As filed with the U.S. Securities and Exchange Commission on June 8, 2018
File No. 001-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
AgeX Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of||(I.R.S. Employer|
|incorporation or organization)||Identification No.)|
1010 Atlantic Avenue
|(Address of Principal Executive Offices)||(Zip Code)|
Registrant’s telephone number, including area code: (510) 871-4190
Securities registered pursuant to Section 12(b) of the Act:
|Title of Each Class to be so Registered||
Name of Each Exchange on Which
Each Class is to be Registered
|Common stock, par value $0.0001 per share||New York Stock Exchange|
to be registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer [ ]||Accelerated filer [ ]|
|Non-accelerated filer [ ] (Do not check if a smaller reporting company)||Smaller reporting company [ ]|
|Emerging growth company [X]|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]
REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
Certain information required to be included in this Form 10 is incorporated by reference to specifically-identified portions of the body of the information statement filed herewith as Exhibit 99.1 (the “Information Statement”). None of the information contained in the Information Statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.
Item 1. Business
The information required by this item is contained under the sections of the Information Statement entitled “Information Statement Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” Those sections are incorporated herein by reference.
Item 1A. Risk Factors
The information required by this item is contained under the section of the Information Statement entitled “Risk Factors.” That section is incorporated herein by reference.
Item 2. Financial Information
The information required by this item is contained under the sections of the Information Statement entitled “Summary and Selected Financial Data,” “Capitalization,” “ Unaudited Pro Forma Condensed Combined Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Those sections are incorporated herein by reference.
Item 3. Properties
The information required by this item is contained under the section of the information statement entitled “Business—Facilities.” That section is incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained under the section of the Information Statement entitled “Security Ownership of Certain Beneficial Owners and Management.” That section is incorporated herein by reference.
Item 5. Directors and Executive Officers
The information required by this item is contained under the section of the Information Statement entitled “Management” and “Security Ownership of Certain Beneficial Owners and Management.” Those sections are incorporated herein by reference.
Item 6. Executive Compensation
The information required by this item is contained under the sections of the Information Statement entitled “Management—Compensation of Directors” and “Executive Compensation.” Those sections are incorporated herein by reference.
Item 7. Certain Relationships and Related Party Transactions; and Director Independence
The information required by this item is contained under the sections of the Information Statement entitled “Risk Factors—Risks Related to our Relationship with BioTime,” “Management,” “Executive Compensation,” and “Certain Relationships and Related Party Transactions.” Those sections are incorporated herein by reference.
Item 8. Legal Proceedings
The information required by this item is contained under the section of the Information Statement entitled “Business—Legal Proceedings.” This section is incorporated herein by reference.
Item 9. Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters
The information required by this item is contained under the sections of the Information Statement entitled “Risk Factors,” “Dividend Policy,” “Capitalization,” “The Distribution,” “Shares Eligible for Future Sale,” and “Description of Securities.” Those sections are incorporated herein by reference.
Item 10. Recent Sales of Unregistered Securities
The information required by this item is contained under the section of the Information Statement entitled “Certain Relationships and Related Party Transactions.” That section is incorporated herein by reference.
Item 11. Description of Registrant’s Securities to be Registered
The information required by this item is contained under the sections of the Information Statement entitled “Risk Factors—Risks Pertaining to Our Common Stock,” “Dividend Policy” and “Description of Securities.” Those sections are incorporated herein by reference.
Item 12. Indemnification of Directors and Officers
The information required by this item is contained under the section of the Information Statement entitled “Management—Indemnification of Directors and Officers.” That section is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data
The information required by this item is contained under the sections of the Information Statement entitled “ Unaudited Pro Forma Condensed Combined Financial Statements ,” “Index to Audited Consolidated Financial Statements and Unaudited Condensed Consolidated Interim Financial Statements” (and the financial statements referenced therein). Those sections are incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 15. Financial Statement and Exhibits
(a) Financial Statements
The information required by this item is contained under the section of the Information Statement entitled “Index to Audited Consolidated Financial Statements and Unaudited Condensed Consolidated Interim Financial Statements” (and the financial statements referenced therein). Those sections are incorporated herein by reference.
|Exhibit Number||Exhibit Description|
|3.1||Certificate of Incorporation*|
|4.1||Specimen of Common Stock Certificate†**|
|10.1||Asset Contribution and Separation Agreement, dated August 17, 2017, between BioTime, Inc. and AgeX Therapeutics, Inc. (filed as Exhibit 10.1 to BioTime, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, and incorporated herein by reference)#|
|10.2||License Agreement, dated August 17, 2017, between BioTime, Inc. and AgeX Therapeutics, Inc. (filed as Exhibit 10.2 to BioTime, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, and incorporated herein by reference)#|
|10.3||Option to Purchase Shares of AgeX Therapeutics, Inc., dated August 4, 2017, granted by BioTime, Inc. to Alfred D. Kingsley (filed as Exhibit 10.3 to BioTime, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, and incorporated herein by reference)†|
|10.4||AgeX Therapeutics, Inc. 2017 Equity Incentive Plan (filed as Exhibit 10.1 to BioTime, Inc.’s Current Report on Form 8-K filed with the SEC on October 16, 2017, and incorporated herein by reference)†|
|10.5||Form of AgeX Therapeutics, Inc. Stock Option Agreement (filed as Exhibit 10.2 to BioTime, Inc.’s Current Report on Form 8-Q filed with the SEC on October 16, 2017, and incorporated herein by reference)†|
|10.6||Asset Purchase Agreement between Ascendance Biotechnology, Inc. and AgeX Therapeutics, Inc.**|
|10.7||Sublicense Agreement, dated September 26, 2017, between BioTime, Inc. and AgeX Therapeutics, Inc.**|
|10.8||Amendment, dated November 8, 2017, to License Agreement, dated August 17, 2017, between BioTime, Inc. and AgeX Therapeutics, Inc. **|
|10.9||Sublicense Agreement, dated August 17, 2017, by and among OrthoCyte Corporation, BioTime, Inc. and AgeX Therapeutics, Inc. **|
|10.10||Amendment, dated November 8, 2017, to Sublicense Agreement, dated August 17, 2017, between OrthoCyte Corporation, BioTime, Inc. and AgeX Therapeutics, Inc. **|
|10.11||Amendment to Amended and Restated Cross License Agreement, dated November 19, 2015, by and among GE Healthcare UK Limited, ES Cell International Pte Ltd. and Ascendance Biotechnology, Inc. **|
|10.12||License Agreement, dated August 17, 2017, by and between ES Cell International Ptd Ltd., BioTime, Inc. and AgeX Therapeutics, Inc. **|
|10.13||Consent to Assignment and Assumption Agreement by and among GE Healthcare UK Limited, ES Cell International Ptd Ltd. And AgeX Therapeutics, Inc. **|
|10.14||Assignment and Assumption Agreement, dated March 21, 2018, by and between Ascendance Biotechnology, Inc. and AgeX Therapeutics, Inc. **|
|10.15||Shared Facilities and Services Agreement between BioTime, Inc. and AgeX Therapeutics, Inc.**|
|10.16||Form of Employee Matters Agreement.**|
|10.17||Employment Agreement, by and between AgeX Therapeutics, Inc. and Hal Sternberg, dated August 21, 2017.†*|
|10.18||Form of Tax Matters Agreement between BioTime, Inc. and AgeX Therapeutics, Inc.**|
|10.19||Form of Registration Rights Agreement.**|
|21.1||Subsidiaries of the Registrant.*|
|23.1||Consent of OUM & Co. LLP.**|
* Filed herewith.
** To be filed by amendment.
† Indicates management contract or compensatory plan.
# Confidential treatment has been granted with respect to portions of this exhibit (indicated by asterisks) and those portions have been separately filed by BioTime, Inc. with the Securities and Exchange Commission.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized on the 8 th day of June, 2018.
|AGEX THERAPEUTICS, INC.|
/s/ Michael D. West
|Michael D. West|
|Chief Executive Officer|
AGEX THERAPEUTICS, INC.
For the purpose of organizing a corporation under the Delaware General Corporation Law, the undersigned hereby certifies that:
The name of this corporation is AgeX Therapeutics, Inc.
The address of the corporation’s registered office in the State of Delaware is 1675 South State Street, Suite B, Dover, Delaware 19901 in Kent County. The name of its registered agent at such address is Capitol Services, Inc.
The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.
The corporation is authorized to issue two classes of stock, which shall be designated “Common Stock” and “Preferred Stock.” The number of shares of Common Stock which the corporation is authorized to issue is one hundred million (100,000,000), with a par value of $0.0001 per share. The number of shares of Preferred Stock which the corporation is authorized to issue is five million (5,000,000), with a par value of $0.0001 per share. The Preferred Stock may be issued in one or more series as the board of directors of the corporation may by resolution or resolutions designate. The board of directors- of the corporation is authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions and the number of shares of any series of Preferred Stock and to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon the Preferred Stock as a class, or upon any wholly unissued series of Preferred Stock. The board of directors may, by resolution, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series of Preferred Stock subsequent to the issue of shares of that series.
Name and Address of Incorporator
The name and mailing address of the incorporator are as follows:
S. Soroko, Esq.
Thompson, Welch, Soroko & Gilbert LLP
3950 Civic Center Drive
San Rafael, CA 94903
Limitation on Liability and indemnification
The liability of the directors of the corporation to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director is eliminated to the fullest extent permissible under Delaware; provided that this provision shall not eliminate or limit the liability of a director: (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under § 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit. The corporation is authorized to indemnify directors, officers, and agents to the fullest extent permissible under Delaware law.
Corporate Governance Matters
The board of directors of the corporation shall have the power to make, amend and repeal the bylaws of the corporation (except insofar as the bylaws of the corporation adopted by the stockholders shall otherwise provide). Any bylaws made by the board of directors under the powers conferred hereby may be amended or repealed by the board of directors or by the stockholders,
7.2 Number of Directors.
The number of directors of the corporation shall be fixed from time to time by, or in the manner provided in, the bylaws of the corporation, unless otherwise restricted by this Certificate of Incorporation.
Election of directors need not be by written ballots unless the bylaws of the corporation shall so provide.
I acknowledge and affirm that I am the person who executed the above Certificate of Incorporation, and such instrument is my act and deed, and that the facts stated therein are true.
|Dated: January 5, 2017||/s/Richard S. Soroko|
|Richard S. Soroko,|
AGEX THERAPEUTICS, INC.
Section 1. Principal Office . Offices may be established and maintained at such place or places, either within or without the State of Delaware, as the Board of Directors may from time to time designate. The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or without the State of Delaware. If the principal executive office is located outside the State of Delaware, and the corporation has one or more business offices in the State of Delaware, the Board of Directors shall fix and designate a principal business office in the State of Delaware.
Meetings of Stockholders
Section 1. Place of Meetings . All meetings of stockholders shall be held at such place, either within or without the State of Delaware, as the Board of Directors may designate. If no designation is made, the meeting shall be held at the principal executive office of the corporation.
Section 2. Annual Meetings . The annual meetings of stockholders shall be held once each year on a date and time designated by the Board of Directors, but in any event not less frequently than once every 13 months. At each annual meeting, directors shall be elected to serve during the ensuing year and until their successors are elected and qualified; reports of the affairs of the corporation shall be considered, and any other business may be transacted which is within the powers of the stockholders.
At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 2. For business to be properly brought before an annual meeting by a stockholder (a “Proposing Stockholder”), the Proposing Stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a Proposing Stockholder’s notice must be delivered or mailed to and received at the principal executive offices of the corporation not less one hundred twenty (120) days prior to the one-year anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered, or mailed and received, not later than the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosure of the date of such annual meeting was first made. In no event shall any adjournment of an annual meeting or the announcement thereof commence a new time period for the giving of timely notice as described above. A Proposing Stockholder’s notice to the Secretary shall set forth as to each matter such Proposing Stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the text of the proposal or business, including the text of any resolutions proposed for consideration, (iii) the name and address, as they appear on the corporation’s books, of the Proposing Stockholder, (iv) the class, series, and number of shares of the corporation’s capital stock that are “beneficially owned” within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) by such Proposing Stockholder, (v) any material interest of the Proposing Stockholder in such business or proposal, (vi) a reasonably detailed description of all agreements, arrangements and understandings between the Proposing Stockholder and any other stockholder of the corporation or any other person or entity, including the name and address of each other stockholder or other person or entity, in connection with the proposal of such business by such stockholder, and (vii) any other information relating to such Proposing Stockholder that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Stockholder in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act. For purposes of this Section 2, the term “Proposing Stockholder” shall mean (a) the stockholder providing the notice of business proposed to be brought before an annual meeting, (b) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual meeting is made, and (c) any “affiliate” or “associate” (as such terms are defined in Rule 12b-2 under the Exchange Act) of such stockholder or beneficial owner.
A Proposing Stockholder shall update and supplement their notice of intent to bring business before the meeting, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2 shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement of the meeting. Each such update and supplement shall be delivered to, or mailed and received by, the Secretary of the corporation at the principal executive offices of the corporation not later than (i) five (5) business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and (ii) not later than eight (8) business days prior to the date for the meeting in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement of the meeting; provided that if it is not practicable for the Proposing Stockholder to provide the required update or supplement within by such eight (8) business day deadline prior to any adjournment or postponement of the meeting, then the update or supplement must be delivered to the Secretary of the corporation on the first practicable date prior to the date to which the meeting has been adjourned or postponed.
Notwithstanding anything in these by-laws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 2. The officer of the corporation or other person presiding at the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with such provisions and, if he should so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted.
Section 3. Special Meetings . Special meetings of the stockholders, for any purpose or purposes whatsoever, may be called at any time by the Chairman of the Board, a majority of the directors then in office even if less than a quorum of the authorized number of directors, or by one or more stockholders entitled to cast not less than 10% of the votes eligible to the cast at that meeting.
Upon request in writing to the Chairman of the Board, the President, or the Secretary, specifying the general nature of the business proposed to be transacted, sent by certified mail or telegraphic or other electronic facsimile transmission or delivered to such officer in person, by any person or persons entitled to call a special meeting of stockholders, it shall be the duty of such officer forthwith to cause notice to be given to the stockholders entitled to vote that a meeting will be held on a date requested by the person or persons calling the meeting; provided, that the date of the meeting requested by such person or persons calling the meeting shall be not less than 10 nor more than 60 days after the receipt of such request.
Section 4. Notice of Stockholders’ Meetings . All notices of meetings of stockholders shall be sent or otherwise given in accordance with Section 5 of this Article II not less than 10 nor more than 60 days before the date of the meeting. The notice shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
Section 5. Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of stockholders shall be given either personally or by first-class mail or telegraphic, electronic or other written communication, charges prepaid, addressed to the stockholder at the address of that stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. If no such address appears on the corporation’s books or is given, notice shall be deemed to have been given if sent to that stockholder by first-class mail or telegraphic, electronic or other written communication to the corporation’s principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or electronic transmission.
If any notice addressed to a stockholder at the address of that stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the stockholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the stockholder on written demand of the stockholder at the principal executive office of the corporation for a period of 1 year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any stockholders’ meeting shall be executed by the Secretary, assistant secretary, or any transfer agent of the corporation giving the notice, and shall be filed and maintained in the minute book of the corporation.
Section 6. Quorum . The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting, annual or special, shall constitute a quorum for the transaction of business. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum.
Section 7. Adjourned Meeting and Notice Thereof . Any stockholders’ meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a majority of the shares, the holders of which are either present in person or represented by proxy, but in the absence of a quorum at the commencement of the meeting, or if no quorum can be subsequently raised, no other business may be transacted at such meeting.
When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place are announced at the meeting at which the adjournment is taken, provided that if the adjournment is for more than thirty (30) days from the date set for the original meeting, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting.
Section 8. Voting . The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 11 of this Article II, subject to the provisions of Section 217 of the Delaware General Corporation Law (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). The stockholders’ vote may be by voice vote or by ballot, provided, however, that any election for directors must be by ballot if demanded by any stockholder before the voting has begun if there are any nominees seeking election who have not been nominated by the Board of Directors or a committee of the Board of Directors. On any matter other than the election of directors, any stockholder may vote part of the shares in favor of the proposal and refrain from voting the remainder shares or vote them against the proposal, but, if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder’s approving vote is with respect to all shares that the stockholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other than the election of directors) shall be the act of the stockholders, unless the vote of a greater number or voting by classes is required by Delaware General Corporation Law or by the certificate of incorporation.
Section 9. Consent of Absentees . The transactions of any meeting of stockholders, either annual or special, however called and noticed and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of such meeting, or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of stockholders, except that, if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 4 of this Article II, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting.
Section 10. Stockholder Action by Written Consent Without a Meeting. Any action that may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records. Any stockholder giving a written consent, or the stockholder’s proxy holders, or a transferee of the shares or a personal representative of the stockholder or their respective proxy holders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares to authorize the proposed action have been filed with the Secretary.
If corporate action is taken without a meeting by less than unanimous written consent of stockholders, the Secretary shall give prompt notice of the taking of the corporate action to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation as provided in Delaware General Corporation Law Section 228(c).
Section 11. Record Date for Stockholder Notice, Voting, and Giving Consents . For purposes of determining the stockholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any meeting or action, and in this event only stockholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Delaware General Corporation Law.
If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held.
(b) The record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the Board of Directors has been taken, shall be the first date on which the written consent is delivered to the corporation, or (ii) when prior action of the Board of Directors has been taken, shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to that action.
Section 12. Proxies . Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the stockholder or the stockholder’s attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted, provided, however, that no proxy shall be valid after the expiration of three (3) years from the date of the proxy, unless otherwise provided for in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the Delaware General Corporation Law.
Section 13. Inspectors of Election . Before any meeting of stockholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any stockholder or a stockholder’s proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting on the request of one or more stockholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Ascertain the number of shares outstanding and the voting power of each, determine the shares represented at the meeting, and the validity of proxies and ballots;
(b) Count and tabulate all votes and ballots;
(c) Determine and retain for a reasonable period a record of the disposition of any all challenges; and
(d) Certify the inspectors’ determination of the number of shares represented at the meeting, and the inspectors’ count of all votes and ballots.
Section 1. Powers . Subject to the provisions of the Delaware General Corporation Law and any limitations in the certificate of incorporation and these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.
Section 2. Number and Qualification of Directors . The authorized number of directors shall be not less than three (3) and the exact number of directors shall be fixed by approval of the board of directors.
Section 3. Election and Term of Office . The directors shall be elected at each annual meeting of stockholders but, if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of stockholders held for that purpose. All directors shall hold office until their respective successors are elected, or until death, resignation or removal.
Section 4. Vacancies . Vacancies in the Board of Directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified.
A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of the death, resignation, or removal of any director, the increase in the number of directors authorized, or if the Court of Chancery has removed a director for conviction of a felony, or if the stockholders fail, at any meeting of stockholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting.
The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent shall require the consent of a majority of the outstanding shares entitled to vote.
Any director may resign effective on giving written notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If the resignation of a director is effective at some future time, the Board of Directors may elect a successor to take office when the resignation becomes effective.
No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
Section 5. Place of Meetings and Meetings by Telephone . Regular meetings of the Board of Directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the Board of Directors. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board of Directors shall be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at a principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting.
Section 6. Regular Meetings . Regular meetings of the Board of Directors shall be held, without call or notice, immediately following each annual meeting of stockholders. Other regular meetings may be held without call or notice at such time and place as may be fixed by the Board of Directors from time to time.
Section 7. Special Meetings . Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board or the President or the Secretary or any two directors.
Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or electronic transmission, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally, or by telephone or electronic transmission, it shall be delivered personally or by telephone or by electronic transmission at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of the corporation.
Section 8. Action Without Meeting . Any action by the Board of Directors or of any committee may be taken without a meeting if all members of the Board of Directors or such committee shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors.
Section 9. Quorum . A majority of the authorized number of directors shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, subject to the provisions of Section 144 of the Delaware General Corporation Law (as to approval of contracts or transactions in which a director has a financial interest), and Section 145 of the Delaware General Corporation Law (as to indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
Section 10. Waiver of Notice . The transactions of any meeting of the Board of Directors, however called or noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, before or at its commencement, the lack of notice to that director.
Section 11. Adjournment . A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.
Section 12. Notice of Adjournment . Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for less than twenty-four (24) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting to the directors who were not present at the time of the adjournment. Notice under this Section 12 shall be given in the manner specified in Section 7 of this Article III, except that the time for notice shall be no later than twenty-four (24) hours before the holding of the adjourned meeting.
Section 13. Fees and Compensation . Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors. This Section 13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services.
Section 14. Removal of Directors . The entire Board of Directors or any individual director may be removed as provided by the Delaware General Corporation Law.
Section 15. Conduct of Meetings . Directors’ meetings shall be presided over by the Chairman of the Board, or, in the absence of the Chairman of the Board, by the President, or in the absence of both such officers, by a director chosen by a majority of the directors present. The Secretary of the corporation shall act as secretary of the meetings of the Board of Directors. In case the Secretary shall be absent from any meeting, the presiding officer may appoint any person to act as secretary of the meeting.
Section 1. Committees of Directors . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Subject to any committee charter or resolution of the Board of Directors establishing the qualification of members of any committee, in the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matter: (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by this chapter to be submitted to stockholders for approval or (ii) adopting, amending or repealing any bylaw of the corporation.
Section 2. Meetings and Action of Committees . Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 5 (place of meetings), 6 (regular meetings), 7 (special meetings and notice), 8 (action without meeting), 9 (quorum), 10 (waiver of notice), 11 (adjournment), and 12 (notice of adjournment), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee; special meetings of committees may also be called by resolution of the Board of Directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.
Section 1. Designation . The officers of the corporation shall be a President, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article. Any number of offices may be held by the same person.
Section 2. Election . The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen by the Board of Directors, and each shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under any contract of employment approved by the Board of Directors.
Section 3. Subordinate Officers, etc . The Board of Directors may appoint, and may empower the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the bylaws or as the Board of Directors may from time to time determine.
Section 4. Removal and Resignation . Subject to his or her rights, if any, under any contract of employment, any officer may be removed, either with or without cause by the Board of Directors, at any regular or special meeting thereof, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of Directors or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
Section 5. Vacancies . A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the bylaws for regular appointments to such office.
Section 6. Chairman of the Board . The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by the bylaws. If there is no President, the Chairman of the Board shall, if so authorized by a resolution of the Board of Directors, in addition be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 7 of this Article V.
Section 7. President . Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President, who may be designated as the Chief Executive Officer, shall be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall have general supervision, direction and control of the business and officers of the corporation. The President shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, or, if there be none, at all meetings of the Board of Directors. The President shall be ex officio a member of all the standing committees, including the executive committee, if any. The President may sign and execute, in the name of the corporation, deeds, mortgages, bonds, notes, contracts and other instruments authorized by the Board of Directors, and, in general, shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the bylaws.
Section 8. Vice Presidents . In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the bylaws, and the President, or the Chairman of the Board if authorized to act as chief executive officer.
Section 9. Secretary . The Secretary shall keep or cause to be kept, at the principal office or such other place as the Board of Directors may order, a book of minutes of all meetings of directors, committees of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors’ meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation’s transfer agent, a stock register, or a duplicate stock register, showing the names of the stockholders and their addresses, the number and classes of shares of stock held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give notice, or cause notice to be given, of all the meetings of the stockholders and of the Board of Directors of Directors as law or the bylaws require notice to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the bylaws.
Section 10. Chief Financial Officer . The Chief Financial Officer, who may be designated as the Treasurer, shall keep and maintain, or cause to be kept and maintained, adequate and correct books and accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and capital stock.
The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the bylaws.
Section 11. Salaries . The salaries of the officers shall be fixed from time to time by the Board of Directors or a committee of the Board of Directors to which such authority has been delegated by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of the fact that such officer is also a director of the corporation.
Indemnification of Directors, Officers, Employees, and Other Agents
Section 1. Agents, Proceedings, and Expenses . For the purposes of this Article, “agent” means any person who is or was a director, officer, employee, or other agent of this corporation, or is or was serving at the request of this corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation; “proceeding” means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and “expenses” includes, without limitation, attorneys’ fees, judgments, fines, amounts reasonably paid, and any expenses of establishing a right to indemnification under Section 4 or Section 5(c) of this Article.
Section 2. Actions Other Than by the Corporation . This corporation shall, to the maximum extent permitted by the Delaware General Corporation Law, indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding (other than an action by or in the right of this corporation) by reason of the fact that such person is or was an agent of this corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of this corporation and, in the case of a criminal proceeding, had no reasonable cause to believe his conduct of was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of this corporation or that the person had reasonable cause to believe that his conduct was unlawful.
Section 3. Actions by the Corporation . This corporation shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this corporation to procure a judgment in its favor by reason of the fact that person is or was an agent of this corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best or not opposed to the interests of this corporation. No indemnification shall be made under this Section 3 in respect of any claim, issue or matter as to which that person shall have been adjudged to be liable to this corporation in the performance of that person’s duty to this corporation, unless and only to the extent that the court in which that action was brought shall determine upon application that, in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine.
Section 4. Successful Defense by Agent . To the extent that an agent of this corporation has been successful on the merits in defense of any proceeding referred to in Sections 2 or 3 of this Article, or in defense of any claim, issue or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
Section 5. Required Approval . Except as provided in Section 4 of this Article, any indemnification under this Article shall be made by this corporation only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Sections 2 or 3 of this Article, by:
(a) A majority vote of directors who are not parties to the proceeding, even though less than a quorum; or
(b) By a committee of such directors designated by majority vote of such directors, even though less than a quorum; or
(c) If there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion; or
(d) Approval by the affirmative vote of a majority of the shares of this corporation entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote.
Section 6. Advance of Expenses . Expenses incurred in defending any proceeding may be advanced by this corporation before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay the amount of the advance unless it shall be determined ultimately that the agent is entitled to be indemnified as authorized in this Article.
Section 7. Other Contractual Rights . Nothing contained in this Article shall affect any right to indemnification to which persons other than directors and officers of this corporation or any subsidiary hereof may be entitled by contract or otherwise.
Section 8. Limitations . No indemnification or advance shall be made under this Article, except as provided in Section 4 or Section 5(c), in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the articles, a resolution of the stockholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
Section 9. Insurance . Upon a determination by the Board of Directors of this corporation to purchase such insurance, this corporation shall purchase and maintain insurance on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent’s status as such whether or not this corporation would have the power to indemnify the agent against that liability under the provisions of this Article.
Section 10. Fiduciaries of Corporate Employee Benefit Plan . This Article does not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person’s capacity as such, even though that person may also be an agent of the corporation as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law other than this Article.
Records and Reports
Section 1. Maintenance and Inspection of Share Register . The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the Board of Directors, a record of its stockholders, giving the names and addresses of all stockholders and the number, class, and series of shares of stock held by each stockholder.
A stockholder of the corporation in person or by attorney or agent may (i) inspect and copy the records of stockholders’ names and addresses and shareholdings during usual business hours on 5 days prior written demand on the corporation, and (ii) examine a complete list of the stockholders entitled to vote at the meeting for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation.
Section 2. Maintenance and Inspection of Bylaws . The corporation shall keep at its principal executive office, or, if its principal executive office is not in the State of Delaware, at its principal office in this state, the original or a copy of the bylaws as amended to date, which shall be open to inspection by the stockholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of Delaware and the corporation has no principal business office in this state, the Secretary shall, upon the written request of any stockholder, furnish to that stockholder a copy of the bylaws as amended to date.
Section 3. Maintenance and Inspection of Other Corporate Records . The accounting books and records and minutes of proceedings of the stockholders and the Board of Directors and any committee or committees of the Board of Directors shall be kept at such place or places designated by the Board of Directors, or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any stockholder, at any reasonable time during usual business hours, for a purpose reasonably related to the holder’s interests as a stockholder. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. These rights of inspection shall extend to the records of each subsidiary corporation of the corporation, to the extent such records are within the corporation’s control or the corporation can obtain such records through exercise of its control.
Section 4. Inspection by Directors . Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to the director’s position as a director.
Section 5. Annual Statement of General Information . In compliance with Section 1502 of the Delaware General Corporation Law, the corporation shall annually file with the Secretary of State of the State of Delaware, on the prescribed form, setting forth: (1) the location of its registered office in this State, stated with the degree of particularity required by § 102(a)(2) of this Title 8 of the Delaware Code; (2) the name of the agent upon whom service of process against the corporation may be served; (3) the location (city, town, street and number of same, if number there be) of the principal place of business of the corporation; (4) the names and addresses of all the directors as of the filing date of the report and the name and address of the officer who signs the report; (5) the number of shares and the par value per share of each class of capital stock having a par value and the number of shares of each class of stock without par value which the corporation is authorized to issue; and (6) such additional information, schedules and attachments as the Secretary shall require to ascertain the franchise tax due to the State.
General Corporate Matters
Section 1. Record Date for Purposes Other Than Notice and Voting . For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by stockholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days before any such action, and in that case only stockholders of record on the date so fixed are entitled to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Delaware General Corporation Law.
If the Board of Directors does not so fix a record date, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the applicable resolution.
Section 2. Checks, Drafts, Evidences of Indebtedness . All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors.
Section 3. Corporation Contracts and Instruments; How Executed . The Board of Directors, except as otherwise provided in these bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 4. Stock Certificates . A certificate or certificates for shares of the capital stock of the corporation shall be issued to each stockholder when any of the shares are fully paid, or the Board of Directors may authorize the issuance of stock certificates as partly paid provided that such certificates shall state the amount of the consideration to be paid for them and the amount paid. All stock certificates shall be signed in the name of the corporation by the Chairman of the Board, or Vice Chairman of the Board, or the President, or a Vice President, and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the number of shares and the class or series of stock owned by the stockholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.
Section 5. Lost Certificates . Except as provided in this Section 5, no new stock certificates shall be issued to replace an old certificate unless the latter is surrendered to the corporation and canceled at the same time. The Board of Directors may, in case any stock certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the Board of Directors may require, including provision for indemnification of the corporation, including provision for security of such indemnification obligation by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.
Section 6. Representation of Shares of Other Corporations . The Chairman of the Board, the President, or any Vice President, or any other person authorized by resolution of the Board of Directors or by any of the foregoing designated officers, is authorized to vote on behalf of the corporation any and all stock or other voting securities of any other corporation or business entity, foreign or domestic, standing in the name of the corporation. The authority granted to these officers to vote on behalf of or represent the corporation in any other corporation or other business entity may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers.
Section 7. Construction and Definitions . Unless the context requires otherwise, the general provisions, rules of construction and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, the use of the masculine includes the feminine and neuter, and the term “person” includes both a corporation and a natural person.
Section 1. Amendment by Stockholders . Subject to the provisions of the certificate of incorporation, these by-laws may be altered, amended or repealed by a majority of the voting power of the shares represented and entitled to vote.
Section 2. Amendment by Directors . Subject to the Delaware General Corporation Law, the certificate of incorporation and these by-laws, the Board of Directors may by majority vote of those present at any meeting at which a quorum is present amend these by-laws, or enact such other by-laws as in their judgment may be advisable for the regulation of the conduct of the affairs of the corporation.
THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of August 21, 2017 by and between AgeX Therapeutics, Inc (“AgeX”), a Delaware corporation, and Hal Sternberg, Ph.D. (“Employee”).
1. Engagement; Position and Duties.
(a) AgeX agrees to employ Employee in the position described on Exhibit A (which Exhibit A is a part of this Agreement) effective as of the date of this Agreement. Employee shall perform the duties and functions described on Exhibit A and such other duties as the executive(s) to whom Employee reports or the Board of Directors of AgeX may from time to time determine. Employee shall devote Employee’s best efforts, skills, and abilities, on a full-time basis, exclusively to the business of AgeX and its Related Companies pursuant to, and in accordance with, business policies and procedures, as fixed from time to time by the Board of Directors (the “Policies”). Employee covenants and agrees that Employee will faithfully adhere to and fulfill the Policies, including any changes to the Policies that may be made in the future. Employee may be provided with a copy of AgeX’s employee manual (the “Manual”) which contains the Policies. AgeX may change its Policies from time to time, in which case Employee will be notified of the changes in writing by a memorandum, a letter, or an update or revision of AgeX’s employee manual.
(b) Performance of Services for Related Companies . In addition to the performance of services for AgeX, Employee shall, to the extent so required by AgeX, also perform services for one or more members of a consolidated group of which AgeX is a part (“Related Company”), provided that such services are consistent with the kind of services Employee performs or may be required to perform for AgeX under this Agreement. If Employee performs any services for any Related Company, Employee shall not be entitled to receive any compensation or remuneration in addition to or in lieu of the compensation and remuneration provided under this Agreement on account of such services for the Related Company. The Policies will govern Employee’s employment by AgeX and any Related Companies for which Employee is asked to provide Services. In addition, Employee covenants and agrees that Employee will faithfully adhere to and fulfill such additional policies as may be established from time to time by the board of directors of any Related Company for which Employee performs services, to the extent that such policies and procedures differ from or are in addition to the Policies adopted by AgeX.
(c) No Conflicting Obligations . Employee represents and warrants to AgeX and each Related Company that Employee is under no obligations or commitments, whether contractual or otherwise, that are inconsistent with Employee’s obligations under this Agreement or that would prohibit Employee, contractually or otherwise, from performing Employee’s duties as under this Agreement and the Policies.
(d) No Unauthorized Use of Third Party Intellectual Property . Employee represents and warrants to AgeX and each Related Company that Employee will not use or disclose, in connection with Employee’s employment by AgeX or any Related Company, any patents, trade secrets, confidential information, or other proprietary information or intellectual property as to which any other person has any right, title or interest, except to the extent that AgeX or a Related Company holds a valid license or other written permission for such use from the owner(s) thereof. Employee represents and warrants to AgeX and each Related Company that Employee has returned all property and confidential information belonging to any prior employer.
(a) Salary . During the term of this Agreement, AgeX shall pay to the Employee the salary shown on Exhibit A. Employee’s salary shall be paid in equal biweekly installments, consistent with AgeX’s regular salary payment practices. Employee’s salary may be increased from time-to-time by AgeX, in AgeX’s sole and absolute discretion, without affecting this Agreement.
(b) Bonus . Employee may be eligible for an annual bonus, as may be approved by the Board of Directors in its discretion, based on Employee’s performance and achievement of goals or milestones set by the Board of Directors from time to time. Employee agrees that the Board of Directors of AgeX may follow the recommendations of its Compensation Committee in determining whether to a award bonus or to establish performance goals or milestones. Employee also agrees that the Board of Directors and AgeX are not obligated to adopt any bonus plan, to maintain in effect any bonus plan that may now be in effect or that may be adopted during the term of Employee’s employment, or to pay Employee a bonus unless a bonus is earned under the terms and conditions of any bonus plan adopted by AgeX or Employee attaining the bonus performance goals for Employee established by the Board of Directors or its Compensation Committee; provided, that unless otherwise provided in a bonus plan or award, a bonus shall not be earned until paid and shall not be paid unless Employee remains an employee of the Company on the date of payment.
(c) Expense Reimbursements . AgeX or a Related Company shall reimburse Employee for reasonable travel and other business expenses (but not expenses of commuting to work) incurred by Employee in the performance of Employee’s duties under this Agreement, subject to the Policies and procedures in effect from time to time, and provided that Employee submits supporting vouchers.
(d) Benefit Plans. Employee may be eligible (to the extent Employee qualifies) to participate in certain retirement, pension, life, health, accident and disability insurance, stock option plan or other similar employee benefit plans which may be adopted by AgeX (or a Related Company) for its employees. AgeX and the Related Companies have the right, at any time and without any amendment of this Agreement, and without prior notice to or consent from Employee, to adopt, amend, change, or terminate any such benefit plans that may now be in effect or that may be adopted in the future, in each case without any further financial obligation to Employee. Any benefits to which Employee may be entitled under any benefit plan shall be governed by the terms and conditions of the applicable benefit plan, and any related plan documents, as in effect from time to time. If Employee receives any grant of stock options or restricted under any stock option plan or stock purchase plan of AgeX or any Related Company, the terms and conditions of the stock options or restricted stock, and Employee’s rights with respect to the stock options or restricted stock, shall be governed by (i) the terms of the applicable stock option or stock purchase plan, as the same may be amended from time to time, and (ii) the terms and conditions of any stock option agreement or stock purchase agreement and related agreements that Employee may sign or be required to sign with respect to the stock options or restricted stock.
(e) Vacation; Sick Leave . Employee shall be entitled to the number of days of vacation and sick leave (without reduction in compensation) during each calendar year shown on Exhibit A or as may be provided by the Policies. Employee’s vacation shall be taken at such time as is consistent with the needs and Policies of AgeX and its Related Companies. All vacation days and sick leave days shall accrue annually based upon days of service. Employee’s right to leave from work due to illness is subject to the Policies and the provisions of this Agreement governing termination due to disability, sickness or illness. The Policies governing the disposition of unused vacation days and sick leave days remaining at the end of AgeX’s fiscal year shall govern whether unused vacation days or sick leave days will be paid, lost, or carried over into subsequent fiscal years.
3. Competitive Activities . During the term of Employee’s employment, and for one year thereafter, Employee shall not, for Employee or any third party, directly or indirectly employ, solicit for employment or recommend for employment any person employed by AgeX or any Related Company. During the term of Employee’s employment, Employee shall not, directly or indirectly as an employee, contractor, officer, director, member, partner, agent, or equity owner, engage in any activity or business that competes or could reasonably be expected to compete with the business of AgeX or any Related Company. Employee acknowledges that there is a substantial likelihood that the activities described in this Section would (a) involve the unauthorized use or disclosure of AgeX’s or a Related Company’s Confidential Information and that use or disclosure would be extremely difficult to detect, and (b) result in substantial competitive harm to the business of AgeX or a Related Company. Employee has accepted the limitations of this Section as a reasonably practicable and unrestrictive means of preventing such use or disclosure of Confidential Information and preventing such competitive harm.
4. Inventions/Intellectual Property/Confidential Information
(a) Employee acknowledges the execution and delivery to AgeX of an Employee Confidential Information and Inventions Assignment Agreement (the “Confidentiality and IP Agreement”).
(b) Execution of Documents; Power of Attorney. Employee agrees to execute and sign any and all applications, assignments, or other instruments which AgeX or a Related Company may deem necessary in order to enable AgeX or a Related Company, at its expense, to apply for, prosecute, and obtain patents of the United States or foreign countries for the Intellectual Property, or in order to assign or convey to, perfect, maintain or vest in AgeX or a Related Company the sole and exclusive right, title, and interest in and to the Intellectual Property. If AgeX or a Related Company is unable after reasonable efforts to secure Employee’s signature, cooperation or assistance in accordance with the preceding sentence, whether because of Employee’s incapacity or any other reason whatsoever, Employee hereby designates and appoints AgeX or any Related Company or its designee as Employee’s agent and attorney-in-fact, to act on Employee’s behalf, to execute and file documents and to do all other lawfully permitted acts necessary or desirable to perfect, maintain or otherwise protect AgeX’s or a Related Company’s rights in the Intellectual Property. Employee acknowledges and agrees that such appointment is coupled with an interest and is irrevocable.
(c) Confidential and Proprietary Information . During Employee’s employment, Employee will have access to trade secrets and confidential information of AgeX and one or more Related Companies. Confidential Information means all information and ideas, in any form, relating in any manner to matters such as: products; formulas; technology and know-how; inventions; clinical trial plans and data; business plans; marketing plans; the identity, expertise, and compensation of employees and contractors; systems, procedures, and manuals; customers; suppliers; joint venture partners; research collaborators; licensees; and financial information. Confidential Information also shall include any information of any kind, whether belonging to AgeX, a Related Company, or any third party, that AgeX or a Related Company has agreed to keep secret or confidential under the terms of any agreement with any third party. Confidential Information does not include: (i) information that is or becomes publicly known through lawful means other than unauthorized disclosure by Employee; (ii) information that was rightfully in Employee’s possession prior to Employee’s employment with AgeX and was not assigned to AgeX or a Related Company or was not disclosed to Employee in Employee’s capacity as a director or other fiduciary of AgeX or a Related Company; or (iii) information disclosed to Employee, after the termination of Employee’s employment by AgeX, without a confidential restriction by a third party who rightfully possesses the information and did not obtain it, either directly or indirectly, from AgeX or a Related Company, and who is not subject to an obligation to keep such information confidential for the benefit of AgeX, a Related Company, or any third party with whom AgeX or a Related Company has a contractual relationship. Employee understands and agrees that all Confidential Information shall be kept confidential by Employee both during and after Employee’s employment by AgeX or any Related Company. Employee further agrees that Employee will not, without the prior written approval by AgeX or a Related Company, disclose any Confidential Information, or use any Confidential Information in any way, either during the term of Employee’s employment or at any time thereafter, except as required by AgeX or a Related Company in the course of Employee’s employment. To the extent any terms between this Agreement and the Confidentiality and IP Agreement conflict, the Confidentiality and IP Agreement’s terms control.
5. Termination of Employment . Employee understands and agrees that Employee’s employment has no specific term. This Agreement, and the employment relationship, are “at will” and may be terminated by Employee or by AgeX (and the employment of Employee by any Related Company by be terminated by the Related Company) with or without cause at any time by notice given orally or in writing. Except as otherwise agreed in writing or as otherwise provided in this Agreement, upon termination of Employee’s employment, AgeX and the Related Companies shall have no further obligation to Employee by way of compensation or otherwise as expressly provided in this Agreement or in any separate employment agreement that might then exist between Employee and a Related Company.
(a) Payments Due Upon Termination of Employment . Upon termination of Employee’s employment with AgeX and all Related Companies at any time and for any reason, Employee will be entitled to receive only the severance benefits set forth below, but Employee will not be entitled to any other compensation, award, or damages with respect to Employee’s employment or termination of employment.
(i) Termination for Cause, Death, Disability, or Resignation . In the event of the termination of Employee’s employment by AgeX for Cause, or termination of Employee’s employment as a result of death, Disability, or resignation, Employee will be entitled to receive payment for all accrued but unpaid salary actually earned prior to or as of the date of termination of Employee’s employment, and vacation or paid time off accrued as of the date of termination of Employee’s employment. Employee will not be entitled to any cash severance benefits or additional vesting of any stock options or other equity or cash awards.
(ii) Termination Without Cause . In the event of termination of Employee’s employment by AgeX without Cause, Employee will be entitled to (A) the benefits set forth in paragraph (a)(i) of this Section, and (B) payment in an amount equal to: (1) three months’ base salary if terminated within the first 12 months of employment, or (2) six months’ base salary if terminated after 12 months of employment, either of which may be paid in a lump sum or, at the election of AgeX, in installments consistent with the payment of Employee’s salary while employed by AgeX, subject to such payroll deductions and withholdings as are required by law. This paragraph shall not apply to (x) termination of Employee’s employment by a Related Company if Employee remains employed by AgeX, or (y) termination of Employee’s employment by AgeX if Employee remains employed by a Related Company.
(iii) Change of Control . In the event AgeX (or any successor in interest to AgeX that has assumed AgeX’s obligation under this Agreement) terminates Employee’s employment without Cause “ or Employee resigns for “Good Reason” within twelve (12) months following a Change in Control, Employee will be entitled to (A) the benefits set forth in paragraph (a)(i) and (a)(ii) of this Section, and (B) accelerated vesting of (x) fifty percent of any then unvested stock options as may have been granted to Employee by AgeX if termination of employment occurs during the first year of Employee’s employment by AgeX, or (y) accelerated vesting of one hundred percent (100%) of any then unvested stock options as may have been granted to Employee by AgeX if termination of employment occurs after the first year of Employee’s employment by AgeX. This paragraph shall not apply to (x) termination of Employee’s employment by a Related Company if Employee remains employed by AgeX or a successor in interest, or (y) termination of Employee’s employment by AgeX or a successor in interest if Employee remains employed by a Related Company.
(b) Release . Any other provision of this Agreement notwithstanding, paragraphs (a)(ii) and (a)(iii) of this Section shall not apply unless the Employee (i) has executed a general release of all claims against AgeX or its successor in interest and the Related Companies (in a form prescribed by AgeX or its successor in interest), (ii) has returned all property in the Employee’s possession belonging AgeX or its successor in interest and any Related Companies, and (iii) if serving as a director of AgeX or any Related Company, has tendered her written resignation as a director as provided in Section 7.
(c) Definitions . For purposes of this Section, the following definitions shall apply:
(i) “Affiliated Group” means (A) a Person and one or more other Persons in control of, controlled by, or under common control with such Person; and (B) two or more Persons who, by written agreement among them, act in concert to acquire Voting Securities entitling them to elect a majority of the directors of AgeX.
(ii) “Cause” means: (A) the failure to properly perform Employee’s job responsibilities, as determined reasonably and in good faith by the Board of Directors; (B) commission of any act of fraud, gross misconduct or dishonesty with respect to AgeX or any Related Company; (C) conviction of, or plea of guilty or “no contest” to, any felony, or a crime involving moral turpitude; (D) breach of any provision of this Agreement or any provision of any proprietary information and inventions agreement with AgeX or any Related Company; (E) failure to follow the lawful directions of the Board of Directors of AgeX or any Related Company; (F) chronic alcohol or drug abuse; (G) obtaining, in connection with any transaction in which AgeX, any Related Company, or any of AgeX’s affiliates is a party, a material undisclosed financial benefit for Employee or for any member of Employee’s immediate family or for any corporation, partnership, limited liability company, or trust in which Employee or any member of Employee’s immediate family owns a material financial interest; or (H) harassing or discriminating against, or participating or assisting in the harassment of or discrimination against, any employee of AgeX (or a Related Company or an affiliate of AgeX) based upon gender, race, religion, ethnicity, or nationality.
(iii) “Change of Control” means (A) the acquisition of Voting Securities of AgeX by a Person or an Affiliated Group entitling the holder thereof to elect a majority of the directors of AgeX; provided, that an increase in the amount of Voting Securities held by a Person or Affiliated Group who on the date of this Agreement beneficially owned (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the regulations thereunder) more than 10% of the Voting Securities shall not constitute a Change of Control; and provided, further, that an acquisition of Voting Securities by one or more Persons acting as an underwriter in connection with a sale or distribution of such Voting Securities shall not constitute a Change of Control under this clause (A); (B) the sale of all or substantially all of the assets of AgeX; or (C) a merger or consolidation of AgeX with or into another corporation or entity in which the stockholders of AgeX immediately before such merger or consolidation do not own, in the aggregate, Voting Securities of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity) entitling them, in the aggregate (and without regard to whether they constitute an Affiliated Group) to elect a majority of the directors or persons holding similar powers of the surviving corporation or entity (or the ultimate parent of the surviving corporation or entity); provided, however, that in no event shall any transaction described in clauses (A), (B) or (C) be a Change of Control if all of the Persons acquiring Voting Securities or assets of AgeX or merging or consolidating with AgeX are one or more Related Companies.
(iv) “Disability” shall mean Employee’s inability to perform the essential functions of Employee’s job responsibilities for a period of one hundred eighty (180) days in the aggregate in any twelve (12) month period.
(v) “Good Reason” means (A) a diminution in Employee’s base salary; (B) a material change in geographic location at which Employee must perform services (a change in location of the AgeX office at which Employee will primarily work will be considered material only if it increases Employee’s current one-way commute by more than fifty (50) miles); (C) any material failure of the successors to AgeX after a Change of Control to perform, or causing AgeX not to perform, AgeX’ obligations under this Agreement; (D) any action or inaction of AgeX that constitutes a material breach of the terms of this Agreement; or (E) any other material adverse change in Employee’s duties, authorities, responsibilities, or reporting structure (for example, if Employee is required to report to anyone other than a Chief Executive Officer or the Board of Directors of AgeX or its successor).
(vi) “Person” means any natural person or any corporation, partnership, limited liability company, trust, unincorporated business association, or other entity.
(vii) “Voting Securities” means shares of capital stock or other equity securities entitling the holder thereof to regularly vote for the election of directors (or for person performing a similar function if the issuer is not a corporation), but does not include the power to vote upon the happening of some condition or event which has not yet occurred.
6. Turnover of Property and Documents on Termination . Employee agrees that on or before termination of Employee’s employment, Employee will return to AgeX and all Related Companies all equipment and other property belonging to AgeX and the Related Companies, and all originals and copies of Confidential Information (in any and all media and formats, and including any document or other item containing Confidential Information) in Employee’s possession or control, and all of the following (in any and all media and formats, and whether or not constituting or containing Confidential Information) in Employee’s possession or control: (a) lists and sources of customers; (b) proposals or drafts of proposals for any research grant, research or development project or program, marketing plan, licensing arrangement, or other arrangement with any third party; (c) reports, job or laboratory notes, specifications, and drawings pertaining to the research, development, products, patents, and technology of AgeX and any Related Companies; (d) any and all Intellectual Property developed by Employee during the course of employment; and (e) the Manual and memoranda related to the Policies.
7. Arbitration . It is the intention of Employee and AgeX that the Federal Arbitration Act and the California Arbitration Act shall apply with respect to the arbitration of disputes, claims, and controversies pursuant to, arising under, or in connection with this Agreement. Except for injunctive proceedings against unauthorized disclosure of Confidential Information, any and all disputes, claims, or controversies between AgeX or any Related Company and Employee, including but not limited to (a) those involving the construction, application, or enforceability of any of the terms, provisions, or conditions of this Agreement (including but not limited to the applicability and enforceability of provisions of this Section 7 with respect to any dispute, claim, or controversy) or the Policies; (b) all contract or tort claims of any kind; and (c) any claim based on any federal, state, or local law, statute, regulation, or ordinance, including claims for unlawful discrimination or harassment, shall be settled by arbitration in accordance with the then current Employment Dispute Resolution Rules of the American Arbitration Association. Judgment on the award rendered by the arbitrator(s) may be entered by any court having jurisdiction over the Company and Employee. The location of the arbitration shall be San Francisco, California. Unless AgeX or a Related Company and Employee mutually agree otherwise, the arbitrator shall be a retired judge selected from a panel provided by the American Arbitration Association, or the Judicial Arbitration and Mediation Service (JAMS). AgeX, or a Related Company if the Related Company is a party to the arbitration proceeding, shall pay the arbitrator’s fees and costs. Employee shall pay for Employee’s own costs and attorneys’ fees, if any. AgeX and any Related Company that is a party to an arbitration proceeding shall pay for its own costs and attorneys’ fees, if any. However, if any party prevails on a statutory claim which affords the prevailing party attorneys’ fees, the arbitrator may award reasonable attorneys’ fees and costs to the prevailing party.
EMPLOYEE UNDERSTANDS AND AGREES THAT THIS AGREEMENT TO ARBITRATE CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A TRIAL BY JURY OF ANY MATTERS COVERED BY THIS AGREEMENT TO ARBITRATE.
8. Severability . In the event that any of the provisions of this Agreement or the Policies shall be held to be invalid or unenforceable in whole or in part, those provisions to the extent enforceable and all other provisions shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts had not been included in this Agreement or the Policies. In the event that any provision relating to a time period of restriction shall be declared by a court of competent jurisdiction to exceed the maximum time period such court deems reasonable and enforceable, then the time period of restriction deemed reasonable and enforceable by the court shall become and shall thereafter be the maximum time period.
9. Agreement Read and Understood . Employee acknowledges that Employee has carefully read the terms of this Agreement, that Employee has had an opportunity to consult with an attorney or other representative of Employee’s own choosing regarding this Agreement, that Employee understands the terms of this Agreement, and that Employee is entering this agreement of Employee’s own free will.
10. Complete Agreement, Modification . This Agreement is the complete agreement between Employee and AgeX on the subjects contained in this Agreement. This Agreement supersedes and replaces all previous correspondence, promises, representations, and agreements, if any, either written or oral with respect to Employee’s employment by AgeX or any Related Company and any matter covered by this Agreement. No provision of this Agreement may be modified, amended, or waived except by a written document signed both by AgeX and Employee.
11. Governing Law . This Agreement shall be construed and enforced according to the laws of the State of California.
12. Assignability . This Agreement, and the rights and obligations of Employee and AgeX under this Agreement, may not be assigned by Employee. AgeX may assign any of its rights and obligations under this Agreement to any successor or surviving corporation, limited liability company, or other entity resulting from a merger, consolidation, sale of assets, sale of stock, sale of membership interests, or other reorganization, upon condition that the assignee shall assume, either expressly or by operation of law, all of AgeX’s obligations under this Agreement.
13. Survival . This Section 13 and the covenants and agreements contained in Sections 4 and 6 of this Agreement shall survive termination of this Agreement and Employee’s employment.
14. Notices . Any notices or other communication required or permitted to be given under this Agreement shall be in writing and shall be mailed by certified mail, return receipt requested, or sent by next business day air courier service, or personally delivered to the party to whom it is to be given at the address of such party set forth on the signature page of this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 14).
[ Signature Page to the Employment Agreement Follows ]
IN WITNESS WHEREOF, Employee and AgeX have executed this Agreement on the day and year first above written.
|/s/ Hal Sternberg|
|Signature, Hal Sternberg, Ph.D.|
|Address:||1010 Atlantic Ave|
|Alameda, CA 94501|
|AgeX Therapeutics, Inc.|
|By:||/s/ Michael D. West|
|Michael D. West|
|Title:||Chief Executive Officer|
|Address:||1010 Atlantic Avenue, Suite 102|
|Alameda, California 94501|
[ Signature Page to the Employment Agreement ]
Job Title: Vice President, Research, AgeX Therapeutics, Inc.
Description of Job and Duties: Dr. Sternberg is Vice President of Research and will report to the CEO of AgeX and manage basic research programs in the company relating to pluripotent stem cell-based therapeutics and induced tissue regeneration. Dr. Sternberg will manage laboratory personnel, prepare and analyze resulting data, and prepare and analyze such data for scientific publications, patent applications, and for product development.
Annual Salary: $235,000
Bonus: Any bonus will be at the discretion of the Company’s Board of Directors or its Compensation Committee and will be based on the attainment of Company performance goals and milestones as the Board of Directors or its Compensation Committee may set.
Stock Options: Employee shall be entitled to receive such number of options to purchase Company common shares under the Company’s Equity Incentive Plan (the “Plan”) as the Company’s Board of Directors or Compensation Committee may determine. The exercise price of the options shall be the fair market value of the Company’s common shares on the effective date of grant determined in accordance with the Plan. The date of grant of the options shall be the date on which Employee’s employment has commenced under this Agreement. Employee shall execute a stock option agreement consistent with the terms of the option grant and the Plan. The options shall vest and thereby become exercisable, and the options shall expire, as provided in the Plan and the terms of the option grant.
Paid Time Off: Employee shall be entitled to a total of twenty-five (25) paid time off days per annum (accrued on a biweekly pay period basis) as “paid time off” for vacation, three (3) days sick leave, and all company observed holidays.
List of Subsidiaries
|LifeMap Sciences, Inc.||81.7||%||USA|
|LifeMap Sciences Ltd.||(1||)||Israel|
|ReCyte Therapeutics, Inc.||94.8||%||USA|
(1) LifeMap Sciences, Ltd. is a wholly-owned subsidiary of LifeMap Sciences, Inc.
The information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
SUBJECT TO COMPLETION, DATED JUNE 8, 2018
AGEX THERAPEUTICS, INC.
Common stock, par value $0.0001 per share
This information statement is being furnished to you in connection with the distribution of some or all of the outstanding shares of common stock, par value $0.0001 per share, of AgeX Therapeutics, Inc. (“AgeX”) on a pro rata basis to holders of outstanding common shares, no par value, of BioTime, Inc. (the “Distribution”) as of the record date described below.
AgeX is engaged in the business of research and development of novel therapeutics targeting human aging. BioTime, Inc. (“BioTime”) currently owns 80.6% of our outstanding common stock. Following the Distribution, AgeX’s common stock will be publicly traded.
You will receive one share of AgeX common stock for every BioTime common shares you hold as of 5:00 p.m., New York City time, on , 2018, the “Record Date” of the Distribution. If you sell your BioTime common shares after the record date and before the date of the Distribution, you will also be selling your right to receive shares of AgeX common stock in the Distribution. The Distribution will be made only in book-entry form. We expect the Distribution to occur at , New York City time, on or about , 2018, which we refer to as the “Distribution Date.” In this information statement we sometimes refer to the shares of AgeX common stock to be distributed to BioTime shareholders in the Distribution as the “Distribution Shares.” BioTime will not distribute any fractional shares of AgeX common stock. See “The Distribution—Manner of Effecting the Distribution—Cash in lieu of fractional shares.”
No shareholder approval of the Distribution by BioTime shareholders is required or sought, and you are not being asked for a proxy to vote on the Distribution. We are not asking you for a proxy and you should not send us a proxy. BioTime shareholders will not be required to pay for the Distribution Shares they receive in the Distribution or to surrender or exchange BioTime common shares in order to receive their Distribution Shares and will not be required to take any other action in connection with the Distribution.
We intend to list AgeX common stock on the NYSE American securities exchange under the symbol “AGE.” If our listing application is not approved, we plan to arrange for the trading of AgeX common stock on the OTC Bulletin Board no later than the completion of the Distribution. There is no current trading market for AgeX common stock. We expect, however, that a limited trading market for AgeX common stock, commonly known as a “when-issued” trading market, will develop at least two trading days prior to the record date for the Distribution, and we expect “regular-way” trading of AgeX common stock will begin the first trading day after the distribution date.
We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements for future filings. See “Summary—Implications of Being an Emerging Growth Company.”
In reviewing this information statement, you should carefully consider the matters described under “Risk Factors” for a discussion of certain factors that should be considered by recipients of our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is , 2018.
TABLE OF CONTENTS
|Information Statement Summary||5|
|Questions and Answers About AgeX and the Distribution||13|
|Market for Our Common Equity||83|
|Selected Financial Data||87|
|Management’s Discussion and Analysis of Financial Condition and Results of Operations||99|
|Security Ownership by Certain Beneficial Owners and Management||171|
|Certain Federal Income Tax Considerations||178|
|Shares Eligible For Future Sale|
|Description of Securities||184|
|Index to Audited Consolidated Financial Statements and Unaudited Condensed Consolidated Interim Financial Statements||F-1|
|Report of Independent Registered Public Accounting Firm||F-2|
Unless otherwise indicated or the context otherwise requires, references herein to:
|●||“AgeX,” the “Company,” “we,” “our,” or “us” refer to AgeX Therapeutics, Inc. and its consolidated subsidiaries, and|
|●||“BioTime” refer to BioTime, Inc. and its consolidated subsidiaries,|
in each case giving effect to the Distribution.
This information statement is being furnished solely to provide information to BioTime shareholders who will receive shares of our common stock in the Distribution. It is not and is not to be construed as an inducement or encouragement to buy or sell any of our securities or any securities of BioTime. This information statement describes our business, our relationship with BioTime and how the Distribution affects BioTime and its shareholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of our common stock that you will receive in the Distribution. You should be aware of certain risks relating to the Distribution, our business, and ownership of our common stock, including those described under the heading “Risk Factors.”
You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information, except in the normal course of our public disclosure obligations and practices or as may be required by applicable law.
You should rely only on the information contained in this information statement. We have not, and BioTime has not, authorized any other person to provide you with information different from, or in addition to, that contained in this information statement. We do not take any responsibility for, and can provide no assurance as to the reliability of, any information other than the information contained in this information statement.
Industry and Market Data
This information statement contains market data and industry forecasts that were obtained from industry publications, third party market research and publicly available information. These publications generally state that the information contained therein has been obtained from sources believed to be reliable. While we believe that the information from these publications is reliable, the industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of important factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by third parties and by us.
This information statement also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this information statement from our own research as well as from industry and general publications, surveys and studies conducted by third parties, some of which may not be publicly available. Such data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates.
ABOUT OUR FINANCIAL STATEMENTS
Although we were not incorporated until January 2017, and did not acquire our initial assets until August 2017, we have prepared and included in this information statement audited consolidated historical financial statements as of and for the year ended December 31, 2017 and 2016. We have also prepared and included in this information statement unaudited condensed consolidated interim historical financial statements as of and for the three months ended March 31, 2018 and the comparative period for the three months ended March 31, 2017. The consolidated financial statements are presented on a carve-out basis for purposes of presenting what AgeX’s consolidated financial position, consolidated results of operations and consolidated cash flows would have been had AgeX operated the business as a standalone entity for such periods. Our results of operations reflected in such consolidated financial statements may not be indicative of our results of operations as a separate, publicly-traded company or indicative of our results expected for any future period, and should not be relied upon as an indicator of AgeX’s future results. See Note 1. “Organization, Basis of Presentation and Liquidity” to our consolidated financial statements included elsewhere in this information statement.
This information statement also includes an unaudited pro forma condensed combined balance sheet for AgeX, as well as unaudited pro forma condensed combined statements of operations and cash flows, which present our financial position and results of operations and cash flows to give pro forma effect to the transactions described under “Unaudited Pro Forma Condensed Combined Financial Statements.” The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred if the relevant transactions had been consummated on the dates indicated, nor are they indicative of future operating results.
This summary provides an overview of selected information contained elsewhere in this information statement or in our registration statement on Form 10. For a more complete understanding of our business and the Distribution, you should read this entire information statement carefully, particularly the discussion set forth under “Risk Factors” and our historical financial statements, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our unaudited pro forma condensed combined financial statements and the respective notes to those statements included elsewhere in this information statement.
We are a biotechnology company focused on the development and commercialization of novel therapeutics targeting human aging. Our mission is to apply our comprehensive experience in fundamental biological processes of human aging to a broad range of associated medical conditions. We believe that demand for therapeutics addressing such conditions is on the rise, commensurate with the demographic shift of aging in the United States and many other industrialized countries. Our proprietary technology, based on telomerase-mediated cellular immortality and regenerative biology, allows us to utilize telomerase-expressing regenerative Pluripotent Stem Cells (“PSCs”) for the manufacture of cell-based therapies to regenerate tissues afflicted with age-related chronic degenerative disease. Our products under development include two cell-based therapies derived from telomerase-positive PSCs and two product candidates derived from our proprietary induced Tissue Regeneration (iTR TM ) technology. We own or have licenses to a number of patents and patent applications used in the generation of these development-stage products, including intellectual property related to PSC-derived clonal embryonic progenitor cell lines (PureStem ® technology) and HyStem ® delivery matrices. We plan to initiate our first 510(k) application for Renelon TM , a first-generation iTR product, in 2018 and subsequently initiate three clinical trials of cell- and drug-based therapies, each targeting large unmet needs in age-related medicine.
Aging is one of the most significant demographic trends of our time. Approximately 76 million baby boomers in the United States are now approaching old age. This demographic shift therefore poses a significant challenge to our economy. The unsolved problem relates to the fact that chronic conditions account for some 80% of total health care expenditures in the United States and the elderly have a higher prevalence of chronic degenerative disease than the young. Approximately 80% of older adults have one chronic disease, and 68% have two or more. We are focused on translating state-of-the-art laboratory science relating to aging into potential first-in-class therapeutic biologics, drugs, and devices targeting age-related conditions underlying a majority of these concerns.
The technology underlying our therapeutic product development programs is based on telomerase-mediated cellular immortality and regenerative biology. By “telomerase-mediated cellular immortality,” we refer to the fact that cells that express sufficient levels of a protein called telomerase are capable of escaping cell aging. By “regenerative biology,” we refer to novel methods to regenerate tissues afflicted with age-related chronic degenerative disease, such as coronary disease, heart failure, and the complications associated with Type II diabetes. We intend to utilize telomerase-expressing regenerative PSCs for the manufacture of cell-based therapies and induced Tissue Regeneration compositions for its drug-based modalities. We own or have licenses to numerous patents and patent applications covering methods and compositions relating to this technology platform.
Our product pipeline includes two cell-based and two drug-based therapeutic products in pre-clinical development as well as currently-marketed online database products and research products outlined in Figure 1.
Figure 1. The AgeX product pipeline. T2D (Type II Diabetes), MI (Myocardial Infarction), CHF (Congestive Heart Failure), EFT (Embryonic-Fetal Transition), Dx (Diagnosis), Tx (Therapy).
AGEX-BAT1 and AGEX-VASC1 are cell-based therapies in the preclinical stage of development comprised of young regenerative cells formulated in our proprietary HyStem ® matrix designed to correct metabolic imbalances in aging and to restore vascular support in ischemic tissues respectively. AGEX-iTR1547 is a drug-based formulation in preclinical development intended to restore regenerative potential in a wide array of aged tissues afflicted with degenerative disease using the company’s proprietary iTR technology. Renelon TM is a first-generation iTR product designed to promote scarless tissue repair and is planned to be developed as a topically-administered device for commercial development.
We, through our subsidiaries LifeMap Sciences, Inc. and LifeMap Sciences LTD (Israel), or collectively referred to as LifeMap Sciences, also plan to continue to generate near-term product revenues through the marketing of genomic interpretation algorithms, advertising, and subscriptions from an online relational database, GeneCards. In addition, the Company, through its ESI BIO division, markets Cytiva ® comprised of PSC-derived heart muscle cells useful in screening drugs for efficacy and safety in collaboration with GE Healthcare. Cancer diagnostic and therapeutic applications of iTR technology are planned for development through third party partnerships.
From our inception in August 2017, we have focused our efforts on the pre-clinical development of human therapeutics targeting aging. Our general business strategy is to initially focus our technology platform of cellular immortality and regenerative medicine on individual tissues in the body (age-related degenerative diseases such as age-related cardiovascular disease), and then expand the potential indications throughout the body affected by aging.
Our tactics in executing on this strategy include:
|●||Preclinical and clinical validation of the safety and efficacy of our twin cell therapy and iTR products in one organ system;|
Expand indications of the validated products contingent on favorable trial results;
|●||Partner our cGMP clinical-grade PSCs with third parties under royalty-bearing agreements for non-core applications;|
|●||Build near-term revenues in our related research product and bioinformatics businesses to support the therapeutic programs; and|
|●||Serially partner cell therapy programs, maintaining the iTR platform as the Company’s core technology long-term.|
Summary Risk Factors
Our ability to execute our business strategy and the Distribution is subject to numerous risks and uncertainties, which are outlined in the section titled “Risk Factors” found elsewhere in this information statement. These risks include:
|●||We are a preclinical-stage development company and have incurred operating losses since our inception. We anticipate that we will incur continued losses for the foreseeable future, and we do not know if we will ever attain profitability.|
|●||We will spend a substantial amount of our capital on preclinical research and development, but we might not succeed in developing products and technologies that are useful in medicine. If we fail to obtain necessary financing, we may not be able to complete the development and commercialization of our product candidates.|
|●||We have not tested any of our product candidates in clinical trials. Success in early preclinical studies or clinical trials may not be indicative of results obtained in later preclinical studies and clinical trials.|
|●||We do not currently have any products on the market and have not yet generated any substantial revenues from operations.|
|●||We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations|
|●||We will face risks related to the manufacture of medical products for any product candidates that we develop.|
|●||We face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than ours, which may harm our business and financial condition, and our ability to successfully market or commercialize our product candidates.|
|●||The commercial success of any of our current or future product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.|
|●||If the market opportunities for our product candidates are smaller than we believe they are, we may not meet our revenue expectations and, even assuming approval of a product candidate, our business may suffer.|
|●||Any cell-based products that receive regulatory approval may be difficult and expensive to manufacture on a commercial scale.|
|●||Because we are engaged in the development of pharmaceutical and cell therapy products, the price of shares of our common stock may rise and fall rapidly.|
We were incorporated in January 2017 in the state of Delaware as a subsidiary of BioTime. BioTime currently owns 80.6% of the outstanding shares of AgeX. Our principal executive offices are located at 1010 Atlantic Avenue, Suite 102, Alameda, California 94501. Our telephone number is (510) 871-4190. Our website address is www.agexinc.com . The information contained in, or accessible through, our website is not incorporated by reference into this information statement. We acquired our principal assets and licenses and sublicenses to certain patented technology, as well as certain of our subsidiaries, research and development departments and employees, and an equity method investment Ascendance Biotechnology, Inc., from BioTime during August 2017, including an 82% ownership stake in the outstanding shares of common stock of a California corporation, LifeMap Sciences, Inc., which in turn owns 100% of the Israel-based company LifeMap Sciences, Ltd. AgeX also owns 95% of ReCyte Therapeutics, Inc., a California corporation, focused on vascular regeneration. Figure 2 illustrates the ownership structure of BioTime, AgeX and certain of their respective subsidiaries prior to the Distribution.
Figure 2. Relationship of AgeX Therapeutics, Inc with its parent company BioTime, Inc. and its subsidiaries prior to the Distribution.
This information statement also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this information statement may appear without the ® and ™ symbols, but those references are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the right of the applicable licensor to these trademarks and tradenames.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an “emerging growth company” until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the Distribution; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the previous three years; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended.
As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
|●||reduced disclosure about our executive compensation arrangements;|
|●||no non-binding shareholder advisory votes on executive compensation or golden parachute arrangements; and|
|●||exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.|
In addition, the JOBS Act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are effective for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Summary of the Distribution
The following is a summary of the terms of the Distribution. See “The Distribution” for a more detailed description of the matters described below.
|Distributing company||BioTime, Inc.|
|Company whose shares are to be distributed||AgeX Therapeutics, Inc.|
|Distribution ratio||Each holder of BioTime common shares will receive one share of AgeX common stock for every BioTime common shares held on the Record Date.|
|Securities to be distributed||Approximately shares of AgeX common stock, which will constitute approximately % of the AgeX common stock outstanding immediately after the Distribution. Certain current minority shareholders of AgeX will own the balance of the outstanding shares of AgeX common stock immediately after the Distribution, and will acquire additional AgeX shares through the Distribution to the extent that they own BioTime common shares on the record date. The number of shares that BioTime will distribute to its shareholders will be reduced to the extent that cash payments are made in lieu of the issuance of fractional shares of AgeX common stock, as described below.|
|Proposed NYSE American Trading Symbol||
BioTime will not distribute any fractional shares of AgeX common stock to its shareholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices, and distribute the aggregate net cash proceeds of the sales to each BioTime shareholder who otherwise would have been entitled to receive a fractional share in the Distribution, net of any applicable withholding taxes. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
The distribution agent will have the sole discretion to select the broker-dealers through which to sell the aggregated fractional shares and to determine when, how and at what price to sell such shares. Neither the distribution agent nor the selected broker-dealers will be affiliates of BioTime or AgeX.
|Record date||The record date is , 2018 (the “Record Date”), and BioTime share ownership for the purposes of the Distribution will be determined as of 5:00 p.m., New York City time, on that date. Only holders of BioTime common shares as of such time on the Record Date will be entitled to receive AgeX common stock in the Distribution.|
|Distribution Date||The distribution date will be on or about , 2018 (the “Distribution Date”).|
|Relationship between AgeX and BioTime after the Distribution||Depending on the number of shares of our common stock BioTime distributes in the Distribution, after the Distribution, BioTime may continue to own shares of our common stock. BioTime will continue to provide AgeX, on a reimbursable basis, use of office and laboratory facilities and equipment; laboratory and office supplies; utility services to the extent the same are provided to the shared office and laboratory facilities; information technology support; human resources; and other services consistent with past practices under an existing Shared Facilities Agreement. We and BioTime have also entered into other agreements providing for the allocation of tax benefits, employee matters and liabilities arising from periods prior to the Distribution, certain patent and technology licenses and sublicenses, including the existing License Agreement, dated August 17, 2017, between BioTime and AgeX, and shared facilities and services.|
|Management of AgeX||AgeX has a board of directors (the “Board of Directors”) consisting of four directors, of whom qualify as “independent” directors under the rules of the NYSE American, and of whom do not qualify as “independent” because they are officers of AgeX or BioTime or have received compensation from AgeX or BioTime that disqualifies them as “independent” under the NYSE American Company Guide. AgeX will have its own executive officers, although its Chief Executive Officer, Michael D. West, Ph.D., and Chief Financial Officer, Russell Skibsted, will continue to serve as Co-Chief Executive Officer and Chief Financial Officer, respectively, of BioTime. See “Management.”|
|Dividend policy||We do not plan on paying any cash dividends on our common stock in the immediate future. Instead, we will retain any income we may earn to finance our business operations. All decisions regarding the declaration and payment of dividends will be evaluated from time to time in light of our financial condition, earnings, growth prospects, other uses of cash, funding requirements, applicable law, and other factors that our Board of Directors deems relevant. See the section entitled “Dividend Policy.”|
|Risk factors||You should carefully consider the matters discussed under the section entitled “Risk Factors.”|
|Amendment or Cancellation of the Distribution||BioTime may, in its sole discretion: (a) terminate the Distribution prior to delivery of the Distribution Shares to BioTime shareholders; (b) change the Distribution Date for the Distribution to a later date; (c) change the Record Date prior to the Distribution of the Distribution Shares to BioTime shareholders; or (d) amend or modify the terms of the Distribution. If BioTime determines to terminate the Distribution, changes the Distribution Date or the record date, or amends or modifies the terms of the Distribution, BioTime and AgeX will issue a press release, BioTime will file a Current Report on Form 8-K and AgeX will provide a supplement to this Information Statement disclosing the applicable changes.|
Q: Why am I receiving this information statement?
A: BioTime is delivering this information statement to you because you were a holder of BioTime common shares on the Record Date for the Distribution.
Q: What is the Distribution?
A: The Distribution is the distribution of one share of AgeX common stock for every common shares of BioTime that were outstanding on the Record Date. No action is required for you to participate in the Distribution. After the Distribution, BioTime shareholders will receive in the Distribution approximately % of the shares of AgeX common stock that will be outstanding immediately upon the completion of the Distribution. Certain current minority shareholders of AgeX may own the balance of the shares of AgeX common stock that will be outstanding upon completion of the Distribution, and will acquire additional shares of AgeX common stock through the Distribution to the extent that they own BioTime common shares on the Record Date.
Q: What will I receive in the Distribution?
A: In the Distribution, BioTime shareholders will receive one share of AgeX common stock for every BioTime common shares they own as of the Record Date for the Distribution. No fractional shares will be issued. Those BioTime shareholders who would otherwise be entitled to receive fractional shares will receive cash in lieu of fractional shares. For example, a BioTime shareholder who holds 100 BioTime common shares as of the record date will, after the Distribution, (i) continue to hold 100 BioTime common shares and (ii) receive shares of AgeX common stock and cash in lieu of fractional shares. Immediately after the Distribution, BioTime shareholders will still own their BioTime common shares, their proportionate interest in BioTime will not change, and they will still own an interest in BioTime’s current businesses, but they will own that interest as two separate stock investments rather than as a single investment.
Q: What is AgeX?
A: We are an existing majority-owned subsidiary of BioTime engaged in the business of research and development of novel therapeutics targeting human aging.
Q: Why is BioTime distributing AgeX stock to BioTime shareholders?
A: BioTime believes that creating a separate scientific and management team for AgeX and fostering public ownership of AgeX common stock will better enable AgeX to focus on maximizing opportunities for its business, to hire and retain scientists and managers in the future, and to access the capital markets to obtain the financing that AgeX will need in the long run to fund its research and product development programs, and to commercialize any products or technologies that it may develop. Both BioTime and AgeX believe that the Distribution will present the opportunity for enhanced performance of both BioTime and AgeX.
BioTime’s Board of Directors has determined that the Distribution is in the best interests of BioTime and its shareholders. The following potential benefits were considered by BioTime’s Board of Directors in making the determination to effect the Distribution:
|●||allowing each company to separately pursue the business strategies that best suit its long-term interests;|
|●||creating separate companies that have different financial characteristics, which may appeal to different investor bases and allow for clarity on valuation of the respective businesses;|
|●||creating opportunities to more efficiently finance ongoing operations, including product development and clinical trials of new therapeutics products, and commercializing products and technologies;|
|●||creating opportunities to more efficiently finance acquisitions;|
|●||allowing each company to establish an expense structure appropriate for its business and size; and|
|●||creating effective management and employee incentives tied to each company’s performance.|
For a further explanation of the reasons for the Distribution and more information about our business, see “The Distribution—Reasons for the Distribution” and “Business.”
Q: What is the record date for the Distribution?
A: The Record Date is , 2018, and BioTime share ownership for the purposes of the Distribution will be determined as of 5:00 p.m., New York City time, on that date.
Q: When will the Distribution occur?
A: Shares of AgeX common stock will be distributed on or about , 2018.
Q: Can BioTime decide to cancel or delay the Distribution?
A: Yes. The Distribution is conditioned upon satisfaction or waiver of certain conditions under the Asset Contribution Agreement. See “The Distribution—Distribution Conditions and Termination.” BioTime also has the right to postpone or terminate the Distribution even if all of these conditions are met, if at any time BioTime’s Board of Directors determines, in its sole discretion that completing the Distribution would not be in the best interest of BioTime and its shareholders.
Q: What will happen to the listing of BioTime common shares?
A: Nothing. BioTime common shares will continue to be traded on the NYSE American and TASE under the symbol “BTX.”
Q: Will the Distribution affect the market price of my BioTime common shares?
A: The immediate impact of the Distribution on the market price of BioTime common shares cannot be determined. On the one hand, the establishment of AgeX as an independent company, and assuming AgeX’s results of operations are deconsolidated from those of BioTime, will reduce BioTime’s operating expenses related to the operation of AgeX after the Distribution. On the other hand, the price of BioTime common shares could decline in view of the fact that BioTime may no longer own any AgeX shares. Accordingly, the combined trading prices of BioTime common shares and AgeX common stock after Distribution Date may be less than or greater than the trading price of BioTime common shares prior to the Distribution. Until the market has fully analyzed the relative values of BioTime and AgeX after the Distribution, and the effect of the Distribution on BioTime’s balance sheet and operating results, and a trading market for AgeX common stock is established, the price of both BioTime common shares and AgeX common stock may fluctuate significantly.
Q: What does a BioTime shareholder need to do now?
A: BioTime shareholders do not need to take any action to participate in the Distribution. The approval of the BioTime shareholders is not required or sought to effect the Distribution and BioTime shareholders have no appraisal rights in connection with the Distribution. BioTime is not seeking a proxy from any shareholders and you are requested not to send BioTime or us a proxy. BioTime shareholders will not be required to pay anything for the shares of AgeX common stock distributed in the Distribution or to surrender any BioTime common shares. BioTime shareholders should not send their BioTime share certificates to BioTime, AgeX or the distribution agent and transfer agent. BioTime shareholders eligible to receive AgeX common stock in the Distribution will automatically receive their shares of AgeX common stock when the Distribution is effected and will receive cash for any fractional shares. After the Distribution, the certificates and book-entry interests representing your BioTime common shares will continue to represent interests in the BioTime businesses following the Distribution, excluding only the portion of AgeX distributed to BioTime shareholders. The book-entry interests representing AgeX common stock that BioTime shareholders receive in the Distribution will represent equity interests in AgeX.
Q: Are there risks to the Distribution and owning AgeX common stock?
A: Yes. Our business is subject to both general industry risk and specific risks relating to our business, operations and regulatory environment. In addition, there will be market risks associated with the ownership of AgeX common stock and risks associated with the Distribution. See “Risk Factors.”
Q: What are the material U.S. federal income tax consequences of the Distribution to BioTime shareholders?
A: For U.S. federal income tax purposes, if a corporate division, such as the Distribution, qualifies for tax-free treatment under Section 355 of the Code, the distribution of AgeX common shares to our shareholders would generally not be taxable as a distribution, as described below. The Internal Revenue Service (“IRS”) has ruled that the Distribution meets all of the statutory requirements for a tax-free spin-off on which the IRS will rule. However, since that IRS ruling was issued, BioTime has sold AgeX stock to a third party in a transaction that reduced BioTime’s ownership percentage from 85.4% to 80.6%. While that sale alone would not prevent the Distribution from qualifying as tax-free, BioTime is considering further sales of AgeX stock for cash and other assets that would reduce BioTime’s ownership percentage to below 80%, thereby precluding a tax-free spinoff. BioTime is considering other transactions besides further sales of AgeX stock that could preclude a tax-free spin-off as well. In addition, any further issuance by AgeX of its common stock, including stock option exercises, prior to the Distribution that would result in reducing BioTime’s ownership interest below 80% would also preclude a tax-free spinoff. Thus, at this time it is not known whether the Distribution would qualify for tax-free treatment under Section 355 of the Code. Accordingly, the Distribution may or may not be a taxable transaction for BioTime shareholders. Assuming that the Distribution qualifies as a tax-free transaction for U.S. federal income tax purposes under Section 355 of the Code, BioTime shareholders are not expected to recognize any gain or loss for U.S. federal income tax purposes solely as a result of the Distribution except to the extent of any cash received in lieu of fractional shares of AgeX’s common stock.
If the Distribution were to fail to qualify as tax-free for U.S. federal income tax purposes under Sections 355 of the Code for any reason, including as a result of a breach of a representation or covenant, BioTime shareholders will be treated as having received a taxable distribution equal to the value of the AgeX stock distributed, treated as a taxable dividend to the extent of BioTime’s current and accumulated earnings and profits, and then would have a tax-free basis recovery up to the amount of their tax basis in their shares, and then would have taxable gain from the sale or exchange of the shares to the extent of any excess.
Additional matters concerning the U.S. federal income tax consequences of the Distribution are summarized in the section of this information statement entitled “Certain Federal Income Tax Considerations.” You should consult your own tax advisor as to the particular consequences of the Distribution to you.
Q: How will I determine my tax basis in the shares of AgeX common stock I receive in the Distribution?
A: If the Distribution qualifies as tax-free for U.S. federal income tax purposes under Section 355 of the Code, for U.S. federal income tax purposes, your aggregate basis in the common stock that you hold in BioTime and the new AgeX common stock received in the Distribution (including any fractional share interest in AgeX common stock for which cash is received) will equal the aggregate basis in the shares of BioTime common stock held by you immediately before the Distribution, allocated between your shares of BioTime common stock and the AgeX common stock (including any fractional share interest in AgeX common stock for which cash is received) you receive in the Distribution in proportion to the relative fair market value of each on the Distribution Date.
If the Distribution were to fail to qualify as tax-free for U.S. federal income tax purposes under Section 355 Code, your tax basis in shares of AgeX common stock received in the Distribution generally will equal the fair market value of such shares on the Distribution Date.
You should consult your tax advisor about the particular consequences of the Distribution to you, including the application of the tax basis allocation rules and the application of state, local and foreign tax laws.
Q: What if I want to sell my BioTime common shares or my AgeX common stock?
A: You should consult with your own financial advisors, such as your stockbroker, bank or tax advisor. BioTime and AgeX do not make any recommendations on the purchase, retention, or sale of BioTime common shares or AgeX common stock. If you do decide to sell any shares, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your BioTime stock or your AgeX stock after it is distributed, or both.
Q: Where will I be able to trade shares of my AgeX common stock?
A: Currently there is no public market for AgeX common stock. We intend to apply to list AgeX common stock on the NYSE American under the symbol “AGE.” If our listing application is not approved, we plan to arrange to have AgeX common stock traded on the OTC Bulletin Board. Trading in shares of AgeX common stock may begin on a “when-issued” basis on or shortly before the Distribution Date, and “regular way” trading will begin on the first trading day following the Distribution Date. If trading does begin on a “when-issued” basis, you may purchase or sell AgeX common stock after that time, but your transaction will not settle until after the Distribution Date. On the first trading day following the Distribution Date, “when-issued” trading in respect of AgeX common stock will end and “regular way” trading will begin. We cannot predict the trading prices for AgeX common stock before, on, or after the Distribution Date.
Q: If I sell, on or before the distribution date, BioTime common shares that I held on the Record Date, am I still entitled to receive shares of AgeX common stock distributable with respect to the common shares of BioTime that I sold?
A: Beginning on or shortly before the Record Date and continuing through the Distribution Date, BioTime common shares will begin to trade in two markets on the NYSE American: a “regular-way” market and an “ex-distribution” market. If you hold common shares of BioTime as of the Record Date and choose to sell those shares in the “regular-way” market after the Record Date and on or before the Distribution Date, you also will be selling the right to receive the shares of AgeX common stock in connection with the Distribution. However, if you hold common shares of BioTime as of the Record Date and choose to sell those shares in the “ex-distribution” market after the Record Date and on or before the Distribution Date, you will still receive the shares of AgeX common stock in the Distribution.
Q: Where can BioTime shareholders get more information?
A: Before the Distribution, if you have any questions relating to the Distribution, you should contact:
1010 Atlantic Avenue, Suite 102
Alameda, CA 94501
Telephone: (510) 521-3390
After the Distribution, if you have any questions relating to AgeX common stock, you should contact:
AgeX Therapeutics, Inc.
1010 Atlantic Avenue, Suite 102
Alameda, CA 94501
Telephone: (510) 871-4190
Q: Who will be the distribution agent, transfer agent and registrar for AgeX common stock?
A: The distribution agent, transfer agent and registrar for AgeX common stock will be American Stock Transfer & Trust Company, LLC.
Our business is subject to various risks, including those described below. You should consider the following risk factors, together with all of the other information included in this information statement. If any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, occur, our business, liquidity, financial condition and results of operations could be materially and adversely affected. If this were to happen, the market price of our common stock could decline significantly, and you could lose all or a part of the value of your ownership in our common stock. There may be other factors that are not mentioned here or of which we are not presently aware that could also affect our business operations and prospects.
Risks Related to Our Business Operations
We are a preclinical-stage development company and have incurred operating losses since our inception. We anticipate that we will incur continued losses for the foreseeable future, and we do not know if we will ever attain profitability.
We are a preclinical-stage therapeutics company with a limited operating history. Since our inception in August 2017, we have incurred operating losses and negative cash flows and we expect to continue to incur losses and negative cash flow in the future. Our operating losses were $(6.7) million and $(12.7) million for the year ended December 31, 2017 and 2016, respectively, and we had an accumulated deficit of approximately $(66.8) million as of March 31, 2018. We have devoted most of our financial resources to research and development, including our preclinical development activities.
Since inception, we have financed our operations through contributions and advances from our parent company, BioTime, and the sale of our common stock and warrants to our current shareholders. Although BioTime may continue to provide administrative support to us on a reimbursable basis, we do not expect BioTime to provide future financing. There is no assurance that we will be able to obtain any additional financing that we may need after the completion of the Distribution, or that any such financing that may become available will be on terms that are favorable to us and our shareholders. Ultimately, our ability to generate sufficient operating revenue to earn a profit depends upon our success in developing and marketing or licensing our products and technology.
We expect to continue to incur significant additional operating losses for the foreseeable future as we seek to advance product candidates through preclinical and clinical development, expand our research and development activities, develop new product candidates, complete clinical trials, seek regulatory approval and, if we receive FDA approval, commercialize our products. Furthermore, the costs of advancing product candidates into each succeeding clinical phase tend to increase substantially over time. The total costs to advance any of our product candidates to marketing approval in even a single jurisdiction would be substantial. Because of the numerous risks and uncertainties associated with development of cell-based and drug-based therapeutics, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to begin generating revenue from the commercialization of products (other than through our LifeMap Sciences subsidiary) or achieve or maintain profitability. Our expenses will also increase substantially if and as we:
|●||continue our current research programs and our preclinical development of product candidates from our current research programs;|
|●||seek to identify, assess, acquire and/or develop additional research programs and additional product candidates;|
|●||initiate preclinical testing and clinical trials for any product candidates we identify and develop;|
|●||establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;|
|●||maintain, expand and protect our intellectual property portfolio;|
|●||further develop our product development platform based on telomerase-mediated cellular immortality and regenerative biology;|
|●||make payments under the Shared Facilities Agreement to BioTime for use of BioTime’s scientific personnel, administrative services (including patent prosecution, certain legal services and accounting and financial services) and research facilities;|
|●||hire additional clinical, scientific and commercial and administrative personnel to support our product development, planned future commercialization efforts and transition to a public reporting company;|
|●||hire our own executive management personnel, including a Chief Financial Officer and Chief Operating Officer;|
|●||add operational, financial and management information systems;|
|●||acquire or lease our own administrative, research and clinical facilities; and|
|●||acquire or in-license other commercial products, product candidates and technologies;|
|●||make royalty, milestone or other payments under current and any future in-license agreements;|
|●||validate and build-out a commercial-scale current Good Manufacturing Practices, or cGMP, manufacturing facility, or contract with third-party manufacturers;|
|●||contract with third-party suppliers; and|
|●||operate as a public company.|
Furthermore, our ability to successfully develop, commercialize and license our products and generate product revenue is subject to substantial additional risks and uncertainties. Each of our programs and product candidates will require additional preclinical and clinical development, potential regulatory approval in multiple jurisdictions, securing manufacturing supply, capacity and expertise, building of a commercial organization, substantial investment and significant marketing efforts before we generate any operating income from product sales. As a result, we expect to continue to incur net losses and negative cash flows for the foreseeable future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. The amount of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. If we are unable to develop and commercialize one or more of our product candidates either alone or with collaborators, or if revenues from any product candidate that receives marketing approval are insufficient, we will not achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability. If we are unable to achieve and then maintain profitability, the value of our equity securities will be materially and adversely affected.
We will spend a substantial amount of our capital on preclinical research and development, but we might not succeed in developing products and technologies that are useful in medicine. If we fail to obtain necessary financing, we may not be able to complete the development and commercialization of our product candidates.
We expect to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize our product candidates. We will require additional capital beyond the proceeds of this offering, which we may raise through equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or other sources to enable us to complete the development and potential commercialization of our product candidates. In addition, we may not be able to enter into any collaborations that will generate significant cash. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative effect on our financial condition and our ability to pursue our business strategy. In addition, attempting to secure additional financing may divert the time and attention of our management from day-to-day activities and harm our product candidate development efforts.
Because the length of time and activities associated with successful development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
|●||the initiation, progress, timing, costs and results of our planned clinical trials for our product candidates;|
|●||the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;|
|●||the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;|
|●||the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us or any of our product candidates;|
|●||the effect of competing technological and market developments;|
|●||the cost and timing of completion of commercial-scale manufacturing activities;|
|●||the costs of operating as a public company;|
|●||the costs of hiring additional clinical, research and operational personnel, and developing our own administrative systems and obtaining research and clinical facilities, in the event we shift away from or cease using services provided under the Shared Facilities Agreement;|
|●||make royalty, milestone or other payments under current and any future in-license agreements in the event we begin generating sales from products derived from intellectual property under such in-license arrangements, including our Hydrogel patent license and sublicense, our license arrangement with ES Cell International Pte, a subsidiary of BioTime, and our sublicense of certain progenitor patents;|
|●||the extent to which we in-license or acquire other products and technologies;|
|●||the cost of establishing sales, marketing and distribution capabilities in regions where we choose to commercialize our products, if approved; and|
|●||the initiation, progress, timing and results of our commercialization of our product candidates, if any are approved for commercial sale.|
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidates or potentially discontinue operations.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial revenue, we may finance our cash needs through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We do not currently have any committed external source of funds. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We have not tested any of our product candidates in clinical trials. Success in early preclinical studies or clinical trials may not be indicative of results obtained in later preclinical studies and clinical trials.
Though BioTime has completed certain clinical trials involving our technology platform, including Hystem being developed as a replacement for whole adipose tissue in cell assisted lipotransfer (CAL) procedures, our product candidates have never been evaluated in human clinical trials, and we may experience unexpected or adverse results in the future. We will be required to demonstrate through adequate and well-controlled clinical trials that our product candidates are safe and effective, with a favorable benefit-risk profile, for use in their target indications before we can seek regulatory approvals for their commercial sale. Any positive results that have been observed for product candidates similar to ours in preclinical animal models may not be predictive of future clinical trials in humans. Our product candidates may also fail to show the desired safety and efficacy in later stages of clinical development even if they successfully advance through initial clinical trials. Further, some or all of our cell-based therapies under development may require the genetic modification of the pluripotent master cell banks such that the resulting cells can escape immune rejection by the intended patient. There is no certainty that said genetic modification will provide a long-term solution to transplant rejection, or that said modified cells will not cause unanticipated health risks to the patient that could delay or even halt the development of the products.
Many companies in the biotechnology industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and there is a high failure rate for product candidates proceeding through clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. Even if we demonstrate statistical significance, regulatory agencies may not accept the use of the historical control. Regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development. We cannot be certain that we will not face similar setbacks.
We do not currently have any products on the market and have not yet generated any substantial revenues from operations.
We were established and began operations in 2017. Our operations to date have been limited to financing and staffing our company, developing our technology and identifying and developing our product candidates. We have not yet demonstrated an ability to successfully commence or complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approval, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Typically, it takes about six to ten years to develop a new drug from the time it enters Phase 1 clinical trials to when it is approved for treating patients, but in many cases it may take longer. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing genetic medicine products. In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will eventually need to transition from a company with a research focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
We need to successfully develop and market or license therapeutic products or technologies in order to earn revenues in sufficient amounts to meet our operating expenses. Without significant product sales or licensing fee revenues, we will not be able to operate at a profit, and we will not be able to cover our operating expenses without raising additional capital. Should we be able to successfully develop and market any therapeutic products we may not be able to receive reimbursement for them from payers, such as health insurance companies, health maintenance organizations and Medicare, or any reimbursement that we receive may be lower than we anticipate.
As we continue to build our business, we expect our financial condition and operating results may fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any particular quarterly or annual period as indications of future operating performance.
We may not be successful in our efforts to identify additional product candidates.
Part of our strategy involves identifying novel product candidates. The process by which we identify product candidates may fail to yield product candidates for clinical development for a number of reasons, including those discussed in these risk factors and also:
|●||we may not be able to assemble sufficient resources to acquire or discover additional product candidates;|
|●||competitors may develop alternatives that render our potential product candidates obsolete or less attractive;|
|●||potential product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;|
|●||potential product candidates may, on further study, be shown to have harmful side effects, toxicities or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance;|
|●||potential product candidates may not be effective in treating their targeted diseases;|
|●||the market for a potential product candidate may change so that the continued development of that product candidate is no longer reasonable;|
|●||a potential product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; or|
|●||the regulatory pathway for a potential product candidate is too complex and difficult to navigate successfully or economically.|
In addition, we may choose to focus our efforts and resources on a potential product candidate that ultimately proves to be unsuccessful, such as our two cell-based product candidates. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases that may later prove to have greater commercial potential, or relinquish valuable rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights. If we are unable to identify additional suitable product candidates for clinical development, this would adversely impact our business strategy and our financial position and share price and could potentially cause us to cease operations.
We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As of March 31, 2018, we had 16 employees. We will need to significantly expand our organization, including through our services arrangements with BioTime following the Distribution, and we may have difficulty identifying, hiring and integrating new personnel. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth.
Many of the biotechnology companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than we do. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can discover and develop product candidates and operate our business will be limited.
The commercial success of any of our current or future product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.
Even with the approvals from the FDA and comparable foreign regulatory authorities, the commercial success of our products will depend in part on the health care providers, patients, and third-party payors accepting our product candidates as medically useful, cost-effective, and safe. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and other health care providers. The clinical development, commercialization and marketing of cell therapies are at an early-stage, substantially research-oriented, and financially speculative. To date, very few companies have been successful in their efforts to develop and commercialize cell therapies. In general, cell therapies may be susceptible to various risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy, potentially prohibitive costs or other characteristics that may prevent or limit their approval or commercial use. Furthermore, the number of people who may use cell- or tissue-based therapies is difficult to forecast with accuracy. Our future success is dependent on the establishment of a large global market for cell therapies and our ability to capture a share of this market with our product candidates.
Even if we successfully develop and obtain regulatory approval for our product candidates, the market may not understand or accept them. Our product candidates represent novel treatments and are expected to compete with a number of more conventional products and therapies manufactured and marketed by others, including major pharmaceutical and biotechnology companies. The degree of market acceptance of any of our products will depend on a number of factors, including without limitation:
|●||the efficacy of the product as demonstrated in clinical studies and potential advantages over competing treatments;|
|●||the prevalence and severity of the disease and any side effects;|
|●||the clinical indications for which approval is granted, including any limitations or warnings contained in a product’s approved labeling;|
|●||the convenience and ease of administration;|
|●||the cost of treatment, particular as additive to existing treatments;|
|●||the willingness of the patients and physicians to accept and use these therapies and the perception of efficacy and safety of our approved products by such parties;|
|●||the marketing, sales and distribution support for the products;|
|●||the publicity and ethical, social and legal concerns regarding the use of embryonic stem cells for our products or competing products and treatments; and|
|●||government regulations restricting or prohibiting our research or manufacturing processes for stem cells due to ethical, social and legal concerns regarding their use in medical research and treatment; and|
|●||the pricing and availability of third-party insurance coverage and reimbursement.|
Even if a product displays a favorable efficacy and safety profile upon approval, market acceptance of the product will initially remain uncertain. Efforts to educate the medical community and third-party payors on the benefits of the products may require significant investment and resources and may never be successful. If our products fail to achieve an adequate level of acceptance by physicians, patients, third-party payors, and other health care providers, we will not be able to generate sufficient revenue to become or remain profitable.
If the market opportunities for our product candidates are smaller than we believe they are, we may not meet our revenue expectations and, even assuming approval of a product candidate, our business may suffer.
Our projections of the number of potential users of our product candidates in the markets we are attempting to address are based on our beliefs and estimates and include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. You should bear in mind the following:
|●||Our estimates have been derived from a variety of sources, including publications and scientific literature or market research estimating the total number of patients and currently approved or used therapies, as well as certain assumptions regarding the potential size of the market assuming broad regulatory approval or potential usage by physicians beyond the approved label, any of which may prove to be incorrect.|
|●||The scope of approval and potential use may be significantly narrower and the number of patients may turn out to be lower than expected.|
|●||Competitive products or approaches may be approved or come into use by medical providers and the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, any which could adversely affect our results of operations and our business.|
If the actual market for any of our product candidates is smaller than we expect, our revenue may be limited and it may be more difficult for us to achieve or maintain profitability.
We will face risks related to the manufacture of medical products for any product candidates that we develop .
The manufacture of medical products, and in particular biologics, is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls, none of which we presently have. Unless we are able to raise the capital required to construct our own manufacturing facilities, and are able to develop the expertise to manage and operate a manufacturing facility of our own, we may need to rely on third-party manufacturers to manufacture any products that we develop. There is no assurance that we will be able to identify manufacturers on acceptable terms or at all. Regardless of whether we do our own manufacturing or rely on third parties to manufacture products for us, we will face all risks related to the manufacture of therapeutic products for use in medicine including the following risks:
|●||We or any third-party manufacturers might be unable to timely formulate and manufacture our products or produce the quantity and quality required to meet our clinical and commercial needs, if any.|
|●||We or any third-party manufacturers may not be able to execute our manufacturing procedures appropriately.|
|●||Any third-party manufacturers we engage may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store and distribute our products on a commercial scale.|
|●||We or any third-party manufacturers will be subject to ongoing periodic unannounced inspection by the United States Food and Drug Administration, or FDA, and corresponding state agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign standards. We will not have control over third-party manufacturers’ compliance with applicable regulations and standards.|
|●||We may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our product candidates.|
|●||Third-party manufacturers could breach or terminate their agreements with us.|
|●||We or third-party manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments.|
In addition, we may rely on third parties to perform release testing on our product candidates prior to delivery to patients. If these tests are not appropriately conducted and test data are not reliable, patients could be put at risk of serious harm which could result in product liability suits.
If we or any third-party manufacturers that we may engage were to encounter any of these difficulties, our ability to provide our product candidates to patients in clinical trials or to the medical market place would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, could require us to either commence new clinical trials at additional expense or terminate clinical trials completely.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
Further, our product candidates are manufactured by starting with human embryonic cells and other cells that are stored in cryopreserved master cell banks. While we believe we have adequate backup should any cell bank be lost in a catastrophic event, it is possible that we or our third-party suppliers and manufacturers could lose multiple cell banks and have our manufacturing severely impacted by the need to replace the cell banks. We cannot assure you that any stability or other issues relating to the manufacture of any of our product candidates or products will not occur in the future. If any of our master cell banks are lost or destroyed, including due to systems failure in the cryopreservation processes, our planned clinical trials would be severely delayed and we would incur significant costs associated with obtaining new supply of cell banks. Accordingly, failures or difficulties faced at any level of our supply chain could adversely affect our business and delay or impede the development and commercialization of any of our product candidates or products and could have an adverse effect on our business, prospects, financial condition and results of operations.
Any therapies that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing cell-based products for us. Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.
Each of these risks could delay our clinical trials, any approval of our product candidates by the FDA, or the commercialization of our product candidates, and could result in higher costs or deprive us of potential product revenue.
Any cell-based products that receive regulatory approval may be difficult and expensive to manufacture on a commercial scale.
Pluripotent stem cell and progenitor cell derived therapeutic cells have only been produced on a small scale and not in quantities and at levels of purity and viability that will be needed for wide scale commercialization. If we are successful in developing products that consist of cells or compounds derived from pluripotent stem cells or progenitor cells, we will need to develop processes and technology for the commercial production of those products. Pluripotent stem cell or progenitor cell based products are likely to be more expensive to manufacture on a commercial scale than most other drugs on the market today. The high cost of manufacturing a product will require that we charge our customers a high price for the product in order to cover our costs and earn a profit. If the price of our products is too high, hospitals and physicians may be reluctant to purchase our products and we may not be able to sell our products in sufficient volumes to recover our costs or to earn a profit.
If we fail to meet our obligations under license agreements, we may lose our rights to key technologies on which our business depends.
Our business will depend on several critical technologies that we have licensed or sublicensed from BioTime or certain BioTime subsidiaries. The license and sublicense agreements impose obligations on us, including payment obligations and obligations to pursue development and commercialization of products and technologies under the licensed patents or technology. If the licensor or sublicensor believes that we have failed to meet our obligations under a license or sublicense agreement, they could seek to limit or terminate our license rights, which could lead to costly and time-consuming litigation and, potentially, our loss of the licensed rights. In addition, certain of our licensing counterparties may terminate without cause, including Yeda Research in connection with the relational databases that we in-license from Yeda for LifeMap Sciences. During the period of any such litigation our ability to carry out the development and commercialization of potential new products or technologies, and our ability to raise any capital that we might then need, could be significantly and negatively affected. If our license rights were restricted or ultimately lost, we would not be able to continue to use the licensed or sublicensed technology in our business.
Our future success depends on our ability to retain our key personnel and to attract, retain and motivate qualified personnel.
Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development, regulatory, commercialization and business development expertise of Michael West, Ph.D., our Chief Executive Officer, as well as the other principal members of our management, scientific and clinical teams. Although we expect to have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. In addition, several of our key employees are also employed in such roles at BioTime, which could result in the diversion of time and efforts away from the management and development of our business. For example, following the Distribution, our Chief Executive Officer intends to retain his role as Co-Chief Executive Officer of BioTime.
If we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize product candidates successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be engaged by entities other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to develop and commercialize product candidates will be limited.
Our business and operations could suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters including earthquakes and tsunamis, terrorism, war, and telecommunication and electrical failures. Such events could cause significant interruption of our operations and development programs. For example, the loss of data for our product candidates could result in delays in our regulatory filings and development efforts and significantly increase our costs. To the extent that any disruption or security breach was to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of our product candidates could be delayed.
In addition, our product candidates are manufactured by starting with cells that are stored in a cryopreserved master cell bank. While we believe we have adequate backup should any cell bank be lost in a catastrophic event, it is possible that we or our third-party suppliers and manufacturers could lose multiple cell banks and have our manufacturing severely impacted by the need to replace the cell banks. See “—We will face risks related to the manufacture of medical products for any product candidates that we develop.” We cannot assure you that any stability or other issues relating to the manufacture of any of our product candidates or products will not occur in the future. Any delay or interruption in the supply of clinical trial supplies could delay the completion of planned clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Any adverse developments affecting clinical or commercial manufacturing of our product candidates or products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls or other interruptions in the supply of our product candidates or products. Accordingly, failures or difficulties faced at any level of our supply chain could adversely affect our business and delay or impede the development and commercialization of any of our product candidates or products and could have an adverse effect on our business, prospects, financial condition and results of operations.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
Failure of our internal control over financial reporting could harm our business and financial results.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the U.S. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of our assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. If we are successful in developing new medical products and technologies, the commercialization of those products and technologies will place significant additional pressure on our system of internal control over financial reporting. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. See “—Risks Pertaining to Our Common Stock—Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the Distribution, and failure to achieve and maintain effective internal controls could have a material adverse effect on our business and the price of our common stock.”
We will initially rely in part on financial systems maintained by BioTime and upon services provided by BioTime personnel. BioTime will allocate certain expenses among itself, us, and BioTime’s other subsidiaries and affiliates, which creates a risk that the allocations may not accurately reflect the benefit of an expenditure or use of financial or other resources by us, BioTime, and the BioTime subsidiaries and affiliates among which the allocations are made.
Risks Related to Our Industry
We face significant competition in an environment of rapid technological change and the possibility that our competitors may achieve regulatory approval before us or develop therapies that are more advanced or effective than ours, which may harm our business and financial condition, and our ability to successfully market or commercialize our product candidates.
The biotechnology and pharmaceutical industries are characterized by rapidly changing technologies, competition and a strong emphasis on intellectual property. We may face competition from other companies focused on therapeutics for age-related disease, which is a highly competitive environment. There are numerous biotechnology companies developing therapeutics for human aging, with each company often focusing on a specific molecular pathway within cells. For example, ResTORbio, Inc. is developing modulators of the mechanistic target of rapamycin (mTOR) pathway to treat immunological and cardiovascular disorders. Calico Life Sciences LLC is a Google-founded research and development company aimed at identifying molecular pathways that control animal lifespan and translating these insights into novel therapeutics designed to increase human healthspan. Unity Biotechnology, Inc. focuses on cellular senescence, in particular, the use of agents that can target senescent cells for selective ablation (senolysis). Unity’s stated targeted age-related diseases include osteoarthritis as well as other ophthalmological and pulmonary diseases. Our therapeutic products in development are likely to face competition from a large number of companies and technological strategies including therapeutics intended to address our lead indications. See “Business—Competition.”
We may also face competition from large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions. Many of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology, and gene therapy industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop or that would render any products that we may develop obsolete or non-competitive. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In particular, the Ministry of Labor Health and Welfare in Japan may grant SAKIGAKE designation to a competing product candidate, which is designed to provide for faster review and approval for any such product candidate as compared to the conventional process. If any competing product candidate receives SAKIGAKE designation in Japan, it may be commercialized more quickly in Japan than any of our product candidates. Additionally, technologies developed by our competitors may render our potential product candidates uneconomic or obsolete, and we may not be successful in marketing any product candidates we may develop against competitors.
Any product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
The Patient Protection and Affordable Care Act, signed into law on March 23, 2010 (“ACA”), includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own pre-clinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
There is a risk that any of our product candidates approved as a biological product under a BLA would not qualify for the 12-year period of exclusivity or that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that any other product candidates we may seek to develop in the future will ever obtain regulatory approval. Neither we nor any future collaborator is permitted to market any of our product candidates in the United States until we receive regulatory approval of a biologic license application, or BLA, from the FDA. It is possible that the FDA may refuse to accept for substantive review any BLAs that we submit for our product candidates or may conclude after review of our data that our application is insufficient to obtain marketing approval of our product candidates.
Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program. Depending on the extent of these or any other FDA-required studies, approval of any BLA or application that we submit may be delayed by several years, or may require us to expend significantly more resources than we have available.
Any therapeutic products that we and our subsidiaries may develop cannot be sold until the FDA and corresponding foreign regulatory authorities approve the products for medical use. The need to obtain regulatory approval to market a new product means that:
|●||We will have to conduct expensive and time-consuming clinical trials of new products. The full cost of conducting and completing clinical trials necessary to obtain FDA and foreign regulatory approval of a new product cannot be presently determined, but could exceed our financial resources.|
|●||Clinical trials and the regulatory approval process for a pharmaceutical or cell-based product can take several years to complete. As a result, we will incur the expense and delay inherent in seeking FDA and foreign regulatory approval of new products, even if the results of clinical trials are favorable.|
|●||Data obtained from preclinical and clinical studies is susceptible to varying interpretations and regulatory changes that could delay, limit, or prevent regulatory agency approvals.|
|●||Because the therapeutic products we plan to develop with pluripotent stem cell technology or progenitor cell technology involve the application of new technologies and approaches to medicine, the FDA or foreign regulatory agencies may subject those products to additional or more stringent review than drugs or biologicals derived from other technologies.|
|●||A product that is approved may be subject to restrictions on use.|
|●||The FDA can recall or withdraw approval of a product, if it deems necessary.|
|●||We will face similar regulatory issues in foreign countries.|
While we may elect to submit a 510(k) notification for regulatory clearance of our Renelon device, we have never submitted a 510(k) notification before and may be unsuccessful in obtaining clearance for our Renelon device. In addition, Renelon may not be classified by the FDA as a 510(k) device and may be required to be developed through a Premarket Approval (PMA) application, as an investigational new drug (IND), or regulated as a drug/device combination.
Approval of our product candidates may be delayed or refused for many reasons, including the following:
|●||the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;|
|●||we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our product candidates are safe and effective for any of their proposed indications;|
|●||the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;|
|●||we may be unable to demonstrate that our product candidates’ clinical and other benefits outweigh their safety risks;|
|●||the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical programs or clinical trials;|
|●||the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;|
|●||the facilities of the third-party manufacturers with which we contract may not be adequate to support approval of our product candidates (for example, regulatory approval of cell- and tissue-based products require high standards of quality control); and|
|●||the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.|
Of the large number of potential products in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, results of operations and prospects.
Ethical, social and legal concerns about research regarding stem cells, could result in regulations restricting or prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing any products. New government requirements may be established that could delay or prevent regulatory approval of our product candidates under development. It is impossible to predict whether legislative changes will be enacted, regulations, policies or guidance changed, or interpretations by agencies or courts changed, or what the impact of such changes, if any, may be.
Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. The FDA has established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of gene therapy and related products, and has established the Cellular, Tissue and Gene Therapies Advisory Committee to advise the CBER in its review. Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research from the United States National Institutes of Health, or NIH, also are potentially subject to review by the NIH Office of Science Policy’s Recombinant DNA Advisory Committee, or the RAC, in limited circumstances. Although the FDA decides whether individual gene therapy protocols may proceed, the RAC public review process, if undertaken, can delay the initiation of a clinical trial, even if the FDA has reviewed the trial design and details and authorized its initiation. Conversely, the FDA can put an investigational new drug application, or IND, on clinical hold even if the RAC has provided a favorable review or an exemption from in-depth, public review. If we were to engage an NIH-funded institution, to conduct a clinical trial, that institution’s institutional biosafety committee, or IBC, as well as its institutional review board, or IRB, would need to review the proposed clinical trial to assess the safety of the trial and may determine that RAC review is needed. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our product candidates. Similarly, foreign regulatory authorities may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we comply with these new guidelines.
Some of our future products may be viewed by the FDA as combination products and the review of combination products is often more complex and more time consuming than the review of other types of products.
Our future products may be regulated by the FDA as combination products. For a combination product, the FDA must determine which center or centers within the FDA will review the product candidate and under what legal authority the product candidate will be reviewed. The process of obtaining FDA marketing clearance or approval is lengthy, expensive, and uncertain, and we cannot be sure that any of our combination products, or any other products, will be cleared or approved in a timely fashion, or at all. In addition, the review of combination products is often more complex and more time consuming than the review of a product candidate under the jurisdiction of only one center within the FDA. We cannot be sure that the FDA will not select to have our combination products reviewed and regulated by only one FDA center and/or different legal authority, in which case the path to regulatory approval would be different and could be more lengthy and costly. If the FDA does not approve or clear our products in a timely fashion, or at all, our business and financial condition will be adversely affected.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may encounter delays in enrolling, or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. The enrollment of patients depends on many factors, including:
|●||the patient eligibility criteria defined in the protocol;|
|●||the size of the patient population required for analysis of the trial’s primary endpoints;|
|●||the proximity of patients to study sites;|
|●||the design of the trial;|
|●||our ability to recruit clinical trial investigators with the appropriate competencies and experience;|
|●||clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating;|
|●||our ability to obtain and maintain patient consents; and|
|●||the risk that patients enrolled in clinical trials will drop out of the trials before completion.|
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site.
Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop our product candidates, or could render further development impossible.
Even if we obtain FDA approval for any of our product candidates in the United States, we may never obtain approval for or commercialize it in any other jurisdiction, which would limit our ability to realize its full market potential.
In order to market any products in any particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions. However, the failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country.
Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and increased costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of any product we develop will be unrealized.
Clinical studies are costly, time consuming and inherently risky, and we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities
Clinical development is expensive, time consuming and involves significant risk. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can occur at any stage of development. Events that may prevent successful or timely completion of clinical development include but are not limited to:
|●||inability to generate satisfactory preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical studies necessary for product approval;|
|●||delays in reaching agreement on acceptable terms with CROs and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;|
|●||delays in obtaining required Institutional Review Board, or IRB, approval at each clinical study site;|
|●||failure to permit the conduct of a study by regulatory authorities, after review of an investigational new drug, or IND, or equivalent foreign application or amendment;|
|●||delays in recruiting qualified patients in our clinical studies;|
|●||failure by clinical sites or our CROs or other third parties to adhere to clinical study requirements or report complete findings;|
|●||failure to perform the clinical studies in accordance with the FDA’s good clinical practices requirements, or applicable foreign regulatory guidelines;|
|●||patients dropping out of our clinical studies;|
|●||occurrence of adverse events associated with our product candidates;|
|●||inability to use clinical trial results from foreign jurisdictions in support of U.S. regulatory approval;|
|●||changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;|
|●||the cost of clinical studies of our product candidates;|
|●||negative or inconclusive results from our clinical trials which may result in our deciding, or regulators requiring us, to conduct additional clinical studies or abandon development programs for a product candidate; and|
|●||delays in reaching agreement on acceptable terms with third-party manufacturers, or delays in the manufacture of sufficient quantities of our product candidates for use in clinical studies.|
Any inability to successfully complete clinical development and obtain regulatory approval could result in additional costs to us or impair our ability to generate revenue. Clinical study delays could also shorten any periods during which our products have patent protection and may allow competitors to develop and bring products to market before we do and may harm our business and results of operations.
Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for such product, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, establishment registration and drug listing requirements, continued compliance with cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping and Good Clinical Practice, or GCP, requirements for any clinical trials that we conduct post-approval.
The FDA closely regulates the post-approval marketing and promotion of genetic medicines to ensure they are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we market our products for uses beyond their approved indications, we may be subject to enforcement action for off-label marketing. Violations of the U.S. federal Food, Drug, and Cosmetic Act, or FDCA, relating to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
|●||restrictions on manufacturing such products;|
|●||restrictions on the labeling or marketing of a product;|
|●||restrictions on product distribution or use;|
|●||requirements to conduct post-marketing studies or clinical trials;|
|●||warning letters or holds on clinical trials;|
|●||withdrawal of the products from the market;|
|●||refusal to approve pending applications or supplements to approved applications that we submit;|
|●||recall of products;|
|●||fines, restitution or disgorgement of profits or revenues;|
|●||suspension or withdrawal of marketing approvals;|
|●||refusal to permit the import or export of our products;|
|●||product seizure or detention; or|
|●||injunctions or the imposition of civil or criminal penalties.|
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and biologics and spur innovation, but its ultimate implementation is unclear. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained which would adversely affect our business, prospects and ability to achieve or sustain profitability.
We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. Notably, on January 30, 2017, President Trump issued an Executive Order, applicable to all executive agencies, including the FDA, that requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This Executive Order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a new regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within the Office of Management and Budget on February 2, 2017, the Trump administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents. Further, on February 24, 2017, President Trump issued an Executive Order requiring each agency to designate a regulatory reform officer and create a regulatory reform task force to evaluate existing regulations and make recommendations regarding their repeal, replacement or modification. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
Our product candidates may cause serious adverse events or undesirable side effects or have other properties which may delay or prevent their regulatory approval, limit the commercial profile of an approved label, or, result in significant negative consequences following marketing approval, if any.
Serious adverse events or undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects, toxicities or unexpected characteristics, including death.
For example, there have been significant adverse side effects in cell therapy treatments in the past, including reported cases of certain cancers. In addition to side effects that may be caused by our product candidates, the conditioning, administration process or related procedures also can cause adverse side effects, including compromise of a patient’s immune system. If unacceptable side effects arise in the development of our product candidates, we, the FDA, the IRBs at the institutions in which our studies are conducted or Data Safety Monitoring Board, or DSMB, could suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our business, financial condition and prospects significantly.
If any of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by any such product, including during any long-term follow-up observation period recommended or required for patients who receive treatment using our products, a number of potentially significant negative consequences could result, including:
|●||regulatory authorities may withdraw approvals of such product;|
|●||we may be required to recall a product or change the way such product is administered to patients;|
|●||additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product;|
|●||regulatory authorities may require additional warnings on the label, such as a “black box” warning or contraindication;|
|●||we may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a medication guide outlining the risks of such side effects for distribution to patients;|
|●||the product could become less competitive;|
|●||we could be sued and held liable for harm caused to patients; and|
|●||our reputation may suffer.|
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use or misuse of our product candidates harm patients, or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory approvals could be revoked or could otherwise be negatively impacted, and we could be subject to costly and damaging product liability claims.
The use or misuse of any product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies, or others selling or otherwise coming into contact with our products. There is a risk that our product candidates may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:
|●||impairment of our business reputation;|
|●||initiation of investigations by regulators;|
|●||withdrawal of clinical trial participants;|
|●||costs due to related litigation;|
|●||distraction of management’s attention from our primary business;|
|●||substantial monetary awards to patients or other claimants;|
|●||the inability to commercialize our product candidates;|
|●||product recalls, withdrawals or labeling, and marketing or promotional restrictions;|
|●||loss of revenue; and|
|●||decreased demand for our product candidates, if approved for commercial sale.|
We may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we commence clinical trials or obtain marketing approval for any product candidates, we intend to increase our insurance coverage to include clinical use or the sale of commercial products, as applicable; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.
Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, umbrella, and directors’ and officers’ insurance.
Any additional product liability insurance coverage we acquire in the future, may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and in the future we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain marketing approval for any of our product candidates, we intend to acquire insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. A successful product liability claim or series of claims brought against us could cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing or limiting the commercialization of any product candidates we develop.
We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our Board of Directors, our board committees or as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
Our employees and independent contractors, including principal investigators, CROs, consultants, vendors, and any third parties we may engage in connection with development and commercialization may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
Misconduct by our employees and independent contractors, including principal investigators, contract research organizations, or CROs, consultants, vendors, and any third parties we may engage in connection with development and commercialization, could include intentional, reckless or negligent conduct or unauthorized activities that violate: (i) the laws and regulations of the FDA, EMA rules and regulations and other similar regulatory requirements, including those laws that require the reporting of true, complete and accurate information to such authorities; (ii) manufacturing standards; (iii) data privacy, security, fraud and abuse and other healthcare laws and regulations; or (iv) laws that require the reporting of true, complete and accurate financial information and data. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creation of fraudulent data in pre-clinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid, other U.S. federal healthcare programs or healthcare programs in other jurisdictions, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations.
Government-imposed bans or restrictions and religious, moral, and ethical concerns about the use of human embryonic stem cells could prevent us from developing and successfully marketing stem cell products.
Government-imposed bans or restrictions on the use of embryos or human embryonic stem cells (“hES cells”), in research and development in the United States and abroad could generally constrain stem cell research, thereby limiting the market and demand for our products.
California law requires that stem cell research be conducted under the oversight of a stem cell review oversight committee (“SCRO”). Many kinds of stem cell research, including the derivation of new hES cell lines, may only be conducted in California with the prior written approval of the SCRO. A SCRO could prohibit or impose restrictions on the research that we plan to do.
The use of hES cells may give rise to religious, moral, and ethical issues. These considerations could lead to more restrictive government regulations or could generally constrain stem cell research, thereby limiting the market and demand for our products.
Adverse publicity regarding cell-based therapies could impact our business.
Adverse publicity due to the ethical and social controversies surrounding the use of embryonic stem cells or any adverse reported side effects from any stem cell or other cell therapy clinical trials or to the failure of such trials to demonstrate that these therapies are efficacious could materially and adversely affect our ability to raise capital, conduct and complete clinical trials and achieve market acceptance of such products, if approved. For example, research institutions, including those who may be our collaborators, may from time to time publish findings or studies regarding the human genome (such as the Human Genome Project) that adversely implicate our product candidates, including findings of cancer dependencies in cell lines used in our cell-based therapies.
The price and sale of any products that we may develop may be limited by health insurance coverage and government regulation.
Success in selling our pharmaceutical and cell-based products and medical devices may depend in part on the extent to which health insurance companies, HMOs, and government health administration authorities such as Medicare and Medicaid will pay for the cost of the products and related treatment. Until we introduce a new product into the medical marketplace, we will not know with certainty whether adequate health insurance, HMO, and government coverage will be available to permit the product to be sold at a price high enough for us to generate a profit. In some foreign countries, pricing or profitability of health care products is subject to government control, which may result in low prices for our products. In the United States, there have been a number of federal and state proposals to implement similar government controls, and new proposals are likely to be made in the future. We cannot be sure that coverage and reimbursement in the United States, the EU or elsewhere will be available for our product candidates or any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.
Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs or biologics when an equivalent generic drug, biosimilar or a less expensive therapy is available. It is possible that a third-party payor may consider our product candidates as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidates, pricing of existing third-party therapeutics may limit the amount we will be able to charge for our product candidates. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in our product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates, and may not be able to obtain a satisfactory financial return on our product candidates.
There is significant uncertainty related to the insurance coverage and reimbursement of newly-approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models in the United States for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. We cannot predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases on short notice, and we believe that changes in these rules and regulations are likely.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe and other countries have and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our product candidates may be reduced compared with the United States and may be insufficient to generate commercially-reasonable revenue and profits.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of our product candidates due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and biologics and surgical procedures and other treatments, has become intense. As a result, increasingly high barriers are being erected to the entry of new products.
Enacted and future healthcare legislation, including the ACA, may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set.
In the United States, the EU and other jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. As a result of the adoption of the ACA in the United States, substantial changes have been made to the system for paying for healthcare in the United States. Certain provisions related to cost-savings and reimbursement measures could adversely affect our future financial performance. For example, among the provisions of the ACA, those of greatest importance to the biopharmaceutical industry includes the following:
|●||an annual, non-deductible fee payable by any entity that manufactures or imports certain branded prescription drugs and biologic agents (other than those designated as orphan drugs), which is apportioned among these entities according to their market share in certain government healthcare programs;|
|●||new requirements to report certain financial arrangements with physicians and teaching hospitals, including reporting “transfers of value” made or distributed to prescribers and other healthcare providers and reporting investment interests held by physicians and their immediate family members;|
|●||a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;|
|●||expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;|
|●||a licensure framework for follow on biologic products;|
|●||a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and|
|●||establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.|
Since its enactment, some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial, congressional, and executive challenges. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the ACA. The U.S. Supreme Court has upheld certain key aspects of the legislation, including a tax-based shared responsibility payment imposed on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly known as the requirement that all individuals maintain health insurance coverage or pay a penalty, referred to as the “individual mandate.” However, as a result of tax reform legislation passed in December 2017, the individual mandate has been eliminated effective January 1, 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise.
Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The Order requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the applicable agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This Executive Order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a new regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within the Office of Management and Budget on February 2, 2017, the Trump administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents.
The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. The loss of the cost share reduction payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. In addition, the Centers for Medicare & Medicaid Services, or CMS, has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.
Further, on February 24, 2017, President Trump issued an Executive Order requiring each agency to designate a regulatory reform officer and create a regulatory reform task force to evaluate existing regulations and make recommendations regarding their repeal, replacement or modification. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws or any other similar laws introduced in the future may result in additional reductions in Medicare and other health care funding, which could negatively affect our customers and accordingly, our financial operations.
The costs of prescription pharmaceuticals in the United States has also been the subject of considerable debate, and members of Congress and the Trump Administration have indicated that each will address such costs through new legislative and administrative measures. To date, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, improve transparency in drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare, and reform government program reimbursement methodologies for drug products. The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these other countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for approved products. In addition, there have been several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare and reform government program reimbursement methodologies for drugs. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent labeling and post-marketing testing and other requirements.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally-mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our product candidates or put pressure on our product pricing.
In the EU, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize our product candidates, if approved.
In markets outside of the United States and EU, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action in the United States, the EU or any other jurisdiction. If we or any third parties we may engage are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or such third parties are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability.
If we fail to comply with the extensive legal and regulatory requirements affecting the health care industry, we could face increased costs, penalties and a loss of business.
Our activities, and the activities of any collaborators, distributors and other third-party providers that we may engage in the future, will be subject to extensive government regulation and oversight both in the U.S. and in foreign jurisdictions. The FDA and comparable agencies in other jurisdictions will directly regulate many of our most critical business activities, including the conduct of preclinical and clinical studies, product manufacturing, advertising and promotion, product distribution, adverse event reporting, and product risk management. Our interactions in the U.S. or abroad with physicians and other health care providers that prescribe or purchase our products will also be subject to government regulation designed to prevent fraud and abuse in the sale and use of the products, and place greater restrictions on the marketing practices of health care companies. Health care companies such as ours are facing heightened scrutiny of their relationships with health care providers from anti-corruption enforcement officials. In addition, health care companies such as ours have been the target of lawsuits and investigations alleging violations of government regulation, including claims asserting submission of incorrect pricing information, impermissible off-label promotion of pharmaceutical products, payments intended to influence the referral of health care business, submission of false claims for government reimbursement, antitrust violations, and violations related to environmental matters. Risks relating to compliance with laws and regulations may be heightened if we operate globally.
Regulations governing the health care industry are subject to change, with possibly retroactive effect, including:
|●||new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care availability, pricing or marketing practices, compliance with wage and hour laws and other employment practices, method of delivery, payment for health care products and services, compliance with health information and data privacy and security laws and regulations, tracking and reporting payments and other transfers of value made to physicians and teaching hospitals, extensive anti-bribery and anti-corruption prohibitions, product serialization and labeling requirements and used product take-back requirements;|
|●||changes in the FDA and foreign regulatory approval processes that may delay or prevent the approval of new products and result in lost market opportunity;|
|●||requirements that provide for increased transparency of clinical trial results and quality data, such as the EMA’s clinical transparency policy, which could impact our ability to protect trade secrets and competitively-sensitive information contained in approval applications or could be misinterpreted leading to reputational damage, misperception, or legal action which could harm our business; and|
|●||changes in FDA and foreign regulations that may require additional safety monitoring, labeling changes, restrictions on product distribution or use, or other measures after the introduction of our products to market, which could increase our costs of doing business, adversely affect the future permitted uses of approved products, or otherwise adversely affect the market for our products.|
Violations of governmental regulation may be punishable by criminal and civil sanctions against us, including fines and civil monetary penalties and exclusion from participation in government programs, including Medicare and Medicaid, as well as sanctions against executives overseeing our business. In addition to penalties for violation of laws and regulations, we could be required to repay amounts we received from government payors, or pay additional rebates and interest if we are found to have miscalculated the pricing information we have submitted to the government. We cannot ensure that our compliance controls, policies and procedures will in every instance protect us from acts committed by our employees, collaborators, partners or third-party providers that would violate the laws or regulations of the jurisdictions in which we operate. Whether or not we have complied with the law, an investigation into alleged unlawful conduct could increase our expenses, damage our reputation, divert management time and attention, and adversely affect our business.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws, and if we are unable to comply with such laws, we could face substantial penalties.
If we obtain FDA approval for any of our product candidates or technologies and begin commercializing those products or technologies in the United States, our operations may be subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
|●||the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;|
|●||federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;|
|●||the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;|
|●||HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and implementing regulations, which impose certain requirements relating to the privacy, security, and transmission of individually identifiable health information;|
|●||the Physician Payments Sunshine Act which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations;|
|●||the FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;|
|●||the U.S. Public Health Service Act, which prohibits, among other things, the introduction into interstate commerce of a biological product unless a biologics license is in effect for that product; and|
|●||state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payors, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or that otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances.|
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. Further, state laws differ from each other and from federal law in significant ways, thus complicating compliance efforts.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Risks Related to our Dependence on Third Parties
We may become dependent on future collaborations to develop and commercialize our product candidates and to provide the regulatory compliance, sales, marketing, and distribution capabilities required for the success of our business.
We may enter into various kinds of collaborative research and development and product marketing agreements to develop and commercialize our products. The expected future milestone payments and cost reimbursements from collaboration agreements could provide an important source of financing for our research and development programs, thereby facilitating the application of our technology to the development and commercialization of our products, but there are risks associated with entering into collaboration arrangements.
The process of establishing and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty, such as:
|●||a collaboration partner may shift its priorities and resources away from our product candidates due to a change in business strategies, or a merger, acquisition, sale or downsizing;|
|●||a collaboration partner may seek to renegotiate or terminate their relationships with us due to unsatisfactory clinical results, manufacturing issues, a change in business strategy, a change of control or other reasons;|
|●||a collaboration partner may cease development in therapeutic areas which are the subject of our strategic collaboration;|
|●||a collaboration partner may not devote sufficient capital or resources towards our product candidates;|
|●||a collaboration partner may change the success criteria for a product candidate thereby delaying or ceasing development of such candidate;|
|●||a significant delay in initiation of certain development activities by a collaboration partner will also delay payment of milestones tied to such activities, thereby impacting our ability to fund our own activities;|
|●||a collaboration partner could develop a product that competes, either directly or indirectly, with our product candidate;|
|●||a collaboration partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale of a product;|
|●||a collaboration partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand requirements;|
|●||a collaboration partner may terminate a strategic alliance;|
|●||a dispute may arise between us and a partner concerning the research, development or commercialization of a product candidate resulting in a delay in milestones, royalty payments or termination of an alliance and possibly resulting in costly litigation or arbitration which may divert management attention and resources; and|
|●||a partner may use our products or technology in such a way as to invite litigation from a third party.|
There is a risk that a collaboration partner might fail to perform its obligations under the collaborative arrangements or may be slow in performing its obligations. In addition, a collaboration partner may experience financial difficulties at any time that could prevent it from having available funds to contribute to the collaboration. If a collaboration partner fails to conduct its product development, commercialization, regulatory compliance, sales and marketing or distribution activities successfully and in a timely manner, or if it terminates or materially modifies its agreements with us, the development and commercialization of one or more product candidates could be delayed, curtailed, or terminated because we may not have sufficient financial resources or capabilities to continue such development and commercialization on our own.
We have no marketing, sales, or distribution resources for the commercialization of any products or technologies that we might successfully develop.
We do not have any infrastructure for the sales, marketing or distribution of our products, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. There are significant expenses and risks involved with establishing our own sales, marketing and distribution capabilities, including our ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities could delay any product launch, which would adversely impact the commercialization of any approved product candidate.
If we market products through arrangements with third parties, we may pay sales commissions to sales representatives or we may sell or consign products to distributors at wholesale prices. As a result, our gross profit from product sales may be lower than it would be if we were to sell our products directly to end users at retail prices through our own sales force. There can be no assurance we will able to negotiate distribution or sales agreements with third parties on favorable terms to justify our investment in our products or achieve sufficient revenues to support our operations.
If we are unable to build our own sales force or negotiate a collaborative relationship for the commercialization of our product candidates, we may be forced to delay the potential commercialization of such candidates or reduce the scope of our sales or marketing activities for them. If we elect to increase our expenditures to fund commercialization activities ourselves, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. We could enter into arrangements with collaborative partners at an earlier stage than otherwise would be ideal and we may be required to relinquish rights to our product candidates or otherwise agree to terms unfavorable to us, any of which may have an adverse effect on our business, operating results and prospects.
If we are unable to establish adequate sales, marketing and distribution capabilities, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates and may not become profitable and may incur significant additional losses. We will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
We do not have the ability to independently conduct clinical trials required to obtain regulatory approvals for our product candidates and intend to rely on third parties to conduct, supervise and monitor our clinical trials.
We will need to rely on third parties, such as contract research organizations, data management companies, contract clinical research associates, medical institutions, clinical investigators and contract laboratories to conduct any clinical trials that we may undertake for our product candidates. We may also rely on third parties to assist with our preclinical development of product candidates.
If we outsource clinical trials, we may be unable to directly control the timing, conduct and expense of our clinical trials. However, we will remain responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our third party contractors will be required to comply with the GLPs and GCPs, which are regulations and guidelines enforced by the FDA and are also required by the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities in the form of International Conference on Harmonization guidelines for any of our product candidates that are in preclinical and clinical development. The Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our third party contractors fail to comply with GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Accordingly, if our third party contractors fail to comply with these regulations or fail to recruit a sufficient number of subjects, we may be required to repeat clinical trials, which would delay the regulatory approval process.
Our third party contractors will not be our employees, and we will not control whether or not they devote sufficient time and resources to our future clinical and nonclinical programs. These third party contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other product development activities which could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by third party contractors, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. If our third party contractors do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate that we develop would be harmed, our costs could increase, and our ability to generate revenues could be delayed.
If our relationship with any third party contractors terminate, we may not be able to enter into arrangements with alternative third party contractors or do so on commercially reasonable terms. Switching or adding additional third party contractors involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our third party contractors, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse impact on our business, financial condition and prospects.
Risks Related to Intellectual Property
If we are unable to obtain and enforce patents and to protect our trade secrets, others could use our technology to compete with us, which could limit opportunities for us to generate revenues by licensing our technology and selling our products.
|●||Our success will depend in part on our ability to obtain and enforce patents and maintain trade secrets in the United States and in other countries. If we are unsuccessful in obtaining and enforcing patents, our competitors could use our technology and create products or technologies that compete with our products and technologies, without paying license fees or royalties to us.|
|●||The preparation, filing, and prosecution of patent applications can be costly and time consuming. Our limited financial resources may not permit us to pursue patent protection of all of our technology and products throughout the world.|
|●||Even if we are able to obtain issued patents covering our technology or products, we may have to incur substantial legal fees and other expenses to enforce our patent rights in order to protect our technology and products from infringing uses. We may not have the financial resources to finance the litigation required to preserve our patent and trade secret rights.|
There is no certainty that our pending or future patent applications will result in the issuance of patents.
We acquired rights to patent applications for technology that BioTime has developed, and we may file additional new patent applications in the future seeking patent protection for new technology or products that we develop ourselves or jointly with others. However, there is no assurance that any of our licensed patent applications, or any patent applications that we may file in the future in the United States or abroad, will result in the issuance of patents.
The process of applying for and obtaining patents can be expensive and slow.
|●||The preparation and filing of patent applications, and the maintenance of patents that are issued, may require substantial time and money.|
|●||A patent interference proceeding may be instituted with the U.S. Patent and Trademark Office (the “USPTO”) when more than one person files a patent application covering the same technology, or if someone wishes to challenge the validity of an issued patent. At the completion of the interference proceeding, the USPTO will determine which competing applicant is entitled to the patent, or whether an issued patent is valid. Patent interference proceedings are complex, highly contested legal proceedings, and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect to any of our patent applications, we may experience significant expenses and delay in obtaining a patent, and if the outcome of the proceeding is unfavorable to us, the patent could be issued to a competitor rather than to us.|
|●||A derivation proceeding may be instituted by the USPTO or an inventor alleging that a patent or application was derived from the work of another inventor.|
|●||Post Grant Review under the new America Invents Act will make available opposition-like proceedings in the United States. As with the USPTO interference proceedings, Post Grant Review proceedings will be very expensive to contest and can result in significant delays in obtaining patent protection or can result in a denial of a patent application.|
|●||Oppositions to the issuance of patents may be filed under European patent law and the patent laws of certain other countries. As with USPTO interference proceedings, these foreign proceedings can be very expensive to contest and can result in significant delays in obtaining a patent or can result in a denial of a patent application.|
Intellectual property we may develop using grants received from the federal government are subject to rights maintained by the government.
Research and development we perform that is funded by grants from the federal government, and any intellectual property that we create using those grants, is subject to the rights maintained by the federal government.
Our patents may not protect our technologies or products from competition.
|●||We might not be able to obtain any patents beyond those we already own or have licensed or sublicensed, and any patents that we do obtain might not be comprehensive enough to provide us with meaningful patent protection.|
|●||There will always be a risk that our competitors might be able to successfully challenge the validity or enforceability of any patent issued to us.|
|●||In addition to interference proceedings, the USPTO can reexamine issued patents at the request of a third party. Our patents may be subject to inter partes review (replacing the reexamination proceeding), a proceeding in which a third party can challenge the validity of one of our patents to have the patent invalidated. This means that patents owned or licensed by us may be subject to reexamination and may be lost if the outcome of the reexamination is unfavorable to us.|
|●||The patents to which we have licenses to, including the licenses to HyStem are broadly licensed to other companies and in some instances, in overlapping fields of use. Asterias Biotherapeutics, Inc. (“Asterias”), an affiliate of BioTime, has a non-exclusive license to HyStem patents in certain fields of use that overlap with the AgeX sublicensed fields of use. Asterias and AgeX may create competing products. In addition, AgeX, through ReCyte, is sublicensed under the BioTime Asterias Cross-license, which creates another potential risk of the two companies to create competing products.|
We may be subject to patent infringement claims that could be costly to defend, which may limit our ability to use disputed technologies, and which could prevent us from pursuing research and development or commercialization of some of our technologies or products, require us to pay licensing fees to have freedom to operate and/or result in monetary damages or other liability for us.
The success of our business depends significantly on our ability to operate without infringing patents and other proprietary rights of others. If the technology that we use infringes a patent held by others, we could be sued for monetary damages by the patent holder or its licensee, or we could be prevented from continuing research, development, and commercialization of technologies and products that rely on that technology, unless we are able to obtain a license to use the patent. The cost and availability of a license to a patent cannot be predicted, and the likelihood of obtaining a license at an acceptable cost would be lower if the patent holder or any of its licensees is using the patent to develop or market a technology or product with which our technologies or products would compete. If we could not obtain a necessary license, we would need to develop or obtain rights to alternative technologies, which could prove costly and could cause delays in developing our technologies or products, or we could be forced to discontinue the development or marketing of any technologies and products that were developed using the technology covered by the patent.
Risks Related to Our Relationship with BioTime
We will initially rely upon BioTime for certain services and resources
Although we plan to have our own research facilities in the near future, our own scientific personnel, and many critical management personnel, we will initially rely on BioTime to provide certain management and administrative services, including patent prosecution, certain legal services, human resources management, accounting, financial management, and controls over financial accounting and reporting. We have entered into a Shared Facilities and Services Agreement (“Shared Facilities Agreement”) with BioTime under which we have agreed to bear costs allocated to us by BioTime for our use of BioTime’s office and laboratory facilities and human resources, and for services and materials provided for our benefit by BioTime. We will pay BioTime 105% of its costs of providing personnel and services to us, and for our use of its facilities, including an allocation of general overhead based on that use. We may also share the services of some research personnel with BioTime. Either party to the Shared Facilities Agreement may terminate the agreement for any reason with six months written notice to the other party.
If BioTime’s human resources are not sufficient to serve both BioTime’s needs and ours, we will have to hire additional personnel of our own, either on a full-time or part-time basis, as employees or as consultants, and the cost of doing so could be greater than the costs that would be allocated to us by BioTime. Also, any new personnel that we may need to hire may not be as familiar with our business or operations as BioTime’s personnel, which means that we would incur the expense and inefficiencies related to training new employees or consultants.
Three of our four directors are also officers or directors of BioTime which may result in conflicts of interest.
Three of the four members of our Board of Directors are also officers or directors of BioTime, and two of those three members are also our executive officers. This commonality of directors and officers means that we will not have a Board of Directors making business decisions on our behalf completely independent from BioTime and our management, and certain of our executive officers will continue to serve in managerial positions at BioTime and make executive decisions on its behalf. In addition, under the Shared Facilities Agreement, a portion of our Chief Executive Officer’s salary has historically been and may continue to be reimbursed by BioTime. Finally, our Executive Chairman’s annual salary has been set by our board of directors following recommendation by BioTime’s compensation committee to its board of directors.
Conflicts of interest may arise from our relationship with BioTime.
Our relationship with BioTime could give rise to certain conflicts of interest that could have an impact on our research and development programs, business opportunities, and operations generally.
|●||Even if we utilize different technologies than BioTime or its subsidiaries, we could find ourselves in competition with them for research scientists, financing and other resources, licensing, manufacturing, and distribution arrangements, and for customers if we and BioTime or a BioTime subsidiary both bring competing products or technologies to market.|
|●||BioTime and its subsidiaries will engage for their own accounts in research and product development programs, investments, and business ventures, and we will not be entitled to participate or to receive an interest in those programs, investments, or business ventures. BioTime and its other subsidiaries will not be obligated to present any particular research and development, investment, or business opportunity to us, even if the opportunity would be within the scope of our research and development plans or programs, business objectives, or investment policies. These opportunities may include, for example, opportunities to acquire businesses or assets, including but not limited to patents and other intellectual property that could be used by us or by BioTime or by any of BioTime’s subsidiaries.|
|●||We have entered into certain patent and technology licenses and sublicenses, and other agreements with BioTime and certain BioTime subsidiaries. The BioTime companies that are parties to those agreements will have interests that conflict with our interests in determining how and when they should enforce their rights under the agreements if we were to default or otherwise fail to perform any of our obligations under the agreements. In addition, our agreements with BioTime related to the Distribution, including the Tax Matters Agreement and Employee Matters Agreement, have been negotiated with BioTime in the context of our separation from BioTime. Accordingly, these agreements may not reflect terms that would have resulted from negotiations among unaffiliated third parties.|
|●||Each conflict of interest will be resolved by our respective boards of directors in keeping with their fiduciary duties and such policies as they may implement from time to time. However, the terms and conditions of our current patent and technology licenses and other agreements with BioTime or BioTime subsidiaries may not reflect terms and conditions that would have resulted from negotiations among unaffiliated third parties due to BioTime’s ownership of a controlling interest in us at the time we entered into those licenses, sublicenses and other agreements.|
Risks Related to the Distribution
There could be significant liability if the Distribution is determined to be a taxable transaction.
The Distribution may or may not be a taxable transaction for BioTime shareholders. While the IRS has ruled that the Distribution meets all of the statutory requirements for a tax-free spin-off on which the IRS will rule, any further issuance by us of additional shares of common stock, or any sales of our common stock held by BioTime, prior to the Distribution could result in reducing BioTime’s ownership interest below 80%, which would preclude a tax-free spin-off. In particular, BioTime has recently sold shares of our common stock that it owned to a third party in a transaction that reduced BioTime’s ownership percentage from 85.4% to 80.6%. While such sale alone would not prevent the Distribution from qualifying as tax-free, any additional shares sold by BioTime could reduce BioTime’s ownership below 80%, thereby precluding a tax-free spin-off. BioTime may conduct other transactions from time to time apart from further sales of our common stock that could preclude a tax-free spin-off as well. If the Distribution ultimately is determined to be taxable, the Distribution could be treated as a taxable dividend to BioTime’s shareholders for U.S. federal income tax purposes, in which case BioTime’s shareholders could incur significant U.S. federal income tax liabilities. In addition, BioTime would recognize a taxable gain to the extent that the fair market value of AgeX’s common stock exceeds BioTime’s tax basis in the stock on the date of the Distribution. For a description of the sharing of the tax liability that BioTime incurs between BioTime and AgeX, see “Certain Relationships and Related Person Transactions—Agreements with BioTime and its Subsidiaries —Tax Matters Agreement.”
AgeX may not be able to engage in certain corporate transactions after the separation.
If BioTime believes the Distribution can be structured to qualify as a tax-free transaction for U.S. federal income tax purposes under Section 355 of the Code, then to preserve the tax-free treatment to AgeX of the Distribution, BioTime and AgeX may agree to modify the Tax Matters Agreement they entered into previously to qualify and maintain the Distribution as a tax-free spin-off under Section 355 of the Code. If modified, the Tax Matters Agreement will be expected to provide that AgeX would be restricted from taking any action that prevents the Distribution and certain related transactions from being tax-free for U.S. federal income tax purposes. Specifically, the amended Tax Matters Agreement is expected to provide that during the period beginning two years before the Distribution Date and ending two years after the Distribution Date, AgeX will be prohibited, except in certain circumstances, from:
|●||entering into any transaction resulting in the acquisition of more than a certain percentage of its stock or substantially all of its assets, whether by merger or otherwise;|
|●||merging, consolidating, or liquidating;|
|●||issuing equity securities, including options, beyond certain thresholds;|
|●||repurchasing its capital stock;|
|●||ceasing to actively conduct its business; and|
|●||taking or failing to take any action that prevents the distribution and related transactions from being tax-free.|
If the Tax Matters Agreement is amended as described above, these restrictions may limit AgeX’s ability to pursue certain strategic transactions or other transactions that it may believe to be in the best interests of its shareholders or that might increase the value of its business. In addition, under the amended Tax Matters Agreement, AgeX would be required to indemnify BioTime against any such tax liabilities as a result of the acquisition of AgeX’s stock or assets, even if it did not participate in or otherwise facilitate the acquisition.
The historical and pro forma financial information presented herein is not necessarily representative of the results that our business would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
The historical and pro forma financial information for AgeX included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that AgeX would have achieved as a separate, publicly traded company during the periods presented or those that AgeX will achieve in the future. We expect significant changes may occur in AgeX’s cost structure, management, financing and business operations as a result of operating as a separate publicly-traded company. For additional information about the historical financial performance of AgeX’s business and the basis of presentation of the historical consolidated financial statements and the unaudited pro forma condensed combined financial statements of AgeX’s business, see “Selected Historical Consolidated Financial Data,” “Unaudited Pro Forma Condensed Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes of AgeX included elsewhere in this information statement.
Our ability to meet our capital needs may be harmed by the loss of financial support from BioTime.
The loss of financial support from BioTime could harm our ability to meet our capital needs. BioTime historically has provided financing to us at rates that we believe are not representative of the cost of financing that we will incur as a stand-alone company. After the Distribution, we expect to obtain any funds needed in excess of the amounts generated by our operating activities through the capital markets or bank financing, and not from BioTime. After the Distribution, we may incur higher debt servicing and other costs relating to new indebtedness than we would have otherwise incurred as a part of BioTime. As a stand-alone company, the cost of our financing also will depend on other factors such as our performance and financial market conditions generally. Further, we cannot guarantee that we will be able to obtain capital market financing or credit on favorable terms, or at all, in the future. We cannot be certain that our ability to meet our capital needs, including servicing our own debt, will not be harmed by the loss of financial support from BioTime.
We may be unable to achieve some or all of the benefits that we expect to achieve from the Distribution.
As discussed under “The Distribution—Reasons for the Distribution,” we and BioTime believe that a Distribution will enhance our long-term value. However, by separating from BioTime, we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of BioTime. In addition, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all.
Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the Distribution, and failure to achieve and maintain effective internal controls could have a material adverse effect on our business and the price of our common stock.
Our financial results previously were included within the consolidated results of BioTime, and we believe that our financial reporting and internal controls were appropriate for a subsidiary of a public company. However, we were not directly subject to the reporting and other requirements of the Exchange Act. As a result of the distribution, we will be directly subject to reporting and other obligations under the Exchange Act. Beginning with our second annual report on Form 10-K, we will be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) which will require annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm as to whether we maintained, in all material respects, effective internal controls over financial reporting as of the last day of the year. These reporting and other obligations may place significant demands on our management, administrative and operational resources, including accounting systems and resources.
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with these requirements, we will need to establish our own systems; implement additional financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff. We expect to incur additional annual expenses for the purpose of addressing these requirements, and those expenses may be significant. If we are unable to establish our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired.
If, during periods we are required to assess the effectiveness of our internal controls, we are unable to conclude that we have effective internal controls over financial reporting or our independent public accounting firm is unwilling or unable to provide us with an unqualified report on the effectiveness of our internal controls as required by Section 404 of the Sarbanes-Oxley Act, we may be unable to report our financial information on a timely basis, investors may lose confidence in our operating results, the price of our common stock could decline and we may be subject to litigation or regulatory enforcement actions, which would require additional financial and management resources. This could have a material adverse effect on our business and lead to a decline in the price of our common stock.
Following the Distribution, we will be dependent on BioTime to continue to provide certain services.
Currently, we rely on BioTime to provide certain corporate and administrative services such as information technology, financial and human resource services pursuant to a number of services agreements. We expect to develop the capability to provide all such services internally or through the use of third parties at AgeX. However, to the extent that we are unable to develop such capabilities prior to the separation, we will rely on BioTime to continue to provide certain services for a period of time pursuant to such service agreements that we may enter in connection with the Distribution. If BioTime is unable or unwilling to provide such services pursuant to any such agreements, or if the agreements are terminated prior to the end of its term, we may be unable to provide such services ourselves or we may have to incur additional expenditures to obtain such services from another provider.
The Distribution may not be completed on the terms or timeline currently contemplated, if at all.
We are actively engaged in planning for the Distribution. We expect to incur expenses in connection with the Distribution and any delays in the anticipated completion of the distribution may increase these expenses. Unanticipated developments could delay or negatively impact the distribution, including those related to the filing and effectiveness of appropriate filings with the SEC, the listing of our common stock on a trading market, and receiving any required regulatory approvals. In addition, BioTime’s Board of Directors may, in its absolute and sole discretion, decide at any time prior to the consummation of the Distribution not to proceed with the Distribution. Therefore, we cannot assure that the Distribution will be completed. Until the consummation of the Distribution, BioTime’s Board of Directors will have the sole and absolute discretion to determine and change the terms of the Distribution, including the establishment of the record date and distribution date.
Risks Pertaining to Our Common Stock
There is presently no public market for our common stock and there is no assurance that a market will develop and be sustained.
There is presently no public market for our common stock or any other AgeX securities. There can be no assurance that an active market for our common stock will materialize or, if a market does develop, that it will be sustained.
For many reasons, including the risks identified in this information statement, the market price of our common stock following the Distribution may be more volatile than the market price of BioTime’s common stock before the Distribution. These factors may result in short-term or long-term negative pressure on the value of our common stock.
We cannot predict the prices at which our common stock may trade after the Distribution. The market price of our common stock may fluctuate significantly, depending upon many factors, some of which may be beyond our control, including, but not limited to:
|●||a shift in our investor base;|
|●||our quarterly or annual earnings, or those of comparable companies;|
|●||actual or anticipated fluctuations in our operating results;|
|●||our ability to obtain financing as needed;|
|●||changes in laws and regulations affecting our business;|
|●||changes in accounting standards, policies, guidance, interpretations or principles;|
|●||announcements by us or our competitors of significant investments, acquisitions or dispositions;|
|●||the failure of securities analysts to cover our common stock after the Distribution;|
|●||changes in earnings estimates by securities analysts or our ability to meet those estimates;|
|●||the operating performance and stock price of comparable companies;|
|●||overall market fluctuations; and|
|●||general economic conditions and other external factors.|
Additional shares of our common stock will become eligible for public sale, and sales of those shares could create downward pressure on the trading price of our common stock.
After the Distribution, shares held by new AgeX shareholders will become eligible to be publicly sold in compliance with the provisions of Rule 144 under the Securities Act after the shares have been beneficially owned for at least one year, or for at least six months if the shares are sold after we have been subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, for a period of 90 days and have filed all reports required under the Exchange Act, other than any Current Report on Form 8-K. Based on the expected Distribution Date, we expect that of those shares will begin to become eligible for sale under Rule 144 immediately following the Distribution.
Sales of AgeX common stock under Rule 144 could create downward pressure on the trading price of our common stock.
Because we are engaged in the development of pharmaceutical and cell therapy products, the price of shares of our common stock may rise and fall rapidly.
The price of our common stock may rise rapidly in response to certain events, such as the commencement of clinical trials of an experimental new therapy, even though the outcome of those trials and the likelihood of ultimate FDA approval of a therapeutic product remain uncertain. Similarly, prices of our common stock may fall rapidly in response to certain events such as unfavorable results of clinical trials or a delay or failure to obtain FDA approval. Further, the failure of our earnings to meet analysts’ expectations could result in a significant rapid decline in the market price of our common stock
Because we do not pay dividends, our stock may not be a suitable investment for anyone who needs to earn dividend income.
We do not have current plans to pay any cash dividends on our common stock. The declaration, amount and payment of any future dividends on shares of common stock will be at the sole discretion of our Board of Directors. Our Board of Directors may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as our Board of Directors may deem relevant. For the foreseeable future we anticipate that any earnings generated in our business will be used to finance the growth of our business and will not be paid out as dividends to our shareholders. This means that our stock may not be a suitable investment for anyone who needs to earn income from their investments.
Securities analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on the market price of our shares.
If a trading market for our common stock develops, the market will depend, in part, on the research and reports that securities analysts publish about our business and our common stock. We do not have any control over these analysts. There is no guarantee that securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of those shares. If securities analysts do cover our shares, they could issue reports or recommendations that are unfavorable to the price of our shares, and they could downgrade a previously favorable report or recommendation, and in either case our share price could decline as a result of the report. If one or more of these analysts ceases to cover our shares or fails to publish regular reports on our business, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
You may experience dilution of your ownership interests if we issue additional shares of common stock or preferred stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present shareholders. We are currently authorized to issue an aggregate of 105,000,000 shares of capital stock consisting of 100,000,000 shares of common stock and 5,000,000 “blank check” shares of preferred stock. Upon completion of the Distribution, we expect that there will be 35,750,000 shares of common stock outstanding based on the number of our common shares outstanding as of June 8, 2018, 1,473,600 shares of common stock that may become issuable upon issuance of outstanding common stock purchase warrants at $2.50 per share, and 1,302,000 shares of common stock reserved for issuance upon the exercise of stock options or other stock-based awards under our 2017 Equity Incentive Plan (the “Plan”). The actual number of shares of our common stock to be distributed will be determined on the Record Date and will reflect any issuances of shares of our common stock in respect of equity awards under the Plan or otherwise between the date BioTime declares the dividend for the Distribution and the Record Date. No shares of preferred stock are presently outstanding.
We may issue additional common stock or other securities that are convertible into or exercisable for common stock in order to raise additional capital, or in connection with hiring or retaining employees or consultants, or in connection with future acquisitions of licenses to technology or medical products or for other business purposes. The future issuance of any additional shares of common stock or other securities may create downward pressure on the trading price of our common stock.
We may also issue preferred stock having rights, preferences, and privileges senior to the rights of our common stock with respect to dividends, rights to share in distributions of our assets if we liquidate our company, or voting rights. Any preferred stock may also be convertible into common stock on terms that would be dilutive to holders of common stock.
Unless our common stock is approved for listing on a national securities exchange it will be subject to the so-called “penny stock” rules that impose restrictive sales practice requirements.
If we are unable to obtain approval from a national securities exchange to list our common stock, those shares could become subject to the so-called “penny stock” rules if the shares have a market value of less than $5.00 per share. The SEC has adopted regulations that define a penny stock to include any stock that has a market price of less than $5.00 per share, subject to certain exceptions, including an exception for stock traded on a national securities exchange. The SEC regulations impose restrictive sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors. An accredited investor generally is a person whose individual annual income exceeded $200,000, or whose joint annual income with a spouse exceeded $300,000 during the past two years and who expects their annual income to exceed the applicable level during the current year, or a person with net worth in excess of $1.0 million, not including the value of the investor’s principal residence and excluding mortgage debt secured by the investor’s principal residence up to the estimated fair market value of the home, except that any mortgage debt incurred by the investor within 60 days prior to the date of the transaction shall not be excluded from the determination of the investor’s net worth unless the mortgage debt was incurred to acquire the residence. For transactions covered by this rule, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale. This means that if we are unable to list our common stock on a national securities exchange, the ability of shareholders to sell their AgeX common stock in the secondary market could be adversely affected.
If a transaction involving a penny stock is not exempt from the SEC’s rule, a broker-dealer must deliver a disclosure schedule relating to the penny stock market to each investor prior to a transaction. The broker-dealer also must disclose the commissions payable to both the broker-dealer and its registered representative, current quotations for the penny stock, and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the customer’s account and information on the limited market in penny stocks.
We are an “emerging growth company,” and may elect to comply with reduced public company reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the fifth anniversary of the Distribution; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act.
We will incur costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public reporting company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will entail significant legal and financial compliance costs and will make some activities more time consuming and costly. For example, we expect that these rules and regulations may make it difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept low policy limits and coverage.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
The implementation of a new FASB accounting standard could increase the risk that our future consolidated financial statements could be qualified by going concern uncertainty.
We are subject to ASU No. 2014-15, “ Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, ” which defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures. In connection with preparing consolidated financial statements for each annual and interim reporting period, ASU No. 2014-15 requires that an entity’s management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued (or within one year after the date that the consolidated financial statements are available to be issued when applicable). As a result of the implementation of ASU No. 2014-15, we will be required to have more cash, cash equivalents, and liquid investments on hand on the date we issue or file our consolidated financial statements than had been the case during prior years in order to avoid a going concern qualification in our auditor’s report and in the footnotes to our consolidated financial statements. If our consolidated financial statements were to become subject to a going concern qualification or uncertainty or if we are unable to alleviate substantial doubt as part of our going concern assessment, or both, the market price of our common stock could decline.
Provisions in our restated certificate of incorporation and restated bylaws and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our restated certificate of incorporation and our restated bylaws, which will become effective upon the closing of this offering may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our Board of Directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors. Among other things, these provisions include those establishing:
|●||no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;|
|●||the ability of our Board of Directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; and|
|●||the ability of our Board of Directors to alter our bylaws without obtaining stockholder approval.|
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
In addition, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the Code. For a discussion of Section 355(e), see “Certain Federal Income Tax Considerations.” Under the tax matters agreement, AgeX would be required to indemnify BioTime for the resulting taxes, and this indemnity obligation might discourage, delay or prevent a change of control that shareholders may consider favorable.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This information statement contains forward-looking statements including in the sections entitled “Summary,” “Risk Factors,” “The Distribution,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” “Unaudited Pro Forma Condensed Combined Financial Statements” and “Business,” that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, but are not limited to, statements related to our expectations regarding our business, our financial results, the results of our ongoing or future clinical trials or studies, our prospective products and product approvals, our research and development costs, our future revenue, our liquidity and capital resources, the benefits resulting from our separation from BioTime, the effects of competition and the effects of future legislation or regulations and other non-historical statements. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements in this information statement. We do not have any intention or obligation to update forward-looking statements after we distribute this information statement except as required by law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this information statement, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.
BioTime presently operates a substantial portion of its stem cell and regenerative medicine business through subsidiaries, some of which are wholly owned, and some, like AgeX, are majority-owned by BioTime but have minority shareholders. BioTime determined that certain early stage pre-clinical technologies and related research and development programs should be consolidated within a new subsidiary, AgeX, and on August 17, 2017, BioTime contributed certain assets to AgeX for use in those research and development programs. In exchange for those assets, AgeX issued to BioTime 28,800,000 shares of AgeX common stock. The asset contribution was made pursuant to the Asset Contribution and Separation Agreement, dated August 17, 2017, between BioTime and AgeX (the “Asset Contribution Agreement”).
The assets that BioTime contributed to AgeX include the following:
|●||Intellectual property and proprietary technology, including certain patents and patent applications and know-how comprising AgeX’s induced tissue regeneration or “iTR” technology and adipose brown fat tissue technology;|
|●||Approximately 95% of the outstanding shares of ReCyte Therapeutics, Inc. or “ReCyte” which constitute all of the shares BioTime held prior to the contribution;|
|●||Approximately 82% of the outstanding shares of LifeMap Sciences, Inc. which constitute all of the shares BioTime held prior to the contribution;|
|●||Approximately 44% of the outstanding shares of Ascendance Biotechnology, Inc., or “Ascendance” which constitute all of the shares BioTime held prior to the contribution;|
|●||$100,000 in cash; and|
|●||Certain other assets and contracts, including BioTime research and development departments and personnel related to the AgeX research and development programs that AgeX will conduct.|
Under the Asset Contribution Agreement, AgeX agreed to assume all obligations and liabilities related to the assets contributed and contracts assigned to AgeX or the operation of AgeX’s related business. The Asset Contribution Agreement also sets forth other terms that govern certain aspects of BioTime’s ongoing relationship with AgeX in connection with and after the Distribution.
The Asset Contribution Agreement includes representations, warranties and covenants which were made solely for the benefit of the parties to the Asset Contribution Agreement. BioTime shareholders who are receiving AgeX shares in the Distribution are not third-party beneficiaries under the Asset Contribution Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of BioTime or AgeX or any of BioTime’s or AgeX’s subsidiaries or affiliates.
The foregoing description of the Asset Contribution Agreement is qualified in its entirety by reference to the Asset Contribution Agreement, a copy of which is filed as an Exhibit to AgeX’s Registration Statement on Form 10 and is incorporated herein by reference.
Concurrently with the contribution of assets to AgeX under the Asset Contribution Agreement, BioTime and AgeX entered into a License Agreement pursuant to which BioTime has licensed to AgeX, with rights to sublicense, certain intellectual property, including patents and patent applications and know-how for use in the development, manufacture and commercialization of products or services for the prevention, treatment, amelioration, diagnosis or monitoring of all human and non-human animal diseases and conditions except for medical products, devices and services for the reserved BioTime fields of orthopedic, ophthalmic, and medical aesthetic uses. In addition, BioTime retains an option right, on terms to be negotiated, to license iTR patents in research, development, manufacturing and commercialization of treatments based on iTR in the reserved BioTime fields. The licensed patents and know-how relate generally to (a) BioTime’s PureStem ® human embryonic progenitor cell lines, and (b) telomere length and DNA quality control analysis in pluripotent stem cells. BioTime or certain of its subsidiaries have also agreed to license or sublicense to AgeX certain additional patents and patent rights and know-how relating to BioTime’s HyStem ® hydrogel technology, human embryonic progenitor cell technology, and human pluripotent stem cell lines and technology for use outside the fields reserved to BioTime, or in the case of certain sublicense rights, fields previously licensed to third parties. The terms of the licenses and sublicenses are more fully described under “Business—Our License Arrangements— License Agreement With BioTime: iTR, PureStem® and Telomere Length.”
BioTime currently owns 80.6% of the outstanding shares of AgeX common stock, and the remaining 19.4% of the AgeX shares outstanding are owned by other shareholders. AgeX also has issued and outstanding common stock purchase warrants entitling the warrant holders to purchase 1,473,600 shares of AgeX common stock, in the aggregate. AgeX also maintains the Plan under which it has granted options to purchase approximately 1.3 million shares of common stock as of March 31, 2018 to certain officers, directors and employees, some of whom are also officers or directors of BioTime.
On , 2018, the BioTime board of directors formally approved the Distribution to each holder of record of BioTime common shares at the 5:00 p.m., New York City time, on the Record Date in the ratio of one share of AgeX common stock for every BioTime common shares held.
Reasons for the Distribution
BioTime’s board of directors determined that it would be beneficial to distribute some or all of BioTime’s shares of AgeX to BioTime shareholders after considering how to:
|●||Best provide management and employee incentives tied to AgeX’s growth and financial performance in order to facilitate the eventual hiring and retention of high quality managers, research scientists, and other employees;|
|●||Best position AgeX to finance its future capital needs for its operations;|
|●||Best position AgeX to finance business and technology acquisitions; and|
|●||Maximize value for BioTime shareholders.|