenditures incurred in connection with seeking
regulatory approvals and conducting clinical trials for our
product candidates in the Territory and (iii) the product
of 28 and the monthly average of Getz Brothers gross
revenues received from sales of our products in the Territory
during the six months preceding our exercise of this buy-out
option.
On February 1, 2005, we entered into a joint venture
agreement with Bioheart Korea, Inc. pursuant to which we and
Bioheart Korea agreed to create a joint venture company called
Bioheart Asia Manufacturing, or Bioheart Manufacturing, located
in Korea to own and operate a cell culturing facility. The joint
venture
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agreement contemplates that we will engage Bioheart
Manufacturing to provide all cell culturing processes for our
products and processes sold in Korea for a period of no less
than ten years. Pursuant to the joint venture agreement, we
agreed to contribute approximately $59,000 for an
18% equity interest in Bioheart Manufacturing, and Bioheart
Korea agreed to contribute approximately $9,592,032 for an
82% equity interest in Bioheart Manufacturing. On
April 1, 2006, we entered into an in-kind investment
agreement with Bioheart Manufacturing pursuant to which we
agreed to provide Bioheart Manufacturing with the technology to
manufacture MyoCell and MyoCath and, in exchange, received
15,090 common shares of Bioheart Manufacturing.
Pursuant to the joint venture agreement, we have agreed to
provide Bioheart Manufacturing with standard operating
procedures, tests and testing protocols, cell selection methods,
cell characterization methods, and all materials necessary to
carry out the activities of the cell culturing facility in the
manner required by us. Under the joint venture agreement, we
agreed to enter into a shareholders agreement with Bioheart
Korea which will include, among others, a provision providing
for a
five-member
board
of directors and provisions setting forth certain operation
related matters that will require prior written agreement by us
and Bioheart Korea.
The joint venture agreement terminates upon Bioheart
Manufacturings inability to continue its operations by
reason of operation of law, governmental order or regulation or
Bioheart Manufacturings dissolution or liquidation for any
reason.
It is our understanding that in February 2006, Bioheart
Manufacturing entered into an industrial site lease with
Gyeonggi Provincial Government of the Republic of Korea and
commenced construction of a cell culturing facility in September
2006. It is our understanding that the manufacturing facility is
targeting an opening in the first quarter of 2008. Since
September 2006, our employees have been visiting Korea to train
Bioheart Manufacturings employees regarding how to culture
myoblasts.
Government Regulation
The research and development, preclinical studies and clinical
trials, and ultimately, the culturing, manufacturing, marketing
and labeling of our product candidates are subject to extensive
regulation by the FDA and other regulatory authorities in the
United States and other countries. We believe MyoCell and
MyoCath are subject to regulation in the United States and
Europe as a biological product and a medical device,
respectively.
Biological products are subject to regulation under the Federal
Food, Drug, and Cosmetic Act, or the FD&C Act, the Public
Health Service Act, or the PHS Act and their respective
regulations as well as other federal, state, and local statutes
and regulations. Medical devices are subject to regulation under
the FD&C Act and the regulations promulgated thereunder as
well as other federal, state, and local statutes and
regulations. The FD&C Act and the PHS Act and the
regulations promulgated thereunder govern, among other things,
the testing, cell culturing, manufacturing, safety, efficacy,
labeling, storage, record keeping, approval, clearance,
advertising and promotion of our product candidates. Preclinical
studies, clinical trials and the regulatory approval process
typically take years and require the expenditure of substantial
resources. If regulatory approval or clearance of a product is
granted, the approval or clearance may include significant
limitations on the indicated uses for which the product may be
marketed.
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FDA Regulation Approval of Biological
Products
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The steps ordinarily required before a biological product may be
marketed in the United States include:
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completion of preclinical studies according to good laboratory
practice regulations;
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the submission of an IND application to the FDA, which must
become effective before human clinical trials may commence;
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performance of adequate and well-controlled human clinical
trials according to good clinical practices to establish the
safety and efficacy of the proposed biological product for its
intended use;
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satisfactory completion of an FDA pre-approval inspection of the
manufacturing facility or facilities at which the product is
manufactured, processes, packaged or held to assess compliance
cGMP; and
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the submission to, and review and approval by, the FDA of a
biologics license application, or BLA, that includes
satisfactory results of preclinical testing and clinical trials.
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Preclinical tests include laboratory evaluation of the product
candidate, its formulation and stability, as well as animal
studies to assess the potential safety and efficacy of the
product candidate. The FDA requires that preclinical tests be
conducted in compliance with good laboratory practice
regulations. The results of preclinical testing are submitted as
part of an IND application to the FDA together with
manufacturing information for the clinical supply, analytical
data, the protocol for the initial clinical trials and any
available clinical data or literature. A
30-day
waiting period
after the filing of each IND application is required by the FDA
prior to the commencement of clinical testing in humans. In
addition, the FDA may, at any time during this
30-day
waiting period
or any time thereafter, impose a clinical hold on proposed or
ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence without FDA
authorization.
Clinical trials to support BLAs involve the administration of
the investigational product to human subjects under the
supervision of qualified investigators. Clinical trials are
conducted under protocols detailing, among other things, the
objectives of the study, the parameters to be used in monitoring
safety and the efficacy criteria to be evaluated.
Clinical trials are typically conducted in three sequential
phases, but the phases may overlap.
In Phase I clinical trials, the initial introduction of the
biological product candidate into human subjects or patients,
the product candidate is tested to assess safety, dosage
tolerance, absorption, metabolism, distribution and excretion,
including any side effects associated with increasing doses.
Phase II clinical trials usually involve studies in a
limited patient population to identify possible adverse effects
and safety risks, preliminarily assess the efficacy of the
product candidate in specific, targeted indications; and assess
dosage tolerance and optimal dosage.
If a product candidate is found to be potentially effective and
to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken within an
expanded patient population at multiple study sites to further
demonstrate clinical efficacy and safety, further evaluate
dosage and establish the risk-benefit ratio of the product and
an adequate basis for product labeling.
Phase IV, or post-marketing, trials may be mandated by
regulatory authorities or may be conducted voluntarily.
Phase IV trials are typically initiated to monitor the
safety and efficacy of a biological product in its approved
population and indication but over a longer period of time, so
that rare or long-term adverse effects can be detected over a
much larger patient population and time than was possible during
prior clinical trials. Alternatively, Phase IV trials may
be used to test a new method of product administration, or to
investigate a products use in other indications. Adverse
effects detected by Phase IV trials may result in the
withdrawal or restriction of a drug.
If the required Phase I, II and III clinical testing is
completed successfully, the results of the required clinical
trials, the results of product development, preclinical studies
and clinical trials, descriptions of the manufacturing process
and other relevant information concerning the safety and
effectiveness of the biological product candidate are submitted
to the FDA in the form of a BLA. In most cases, the BLA must be
accompanied by a substantial user fee. The FDA may deny a BLA if
all applicable regulatory criteria are not satisfied or may
require additional data, including clinical, toxicology, safety
or manufacturing data. It can take several years for the FDA to
approve a BLA once it is submitted, and the actual time required
for any product candidate may vary substantially, depending upon
the nature, complexity and novelty of the product candidate.
Before approving an application, the FDA will inspect the
facility or facilities where the product is manufactured. The
FDA will not approve a BLA unless it determines that the
manufacturing processes and facilities are in compliance with
cGMP requirements.
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If the FDA evaluations of the BLA and the manufacturing
facilities are favorable, the FDA may issue either an approval
letter or an approvable letter. The approvable letter usually
contains a number of conditions that must be met to secure final
FDA approval of the BLA. When, and if, those conditions have
been met to the FDAs satisfaction, the FDA will issue an
approval letter. If the FDAs evaluation of the BLA or
manufacturing facility is not favorable, the FDA may refuse to
approve the BLA or issue a non-approvable letter that often
requires additional testing or information.
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FDA Regulation Approval of Medical
Devices
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Medical devices are also subject to extensive regulation by the
FDA. To be commercially distributed in the United States,
medical devices must receive either 510(k) clearance or
pre-market approval, or PMA, from the FDA prior to marketing.
Devices deemed to pose relatively low risk are placed in either
Class I or II, which requires the manufacturer to submit a
pre-market notification requesting permission for commercial
distribution, or 510(k) clearance. Devices deemed by the FDA to
pose the greatest risk, such as life-sustaining, life-supporting
or implantable devices, devices deemed not substantially
equivalent to a previously 510(k) cleared device and certain
other devices are placed in Class III which requires PMA.
We anticipate that MyoCath will be classified as a
Class III device.
To obtain 510(k) clearance, a manufacturer must submit a
pre-market notification demonstrating that the proposed device
is substantially equivalent in intended use and in safety and
efficacy to a previously 510(k) cleared device, a device that
has received PMA or a device that was in commercial distribution
before May 28, 1976. The FDAs 510(k) clearance
pathway usually takes from four to twelve months, but it can
last longer.
After a device receives 510(k) clearance, any modification that
could significantly affect its safety or efficacy, or that would
constitute a major change in its intended use, requires a new
510(k) clearance or could require PMA. The FDA requires each
manufacturer to make this determination, but the FDA can review
any such decision. If the FDA disagrees with a
manufacturers decision not to seek a new 510(k) clearance,
the agency may retroactively require the manufacturer to seek
510(k) clearance or PMA. The FDA also can require the
manufacturer to cease marketing and/or recall the modified
device until 510(k) clearance or PMA is obtained.
A product not eligible for 510(k) clearance must follow the PMA
pathway, which requires proof of the safety and efficacy of the
device to the FDAs satisfaction. The PMA pathway is much
more costly, lengthy and uncertain than the 510(k) approval
pathway. A PMA application must provide extensive preclinical
and clinical trial data and also information about the device
and its components regarding, among other things, device design,
manufacturing and labeling. As part of the PMA review, the FDA
will typically inspect the manufacturers facilities for
compliance with quality system regulation requirements, which
impose elaborate testing, control, documentation and other
quality assurance procedures. Upon acceptance by the FDA of what
it considers a completed filing, the FDA commences an in-depth
review of the PMA application, which typically takes from one to
two years, but may last longer. The review time is often
significantly extended as a result of the FDA asking for more
information or clarification of information already provided.
If the FDAs evaluation of the PMA application is
favorable, and the applicant satisfies any specific conditions
(e.g., changes in labeling) and provides any specific additional
information (e.g., submission of final labeling), the FDA will
issue a PMA for the approved indications, which can be more
limited than those originally sought by the manufacturer. The
PMA can include post-approval conditions that the FDA believes
necessary to ensure the safety and efficacy 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,
which could have material adverse consequences, including the
loss or withdrawal of the approval.
Even after approval of a pre-market application, a new PMA or
PMA supplement is required in the event of a modification to the
device, its labeling or its manufacturing process.
106
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FDA Regulation Post-Approval
Requirements
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Even if regulatory clearances or approvals for our product
candidates are obtained, our products and the facilities
manufacturing our products will be subject to continued review
and periodic inspections by the FDA. For example, as a condition
of approval of a new drug application, the FDA may require us to
engage in post-marketing testing and surveillance and to monitor
the safety and efficacy of our products. Holders of an approved
new BLA, PMA or 510(k) clearance product are subject to several
post-market requirements, including the reporting of certain
adverse events involving their products to the FDA, provision of
updated safety and efficacy information, and compliance with
requirements concerning the advertising and promotion of their
products.
In addition, manufacturing facilities are subject to periodic
inspections by the FDA to confirm the facilities comply with
cGMP requirements. In complying with cGMP, manufacturers must
expend money, time and effort in the area of production and
quality control to ensure full compliance. For example,
manufacturers of biologic products must establish validated
systems to ensure that products meet high standards of
sterility, safety, purity, potency and identity. Manufacturers
must report to the FDA any deviations from cGMP or any
unexpected or unforeseeable event that may affect the safety,
quality, or potency of a product. The regulations also require
investigation and correction of any deviations from cGMP and
impose documentation requirements.
In addition to regulations enforced by the FDA, we are also
subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and
other federal, state and local regulations. Our research and
development activities involve the controlled use of hazardous
materials, chemicals, biological materials and radioactive
compounds.
Our product candidates are subject to regulation in every
country where they will be tested or used. Whether or not we
obtain FDA approval for a product candidate, we must obtain the
necessary approvals from the comparable regulatory authorities
of foreign countries before we can commence testing or marketing
of a product candidate in those countries. The requirements
governing the conduct of clinical trials and the approval
processes vary from country to country and the time required may
be longer or shorter than that associated with FDA approval.
In the European Economic Area, composed of the 25 European
Union Member States, plus Norway, Iceland and Lichtenstein,
marketing authorization applications for medicinal products may
be submitted under a centralized or national procedure. Detailed
preclinical and clinical data must accompany all marketing
authorization applications that are submitted in the European
Union. The centralized procedure provides for the grant of a
single marketing authorization, referred to as a community
authorization, that is valid for the entire European Economic
Area. Under the national or decentralized procedure, a medicinal
product may only be placed on the market when a marketing
authorization, referred to as a national authorization, has been
issued by the competent authority of a European Economic Area
country for its own territory. If marketing authorization is
granted, the holder of such authorization may submit further
applications to the competent authorities of the remaining
member states via either the decentralized or mutual recognition
procedure. The decentralized procedure enables applicants to
submit an identical application to the competent authorities of
all member states where approval is sought at the same time as
the first application. We believe that, by virtue of the nature
of MyoCell, we are eligible to seek commercial approval of
MyoCell under either the centralized or national procedure. We
anticipate that we will first seek to obtain commercial approval
of MyoCell in the Netherlands, Belgium and Germany pursuant to
the national procedure.
Under the mutual recognition procedure, products are authorized
initially in one member state, and other member states where
approval is sought are subsequently requested to recognize the
original authorization based upon an assessment report prepared
by the original authorizing competent authority. The other
member states then have 90 days to recognize the decision
of the original authorizing member state. If the member states
fail to reach an agreement because one of them believes that
there are grounds for supposing that the
107
authorization of the medicinal product may present a potential
serious risk to public health, the disagreement may be submitted
to the Committee for Medicinal Products for Human Use of the
European Medicines Agency for arbitration. The decision of this
committee is binding on all concerned member states and the
marketing authorization holder. Other member states not directly
concerned at the time of the decision are also bound as soon as
they receive a marketing application for the same product. The
arbitration procedure may take an additional year before a final
decision is reached and may require the delivery of additional
data.
The European Economic Area requires that manufacturers of
medical devices obtain the right to affix the CE Mark to their
products before selling them in member countries. The CE Mark is
an international symbol of adherence to quality assurance
standards and compliance with applicable European medical device
directives. In order to obtain the right to affix the CE Mark to
a medical device, the medical device in question must meet the
essential requirements defined under the Medical Device
Directive (93/42/ EEC) relating to safety and performance, and
the manufacturer of the device must undergo verification of
regulatory compliance by a third party standards certification
provider, known as a notified body. Provided that we enter into
a long term manufacturing contract with an entity that satisfies
the requirements of the International Standards Organization, we
anticipate that we will file an application to obtain the right
to affix the CE Mark to MyoCath in the first quarter of 2008.
In addition to regulatory clearance, the conduct of clinical
trials in the European Union is governed by the European
Clinical Trials Directive (2001/20/ EC), which was implemented
in May 2004. This directive governs how regulatory bodies in
member states may control clinical trials. No clinical trial may
be started without authorization by the national competent
authority and favorable ethics approval.
Manufacturing facilities are subject to the requirements of the
International Standards Organization. In complying with these
requirements, manufacturers must expend money, time and effort
in the area of production and quality control to ensure full
compliance.
Despite efforts to harmonize the registration process in the
European Union, the different member states continue to have
different national healthcare policies and different pricing and
reimbursement systems. The diversity of these systems may
prevent a simultaneous pan-European launch, even if centralized
marketing authorization has been obtained.
In some cases, we plan to submit applications with different
endpoints or other elements outside the United States due to
differing practices and requirements in particular
jurisdictions. However, in cases where different endpoints will
be used outside the United States, we expect that such
submissions will be discussed with the FDA to ensure that the
FDA is comfortable with the nature of human trials being
conducted in any part of the world. As in the United States,
post-approval regulatory requirements, such as those regarding
product manufacture, marketing, or distribution, would apply to
any product that is approved in Europe.
Competition
Our industry is subject to rapid and intense technological
change. We face, and will continue to face, competition from
pharmaceutical, biopharmaceutical, medical device and
biotechnology companies developing heart failure treatments both
in the United States and abroad, as well as numerous academic
and research institutions, governmental agencies and private
organizations engaged in drug funding or discovery activities
both in the United States and abroad. We also face competition
from entities and healthcare providers using more traditional
methods, such as surgery and pharmaceutical regimens, to treat
heart failure. We believe there are a substantial number of
heart failure products under development by numerous
pharmaceutical, biopharmaceutical, medical device and
biotechnology companies, and it is likely that other competitors
will emerge.
Many of our existing and potential competitors have
substantially greater research and product development
capabilities and financial, scientific, marketing and human
resources than we do. As a result, these competitors may succeed
in developing competing therapies earlier than we do; obtain
patents that block or otherwise inhibit our ability to further
develop and commercialize our product candidates; obtain
approvals from the FDA or other regulatory agencies for products
more rapidly than we do; or develop treatments or
108
cures that are safer or more effective than those we propose to
develop. These competitors may also devote greater resources to
marketing or selling their products and may be better able to
withstand price competition. In addition, these competitors may
introduce or adapt more quickly to new technologies or
scientific advances, which could render our technologies
obsolete, and may introduce products that make the continued
development of our product candidates uneconomical. These
competitors may also be more successful in negotiating third
party licensing or collaborative arrangements and may be able to
take advantage of acquisitions or other strategic opportunities
more readily than we can.
Our ability to compete successfully will depend on our continued
ability to attract and retain skilled and experienced
scientific, clinical development and executive personnel, to
identify and develop viable heart failure product candidates and
to exploit these products and compounds commercially before
others are able to develop competitive products.
We believe the principal competitive factors affecting our
markets include, but are not limited to:
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the safety and efficacy of our product candidates;
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the freedom to develop and commercialize cell-based therapies,
including appropriate patent and proprietary rights protection;
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the timing and scope of regulatory approvals;
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the cost and availability of our products;
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the availability and scope of third party reimbursement
programs; and
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the availability of alternative treatments.
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We are still in the process of determining, among other things:
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if MyoCell is safe and effective;
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the timing and scope of regulatory approvals; and
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the availability and scope of third party reimbursement programs.
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Accordingly, we have a limited ability to predict how
competitive MyoCell will be relative to existing treatment
alternatives and/or treatment alternatives that are under
development. See Business Diagnosis and
Management of Heart Failure.
If approved, MyoCell will compete with surgical, pharmaceutical
and mechanical based therapies. Surgical options include heart
transplantation and left ventricular reconstructive surgery.
Although not readily accessible, heart transplantation has
proven to be an effective treatment for patients with severe
damage to the heart who locate a donor match and are in
sufficiently good health to undergo major surgery. Mechanical
therapies such as biventricular pacing, ventricular restraint
devices and mitral valve therapies have been developed by
companies such as Medtronic, Inc., Acorn Cardiovascular, Inc.,
St. Jude Medical, Inc., World Heart Corporation, Guidant
Corporation, a part of Boston Scientific, and Edwards
Lifesciences Corp. Pharmaceutical therapies include
anti-thrombotics, calcium channel blockers such as Pfizers
Norvasc
®
and ACE inhibitors such as Sanofis
Delix
®
.
The field of regenerative medicine is rapidly progressing, as
many organizations are initiating or expanding their research
efforts in this area. We are also aware of several competitors
seeking to develop cell-based therapies for the treatment of
cardiovascular disease, including MG Biotherapeutics, LLC (a
joint venture between Genzyme Corporation and Medtronic, Inc.),
Mytogen, Inc., Baxter International, Inc., Osiris Therapeutics,
Inc., Viacell, Inc., Cytori Therapeutics, Inc., and potentially
others.
It is our understanding that some of our large competitors have
devoted considerable resources to developing a myoblast-based
cell therapy for treating severe damage to the heart. For
instance, Mytogen and MG Biotherapeutics, like Bioheart, have
been seeking to develop cell-based therapies utilizing skeletal
myoblasts isolated from muscle, expanded in culture, and
injected into a patients heart to repair scar tissue. In
September 2006, Mytogen completed treating patients enrolled in
its U.S. Phase I clinical trial of catheter
109
injections of myoblasts and announced results in March 2007.
Mytogen has announced that they anticipate they will commence
enrollment in a Phase II, double blind, placebo-controlled
clinical trial in early to mid- 2007. MG Biotherapeutics
announced in February 2006 that it had ceased enrollment of new
patients in its Phase II trial, the MAGIC Trial, after its
data monitoring committee concluded there was a low likelihood
that the trial would result in the hypothesized improvements in
heart function.
Some organizations are involved in research using alternative
cell sources, including bone marrow, embryonic and fetal tissue,
umbilical cord and peripheral blood, and adipose tissue. For
instance, Baxter Healthcare is currently conducting a U.S.
Phase II study using stem cells extracted from peripheral
blood as an investigational treatment for myocardial ischemia.
Osiris Therapeutics is conducting a Phase I study using
mesenchymal stem cells isolated from donor bone marrow, expanded
in culture to treat damage caused by acute MI. Cytori
Therapeutics is developing adipose-tissue derived stem cells
intended to be used in cardiac patients in an autologous manner
and is in preclinical investigations using large animal models.
ViaCell is currently in preclinical development using allogeneic
cells derived from umbilical cord blood for cardiac disease and
they are expected to enter clinical trials in 2007.
For further information regarding our competitive risks, see
Risk Factors We face intense competition in the
biotechnology and healthcare industries.
Legal Proceedings
On March 9, 2007, Peter K. Law, Ph.D. and Cell
Transplants Asia, Limited, or the Plaintiffs, filed a complaint
against us and Howard J. Leonhardt, individually, in the
United States District Court, Western District of Tennessee. On
February 7, 2000, we entered a license agreement, or the
Original Law License Agreement, with Dr. Law and Cell
Transplants International pursuant to which Dr. Law and
Cell Transplants International granted us a license to certain
patents, including the Primary MyoCell Patent, or the Law IP.
The parties executed an addendum to the Original Law License
Agreement, or the License Addendum, in July 2000, the provisions
of which amended a number of terms of the Original License
Agreement.
More specifically, the License Addendum provided, among other
things:
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The parties agreed that we would issue, and we did issue, to
Cell Transplants International a five-year warrant exercisable
for 1.2 million shares of our common stock at an exercise
price of $8.00 per share instead of, as originally
contemplated under the Original Law License Agreement, issuing
to Cell Transplants International or Dr. Law
600,000 shares of our common stock and options to purchase
600,000 shares of our common stock at an exercise price of
$1.80. The share amounts and exercise prices do not take into
account any subsequent recapitalizations or reverse stock splits.
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The parties agreed that our obligation to pay Cell Transplants
International a $3 million milestone payment would be
triggered upon our commencement of a bona fide U.S.
Phase II human clinical trial that utilizes technology
claimed under the Law IP instead of, as originally contemplated
under the Original Law License Agreement, upon initiation of a
FDA approved human clinical trial study of such technology in
the United States.
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The Plaintiffs are not challenging the validity of our license
of the Law IP, but rather are alleging and seeking, among
other things, a declaratory judgment that the License Addendum
fails for lack of consideration. Based upon this argument, the
Plaintiffs allege that we are in breach of the terms of the
Original Law License Agreement for failure to, among other
things, (i) issue to Cell Transplants International or
Dr. Law the 600,000 shares of our common stock and
options to purchase 600,000 shares of our common stock
contemplated by the Original Law License Agreement and
(ii) pay Cell Transplants International the $3 million
milestone payment upon our commencement of an FDA approved human
clinical study of MyoCell in the United States.
The Plaintiffs have alleged, among other things, certain other
breaches of the Original Law License Agreement not modified by
the License Addendum including a purported breach of our
obligation to pay Plaintiffs royalties on gross sales of
products that directly read upon the claims of the Primary
MyoCell Patent and a purported breach of the contractual
restriction on sublicensing the Primary MyoCell Patent to third
110
parties. The Plaintiffs are also alleging that we and
Mr. Leonhardt engaged in a civil conspiracy against the
Plaintiffs and that the court should toll any periods of
limitation running against the Plaintiffs to bring any causes of
action arising from or which could arise from the alleged
breaches.
In addition to seeking a declaratory judgment that the License
Addendum is not enforceable, the Plaintiffs are also seeking an
accounting of all revenues, remunerations or benefits derived by
us or Mr. Leonhardt from sales, provision and/or
distribution of products and services that read directly on the
Law
IP, compensatory and punitive monetary damages and preliminary
and permanent injunctive relief to prohibit us from sublicensing
our rights to third parties.
We believe this lawsuit is without merit and intend to defend
the action vigorously. We have filed a motion to dismiss the
proceeding against both us and Mr. Leonhardt. In our motion
to dismiss, we have pointed out that the Plaintiffs claims
against us should be dismissed due to, among other things, the
passage of the statute of limitations and the Plaintiffs
failure to describe why the License Addendum should be viewed as
being made without consideration. In our motion to dismiss, we
have also described why the Plaintiffs claims against
Mr. Leonhardt should be dismissed due to the failure to
state a claim and lack of personal jurisdiction. On July 26,
2007, the court granted our motion to dismiss Mr. Leonhardt in
his individual capacity and the civil conspiracy claim. The
court denied our motion to dismiss all other claims. We have
filed and served our answer to the Plaintiffs complaint.
We have also asserted counterclaims against the Plaintiffs for
declaratory judgment that the License Addendum is a valid and
subsisting agreement, and for breach of contract with respect to
various obligations undertaken by the Plaintiffs in the Original
License Agreement, as amended by the License Addendum.
While the complaint does not appear to challenge our rights to
license the Law IP and we believe this lawsuit is without
merit, this litigation, if not resolved to the satisfaction of
both parties, may adversely impact our relationship with
Dr. Law and could, if resolved unfavorably to us, adversely
affect our MyoCell commercialization efforts.
Except as described above, we are not presently engaged in any
material litigation and are unaware of any threatened material
litigation. However, the biotechnology and medical device
industries have been characterized by extensive litigation
regarding patents and other intellectual property rights. In
addition, from time to time, we may become involved in
litigation relating to claims arising from the ordinary course
of our business. See Risk Factors for a discussion
of various litigation related risks we face.
Facilities
Our headquarters are located in Sunrise, Florida and consist of
8,600 square feet of space, which we lease at a current
rent of approximately $116,000 per year. The lease expires
in January 2010. In addition to our corporate offices, at this
location, we maintain:
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our MyoCell cell culturing facility for supply within the United
States; and
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a fully equipped cell culturing laboratory where we perform
experimental work in the areas of improving cell culturing, cell
engraftment, and other advanced research projects related to our
core business.
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We believe the space available at our headquarters will be
sufficient to meet the needs of our operations for the
foreseeable future.
Employees
As of September 1, 2007, we had 28 employees,
including six executive officers. A substantial majority of our
employees work in our Sunrise, Florida headquarters. Each
employee has signed a confidentiality, inventions assignment and
proprietary rights agreement and a non-compete and
non-solicitation agreement. None of our employees is covered by
a collective bargaining agreement. We have never experienced
employment-related work stoppages and consider our employee
relations to be good.
111
MANAGEMENT
Executive Officers and Directors
Set forth below is information regarding our executive officers
and directors as of August 1, 2007.
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Name
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Age
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Position
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William M. Pinon
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44
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President, Chief Executive Officer and Director
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Howard J. Leonhardt
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45
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Executive Chairman and Chief Technology Officer
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William H. Kline
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62
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Chief Financial Officer
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Richard T. Spencer IV
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34
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Vice President of Clinical Affairs and Physician Relations
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Nicholas M. Burke
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35
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Vice President of Financial Operations
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Catherine Sulawske-Guck
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38
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Vice President of Administration and Human Resources
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Samuel S. Ahn, M.D., MBA
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53
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Director
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Bruce Carson
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44
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Director
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Peggy A. Farley
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60
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Director
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David J. Gury
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68
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Director
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William P. Murphy, Jr., M.D.
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83
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Director
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Richard T. Spencer III
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71
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Director
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Mike Tomas
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41
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Director
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Linda Tufts
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53
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Director
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Executive Officers
William M. Pinon.
Mr. Pinon was appointed as our
President and Chief Executive Officer in March 2007 and as a
director in June 2007. He has nearly 20 years of
operational and sales experience in the cardiovascular treatment
industry. Mr. Pinon spent the past four years at Cordis
Corporation, a Johnson & Johnson company, where he served
most recently, from May 2006 until February 2007, as Worldwide
Vice President of Sales and Marketing for the cardiovascular
business and the drug eluting
CYPHER
tm
stent. In that position, he was responsible for all aspects of
sales and marketing management for interventional cardiology
products worldwide. He previously served, from January 2005 to
April 2006, as General Manager and Vice President of the Cordis
business unit, Biologics Delivery Systems, a company focused on
the delivery of biologics to treat congestive heart failure.
There he helped to develop the company into a fully-integrated
business, and managed all aspects of sales and marketing,
including profitability, company vision, and long-range
strategic planning. Mr. Pinon also served, from January
2003 until December 2004, as Vice President of Commercial
Operations for Cordis Cardiology, the business unit of Cordis
focused on cardiovascular disease management. Prior to joining
Cordis, Mr. Pinon worked for Centocor, Inc., also a Johnson
& Johnson company, where he served as Executive Director of
Sales for its cardiovascular business unit from August 2000
through December 2002, and before that for Boehringer Mannheim
Corporation Therapeutics from March 1992 to February 1998, where
he managed the congestive heart failure business. Mr. Pinon
received a B.S. in Biology from the University of Oregon in 1988.
Howard J. Leonhardt.
Mr. Leonhardt is the co-founder
of Bioheart. He has served as our Chairman of the Board since
our incorporation in August 1999 and served as our Chief
Executive Officer from August 1999 until March 2007. Effective
March 2007, Mr. Leonhardt began serving as our Executive
Chairman and Chief Technology Officer. In 1986,
Mr. Leonhardt founded World Medical Manufacturing
Corporation, or World Medical, and served as its Chief Executive
Officer from 1986 until December 1998 when World Medical was
acquired by Arterial Vascular Engineering, Inc., or AVE. AVE was
acquired by Medtronic, Inc. in January 1999. Mr. Leonhardt
was the co-inventor of World Medicals primary product, the
TALENT (Taheri-Leonhardt) stent graft system. From December 1998
until June 1999, Mr. Leonhardt served as President of
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World Medical Manufacturing Corporation, a subsidiary of
Medtronic. Scientific articles written by Mr. Leonhardt
have been published in a number of publications including
Techniques in Vascular and Endovascular Surgery and the Journal
of Cardiovascular Surgery. Mr. Leonhardt received a diploma
in International Trade from the Anoka-Hennepin Technical
College, attended the University of Minnesota and Anoka-Ramsey
Community College and holds an honorary Doctorate Degree in
Biomedical Engineering from the University of Northern
California.
William H. Kline.
Mr. Kline has served as our Chief
Financial Officer since August 2006. Previously, from October
1999 until August 2006, Mr. Kline served as Senior Vice
President for WildCard Systems, Inc., a debit card processing
company that provides technology for electronic stored-value
accounts and related Web-based software. At WildCard Systems,
Mr. Kline was responsible for, among other things, the
implementation of accounting, financial reporting and budget
systems. He also was involved in all capital transactions at
WildCard Systems, including the sale of the company to eFunds,
Inc. in July 2005. Prior to joining WildCard Systems,
Mr. Kline was the Partner-in-charge of the financial
services practice for KPMG LLP in South Florida. Mr. Kline
has over 30 years of diversified financial, operational and
managerial experience and was the managing partner of
KPMGs healthcare practice in Tulsa and Boston.
Mr. Kline received an M.B.A. in Finance and Accounting from
the Wharton School of the University of Pennsylvania in 1972, an
M.S. in Statistics from the University of Delaware in 1971, and
a B.A. in Mathematics from Harvard College in 1967.
Richard T. Spencer IV.
Mr. Spencer has served as our
Vice President of Clinical Affairs and Physician Relations since
September 2004. Mr. Spencer has eight years of experience
in the medical device industry, including two years, from 1997
until 1999, as Technical Support Manager of Marketing at
Medtronic Vascular, Inc., a company dedicated to the treatment
of vascular disease and more recently, from August 2000 until
September 2004, as Product Director of Global Drug Eluting Stent
Marketing for the Cordis Cardiology Division of
Johnson & Johnson, a cardiology concern dedicated to
the treatment of coronary artery disease. Mr. Spencer
received an M.B.A. from Columbia Business School in 2000, a J.D.
from the University of Florida in 1997, and a B.A. in Political
Science from Columbia University in 1994.
Nicholas M. Burke, C.P.A.
Mr. Burke was appointed as
our Vice President of Financial Operations in July 2007. From
October 2001 through June 2007, Mr. Burke served as Vice
President and Controller of Viragen, Inc., a publicly-traded
bio-pharmaceutical company engaged in the research, development,
manufacture and commercialization of therapeutic proteins for
the treatment of cancers and viral diseases. Prior to joining
Viragen, from October 1999 until October 2001, Mr. Burke
served as Corporate Controller of SmartDisk Corporation, a
computer peripherals technology company whose securities were
publicly traded from October 1999 until May 2003. From September
1994 until September 1999, Mr. Burke was a senior member of
the audit staff of Ernst & Young LLP, concentrating his
practice in the computer technology and biotechnology
industries. Mr. Burke received a Masters Degree in
Accounting from Florida International University in 1996 and a
Bachelors Degree in Accounting from Florida International
University in 1993.
Catherine Sulawske-Guck.
Since January 2007,
Ms. Sulawske-Guck has served as our Vice President of
Administration and Human Resources. Ms. Sulawske-Guck
joined Bioheart in the full-time capacity as Director of
Administration and Human Resources in January 2004 after having
served us in a consulting capacity since December 2001. Prior to
joining Bioheart, from May 1989 until November 2001,
Ms. Sulawske-Guck served as Director of Operations and
Customer Service for World Medical.
Board of Directors
Samuel S. Ahn, M.D., MBA.
Dr. Ahn has served as a
member of our Board of Directors since January 2001. Since April
2006, Dr. Ahn has served as the President of University
Vascular Associates, a medical practice, and Vascular Management
Associates, a healthcare management business. From July 1986 to
April 2006, Dr. Ahn served as the Professor of Surgery in
the Division of Vascular Surgery at UCLA, where he was also the
Director of the Endovascular Surgery Program. Dr. Ahn is a
member of the board of directors of several private companies.
Dr. Ahn received an M.D. from Southwestern Medical School
in Dallas in 1978 and a B.A. in biology from the University of
Texas in 1974. He also received an M.B.A. from the UCLA
113
Anderson School of Management in August 2004. Dr. Ahn
serves on five vascular journal editorial boards, and has
published over 125 peer-reviewed manuscripts, 50 book
chapters, and five textbooks, including one of the first
textbooks on endovascular surgery. During the past
15 years, he has provided consulting services to over
40 biomedical companies, both new and established, and has
authored over 15 patents.
Bruce C. Carson.
Mr. Carson has served as a member
of our Board of Directors since January 2001. Since May 2001,
Mr. Carson has served as the Vice President of Sales of
FinishMaster, Inc., a privately held company specializing in the
distribution of paints and products to the automotive and
industrial refinishing industries. From 1987 until May 2001,
Mr. Carson was President of Badger Paint Plus, Inc., a
privately held distributor of paints and products, until Badger
Paint Plus merger with FinnishMaster, Inc. Mr. Carson
is co-owner of the Southern Minnesota Express Hockey Club, a
member of the North American Hockey League. Mr. Carson is
also the founder and President of the Athletic Performance
Academy in Eden Prairie, Minnesota, a privately held athletic
training facility that has specialized in sports specific
training for elite athletes since August 2004.
David J. Gury.
Mr. Gury has served as a member of
our Board of Directors since July 2005. Since June 2004,
Mr. Gury has served as the principal of Gury Consulting,
LLC in Boca Raton, Florida. In May 1984, Mr. Gury joined
Nabi Biopharmaceuticals, a publicly traded biopharmaceutical
company that primarily develops products for hepatitis and
transplant, gram-positive bacterial infections and nicotine
addiction, as President and Chief Operating Officer. He was
elected Chairman of the Board, Chief Executive Officer and
President in April 1992 and served in such positions until his
retirement in May 2004. Prior to joining Nabi
Biopharmaceuticals, Mr. Gury was employed in various
administrative and executive positions with Alpha Therapeutics
Corporation, a spin off of Abbott Laboratories. Since December
2003, Mr. Gury has been a member of the board of directors
of Oragenics, Inc., a publicly traded emerging biotechnology
company, and was elected as Chairman in December 2004. In April
2005, Mr. Gury was appointed by Floridas Governor Jeb
Bush to serve as a Director on the Scripps Florida Funding
Corporation Board. Mr. Gury received an M.B.A. from the
University of Chicago in 1962 specializing in accounting and
finance and an A.B. in economics from Kenyon College, Gambier,
Ohio, in 1960. Mr. Gury is Chairman of the Florida Research
Consortium and past Chairman and a member of BioFlorida,
Floridas independent statewide bioscience organization.
Peggy A. Farley.
Ms. Farley has served as a member
of our Board of Directors since January 2007. Ms. Farley
was appointed to our Board as a representative of Ascent Medical
Technology Funds. Since January 1998, Ms. Farley has served
as a managing director of the general partner and co-founder of
the Ascent Medical Technology Funds. She is also the President
and Chief Executive Officer of Ascent Capital Management, Inc.
From 1984 until 1997, Ms. Farley was Chief Executive
Officer of a set of firms that she developed as the locus for
investment in the United States for non-US investors, engaging
in venture capital investments, identifying and conducting
acquisition transactions in the United States and South Asia as
well as directing the management of private and corporate
assets. From 1978 to 1984, she was with Morgan
Stanley & Co. Incorporated, in the International Group
of the Corporate Finance Division. Prior to joining Morgan
Stanley, Ms. Farley served as consultant to U.S.
corporations, including Avon, Ingersoll-Rand, Citibank, and
Morgan Stanley. Her career in business began in the mid-1970s in
Citibanks Athens-based Middle East and North Africa
Regional Office. She received an M.A. from Columbia University
in 1972 and an A.B. from Barnard College in 1970.
William P. Murphy, Jr., M.D.
Dr. Murphy has served
as a member of our Board of Directors since June 2003.
Dr. Murphy founded Small Parts, Inc., a supplier of high
quality mechanical components for design engineers, in 1964 and
served as its Chairman until his retirement in April 2005. Small
Parts, Inc. was acquired by Amazon.com, Inc. in March 2005. From
October 1999 until October 2004, Dr. Murphy served as the
Chairman and Chief Executive Officer of Hyperion, Inc., a
medical diagnosis company which had an involuntary bankruptcy
filed against it in December 2003. Dr. Murphy is the
founder of Cordis Corporation (now Cordis Johnson &
Johnson) which he led as President, Chairman and Chief Executive
Officer at various times during his 28 years at Cordis
until his retirement in October 1985. Cordis Johnson &
Johnson is a leading firm in cardiovascular instrumentation.
Dr. Murphy received an M.D. in 1947 from the University of
Illinois and a B.S in pre-medicine from Harvard College in 1946.
He also studied physiologic instrumentation
114
at Massachusetts Institute of Technology, or MIT. After a two
year rotating internship at St. Francis Hospital in Honolulu, he
become a Research Fellow in Medicine at the Peter Bent Brigham
Hospital in Boston where he was the dialysis engineer on the
first clinical dialysis team in the United States. He continued
as an Instructor in Medicine and then a research Associate in
Medicine at Harvard Medical School. Dr. Murphy is the
author of numerous papers and owns 17 patents. He is the
recipient of a number of honors, including the prestigious
Lemelson-MIT Lifetime Achievement Award, the MIT Corporate
Leadership Award, the Distinguished Service Award from North
American Society of Pacing and Electrophysiology, and the Jay
Malina Award from the Beacon Council of Miami, Florida.
Richard T. Spencer, III.
Mr. Spencer has served as a
member of our Board of Directors since December 2001. From April
1982 until July 1987, Mr. Spencer was President of the
Marketing Division of Cordis Corporation (now Cordis
Johnson & Johnson) and a member of its executive
committee and a Vice President of Cordis Dow Corporation, a
joint venture of the Dow Chemical Company and Cordis to
manufacture hollow fiber dialysers and machinery for dialysis.
Mr. Spencer was Chief Operating Officer and held other
executive positions with World Medical from 1993 to January
1999. Mr. Spencer received a B.A. in Economics in 1959 from
the University of Michigan. He has studied business theory, case
studies and financial management while attending executive
programs at the Stanford University School of Business, the
University of Pennsylvanias Wharton School of Business and
the Clemson University School of Business. Between his
University of Michigan studies and embarking on a career in
healthcare, Mr. Spencer served in Europe with the U.S. Army
Counter Intelligence Corps as a military intelligence analyst
with top secret security clearance. Mr. Spencer is also the
founder and a member of the board of directors of Viacor, Inc.,
a private company that is developing techniques for the
percutaneous repair of heart mitral valves.
Mike Tomas.
Mr. Tomas has served as a member of our
Board of Directors since April 2003. Mr. Tomas was
appointed to our Board as a representative of The Astri Group.
Since January 2001, Mr. Tomas has served as President of
The Astri Group, an early-stage private equity investment
company providing capital, business development and strategic
marketing support to emerging private companies. Prior to this,
Mr. Tomas was President of Apex Capital from June 2000
until January 2001, when the private equity investment company
was acquired by The Astri Group. From 1984 until June 2000,
Mr. Tomas was Chief Marketing Officer at Avantel-MCI, MCI
Worldcoms joint venture with Grupo Financiero Banamex.
Mr. Tomas is also a member of the board of directors of
several private companies. Mr. Tomas received an M.B.A.
from the University of Miami in 2000 and a B.A. in Industrial
Organizational Psychology from Florida International University
in 1990.
Linda Tufts.
Ms. Tufts has served as a member of our
Board of Directors since October 2004. Ms. Tufts was
appointed to our Board as a representative of Tyco
International, or Tyco. In connection with the recent spin-off
of one of Tycos businesses into the entity now known as
Covidien, Ltd., Tycos investment in our common stock is
currently held by Covidien and Ms. Tufts serves as a
representative of Covidien. Since 1989, Ms. Tufts has
served as a Vice President and Partner of Fletcher Spaght, Inc.
and leads its Healthcare/ Life Sciences Practice Group.
Ms. Tufts is also a General Partner of Fletcher Spaght
Ventures, a venture capital fund investing in emerging growth
high technology and healthcare companies. Fletcher Spaght has
been engaged by Tyco to manage certain of Tycos
investments, including Tycos investment in Bioheart. Prior
to joining Fletcher Spaght in 1989, Ms. Tufts was
affiliated with the Sony Corporation of America as an internal
consultant. From 1982 until 1988, Ms. Tufts was a manager
with Bain & Company, a leading worldwide strategy
consultancy. At Bain, she managed assignments in healthcare and
service industries and was also a manager of Travenol Management
Services, a Bain-Baxter joint program which provided consulting
services to hospitals and other health providers. Before joining
Bain in 1982, Ms. Tufts was a Consultant with Strategic
Planning Associates, now Mercer Management Consulting.
Ms. Tufts is also a member of the board of directors for
several private companies. Ms Tufts received an S.M. in
Management from the Sloan School of MIT in 1978 as well as an
S.B. in Electrical Engineering and Computer Science and an S.B.
in Humanities and Science from MIT in 1975.
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Information Regarding the Board of Directors and Corporate
Governance
Director Independence
Our Board of Directors has affirmatively determined that
Ms. Farley, Mr. Gury, Mr. Tomas and
Ms. Tufts meet the definition of independent
director under Rule 4200(a)(15) of the National
Association of Securities Dealers listing standards.
Family Relationships
Mr. Spencer, III, a member of our Board of Directors, is
the father of Mr. Spencer, IV, our Vice President of
Clinical Affairs and Physician Relations.
Mr. Leonhardt, our Executive Chairman and Chief Technology
Officer, is the cousin of Mr. Bromley, our Vice President
of Public Relations, and the brother-in-law of
Ms. Sulawske-Guck, our Vice President of Administration and
Human Resources.
Other than as set forth above, there are no family relationships
among our officers and directors.
Director Appointment
Rights
Pursuant to a Stockholder Agreement, dated February 5,
2001, among us, Tyco Sigma Limited and Mr. Leonhardt,
Mr. Leonhardt agreed that, for as long as he owns at least
one-third of the outstanding shares of our common stock, there
would either be a director designated by Tyco on the Board of
Directors or that he would use commercially reasonable efforts
to nominate at least one director reasonably acceptable to Tyco.
In connection with the recent spin-off of one of Tycos
businesses into the entity now known as Covidien, Ltd.,
Tycos investment in our common stock is currently held by
Covidien. Ms. Tufts is Covidiens current designee to
our Board of Directors. Covidiens director designation
rights will terminate upon the closing of this offering.
Pursuant to a Stockholder Agreement, dated March 31, 2003,
among us, The Astri Group, LLC and Mr. Leonhardt,
Mr. Leonhardt agreed that, for a period of three years from
the date of the agreement, he would vote all shares owned by him
and all other shares that he has the right to vote pursuant to
proxies executed in his favor to elect a director designated by
The Astri Group. Mr. Tomas was designated to our Board of
Directors pursuant to this agreement.
Pursuant to a Stockholder Agreement, dated August 31, 2006,
among us, Ascent Medical Technology Fund II and
Mr. Leonhardt, Mr. Leonhardt agreed that, for a period
of three years from the first annual meeting of shareholders
following the date Ascent acquires an aggregate of
390,177 shares of our common stock in accordance with the
terms of the Subscription Agreement between Ascent and us, he
would vote all shares owned by him and all other shares that he
has the right to vote pursuant to proxies executed in his favor
to elect a director designated by Ascent. In January 2007,
Ms. Farley was appointed to the Board of Directors as
Ascents designee. Ascents director designation
rights will terminate upon the closing of this offering.
Board Committees
The Board has three committees: the Audit Committee, the
Compensation Committee and the Governance & Nominating
Committee.
The Board of Directors has adopted a written charter for each of
the Audit Committee, the Compensation Committee and the
Governance & Nominating Committee. The full text of
these Committee charters are available on our website located at
www.bioheartinc.com.
116
The following table describes the current members of each of the
Board Committees:
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Governance
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and
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Audit
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Compensation
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Nominating
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Howard J. Leonhardt
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William M. Pinon
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Samuel S. Ahn, M.D., MBA
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Bruce Carson
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X
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David J. Gury*
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(1)
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Peggy A. Farley
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X
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(1)
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William P. Murphy, Jr., M.D.
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X
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Richard T. Spencer III
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X
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Mike Tomas*
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X
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(1)
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Linda Tufts*
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X
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(1)
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Currently serves as Chairperson of the Committee.
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The Audit Committees primary function is to assist the
Board in fulfilling its oversight responsibilities relating to
(i) the quality and integrity of our financial statements
and corporate accounting practices, (ii) our compliance
with legal and regulatory requirements, (iii) the
independent auditors qualifications and independence and
(iv) the performance of our internal audit function and
independent auditors. The specific responsibilities in carrying
out the Audit Committees oversight role are delineated in
the Audit Committee Charter.
The Board of Directors has determined that each member of the
Audit Committee, other than Mr. Spencer, III and
Dr. Murphy, is independent pursuant to
Rule 4200(a)(15) of the NASDAQ Marketplace Rules. The SEC
Rules and NASDAQ Marketplace Rules require us to have one
independent Audit Committee member upon initial listing of our
securities, a majority of independent Audit Committee members
within 90 days of the initial listing of our securities and
all independent Audit Committee members within one year of the
initial listing of our securities. We intend to comply with
these independence requirements within the time periods
specified.
The Compensation Committees primary objectives include
making recommendations to the Board of Directors regarding the
compensation of our directors, executive officers, non-officer
employees and consultants and administering our stock option
plans, including our Officers and Employees Stock Option Plan
and our Directors and Consultants Stock Option Plan.
The Board of Directors has determined that each member of the
Compensation Committee, other than Mr. Carson, is
independent pursuant to Rule 4200(a)(15) of the NASDAQ
Marketplace Rules. The NASDAQ Marketplace Rules require us to
have one independent Compensation Committee member upon initial
listing of our securities, a majority of independent Audit
Committee members within 90 days of the initial listing of
our securities and all independent Compensation Committee
members within one year of the initial listing of our
securities. We intend to comply with these independence
requirements within the time periods specified.
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Governance & Nominating Committee
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The primary objectives of the Governance & Nominating
Committee include: (i) assisting the Board by identifying
individuals qualified to become Board members and recommending
to the Board the director
117
nominees for the next Annual Meeting of Shareholders;
(ii) overseeing the governance of the corporation including
recommending Corporate Governance Guidelines to the Board of
Directors; (iii) leading the Board in its annual review of
the Boards performance; and (iv) recommending to the
Board director nominees for each Board Committee.
The Board of Directors has determined that each member of the
Governance & Nominating Committee, other than
Dr. Ahn, is independent pursuant to Rule 4200(a)(15)
of the NASDAQ Marketplace Rules.
The Governance & Nominating Committee was established
in January 2007.
The Governance & Nominating Committees Charter
provides that shareholder nominees to the Board of Directors
will be evaluated using the same guidelines and procedures used
in evaluating nominees nominated by other persons. In evaluating
director nominees, the Governance & Nominating Committee
will consider the following factors:
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the appropriate size and the diversity of our Board;
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our needs with respect to the particular talents and experience
of our directors;
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the knowledge, skills and experience of nominees, including
experience in technology, business, finance, administration or
public service, in light of prevailing business conditions and
the knowledge, skills and experience already possessed by other
members of the Board;
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familiarity with national and international business matters;
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experience in political affairs;
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experience with accounting rules and practices;
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whether such person qualifies as an audit committee
financial expert pursuant to the SEC Rules;
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appreciation of the relationship of our business to the changing
needs of society; and
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the desire to balance the considerable benefit of continuity
with the periodic injection of the fresh perspective provided by
new members.
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In identifying director nominees, the Governance &
Nominating Committee will first evaluate the current members of
the Board of Directors willing to continue in service. Current
members of the Board with skills and experience that are
relevant to our business and who are willing to continue in
service shall be considered for re-nomination, balancing the
value of continuity of service by existing members of the Board
with that of obtaining a new perspective. Generally, the
Governance & Nominating Committee strives to assemble a
Board of Directors that brings to us a variety of perspectives
and skills derived from business and professional experience. In
doing so, the Governance & Nominating Committee will also
consider candidates with appropriate non-business backgrounds.
If any member of the Board does not wish to continue in service
or if the Governance & Nominating Committee or the Board
decides not to re-nominate a member for re-election, the
Governance & Nominating Committee will identify the desired
skills and experience of a new nominee in light of the criteria
above. Other than the foregoing, there are no specific, minimum
qualifications that the Governance & Nominating Committee
believes that a Committee-recommended nominee to the Board of
Directors must possess, although the Governance & Nominating
Committee may also consider such other factors as it may deem
are in our and our shareholders best interests.
In its deliberations, the Governance & Nominating Committee
is aware that our Board must, within one year of the date of our
initial listing on the NASDAQ Global Market, be comprised of a
majority of independent directors, as such term is
defined by the NASDAQ Marketplace Rules. The Governance &
Nominating Committee also believes it appropriate for certain
key members of our management to participate as members of the
Board.
The Governance & Nominating Committee and Board of Directors
are polled for suggestions as to individuals meeting the
criteria of the Governance & Nominating Committee. Research
may also be performed to identify qualified individuals.
118
Communications with the Board of Directors
In January 2007, the Board of Directors adopted a Shareholder
Communication Policy for shareholders wishing to communicate
with various Board committees and individual members of the
Board of Directors. Shareholders wishing to communicate with the
Board of Directors, the Governance & Nominating Committee
and specified individual members of the Board of Directors can
send communications to the Board of Directors and, if
applicable, to the Governance & Nominating Committee or
to specified individual directors in writing c/o Catherine
Sulawske-Guck,
Bioheart, Inc., 13794 NW 4th Street, Suite 212,
Sunrise, FL 33325. We do not screen such mail and all such
letters will be forwarded to the intended recipient.
Legal Proceedings
There are no pending, material legal proceedings to which any
director, officer or affiliate of Bioheart, any owner of record
or beneficially of more than five percent of any class of voting
securities of Bioheart, or any associate of any such director,
officer, affiliate of Bioheart, or security holder is a party
adverse to Bioheart or any of its subsidiaries or has a material
interest adverse to Bioheart.
Code of Business Conduct and Ethics
We have adopted a Code of Ethics that applies to our principal
executive officer, principal financial officer, principal
accounting officer and persons performing similar functions. We
have also adopted a Code of Business Conduct and Ethics
applicable to all employees, officers, directors and consultants
of the Company. Copies of the Code of Ethics and the Code of
Business Conduct and Ethics are available on our website at
www.bioheartinc.com.
Whistleblower Policy
In January 2007, the Board of Directors adopted Procedures for
the Submission, Receipt and Handling of Concerns and Complaints
Regarding Internal Controls and Auditing Matters, or a
whistleblower policy. This policy outlines the process for the
submission, receipt, retention and treatment of concerns and
complaints received by us regarding our and our affiliates
respective accounting, auditing and internal controls practices
and procedures, including the process for the confidential,
anonymous submission by our directors, officers and employees of
concerns regarding questionable accounting or auditing matters.
Compensation Committee Interlocks and Insider
Participation
No member of the Compensation Committee has been an officer or
employee of ours at any time. Also, none of our executive
officers serves, nor served in 2006, on the board of directors
or compensation committee of a company with an executive officer
serving on our Board of Directors or Compensation Committee.
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COMPENSATION DISCUSSION & ANALYSIS
The primary goals of our Compensation Committee with respect to
executive compensation are to attract and retain the most
talented and dedicated executives possible, to assure that our
executives are compensated effectively in a manner consistent
with our strategy and competitive practice and to align
executives incentives with shareholder value creation. To
achieve these goals, our Compensation Committee, with
managements input, recommends executive compensation
packages to our Board of Directors that are generally based on a
mix of salary, discretionary bonus and equity awards. Although
our Compensation Committee has not adopted any formal guidelines
for allocating total compensation between equity compensation
and cash compensation, we believe it is important for these
executives to have equity ownership in our company to provide
them with long-term incentives to build value for our
shareholders. Accordingly, we generally award our executive
officers, other than our Executive Chairman and Chief Technology
Officer, initial option grants upon the commencement of their
employment with us and ongoing option grants as circumstances
warrant. Our Executive Chairman and Chief Technology Officer
owns a significant percentage of our outstanding common stock
and, accordingly, we believe his interests are strongly aligned
with the interests of our shareholders. We intend to implement
and maintain compensation plans that tie a substantial portion
of our executives overall compensation to achievement of
corporate goals and
value-creating
milestones. We believe that performance and equity-based
compensation are important components of the total executive
compensation package for maximizing shareholder value while, at
the same time, attracting, motivating and retaining high-quality
executives.
We have not retained a compensation consultant to review our
policies and procedures with respect to executive compensation.
We conduct an annual review of the aggregate level of our
executive compensation, as well as the mix of elements used to
compensate our executive officers. The Compensation Committee
develops our compensation plans by utilizing publicly available
compensation data for national and regional companies in the
biopharmaceutical industry and/or the South Florida market. We
believe that the practices of this group of companies provide us
with appropriate compensation benchmarks, because these
companies have similar organizational structures and tend to
compete with us for executives and other employees. For
benchmarking executive compensation, we typically review the
compensation data we have collected from the complete group of
companies, as well as a subset of the data from those companies
that have a similar number of employees as our company.
Our Compensation Committee may retain the services of
third-party executive compensation specialists from time to
time, as it sees fit, in connection with the establishment of
cash and equity compensation and related policies.
Elements of Compensation
Our Compensation Committee evaluates individual executive
performance with a goal of setting compensation at levels the
Compensation Committee believes are comparable with executives
in other companies of similar size and stage of development
operating in the biopharmaceutical industry and/or the South
Florida market. The compensation received by our executive
officers consists of the following elements:
Base Salary.
Base salaries for our executives are
established based on the scope of their responsibilities and
individual experience, taking into account competitive market
compensation paid by other companies for similar positions
within our industry and geographic market. Base salaries are
reviewed at least annually, and adjusted from time to time to
realign salaries with market levels after taking into account
individual responsibilities, performance and experience.
Discretionary Annual Bonus.
In addition to base salaries,
our Compensation Committee has the authority to award
discretionary annual bonuses to our executive officers. In 2006,
the Compensation Committee awarded discretionary cash bonuses of
$1,000 to each of our executive officers. The annual incentive
bonuses are intended to compensate officers for achieving
corporate goals and for achieving what the Compensation
Committee believes to be
value-creating
milestones. Our annual bonus is paid in cash in an amount
reviewed and approved by our Compensation Committee. Each
executive officer is eligible for a discretionary annual bonus
up to an amount equal to 50% of such executive officers
salary.
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The Compensation Committee expects to adopt a more formal
process for discretionary annual bonuses in 2007. The
Compensation Committee intends to utilize annual incentive
bonuses to compensate officers for achieving financial and
operational goals and for achieving individual annual
performance objectives. These objectives will vary depending on
the individual executive, but will relate generally to strategic
factors such as establishment and maintenance of key strategic
relationships, development of our product candidates,
identification and advancement of additional product candidates,
and to financial factors such as improving our results of
operations and increasing the price per share of our common
stock.
Long-Term Incentive Program.
At present, our long-term
compensation consists primarily of stock options. Our option
grants are designed to align managements performance
objectives with the interests of our shareholders. Our
Compensation Committee grants options to key executives in order
to enable them to participate in the
long-term
appreciation
of our shareholder value, while personally feeling the impact of
any business setbacks, whether
Company-specific
or
industry based. We have not adopted stock ownership guidelines,
and, other than for Mr. Leonhardt, our equity benefit plans
have provided the principal method for our executive officers to
acquire equity or
equity-linked
interests
in our company.
Since inception, we have granted equity awards to our executive
officers through our Officers and Employees Stock Option Plan,
which was adopted by our Board of Directors and shareholders to
permit the grant of stock options to our officers and employees.
The initial option grant made to each executive upon joining us
is primarily based on competitive conditions applicable to the
executives specific position. In addition, the
Compensation Committee considers the number of options owned by
other executives in comparable positions within our company and
has established stock option targets for specified categories of
executives. We believe this strategy is consistent with the
approach of other development stage companies in our industry
and, in our Compensation Committees view, is appropriate
for aligning the interests of our executives with those of our
shareholders over the long term.
We do not have any program, plan or obligation that requires us
to grant equity compensation on specified dates and, because we
have not been a public company, we have not made equity grants
in connection with the release or withholding of material
non-public information. Authority to make equity grants to
executive officers rests with our Compensation Committee,
although our Compensation Committee does consider the
recommendations of our Executive Chairman for officers other
than himself.
In 2006, certain named executive officers were awarded stock
options under our Officers and Employees Stock Option Plan in
the amounts indicated in the section below entitled Grants
of Plan Based Awards. These equity awards included the
grant of a stock option and warrant for an aggregate of 471,058
shares of common stock to Mr. Bromley, our Vice President
of Public Relations, pursuant to the terms of a letter agreement
we entered into with Mr. Bromley in August 2006, or the
Bromley Letter Agreement. Mr. Bromley was also issued
47,658 shares of our common stock pursuant to the Bromley Letter
Agreement. Prior to entering the Bromley Letter Agreement,
certain disputes had arisen between Mr. Bromley and us as
to the number of stock options he had been awarded since he
commenced his employment with us in December 1999. The shares,
options and warrants granted to Mr. Bromley pursuant to the
Bromley Letter Agreement were issued in settlement of any unpaid
salary or other compensation for services provided to us by
Mr. Bromley from December 1999 through August 2006 and in
consideration for Mr. Bromleys release of any claims
he may have against us related to or arising from his employment
or any compensation owed to him.
Other Compensation.
We maintain broad-based benefits that
are provided to full-time employees, including health insurance,
life and disability insurance, dental insurance and vision
insurance. In 2006, we agreed to reimburse Mr. Bromley for
federal and state income taxes he pays in connection with our
issuance to him of 47,658 shares of our common stock
pursuant to the terms of the Bromley Letter Agreement. The
perquisite was negotiated as part of our settlement with
Mr. Bromley and we do not anticipate providing similar
perquisites to him or any of our executive officers on a
going-forward basis.
Compensation of New Chief Executive Officer.
Mr. Pinon was appointed as our Chief Executive Officer
in March 2007. His base salary for 2007 has been set at $275,000
and he received options to purchase 169,890 shares of our common
stock upon the commencement of his employment with an exercise
price of $8.47. The options are scheduled to vest ratably over a
four year period.
121
Compensation Committee Report
The Compensation Committee has reviewed and discussed the
Compensation Discussion & Analysis set forth above with
management and, based upon such review and discussions, the
Compensation Committee has recommended to the Board of Directors
that the Compensation Discussion & Analysis be included in
this prospectus.
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THE COMPENSATION COMMITTEE OF THE
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BOARD OF DIRECTORS
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Mike Tomas
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Bruce Carson
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Peggy A. Farley
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Summary Compensation Table
The following table sets forth, for the fiscal year ended
December 31, 2006, the aggregate compensation awarded to,
earned by or paid to Mr. Leonhardt, who served as our Chief
Executive Officer in 2006, both persons who served as our Chief
Financial Officer during 2006, and our two other most highly
compensated executive officers who were serving at
December 31, 2006, or collectively, the Named Executive
Officers.
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Long-Term Compensation Awards
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Annual Compensation
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Stock
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Option
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All Other
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Name and Principal Position
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Year
|
|
Salary
|
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Bonus
|
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Awards
|
|
Awards(1)
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Compensation
|
|
Total
|
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|
Howard J. Leonhardt
|
|
|
2006
|
|
|
$
|
151,000
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
152,000
|
|
|
Executive Chairman and Chief Technology
Officer
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
William H.
Kline
(3)
|
|
|
2006
|
|
|
$
|
51,000
|
|
|
$
|
1,000
|
|
|
|
|
|
|
$
|
97,500
|
(4)
|
|
|
|
|
|
$
|
149,500
|
|
|
Chief Financial Officer
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|
|
|
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|
|
|
|
|
|
Brian Neill
(5)
|
|
|
2006
|
|
|
$
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,000
|
|
|
Former Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard T. Spencer, IV
|
|
|
2006
|
|
|
$
|
126,000
|
|
|
$
|
1,000
|
|
|
|
|
|
|
$
|
19,500
|
(6)
|
|
|
|
|
|
$
|
146,500
|
|
|
Vice President of Clinical Affairs and Physician Relations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Bromley
|
|
|
2006
|
|
|
$
|
131,000
|
|
|
$
|
1,000
|
|
|
$
|
366,429
|
(7)
|
|
$
|
2,928,000
|
(8)
|
|
$
|
153,000
|
(9)
|
|
$
|
3,579,429
|
|
|
Vice President of Public Relations
|
|
|
|
|
|
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