ITEM
1. DESCRIPTION OF BUSINESS
Our
History
We were
organized under the name Direct Wireless Communications, Inc., in April 2001 by
Direct Wireless Corporation, which licensed to us its technology for a wireless
telephone. In October 2001, Direct Wireless Corporation, then our
sole stockholder, pursuant to an effective registration statement under the
Securities Act of 1933, distributed its entire holdings of our common stock as a
stock dividend to its stockholders. As a result of the dividend,
Direct Wireless Corporation ceased to own any of our equity
securities. The negative events that occurred over the next several
years in the communications industry made it difficult for us to fund the
advancement of our communication platform. As a result, we made the
decision to strategically change the overall direction of our intended business
activities.
On August
26, 2003, we acquired all of the assets of The Barnhill Group, LLC, which was
owned by Stephen D. Barnhill, M.D. Dr. Barnhill is a physician
trained in laboratory medicine and clinical pathology. He developed
artificial intelligence and pattern recognition computational techniques used in
medicine, genomics, proteomics, diagnostics and drug
discovery. Following the acquisition, Dr. Barnhill became our Chief
Executive Officer and Chairman of our Board of Directors. Also,
immediately following our acquisition of the assets of The Barnhill Group, LLC
and the change in strategic direction of the Company, our licensing rights to
the telecommunications technology previously granted by Direct Wireless
Corporation were terminated and all payments due to Direct Wireless Corporation
were terminated.
Subsequently,
we amended our charter to change our name to Health Discovery Corporation (“HDC”
or the “Company”). Direct Wireless Communications (DWCM) officially
became Health Discovery Corporation on November 6, 2003, at which time the new
trading symbol (HDVY) became effective.
On
September 30, 2003, we acquired the assets of Fractal Genomics, LLC, a company
with patented Fractal Genomics Modeling (“FGM”) software, through the issuance
of 3,825,000 common shares of the Company. In addition to the shares
of common stock of the Company issued for the acquisition of Fractal Genomics,
LLC’s assets, the Company agreed to execute a note for $500,000 payable in
$62,500 quarterly installments to the seller beginning on January 1, 2004 with
the final payment being made in October 2005. Our acquisition of
Fractal Genomics’ assets was completed on December 30, 2003.
On July
30, 2004, we began purchasing rights to a portfolio of 71 patents and pending
patent applications, including patents on the use of Support Vector Machines, or
SVMs, and other machine learning tools useful for diagnostic and drug discovery
(the “SVM Portfolio”). On May 6, 2005, we acquired the remaining
interest in the SVM Portfolio from a group of unrelated third
parties.
Effective
September 26, 2004, we were assigned a patent license agreement with Lucent
Technologies GRL Corporation (“Lucent”). The patent license agreement was
associated with the patents acquired July 30, 2004. We agreed to pay minimum
royalty fees to Lucent, which increases as a percentage of revenue based on each
licensed product that is sold, leased, or put into use by the Company. The
license granted will continue for the entire unexpired term of Lucent’s
patents.
On July
12, 2007, we completed our reincorporation in Georgia by effecting a conversion
in our legal domicile from Texas to Georgia. Our business, assets,
liabilities, net worth and headquarters were unchanged as a result of the
conversion, and our directors and officers prior to the conversion continued to
serve after the conversion. In connection with the conversion, the
Company’s shares were converted on a one-for-one basis.
The
conversion was approved by the shareholders holding at least two-thirds of the
outstanding common shares of the Company at the reconvened special meeting of
the shareholders held on June 13, 2007. Articles of Conversion were
filed with the Secretaries of State of Texas and Georgia on July 12, 2007 to
effect the reincorporation.
In
connection with the conversion, we filed Articles of Incorporation in the State
of Georgia, which increased the number of authorized shares of common stock, no
par value, from two hundred million (200,000,000) shares to three hundred
million (300,000,000) shares and authorized thirty million (30,000,000) shares
of preferred stock, no par value, with the rights and preferences to be
determined by the Company’s Board of Directors prior to issuance. We
also amended and restated our Bylaws. The Articles of Incorporation
and Bylaws were submitted to the shareholders and were approved on June 13,
2007.
On
October 9, 2007, we filed Articles of Amendment (the “Amendment”) with the
Secretary of State of the State of Georgia to amend our Articles of
Incorporation. The Amendment sets forth the rights and preferences of
the Series A Preferred Stock, including the right to receive dividends, the
right to vote on matters presented to holders of common stock, a preference
right in the event of liquidation, and the right to convert the Series A
Preferred Stock into Common Stock. The Amendment was authorized by
the Board of Directors on October 5, 2007.
On March
4, 2008, we formed two wholly owned subsidiaries, SVM Technology Inc., a Georgia
corporation, and SVM Technology Inc., a Delaware corporation. We
anticipate that we will use each of these subsidiaries to expand our business
model by applying SVM technology outside of scientific discovery in the
healthcare arena.
Our
Company Overview
HDC is a
pattern recognition company that uses advanced mathematical techniques to
analyze large amounts of data to uncover patterns that might otherwise be
undetectable. The Company operates primarily in the emerging field of
molecular diagnostics where such tools are critical to scientific
discovery. The terms
artificial
intelligence
and
machine learning
are
sometimes used to describe pattern recognition tools.
HDC’s
mission is to use its patents, intellectual prowess, and clinical partnerships
principally to identify patterns that can advance the science of medicine, as
well as to advance the effective use of our technology in other diverse business
disciplines, including the high-tech, financial, and homeland security
markets.
Our
historical foundation lies in the molecular diagnostics field where we have made
a number of important discoveries that may play a critical role in developing
more personalized approaches to the diagnosis and treatment of certain
diseases. However, our SVM assets in particular have broad
applicability in many other fields. Intelligently applied, HDC’s
pattern recognition technology can be a portal between enormous amounts of
otherwise undecipherable data and truly meaningful discovery.
Our
Company’s principal asset is its intellectual property which includes advanced
mathematical algorithms called
Support Vector Machines
(SVM)
and
Fractal Genomic
Modeling
(FGM), as well as
biomarkers
that we discovered
by applying our SVM and FGM techniques to complex genetic and proteomic
data. Biomarkers are biological indicators or genetic expression
signatures of certain disease states. Our intellectual property is
protected by more than 70 patents that have been issued or are currently pending
around the world.
Our
business model has evolved over time to respond to business trends that
intersect with our technological expertise and our capacity to professionally
manage these opportunities. In the beginning, we sought only to use
our SVMs internally in order to discover and license our biomarker signatures to
various diagnostic and pharmaceutical companies. Today, our
commercialization efforts include: utilization of our discoveries and knowledge
to help develop biomarkers for use as companion diagnostics, surrogate
biomarkers, and diagnostic and prognostic predictive tests; licensure of the SVM
and FGM technologies directly to diagnostic and pharmaceutical companies; and,
the formation of new ventures with domain experts in other fields where our
pattern recognition technology holds commercial promise.
Our
Principal Market
The
principal healthcare market for our pattern recognition technology and biomarker
discoveries is medical diagnostics, particularly the rapidly growing field of
molecular diagnostics. The market consists of two basic types of
diagnostic procedures:
in
vitro
tests performed on a patient’s fluid or tissue samples and
in vivo
tests performed
directly on the body, including blood pressure monitoring and imaging analysis
such as x-rays.
In
vitro
diagnostics
(IVD) can be
further divided into several major segments including clinical chemistry,
immunochemistry, hematology/cytometry, microbiology, and molecular
diagnostics.
The IVD
portion of the diagnostics market currently accounts for over $31 billion in
sales worldwide. Today, the molecular diagnostics segment represents
a fraction of the IVD revenues with about $2.5 billion in sales, but it is
widely considered to the be the fastest growing segment, estimated at a 20-25%
compounded annual growth rate, mainly in the U.S. and EU markets, versus 6-7%
for IVD as a whole. It is difficult to accurately assess the size of
this segment since many countries do not have reference laboratories external to
hospitals. Areas of particular growth include infectious diseases,
oncology, genetic diseases, and pharmacogenetic analyses. Companies
involved in this space include several major pharmaceutical and diversified
corporations. Roche, Abbott, and Johnson & Johnson have
diagnostics divisions that generated $8.8 billion, $4.0 billion, and $1.5
billion in revenue in 2006, respectively, while Siemens and General Electric
operate medical imaging segments that are expanding in
diagnostics. Other market players include large technology companies
like Becton-Dickinson, Beckman Coulter, and Bio-Rad.
IVDs have
been established as effective tools for all aspects of disease management,
especially in areas of unmet clinical need. Such tests have been
developed for screening and prognosis as well as for applications, such as
determination of genetic predisposition to disease, detection of presymptomatic
disease, and prediction of individual drug response.
Molecular
Diagnostics
Within
the overall IVD market, the molecular diagnostics segment is expected to expand
dramatically, largely attributable to advances in genomics and proteomics.
Primary market drivers
include the addition of new diagnostic tests in high volume testing areas
coupled with the introduction of new instrumentation that provide greater ease,
speed, and quality in test performance. Given its annualized growth
rate, the potential for molecular diagnostics is particularly impressive in the
U.S. which represents the largest commercial market with the most favorable
conditions for entry and marketing.
Borrowing
from the two disciplines of genomics and proteomics, molecular diagnostics
categorizes cancer and other diseases using technology such as mass spectrometry
and gene chips. Genomics is the study of all the genes in a cell or
organism, and proteomics is the study of all the proteins. Molecular
diagnostics determines how these genes and proteins interact in patients by
focusing on patterns – gene and protein patterns – in different types of healthy
and diseased patient cells. Molecular diagnostics uncover these
genomic and proteomic changes and capture this information as expression
patterns. Also called
molecular signatures
, these
expression patterns improve clinicians' ability to diagnose cancer earlier,
predict which patients will respond to certain treatments, predict cancer
recurrence risk, and select appropriate treatment for individual
patients.
Molecular
diagnostics can facilitate early, accurate screening and prediction of diseases
in their asymptomatic stages, years before symptoms manifest or diseases
actually begin. This allows intervention to begin earlier, perhaps
preventing the disease entirely. Early intervention will allow the
healthcare system to encompass both preventative and reactive medicine,
improving overall healthcare efficiency and possibly reducing systemic
healthcare expenditures.
The
molecular diagnostics industry is an increasingly powerful health care
participant with tremendous potential. It is characterized by a very
diverse, constantly changing technology base that continuously produces new
opportunities and applications. Advances in polymerase chain reaction
(“PCR”), multiplexing, sequencing and other technologies are propelling both new
and old companies forward with novel capabilities.
Similarly, a growing
understanding of the molecular basis of cancer and other chronic diseases has
awakened new realms of medicine to the possibilities of molecular diagnostic
testing.
Clinicians
have discovered that molecular diagnostics have many uses beyond just the
creation of new screening and diagnostic tools. Expression patterns
can also provide information for the design of new cancer treatments, monitor
the treatment’s effectiveness as it is studied in a clinical trial, and even
predict the patient’s response to a new treatment. In addition to its
importance in addressing the many kinds of cancer, molecular diagnostics will
likely become an important technology for detecting resistance to antibiotics, a
major hazard in the hospital setting. In the future, molecular tests
should be able to determine within two to three hours not only the nature of an
infection, but also therapeutic selection and any potential
resistance.
The
molecular diagnostics market is a rapidly growing and rapidly changing market
with explosive potential, multiple opportunities for entry and growth, and
intensifying competition. New tests and new instruments to perform
automated analysis continue to expand the capabilities of companies in this
segment. The identification and validation of novel genes, gene
products, and biomarkers makes it possible to develop and introduce even more
tests. The market includes sales of reagents, instruments, and kits
to clinical laboratories and research reagents that can be used by labs to
develop their own in-house procedures. It also includes testing
services by those clinical labs that have developed their own products, plus
diagnostics companies that operate their own branded, certified testing
services.
Molecular
diagnostic tests typically analyze DNA, RNA, or protein biomarkers (analytes) to
identify a disease, determine its course, evaluate response to therapy, or
predict individual predisposition to a disease. The techniques
applied involve analysis of DNA sequences, DNA methylation patterns, gene
expression profiles, proteins, protein expression, or combinations of these
biomarkers. Such biomarkers provide direct information about
genotypic and/or phenotypic changes associated with specific diseases or
responses to treatment. Biomarker analysis has also become an
important tool in drug discovery, preclinical drug development, and patient
monitoring during clinical trials.
Most
molecular diagnostics currently on the market are primarily single-analyte tests
involving the detection of a single gene or protein. However, many
disease-related processes are multifactorial, involving the abnormal expression
of multiple genes or proteins. Second-generation molecular
diagnostics are anticipated to utilize novel detection technologies and
multiplexing platforms to allow the measurement of a large number of analytes
simultaneously. These innovations will increasingly utilize
multiplexing platforms such as DNA microarrays that perform parallel biomarker
analysis.
The
market has been driven by transition to fully automated systems, real time
amplification, and growing development of point-of-care
platforms. Industry experts estimate that future growth will stem
from emerging applications like genotyping for identifying drug resistant
strains; bioterrorism testing applications within infectious disease; disease
diagnostics and prognostic assays for disease applications like sepsis and
nosocomial infections, such as MRSA, cancer, cardiovascular disease, and
Alzheimer’s disease; diagnosis of inherited disorders; and theranostics
companion diagnostics.
Genomic
testing to determine diagnosis, therapeutic selection and response, and
preventative measures is an important segment of the overall IVD
market. Although this segment is small today, it is an extremely
fast-growing component. Today, genomic testing is responsible for
driving growth of the overall market, currently constituting approximately 7%–8%
of the clinical testing service market. In the service segment,
genomic testing is growing by about 60%–75% per year.
Other
market segments include traditional genomics, personalized medicine, and cancer
with 13%, 9%, and 8% of the U.S. clinical lab services market,
respectively. Experts predict that the cancer segment is growing at
20% a year, traditional genomics about 15% a year, and personalized medicine
about 20% a year, compared to the 5-10% growth rate for infectious
diseases.
From a
demographic standpoint, 12% of the U.S. population was 65 years old or older in
2000. By 2030, that segment is anticipated to grow to 20% of the population,
burdening the healthcare system with increased numbers of cardiovascular,
neurological, and other age-related diseases. Age-related
conditions are expected to contribute to the health care market that will
require greater product development and marketing of assays, including molecular
tests.
Diagnostics
addressing the pharmacogenetic testing segment (i.e. companion diagnostics and
surrogate biomarkers) are expected to drive market growth in the years
ahead. Pharmacogenetics broadly relates to the study of genetic
variations and their application to drug discovery to provide personalized
therapy. Currently the second largest market sector behind
diagnostics for infectious diseases, the pharmacogenetic sector of the molecular
diagnostics market is projected to grow rapidly.
The
Role of HDC’s Technology in Molecular Diagnostics
Our SVM
technology offers pharmaceutical companies a key tool as they approach drug
discovery in this new era of personalized medicine. Accordingly, our
marketing efforts are focused on utilizing our technology in partnership with
many of the world’s leading pharmaceutical and life-sciences
companies. Our primary commercialization pathway for our technology
and discoveries is to enter into both licensing agreements and joint development
opportunities that feature up-front license fees, fee-for-service development
revenue, milestone payments, and royalty streams. We believe the
pharmaceutical segment offers us an excellent commercial opportunity for the
application of our technology, as the pharmaceutical industry is characterized
by costly R&D efforts to create new patent-protected products, fierce
competition for products that are not so well protected, and ongoing
consolidation as major companies acquire smaller players to add new products to
existing pipelines.
The use
of HDC’s SVM technology and our discovered biomarkers may help pharmaceutical
companies develop and evaluate new drugs and medical therapies in less time and
at lower cost. According to the lobby group PhRMA, only 1 of every
10,000 potential medicines investigated by America's drug companies survives the
research and development process and is approved for patient use by the U.S.
Food and Drug Administration (FDA). On average, the drug
developmental process can take up to 15 years in research and development, with
costs approaching many hundreds of millions of dollars. This extended timeframe
and enormous expense has led to an emphasis on the development of “blockbuster”
drugs.
Within
the drug discovery R&D process, biomarkers like ours can help pharmaceutical
companies identify disease targets and pathways and validate mechanisms of drug
action. They may also serve as pharmacodynamic indicators of drug
activity, drug response, and drug toxicity in clinical
development. Biomarkers may also be used to help avoid new drug
failures in late stage trials, earlier detection of disease, and improved
prognosis of therapeutic outcome.
We
consistently work to influence the evolving relationship between diagnostics and
monitoring patients for therapeutic outcome. With its February 2007
approval of
MammoPrint
,
Agendia’s multi-gene expression breast cancer prognosis test, the FDA signaled
its acceptance of the field of molecular diagnostics and highlighted the growing
importance of personalized medicine. In particular, the advent of
molecular diagnostics has led to the promise of a completely new paradigm in the
care of patients suffering from cancer and other diseases.
Using
companion diagnostics in patient care can substantially improve patient outcomes
and pave the way for more personalized, targeted medicine by reducing both
misdiagnoses and adverse reactions, and by eliminating unnecessary and expensive
downstream tests. Today, patient dosage levels are based on age, sex,
and weight, as determined by empirical studies. However, specific drug
metabolism may be as individualized as one’s fingerprint. In the
future, molecular diagnostics may be able to direct physicians to the right
drugs for every patient, no matter what the illness.
This
trend towards personalized medicine may ultimately lead to the reduction of
overall healthcare expenditures. What is known as a
surrogate
molecular marker
may now be
substituted for the lengthy process of comparing the effects of a prospective
new drug versus a placebo on the ultimate outcome of a disease. As a
result, a drug’s effectiveness against the disease process in question may be
monitored more efficiently by evaluating the presence or absence of a specific
biomarker, thereby avoiding failures late in the research and development
process as well as the threat of recalls. One example of the
successful application of biomarker data to therapeutic evaluation is the use of
blood cholesterol levels to evaluate the effectiveness of cholesterol lowering
drugs.
This
approach has the potential for creating a revolutionary new paradigm in the
conduct of clinical trials worldwide.
Current
diagnostic tools, such as blood marker-based immunoassays, imaging techniques,
and biopsy analyses, provide valuable information and have played an important
role in increasing survival rates of cancer patients. However, these
tools have inherent limitations in accuracy (i.e. sensitivity and specificity)
and remain quite expensive. There is a significant need for advanced
diagnostic and prognostic tests that can provide meaningful information, screen
for cancer, detect early recurrence, and monitor progression and therapeutic
response in real time. HDC’s pattern recognition technology can play
a critical role in the development of these tests because an advanced pattern
recognition technique
is
required
for this type of discovery. SVM technology is
recognized as a superior pattern recognition tool available today as evidenced
in hundreds of scientific papers worldwide.
Working
with recognized diagnostic and pharmaceutical partners, our goal is to develop a
product line of newly discovered biomarker signatures and pathways that can be
found in human genes and genetic variations, as well as gene, protein and
metabolite expression differences. In addition, we market our
expertise in the design of clinical trials for companion diagnostics to
substantiate the clinical validity and commercial utility of those
biomarkers. We also market the potent combination of our intellectual
property and intellectual prowess to our prospective collaborative
partners. As inventors of the SVM technology, our world renowned
mathematicians offer these companies the strongest possible development team for
their drug discovery, diagnostic test, or other applications.
Our
Technologies and Discoveries
HDC owns
a patent portfolio of machine learning technology, including certain pioneer
patents on SVM. We also have consulting arrangements with many of the
physicians, clinical specialists and mathematicians responsible for developing
and filing the pioneer neural network and SVM patents for the analysis of
clinical data.
The
Company’s SVM technology is commonly considered within the context of
artificial
intelligence
. This is a branch of computer science concerned
with giving computers the ability to perform functions normally associated with
human intelligence, such as reasoning and optimization through experience.
Machine learning is a type of artificial intelligence that enables the
development of algorithms and techniques that allow computers to
learn. Pattern recognition is machine learning with a wide spectrum
of applications including medical diagnosis, bioinformatics, classifying DNA
sequences, detecting credit card fraud, stock market analysis, object
recognition in computer vision, and robot locomotion.
SVM
Overview
SVMs are
mathematical algorithms that allow computers to sift through large, complex
datasets to identify patterns. SVMs are widely acknowledged for their
ability to discover hidden relationships in these complex
datasets. With the ability to handle what is known as
infinite dimensional space
,
SVMs are broadly considered to be superior to neural networks and other
mathematical techniques. SVM is a core machine learning technology
with strong theoretical foundations and excellent empirical
successes.
Since
their introduction in 1992, SVMs marked the beginning of a new era in the
learning from examples
paradigm in artificial intelligence. Rooted in the Statistical Learning Theory
developed by Professor Vladimir Vapnik, a member of HDC’s Scientific Advisory
Board, SVMs quickly gained attention from the math and science communities due
to a number of theoretical and computational merits. This
development advanced a new framework for modeling learning
algorithms. Within this framework, the fields of machine learning and
statistics were merged introducing powerful algorithms designed to handle the
difficulties of prior computational techniques.
The new
generation of learning algorithms that were developed based on this theory has
proved to be remarkably resistant to the problems imposed by noisy data and high
dimensionality. They are computationally efficient, have an inherent modular
design that simplifies their implementation and analysis and allows the
insertion of domain knowledge, and, more importantly, they have theoretical
guarantees about their generalization ability. SVMs have been
validated in hundreds of independent academic publications and
presentations. In recognition for his work, Professor
Vapnik received the prestigious Alexander von Humboldt Prize from the
German government honoring foreign scientists and scholars for lifetime
achievement.
SVMs have
become widely established as one of the leading approaches to pattern
recognition and machine learning worldwide and are replacing neural networks in
a variety of fields, including engineering, information retrieval and
bioinformatics. This technology has been incorporated into product
and research applications by many biomedical, pharmaceutical, software, computer
and financial companies. Educational and research institutions
throughout the world have successfully applied SVMs to a wide array of
applications, including gene and protein expression analysis, medical image
analysis, flow cytometry, and mass spectrometry.
Recursive
Feature Elimination - Support Vector Machine Overview
Recursive
Feature Elimination (RFE-SVM) is an application of SVM that was created by
members of HDC’s science team to find discriminate relationships within clinical
datasets, as well as within gene expression and proteomic datasets created from
micro-arrays of tumor versus normal tissues. In general, SVMs
identify patterns – for instance, a biomarker/genetic expression signature
of a disease. The RFE-SVM utilizes this pattern recognition
capability to identify and rank order the data points that contribute most to
the desired results based on specificity or sensitivity. The Company
believes that its two RFE-SVM patents are currently the only RFE patents issued
in the world.
Using
RFE-SVM, we have been able to access information in micro-array datasets that
the most advanced bioinformatics techniques missed. In one micro-array
experiment, RFE-SVMs were able to filter irrelevant tissue-specific genes from
those related to the malignancy. RFE-SVM has also been used to determine gene
expression patterns that correlate to the severity of a disease, not just its
existence. It has been shown to improve both diagnosis and prognosis
by providing physicians with an enhanced decision tool. HDC
scientists believe that these analytic methods are effective for finding genes
and proteins implicated in several cancers, as well as in assisting with the
pharmacogenetic and toxicological profiling of patients. The RFE-SVM
method is also capable of finding those specific genes and proteins that are
unhindered by ever-increasing patent protection.
Fractal
Genomic Modeling Overview
On
September 30, 2003, we acquired the assets of Fractal Genomics, LLC, a company
with patented FGM software. The fractal technology is used to find
discriminate relationships within clinical datasets as well as within gene
expression datasets created from micro-arrays of disease versus normal
tissues.
The FGM
data analysis technique has been shown to improve the mapping of genetic
pathways involved in the diagnosis and prevention of certain diseases. HDC
scientists feel that these analytic methods are effective for finding genes
implicated in several cancers, HIV infection, lymphedema, Down's syndrome, and a
host of other diseases, as well as the pharmacogenetic profiling of
patients.
FGM
technology is designed to study complex networks. A complex network can be made
up of genes inside a living organism, web pages on the Internet, stocks within a
financial market, or any group of objects or processes that appear to be
connected together in some intricate way. FGM uses a new approach toward
modeling network behavior to rapidly generate diagrams and software simulations
that facilitate prediction and analysis of whatever process is your particular
object of study. Two important concepts behind FGM technology are the notions of
scale-free networks and self-similarity.
Our
Scientific Achievements
HDC’s
world renowned scientific team is uniquely experienced in the design, analysis
and application of machine learning technology, having invented the concepts and
many of the methodologies used to exploit domain knowledge. In
addition, through pattern recognition, our science team has identified and
patent-protected biomarkers as possible treatment advances for several diseases,
including Benign Prostatic Hyperplasia (BPH), prostate cancer, leukemia, colon
cancer, and AIDS.
Benign
Prostatic Hyperplasia (BPH)
HDC has identified and
patent-protected
a subset of genes that separates benign prostatic
hyperplasia (BPH) from prostate cancer with a high degree of
accuracy. This same set of genes also separated BPH from normal
tissue patterns, indicating that BPH is a disease with molecular characteristics
of its own. This discovery could be used to develop a new
non-invasive diagnostic test for BPH, which does not currently exist, as well as
a completely new type of therapy for patients with this disease. This
patent-protected gene set is the subject of discussions with an international
pharmaceutical company to be used as a surrogate biomarker for their clinical
trial evaluating a new BPH drug.
BPH is a
non-cancerous enlargement of the prostate gland that occurs as men
age. The enlargement often leads to obstruction in the flow of urine
through the urethra that passes through the prostate gland. BPH is a common
condition, representing a global treatment market of almost $4 billion annually
growing by 12% per year in fixed-rate US dollar terms. According to
the National Institutes of Health (NIH), BPH affects more than 50% of men over
age 60 and as many as 90% of men over the age of 70. While BPH does
not cause prostate cancer, both may be found together.
Prostate
Cancer
HDC has identified,
patent-protected
and recently licensed
a
genetic biomarker signature that identifies clinically significant high grade
prostate cancer cells based on analysis of tissue samples. More than
one million men a year undergo biopsies of the prostate gland after a
cancer-screening test reveals moderately elevated levels of prostate specific
antigen (PSA) in the blood. Upon the achievement of successful
validation, the Company’s test will be used to analyze patients with elevated
PSA, abnormal rectal exams, but negative biopsy results to determine if there is
genomic evidence of grade three or higher cancer cells present in biopsy tissue,
indicating the presence of a cancer missed by the biopsy.
Prostate
cancer is the second-leading cause of cancer death in men, after lung cancer.
The National Cancer Institute (NCI) estimates that more than 186,000 new cases
of prostate cancer will be diagnosed in the U.S. in 2008, with more than 28,660
deaths.
Leukemia
HDC has identified and
patent-protected
a set of leukemia genes that can separate ALL-T-cell
leukemia from ALL-B-cell leukemia with a high degree of accuracy. The
Company collaborated with the University of Texas M.D. Anderson Cancer Center to
analyze a gene expression database to identify new biomarkers and pathways
involved in leukemia. The Company intends to further validate this
finding in anticipation of developing a molecular diagnostic product for
commercialization.
Leukemia
is a type of cancer that originates in the bone marrow. The accumulation of
malignant cells interferes with the body's production of healthy blood cells and
makes the body unable to protect itself against infections. The National Cancer
Institute (NCI) estimates that more than 44,000 new cases will be diagnosed in
the U.S. in 2008, with almost 22,000 deaths.
Colon
Cancer
HDC has identified and
patent-
protected
colon cancer-specific biomarkers that can be used in the development of
diagnostic assays for cancer detection, disease discrimination, and even a
potential vaccine. The aim of this early biomarker discovery project was to
define the gene expression patterns associated with colon cancer. Our
RFE-SVM served as an effective tool for sifting through the noise of thousands
of measurements to highlight only those genes that optimally contributed to the
study focus. The Company is currently validating these findings in
anticipation of developing a molecular diagnostic product for
commercialization.
In the
United States, colorectal cancer is the third most common cancer in men and
women. The National Cancer Institute (NCI) estimates that more than 108,000 new
cases of colon and rectal cancer will be diagnosed in the U.S. in 2008, with
nearly 50,000 deaths.
AIDS
HDC identified and
patent-protected
an AIDS expression signature that separated AIDS brain
cells from non-AIDS brain cells with a high degree of accuracy.
This
biomarker discovery was accomplished in conjunction with Dr. Paul Shapshak,
Director of the Dementia/HIV Laboratory at the University of Miami Medical
School, and a group of leading scientists using HDC's proprietary FGM analysis
technique. HDC sold the biomarker discovery to the University of
Miami in November 2005.
HIV-related
dementia occurs in 40-60% of all cases of HIV infection that are left untreated.
Even when treated, dementia occurs in 10 percent of all cases of HIV infection,
with the number continuing to rise as the virus becomes resistant to treatment.
The dementia is related to inflammation in the brain caused by HIV infection, a
problem whose underlying genetic causes are complex and largely
unknown.
Breast
Cancer
HDC is
developing two breast cancer diagnostic technologies; one for detecting
malignancy in mammograms (
MammoSIGHT
) and another for
identifying circulating tumor cells in the blood (
MetastaSIGHT
). The detection
component of these technologies finds the areas of particular interest in the
image and separates these objects from the background. The feature
extraction component formulates numerical values relevant to the classification
task from the segmented objects. HDC’s patented technology can be
used within all diagnostic imaging radiology techniques, including PET scans, CT
scans, and MRIs.
For
women, breast cancer is the most common non-skin cancer and the second leading
cause of cancer-related death in the United States. However, death
rates from breast cancer have been declining since 1990, and these decreases are
believed to be the result, in part, of earlier detection and improved
treatment. Mammography remains the best method of early breast cancer
detection. According to studies cited by the National Cancer
Institute, 10-20% of breast cancers detected by a physical exam were missed by a
film mammogram. For this reason, there have been extensive research
efforts to improve mammography.
The FDA
reports that there are about 33.5 million mammography procedures performed each
year in the United States. Data from 2000-2002 show that about 70
percent of all mammograms that are performed annually are for screening purposes
(to detect cancer as opposed to following cancer once it has been diagnosed).
This translates to about 23.5 million screening procedures every
year.
Studies
have shown that among newly diagnosed breast cancer cases in which the patients
have previous mammograms, 75% of the cases will have abnormality detectable in
the old films. In fact, missed cancer reading in mammography is a major source
of lawsuits in radiology. Detecting malignancy in mammograms can be
very difficult. Individual mammograms are unique and there can be great
variation within “normal” images. Unlike CT and MRI, mammograms are
not cross-sectional images. Basically, a mammogram produces a
two-dimensional picture of a three-dimensional object. The projection
from 3D to 2D and the resulting overlaps on the images may interfere with the
recognition of the distinguishing features. The features are often
very subtle. The rules for differentiating the benign and malignant
cases are vague and not easily formulated.
One way
to reduce reading errors is to have two radiologists read the same mammograms
independently. However, in most health care systems, it is not feasible to
implement such a two-radiologist reading process. A computer-assisted
detection (CAD) system serving as a second reader is therefore an attractive
option and CAD is currently reimbursed by both insurance companies and
Medicare.
Both
digital and film mammography use X-rays to produce an image of the
breast. In film mammography, which has been used for over thirty-five
years, the image is created directly on a film. While standard film
mammography is very good, it is less sensitive for women who have dense
breasts. A major limitation of film mammography is the film itself.
Once a film mammogram is obtained, it cannot be significantly altered; if
the film is underexposed, for example, contrast is lost and cannot be
regained.
Digital
mammography takes an electronic image of the breast and stores it directly in a
computer. Digital mammography uses less radiation than film mammography and
allows for improvement in image storage and transmission because images can be
stored and sent electronically. Radiologists can use software to help
interpret digital mammograms.
MammoSIGHT
HDC’s
MammoSIGHT
technology
introduces the use of SVMs in detecting malignancy in mammograms. The SVM
classifier produces an index discriminating between the benign and malignant
cases. The individual components can be developed in parallel because of the
modular structure. In developing the calcification segmentation component, a
selected set of malignant, benign and normal cases representing a wide range of
images was used to guide and test the design in order to produce a general,
robust and accurate algorithm. At the same time, the SVM classifier was
developed and tested with manually prepared input data. A set of 300 images (150
benign and 150 malignant cases) was used in training the SVM. An independent set
of 328 images was used for testing. High dimensional input features were used to
ensure a sufficient capacity for automatically extracted features.
Clusters
of micro calcifications are characterized by their relatively small sizes and
high densities. The algorithm combines a recursive peak seeking technique with
morphological operations to achieve a highly accurate calcification detection
and segmentation.
MetastaSIGHT
Cancer
cells have the ability to migrate from the organ of its origin to any distant
organ throughout the body. This is known as metastasis, the hallmark of
malignant cancers. During metastasis, cancerous cells break through barriers to
travel through the body's circulatory system to invade other organs. These cells
form new cells in vital organs throughout the body, becoming secondary tumors
that destroy normal cells by depriving them of nutrition.
Even with
today’s best treatment when the cancer is forced into remission, metastasis will
not necessarily leave the body. Metastasis cannot be eliminated by surgery.
Often, malignant cells circulate in the blood
before detection by
clinical examination.
MetastaSIGHT
uses an
SVM-based approach to introduce new cellular imaging technology that identifies
circulating tumor cells in the blood.
Employees
On
December 31, 2007, we had 4 full time employees. We do not expect any
significant change in the number of employees over the next 12
months.
Website
Address
Our
corporate website address is www.HealthDiscoveryCorp.com. To view our
public filings from the home page, select the “Display SEC Filings” tab followed
by “SEC Filings.” This is a direct link to our filings with the
Securities and Exchange Commission (“SEC”), including but not limited to our
Annual Report of Form 10-KSB, quarterly reports on Form 10-QSB and current
reports on Form 8-K, and any amendments to these reports. These
reports are accessible soon after we file them with the SEC.
Governmental
Regulation
Our
business plan involves
Biomarker Discovery
in the field of
molecular diagnostics. This early discovery process does not involve
any governmental regulations or approvals. If we are successful in
licensing our discoveries to other companies, FDA approvals may be required
before the ultimate product may be sold to consumers. Companies
licensing our discoveries or technologies will be responsible for all costs
involved in such approvals. If we are not successful in licensing
these discoveries and choose to take these discoveries to market ourselves, we
may then be subject to applicable FDA regulations and would then bear the costs
of such approvals.
We know
of no governmental regulations that will affect the Company’s current operations
or products.
Intellectual
Property
In
connection with the SVM Acquisition, we obtained rights to the intellectual
property within the “SVM portfolio” that currently consists of twenty-seven
patents which were or have since issued as well as thirty-nine other patent
applications that are pending in the U.S. and elsewhere in the
world. The issued patents and pending applications in the SVM
portfolio to date, including new applications that we have filed since acquiring
the original IP, HDC are:
|
Patent/Application
No.
|
Title
|
Expiration
Date
|
|
|
|
|
|
U.S.
Patent No. 6,128,608
|
Enhancing
Knowledge Discovery Using Multiple Support Vector Machines
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 6,157,921
|
Enhancing
Knowledge Discovery Using Support Vector Machines in a Distributed Network
Environment
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 6,427,141
|
Enhancing
Knowledge Discovery Using Multiple Support Vector
Machines.
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 6,658,395
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines.
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 6,714,925
|
System
for Identifying Patterns in Biological Data Using a Distributed
Network.
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 6,760,715
|
Enhancing
Biological Knowledge Discovery Using Multiple Support Vector
Machines.
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 6,789,069
|
Method
of Identifying Patterns in Biological Systems and Method of
Uses.
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 6,882,990
|
Method
of Identifying Biological Patterns Using Multiple Data
Sets.
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 6,944,602
|
Spectral
Kernels for Learning Machines
|
02/19/2023
|
|
|
|
|
|
U.S.
Patent No. 6,996,542
|
Computer-Aided
Image Analysis
|
04/21/2021
|
|
|
|
|
|
U.S.
Patent No. 7,117,188
|
Methods
of Identifying Patterns in Biological Systems and Uses
Thereof
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent No. 7,299,213
|
Method
of Using Kernel Alignment to Extract Significant Features from a Large
Dataset
|
03/01/2022
|
|
|
|
|
|
U.S.
Patent No. 7,318,051
|
Methods
for Feature Selection in a Learning Machine
|
02/25/2021
|
|
|
|
|
|
U.S.
Patent No. 7,353,215
|
Kernels
and Methods for Selecting Kernels for Use in a Learning
Machine
|
05/07/2022
|
|
|
|
|
|
Australian
Patent No. 764897
|
Pre-processing
and Post-processing for Enhancing Knowledge Discovery Using Support Vector
Machines.
|
05/01/2019
|
|
|
|
|
|
South
African Patent No. 00/7122
|
Pre-processing
and Post-processing for Enhancing Knowledge Discovery Using Support Vector
Machines.
|
05/01/2019
|
|
|
|
|
|
Australian
Patent No. 780050
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines.
|
05/24/2020
|
|
|
|
|
|
Chinese
Patent No. ZL00808062.3
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines.
|
05/24/2020
|
|
|
|
|
|
European
Patent No. 1192595
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines.
|
05/24/2020
|
|
German
Patent No. DE60024452.0-08
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines.
|
05/24/2020
|
|
|
|
|
|
Israeli
Patent No. 146705
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines
|
05/24/2020
|
|
|
|
|
|
Norwegian
Patent No. 319,838
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines.
|
05/24/2020
|
|
|
|
|
|
South
Korean Patent No. 724104
|
Enhancing
Knowledge Discovery from Data Sets Using Multiple Support Vector
Machines
|
05/24/2020
|
|
|
|
|
|
Australian
Patent No. 779635
|
Method
of Identifying Patterns in Biological Systems and Method of
Uses.
|
10/27/2020
|
|
|
|
|
|
Australian
Patent No. 2002243783
|
Computer
Aided Image Analysis
|
01/23/2022
|
|
|
|
|
|
Japanese
Patent No. 3947109
|
Computer
Aided Image Analysis
|
01/23/2022
|
|
|
|
|
|
Australian
Patent No. 2002253879
|
Methods
of Identifying Patterns in Biological Systems and Uses
Thereof
|
01/24/2022
|
|
|
|
|
|
Canadian
Application No. 2,330,878
|
Pre-Processing
and Post-Processing for Enhancing Knowledge Discovery Using Support Vector
Machines
|
05/01/2019
|
|
|
|
|
|
European
Publication No. 1082646
|
Pre-Processing
and Post-Processing for Enhancing Knowledge Discovery Using Support Vector
Machines
|
05/01/2019
|
|
|
|
|
|
Hong
Kong Application No. 011065063
|
Pre-Processing
and Post-Processing for Enhancing Knowledge Discovery Using Support Vector
Machines
|
05/01/2019
|
|
|
|
|
|
Indian
Application No. 2000/00580
|
Pre-Processing
and Post-Processing for Enhancing Knowledge Discovery Using Support Vector
Machines
|
05/01/2019
|
|
|
|
|
|
Canadian
Application No. 2,371,240
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines
|
05/24/2020
|
|
|
|
|
|
Indian
Application No. 2001/01329
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines
|
05/24/2020
|
|
|
|
|
|
Japanese
Application No. 2000-620577
|
Enhancing
Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector
Machines
|
05/24/2020
|
|
|
|
|
|
Canadian
Application No. 2,388,595
|
Method
of Identifying Patterns in Biological Systems and Method of
Uses
|
08/07/2020
|
|
|
|
|
|
European
Publication No. 1236173
|
Method
of Identifying Patterns in Biological Systems and Method of
Uses
|
08/07/2020
|
|
|
|
|
|
Japanese
Application No. 2001-534088
|
Method
of Identifying Patterns in Biological Systems and Methods of
Uses
|
08/07/2020
|
|
|
|
|
|
U.S.
Patent Publication No. 2005/0165556
|
Colon
Cancer-Specific Markers
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent Publication No. 2007/0092917
|
Biomarkers
for Screening, Predicting, and Monitoring Prostate Disease
|
05/01/2019
|
|
|
|
|
|
U.S.
Application No. 11/926,129
|
System
for Providing Data Analysis Services Using a Support Vector Machine for
Processing Data Received from a Remote Source
|
05/01/2019
|
|
|
|
|
|
U.S.
Patent Publication No. 2008/0033899
|
Feature
Selection Using Support Vector Machine Classifier
|
05/01/2019
|
|
|
|
|
|
European
Publication No. 1828917
|
Biomarkers
for Screening, Predicting, and Monitoring Prostate Disease
|
11/14/2025
|
|
Canadian
Application No. 2,435,254
|
Methods
of Identifying Patterns in Biological Systems and Uses
Thereof
|
01/24/2022
|
|
|
|
|
|
European
Publication No. 1459235
|
Methods
of Identifying Patterns in Biological Systems and Uses
Thereof
|
01/24/2022
|
|
|
|
|
|
Japanese
Application No. 2002-560076
|
Methods
of Identifying Patterns in Biological Systems and Uses
Thereof
|
01/24/2022
|
|
|
|
|
|
European
Publication No. 1384155
|
Spectral
Kernels for Learning Machines
|
02/19/2023
|
|
|
|
|
|
U.S.
Application No. 11/929,354
|
Kernels
and Methods for Selecting Kernels for Use in a Learning
Machine
|
05/07/2022
|
|
|
|
|
|
European
Publication No. 1393196
|
Kernels
and Methods for Selecting Kernels for Use in a Learning
Machine
|
05/07/2022
|
|
|
|
|
|
U.S.
Patent Publication No. 2006/0224539
|
Computer-Aided
Image Analysis
|
05/24/2020
|
|
|
|
|
|
Canadian
Application No. 2,435,290
|
Computer
Aided Image Analysis
|
01/23/2022
|
|
|
|
|
|
European
Publication No. 1356421
|
Computer
Aided Image Analysis
|
01/23/2022
|
|
|
|
|
|
U.S.
Application No. 11/929,213
|
Methods
for Feature Selection in a Learning Machine
|
08/07/2020
|
|
|
|
|
|
U.S.
Patent Publication No. 2005/0071140
|
Model
Selection for Cluster Data Analysis
|
05/17/2022
|
|
|
|
|
|
U.S.
Application No. 11/929,522
|
Model
Selection for Cluster Data Analysis
|
05/17/2022
|
|
|
|
|
|
U.S.
Patent Publication No. 2006/0064415
|
Data
Mining Platform for Bioinformatics
|
08/07/2020
|
|
|
|
|
|
U.S.
Application No. 11/928,606
|
Data
Mining Platform for Knowledge Discovery from Heterogeneous Data Types
and/or Heterogeneous Data Sources
|
08/07/2020
|
|
|
|
|
|
U.S.
Application No. 11/928,641
|
Data
Mining Platform for Bioinformatics
|
08/07/2020
|
|
|
|
|
|
U.S.
Patent Publication No. 2005/0228591
|
Kernels
and Kernel Methods for Spectral Data
|
08/07/2020
|
|
|
|
|
|
U.S.
Application No. 11/929,169
|
Kernels
and Kernel Methods for Spectral Data
|
08/07/2020
|
|
|
|
|
|
U.S.
Patent Publication No. 2005/0131847
|
Pre-Processed
Feature Ranking for a Support Vector Machine
|
08/07/2020
|
|
|
|
|
|
U.S.
Application No. 11/928,784
|
Pre-Processed
Feature Ranking for a Support Vector Machine
|
08/07/2020
|
|
|
|
|
|
European
Publication No. 1449108
|
Pre-Processed
Feature Ranking for a Support Vector Machine
|
11/07/2022
|
|
|
|
|
|
U.S.
Application No. 11/829,039
|
Biomarkers
for Screening, Predicting, and Monitoring Benign Prostate
Hyperplasia
|
01/24/2022
|
|
|
|
|
|
U.S.
Application No. 12/025,724
|
Biomarkers
Upregulated in Prostate Cancer
|
01/24/2022
|
|
U.S.
Provisional Application No. 60/976,791
|
Biomarkers
for Screening, Predicting, and Monitoring Prostate Disease
|
01/24/2022
|
|
|
|
|
|
U.S.
Provisional Application No. 61/027,416
|
Analysis
of Flow Cytometry Data Using Support Vector Machines
|
02/08/2028
|
HDC also
owns intellectual property rights in U.S. and foreign patents and pending patent
applications covering the FGM technology. The FGM portfolio includes
two issued patents and three pending patent applications, which
are:
|
Patent/Application
No.
|
Title
|
Expiration
Date
|
|
|
|
|
|
U.S.
Patent No. 6,920,451
|
Method
for the Manipulation, Storage, Modeling, Visualization and Quantification
of Datasets.
|
01/19/2021
|
|
|
|
|
|
European
Patent No.: 1252588
|
Method
for the Manipulation, Storage, Modeling, Visualization and Quantification
of Datasets.
|
01/19/2021
|
|
|
|
|
|
U.S.
Patent Publication No.: 2005/0079524
|
Method
for Identifying Biomarkers Using Fractal Genomics
Modeling.
|
01/19/2021
|
|
|
|
|
|
U.S.
Patent Publication No.: 2005/0158735
|
Method
for Studying Cellular Chronomics and Causal Relationships of Genes Using
Fractal Genomics Modeling.
|
01/19/2021
|
|
|
|
|
|
U.S.
Patent Publication No.: 2005/0076190
|
Method
for the Manipulation, Storage, Modeling, Visualization and Quantification
of Datasets.
|
01/19/2021
|
Our
Competition
HDC’s
main service/product is
Biomarker
Discovery
. While a number of companies perform
Biomarker Discovery
, we feel
that our SVM and FGM technologies give us a distinct advantage over
competing technologies. Neither classical statistical analysis nor
neural networks (the two competing technologies) can handle the large amounts of
inputs necessary to produce fully validated biomarkers.
Customers
and Licensees
We have
produced sales, licensing, and developmental revenue since 2005 through
agreements with a few customers and licensees. We have a strategic alliance and
licensing agreement with Clarient, Inc. for commercialization of a new molecular
diagnostic test for prostate cancer based on our discovered prostate cancer
biomarker signature. Pursuant to our agreement, Clarient, Inc.
obtained an exclusive license to the prostate cancer test in exchange for our
30% royalty interest from all reimbursements of the test once
commercialized. Since entering into the agreement, together we have
completed implementation of necessary assays and specimen transfer from an
internationally known cancer center required to validate the PCR based tests at
Clarient prior to the commercial launch as a CLIA diagnostic test for prostate
cancer. We also received our first royalty proceeds related to our
licensing agreement with Bruker Daltonics in December 2007. These
royalties relate to Bruker Daltonics’ sales of its ClinProTools
TM
clinical proteomics product line for its mass spectrometers, which contains our
SVM technology. While the initial royalty was relatively small, it
represents HDC’s first royalty check from this relationship and offers the
opportunity of future royalties for the life of the patents related to future
sales of the Bruker product. We have also been and continue to
be in meaningful discussions with a variety of parties, which, if successful,
may result in additional customers and licensees, and as a result, additional
revenue.
While we
have a number of negotiations in process with potential licensing partners,
including in the field of anatomic pathology imaging (which includes such things
as PAP smear tests, biopsies, surgical specimens, and cytology specimens), there
is a possibility that we will be unable to reach agreement with any party, that
the negotiations continue but are not finalized, or that those that may be
finalized do not provide the economic returns that we expect.
Research
and Development
Our past
Research and Development costs have been minimal due to the unique relationships
we have maintained with the members of our scientific team and their
institutions. Our total R&D costs have consisted solely of the
consultant fees paid to Dr. Stamey, Dr. Vapnik, and Dr. Guyon. These
fees consisted of $46,432 in cash for 2007 and $70,734 in cash for
2006.
ITEM
1A. RISK FACTORS
This
document contains certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 including, without limitation,
all statements, other than statements of historical facts, that address
activities, events or developments that we expect or anticipate will or may
occur in the future, including the successful implementation of our services,
business strategies and measures to implement such strategies, competitive
strengths, expansion and growth of our business and operations, references to
future success and other such matters are forward-looking statements and are
based on the beliefs of, assumptions made by and information currently available
to our management. The words “expect,” “estimate,” “anticipate,” “believe,”
“intend,” “plan” and similar expressions and variations thereof are intended to
identify forward-looking statements. Such forward-looking statements may involve
uncertainties and other factors that may cause the actual results and
performance of our company to be materially different from future results or
performance expressed or implied by such statements.
The
cautionary statements set forth in this “Risk Factors” section and elsewhere in
this annual report identify important factors with respect to such
forward-looking statements, including certain risks and uncertainties, which
could cause actual results to differ materially from those expressed in or
implied by such forward-looking statements. Among others, factors that could
adversely affect actual results and performance include failure to successfully
develop a profitable business, delays in identifying and enrolling customers,
and the inability to retain a significant number of customers. All
written or oral forward-looking statements attributable to us are expressly
qualified in their entirety by the foregoing cautionary statement.
Risks
Related to Our Business
We
are a developing business and a high-risk company.
We are a
high-risk company in a volatile industry. In September 2003, we
completely changed the focus of our business from wireless telecommunications to
biotechnology. Consequently, we have a limited history on which to
base an evaluation of our business and prospects. Thus, investors
should recognize that an investment in our company is risky and highly
speculative. We are a developing business, and our prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of
development. Failure to implement and execute our business and
marketing strategy successfully, to provide superior customer service, to
respond to competitive developments and to integrate, retain and motivate
qualified personnel could have a material adverse effect on our business,
results of operations and financial condition. We must successfully overcome
these and other business risks. If our efforts are unsuccessful or
other unexpected events occur, purchasers of the common stock offered hereby
could lose their entire investment.
We
expect to incur future losses, and we may never achieve or sustain
profitability.
We expect
to continue to incur net losses and have negative cash flows in the future due
in part to high research and development expenses, including enhancements to our
technologies and investments in new technologies. We cannot assure
you that we will ever achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase
profitability.
Our
business is difficult to evaluate because we have a limited history of
operations.
Since
reorganizing in 2003, our focus and our business model have been continually
evolving. Accordingly, we have a history of operations in which there
is limited information to identify any historical pattern. Even if we could
discern such a pattern, the rapidly evolving nature of the biotechnology and
pharmaceutical industries would make it very difficult to identify any
meaningful information in such short a history. Therefore, it is also
difficult to make any projections about the future of our
operations. This difficulty may result in our shares trading below
their value.
We
will have negative operating income and may never become
profitable.
Our
operating expenses are expected to exceed our income until we successfully
complete transactions resulting in sufficient revenue and thus our capital will
be decreased to pay these operating expenses. If we ever become
profitable, of which there is no assurance that we can, from time to time our
operating expenses could exceed our income and thus our capital will be
decreased to pay these operating expenses.
We
may need additional financing.
If we are
unable to generate sufficient revenue, additional proceeds may be required to
finance our activities. We cannot assure prospective investors that we will not
need to raise additional capital or that we would be able to raise sufficient
additional capital on favorable terms, if at all. No binding arrangements have
been made to secure such financing, and there can be no assurance that such
additional financing will be available when required on terms acceptable to
us. If we fail to raise sufficient funds, we may have to cease
operations, which would materially harm our business and financial results. If
we raise additional capital by issuing equity securities, our stockholders may
experience dilution. If we raise additional funds through collaboration and
licensing arrangements, we may be required to relinquish some rights to our
technologies or product candidates, or grant licenses on terms that are not
favorable to us.
Our
operating results are unpredictable and may fluctuate significantly from period
to period, which may cause our stock price to decline and result in losses to
investors.
Our
operating results may vary from period to period due to numerous factors, many
of which are outside our control, including the number, timing and acceptance of
our services. Factors that may cause our results to vary by period
include:
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changes
in the demand for our products and services;
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the
nature, pricing and timing of products and services provided to our
collaborators;
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acquisition,
licensing and other costs related to the expansion of our operations,
including operating losses of acquired businesses;
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reduced
capital investment for extended periods;
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losses
and expenses related to our investments in joint ventures and
businesses;
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regulatory
developments or changes in public perceptions relating to the use of
genetic information and the diagnosis and treatment of disease based on
genetic information;
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changes
in intellectual property laws that affect our rights in genetic
information that we sell; and
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payments
of milestones, license fees or research payments under the terms of our
increasing number of external
alliances.
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Research
and development costs associated with our technologies and services, as well as
personnel costs, marketing programs and overhead, account for a substantial
portion of our operating expenses. These expenses cannot be adjusted quickly in
the short term. If revenues of the business decline or do not grow as
anticipated, we may not be able to reduce our operating expenses
accordingly. Failure to achieve anticipated levels of revenue could
therefore significantly harm our operating results for a particular
period.
Our stock price has been, and is
likely to continue to be, highly volatile
.
Our stock
price has, since September 1, 2003, traded as high as $0.60 and as low as
$0.04. Our stock price could fluctuate significantly due to a number
of factors beyond our control, including:
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variations
in our actual or anticipated operating results;
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sales
of substantial amounts of our stock;
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announcements
about us or about our competitors, including technological innovation or
new products or services;
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litigation
and other developments related to our patents or other proprietary rights
or those of our competitors;
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conditions
in the life sciences, pharmaceuticals or genomics industries;
and
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governmental
regulation and legislation.
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In
addition, the stock market in general, and the market for life sciences and
technology companies in particular, have experienced extreme price and volume
fluctuations recently. These fluctuations often have been unrelated or
disproportionate to the operating performance of these companies. These broad
market and industry factors may decrease the market price of our common stock,
regardless of our actual operating performance.
In the
past, companies that have experienced volatility in the market prices of their
stock have been the objects of securities class action litigation. If we became
the object of securities class action litigation, it could result in substantial
costs and a diversion of management’s attention and resources, which could
affect our profitability.
Our
approach of incorporating ideas and methods from mathematics, computer science
and physics into the disciplines of biology, organic chemistry and medicine is
novel and may not be accepted by our potential customers or
collaborators.
We intend
to create a fully integrated biomarker discovery company to provide
pharmaceutical and diagnostic companies worldwide with new, clinically relevant
and economically significant biomarkers. We are a drug and diagnostic
discovery company, which incorporates ideas and methods from mathematics,
computer science and physics into the disciplines of biology, organic chemistry
and medicine. Our objective is to significantly increase the probability of
success of drug discovery and diagnostic development. Our approach
and the products and technologies derived from our approach are novel. Our
potential customers and collaborators may be reluctant to accept our new,
unproven technologies, and our customers may prefer to use traditional services.
In addition, our approach may prove to be ineffective or not as effective as
other methods. Our products and technologies may prove to be
ineffective if, for instance, they fail to account for the complexity of the
life processes that we are now attempting to model. If our customers
or collaborators do not accept our products or technologies and/or if our
technologies prove to be ineffective our business may fail or we may never
become profitable.
Even
if our computational technologies are effective as research tools, our customers
or we may be unable to develop or commercialize new drugs, therapies or other
products based on them.
Even if
our computational technologies perform their intended functions as research
tools, our customers may be unable to use the discoveries resulting from them to
produce new drugs, therapies, diagnostic products or other life science
products. Despite recent scientific advances in the life sciences and
our improved understanding of biology, the roles of genes and proteins and their
involvement in diseases and in other life processes is not well
understood. Only a few therapeutic products based on the study of and
discoveries relating to genes or proteins have been developed and
commercialized. If our customers are unable to use our discoveries to
make new drugs or other life science products, our business may fail or we may
never become profitable.
Our
acquired SVM Portfolio utilizes technology covered by an earlier-issued
patent, and if we lose the rights to use that patent, our ability to exploit
certain aspects of our SVM technology will be impaired.
Our
acquired SVM Portfolio utilizes technology covered by the original hyperplane
patent (Pat. No. 5,649,068) invented by members of our Scientific Advisory Board
and owned by Lucent Technologies, Inc. - GRL
Corp. (“Lucent”). We have obtained an assignment of a
pre-existing patent license from Lucent. If Lucent were to terminate
the license, it is possible that we would not be able to use portions of the
Support Vector Machine technology.
The
industries in which we are active are evolving rapidly, and we may be unable to
keep pace with changes in technology.
The
pharmaceutical and biotechnology industries are characterized by rapid
technological change. This is especially true of the data-intensive
areas of such technologies. Our future success will largely depend on
maintaining a competitive position in the field of drug, therapeutics and
diagnostic products discovery. If we fail to keep pace with changes
in technology, our business will be materially harmed. Rapid technological
development may result in our products or technologies becoming obsolete. This
may occur even before we recover the expenses that we incurred in connection
with developing those products and technologies. Products or services
offered by us could become obsolete due to the development of less expensive or
more effective drug or diagnostics discovery technologies. We may not
be able to make the necessary enhancements to our technologies to compete
successfully with newly emerging technologies.
We
face intense competition and if we are unable to compete successfully we may
never achieve profitability.
The
markets for our products and services are very competitive, and we expect our
competition to increase in the future. Although we have not
identified one company that provides the full suite of services that we do, we
compete with entities in the U.S. and elsewhere that provide products and
services for the analysis of genomic information and information relating to the
study of proteins (proteomic information) or that commercializes novel genes and
proteins. These include genomics, pharmaceutical and biotechnology
companies, academic and research institutions and government and other publicly
funded agencies. We may not be able to successfully compete with
current and future competitors. Many of our competitors have
substantially greater capital resources, research and development staffs,
facilities, manufacturing and marketing experience, distribution channels and
human resources than we do. This may allow these competitors to
discover or to develop products in advance of us or of our
customers.
Some of
our competitors, especially academic and research institutions and government
and other publicly funded agencies, may provide for free services or data
similar to the services and data that we provide for a fee. Moreover,
our competitors may obtain patent and other intellectual property protection
that would limit our rights or our customers’ and partners’ ability to use or
commercialize our discoveries, products and services. If we are
unable to compete successfully against existing or potential competitors, we may
never achieve profitability.
Our
management may be unable to address future growth.
We
anticipate that if we experience a period of growth in the future, a period of
significant expansion will be required to address potential growth in our
customer base and market opportunities. This expansion will place a significant
strain on our management, operational and financial resources. To manage future
growth of our operations, if any, we will be required to improve existing and
implement new operational systems, procedures and controls, and to expand, train
and manage our employee base. There can be no assurance that our current and
planned personnel, systems, procedures and controls will be adequate to support
our future operations, that management will be able to hire, train, retain,
motivate and manage the required personnel or that we will be able to identify,
manage and exploit existing and potential strategic relationships and market
opportunities. Our failure to manage growth effectively could have a material
adverse effect on our business, results of operations and financial
condition.
If our business does not keep up
with rapid technological change or continue to introduce new products, we may be
unable to maintain market share or recover investments in our
technologies.
Technologies
in the biomarker industry have undergone, and are expected to continue to
undergo, rapid and significant change. We may not be able to keep pace with the
rapid rate of change and introduce new products that will adequately meet the
requirements of the marketplace or achieve market acceptance. If we fail to
introduce new and innovative products, we could lose market share to our
competitors and experience a reduction in our growth rate and damage to our
reputation and business.
The
future success of our business will depend in large part on our ability to
maintain a competitive position with respect to these technologies. We believe
that successful new product introductions provide a significant competitive
advantage because customers make an investment of time in selecting and learning
to use a new product, and are reluctant to switch to a competing product after
making their initial selection. However, our business or others may make rapid
technological developments, which could result in our technologies, products or
services becoming obsolete before we are able to recover the expenses incurred
to develop them.
If our business cannot enter into
strategic alliances or licensing agreements, we may be unable to develop and
commercialize our technologies into new products and services or continue to
commercialize existing products or services.
We may be
unable to maintain or expand existing strategic alliances or establish
additional alliances or licensing arrangements necessary to continue to develop
and commercialize products, and any of those arrangements may not be on terms
favorable to the business. In addition, current or any future arrangements may
be unsuccessful. If we are unable to obtain or maintain any third party license
required to sell or develop our products or product enhancements, we may choose
to obtain substitute technology either through licensing from another third
party or by developing the necessary technology ourselves. Any substitute
technology may be of lower quality or may involve increased cost, either of
which could adversely affect our ability to provide our products competitively
and harm our business.
We also
depend on collaborators for the development and manufacture of complex
instrument systems and chemicals and other materials that are used in laboratory
experiments. We cannot control the amount and timing of resources our
collaborators devote to our products. We may not be able to enter into or
satisfactorily retain these research, development and manufacturing
collaborations and licensing agreements, which could reduce our growth and harm
our competitive position.
We
may not be able to find business partners to develop and commercialize product
candidates deriving from our discovery activities.
Our
strategy for the development and commercialization of diagnostic markers and
therapeutic proteins depends on the formation of collaborations or licensing
relationships with third parties that have complementary capabilities in
relevant fields. Potential third parties include pharmaceutical and
biotechnology companies, diagnostic companies, academic institutions and other
entities. We cannot assure you that we will be able to form these
collaborations or license our discoveries or that these collaborations and
licenses will be successful.
Our
dependence on licensing and other collaboration agreements with third parties
subjects us to a number of risks.
We may
not be able to enter into licensing or other collaboration agreements on terms
favorable to us. Collaborators may typically be afforded significant
discretion in electing whether to pursue any of the planned
activities. In most cases, our collaborators or licensees will have
responsibility for formulating and implementing key strategic or operational
plans. Decisions by our collaborators or licensees on these key plans, which may
include development, clinical, regulatory, marketing (including pricing),
inventory management and other issues, may prevent successful commercialization
of the product or otherwise affect our profitability.
In
addition, we may not be able to control the amount and timing of resources our
collaborators devote to the product candidates, and collaborators may not
perform their obligations as expected. Additionally, business combinations or
changes in a collaborator’s or a licensee’s business strategy may negatively
affect its willingness or ability to complete its obligations under the
arrangement with us. Furthermore, our rights in any intellectual
property or products that may result from our collaborations may depend on
additional investment of money that we may not be able or willing to
make.
Potential
or future collaborators may also pursue alternative technologies, including
those of our competitors. Disputes may arise with respect to the
ownership of rights to any technology or product developed with any future
collaborator. Lengthy negotiations with potential collaborators or disagreements
between us and our collaborators may lead to delays or termination in the
research, development or commercialization of product candidates or result in
time-consuming and expensive litigation or arbitration. If our collaborators
pursue alternative technologies or fail to develop or commercialize successfully
any product candidate to which they have obtained rights from us, our business,
financial condition and results of operations may be significantly
harmed.
If
we are unable to hire or retain key personnel or sufficient qualified employees,
we may be unable to successfully operate our business.
Our
business is highly dependent upon the continued services of our Chief Executive
Officer, Board of Directors, and Scientific Advisory Board. While
members of our senior management are parties to employment or consulting
agreements and non-competition and non-disclosure agreements, we cannot assure
you that these key personnel and others will not leave us or compete with us,
which could materially harm our financial results and our ability to
compete. The loss, incapacity or unavailability for any reason of any
of these individuals could have a material adverse effect upon our business, as
well as our relationships with our potential customers. We do not
carry key person life insurance on any member of our senior
management. Furthermore, competition for highly qualified personnel
in our industry and geographic locations is intense. Our business
would be seriously harmed if we were unable to retain our key employees, or to
attract, integrate or retain other highly qualified personnel in the
future.
We
may not be able to employ and retain experienced scientists, mathematicians and
management.
Technologies
in our industry have undergone, and are expected to continue to undergo, rapid
and significant change. A highly skilled staff is integral to developing,
marketing and supporting new products that will meet or exceed the expectations
of the marketplace and achieve market acceptance. Without experienced staff, our
business may be unable to maintain or grow market share, which could result in
lower than expected revenues and earnings.
We
may acquire or make strategic investments in other businesses and technologies
in the future, and these could prove difficult to integrate, disrupt our
business, dilute stockholder value and adversely affect our operating
results.
If
opportunities arise, we may consider making acquisitions of businesses,
technologies, services or products. Acquisitions may involve
significant cash expenditures, debt incurrence, additional operating losses and
expenses that may have a material adverse effect on the operating results of our
business. Moreover, even if we acquire complementary businesses or
technologies, we may be unable to successfully integrate any additional
personnel, operations or acquired technologies into our business.
Difficulties
in integrating an acquired business could disrupt our business, distract our
management and employees and increase our expenses. Future
acquisitions could expose us to unforeseen liabilities and result in significant
charges relating to intangible assets. Sizable acquisitions may also
divert senior management from focusing on our existing business
plan. Finally, if we make acquisitions using convertible debt or
equity securities, existing stockholders may be diluted, which could affect the
market price of our stock.
If
our access to tissue samples or to genomic data or other information is
restricted, or if this data is faulty, our business may suffer.
To
continue to build our technologies and related products and services, we need
access to third parties’ scientific and other data and
information. We also need access to normal and diseased human and
other tissue samples and biological materials. We may not be able to
obtain or maintain such access on commercially acceptable terms. Some
of our suppliers could become our competitors and discontinue selling supplies
to us. Information and data from these suppliers could contain errors
or defects that could corrupt our databases or the results of our analysis of
the information and data. In addition, government regulation in the
United States and other countries could result in restricted access to, or use
of, human and other tissue samples. Although currently we do not face
significant problems in obtaining access to tissues, if we lose access to
sufficient numbers or sources of tissue samples, or if tighter restrictions are
imposed on our use of the information generated from tissue samples, our
business may suffer.
The
sales cycle for some of our products and services is lengthy. We
expend substantial funds and management effort with no assurance of successfully
selling our products or services.
Our
ability to obtain customers for our platforms, tools and services depends in
large part upon the perception that our technologies can help accelerate their
efforts in drug and diagnostics discovery. Our ability to obtain
customers for our therapeutic or diagnostic product candidates significantly
depends on our ability to validate and prove that each such product candidate is
suitable for our claimed therapeutic or diagnostic purposes. Our
ability to obtain customers will also depend on our ability to successfully
negotiate terms and conditions for such arrangements. The sales cycle for our
therapeutic and diagnostic product candidates is typically lengthy and may take
more than 12 months.
An
inability to protect our proprietary data, technology or products may harm our
competitive position.
If we do
not adequately protect the intellectual property underlying our products and
services, competitors may be able to develop and market the same or similar
products and services. This would erode our competitive advantage. In
addition, the laws of some countries do not protect or enable the enforcement of
intellectual property to the same extent as the laws of the United
States.
We use
contractual obligations to protect a significant portion of our confidential and
proprietary information and know-how. This includes a substantial
portion of the knowledge base from which we develop a large portion of our
proprietary products and services. However, these measures may not
provide adequate protection for our trade secrets or other proprietary
information and know-how. Customers, employees, scientific advisors,
collaborators or consultants may still disclose our proprietary information in
violation of their agreements with us, and we may not be able to meaningfully
protect our trade secrets against this disclosure.
In
addition, we have applied for patents covering some aspects of some of our
technologies and predicted genes and proteins we have discovered using these
technologies. We plan to continue to apply for patents covering parts
of our technologies and discoveries as we deem appropriate, but cannot assure
you that we will be able to obtain any patents. The patent positions
of biotechnology companies are generally uncertain and involve complex legal and
factual questions. Legislative changes and/or changes in the
examination guidelines of governmental patents offices may negatively affect our
ability to obtain patent protection for certain aspects of our intellectual
property, especially with respect to genetic discoveries.
Our
success depends in large part on our ability to patent our
discoveries.
Our
success depends, in large part, on our ability to obtain patents on biomarkers
and pathways that we have discovered and are attempting to
commercialize. We face intense competition from other biotechnology
and pharmaceutical companies. These include customers who use our products and
technologies and are pursuing patent protection for discoveries, which may be
similar or identical to our discoveries. We cannot assure you that
other parties have not sought patent protection relating to the biomarkers and
pathways that we discovered or may discover in the future. Our patent
applications may conflict with prior applications of third parties or with prior
publications. They may not result in issued patents and, even if
issued, our patents could be invalidated or may not be sufficiently broad to
provide us with any competitive advantages. U.S. and other patent
applications ordinarily remain confidential for 18 months from the date of
filing. As a result, patent applications that we file which we
believe are novel at the time of filing, may be determined at a later stage to
be inconsistent with earlier applications. Any of these events could
materially harm our business or financial results.
Litigation
or other proceedings or third party claims of intellectual property infringement
could prevent us, or our customers or collaborators, from using our discoveries
or require us to spend time and money to modify our operations.
If we
infringe patents or proprietary rights of third parties, or breach licenses that
we have entered into with regard to our technologies and products, we could
experience serious harm. If litigation is commenced against us for intellectual
property rights infringement, we may incur significant costs in litigating,
whether or not we prevail in such litigation. These costs would also
include diversion of management and technical personnel to defend us against
third parties or to enforce our patents (once issued) or other rights against
others. In addition, parties making claims against us may be able to
obtain injunctive or other equitable relief that could prevent us from being
able to further develop or commercialize. This could also result in
the award of substantial damages against us. In the event of a
successful claim of infringement against us, we may be required to pay damages
and obtain one or more licenses from third parties. If we are not
able to obtain these licenses at a reasonable cost, if at all, we could
encounter delays in product introductions while we attempt to develop
alternative methods or products. Defense of any lawsuit or failure to obtain any
of these licenses could prevent us from commercializing available
products.
The
technology that we use to develop our products, and the technology that we
incorporate in our products, may be subject to claims that they infringe the
patents or proprietary rights of others. The risk of this occurring will tend to
increase as the genomics, biotechnology and software industries expand, more
patents are issued and other companies engage in other genomic-related
businesses.
As is
typical in the genomics, biotechnology and software industries, we will probably
receive in the future notices from third parties alleging patent
infringement. We believe that we are not infringing the patent rights
of any third parties. No third party has filed a patent lawsuit
against us. We may, however, be involved in future lawsuits alleging
patent infringement or other intellectual property rights
violations. In addition, litigation may be necessary to:
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assert
claims of infringement;
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enforce
our patents as they are granted;
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protect
our trade secrets or know-how; or
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determine
the enforceability, scope and validity of the proprietary rights of
others.
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We may be
unsuccessful in defending or pursuing these lawsuits. Regardless of
the outcome, litigation can be very costly and can divert management’s
efforts. An adverse determination may subject us to significant
liabilities or require us to seek licenses to other parties’ patents or
proprietary rights. We may also be restricted or prevented from
licensing or selling our products and services. Further, we may not
be able to obtain any necessary licenses on acceptable terms, if at
all.
The
scope of patents we receive may not provide us with adequate protection of our
intellectual property, which would harm our competitive position.
Any
issued patents that cover our proprietary technologies may not provide us with
substantial protection or be commercially beneficial to the
business. The issuance of a patent is not conclusive as to its
validity or its enforceability. Federal courts may invalidate these
patents or find them unenforceable. Competitors may also be able to
design around our patents. If we are unable to protect our patented
technologies, we may not be able to commercialize our technologies, products or
services and our competitors could commercialize our technologies.
Our
business also relies on a combination of trade secrets, copyrights and
trademarks, non-disclosure agreements and other contractual provisions and
technical measures to protect our intellectual property rights. While we
generally require employees, collaborators, consultants and other third parties
to enter into confidentiality agreements where appropriate, it is not always
possible to enforce these arrangements.
Monitoring
the unauthorized use of our technology is difficult, and the steps we have taken
may not prevent unauthorized use of our technology. The disclosure or
misappropriation of our intellectual property for any of the above reasons could
harm our ability to protect our rights and our competitive
position.
We may become involved in disputes
regarding our patents and other intellectual property rights, which could result
in the forfeiture of these rights, expose the business to significant liability
and divert management’s focus.
In order
to protect or enforce our patent rights, our business may need to initiate
patent litigation against third parties. In addition, we may be sued
by third parties alleging that we are infringing their intellectual property
rights. These lawsuits are expensive, take significant time and
divert management’s focus from other business concerns. These lawsuits could
result in the invalidation or limitation of the scope of our patents, forfeiture
of the rights associated with these patents or an injunction preventing Health
Discovery from selling any allegedly infringing product. In addition, we may not
prevail or a court may find damages or award other remedies in favor of the
opposing party in any of these suits. During the course of these
suits, there may be public announcements of the results of hearings, motions and
other interim proceedings or developments in the litigation. Securities analysts
or investors may perceive these announcements to be negative, which could cause
the market price of our common stock to decline.
Many of
our services will be based on complex, rapidly developing technologies. Although
we will try to identify all relevant third party patents, these products could
be developed by the business without knowledge of published or unpublished
patent applications that cover some aspect of these technologies. The biomarker
industry has experienced intensive enforcement of intellectual property rights
by litigation and licensing. If we are found to be infringing the
intellectual property of others, we could be required to stop the infringing
activity, or we may be required to design around or license the intellectual
property in question. If we are unable to obtain a required license
on acceptable terms, or are unable to design around any third party patent, we
may be unable to sell some of our services, which could result in reduced
revenue.
Risks
Related to Our Industry
There
are many risks of failure in the development of drugs, therapies, diagnostic
products and other life science products. These risks are inherent to the
development and commercialization of these types of products.
Risks of
failure are inseparable from the process of developing and commercializing
drugs, therapies, diagnostic products and other life science products. These
risks include the possibility that any of these products will:
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be
found to be toxic or ineffective;
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fail
to receive necessary regulatory approvals;
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be
difficult or impossible to manufacture on a large
scale;
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be
uneconomical to market;
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fail
to be developed prior to the successful marketing of similar products by
competitors; or
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be
impossible to market because they infringe on the proprietary rights of
third parties or compete with superior products marketed by third
parties.
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We are
dependent on our customers’ commercialization of our discoveries. Any
of these risks could materially harm our business and financial
results.
The
trend towards consolidation in the pharmaceutical and biotechnology industries
may adversely affect us.
The trend
towards consolidation in the pharmaceutical and biotechnology industries may
negatively affect us in several ways. These consolidations usually
involve larger companies acquiring smaller companies, which results in the
remaining companies having greater financial resources and technological
capabilities, thus strengthening competition in the industry. In
addition, continued consolidation may result in fewer customers for our products
and services.
We
may be subject to product liability claims if products derived from our products
or services harm people.
We may be
held liable if any product that is made with the use, or incorporation of, any
of our technologies or data causes harm or is found otherwise
unsuitable. These risks are inherent in the development of genomics,
functional genomics and pharmaceutical products. If we are sued for
any harm or injury caused by products derived from our services or products, our
liability could exceed our total assets. In addition, such claims
could cause us to incur substantial costs and subject us to negative publicity
even if we prevail in our defense of such claims.
Our
business and the products developed by our collaborators and licensees may be
subject to governmental regulation.
Any new
therapy or diagnostic product that may be developed by our collaborators or by
our licensees will have to undergo a lengthy and expensive regulatory review
process in the United States and other countries before it can be
marketed. It may be several years, or longer, before any therapy or
diagnostic product that is developed by using our technologies, will be sold or
will provide us with any revenues. This may delay or prevent us from
becoming profitable. Changes in policies of regulatory bodies in the
United States and in other countries could increase the delay for each new
therapy and diagnostic product.
Even if
regulatory approval is obtained, a product on the market and its manufacturer
are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market.
Although
we intend to become involved in the clinical phases in the future, we still
expect to rely mainly on collaborators or licensees of our discovery activities
to file regulatory approval applications and generally direct the regulatory
review process. We cannot be certain whether they will be able to
obtain marketing clearance for any product that may be developed on a timely
basis, if at all. If they fail to obtain required governmental
clearances, it will prevent them from marketing therapeutic or diagnostic
products until clearance can be obtained, if at all. This will in
turn reduce our chances of receiving various forms of payments, including those
relating to sales of marketed therapeutic or diagnostic products by
them.
The
law applicable to us may change in a manner that negatively affects our
prospects.
We must
comply with various legal requirements, including requirements imposed by
federal and state securities and tax laws. Should any of those laws change over
the term of our existence, the legal requirements to which we may be subject
could differ materially from current requirements, which could increase the cost
of doing business or preclude us from undertaking certain parts of our business
plan, would result in adverse consequences.
If
ethical and other concerns surrounding the use of genetic information become
widespread, there may be less demand for our products and services.
Genetic
testing has raised ethical issues regarding confidentiality and the appropriate
uses of the resulting information. For these reasons, governmental
authorities may call for limits on or regulation of the use of genetic testing
or prohibit testing for genetic predisposition to various conditions,
particularly for those that have no known cure. Any of these
scenarios could reduce the potential markets for our technologies in the field
of predictive drug response, which could materially harm our business and
financial results.