UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
———————
FORM 10-K
———————
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from _____
to _____
Commission
File Number: 001-36498
———————
CELLULAR BIOMEDICINE GROUP, INC.
(Exact name of registrant as specified in its charter)
———————
Delaware
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86-1032927
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State of Incorporation
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IRS Employer Identification No.
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1345 Avenue of Americas, 15th Floor
New York, New York 10105
(Address of principal executive offices)
(347) 905 5663
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of Each Class
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Trading Symbol(s)
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Name of Each Exchange on Which Registered
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Common
Stock, par value $0.001
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CBMG
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Nasdaq
Global Select Market
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Securities registered pursuant to Section 12(g) of the Exchange
Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. ☑
No
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. ☑
No
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes ☑
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit such
files). Yes ☑
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
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 definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.:
Large accelerated filer
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☐
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Accelerated filer
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☒
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Non-accelerated
filer
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☐
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Smaller reporting company
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☐
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Emerging
growth company
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☐
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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. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). ☑ No
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter
– $200,634,545 as of June 30, 2019.
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date: As of
February 24, 2020, there were 19,355,292 shares of common stock
outstanding.
Documents
Incorporated By Reference – Portions of the
Registrant’s definitive Proxy Statement for its 2020 Annual
Meeting of Stockholders are incorporated by reference into Part III
of this Form 10-K.
THE
INFORMATION REQUIRED BY PART III OF THIS ANNUAL REPORT ON FORM
10-K, TO THE EXTENT NOT SET FORTH HEREIN, IS INCORPORATED BY
REFERENCE FROM THE REGISTRANT’S DEFINITIVE PROXY STATEMENT
RELATING TO THE ANNUAL MEETING OF STOCKHOLDERS, WHICH DEFINITIVE
PROXY STATEMENT SHALL BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION WITHIN 120 DAYS AFTER THE END OF THE FISCAL YEAR TO
WHICH THIS ANNUAL REPORT ON FORM 10-K RELATES.
CELLULAR BIOMEDICINE GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED December 31, 2019
TABLE OF CONTENTS
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Page
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PART
I
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4
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25
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53
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53
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53
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53
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PART
II
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54
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59
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60
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75
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77
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77
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78
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78
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PART
III
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79
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79
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79
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79
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79
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PART
IV
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80
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81
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82
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Cautionary Note Regarding Forward-Looking Statements and Risk
Factors
This Annual Report on Form 10-K (“Annual Report”), may
contain “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or
the Exchange Act and the Private Securities Litigation Reform Act
of 1995, which are subject to the “safe harbor” created
by those sections. Our actual results could differ materially from
those anticipated in these forward-looking statements. This annual
report on Form 10-K of the Company may contain forward-looking
statements which reflect the Company’s current views with
respect to future events and financial performance. The words
“believe,” “expect,”
“anticipate,” “intends,”
“estimate,” “forecast,”
“project” and similar expressions identify
forward-looking statements. All statements other than statements of
historical fact are statements that could be deemed to be
forward-looking statements, including plans, strategies and
objectives of management for future operations; proposed new
products, services, developments or industry rankings; future
economic conditions or performance; belief; and assumptions
underlying any of the foregoing. Although we believe that we have a
reasonable basis for each forward-looking statement contained in
this report, we caution you that these statements are based on a
combination of facts and factors currently known by us and our
projections of the future, about which we cannot be certain. Such
“forward-looking statements” are subject to risks and
uncertainties set forth from time to time in the Company’s
SEC reports and include, among others, the Risk Factors set forth
under Item 1A below.
The risks included herein are not exhaustive. This annual report on
Form 10-K filed with the SEC includes additional factors which
could impact the Company’s business and financial
performance. Moreover, the Company operates in a rapidly changing
and competitive environment. New risk factors emerge from time to
time and it is not possible for management to predict all such risk
factors. Further, it is not possible to assess the impact of all
risk factors on the Company’s business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements. Forward-looking statements in this report include, but
are not limited to, statements about:
●
the success, cost
and timing of our product development activities and clinical
trials;
●
our ability and the
potential to successfully advance our technology platform to
improve the safety and effectiveness of our existing product
candidates;
●
the potential for
our identified research priorities to advance our cancer and
degenerative disease technologies;
●
our ability to
obtain drug designation or breakthrough status for our product
candidates and any other product candidates, or to obtain and
maintain regulatory approval of our product candidates, and any
related restrictions, limitations and/or warnings in the label of
an approved product candidate;
●
public health
crises, such as the coronavirus outbreak at the beginning of
2020;
●
the ability to
generate or license additional intellectual property relating to
our product candidates;
●
regulatory
developments in China, the United States and other foreign
countries;
●
the potential of
the technologies we are developing (each as defined
below);
●
fluctuations in the
exchange rate between the U.S. dollar and the Chinese Yuan;
and
●
our plans to
continue to develop our manufacturing facilities.
Readers are cautioned not to place undue reliance on such
forward-looking statements as they speak only of the
Company’s views as of the date the statement was made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Note Regarding Third-Party Information
This Annual Report includes data that we obtained from industry
publications and third-party research, surveys and studies.
Industry publications and third-party research, surveys and studies
generally indicate that their information has been obtained from
sources believed to be reliable, although they do not guarantee the
accuracy or completeness of such information. This Annual Report
also includes data based on our own internal estimates and
research. Our internal estimates and research have not been
verified by any independent source, and, while we believe the
industry publications and third-party research, surveys and studies
are reliable, we have not independently verified such data. Such
third-party data and our internal estimates and research are
necessarily subject to a high degree of uncertainty and risk due to
a variety of factors, including those described in Item
1A—Risk Factors in this Annual Report. These and other
factors could cause results to differ materially from those
expressed in this Annual Report.
PART I
As used
in this annual report, “we,” “us,”
“our,” “CBMG,” “Company” or
“our company” refers to Cellular Biomedicine Group,
Inc. and, unless the context otherwise requires, all of its
subsidiaries or deemed controlled companies.
Overview
We
are a clinical-stage biopharmaceutical company committed to using
our proprietary cell-based technologies to develop immunotherapies
for the treatment of cancer and stem cell therapies for the
treatment of degenerative diseases. We view ourselves as a leader
in cell therapy industry through our diverse, multi-target, broad
pipeline ranging from immuno-oncology, featuring CAR-T, TCR-T and
TIL to regenerative medicine. Our focus is to bring our potentially
best-in-class products to market while also aiming to reduce
manufacturing cycle time and aggregate cost while striving to
ensure quality products of cell therapies. We provide comprehensive
and integrated research and manufacturing services throughout the
discovery, development and manufacturing spectrum for cell-based
technologies. We have two major components to our global strategy.
First, we intend on developing our own internal pipeline, focusing
on immune cell therapy, regenerative medicine, as well as other
innovative biotechnology modalities that can leverage our
infrastructure, human capital and intellectual property. Second, we
plan to partner with leading companies to monetize our innovative
technologies in markets where we do not currently have a presence
and may also seek to bring their technologies to markets where we
have infrastructure.
Our
end-to-end platform enables discovery, development and
manufacturing of cell-based therapies from concept to commercial
manufacturing in a cost-efficient manner. The manufacturing and
delivery of T cell therapies involve complex, integrated processes,
comprised of isolating T-cells from patients, T cell enrichment,
activation, viral vector transduction, expansion, harvest and
fill-finish. Our in-house cell therapy manufacturing is comprised
of a semi-automated, fully closed system and can manufacture high
quality plasmids, and serum-free reagents as well as viral vectors
for our immuno-oncology cell therapy products. Because we are
vertically integrated, we are able to reduce the aggregate cost of
cell therapies. We plan to build out our manufacturing capacity to
scale for commercial supply at an economical cost. We hone our
manufacturing process in our good manufacturing practice (GMP)
facilities in China to achieve cycle time reduction, improve
quality assurance and control and increase efficiency and early
development to understand our therapies’ efficacy. Our other
objective on institutionalizing our manufacturing process is
portability and ease of tech transfer to other facilities and ease
of deployment in future locations.
Our
technologies include two major cell platforms:
A. Immune
cell therapy for treatment of a broad range of cancer
indications.
a. Hematological
Cancer
i.
Chimeric Antigen Receptor modified T-cells (CAR-T);
and
b.
Solid Tumors
i.
T-cells with genetically modified, tumor antigen-specific T-Cell
Receptors (TCRs); and
ii.
Next-generation neoantigen-reactive, bio-markers based Tumor
Infiltrating lymphocytes (TILs).
B. Regenerative
Medicines using human adipose-derived mesenchymal progenitor cells
(haMPC) for treatment of joint diseases.
a. Knee
Osteoarthritis (Autologous & Allogeneic); and
b. Other
degenerative and dermatologic diseases (assessing the
feasibility).
Our
initial target market is China, where we believe that our
cell-based therapies will be able to help patients with significant
unmet medical needs. For hematological cancer we have:
●
Finished
enrolling patients for the second cohort in a Phase I dose
escalation clinical study for our anti-B cell maturation
antigen(“anti-BCMA”) CAR-T therapy for the treatment of
multiple myeloma in China. Currently we are enrolling patients for
the third cohort in China. The Phase Ia clinical study will enroll
22 patients in several stratified cohorts and has been expanded
into multiple clinical sites. We have submitted our Investigational
New Drug (IND) dossier to the New Medical Products Administration
(NMPA) for approval for the Phase Ib study and are waiting for
feedback.
●
Initiated
first-in-human non-Hodgkin lymphoma clinical trials in China for
our CD19 and CD20 bi-specific CAR-T products.
●
Achieved
the first-in-human milestone and continued patient recruitment in
China for our Phase I investigator initiated clinical trial of
anti-CD20 CAR-T targeting anti-CD19 antibody or CAR-T treated,
relapsed diffuse large B-cell lymphoma (DLBCL) and small B-cell
lymphoma patients.
For
solid tumors:
●
The clinical trial of Alpha-fetoprotein
T-cell receptor (AFP-TCR-T) targeting hepatocellular carcinoma (HCC) has been
approved by Zhongshan Hospital in Shanghai and our first HCC
patient has been infused with our AFP TCR-T-cells in December 2019;
and
●
We
plan to launch non-small cell lung cancer (NSCLC) TIL clinical
trials in the U.S. in the first half of 2021.
If the data from certain of our China-based,
immuno-oncology clinical trials proves to be positive, we intend to
submit IND applications with the U.S. FDA in order to conduct clinical trials in the
United States.
On regenerative medicine development we have been
approved by the NMPA in China to initiate a Phase II clinical trial
of AlloJoin®,
our allogenic haMPC therapy for the treatment of knee
osteoarthritis, which is the first stem cell drug application
approved by the NMPA for a Phase II clinical trial in knee
osteoarthritis since the NMPA clarified its cell therapy
regulations in December 2017. We launched our Phase II AlloJoin®
clinical trial on September 12, 2019. Using data from our Phase IIb
clinical studies before the NMPA clarified its cell therapy
regulations, we have submitted our IND application with the NMPA
for our autologous knee osteoarthritis. We have also been approved
by the NMPA in China to initiate a Phase II clinical trial of
ReJoin®,
our autologous haMPC therapy for the treatment of knee
osteoarthritis.
In
addition to our own internal clinical pipelines, we have formed and
plan to continue to seek partnerships with other cell therapy
focused companies to expand their technology in the Chinese market.
Our comprehensive capabilities have attracted inbound inquiries
from global pharmaceutical companies seeking to improve the
efficiency of their drug development process and/or to co-develop
their therapeutic products by initially conducting investigator
initiated trials in China, and upon verification on
proof-of-concept (POC) to launch clinical trials in the U.S. and in
China. We believe that we are positioned to capture opportunities
from the rapid expansion of global pharmaceutical companies by
leveraging our focus on cell manufacturing process improvement,
which offers the benefits of improving product quality and creates
cost savings. Positioned at the forefront of science, we believe
our established clinical network in China will enable us to
collaborate with these global firms as they seek to enter the
Chinese market to develop in-house capabilities and infrastructure
and to improve efficiency throughout the drug development
process.
In September 2018, we executed a License and
Collaboration Agreement (hereinafter Novartis LCA) with Novartis AG
(Novartis) to manufacture and supply their U.S. FDA-approved CD19 CAR-T cell therapy product
Kymriah®
in China. Pursuant to the Novartis LCA
agreement, we also granted Novartis a worldwide license to certain
of our CAR-T intellectual property for the development, manufacture
and commercialization of CAR-T products. We are entitled to an
escalating single-digit percentage royalty of
Kymriah®’s
net sales in China. CBMG is responsible for the cost of
bi-directional technology transfers between the two companies. We
will receive collaboration payments equal to a single-digit
escalating percentage of net sales of Kymriah®
in China, subject to certain caps set
forth under the Novartis LCA, for sales in diffuse large B-cell
lymphoma and pediatric acute lymphoblastic leukemia indications and
up to a maximum amount to be agreed upon for sales in other
indications. We are also obligated to assist Novartis with the
development of Kymriah®
in China as Novartis may request and
are responsible for a certain percentage of the total development
cost for the development of Kymriah®
in China for indications other than
diffuse large B-cell lymphoma and pediatric acute lymphoblastic
leukemia indications. As of December 31, 2019, we have achieved
three major milestones on the technology transfer and collaboration
with Novartis on commercialization of Kymriah®,
specifically: process and analytical training, feasibility runs and
an export license for
feasibility/comparability.
On October 2, 2018, we executed a non-exclusive
license agreement with the U.S. National Cancer Institute
(“NCI”) for ten
tumor infiltrating lymphocytes patents, pursuant to which we
acquired rights to the worldwide development, manufacture and
commercialization of autologous, tumor-reactive lymphocyte adoptive
cell therapy products, isolated from tumor infiltrating lymphocytes
for the treatment of non-small cell lung, stomach, esophagus,
colorectal and head and neck cancer(s) in humans. We agreed to pay
certain license fees for such license, including (i) an initial
up-front cash payment; (ii) a de minimis non-refundable annual
royalty that may be credited against any earned royalties due from
net sales; (iii) a small single-digit percentage of net sales of
the licensed products, payable on a semi-annual basis, which may be
adjusted downward in the event that the Company must pay a license
fee to a third party; (iv) an additional small single-digit
sublicense fee on the fair market value of any consideration
received for granting a sublicense; and (v) a milestone payment
component tied to certain clinical and commercial developments. We
have a unilateral right to terminate the license agreement.
Th
e NCI has the right
to terminate the license agreement if CBMG (i) commits a material
breach; (ii) fails to use commercially reasonable effort in
developing the licensed products or processes; (iii) fails to
achieve certain performance benchmarks; (iv) willfully makes a
false statement; (v) is not keeping licensed products or processes
reasonably available to the public after commercial use; (vi)
cannot reasonably satisfy unmet health and safety needs; or (vii)
cannot meet certain requirements by federal regulations. The
license agreement will expire upon the expiration of the last to
expire of the patent rights licensed pursuant thereto. Other than
an initial upfront payment and a de minimis annual royalty payment,
the Company has not paid any additional royalty under the license
agreement as of December 31, 2019.
In
order to expedite fulfillment of patient treatment, we have been
actively developing technologies and products with strong
intellectual property protection. CBMG’s worldwide exclusive
license to the T Cell patent rights owned by Augusta University
provides an opportunity to expand the application of CBMG’s
cancer therapy-enabling technologies and to initiate clinical
trials with leading cancer hospitals. On February 14, 2019, Augusta
University granted us an exclusive, worldwide license with
sublicense rights to its patent rights to Human Alpha
Fetoprotein-Specific T Cell Receptor modified T-cells (AFP TCR-T).
In consideration for the license granted, the Company agreed to pay
the university a one-time, non-refundable, non-creditable license
fee within 30 days of execution of the license agreement and a
single-digit percent of running royalty on net sales of the
licensed products. The Company also agreed to (a) use its
commercially reasonable efforts to develop and conduct such
research, development and validation studies as necessary or
desirable to obtain all regulatory approvals to manufacture and
market the licensed products in at least one country in certain
major markets listed in the license agreement, and (b) upon receipt
of such approvals, to use commercially reasonable efforts to market
each licensed product in such country. The Company, at its sole
expense, has the obligation to fund the costs of all research,
development, preclinical and clinical trials, regulatory approval
and commercialization of the licensed products. The license
agreement will expire upon the termination of the Company’s
obligation to pay royalty pursuant to the terms thereof. Upon
expiration of the term, the license granted the Company will
survive the expiration of the license agreement, and convert to a
perpetual, fully paid up license. The Company may terminate the
agreement, in its sole discretion, upon 30 days’ prior
written notice to Augusta University and either party may terminate
the license agreement upon or after the breach of a material
provision of the agreement that is not cured within 45 days after
notice thereof by the non-breaching party. The Company has not paid
any royalty since there have not been any sales of licensed
products as of the date of this report.
Corporate History
Headquartered
in New York, the Company is a Delaware biopharmaceutical company
focused on developing treatment for cancer and joint diseases for
patients in China. The Company was formerly known as EastBridge
Investment Group Corporation, originally incorporated in the State
of Arizona on June 25, 2011, and reincorporated as Cellular
Biomedicine Group, Inc. in the State of Delaware on January 18,
2013. The Company started its regenerative medicine business in
China in 2009 and expanded to CAR-T therapies in 2014.
Recent Developments
On
January 8, 2019, we initiated patient recruitment for CAR088
(anti-BCMA CAR-T) in China.
On
January 17, 2019, our AlloJoin® Therapy for KOA
got approved for Phase II trial in China.
On June
17, 2019, we initiated a Phase I clinical trial of CAR066
(anti-CD20 CAR-T) targeting previously anti-CD19 CAR-T treated,
relapsed diffuse large B-cell lymphoma (DLBCL) and small B-cell
lymphoma patients in China, and dosed the first CD19 CAR-T relapsed
DLBCL patient.
On July
4, 2019, we submitted our autologous haMPC (ReJoin®) KOA Phase II
IND filing with the NMPA under the new regulation.
On July
4, 2019, CD20-CD19 bi-specific CAR-Ts showed
desired in vitro and in vivo anti-tumor
activity. We plan to introduce an improved CAR-T manufacturing
process with reduced manufacturing duration and better product
quality controls for the bi-specific CD20-CD19 CAR-Ts targeting
NHL, and the same development strategy is also utilized for our
BCMA manufacturing platform. Based on scientific evidence known to
the public, CD20-CD19 bi-specific CAR-Ts have
shown reactivity against both single positive (CD20+ or CD19+)
and double positive (CD20+CD19+) tumor targets.
On July
5, 2019, we filed a shelf registration statement on Form S-3 to
offer and sell from time to time, in one or more series, any of the
securities of the Company, for total gross proceeds up to
$200,000,000, which was declared effective by the Securities and
Exchange Commission on July 16, 2019.
On
August 27, 2019, we entered into a Facility Improvement and Process
Validation Agreement with Duke University. Pursuant to this
agreement, the Company paid for improvement of Duke’s GMP
facility, Duke University agreed to conduct and the Company agreed
to fund a tumor infiltrating lymphocytes clinical
trial.
On
September 12, 2019, we launched our allogenic haMPC
AlloJoin® KOA Phase II
clinical trial.
As of
September 30, 2019, CBMG had a total of 11 labs (suites) that were
certified as Biosafety Level-2 (BSL-2) meeting the local regulatory
requirements for the handling of biological materials.
On
October 2, 2019, we entered into a lease agreement to build a
22,000 square foot facility in Rockville, Maryland to expand
R&D and to support clinical development in the
U.S.
On
December 7, 2019 we announced early data from our ongoing
investigator initiated trial at an oral presentation titled
“Novel Anti-BCMA CAR-T for Relapsed or Refractory Multiple
Myeloma” at the 61st American Society of Hematology
“ASH” annual meeting in Orlando, FL.
On
December 23, 2019, we dosed our first
patient in our clinical trial of AFP-TCR-T
targeting HCC.
In the
next 12 months, we aim to accomplish the
following:
●
Bifurcate our
markets and launch clinical studies in the U.S. upon establishing
good POC from the clinical studies in China and transfer the
clinical assets from Shanghai to the U.S., including our quick
cycle-time, highly differentiated, proprietary manufacturing
process comprised of short cycle-time, semi-automation and closed
system;
●
Advance our
Rockville site’s research and development and manufacturing
to support our clinical development in the U.S.;
●
Assess the
feasibility of expanding our stem cell platform to include
dermatology;
●
Execute clinical
trial sponsorship with U.S.-based Principal Investigators (PI) to
develop our clinical assets in the U.S.;
●
Collaborate with
Duke University on TIL process development to improve cycle time
and institutionalized scalability;
●
Explore the
feasibility of establishing a new R&D and clinical
manufacturing site in China to adapt to our rapid business
expansion and explore the addition of Contract Development and
Manufacturing Organization (CDMO) business to support certain
specific market-oriented business strategies;
●
Evaluate our
strategy to further increase our enterprise value and expand our
capital market strategy;
●
Execute the
technology transfer and align the manufacturing processes with the
global CAR-T leader to support the development of the world’s
first CAR-T therapy in China;
●
Explore and
introduce a gene therapy technology platform, product development
and manufacturing for our current business to create synergy with
our cell therapy pipelines;
●
Bolster R&D
resources to fortify our intellectual property portfolio and
scientific development;
●
Evaluate and
implement a digital data tracking and storage technology system for
research and development, material management, GMP production and
integrated clinical data management;
●
Evaluate emerging
regenerative medicine technology platform for other indications and
review recent developments in the competitive
landscape;
●
Strengthen our
Quality Management System (QMS) centralized document control system
and electronic batch recording system for quality assurance, and
laboratory information management system (LMS) for quality
control;
●
Leverage our QMS
system and our strong scientific expertise in both the U.S. and
China;
●
Collaborate with
multinational pharmaceutical companies to co-develop cell therapy
products in China and possibly in the U.S.; and
●
Continue to
implement International Organization for Standardization (ISO)
27001 standard to fortify our information assets
security.
Key Anticipated 2020 Milestones
R&D
Milestones
●
Completing
construction of the Rockville R&D site to support our continued
effort for pipeline development
●
Continued effort to
support IIT and IND in China, and US IND for key CBMG clinical
assets
●
Continuing to
build a dynamic clinical pipeline for cell therapy, including new
assets for CAR-T and TCR-T, and allogeneic cell therapy
products
Manufacturing
Milestones
●
Completing
construction of the Rockville manufacturing site to support our
clinical development in the U.S.
●
Continuing to
assess the feasibility of expanding manufacturing capacity at new
site(s) in both the U.S. and China
Clinical
Milestones
●
Advancing haMPC
Phase II trials in China for both AlloJoin® and
ReJoin®
●
Continue enrollment
into I/O programs in China for CAR088, CAR188, CAR066, EXPO-039 and
AFP TCR-T
●
Advancing I/O
programs in the U.S. for TIL Therapy (TIL1)
Regulatory
Milestones
●
Filing an IND in
the U.S. for TIL Therapy CAR088 and EXPO-039
●
Seeking additional
INDs for other clinical programs in China
●
Expand clinical
research programs in the U.S.
Other
Milestones
●
Continuing
collaboration with current and new clinical sites and 3A hospitals
in China
●
Continuing
translation and clinical collaboration with Duke University on TIL
Therapy
●
Continuing
collaboration with current partners in manufacturing and process
development for next-generation cell therapies
●
Evaluating
co-development and/or strategic partnerships for both in-licensing
and out-licensing with high quality, multinational
partners
Our
operating expenses for year ended December 31, 2019 were in line
with management’s plans and expectations. We had an increase
in total operating expenses of approximately $10.6 million for the
year ended December 31, 2019, as compared to the year ended
December 31, 2018, which is primarily attributable to increased
R&D expenses and clinical developments in 2019.
Corporate Structure
Our
current corporate structure is illustrated in the following
diagram:
Currently we have
the following subsidiaries (including a controlled VIE
entity):
Eastbridge Investment Corporation
("Eastbridge Sub"), a Delaware corporation, is a wholly owned
subsidiary of the Company.
Cellular Biomedicine Group VAX, Inc.
("CBMG VAX"), a California corporation, is a wholly owned
subsidiary of the Company.
Cellular Biomedicine Group HK Limited, a
Hong Kong company limited by shares, is a holding company and
wholly owned subsidiary of the Company.
Cellular Biomedicine Group Ltd. (Wuxi)
(“CBMG Wuxi”) license number 320200400034410 (the
“WFOE”) is a wholly foreign-owned entity that is 100%
owned by Cellular Biomedicine Group HK Limited. This entity’s
legal name in Chinese translates to “Xi Biman Biological
Technology (Wuxi) Co. Ltd.” The WFOE controls and
holds ownership rights in the business, assets and operations of
Cellular Biomedicine Group Ltd. (Shanghai) (“CBMG
Shanghai”) through variable interest entity (VIE) agreements.
We conduct certain biopharmaceutical business activities through
the WFOE, including research and development, technical support,
technical service, technology transfer in the biomedical technology
field, manufacturing of non-food, pharmaceutical polypeptides and
medical devices (in vitro diagnostic reagents) extracted by
biology; making
foreign investments with its own funds; and cosmetics, sanitary
products and biological agents wholesale and commission
agents.
Cellular Biomedicine Group Ltd.
(Shanghai) license number 310104000501869, is a PRC domestic
corporation, which we control and hold ownership rights in, through
the WFOE and the above-mentioned VIE agreements. This
entity’s legal name in Chinese translates to “Xi Biman
Biotech (Shanghai) Co., Ltd.” We conduct certain
biopharmaceutical business activities through our controlled VIE
entity, CBMG Shanghai, including clinical trials and certain other
activities requiring a domestic license in the PRC. Chen Mingzhe
and Lu Junfeng, together, are the record holders of all of the
outstanding registered capital of CBMG Shanghai. Chen and Lu are
also directors of CBMG Shanghai constituting the entire management
of the same.
Beijing Agreen Biotechnology Co., Ltd.
is a PRC domestic corporation and wholly owned subsidiary of CBMG
Shanghai.
Wuxi Cellular Biopharmaceutical Group
Ltd., established on January 17, 2017, is a PRC domestic
corporation and wholly owned subsidiary of CBMG Shanghai.
Shanghai Cellular Biopharmaceutical Group
Ltd., established on January 18, 2017, is a PRC domestic
corporation and wholly owned subsidiary of CBMG
Shanghai.
Variable Interest Entity (VIE) Agreements
Through
our wholly foreign-owned entity and 100% subsidiary, Cellular
Biomedicine Group Ltd. (Wuxi), we control and have ownership rights
by means of a series of VIE agreements with CBMG Shanghai. The
shareholders of record for CBMG Shanghai were Cao Wei and Chen
Mingzhe, who together owned 100% of the equity interests in CBMG
Shanghai before October 26, 2016. On October 26, 2016, Cao Wei,
Chen Mingzhe and Lu Junfeng entered into an equity transfer
agreement and a supplementary agreement pursuant to which Cao Wei
transferred his equity interests in CBMG Shanghai to Chen Mingzhe
and Lu Junfeng. As a result of the transfer, each of Chen and Lu
now owns a 50% equity interest in CBMG Shanghai. On the same day,
WFOE, CBMG Shanghai, Cao Wei and Chen Mingzhe entered into a
termination agreement, pursuant to which the series of VIE
agreements executed among the WFOE, CBMG Shanghai, Chen Mingzhe and
Cao Wei were terminated and a new set of VIE agreements were
executed. The following is a description of each of these VIE
agreements:
Exclusive Business Cooperation
Agreement. Through the WFOE, we are a party to an exclusive
business cooperation agreement dated October 26, 2016 with CBMG
Shanghai, which provides that (i) the WFOE shall exclusively
provide CBMG Shanghai with complete technical support, business
support and related consulting services; (ii) without prior written
consent of the WFOE, CBMG Shanghai may not accept the same or
similar consultancy and/or services from any third party, nor
establish any similar cooperation relationship with any third party
regarding same matters during the term of the agreement; (iii) CBMG
Shanghai shall pay the WFOE service fees as calculated based on the
time of service rendered by the WFOE multiplying the corresponding
rate, plus an adjusted amount decided by the board of the WFOE; and
(iv) CBMG Shanghai grants to the WFOE an irrevocable and exclusive
option to purchase, at its sole discretion, any or all of CBMG
Shanghai’s assets at the lowest purchase price permissible
under PRC laws. The term of the agreement is 10 years, provided
however the agreement may extended at the option of the WFOE. Since
this agreement permits the WFOE to determine the service fee at its
sole discretion, the agreement in effect provides the WFOE
with rights to all earnings of the VIE.
Loan Agreement. Through the WFOE, we
are a party to a loan agreement with CBMG Shanghai, Lu Junfeng and
Chen Mingzhe dated October 26, 2016, in accordance with which the
WFOE agreed to provide an interest-free loan to CBMG Shanghai. The
term of the loan is 10 years, which may be extended upon written
consent of the parties. The method of repayment of CBMG Shanghai
shall be at the sole discretion of the WFOE, including but not
limited to an acquisition of CBMG Shanghai in satisfaction of its
loan obligations.
Exclusive Option Agreement with Lu
Junfeng. Through the WFOE, we are a party to an option
agreement with CBMG Shanghai and Lu Junfeng dated October 26, 2016,
in accordance with which: (i) Lu Junfeng granted the WFOE an
irrevocable and exclusive right to purchase, or designate another
person to purchase the entire equity interest in CBMG Shanghai as
then held by him, at an aggregate purchase price to be determined;
and (ii) any proceeds obtained by Lu Junfeng through the above
equity transfer in CBMG Shanghai shall be used for the payment of
the loan provided by the WFOE under the aforementioned Loan
Agreement.
Exclusive Option Agreement with Chen
Mingzhe. Through the WFOE, we are a party to an exclusive
option agreement with CBMG Shanghai and Chen Mingzhe dated October
26, 2016, under which: (i) Chen Mingzhe granted the WFOE an
irrevocable and exclusive right to purchase, or designate another
person to purchase the entire equity interest in CBMG Shanghai for
an aggregate purchase price to be determined; and (ii) any proceeds
obtained by Chen Mingzhe through the above equity transfer in CBMG
Shanghai shall be used for the payment of the loan provided by the
WFOE under the aforementioned Loan Agreement.
Power of Attorney from Lu Junfeng.
Through the WFOE, we are the recipient of a power of attorney
executed by Lu Junfeng on October 26, 2016, in accordance with
which Lu Junfeng authorized the WFOE to act on his behalf as his
exclusive agent with respect to all matters concerning his equity
interest in CBMG Shanghai, including without limitation attending
the shareholders’ meetings of CBMG Shanghai, exercising
voting rights and designating and appointing senior executives of
CBMG Shanghai.
Power of Attorney from Chen Mingzhe.
Through the WFOE, we are the recipient of a power of attorney
executed by Chen Mingzhe on October 26, 2016, in accordance with
which Chen Mingzhe authorized the WFOE to act on his behalf as his
exclusive agent with respect to all matters concerning his equity
interest in CBMG Shanghai, including without limitation attending
the shareholders’ meetings of CBMG Shanghai, exercising
voting rights and designating and appointing senior executives of
CBMG Shanghai.
Equity Interest Pledge Agreement with Lu
Junfeng. Through the WFOE, we are a party to an equity
interest pledge agreement with CBMG Shanghai and Lu Junfeng dated
October 26, 2016, in accordance with which: (i) Lu Junfeng pledged
to the WFOE the entire equity interest he holds in CBMG Shanghai as
security for payment of the consulting and service fees by CBMG
Shanghai under the Exclusive Business Cooperation Agreement; (ii)
Lu Junfeng and CBMG Shanghai submitted all necessary documents
to ensure the registration of the Pledge of the Equity Interest
with the State Administration for Industry and Commerce (SAIC) and
the pledge became effective on November 22, 2016; and (iii) on
the occurrence of any event of default, unless it has been
successfully resolved within 20 days after the delivery of a
rectification notice by the WFOE, the WFOE may exercise its pledge
rights at any time by a written notice to Lu Junfeng.
Equity Interest Pledge Agreement with Chen
Mingzhe. Through the WFOE we are a party to an equity
interest pledge agreement with CBMG Shanghai and Chen Mingzhe dated
October 26, 2016, in accordance with which: (i) Chen Mingzhe
pledged to the WFOE the entire equity interest he holds in CBMG
Shanghai as security for payment of the consulting and service fees
by CBMG Shanghai under the Exclusive Business Cooperation
Agreement; (ii) Chen Mingzhe and CBMG Shanghai submitted all
necessary documents to ensure the registration of the Pledge of the
Equity Interest with SAIC, and the pledge became effective
on November 22, 2016; and (iii) on the occurrence of any event
of default, unless it has been successfully resolved within 20 days
after the delivery of a rectification notice by the WFOE, the WFOE
may exercise its pledge rights at any time by a written notice to
Chen Mingzhe.
Our
relationship with our controlled VIE entity, CBMG Shanghai,
through the VIE agreements, is subject to various operational and
legal risks. Management believes that Chen and Lu, as record
holders of the VIE’s registered capital, have no interest in
acting contrary to the VIE agreements. However, if Chen and Lu as
shareholders of the VIE entity were to reduce or eliminate their
ownership of the registered capital of the VIE entity, their
interests may diverge from that of CBMG and they may seek to act in
a manner contrary to the VIE agreements (for example by controlling
the VIE entity in such a way that is inconsistent with the
directives of CBMG management and the board; or causing non-payment
by the VIE entity of services fees). If such circumstances were to
occur the WFOE would have to assert control rights through the
powers of attorney and other VIE agreements, which would require
legal action through the PRC judicial system. While we believe the
VIE agreements are legally enforceable in the PRC, there is a risk
that enforcement of these agreements may involve more extensive
procedures and costs to enforce, in comparison to direct equity
ownership of the VIE entity. We believe based on the advice of
local counsel that the VIE agreements are valid and in compliance
with PRC laws presently in effect. Notwithstanding the foregoing,
if the applicable PRC laws were to change or are interpreted by
authorities in the future in a manner which challenges or renders
the VIE agreements ineffective, the WFOE’s ability to control
and obtain all benefits (economic or otherwise) of ownership of the
VIE entity could be impaired or eliminated. In the event of such
future changes or new interpretations of PRC law, in an effort to
substantially preserve our rights we may have to either amend our
VIE agreements or enter into alternative arrangements which comply
with PRC laws as interpreted and then in effect.
For
further discussion of risks associated with the above, please see
Item 1A – Risk Factors under the subheading “Risks
Related to Our Structure.”
BIOPHARMACEUTICAL BUSINESS
The biopharmaceutical business was founded in 2009
by a team of seasoned Chinese-American executives, scientists and
doctors. In 2010, we established a facility designed and built to
comply with China’s GMP standards in Wuxi, China, and in
2012, we established a U.S. FDA
compliant manufacturing facility in Shanghai. In November 2017, we
opened our Zhangjiang facility in Shanghai, of which 40,000 square
feet, or 35% of the total facility, was designed and built to GMP
standards and dedicated to advanced cell manufacturing. Our focus
has been to serve the rapidly growing health care market initially
in China by marketing and commercializing immune cell and stem cell
therapeutics, related tools and products from our patent-protected
homegrown and acquired cell technology, as well as by utilizing
in-licensed and other acquired intellectual properties before
shifting our attention to serve the mature and highly competitive
health care market in the U.S. We continue to explore new
products and gene therapies that may require the investment of a
material amount of assets.
Our
current treatment focal points are cancer and KOA.
Cancer. We are focusing our clinical development
efforts on B-cell maturation antigen (BCMA)-specific, and CD20
CAR-T therapies, T-cells with genetically engineered T-cell
receptor (TCR-Ts) and tumor infiltrating lymphocytes (TILs)
technologies. As discussed above in Item 1 – Business, under
the subheading “Overview,” we entered into the Novartis
LCA in September of 2018. With the execution of the Novartis LCA,
we have prioritized our efforts on working with Novartis to bring
Kymriah®
to patients in China as soon as
practicable. In light of our collaboration with Novartis, we will
no longer pursue our own ALL and DLBCL biologics license
application submission with the NMPA.
On the research and development side, we seek to bring our CD22
CAR-T, CD20 CAR-T for CD19 CAR-T Relapsing NHL, CD19-CD20
bispecific CAR-T product, BCMA CAR-T for Multiple Myeloma (MM),
NKG2D CAR-T for acute myeloid leukemia (AML), AFP TCR-T for HCC and
neoantigen reactive TIL on solid tumors, respectively, in
first-in-human trial as soon as possible. We plan to continue
leveraging our cutting-edge Chemistry, Manufacturing and Control
(CMC) platform, as well as our Quality Management System and our
strong scientific expertise in the U.S and in China, to collaborate
with multinational pharmaceutical companies to co-develop cell
therapies in China.
KOA. In 2013, we completed a Phase I/IIa clinical
study, in China, for our KOA therapy named
ReJoin®.
The trial tested the safety and efficacy of intra-articular
injections of autologous haMPCs in order to reduce inflammation and
repair damaged joint cartilage. Since 2013, we have continued
clinical studies on ReJoin® and
our trial data has demonstrated positive results on the performance
of ReJoin®.
Our ReJoin® human
adipose-derived mesenchymal progenitor cell (haMPC) therapy for KOA
is an interventional therapy using our proprietary process, culture
and medium.
Our
process is distinguishable from sole Stromal Vascular Fraction
(SVF) therapy. The immunophenotype of our haMPCs exhibited a
homogenous population expressing multiple biomarkers such as CD73+,
CD90+, CD105+, HLA-DR-, CD14-, CD34- and CD45-. In contrast, SVF is
merely a heterogeneous fraction including preadipocytes,
endothelial cells, smooth muscle cells, pericytes, macrophages,
fibroblasts and adipose-derived stem cells.
In January 2016, we launched the Allogeneic KOA
Phase I Trial in China to evaluate the safety and efficacy of
AlloJoin®,
an off-the-shelf allogeneic adipose derived progenitor cell (haMPC)
therapy for the treatment of KOA. On August 5, 2016, we completed
patient treatment for the Allogeneic KOA Phase I trial, and on
December 9, 2016, we announced interim three-month safety data from
the Allogenic KOA Phase I Trial in China. The interim analysis of
the trial has demonstrated a preliminary safety and tolerability
profile of AlloJoin® in
the three doses tested, and no serious adverse events (SAE) have
been observed. On March 16, 2018, we announced a positive 48-week
AlloJoin® Phase
I data in China, which demonstrated good safety and early efficacy
for the slowing of cartilage deterioration. China finalized its
cell therapy regulatory pathway in December 2017. Our
AlloJoin®
IND application to conduct a Phase II
clinical trial with the NMPA was been approved in January 2019 and
we launched our Phase II AlloJoin®
clinical trial on September 12, 2019. On September 27, 2019, we received the
ReJoin®
therapy application acceptance for
Phase II clinical trials by the NMPA.
We
established adult adipose-derived progenitor cell and
immuno-oncology cellular therapy platforms in treating specific
medical conditions and diseases. Our Quality Management Systems
(QMS) have been assessed and certified to meet the requirements of
ISO 9001: 2015, and a quality manual based on GMP guidelines has
been finalized. The facilities, utilities and equipment in both
Zhangjiang and Wuxi Sites have been calibrated and/or qualified and
in compliance with requirements of local health authorities. We
installed an Enterprise Quality Management System (EQMS) in April
2019 to facilitate the quality activities. A document management
system and Laboratory Information Management System (LIMS) will be
installed and qualified in early 2020.
Our
proprietary manufacturing processes and procedures include (i)
banking of allogenic cellular product and intermediate product;
(ii) manufacturing process of GMP-grade viral vectors; (iii)
manufacturing process of GMP-grade cellular product; and (iv)
analytical testing to ensure the safety, identity, purity and
potency of cellular products.
Recent Developments in Adoptive Immune Cell Therapy
(ACT)
The
immune system plays an essential role in cancer development and
growth. In the past decade, immune checkpoint blockade has
demonstrated a major breakthrough in cancer treatment and has
currently been approved for the treatment of multiple tumor types.
Adoptive immune cell therapy (ACT) with tumor-infiltrating
lymphocytes (TIL) or gene-modified T-cells expressing novel T cell
receptors (TCR) or chimeric antigen receptors (CAR) is another
strategy to modify the immune system to recognize tumor cells and
thus carry out an anti-tumor effector function.
The
TILs consist of tumor-resident T-cells which are isolated and
expanded ex vivo after surgical resection of the tumor. Thereafter,
the TILs are further expanded in a rapid expansion protocol (REP).
Before intravenous adoptive transfer into the patient, the patient
is treated with a lymphodepleting conditioning regimen. TCR gene
therapy and CAR gene therapy are ACT with genetically modified
peripheral blood T-cells. For both treatment modalities, peripheral
blood T-cells are isolated via leukapheresis. These T-cells are
then transduced by viral vectors to either express a specific TCR
or CAR. These treatments have shown promising results in various
tumor types.
CAR-Ts
According to the
U.S. National Cancer Institute’s 2013 cancer topics research
update on CAR-T-Cells, excitement is growing for
immunotherapy—therapies that harness the power of a
patient’s immune system to combat their disease, or what some
in the research community are calling the “fifth
pillar” of cancer treatment.
One
approach to immunotherapy involves engineering patients’
own immune cells to recognize and attack their tumors. This
approach is called adoptive cell transfer (ACT). ACT’s
building blocks are T cells, a type of immune cell collected
from the patient’s own blood. One of the well-established ACT
approaches is CAR-T cancer therapy. After collection, the
T-cells are genetically engineered to produce special
receptors on their surface called chimeric antigen receptors
(CARs). CARs are proteins that allow the T-cells to recognize
a specific protein (antigen) on tumor cells. These engineered
CAR-T-cells are then grown until the number reaches dose level. The
expanded population of CAR-T-cells is then infused into the
patient. After the infusion, if all goes as planned, the
T-cells multiply in the patient’s body and, with
guidance from their engineered receptor, recognize and kill
cancer cells that harbor the antigen on their surfaces. This
process builds on a similar form of ACT pioneered from
NCI’s Surgery Branch for patients with advanced
melanoma. In 2013, NCI’s Pediatric Oncology Branch
commented that the CAR-T-cells are much more potent
than anything they can achieve with other immuno-based
treatments being studied. Although investigators working in
this field caution that there is still much to learn about CAR
T-cell therapy, the early results from trials like these have
generated considerable optimism.
CAR-T
cell therapies, such as anti-CD19 CAR-T and anti-BCMA CAR-T, have
been tested in several hematological indications on patients
that are refractory/relapsing to chemotherapy, and many of
them have relapsed after stem cell transplantation. All
of these patients had limited treatment options prior to
CAR-T therapy. CAR-T has shown encouraging clinical efficacy
in many of these patients, and some of them have had durable
clinical response for years. However, some adverse effects, such as
cytokine release syndrome (CRS) and neurological toxicity, have
been observed in patients treated with CAR-T-cells. For example, in
July 2016, Juno Therapeutics, Inc. reported the death of
patients enrolled in the U.S. Phase II clinical trial of
JCAR015 (anti-CD19 CAR-T) for the treatment of relapsed or
refractory B cell acute lymphoblastic leukemia (B-ALL). The
U.S. FDA put the trial on hold and lifted the hold within
a week after Juno provided a satisfactory explanation and
solution. Juno attributed the cause of patient deaths to the
use of Fludarabine preconditioning and they switched to use
only cyclophosphamide pre-conditioning in subsequent
enrollment.
In
August 2017, the U.S. FDA approved Novartis’
Kymriah®
(tisagenlecleucel) a CD19-targeted CAR-T therapy, for the treatment
of patients up to 25 years old for relapsed or refractory (r/r)
acute lymphoblastic leukemia (ALL), the most common cancer in
children. Current treatments show a rate of 80% remission
using intensive chemotherapy. However, there are almost
no conventional treatments to help patients who have
relapsed or are refractory to traditional treatment.
Kymriah® has shown
results of complete and long lasting remission, and was the
first U.S. FDA-approved CAR-T therapy. In October 2017, the
U.S. FDA approved Kite Pharmaceuticals’ (Gilead) CAR-T
therapy for diffuse large B-cell lymphoma (DLBCL) the most
common type of NHL in adults. The initial results
of axicabtagene ciloleucel (Yescarta), the prognosis of
high-grade chemo refractory NHL, is dismal with a medium
survival time of a few weeks. Yescarta is a therapy
for patients who have not responded to or who have relapsed
after at least two other kinds of treatment.
In May
2018, the U.S. FDA approved Novartis’ Kymriah® for intravenous
infusion for its second indication—the treatment of adult
patients with relapsed or refractory (r/r) large B-cell lymphoma
after two or more lines of systemic therapy including diffuse large
B-cell lymphoma (DLBCL) not otherwise specified, high grade B-cell
lymphoma and DLBCL arising from follicular lymphoma.
Kymriah® is now the only
CAR-T cell therapy to receive U.S. FDA approval for two distinct
indications in non-Hodgkin lymphoma (NHL) and B-cell ALL. On
September 25, 2018, we entered into the Novartis LCA with Novartis
to manufacture and supply Kymriah® to Novartis in
China.
Besides
anti-CD19 CAR-T, anti-BCMA CAR-T has shown promising clinical
efficacy in treatment of multiple myeloma. For example, bb2121, a
CAR-T therapy targeting BCMA, has been developed by Bluebird bio,
Inc. and Celgene for previously treated patients with multiple
myeloma. Based on preliminary clinical data from the ongoing Phase
I study CRB-401, bb2121 has been granted Breakthrough Therapy
Designation by the U.S. FDA and PRIME eligibility by the European
Medicines Agency (EMA) in November 2017. We plan to initiate our
anti-BCMA CAR-T investigator initiated trial in the near
future.
Recent
progress in Universal Chimeric Antigen Receptor (UCAR) T-cells
showed benefits such as ease of use, availability and the drug
pricing challenge. Currently, most therapeutic UCAR products are
being developed with gene editing platforms such as CRISPR or
TALEN. For example, UCART19 is an allogeneic CAR T-cell product
candidate developed by Cellectis for treatment of CD19-expressing
hematological malignancies. UCART19 Phase I clinical trials started
in adult and pediatric patients in Europe in June 2016 and in the
U.S. in 2017. The use of UCAR may has the potential to overcome the
limitation of the current autologous approach by providing an
allogeneic, frozen, “off-the-shelf” T-cell product for
cancer treatment.
TILs
While
CAR-T cell therapy has proven successful in treatment of several
hematological malignancies, other cell therapy approaches,
including Tumor Infiltrating Lymphocytes (TIL) are being developed
to treat solid tumors. For example, Iovance Biotherapeutics is
focused on the development of autologous tumor-directed TILs for
treatments of patients with various solid tumor indications.
Iovance is conducting several Phase II clinical trials to
assess the efficacy and safety of autologous TIL for treatment of
patients with Metastatic Melanoma, Squamous Cell Carcinoma of the
Head and Neck, Non-Small Cell Lung Cancer (NSCLC) and Cervical
Cancer in the U.S. and Europe.
TCRs
Adaptimmune is
partnering with GlaxoSmithKline to develop TCR-T
therapy targeting the NY-ESO-1 peptide, which is present across
multiple cancer types. Their NY-ESO SPEAR T-cell has been used in
multiple Phase I/II clinical trials in patients with solid tumors
and haematological malignancies, including synovial sarcoma, myxoid
round cell liposarcoma, multiple myeloma, melanoma, NSCLC and
ovarian cancer. The initial data suggested positive clinical
responses and evidence of tumor reduction in patients. NY-ESO
SPEART T-cell has been granted breakthrough therapy designation by
the U.S. FDA and PRIME regulatory access in Europe.
Adaptimmune’s other TCR-T product, AFP SPEAR T-cell targeting
AFP peptide, is aimed at the treatment of patients with
hepatocellular carcinoma (HCC). AFP SPEAR T-cell is in a Phase I
study and enrolling HCC patients in the U.S.
CBMG’s Adoptive Immune Cell Therapy (ACT)
Programs
In
December 2017, the Chinese government issued trial guidelines
concerning the development and testing of cell therapy products in
China. Although these trial guidelines are not yet codified as
mandatory regulation, we believe they provide a measure of clarity
and a preliminary regulatory pathway for our cell therapy
operations in an uncertain regulatory environment. On April 18 and
April 21, 2018, the Center for Drug
Evaluation (CDE) posted on its website acceptance of the IND
application for CAR-T cancer therapies in treating patients with
NHL and adult ALL submitted by the Company’s wholly-owned
subsidiaries, CBMG Shanghai and Shanghai Cellular Biopharmaceutical
Group Ltd. On September 25, 2018 we entered into Novartis LCA to
manufacture and supply Kymriah® in China. As
part of the deal, Novartis took approximately a 9% equity stake in
CBMG, and CBMG is discontinuing development of its own anti-CD19
CAR-T cell therapy. This collaboration with Novartis reflects our
shared commitment to bringing the first marketed CAR-T cell
therapy, Kymriah®, a
transformative treatment option currently approved in the U.S., EU
and Canada for two difficult-to-treat cancers, to China, where the
number of patients in need remains the highest in the world.
Together with Novartis, we plan to bring the first CAR-T cell
therapy to patients in China as soon as possible. We continue to
develop CAR-T therapies other than CD 19 on our own and Novartis
has the first right of negotiation on these CAR-T developments. The
CBMG oncology pipeline includes CAR-T targeting CD20-, CD22- and
B-cell maturation antigen (BCMA), AFP TCR-T, which could
specifically eradicate AFP positive HCC tumors and TIL
technologies. Our current priority is to collaborate with Novartis
to bring Kymriah® to China. At
the same time, we remain committed to developing our existing
pipeline of immunotherapy candidates for hematologic and solid
tumor cancers to help deliver potential new treatment options for
patients in China. We are striving to build a competitive research
and development function, a translational medicine unit, along with
a well-established cellular manufacturing capability and ample
capacity, to support Kymriah® in China and
our development of multiple assets in multiple indications. We
believe that these efforts will allow us to boost the
Company’s Immuno-Oncology presence. We initiated a clinical
trial to evaluate anti-BCMA CAR-T therapy in Multiple Myeloma
(“MM”) and started first in-human studies for multiple
CAR-T and TCR-T programs in 2019.
Market for Immune Cell Therapies
Our immune cell therapies involve the genetic engineering of
T-cells to express either chimeric antigen receptors, or CARs, or T
cell receptors, or TCRs and TIL. These T-cells are designed to
recognize and attack cancer cells. Kymriah is a type of immune cell therapy that is made from
a patient’s own white blood cells and is a prescription
cancer treatment used in patients up to 25 years old who have acute
lymphoblastic leukemia that is either relapsing or is refractory.
It is also used in patients with non-Hodgkin lymphoma that has
relapsed or is refractory after having at least two other kinds of
treatment. On August 30, 2017, Kymriah was approved by the U.S. FDA
for the treatment of children and young adults with ALL. By October
18, 2017, the U.S. FDA granted
approval for Yescarta for treating patients with
relapsed/refractory diffuse large B-cell lymphoma (r/rDLBCL) and
other rare large B-cell lymphomas. On May 1, 2018, the
U.S.FDA approved Kymriah for a second
indication (diffuse large B-cell lymphoma). In August 2018, Kymriah
and Yescarta secured European Union approval for the treatment of
blood cancers, including B-cell acute lymphoblastic leukemia (ALL)
and relapsed or refractory diffuse large B-cell lymphoma (DLBCL).
Health Canada approved Kymriah as the first CAR-T therapy in Canada
and the Therapeutic Goods Administration (TGA) approved it as the
first CAR-T therapy in Australia.
In 2019, 1,762,450 new cancer cases and 606,880 cancer deaths are
projected to occur in the U.S. According to a 2018 International
Agency for Cancer publication, China, as the most populous country
in the world with an estimated population of nearly 1.42 billion,
is projected to have around 4.51 million cancer cases and 3.04
million cancer death by year 2020. A 2018 Global Cancer
Statistics Cancer Communications report states that compared (the
2018 Global Cancer Statistics Report) to the U.S. and UK, China has
a 30% and 40% higher cancer mortality among which 36.4% of the
cancer-related deaths were from the digestive tract cancers
(stomach, liver and esophagus cancer) and have relatively poorer
prognoses.
The
2018 Global Cancer Statistics Report also reported that in 2018,
lung cancer was the most diagnosed cancer type worldwide and in
China with 2,093,8761 and
733,3002
new cases respectively. HCC is the 4th most common cancer in
China and more than 50% of new HCC cases world-wide are in China.
About 466,000 new liver cancer cases each year and the mortality is
around 343,7003 annually in China.
Chen et al. In 2018, it was estimated about 510,000 new case of Non
Hopkins lymphoma (NHL) and 248,724 patients died from NHL
worldwide.4
Multiple
myeloma accounts for 1% of all cancers and approximately 10%
of all hematological malignancies.5 In 2016 there
were about 138,509 incident cases worldwide. The United States had
the most cases (about 24,407) and the most deaths (about 14,212),
China was the second in both measures which incident cases were
about 16,537 and deaths about 10,363. The global incidence of
multiple myeloma rose by 126% from 1990 to 2016. East Asia (China,
North Korea, and Taiwan) saw incident cases of multiple myeloma
jump by 262%, which was the largest increase among any of the 21
global regions.6
1 Chen et al. CA Cancer J Clin.
2016; 66:155-132
2 Bray F et al. CA Cancer J Clin.
2018: 68:394-424
3 Chen et al. CA Cancer J Clin.
2016; 66:155-132
4 Bray F et al. CA Cancer J Clin.
2018: 68:394-424
5 Moreau P et al., Annals of Oncol.
24 (Supplement 6): vi133–vi137, 2013)
6 Cowan AJ et al., JAMA
Oncol. 2018;4(9):1221-1227
Market for Stem Cell-Based Therapies
The U.S. forecast is that shipments of treatments with stem cells,
or instruments which concentrate stem cell preparations for
injection into painful joints, will fuel an overall increase in the
use of stem cell based treatments resulting in an increase to $5.7
billion in 2020, with key growth areas being Spinal Fusion, Sports
Medicine and Osteoarthritis of the joints. Osteoarthritis (OA) is a
chronic disease that is characterized by degeneration of the
articular cartilage, hyperosteogeny and, ultimately, joint
destruction that can affect all of the joints. According to a paper
published by Dillon CF, Rasch EK, Gu Q et
al. entitled, “Prevalence of knee
osteoarthritis in the United States: Arthritis Data from the Third
National Health and Nutrition Examination Survey,” the
incidence of OA is 50% among people over age 60 and 90% among
people over age 65. KOA accounts for the majority of total OA
conditions and in adults, OA is the second leading cause of work
disability and the disability incidence rate is high (53%). The
costs of OA management has grown exponentially over recent decades,
accounting for up to 1% to 2.5% of the gross national product of
countries with aging populations, including the U.S., Canada, the
UK, France and Australia. According to the American Academy of
Orthopedic Surgeons (AAOS), the only pharmacologic therapies
recommended for OA symptom management are non-steroidal
anti-inflammatory drugs (NSAIDs) and tramadol (for patients with
symptomatic osteoarthritis). Moreover, there is no approved disease
modification therapy for OA in the world. Disease progression is a
leading cause of hospitalization and ultimately requires joint
replacement surgery. According to an article published by the
Journal of the American Medical Association, approximately 505,000
hip replacements and 723,000 knee replacements were performed in
the United States in 2014, collectively costing more than $20
billion. International regulatory guidelines on clinical
investigation of medicinal products used in the treatment of OA
were updated in 2015, and clinical benefits (or trial outcomes) of
a disease modification therapy for KOA has been well defined and
recommended. Medicinal products used in the treatment of
osteoarthritis need to provide both a symptom relief effect for at
least six months and a structure modification effect to slow
cartilage degradation by at least 12 months. Symptom relief is
generally measured by a composite questionnaire, the Western
Ontario and McMaster Universities Osteoarthritis Index (WOMAC)
score, and structure modification is measured by MRI, or
radiographic image as accepted by international communities. The
Company uses the WOMAC as the primary end point to demonstrate
symptom relief, and MRI to assess structure and regeneration
benefits as a secondary endpoint.
According to the Foundation for the National Institutes of Health,
there are 27 million Americans with Osteoarthritis (OA), and
symptomatic Knee Osteoarthritis (KOA) occurs in 13% of persons aged
60 and older. According to a nationwide population-based
longitudinal survey among the Chinese retired population,
approximately 8.1% of participants were found to suffer from
symptomatic knee OA. Currently no treatment exists that can
effectively preserve knee joint cartilage or slow the progression
of KOA.
According to Alternative and Integrative
Medicine, 53% of KOA patients
will degenerate to the point of disability. Conventional treatment
usually involves invasive surgery with painful recovery and
physical therapy and replacement surgeries are typically only
suggested and performed on patients in the late stage of
KOA.
Our Global Strategy
CBMG is a drug development company focusing on developing cell
therapies first in China, to take advantage of cost efficiencies,
leveraging the expeditious Investigator Initiated Trials
(“IIT”) process in China, publish and share our data in
major conferences and scientific journals and then address the
rest-of-the-world market after safety and efficacy of those
programs are established. Our goal is to develop safe and effective
cellular therapies for indications that represent a large unmet
need in China. We intend to use our first-mover advantage in China,
against a backdrop of enhanced regulation by the central
government, to differentiate ourselves from the competition and
establish a leading position in the China cell therapeutic market.
We intend to invest and expand our clinical research capabilities
by building drug development and manufacturing infrastructure in
China and in the U.S., expanding our clinical research platform,
hiring new talent and enhancing our existing coverage. We believe
that few competitors in China are as well-equipped as we are in the
areas of clinical trial development, internationally compliant
manufacturing, quality assurance and control, as well as our
dedication to regulatory compliance and process
improvement.
The key issues with cell therapy as modality are drug
therapeutic index, institutionalized, scalable manufacturing and an
affordable price for the patients. We believe our manufacturing
platform is unique as we utilize a semiautomatic, fully closed
system, which is expected to lead to economies of scale.
Additionally, our focus on being a fully integrated cell therapy
company has enabled us to be one of only a few companies that are
able to manufacture clinical grade viral vectors in China to cater
to the increasing global demand for cell and gene
therapies.
In China, Good Clinical Practice (GCP) only requires
institutional review board (“IRB”) approval from the hospital and local NMPA approval
for Investigator Initiated Trial (IIT), which is more expeditious
than the traditional IND route. IITs can provide early evidence of
POC for novel drugs which are more time and cost efficient than the
traditional IND approach. IITs are also good ways to identify and
develop novel platforms. Currently, we have our own drug
development pipeline in CAR-T, AFP TCR-T, TIL and KOA. Our R&D
team continues to identify additional platform cell therapy
technologies to develop internally or acquire established
technologies.
In addition to the manufacturing of Novartis’
Kymriah® for
patients in China as contemplated by the Novartis LCA and the
Manufacture and Supply Agreement with Novartis, we are actively
developing and evaluating other therapies comprised of other CAR-T,
TCR-T and TIL therapies. We have also advanced our KOA
AlloJoin® Phase
II clinical trial and ReJoin® Phase
II clinical trial with the NMPA.
In addition to our drug development efforts, we are planning
on evaluating co-development, strategic partnerships and both
in-licensing and out-licensing opportunities with high quality,
multinational partners. Such partnerships will enable us to take
advantage of the technologies of our partners while leveraging our
quality control and manufacturing infrastructure to further expand
our pipelines.
Our proprietary and patent-protected manufacturing processes enable
us to produce, store and distribute ancillary media, viral vectors
and cellular product. Our clinical protocols include medical
assessment to qualify each patient for treatment, evaluation of
each patient before and after a specific therapy, cell infusion
methodologies including dosage, frequency and the use of adjunct
therapies, handling potential adverse effects and their proper
management. Applying our proprietary intellectual property, we plan
to customize specialize formulations to address complex diseases
and debilitating conditions.
Currently, we have a total of approximately 70,000 square feet of
manufacturing space in three locations, the majority of which is in
the new Shanghai facility. We operate our manufacturing facilities
under the design of the standard GMP conditions as well ISO
standards. We employ institutionalized and proprietary process and
quality management system to optimize reproducibility and to hone
our efficiency. Our Shanghai and Wuxi facilities are designed and
built to meet GMP standards. With our integrated Plasmid, Viral
Vectors platforms, our T-cells manufacturing capacities are highly
distinguishable from other companies in the cellular therapy
industry. We are currently assessing the feasibility of expanding
manufacturing spaces in new sites in both China and the
U.S.
Most importantly, our seasoned cell therapy team members have
decades of highly relevant experience in the U.S., China and the
European Union. We believe that these are the primary factors that
make CBMG a high-quality cell products manufacturer in
China. We have been implementing significant human resources
initiatives such as stock incentive programs, graduate school and
continuing education sponsorship and a robust health insurance plan
to attract and retain quality talent to support our rapid
growth.
Our Targeted Indications and Potential Therapies
The
chart below illustrates CBMG’s pipelines:
Immuno-oncology (I/o)
Our
CAR-T platform is built on lenti-virial vector and
second-generation CAR design, which is used by most of the current
trials and studies. We select the patient population for each asset
and indication to allow the optimal path forward for potential
regulatory approval. We integrate the state-of-the-art
translational medicine effort into each clinical study to aid in
dose selection, to investigate the mechanism of action and
POC, and to attempt to identify
the optimal targeting patient population. We plan to continue to
grow our translational medicine team and engage key opinion leaders
to support our development efforts.
We have
developed a serial of CAR-Ts to treat hematological malignancies
including CD20, CD22 and BCMA CAR-Ts, which have been proved to be
potent and effective in treating hematology tumors in the early
phase of clinical studies.
CD20 CAR
CD20 is
broadly overexpressed in a serial of B cell malignant tumors. In
the patients relapsed after CD19 CAR-T treatment, the expression of
CD20 on target tumor cells is relatively stable. It is proven to be
an optimal target for treating CD19 CAR-T relapsing patients. We
have developed a novel CD20 CAR-Ts clinical lead product, which
demonstrated strong anti-tumor activity in both in vitro assays and in vivo animal studies. We have filed a
patent application in China and have initiated a first in human
investigator initiated trial with CD19 CAR-T relapsed NHL
patients.
CD22 CAR
CD22 is
another surface marker highly expressed in B cell malignancies
especially in hairy cell leukemia. It also expresses in the
patients relapsed after CD19 CAR-T treatment. We have developed a
novel CD22 CARs clinical lead, which displayed effective anti-tumor
activity in in vitro
cytotoxicity assays. We plan to initiate an investigator initiated
trial with CD19 CAR-T relapsing ALL patients and hairy cell
leukemia.
BCMA CAR
BCMA is
a member of the TNF receptor superfamily, universally expressed in
multiple myeloma (MM) cells. It is not detectable in normal tissues
except plasma and mature B cells. It is a proven, effective and
safer target for treating refractory MM patients in several
clinical trials. We have developed unique BCMA CARs. Our BCMA CAR
clinical lead exhibits potent anti-tumor activity both in vitro and in vivo. We have filed a patent for
BCMA CAR in China and begun an investigator initiated trial in
refractory MM patients in January 2019.
NKG2D CAR
Early
studies on CAR-T therapy targeting NK cell signaling has shown
promising clinical benefits. We are developing novel second
generation CAR-Ts using NKG2D extracellular fragment as antigen
binding domain. These CARs can recognize target tumor cells
expressing NKG2D ligands. We plan to initiate a first in human
investigator initiated trial with R/R AML patients.
Solid
tumors pose more challenges than hematological cancers. The
patients are more heterogeneous, making it difficult to have one
drug to work effectively in the majority of the patients in any
cancer indication. The duration of response is most likely shorter
and patients are likely to relapse even after initial positive
clinical response. We will continue our effort in developing
cell-based therapies to target both hematological cancers and solid
tumors.
AFP TCR
We
license the AFP-TCR technology from Augusta University. We are
continuing our evaluation on the efficacy and specificity of the
AFP TCRs to identity the most appropriate candidate for a first
time in human (FTIH) study. We plan to redirect Human T-cells with
the AFP TCRs and evaluate their anti-tumor activity on in vitro
cytokine release and cytotoxicity assays; and potential
on/off-target toxicity including allo-reactivity as well as
in vivo efficacy tests in
animal models.
TIL
Augmented by the
U.S. National Cancer Institute (“NCI”) technology
license, CBMG is developing neoantigen reactive TIL therapies to
treat immunogenic cancers. In the early stages of cancer,
lymphocytes infiltrate into the tumor, specifically recognizing the
tumor targets and mediating anti-tumor response. These cells are
known as TIL. TIL-based therapies have shown encouraging clinical
results in early development. For example, in Phase-2 clinical
studies in patients with metastatic melanoma performed by Dr.
Rosenberg at NCI, TIL therapy demonstrated robust efficacy in
patients with metastatic melanoma with objective response rates of
56% and complete response rates of 24%. We have started our
development with NSCLC, and plan to expand into other cancer
indications.
Knee Osteoarthritis (KOA)
We are
currently pursuing two primary therapies for the treatment of KOA:
ReJoin® therapy
and AlloJoin® therapy.
We
completed the Phase I/IIa clinical trial for the
treatment of KOA. The trial tested the safety and efficacy of
intra-articular injections of autologous haMPCs in order to reduce
inflammation and repair damaged joint cartilage. The six-month
follow-up clinical data showed ReJoin® therapy to
be both safe and effective.
In the
second quarter of 2014, we completed patient enrollment for the
Phase IIb clinical trial of ReJoin® for KOA. The
multi-center study has enrolled 53 patients to participate in a
randomized, single blind trial. We published 48 weeks’
follow-up data of Phase I/IIa on December 5, 2014. The 48
weeks’ data indicated that patients have reported a decrease
in pain and a significant improvement in mobility and flexibility,
while the clinical data shows our ReJoin® regenerative
medicine treatment to be safe. We announced positive Phase IIb
48-week follow-up data in January 2016, with statistical
significant evidence that ReJoin® enhanced
cartilage regeneration, which concluded the planned phase IIb
trial.
Osteoarthritis is a
degenerative disease of the joints. KOA is one of the most common
types of osteoarthritis. Pathological manifestation of
osteoarthritis is primarily local inflammation caused by immune
response and subsequent damage of joints. Restoration of immune
response and joint tissues are the objective of
therapies.
According
to International Journal of
Rheumatic Diseases, 2011, 53% of KOA patients will
degenerate to the point of disability. Conventional treatment
usually involves invasive surgery with painful recovery and
physical therapy. As drug-based methods of management are
ineffective, the same journal estimates that some 1.5 million
patients with this disability will degenerate to the point of
requiring artificial joint replacement surgery every year. However,
only 40,000 patients will actually be able to undergo replacement
surgery, leaving the majority of patients to suffer from a
life-long disability due to lack of effective
treatment.
Adult
mesenchymal stem cells can currently be isolated from a variety of
adult human sources, such as liver, bone marrow and adipose (fat)
tissue. We believe the advantages in using adipose tissue (as
opposed to bone marrow or blood) are that it is one of the richest
sources of multipotent cells in the body, the easy and repeatable
access to fat via liposuction, and the simple cell isolation
procedures that can begin to take place even on-site with minor
equipment needs. The procedure we are testing for autologous KOA
involves extracting a very small amount of fat using a minimally
invasive extraction process which takes up to 20 minutes and leaves
no scarring. The haMPC cells are then processed and isolated on
site, and injected intraarticularly into the knee joint with
ultrasound guidance. For allogeneic KOA, we use donor haMPC
cells.
These
haMPC cells are capable of differentiating into bone, cartilage and
fat under the right conditions. As such, haMPCs are an attractive
focus for medical research and clinical development. Importantly,
we believe both allogeneic and autologously sourced haMPCs may be
used in the treatment of disease. Numerous studies have provided
preclinical data that support the safety and efficacy of allogeneic
and autologous haMPC, offering a choice for those where factors
such as donor age and health are an issue.
The
haMPCs are currently being considered as a new and effective
treatment for osteoarthritis, with a huge potential market.
Osteoarthritis is one of the ten most disabling diseases in
developed countries. Worldwide estimates are that 9.6% of men and
18.0% of women aged over 60 years have symptomatic osteoarthritis.
It is estimated that the global OA therapeutics market was worth
$4.4 billion in 2010 and is forecast to grow at a compound annual
growth rate of 3.8% to reach $5.9 billion by
2018.
In
order to bring haMPC-based KOA therapy to market, our market
strategy is to: (a) establish regional laboratories that comply
with cGMP standards in Shanghai and Beijing that meet Chinese
regulatory approval; (b) submit to the NMPA an IND package for
Allojoin™ to treat patients with donor haMPC cells; and (c)
file joint applications with Class AAA hospitals to use
ReJoin® to treat
patients with their own haMPC cells.
Our
competitors are pursuing treatments for osteoarthritis with knee
cartilage implants. However, unlike their approach, our KOA therapy
is not surgically invasive—it uses a small amount (30ml) of
adipose tissue obtained via liposuction from the patient, which is
cultured and re-injected into the patient. The injections are
designed to induce the body’s secretion of growth factors
promoting immune response and regulation, and regrowth of
cartilage. The down-regulation of the patient’s immune
response is aimed at reducing and controlling inflammation which is
a central cause of KOA.
We believe
our proprietary method, subsequent haMPC proliferation and
processing know-how will enable haMPC therapy to be a low cost and
relatively safe and effective treatment for KOA. Additionally,
banked haMPCs can continue to be stored for additional use in the
future.
Based
on current estimates, we expect to generate collaboration payment
and revenues through our sale of Kymriah® products to
Novartis within the next two years. We plan to systematically
advance our own cell therapy pipeline and timely seek BLA
opportunities to commercialize our products within the next three
years although we cannot assure you that we will be successful at
all or within the foregoing timeframe.
Competition
Many companies operate in the cellular biopharmaceutical field. We
face competition based on several factors, including quality and
breadth of services, ability to protect our intellectual property
or other confidential information, timeliness of implementation,
maintenance of quality standards, depth of collaboration partner
relationships, price and geography. Currently there are several
approved stem cell therapies on the market including Canada’s
pediatric graft-versus-host disease and the European
Commission’s approval in March 2018 for the treatment of
complex perianal fistulas in adult Crohn’s disease. There are
several public and private cellular biopharmaceutical-focused
companies outside of China with varying phases of clinical trials
addressing a variety of diseases. We compete with these companies
in bringing cellular therapies to the market. However, our focus is
to develop a core business in the China market, with plans to
expand in the U.S. market. This difference in focus places us in a
different competitive environment from other western companies with
respect to fund raising, clinical trials, collaborative
partnerships and the markets in which we compete.
In terms of entry barriers, cellular biopharmaceutical business
generally requires high, upfront capital and other resources,
significant financial and time commitment in recruiting experienced
talents, a successful track record and solid reputation to build up
synergies with business partners and emphasis on cost efficiency.
Our core competitive edge is our strong capacity to cover the full
research and development process of the full life cycle of a
product, and to satisfy the increasing demand for timely
realization and localization in China of key products already
approved in foreign markets. We believe that we are able to
maintain our competitiveness by leveraging our established position
in the global research and development in the cellular
biopharmaceutical market and capitalizing on the opportunities
offered by the booming pharmaceutical market in China.
To meet the overall social, economic and healthcare
challenges in China, the PRC central government has a focused
strategy to enable China to compete effectively in certain
designated areas of biotechnology and the health sciences. Because
of the aging population in China, China’s Ministry of Science
and Technology (MOST) has targeted stem cell development as high
priority field, and development in this field has been intense in
the agencies under MOST. For example, the 973 Program has funded a
number of stem cell research projects such as differentiation of
human embryonic stem cells and the plasticity of adult stem cells.
To the best of our knowledge, none of the companies in China are
utilizing our proposed international manufacturing protocol and our
unique technologies in conducting what we believe will be fully
compliant NMPA-sanctioned clinical trials to commercialize cell
therapies in China. Our management believes that it is difficult
for most of these Chinese companies to turn their results into
translational stem cell science or commercially successful
therapeutic products using internationally acceptable
standards.
We compete globally with respect to the discovery and development
of new cell-based therapies, and we also compete within China to
bring new therapies to market. In the biopharmaceutical specialty
segment, namely in the areas of cell processing and manufacturing,
clinical development of cellular therapies and cell collection,
processing and storage, are characterized by rapidly evolving
technology and intense competition. Our competitors worldwide
include pharmaceutical, biopharmaceutical and biotechnology
companies, as well as numerous academic and research institutions
and government agencies engaged in drug discovery activities or
funding, in the U.S., Europe and Asia. Many of these companies are
well-established and possess technical, research and development,
financial and sales and marketing resources significantly greater
than ours. In addition, many of our smaller potential competitors
have formed strategic collaborations, partnerships and other types
of joint ventures with larger, well established industry
competitors that afford these companies potential research and
development and commercialization advantages in the technology and
therapeutic areas currently being pursued by us. Academic
institutions, governmental agencies and other public and private
research organizations are also conducting and financing research
activities which may produce products directly competitive to those
being commercialized by us. Moreover, many of these competitors may
be able to obtain patent protection, obtain government (e.g.,
the U.S. FDA) and other
regulatory approvals and begin commercial sales of their products
before us.
Our primary competitors in the field of cancer immune cell
therapies include pharmaceutical, biotechnology companies such as
Eureka Therapeutics, Inc., Iovance Biotherapeutics Inc., Juno
Therapeutics, Inc. (acquired by Celgene), Kite Pharma, Inc.
(acquired by Gilead), CARSgen, Sorrento Therapeutics, Inc. and
others. Among our competitors, the ones based in and operating in
Greater China are CARsgen, Hrain Biotechnology, Nanjing Legend
Biotechnology Galaxy Biomed, Persongen, Anke Biotechnology,
Shanghai Minju Biotechnology, Unicar Therapy (Cooperated with
Terumo BCT), Wuxi Biologics, Junshi Pharma, BeiGene, Immuno China
Biotech, Chongqing Precision Biotech, Innovative Cellular
Therapeutics and China Oncology Focus Limited. Other companies in
the cancer immune cell therapies space have made inroads in China
by partnering with local companies. For example, in April, 2016,
Seattle-based Juno Therapeutics, Inc. started a new company with
WuXi AppTec in China named JW Biotechnology (Shanghai) Co., Ltd. In
January 2017, Shanghai Fosun Pharmaceutical created a joint venture
with Santa Monica-based Kite Pharma Inc. to develop, manufacture
and commercialize CAR-T and TCR products in China. The NMPA has
received IND applications for CD19 chimeric antigen receptor
T-cells cancer therapies from many companies and have granted the
initial phase of acceptance to several companies thus
far.
The osteoarthritis industry is highly competitive and subject to
rapid and significant technological change. The large size and
expanding scope of the pain market makes it an attractive
therapeutic area for biopharmaceutical businesses. Our potential
competitors include pharmaceutical, biotechnology, medical device
and specialty pharmaceutical companies. Several of these companies
have robust drug pipelines, readily available capital and
established research and development organizations. We believe our
success will be driven by our ability to develop and commercialize
treatment options that make a meaningful difference for patients
with KOA. Our primary competitors in the field of stem cell therapy
for osteoarthritis and other indications include Mesoblast Ltd.,
Caladrius Biosciences, Inc. and others. On September 12, 2019, we
launched allogenic haMPC KOA Phase II of the clinical trial across
six leading hospitals in China with a plan to recruit 108 patients.
We submitted our autologous adipose stem cell therapy
(ReJoin®)
KOA with IND filing with the CDE and the application was approved
by NMPA. Additionally, in the general area of cell-based therapies
for knee osteoarthritis ailments, we potentially compete with a
variety of companies, from big pharma to specialty medical products
or biotechnology companies. Some of these companies, such as
Abbvie, Merck KGaA, Sanofi, Teva, GlaxosmithKline, Baxter, Johnson
& Johnson, Sanumed, Medtronic and Miltenyi Biotech are
well-established and have substantial technical and financial
resources compared to ours. However, as cell-based products are
only just recently emerging as viable medical therapies, many of
our more direct competitors are smaller biotechnology and specialty
medical products companies comprised of Vericel Corporation,
Regeneus Ltd., Advanced Cell Technology, Inc., Nuo Therapeutics,
Inc., ISTO technologies, Inc., Ember Therapeutics, Athersys, Inc.,
Bioheart, Inc., Mesoblast, Pluristem, Inc., Medipost Co. Ltd. and
others. There are also several non-cell-based, small molecule and
peptide clinical trials targeting knee osteoarthritis, and several
other U.S. FDA-approved
treatments for knee pain.
Other companies have OA product candidates in advanced stages
of clinical development. These product candidates
include:
●
Anika Therapeutics,
Inc.’s Cingal®, which is a
mixture of Anika’s Monovisc combined with a low dose of a
commonly used immediate-release steroid. In February 2019, Anika
announced that, based on their discussions with the FDA, they will
need to conduct another Phase III clinical trial before they can
potentially obtain approval for Cingal in the U.S.
●
Kolon TissueGene,
Inc.’s Invossa™, which is a combination of human
allogeneic chondrocytes and TGF-b1 transfected
allogeneic chondrocytes. In November 2018, Kolon TissueGene
announced they enrolled the first patient in a pivotal U.S. Phase 3
trial. According to clinicaltrials.gov, the estimated primary
completion date for the trial is April 2021.
●
Ampio
Pharmaceuticals, Inc.’s Ampion™, which is a derivative
of human serum albumin, is described as having anti-inflammatory
properties, and is formulated for immediate-release. Ampio stated
that Ampion is in Phase 3 development but has not announced a
timeline for potentially submitting a Biologics License
Application, or BLA.
●
Centrexion
Therapeutics Corporation’s CNTX-4975, which is a
synthetic, ultra-pure injection of trans-capsaicin. In
December 2018, Centrexion announced completion of patient
enrollment in its Phase 3 VICTORY-1 trial. Topline results are
expected to be reported in the first quarter of 2020.
●
A number of
investigational nerve growth factor antibodies are in development.
Regeneron’s fasinumab and Pfizer and Eli Lilly’s
tanezumab are both in Phase 3 development. Initial results from
Phase 3 clinical trials for each were announced in 2018. In January
2019, Pfizer and Lilly announced results from a second Phase 3
study showing that the tanezumab 5 mg treatment arm met all three
co-primary endpoints at 24 weeks, however in the 2.5 mg treatment
arm, patients’ overall assessment of their OA was not
statistically different than placebo. Rapidly progressive OA was
seen in 2.1% of tanezumab-treated patients and was not observed in
the placebo arm.
●
Servier and
Galapagos NV’s S201086/GLPG1972, an ADAMTS-5 inhibitor, is
currently in Phase II clinical development.
●
Taiwan Liposome
Company’s TLC599, which is a liposomal formulation of
dexamethasone sodium phosphate. TLC599 is currently in Phase
II clinical development.
Certain CBMG competitors also work with adipose-derived stem cells.
To the best of our knowledge, none of these companies are currently
utilizing the same technologies as ours to treat KOA, nor are we
aware of any of these companies conducting government-approved
clinical trials in China.
Some of our targeted disease applications may compete with drugs
from traditional pharmaceutical or Traditional Chinese Medicine
companies. We do not believe that our chosen targeted disease
applications are in competition with the products and therapies
offered by traditional pharmaceutical or Traditional Chinese
Medicine companies.
We believe we have a strategic advantage over our competitors based
on our outstanding quality management system and robust and
efficient manufacturing capability, which we believe is possessed
by few, if any, of our competitors in China, in an industry in
which meeting exacting standards and achieving extremely high
purity levels is crucial to success. In addition, in comparison to
the broader range of cellular biopharmaceutical firms, we believe
we have the advantages of cost and expediency, and a first mover
advantage with respect to commercialization of cell therapy
products and treatments in the China market.
Intellectual Property
We have
built our intellectual property portfolio with a view towards
protecting our freedom of operation in China within our specialties
in the cellular biopharmaceutical field. Our portfolio contains
patents, trade secrets and know-how.
The
production of stem cells for therapeutic use requires the ability
to purify and isolate these cells to an extremely high level of
purity. Accordingly, our portfolio is geared toward protecting our
proprietary process of isolation, serum free-cell expansion, cell
processing and related steps in stem cell production. The
combination of our patents and trade secrets protects various
aspects of our cell line production methods and methods of use,
including methods of isolation, expansion, freezing, preservation,
processing and use in treatment.
For our
haMPC therapy:
●
We
believe our intellectual property portfolio for haMPC is well-built
and abundant. It covers aspects of adipose stem cell medicine
production, including acquisition of human adipose tissue,
preservation and storage; tissue processing, stem cell
purification, expansion and banking; formulation for administration
and administration methods.
●
Our
portfolio also includes adipose derived cellular medicine
formulations and their applications in the potential treatment of
degenerative diseases and autoimmune diseases, including
osteoarthritis, and rheumatoid arthritis, as well as potential
applications with age-related illnesses and
conditions.
●
Our
haMPC intellectual property portfolio:
o
provides coverage
of all steps in the production process;
o
enables achievement
of high yields of Stromal Vascular Fraction (SVF), i.e., stem cells
derived from adipose tissue extracted by liposuction;
o
makes adipose
tissue acquisition convenient and useful for purposes of cell
banking; and
o
employs
preservation techniques enabling long distance shipment of finished
cell medicine products.
For our
CAR-T and Tcm cancer immune cell therapy:
●
Our
recent amalgamation of technologies from AG and PLAGH in the cancer
cell therapy is comprehensive and well-rounded. It comprises T-cell
clonality, Chimeric Antigen Receptor T cell (CAR-T) therapy, its
recombinant expression vector CD19, CD20, CD30 and Human Epidermal
Growth Factor Receptor’s (EGFR or HER1) Immunooncology patent
applications, several preliminary clinical studies of various CAR-T
constructs targeting CD19-positive acute lymphoblastic leukemia,
CD20-positive lymphoma, CD30-positive Hodgkin’s lymphoma and
EGFR-HER1-positive advanced lung cancer and Phase I/II clinical
data of the aforementioned therapies and manufacturing
knowledge.
In
addition, our intellectual property portfolio covers various
aspects of other therapeutic categories, including umbilical
cord-derived huMPC therapy and bone marrow-derived hbMPC
therapy.
Moreover, our
clinical trial protocols are proprietary, and we rely upon trade
secret laws for protection of these protocols.
We
intend to continue to vigorously pursue patent protection of the
technologies we develop, both in China and under the Patent
Cooperation Treaty. Additionally, we require all of our employees
to sign proprietary information and invention agreements, and
compartmentalize our trade secrets in order to protect our
confidential information.
Patents
The
following is a brief list of our patents, patent applications and
work in process as of December 31, 2019:
|
|
|
|
|
Patent
Cooperation Treaty (PCT)
|
|
|
|
|
|
|
|
|
Work in
Process
|
10
|
-
|
-
|
-
|
-
|
10
|
Patents Filed,
Pending
|
27
|
5
|
4
|
7
|
5
|
48
|
Granted
|
29
|
3
|
1
|
2
|
-
|
35
|
Total
|
66
|
8
|
5
|
9
|
5
|
93
|
Generally, our
patents cover technology, methods, design and composition of and
relating to medical device kits used in collecting cell specimens,
cryopreservation of cells, purification, use of stem cells in a
range of potential therapies, adipose tissue extraction, cell
preservation and transportation, preparation of chimeric antigen
receptor, gene detection and quality control.
Manufacturing
We
manufacture cells for our own research, testing and clinical
trials. We are scaling up and optimizing our manufacturing
capacity. Our facilities are operated by a manufacturing and
technology team with decades of relevant experience in China, the
EU and the U.S.
In any
precision setting, it is vital that all controlled environment
equipment meet certain design standards. We operate our
manufacturing facilities under GMP conditions as well the ISO
standards. We employ an institutionalized and proprietary process
and quality management system to optimize reproducibility and to
hone our efficiency. Three of our facilities designed and built to
GMP in Shanghai and Wuxi, China meet international standards.
Specifically, our Shanghai cleanroom facility underwent rigorous
cleanroom certification since 2013.
The
quality management systems of CBMG Shanghai have been assessed and
certified as meeting the requirements of ISO 9001: 2015, including
(i) the cleanrooms in our new facility have been inspected and
certified to meet the requirements of ISO 14644 and in compliance
with China’s GMP requirements (2010 edition); and (ii)
the equipment, including critical ones like biological safety
cabinets in the new Shanghai facility has been calibrated
and qualified, and the biological safety cabinets were also
qualified. The quality management systems of CBMG Wuxi were
certified as meeting the requirements of ISO 9001: 2015, and the
facility and equipment in Wuxi Site were also
qualified.
With
our integrated GMP level plasmid, viral vectors and CAR-T cell
chemistry, manufacturing and controls processes, as well as planned
capacity expansion, we believe that we are highly distinguishable
with other companies in the cellular therapy industry.
In
January 2017, we leased a 113,038-square foot building located in
the “Pharma Valley” of Shanghai, the People’s
Republic of China. We are establishing 43,000 square foot
facilities there with 25 clean-rooms and equipped with 12
independent production lines to support clinical batch production
and commercial scale manufacturing. With the above expansion, the
Company could support up to thousands of patients with CAR-T
therapy and thousands of KOA patients with the stem cell therapy
per annum.
Employees
As of
December 31, 2019, the total enrollment of full-time employees of
the Company is 217. Among these 217 professionals, 136 have
postgraduate and PhD degrees and 71 have undergraduate degrees. In
other words, 95.4% of our employees have a germane educational
background. As a biotech company, 182 out of our 217 employees have
medical or biological scientific credentials and
qualifications.
Certain Tax Matters
Following the
completion of our merger with EastBridge Investment Group
Corporation (Delaware) on February 6, 2013, CBMG and its controlled
subsidiaries (the “CBMG Entities”) became a Controlled
Foreign Corporation (CFC) under U.S. Internal Revenue Code Section
957. As a result, the CBMG Entities are subject to anti-deferral
provisions within the U.S. federal income tax system that were
designed to limit deferral of taxable earnings otherwise achieved
by putting profit in low taxed offshore entities. While the CBMG
Entities are subject to review under such provisions, the CBMG
Entities’ earnings are from an active business and should not
be deemed to be distributions made to its U.S. parent
company.
On
December 22, 2017, the tax reform bill was passed (Tax Cut and Jobs
Act (H.R.1)) and reduced the top corporate tax rate from 35% to 21%
effective from January 1, 2018. Pursuant to this new Act,
non-operating loss carry-back period is eliminated and the loss
carry-forward period was expanded from 20 years to an indefinite
period.
According to
Guoshuihan 2009 No. 203, if an entity is certified as an
“advanced and new technology enterprise,” it is
entitled to a preferential income tax rate of 15%. CBMG Shanghai
obtained the certificate of “advanced and new technology
enterprise” dated October 30, 2015 with an effective period
of three years and the provision for PRC corporate income tax for
CBMG Shanghai is calculated by applying the income tax rate of 15%
from 2015. CBMG Shanghai re-applied and Shanghai SBM applied for
the certificate of “advanced and new technology
enterprise” in 2018. Both of them received approval on
November 27, 2018 with an effective period of three
years.
BIOPHARMACEUTICAL REGULATION
PRC Regulations
Our
cellular medicine business operates in a highly regulated
environment. In China, aside from provincial and local licensing
authorities, there are hospitals and their internal ethics and
utilization committees, and a system of IRBs which in many cases
have members appointed by provincial authorities. With respect to
cell therapies, however, the Chinese regulatory infrastructure is
less established. In December 2017,
the Chinese government issued trial guidelines concerning development and
testing of cell therapy
products, including stem cell treatments and immune cell therapies
such as CAR-T cell therapeutics. These trial guidelines are not
mandatory regulation but provide some general principles and basic
requirements for cell therapy products in the areas of
pharmaceutical research, non-clinical
research and clinical research. The cell therapy products provided
in the trial guideline refer to the human-sourced living cell
products which are used for human disease therapy, whose source,
operation and clinical trial process are in line with ethics and
whose research and registration application are in line with
regulations on pharmaceutical administration. The competent
authority of pharmaceutical administration is the NMPA. It is
further clarified by the NMPA that the non-registered clinical
trial data would be acceptable for drug registration on a case by
case basis, pending on the consistency of the samples used for the
clinical trial and the drug applied for registration, the
generation process of the clinical trial data, whether the data is
authentic, complete, accurate and traceable to the source and the
inspection outcome of the NMPA on the clinical trial. Moreover, an
applicant of the clinical trial of the said cell therapy products
can propose the phases of the clinical trial and the trial plan by
itself (generally the trial can be divided into early stage
clinical trial phase and confirmatory clinical trial phase),
instead of the application of the traditional phases I, II and III
of a clinical trial. However, it remains unclear if any of
our clinical trials will be offered U.S. FDA-like Fast Track
designation as maintenance therapy in subjects with advanced cancer
who have limited options following surgery and front-line
platinum/taxane chemotherapy to improve their progression-free
survival. By applying U.S. standards and protocols and following
authorized treatment plans in China, we believe we are
differentiated from our competition as we believe we have first
mover’s advantage in an undeveloped industry. In addition, we
have begun to review the feasibility of performing synergistic
U.S. clinical studies.
PRC Operating Licenses
Our
business operations in China are subject to customary regulation
and licensing requirements under regulatory agencies including the
local Administration for Industry and Commerce, General
Administration of Quality Supervision, Inspection and Quarantine
and the State Administration of Taxation, for each of our business
locations. Additionally, our clean room facilities and the use of
reagents is also regulated by local branches of the Ministry of
Environmental Protection. We are in good standing with respect to
each of our business operating licenses.
U.S. Government Regulation
The
health care industry is one of the most highly regulated industries
in the United States. The federal government and individual state
and local governments, as well as private accreditation
organizations, oversee and monitor the activities of individuals
and businesses engaged in the development, manufacture and delivery
of health care products and services. Federal laws and regulations
seek to protect the health, safety and welfare of the citizens of
the U.S., as well as to prevent fraud and abuse associated with the
purchase of health care products and services with federal monies.
The relevant state and local laws and regulations similarly seek to
protect the health, safety and welfare of the states’
citizens and prevent fraud and abuse. Accreditation organizations
help to establish and support industry standards and monitor new
developments.
HCT/P Regulations
Manufacturing
facilities that produce cellular therapies are subject to extensive
regulation by the U.S. FDA. In particular, U.S. FDA regulations set
forth requirements pertaining to establishments that manufacture
human cells, tissues and cellular and tissue-based products
(“HCT/Ps”). Title 21, Code of Federal Regulations, Part
1271 (21 CFR Part 1271) provides for a unified registration and
listing system, donor-eligibility, current Good Tissue Practices
(“cGTP”) and other requirements that are intended to
prevent the introduction, transmission and spread of communicable
diseases by HCT/Ps. While we currently do not conduct these
activities within the United States, these regulations may be
relevant to us if in the future we become subject to them, or if
parallel rules are imposed on our operations in China.
We
currently collect, process, store and manufacture HCT/Ps, including
manufacturing cellular therapy products. We also collect, process
and store HCT/Ps. Accordingly, we comply with cGTP and cGMP
guidelines that apply to biological products. Our management
believes that certain other requirements pertaining to biological
products, such as requirements pertaining to premarket approval, do
not currently apply to us because we are not currently
investigating, marketing or selling cellular therapy products in
the United States. If we change our business operations in the
future, the U.S. FDA requirements that apply to us may also
change.
Certain
state and local governments within the United States also regulate
cell-processing facilities by requiring them to obtain other
specific licenses. Certain states may also have enacted laws and
regulations, or may be considering laws and regulations, regarding
the use and marketing of stem cells or cell therapy products, such
as those derived from human embryos. While these laws and
regulations should not directly affect our business, they could
affect our future business. Presently we are not subject to any of
these state law requirements, because we do not conduct these
regulated activities within the United States.
Pharmaceutical and Biological Products
In the
United States, pharmaceutical and biological products, including
cellular therapies, are subject to extensive pre- and post-market
regulation by the U.S. FDA. The Federal Food, Drug, and Cosmetic
Act (“FD&C Act”) and other federal and state
statutes and regulations, govern, among other things, the research,
development, testing, manufacture, storage, recordkeeping,
approval, labeling, promotion and marketing, distribution,
post-approval monitoring and reporting, sampling and import and
export of pharmaceutical products. Biological products are approved
for marketing under provisions of the Public Health Service Act, or
PHS Act. However, because most biological products also meet the
definition of “drugs” under the FD&C Act, they are
also subject to regulation under FD&C Act provisions. The PHS
Act requires the submission of a biologics license application
(“BLA”) rather than a New Drug Application
(“NDA”) for market authorization. However, the
application process and requirements for approval of BLAs are
similar to those for NDAs, and biologics are associated with
similar approval risks and costs as drugs. Presently we are not
subject to any of these requirements, because we do not conduct
these regulated activities within the United States. However, these
regulations may be relevant to us should we engage in these
activities in the United States in the future.
AVAILABLE INFORMATION
You are
advised to read this Form 10-K in conjunction with other reports
and documents that we file from time to time with the SEC. In
particular, please read our Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K that we file from time to time. We make
available free of charge on our website, www.cellbiomedgroup.com, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as
soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.
RISKS RELATED TO OUR COMPANY
Please
carefully consider the following discussion of significant factors,
events and uncertainties that make an investment in our securities
risky. The events and consequences discussed in these risk factors
could, in circumstances we may not be able to accurately predict,
recognize or control, have a material adverse effect on our
business, growth, reputation, prospects, financial condition,
operating results (including components of our financial results
such as sales and profits), cash flows, liquidity and stock price.
These risk factors do not identify all risks that we face; our
operations could also be affected by factors, events or
uncertainties that are not presently known to us or that we
currently do not consider to present significant risks to our
operations.
We have a limited operating history and expect significant
operating losses for the next few years.
We are
a company with a limited operating history and have incurred
substantial losses and negative cash flow from operations through
the year ended December 31, 2019. Our cash flow from operations has
not and may continue to not be consistent from period to period,
our biopharmaceutical business has not yet generated substantial
revenue and we may continue to incur losses and negative cash flow
in future periods, particularly within the next several
years.
Our biopharmaceutical product development programs are based on
novel technologies and are inherently risky.
We are
subject to the risks of failure inherent in the development of
products based on new biomedical technologies. The novel nature of
these cell-based therapies creates significant challenges in regard
to product development and optimization, manufacturing, government
regulation, third-party reimbursement and market acceptance,
including the challenges of:
●
Educating
medical personnel regarding the application protocol;
●
Sourcing clinical
and commercial supplies for the materials used to manufacture and
process our product candidates;
●
Developing a
consistent and reliable process, while limiting contamination risks
regarding the application protocol;
●
Conditioning
patients with chemotherapy in conjunction with delivering immune
cell therapy treatment, which may increase the risk of adverse side
effects;
●
Obtaining
regulatory approval, as the NMPA, and other regulatory authorities
have limited experience with commercial development of cell-based
therapies, and therefore the pathway to regulatory approval may be
more complex and require more time than we anticipate;
and
●
Establishing sales
and marketing capabilities upon obtaining any regulatory approval
to gain market acceptance of cell therapy.
These
challenges present difficulties in developing and commercializing
products on a timely or profitable basis or at all.
We face risks relating to the cell therapy industry, clinical
development and commercialization.
Cell
therapy is still a developing field and a significant global market
for our services has yet to emerge. Our cellular therapy candidates
are based on novel cell technologies that are inherently risky and
may not be understood or accepted by the marketplace. The current
market principally consists of providing manufacturing of cell- and
tissue-based therapeutic products for clinical trials and
processing of stem cell products for therapeutic
programs.
The
degree of market acceptance of any future product candidates will
depend on a number of factors, including:
●
the clinical safety
and effectiveness of the product candidates, the availability of
alternative treatments and the perceived advantages of the
particular product candidates over alternative
treatments;
●
the relative
convenience and ease of administration of the product
candidates;
●
ethical concerns
that may arise regarding our commercial use of stem cells,
including adult stem cells, in the manufacture of the product
candidates;
●
the frequency and
severity of adverse events or other undesirable side effects
involving the product candidates or the products or product
candidates of others that are cell-based; and
●
the cost of the
products, the reimbursement policies of government and third-party
payors and our ability to obtain sufficient third-party coverage or
reimbursement.
Laws and the regulatory infrastructure governing cellular
biopharmaceuticals in China are relatively new and less established
in comparison to the U.S. and other countries; accordingly,
regulation can be less stable and predictable than desired, and
regulatory changes may disrupt our commercialization
process.
In
December 2017, the Chinese government issued trial guidelines
concerning development and testing of cell therapy products,
including stem cell treatments and immune cell therapies such as
CAR-T cell therapeutics. These trial guidelines are not mandatory
regulation but provide some general principles and basic
requirements for cell therapy products in the areas of
pharmaceutical research, non-clinical research and clinical
research. The cell therapy products provided in the trial guideline
refer to the human-sourced living cell products which are used for
human disease therapy, whose source, operation and clinical trial
process are in line with ethics and whose research and registration
application are in line with regulations on pharmaceutical
administration. The competent authority of pharmaceutical
administration is the NMPA. It is further clarified by the NMPA
that the non-registered clinical trial data would be acceptable for
drug registration on a case by case basis, pending on the
consistency of the samples used for the clinical trial and the drug
applied for registration, the generation process of the clinical
trial data, whether the data is authentic, complete, accurate and
traceable to the source and the inspection outcome of the NMPA on
the clinical trial. Moreover, an applicant of the clinical trial of
the said cell therapy products can propose the phases of the
clinical trial and the trial plan by itself (generally the trial
can be divided into early stage clinical trial phase and
confirmatory clinical trial phase) instead of the application of
the traditional phases I, II and III of a clinical trial. However,
it remains unclear if any of our clinical trials will be offered
U.S. FDA-like Fast Track designation as maintenance therapy in
subjects with advanced cancer who have limited options following
surgery and front-line platinum/taxane chemotherapy to improve
their progression-free survival. We do not know if our animal
studies documentation will be approved to support trials in humans.
We also do not know if our cell lines will be accepted by the PRC
health authorities. These factors could adversely affect the timing
of the clinical trials, the timing of receipt and reporting of
clinical data, the timing of Company-sponsored IND filings, and our
ability to conduct future planned clinical trials, and any of the
above could have a material adverse effect on our
business.
NMPA’s regulations can limit our ability to develop, license,
manufacture and market our products and services.
Some or
all of our operations in China will be subject to oversight and
regulation by the NMPA and MOH. Government regulations, among other
things, cover the inspection of and controls over testing,
manufacturing, safety and environmental considerations, efficacy,
labeling, advertising, promotion, record keeping and sale and
distribution of pharmaceutical products. Such government
regulations may increase our costs and prevent or delay the
licensing, manufacturing and marketing of any of our products or
services. In the event we seek to license, manufacture, sell or
distribute new products or services, we likely will need approvals
from certain government agencies as the future growth and
profitability of any operations in China would be contingent on
obtaining the requisite approvals. There can be no assurance that
we will obtain such approvals.
In
2003, the CFDA implemented new guidelines for the licensing of
pharmaceutical products. All existing manufacturers with licenses
were required to apply for the cGMP certifications. According to
Good Manufacturing Practices for Pharmaceutical Products (revised
edition 2010) or the New GMP Rules promulgated by the Ministry of
Health of the PRC on January 17, 2011 which became effective on
March 1, 2011, all the newly constructed manufacturing facilities
of drug manufacture enterprises in China shall comply with the
requirements of the New GMP Rules, which are stricter than the
original GMP standards.
In
addition, delays, product recalls or failures to receive approval
may be encountered based upon additional government regulation,
legislative changes, administrative action or changes in
governmental policy and interpretation applicable to the Chinese
pharmaceutical industry. Our pharmaceutical activities also may
subject us to government regulations with respect to product prices
and other marketing and promotional-related activities. Government
regulations may substantially increase our costs for developing,
licensing, manufacturing and marketing any products or services,
which could have a material adverse effect on our business,
operating results and financial condition.
The
NMPA and other regulatory authorities in China have implemented a
series of new punitive and stringent measures regarding the
pharmaceuticals industry to redress certain past misconducts in the
industry and certain deficiencies in public health reform policies.
Given the nature and extent of such new enforcement measures, the
aggressive manner in which such enforcement is being conducted and
the fact that newly-constituted local level branches are encouraged
to issue such punishments and fines, there is the possibility of
large scale and significant penalties being levied on
manufacturers. These new measures may include fines, restriction
and suspension of operations and marketing and other unspecified
penalties. This new regulatory environment has added significantly
to the risks of our businesses in China and may have a material
adverse effect on our business, operating results and financial
condition.
Our technology platforms, including our CAR-T, AFP-TCR and TIL,
whether preclinical or clinical, are new approaches to cancer
treatment that present significant challenges.
We have
concentrated our research and development efforts on T cell
immunotherapy technology, and our future success in cancer
treatment is dependent on the successful development of T-cell
immunotherapies in general and our CAR technologies and product
candidates in particular. Our approach to cancer treatment aims to
alter T-cells ex vivo through genetic modification using viruses
designed to reengineer the T-cells to recognize specific proteins
on the surface or inside cancer cells. Because this is a new
approach to cancer immunotherapy and cancer treatment generally,
developing and commercializing our product candidates subjects us
to many challenges.
We
cannot be sure that our T cell immunotherapy and will yield
satisfactory products that are safe and effective, scalable or
profitable. Additionally, because our technology involves the
genetic modification of patient cells ex vivo using viral vector,
we are subject to many of the challenges and risks that gene
therapies face, including regulatory requirements governing gene
and cell therapy products have evolved frequently.
Moreover, public
perception of therapy safety issues, including adoption of new
therapeutics or novel approaches to treatment, may adversely
influence the willingness of subjects to participate in clinical
trials, or if approved, of physicians to subscribe to the novel
treatment mechanics. Physicians, hospitals and third-party payers
often are slow to adopt new products, technologies and treatment
practices that require additional upfront costs and training.
Physicians may not be willing to undergo training to adopt this
novel and personalized therapy, may decide the therapy is too
complex to adopt without appropriate training and may choose not to
administer the therapy. Based on these and other factors, hospitals
and payers may decide that the benefits of this new therapy do not
or will not outweigh its costs.
Our near-term ability to generate significant product revenue
is dependent on the success of one or more of our CAR-T, AFP TCR-T
and TIL product candidates, each of which are at an early-stage of
development and will require significant additional clinical
testing before we can seek regulatory approval and begin commercial
sales.
Our
near-term ability to generate significant product revenue is
highly dependent on the POC
results of our cell therapy assets, and our ability to obtain
regulatory approval of and successfully commercialize these
products. All of these products are in the early stages of
development, and will require additional pre-clinical and clinical
development, regulatory review and approval in each jurisdiction in
which we intend to market the products, substantial investment,
access to sufficient commercial manufacturing capacity and
significant marketing efforts before we can generate any revenue
from product sales. Before obtaining marketing approval from
regulatory authorities for the sale of our product candidates, we
must conduct extensive clinical studies to demonstrate the safety,
purity and potency of the product candidates in humans. We cannot
be certain that any of our product candidates will be successful in
clinical studies and they may not receive regulatory approval even
if they are successful in clinical studies.
Developed products
that encounter safety or efficacy problems, developmental delays,
regulatory issues or other problems, could significantly harm our
development plans and business. Further, competitors who are
developing products with similar technology may experience problems
with their products that could identify problems that would
potentially harm our business.
Our CAR-T, AFP TCR-T and TIL product candidates are biologics and
the manufacture of our product candidates is complex and can lead
to difficulties in production, particularly with respect to process
development or scaling-out of our manufacturing capabilities. Such
difficulties would likely impact our ability to provide supply of
our product candidates for clinical trials or our products for
patients, if approved, resulting in delays or stoppages or in
inability to maintain a commercially viable cost
structure.
Our
immune cell CAR-T, AFP TCR-T and TIL product candidates are
biologics and the process of manufacturing our products is complex,
highly regulated and subject to multiple risks. The manufacture of
our product candidates involves complex processes, including
harvesting T-cells from patients, genetically modifying the T-cells
ex vivo, multiplying the T-cells to obtain the desired dose and
ultimately infusing the T-cells back into a patient’s body.
As a result of the complexities, the cost to manufacture these
biologics in general, and our genetically modified cell product
candidates in particular, is generally higher than the adipose stem
cell, and the manufacturing process is less reliable and is more
difficult to reproduce. Our manufacturing process will be
susceptible to product loss or failure due to logistical issues
associated with the collection of white blood cells, or starting
material, from the patient, shipping such material to the
manufacturing site, shipping the final product back to the patient
and infusing the patient with the product, manufacturing issues
associated with the differences in patient starting materials,
interruptions in the manufacturing process, contamination,
equipment or reagent failure, improper installation or operation of
equipment, vendor or operator error, inconsistency in cell growth
and variability in product characteristics. Even minor deviations
from normal manufacturing processes could result in reduced
production yields, product defects and other supply disruptions. If
for any reason we lose a patient’s starting material or
later-developed product at any point in the process, the
manufacturing process for that patient will need to be restarted
and the resulting delay may adversely affect that patient’s
outcome. If microbial, viral or other contaminations are discovered
in our product candidates or in the manufacturing facilities in
which our product candidates are made, such manufacturing
facilities may need to be closed for an extended period of time to
investigate and remedy the contamination. Because our product
candidates are manufactured for each particular patient, we will be
required to maintain a chain of identity with respect to materials
as they move from the patient to the manufacturing facility,
through the manufacturing process and back to the patient.
Maintaining such a chain of identity is difficult and complex, and
failure to do so could result in adverse patient outcomes, loss of
product or regulatory action including withdrawal of our products
from the market. Further, as product candidates are developed
through preclinical to late stage clinical trials towards approval
and commercialization, it is common that various aspects of the
development program, such as manufacturing methods, are altered
along the way in an effort to optimize processes and results. Such
changes carry the risk that they will not achieve these intended
objectives, and any of these changes could cause our product
candidates to perform differently and affect the results of planned
clinical trials or other future clinical trials.
Although we
continue to develop our own manufacturing facilities to support our
clinical and commercial manufacturing activities, we may, in any
event, never be successful in establishing our own manufacturing
facilities. We have not yet caused our product candidates to be
manufactured or processed on a commercial scale and may not be able
to do so for any of our product candidates. Although our
manufacturing and processing approach is based upon the current
approach undertaken by our third-party research institution
collaborators, we do not have experience in managing the clinical
and commercial manufacturing process, and our process may be more
difficult or expensive than the approaches currently in use. We
will make changes as we work to optimize the manufacturing process,
and we cannot be sure that even minor changes in the process will
not result in significantly different CAR-T, AFP TCR-T, TIL or stem
cells that may not be as safe and effective as the current products
deployed by our third-party research institution collaborators. As
a result of these challenges, we may experience delays in our
clinical development and/or commercialization plans. The
manufacturing risks could delay or prevent the completion of our
clinical trials or the approval of any of our product candidates by
the U.S. FDA, NMPA or other regulatory authorities, result in
higher costs or adversely impact commercialization of our product
candidates. In addition, we will rely on third parties to perform
certain specification tests on our product candidates prior to
delivery to patients. Inappropriately conducted tests and
unreliable data could put patients at risk of serious harm and the
U.S. FDA, NMPA or other regulatory authorities could require
additional clinical trials or place significant restrictions on our
company until deficiencies are remedied. We are not always able to
reduce the cost of goods for our product candidates to levels that
will allow for an attractive return on investment if and when those
product candidates are commercialized.
We rely heavily on third parties to conduct clinical trials on our
product candidates.
We
presently are party to, and expect that we will be required to
enter into, agreements with hospitals and other research partners
to perform clinical trials for us and to engage in sales, marketing
and distribution efforts for our products and product candidates we
may acquire in the future. We are not always able to establish or
maintain third-party relationships on a commercially reasonable
basis. In addition, these third parties may have similar or more
established relationships with our competitors or other larger
customers. Moreover, the loss for any reason of one or more of
these key partners could have a significant and adverse impact on
our business. If we are unable to obtain or retain third-party
sales and marketing vendors on commercially acceptable terms, we
may not be able to commercialize our therapy products as planned
and we may experience delays in or suspension of our marketing
launch. Our dependence upon third parties can adversely affect our
ability to generate profits or acceptable profit margins and our
ability to develop and deliver such products on a timely and
competitive basis.
Outside scientists and their third-party research institutions on
whom we rely for research and development and early clinical
testing of our product candidates may have other commitments or
conflicts of interest, which could limit our access to their
expertise and harm our ability to leverage our technology
platform.
We
currently have limited internal research and development
capabilities in solid tumors. We therefore rely at present on our
third-party research institution collaborators for both
capabilities.
The
outside scientists who conduct the clinical testing of our current
product candidates, and who conduct the research and development
upon which our product candidate pipeline depends, are not our
employees; rather they serve as either independent contractors or
the primary investigators under collaboration that we have with
their sponsoring academic or research institution. Such scientists
and collaborators may have other commitments that would limit their
availability to us. Although our scientific advisors generally
agree not to do competing work, if an actual or potential conflict
of interest between their work for us and their work for another
entity arises, we may lose their services. We are currently
evaluating the feasibility of conducting these trials ourselves or
commencing the trial in the United States or elsewhere. These
factors could adversely affect the timing of the clinical trials,
the timing of receipt and reporting of clinical data, the timing of
Company-sponsored IND filings and our ability to conduct future
planned clinical trials. It is also possible that some of our
valuable proprietary knowledge may become publicly known through
these scientific advisors if they breach their confidentiality
agreements with us, which would cause competitive harm to, and have
a material adverse effect on our business.
We are not always able to maintain our licenses, patents or other
intellectual property and could lose important protections that are
material to continuing our operations and our future
prospects.
We
operate in the highly technical field of development of
regenerative and immune cellular therapies. In addition to patents,
we rely in part on trademark, trade secret and protection to
protect our intellectual properties comprised of proprietary know
how, technology and processes. However, trade secrets are difficult
to protect. We have entered and expect to continue to enter into
confidentiality and intellectual property assignment agreements
with our employees, consultants, outside scientific
collaborators, sponsored researchers, affiliates, other advisors
and potential investors. These agreements generally require that
the other party keep confidential and not disclose to third parties
all confidential information developed by the party or made known
to the party by us. These agreements may also provide that
inventions conceived by the party in the course of rendering
services to us will be our exclusive property. However, these
agreements may be difficult to enforce, or can be breached and may
not effectively protect our intellectual property
rights.
In
addition to contractual measures, we try to protect the
confidential nature of our proprietary information by
compartmentalizing our intellectual properties as well as using
other security measures. Such physical and technology measures may
not provide adequate protection for our proprietary information.
For example, our security measures may not prevent an employee or
consultant with authorized access from misappropriating our trade
secrets and providing them to a competitor, and the recourse we
have available against such misconduct may be inadequate to
adequately protect our interests. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret can be
difficult, expensive and time consuming, and the outcome is
unpredictable. In addition, courts outside the United States may be
less willing to protect trade secrets. Furthermore, others may
independently develop our proprietary information in a manner that
could prevent legal recourse by us. If any of our confidential or
proprietary information, including our trade secrets and know how,
were to be disclosed or misappropriated, or if a competitor
independently developed any such information, our competitive
position could be harmed.
Failure to obtain or maintain patent protection for our products
and product candidates could have a material adverse effect on our
business.
Our
commercial success will depend, in part, on obtaining and
maintaining patent protection for new technologies, product
candidates, products and processes and successfully defending such
patents against third-party challenges. To that end, we file or
acquire patent applications, and have been issued patents that are
intended to cover certain methods and uses relating to stem cells
and cancer immune cell therapies.
The
patent positions of biotechnology companies can be highly uncertain
and involve complex legal, scientific and factual questions and
recent court decisions have introduced significant uncertainty
regarding the strength of patents in the industry. Moreover, the
legal systems of some countries do not favor the aggressive
enforcement of patents and may not protect our intellectual
property rights to the same extent as they would, for instance,
under the laws of the United States. Any of the issued patents we
own or license that are challenged by third parties and held to be
invalid, unenforceable or with a narrower or different scope of
coverage that what we currently believe, could effectively reduce
or eliminate protection we believed we had against competitors with
similar products or technologies. If we ultimately engage in and
lose any such patent disputes, we could be subject to competition
and/or significant liabilities, we could be required to enter into
third-party licenses or we could be required to cease using the
disputed technology or product. In addition, even if such licenses
are available, the terms of any license requested by a third party
could be unacceptable to us.
The
claims of any current or future patents that may issue or be
licensed to us may not contain claims that are sufficiently broad
to prevent others from utilizing the covered technologies and thus
may provide us with little commercial protection against competing
products. Consequently, our competitors may independently develop
competing products that do not infringe our patents or other
intellectual property. To the extent a competitor can develop
similar products using a different chemistry, our patents and
patent applications may not prevent others from directly competing
with us. Product development and approval timelines for certain
products and therapies in our industry can require a significant
amount of time (i.e., many years). As such, it is possible that any
patents that may cover an approved product or therapy may have
expired at the time of commercialization or only have a short
remaining period of exclusivity, thereby reducing the commercial
advantages of the patent. In such case, we would then rely solely
on other forms of exclusivity which may provide less protection to
our competitive position.
Litigation and other proceedings relating to intellectual property
are expensive, time consuming and uncertain, and we are not always
successful in our efforts to protect against infringement by third
parties or defend ourselves against claims of infringement or
otherwise.
To
protect our intellectual property, we may initiate litigation or
other proceedings. In general, intellectual property litigation is
costly, time-consuming, diverts the attention of management and
technical personnel and could result in substantial uncertainty
regarding our future viability, even if we ultimately prevail. Some
of our competitors may be able to sustain the costs of such
litigation or other proceedings more effectively than we can
because of their substantially greater financial resources. The
loss or narrowing of our intellectual property protection, the
inability to secure or enforce our intellectual property rights or
a finding that we have infringed the intellectual property rights
of a third party could limit our ability to develop or market our
products and services in the future or adversely affect our
revenues. Furthermore, any public announcements related to such
litigation or regulatory proceedings could adversely affect the
price of our common stock. Third parties may allege that the
research, development and commercialization activities we conduct
infringe patents or other proprietary rights owned by such parties.
This may turn out to be the case even though we have conducted a
search and analysis of third-party patent rights and have
determined that certain aspects of our research and development and
proposed products activities apparently do not infringe on any
third-party Chinese patent rights. If we are found to have
infringed the patents of a third party, we may be required to pay
substantial damages; we also may be required to seek from such
party a license, which may not be available on acceptable terms, if
at all, to continue our activities. A judicial finding of
infringement or the failure to obtain necessary licenses could
prevent us from commercializing our products, which would have a
material adverse effect on our business, operating results and
financial condition.
We have
in the past, and may in the future, need to initiate litigation or
other proceedings to protect our intellectual property. Third
parties have in the past, and may in the future, initiate
proceedings to challenge our intellectual property rights. For
instance, in April 2018, a company based in Hangzhou, China,
submitted a petition with the PRC Trademark Office to challenge our
ReJoin™ trademark on the basis of a lack of use. We collected
evidence and timely submitted a response to refute the claim and
the State Trademark Office accepted our response, overruling the
Hangzhou company’s application for revoking ReJoin™.
Although we are dedicated to protecting our intellectual property
in such proceedings and believe that we have resources to do so,
there is no assurance that we will successfully defend such notice
in each of these matters. The loss or narrowing of our intellectual
property protection, the inability to secure or enforce our
intellectual property rights or a finding that we have infringed
the intellectual property rights of a third party would likely
limit our ability to develop or market our products and services in
the future or adversely affect our revenues, which would have a
material adverse effect on our business, operating results and
financial condition.
We do not seek to protect our intellectual property rights in all
jurisdictions throughout the world and we may not be able to
adequately enforce our intellectual property rights even in the
jurisdictions where we seek protection.
Filing,
prosecuting and defending patents on our product candidates in all
countries and jurisdictions throughout the world would be
impracticable and cost prohibitive, and our intellectual property
rights in some countries could be less extensive than those in the
People’s Republic of China or the United States, assuming
that rights are obtained in these jurisdiction. In addition, the
laws of some foreign countries may not protect all of our
intellectual properties.
Failure to protect the confidentiality of trade secrets, our
competitive position could be impaired.
A
significant amount of our technology, particularly with respect to
our proprietary manufacturing processes, is unpatented and is held
in the form of trade secrets. Our efforts to protect these trade
secrets are comprised of the use of confidentiality and proprietary
information agreement, physically secured documentation and
knowledge segmentation among our staff. Even so, improper use or
disclosure of our confidential information could occur and in such
cases adequate remedies may be insufficient to protect our
competitive position or may not exist. The inadvertent disclosure
of our trade secrets could also impair our competitive
position.
PRC intellectual property law requires us to compensate our
employees for the intellectual property that they may help to
develop under certain situations.
We have
entered and expect to continue to enter into confidentiality and
intellectual property assignment agreements with most of our
employees, consultants, outside scientific collaborators, sponsored
researchers, affiliates and other advisors. These agreements
generally require that the other party keep confidential and not
disclose to third parties all confidential information developed by
the party or made known to the party by us. These agreements may
also provide that inventions conceived by the party in the course
of rendering services to us will be our exclusive property.
However, these agreements may be difficult to enforce, or can be
breached and may not effectively protect our intellectual property
rights.
The PRC
laws codify a “reward/award” policy which entitles
employees to certain levels of compensation and bonus from their
service invention-creations for which their employers filed for and
were granted patent protection. In the absence of any contractual
understanding, the Implementing Regulations of the Patent Law of
the PRC require a minimum compensation and bonus to such employees
as: (a) bonuses for (i) each invention patent, a one-time reward of
no less than 3,000 RMB, or (ii) each utility model or design
patent, a one-time reward of no less than 1,000 RMB, and (b)
compensation: (i) for each invention patent and utility model, at
least 2% of annual operating profits derived from the use of the
patent during its validity period (or a one-time compensation with
reference to the such ratio), (ii) for each design patent, at least
0.2% of annual operating profits derived from the use of the design
patent during its validity period (or a one-time compensation with
reference to such ratio) and (iii) of at least 10% of royalties
received from the licensing the patent to a third
party.
Although our bylaws
allow us to issue bonuses to our employees, we have not
contractually limited the amount of compensation that we may pay
them for being granted patents for their ideas, developments,
discoveries or inventions. As such, should any of our employees who
have not contractually agreed otherwise seek to enforce these
rights, we may be required to pay the statutorily mandated minimum
to our employees as required by this law. Our product candidates
are still in the clinical trial stage and as of the date of this
annual report, we have not derived any revenue from our
product-related patents. However, if and when we commercialize our
product candidates or therapies, or if we are required to pay our
employees any compensation for patents relating to our technical
services, such compensation could be substantial and may harm our
business prospects, financial condition and results of
operations.
Our technologies are at early stages of discovery and development,
and may not necessarily lead to any commercially acceptable or
profitable products.
We have
yet to develop any therapeutic products that have been approved for
marketing, and we do not expect to become profitable within the
next several years, but rather expect our biopharmaceutical
business to incur additional and increasing operating losses.
Before commercializing any therapeutic product in China, we may be
required to obtain regulatory approval from the MOH, NMPA, local
regulatory authorities and/or individual hospitals, and outside
China from equivalent foreign agencies after conducting extensive
preclinical studies and clinical trials that demonstrate that the
product candidate is safe and effective.
We have
in the past and may in the future elect to delay or discontinue
studies or clinical trials based on unfavorable results. Any
product developed from, or based on, cell technologies may fail
to:
●
survive and persist
in the desired location;
●
provide the
intended therapeutic benefit;
●
engraft or
integrate into existing tissue in the desired manner;
or
●
achieve therapeutic
benefits equal to, or better than, the standard of treatment at the
time of testing.
In
addition, our therapeutic products may cause undesirable side
effects. Results of preclinical research in animals may not be
indicative of future clinical results in humans.
Ultimately if
regulatory authorities do not approve our products or if we fail to
maintain regulatory compliance, we would be unable to commercialize
our products, and our business and results of operations would be
harmed. Even if we do succeed in developing products, we will face
many potential obstacles such as the need to develop or obtain
manufacturing, marketing and distribution capabilities.
Furthermore, because transplantation of cells is a new form of
therapy, the marketplace may not accept any products we may
develop.
Most potential applications of our technology are
pre-commercialization, which subjects us to development and
marketing risks.
We are
in a relatively early stage on the path to commercialization with
many of our products. Successful development and market acceptance
of our products is subject to developmental risks, including
failure to achieve innovative solutions to problems during
development, ineffectiveness, lack of safety, unreliability,
failure to receive necessary regulatory clearances or approvals,
approval by hospital ethics committees and other governing bodies,
high commercial cost, preclusion or obsolescence resulting from
third parties’ proprietary rights or superior or equivalent
products, competition and general economic conditions affecting
purchasing patterns. There is no assurance that we or our partners
will successfully develop and commercialize our products, or that
our competitors will not develop competing products, treatments or
technologies that are less expensive or superior. Failure to
successfully develop and market our products would have a
substantial negative effect on our results of operations and
financial condition.
Market acceptance of new technology such as ours can be difficult
to obtain.
New and
emerging cell therapy and cell banking technologies may have
difficulty or encounter significant delays in obtaining market
acceptance in some or all countries around the world due to the
novelty of our cell therapy and cell banking technologies.
Therefore, the market adoption of our cell therapy and cell banking
technologies may be slow and lengthy with no assurances that the
technology will be successfully adopted. The lack of market
adoption or reduced or minimal market adoption of cell therapy and
cell banking technologies may have a significant impact on our
ability to successfully sell our future product(s) or therapies
within China or in other countries. Our strategy depends in part on
the adoption of the therapies we may develop by state-owned
hospital systems in China, and the allocation of resources to new
technologies and treatment methods is largely dependent upon ethics
committees and governing bodies within the hospitals. Even if our
clinical trials are successful, there can be no assurance that
hospitals in China will adopt our technology and therapies as
readily as we may anticipate.
Future clinical trial results can differ significantly from our
expectations.
While
we have proceeded incrementally with our clinical trials in an
effort to gauge the risks of proceeding with larger and more
expensive trials, we cannot guarantee that we will not experience
negative results with larger and much more expensive clinical
trials than we have conducted to date. Poor results in our clinical
trials could result in substantial delays in commercialization,
substantial negative effects on the perception of our products and
substantial additional costs. These risks are increased by our
reliance on third parties in the performance of many of the
clinical trial functions, including the clinical investigators,
hospitals and other third-party service providers.
Failure of our clinical trials to demonstrate safety and efficacy
to the satisfaction of the relevant regulatory authorities,
including the PRC’s National Medicinal Product Administration
and the Ministry of Health, or failure to otherwise produce
positive results, subjects us to additional costs or delays in
completing the development and commercialization of such product
candidates.
Currently, a
regulatory structure has not been established to standardize the
approval process for products or therapies based on the technology
that exists or that is being developed in our field. Therefore we
must conduct, at our own expense, extensive clinical trials to
demonstrate the safety and efficacy of the product candidates in
humans, and then archive our results until such time as a new
regulatory regime is put in place. If and when this new regulatory
regime is adopted, it may be easier or more difficult to navigate
than CBMG may anticipate, with the following potential
barriers:
●
regulators or
institutional review boards may not authorize us or our
investigators to commence clinical trials or conduct clinical
trials at a prospective trial site;
●
clinical trials of
product candidates may produce negative or inconclusive results,
and we may decide, or regulators may require us, to conduct
additional clinical trials or abandon product development programs
that we expect to be pursuing;
●
the number of
patients required for clinical trials of product candidates may be
larger than we anticipate, enrollment in these clinical trials may
be slower than we anticipate, or participants may drop out of these
clinical trials at a higher rate than we anticipate;
●
third party
contractors may fail to comply with regulatory requirements or meet
their contractual obligations to us in a timely manner or at
all;
●
we might have to
suspend or terminate clinical trials of our product candidates for
various reasons, including a finding that the participants are
being exposed to unacceptable health risks;
●
regulators or
institutional review boards may require that we or our
investigators suspend or terminate clinical research for various
reasons, including noncompliance with regulatory
requirements;
●
the cost of
clinical trials of our product candidates may be greater than
anticipated;
●
we may be subject
to a more complex regulatory process, since cell-based therapies
are relatively new and regulatory agencies have less experience
with them as compared to traditional pharmaceutical
products;
●
the supply or
quality of our product candidates or other materials necessary to
conduct clinical trials of these product candidates may be
insufficient or inadequate; and
●
our product
candidates may have undesirable side effects or other unexpected
characteristics, causing us or our investigators to halt or
terminate the trials.
We may
be unable to generate interest or meaningful revenue in
out-licensing our intellectual property.
The results of preclinical studies do not always correlate with the
results of human clinical trials. In addition, early stage clinical
trial results do not ensure success in later stage clinical trials,
and interim trial results are not necessarily predictive of final
trial results.
To
date, we have not completed the development of any products through
regulatory approval. The results of preclinical studies in animals
may not be predictive of results in a clinical trial. Likewise, the
outcomes of early clinical trials are not necessarily predictive of
the success of later clinical trials. New information regarding the
safety and efficacy of such product candidates can be less
favorable than the data observed to date. AG’s budding
technical service revenue in the Jilin Hospital should not be
relied upon as evidence that later or larger-scale clinical trials
will succeed. In addition, even if the trials are successfully
completed, we cannot guarantee that the NMPA will interpret the
results as we do, and more trials could be required before we
submit our product candidates for approval. To the extent that the
results of the trials are not satisfactory to the NMPA or other
foreign regulatory authorities for support of a marketing
application, approval of our product candidates may be
significantly delayed, or we may be required to expend significant
additional resources, which may not be available to us, to conduct
additional trials in support of potential approval of our product
candidates.
If we encounter difficulties enrolling patients in our clinical
trials, our clinical development activities could be delayed or
otherwise adversely affected.
We may
experience difficulties in patient enrollment in our clinical
trials for a variety of reasons. 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. 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;
●
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 may compete with other clinical
trials for product candidates that are in the same therapeutic
areas as our product candidates, and this competition may 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. Moreover, because our product candidates
represent a departure from more commonly used methods for cancer
treatment, potential patients and their doctors may be inclined to
use conventional therapies, such as chemotherapy and or traditional
Chinese medicine, rather than enroll patients in any future
clinical trial.
Upon
commencing clinical trials, delays in patient enrollment may result
in increased costs or may affect the timing or outcome of the
planned clinical trials, which could prevent completion of these
trials and adversely affect our ability to advance the development
of our product candidates.
We are exposed to general liability, nonclinical and clinical
liability risks which could place a substantial financial burden
upon us, should lawsuits be filed against us.
Our
business exposes us to potential liability risks that are inherent
in the testing, manufacturing and marketing of our therapies and
product candidates. Such claims may be asserted against us at some
point. In addition, the use in our clinical trials of our therapies
and products and the subsequent sale of these therapies or product
candidates by us or our potential collaborators may cause us to
bear a portion of or all product liability risks. We currently have
insurance coverage relating to inventory, property plant and
equipment and office premises. The Company also purchased insurance
covering personal injury, medical expenses and several clinical
trials. However, any claim under such insurance policies may be
subject to certain exceptions, and may not be honored fully, in
part, in a timely manner, or at all, and may not cover the full
extent of liability we may actually face. Therefore, a successful
liability claim or series of claims brought against us could have a
material adverse effect on our business, financial condition and
results of operations.
We currently have no CAR-T, TCR-T, TIL or KOA product marketing and
sales organization and have no experience in marketing such
products. Failure to establish product marketing and sales
capabilities or enter into agreements with third parties to market
and sell our product candidates may result in less product revenue
than expected.
We
currently have no CAR-T, TCR-T, TIL or KOA product sales, marketing
or distribution capabilities and have no experience in marketing
products. We intend to develop an in-house product marketing
organization and sales force, which will require significant
capital expenditures, management resources and time. We will have
to compete with other pharmaceutical and biotechnology companies to
recruit, hire, train and retain marketing and sales
personnel.
If we
are unable or decide not to establish internal sales, marketing and
distribution capabilities, we will pursue collaborative
arrangements regarding the sales and marketing of our products,
however, there can be no assurance that we will be able to
establish or maintain such collaborative arrangements, or if we are
able to do so, that they will have effective sales forces. Any
revenue we receive will depend upon the efforts of such third
parties, which may not be successful. We may have little or no
control over the marketing and sales efforts of such third parties
and our revenue from product sales may be lower than if we had
commercialized our product candidates ourselves. We also face
competition in our search for third parties to assist us with the
sales and marketing efforts of our product candidates. There can be
no assurance that we will be able to develop in-house sales and
distribution capabilities or establish or maintain relationships
with third-party collaborators to commercialize any product in
China or overseas.
Coverage and reimbursement can be limited or unavailable in certain
market segments for our product candidates, which could make it
difficult for us to sell our product candidates
profitably.
Successful sales of
our product candidates, if approved, depend on the availability of
adequate coverage and reimbursement from third-party payers. In
addition, because our product candidates represent new approaches
to the treatment of cancer, we cannot accurately estimate the
potential revenue from our product candidates.
Patients who are
provided medical treatment for their conditions generally rely on
third-party payers to reimburse all or part of the costs associated
with their treatment. Adequate coverage and reimbursement from
governmental healthcare programs and commercial payers are critical
to new product acceptance. In China, government authorities decide
which drugs and treatments they will cover and the amount of
reimbursement. Obtaining coverage and reimbursement approval of a
product from a government or other third-party payer is a
time-consuming and costly process that could require us to provide
to the payer supporting scientific, clinical and cost-effectiveness
data for the use of our products. Even if we obtain coverage for a
given product, the resulting reimbursement payment rates will not
necessarily be adequate for us to achieve or sustain profitability
or may require co-payments that patients find unacceptably high.
Patients are unlikely to use our product candidates unless coverage
is provided and reimbursement is adequate to cover a significant
portion of the cost of our product candidates. Obtaining approval
in one or more jurisdictions outside of China for our product
candidates will subject us to rules and regulations in those
jurisdictions. In some foreign countries, particularly those in the
EU, the pricing of biologics is subject to governmental control. In
these countries, pricing negotiations with governmental authorities
can take considerable time after obtaining marketing approval of a
product candidate. In addition, market acceptance and sales of our
product candidates will depend significantly on the availability of
adequate coverage and reimbursement from third-party payers for our
product candidates and may be affected by existing and future
health care reform measures. The continuing efforts of the
government, insurance companies, managed care organizations and
other payers of healthcare services to contain or reduce costs of
healthcare and/or impose price controls may adversely
affect:
●
the demand for our
product candidates, if we obtain regulatory approval;
●
our ability to set
a price that we believe is fair for our products;
●
our ability to
generate revenue and achieve or maintain
profitability;
●
the level of taxes
that we are required to pay; and
●
the availability of
capital.
Any
reduction in reimbursement from any government programs may result
in a similar reduction in payments from private payers, which may
adversely affect our future profitability.
Our product candidates sometimes cause undesirable side effects or
have other properties that could interrupt our clinical
development, prevent or delay regulatory approval, and limit our
commercial value or result in significant negative
consequences.
Undesirable or
unacceptable side effects caused by our product candidates could
cause us or regulatory authorities to delay, suspend or stop
clinical trials and could result in the delay or denial of
regulatory approval by the regulatory authorities. Results of our
trials could reveal unacceptable severe adverse effects or
unexpected characteristics.
There
have been reported patient deaths in immune cell therapies as a
result of factors comprised of cytokine release syndrome and
neurotoxicity. Immune Cell therapy treatment-related adverse side
effects could also affect patient recruitment or the ability of
enrolled subjects to complete the trial or result in potential
liability claims. In addition, these side effects may not be
recognized or properly managed by the treating medical staff, as
medical personnel do not normally encounter in the general patient
population toxicities resulting from personalized immune cell
therapy. We plan to conduct training for the medical personnel
using immune cell therapy to understand the adverse side effect
profile for our clinical trials and upon any commercialization of
any immune cell product candidates. Inability of the medical
personnel in recognizing or managing immune cell therapy’s
potential adverse side effects could result in patient deaths. Any
of these occurrences may harm our business, financial condition and
prospects significantly.
Our manufacturing facilities are subject to extensive government
regulation, and existing or future regulations may adversely affect
our current or future operations, increase our costs of operations,
or require us to make additional capital expenditures.
Environmental
advocacy groups and regulatory agencies in China have been focusing
considerable attention on our industry’s potential role in
climate change. Stringent government safety, environmental and
biohazardous materials disposal regulations at the city, provincial
and local level may have substantial impact on our business and our
third-party service providers. A number of complex laws, rules,
orders and interpretations govern environmental protection, health,
safety, land use, zoning, transportation and related matters. The
adoption of laws and regulations to implement controls of
bio-hazardous material disposal and environmental compliance,
including the imposition of fees or taxes, could adversely affect
the operations with which we do business. Among other things,
timeliness in navigating the compliance of these regulations may
restrict our operations, our third-party service providers’
operations and adversely affect our financial condition, results of
operations and cash flows by imposing conditions including, but not
limited to new permits requirement, limitations or bans on disposal
or transportation of certain biohazardous materials or certain
categories of materials. The Company has completed the legal
procedure of construction completion acceptance of environmental
protection facilities for its new Zhangjiang facility for R&D
and clinical status in January 2019. Subsequently, the Company has
launched the Environment Impact Assessment (EIA) for its upcoming
production, and the government approval of the EIA report is
estimated to be obtained in February 2020. The Company has
terminated its lease in the Beijing facility and is updating the
environmental protection permits for its Shanghai
facility.
Technological and medical developments or improvements in
conventional therapies could render the use of cell therapy and our
services and planned products obsolete.
Advances in other
treatment methods or in disease prevention techniques could
significantly reduce or entirely eliminate the need for our cell
therapy services, planned products and therapeutic efforts. There
is no assurance that cell therapies will achieve the degree of
success envisioned by us in the treatment of disease. Nor is there
any assurance that new technological improvements or techniques
will not render obsolete the processes currently used by us, the
need for our services or our planned products. Additionally,
technological or medical developments may materially alter the
commercial viability of our technology or services, and require us
to incur significant costs to replace or modify equipment in which
we have a substantial investment. We are focused on novel cell
therapies, and if this field is substantially unsuccessful, this
could jeopardize our success or future results. The occurrence of
any of these factors may have a material adverse effect on our
business, operating results and financial condition.
We face significant competition from other Chinese biotechnology
and pharmaceutical companies, and our operating results will suffer
if we fail to compete effectively.
There
is intense competition and rapid innovation in the Chinese cell
therapy industry, and in the cancer immunotherapy space in
particular. Our competitors may be able to develop other herbal
medicine, compounds or drugs that are able to achieve similar or
better results. Our potential competitors are comprised of
traditional Chinese medicine companies, major multinational
pharmaceutical companies, established and new biotechnology
companies, specialty pharmaceutical companies, state-owned
enterprises, universities and other research institutions. Many of
our competitors have substantially greater scientific, financial,
technical and other resources, such as larger research and
development staff and experienced marketing and manufacturing
organizations and well-established sales forces. Smaller or
early-stage companies may also prove to be significant competitors,
particularly through collaborative arrangements with large,
established companies or when they are well funded by venture
capitals. Mergers and acquisitions in the biotechnology and
pharmaceutical industries may result in even more resources being
concentrated in our competitors. Competition may increase further
as a result of advances in the commercial applicability of
technologies and greater availability of capital for investment in
these industries. Our competitors, either alone or with
collaborative partners, may succeed in developing, acquiring or
licensing on an exclusive basis drug or biologic products that are
more effective, safer, more easily commercialized or less costly
than our product candidates or may develop proprietary technologies
or secure patent protection that we may need for the development of
our technologies and products. We believe the key competitive
factors that will affect the development and commercial success of
our product candidates are efficacy, safety, tolerability,
reliability and convenience of use, price and
reimbursement.
Even if
we obtain regulatory approval of our product candidates, the
availability and price of our competitors’ products could
limit the demand and the price we are able to charge for our
product candidates. We may not be able to implement our business
plan if the acceptance of our product candidates is inhibited by
price competition or the reluctance of doctors to switch from
existing methods of treatment to our product candidates, or if
doctors switch to other new drug or biologic products or choose to
reserve our product candidates for use in limited
circumstances.
We rely on our share-based compensation programs and other
competitive benefits to attract or retain key employees for our
business.
To be
competitive, we must attract, retain and motivate executives and
other key employees. Hiring and retaining qualified executives,
scientists, technical staff and professional staff are critical to
our business, and competition for experienced employees can be
intense. To help attract, retain and motivate key employees, we use
share-based and other performance-based incentive awards such as
stock options, restricted stock units (RSUs) and cash bonuses. If
our share-based or other compensation programs cease to be viewed
as competitive and valuable benefits, our ability to attract,
retain and motivate key employees could be weakened, which could
harm our results of operations.
There is a scarcity of experienced professionals in the field of
cell therapy and we face risks related to retaining key officers or
employees or hiring new key officers or employees needed to
implement our business strategy and develop our products. Failure
to retain or hire key officers or employees could prevent us from
growing our biopharmaceutical business or implementing our business
strategy, and may materially and adversely affect the
Company.
Given
the specialized nature of cell therapy and the fact that it is a
young field, there is an inherent scarcity of experienced personnel
in the field. The Company is substantially dependent on the skills
and efforts of current senior management for their management,
operations and the implementation of their business strategy. As a
result of the difficulty in locating qualified new management, the
loss or incapacity of existing members of management or
unavailability of qualified management or as replacements for
management who resign or are terminated could adversely affect the
Company’s operations. The future success of the Company also
depends upon our ability to attract and retain additional qualified
personnel (including medical, scientific, technical, commercial,
business and administrative personnel) necessary to support our
anticipated growth, develop our business, perform our contractual
obligations to third parties and maintain appropriate licensure, on
acceptable terms. There can be no assurance that we will be
successful in attracting or retaining personnel required by us to
continue to grow our operations. The loss of a key employee, the
failure of a key employee to perform in his or her current position
or our inability to attract and retain skilled employees, as
needed, could result in our inability to grow our biopharmaceutical
business or implement our business strategy, or may have a material
adverse effect on our business, financial condition and operating
results.
Failure to successfully integrate our acquired businesses,
operations and assets in the expected time frame may adversely
affect the combined Company’s future results.
We
believe that our immuno-oncology acquisitions will result in
certain benefits, including certain manufacturing, sales and
distribution and operational efficiencies. However, to realize
these anticipated benefits, our existing business and the acquired
technologies must be successfully combined. We are not always able
to effectively integrate the acquired technologies into our
organization, make the acquired technologies profitable, or succeed
in managing the acquired technologies. The process of integration
of acquired technologies subjects us to a number of risks,
including:
●
Failure to
successfully manage relationships with hospitals, patients and
suppliers;
●
Demands on
management related to the increase in complexity of the company
after the acquisition;
●
Diversion of
management and scientists’ attention;
●
Potential
difficulties integrating and harmonizing large scale multi-site
clinical trials;
●
Difficulties in the
assimilation and retention of employees;
●
Exposure to legal
claims for activities of the acquired technologies;
and
●
Incurrence of
additional expenses in connection with the integration
process.
If the
acquired technologies are not successfully integrated into our
company, our business, financial condition and results of
operations could be materially adversely affected, as well as our
professional reputation. Furthermore, failure to successfully
integrate the acquired technologies, or delays in implementing
clinical trials using the acquired technologies, may result in the
anticipated benefits of the acquisition not being realized fully or
at all or may take longer to realize than expected. Successful
integration of the acquired technologies will depend on our ability
to manage large scale cancer clinical trials and to realize
opportunities in monetizing these technologies.
We will need to grow the size of our organization and face risks
related to managing this growth.
As our
development and commercialization plans and strategies develop, and
as we continue to expand operation as a public company, we expect
to grow our personnel needs in the managerial, operational, sales,
marketing, financial and other departments. Future growth would
impose significant added responsibilities on members of management,
including:
●
identifying,
recruiting, integrating, maintaining and motivating additional
employees;
●
managing our
internal development efforts effectively, including the clinical
trials and NMPA review process for our product candidates, while
complying with our contractual obligations to contractors and other
third parties; and
●
improving our
operational, financial and management controls, reporting systems
and procedures.
Our
future financial performance and our ability to commercialize our
product candidates will depend, in part, on our ability to
effectively manage any future growth, and our management may also
have to divert a disproportionate amount of its attention away from
day-to-day activities in order to devote a substantial amount of
time to managing these growth activities.
We
currently rely, and for the foreseeable future will continue to
rely, in substantial part on certain independent organizations such
as contract research organizations and hospitals to provide certain
services comprised of regulatory approval and clinical management.
There can be no assurance that the services of independent
organizations will continue to be available to us on a timely basis
when needed, or that we can find qualified replacements. In
addition, if we are unable to effectively manage our outsourced
activities or if the quality or accuracy of the services provided
by the independent organizations is compromised for any reason, our
clinical trials may be extended, delayed or terminated, and we may
not be able to obtain regulatory approval of our product candidates
or otherwise advance our business. If we are not able to
effectively expand our organization by hiring new employees, we may
not be able to successfully implement the tasks necessary to
further develop and commercialize our product candidates and,
accordingly, may not achieve our research, development and
commercialization goals.
We often form or seek strategic alliances or enter into licensing
arrangements but do not always realize the benefits of such
alliances or licensing arrangements.
We
often form or seek strategic alliances, create joint ventures or
collaborations or enter into licensing arrangements with third
parties, including but not limited to our collaboration with
Novartis, that we believe will complement or augment our
development and commercialization efforts with respect to our
product candidates and any future product candidates that we may
develop. These relationships often require us to incur nonrecurring
and other charges, increase our near and long-term expenditures,
issue securities that dilute our existing stockholders or disrupt
our management and business. In addition, we face significant
competition in seeking appropriate strategic partners and the
negotiation process is time-consuming and complex. Moreover, we are
not always successful in our efforts to establish a strategic
partnership or other alternative arrangements for our product
candidates because they may be deemed to be at too early of a stage
of development for collaborative effort and third parties may not
view our product candidates as having the requisite potential to
demonstrate safety and efficacy. When we license products or
businesses, we may not be able to realize the benefit of such
transactions if we are unable to successfully integrate them with
our existing operations and company culture. We cannot be certain
that, following a strategic transaction or license, we will achieve
the revenue or specific net income that justifies such transaction.
Any delays in entering into new strategic partnership agreements
related to our product candidates could delay the development and
commercialization of our product candidates in certain geographies
for certain indications, which would harm our business prospects,
financial condition and results of operations.
Among
other challenges in connection with our strategic alliances and
licensing transactions, our partnership with Novartis may not be
successful or profitable. We face risks from unfavorable
regulatory, technical or market developments. While our
manufacturing capabilities on CAR-T products set us apart from many
of our competitors, we have yet to commercialize any of our drug
candidates and have yet to generate any revenue from the sale of
our products, and there is no assurance that we will be able to
generate revenue or net profit from our Kymriah® sale to
Novartis. There is no assurance that we can successfully complete
the transfer of Kymriah® to our
manufacturing facility and receive regulatory approval to start
commercial production. We cannot be assured that after a drug
candidate is eventually made available for sale that it will gain
market acceptance from physicians, patients, third-party payers and
others in the medical community. Novartis has the right to
unilaterally terminate our agreement for any reason or no reason.
Market acceptance after the drug approval may cause us not be able
to generate sufficient revenue to recuperate our investment in the
partnership. Any unfavorable developments before or after
Kymriah® is
commercialized in China may have a material adverse effect on our
business. Any unfavorable regulatory, technical or market
development could render the partnership with Novartis
untenable.
We, our strategic partners and our customers conduct business in a
heavily regulated industry. Failure to comply with applicable
current and future laws and government regulations could adversely
affect our business and financial results could be adversely
affected.
The
healthcare industry is one of the most highly regulated industries.
Federal governments, individual state and local governments and
private accreditation organizations may oversee and monitor all the
activities of individuals and businesses engaged in the delivery of
health care products and services. Therefore, current laws, rules
and regulations could directly or indirectly negatively affect our
ability and the ability of our strategic partners and customers to
operate each of their businesses.
In addition,
as we expand into other parts of the world, we will need to comply
with the applicable laws and regulations in such foreign
jurisdictions. We have not yet thoroughly explored the requirements
or feasibility of such compliance. It is possible that we may not
be permitted to expand our business into one or more foreign
jurisdictions.
Although we intend
to conduct our business in compliance with applicable laws and
regulations, the laws and regulations affecting our business and
relationships are complex, and many aspects of such relationships
have not been the subject of judicial or regulatory interpretation.
Furthermore, the cell therapy industry is the topic of significant
government interest, and thus the laws and regulations applicable
to us and our strategic partners and customers and to their
business are subject to frequent change and/or reinterpretation and
there can be no assurance that the laws and regulations applicable
to us and our strategic partners and customers will not be amended
or interpreted in a manner that adversely affects our business,
financial condition or operating results.
We anticipate that we will need substantial additional financing in
the future to continue our operations; if we are unable to raise
additional capital, as and when needed, or on acceptable terms, we
may be forced to delay, reduce or eliminate one or more of our
product or therapy development programs, cell therapy initiatives
or commercialization efforts and our business will be
harmed.
Our
current operating plan will require significant levels of
additional capital to fund, among other things, the continued
development of our cell therapy product or therapy candidates and
the operation and expansion of our manufacturing operations to our
clinical development activities.
We plan
to continue to launch several new Immune Oncology clinical trials
and continue to advance our KOA clinical trials in China. We also
plan to conduct solid tumor clinical trials in the United States.
Successful trials will require significant additional investment
capital over a multiyear period in order to conduct subsequent
phases, gain approval for these therapies by the NMPA and the U.S.
FDA, and commercialize these therapies. Subsequent phases may be
larger and more expensive than the initial trials. In order to
raise the necessary capital, we will need to raise additional money
in the capital markets, enter into collaboration agreements with
third parties or undertake some combination of these strategies. If
we are unsuccessful in these efforts, we may have no choice but to
delay or abandon the trials.
The
amount and timing of our future capital requirements also will
likely depend on many other factors, including:
●
the scope,
progress, results, costs, timing and outcomes of our other cell
therapy product or therapy candidates;
●
our ability to
enter into, or continue, any collaboration agreements with third
parties for our product or therapy candidates and the timing and
terms of any such agreements;
●
the timing of and
the costs involved in obtaining regulatory approvals for our
product or therapy candidates, a process which could be
particularly lengthy or complex given the lack of precedent for
cell therapy products in China; and
●
the costs of
maintaining, expanding and protecting our intellectual property
portfolio, including potential litigation costs and
liabilities.
To fund
clinical studies and support our future operations, we would likely
seek to raise capital through a variety of different public and/or
private financings vehicles. This could include, but not be limited
to, the use of loans or issuances of debt or equity securities in
public or private financings. Raising capital through the sale of
equity, or securities convertible into equity, would result in
dilution to our then existing stockholders. Servicing the interest
and principal repayment obligations under debt facilities could
divert funds that would otherwise be available to support clinical
or commercialization activities. In certain cases, we also may seek
funding through collaborative arrangements, that would likely
require us to relinquish certain rights to our technology or
product or therapy candidates and share in the future revenues
associated with the partnered product or therapy.
Ultimately, we may
be unable to raise capital or enter into collaborative
relationships on terms that are acceptable to us, if at all. Our
inability to obtain necessary capital or financing to fund our
future operating needs could adversely affect our business, results
of operations and financial condition.
Failure to achieve and maintain effective internal controls in
accordance with Section 404 of the Sarbanes-Oxley Act could have a
material adverse effect on our business and operating
results.
It may
be time consuming, difficult and costly for us to develop and
implement the additional internal controls, processes and reporting
procedures required by the Sarbanes-Oxley Act. We may need to hire
additional financial reporting, internal auditing and other finance
staff in order to develop and implement appropriate additional
internal controls, processes and reporting
procedures.
If we
fail to comply in a timely manner with the requirements of Section
404 of the Sarbanes-Oxley Act regarding internal controls over
financial reporting or to remedy any material weaknesses in our
internal controls that we may identify, such failure could result
in material misstatements in our financial statements, cause
investors to lose confidence in our reported financial information
and have a negative effect on the trading price of our common
stock.
In
connection with our ongoing assessment of the effectiveness of our
internal control over financial reporting, we may discover
“material weaknesses” in our internal controls as
defined in standards established by the Public Company Accounting
Oversight Board (“PCAOB”). A material weakness is a
significant deficiency, or combination of significant deficiencies,
that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not
be prevented or detected. The PCAOB defines “significant
deficiency” as a deficiency that results in more than a
remote likelihood that a misstatement of the financial statements
that is more than inconsequential will not be prevented or
detected.
During
the year ended December 31, 2015, we made improvements in our
internal control and have remediated the deficiencies identified in
2014. In the event that future material weaknesses are identified,
we will attempt to employ qualified personnel and adopt and
implement policies and procedures to address any material
weaknesses we identify. However, the process of designing and
implementing effective internal controls is a continuous effort
that requires us to anticipate and react to changes in our business
and the economic and regulatory environments and to expend
significant resources to maintain a system of internal controls
that is adequate to satisfy our reporting obligations as a public
company.
Any
failure to complete our assessment of our internal control over
financial reporting, to remediate any material weaknesses that we
may identify or to implement new or improved controls, or
difficulties encountered in their implementation, could harm our
operating results, cause us to fail to meet our reporting
obligations or result in material misstatements in our financial
statements. Any such failure could also adversely affect the
results of the periodic management evaluations of our internal
controls and, in the case of a failure to remediate any material
weaknesses that we may identify, would adversely affect the annual
management reports regarding the effectiveness of our internal
control over financial reporting that are required under Section
404 of the Sarbanes-Oxley Act. Inadequate internal controls could
also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading
price of our common stock.
The Company’s revenue may become subject to tightened
regulation that may affect the Company’s financial
condition.
Currently we are
not generating any meaningful revenue, which revenue is currently
primarily comprised of technical services relating to the
preparation of subset T-Cell and clonality assay platform
technology for treatment of cancers. Nonetheless our revenue may be
subject to the risk of progressive regulatory actions by the PRC
government. From time to time there may also be adverse publicity
relating to the practice of cell therapy treatments in China, which
due to the sensitive and experimental nature of the treatment, may
trigger further governmental scrutiny. Any progressive regulatory
action in China arising out of such scrutiny may adversely affect
the Company’s financial condition or cash flows.
Our business activities for fiscal 2020 are expected to
be adversely affected by the recent coronavirus outbreak in
China.
In
December 2019, a novel strain of coronavirus was reported to have
surfaced in Wuhan, China. The Wuhan coronavirus, or 2019-nCoV,
currently appears to be spreading at a fast rate, indicating its
highly contagious nature. The number of confirmed cases in China
has been steadily increasing, with the mortality rate around 2.1%.
The coronavirus also displayed longer incubation period and is
contagious before symptoms appear. In reaction towards the outbreak
of this new contagious disease, an increasing number of countries
imposed travel suspensions to/from China following the World Health
Organization’s “public health emergency of
international concern” (PHEIC) announcement on January 30,
2020. For the month after the outbreak of the coronavirus, domestic
business activities in China had been disrupted by a series of
emergency quarantine measures taken by the government.
Emergency
quarantine measures and travel restrictions cause business
disruptions across China, which we expect to seriously slow down
our business operation, which would harm our financial condition
and increase our costs and expenses. The evolution of quarantine
measures and travel restrictions will likely result in negative
consequences for our process development and clinical studies in
China. Our business operations, and those of our third-party
research institution collaborators, suppliers and other
contractors, are subject to the business interruptions arising from
these measures. Business disruptions across China would also
negatively affect the sources and availability of raw material,
which are essential to the operation of our business. Damage or
extended periods of interruption to our corporate, development,
research or manufacturing facilities due to this coronavirus
outbreak will likely cause us to cease or delay process development
or clinical studies of some or all of our pipeline drug candidates.
In addition, our business is subject to risks associated with the
global spread of the coronavirus as we operate in both China and
the U.S. Our process development of drug candidates involves
traveling of key personnel between China and the U.S. on a frequent
and regular basis, which has been disrupted due to travel
restrictions and cancellation of flights. Accordingly, our business
and financial results in the future will likely be adversely
affected due to significant adverse development of the coronavirus
globally.
The
extent to which the coronavirus negatively impacts our business
results is highly uncertain and cannot be accurately predicted. We
believe that the coronavirus outbreak and the measures taken to
control it may have a large negative impact on economic activities
in China. A majority part of our business operations is conducted
in China and we have strategic partnership with Chinese partners or
partners’ Chinese operations with regard to our supply chain,
clinical development and pipeline projects, which are all expected
to be negatively affected by the coronavirus outbreak. The
magnitude of this negative effect on the continuity of our business
operation and supply chains in China remains uncertain. These
uncertainties impede our ability to conduct our daily operations
and could materially and adversely affect our business, financial
condition and results of operations.
Our clinical development activities for fiscal 2020 are
expected to be adversely affected by the recent coronavirus
outbreak in China.
Our
investigator has initiated clinical trials on our drug candidates
that have been negatively affected by the emergency quarantine
measures adopted by the Chinese government, which include holiday
extension, travel restrictions and cancellation of major events
nationwide. Disruptions or restrictions on our ability to travel or
to conduct clinical trials, as well as temporary closures of our
facilities or the facilities of our clinical trials partners and
their contract manufacturers, would negatively impact our clinical
development activities in China. We have invested a significant
portion of our efforts and financial resources in the development
of clinical-stage drug candidates. We partially rely on our
third-party institution collaborators, such as hospitals for
conducting clinical trials of our drug candidates, which may be
affected by the emergency measures. The timely completion of our
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 trial until its conclusion. We may
experience difficulties in patient enrollment due to
government-imposed travel restrictions, limited access to public
venues and patients’ unwillingness to visit hospitals for
fear of attracting the coronavirus. Such difficulties would likely
slow enrollment significantly in, and completion of, our clinical
trials (which are mostly conducted on-site in hospitals), as well
as completion of pre-clinical studies.
The
duration of the business disruption, reduced patient enrollment and
related operational impact cannot be reasonably estimated at this
time but are expected to materially affect our clinical development
activities. A significant outbreak of contagious diseases in the
human population could result in a widespread health crisis that
could adversely affect the economy and financial markets of China
and may escalate globally, resulting in significant clinical trial
or regulatory delays, which may also increase our development costs
and could materially and adversely affect our clinical development
activities.
RISKS RELATED TO OUR STRUCTURE
Our operations are subject to risks associated with emerging
markets.
The
Chinese economy is not well established and is only recently
emerging and growing as a significant market for consumer goods and
services. Accordingly, there is no assurance that the market will
continue to grow. Perceived risks associated with investing in
China, or a general disruption in the development of China’s
markets could materially and adversely affect the business,
operating results and financial condition of the
Company.
Investors can face difficulty enforcing federal securities laws or
other legal rights because some of our assets are currently located
in the PRC.
A
portion of our assets are located in the PRC. As a result, it can
be difficult for investors in the U.S. to enforce their legal
rights, to effect service of process upon certain of our directors
or officers or to enforce judgments of U.S. courts predicated upon
civil liabilities and criminal penalties against any of our
directors and officers located outside of the U.S.
The PRC government has the ability to exercise significant
influence and control over our operations in China.
In
recent years, the PRC government has implemented measures for
economic reform, the reduction of state ownership of productive
assets and the establishment of corporate governance practices in
business enterprises. However, many productive assets in China are
still owned by the PRC government. In addition, the government
continues to play a significant role in regulating industrial
development by imposing business regulations. It also exercises
significant control over the country’s economic growth
through the allocation of resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or
companies.
There
can be no assurance that China’s economic, political or legal
systems will not develop in a way that becomes detrimental to our
business, results of operations and financial condition. Our
activities may be materially and adversely affected by changes in
China’s economic and social conditions and by changes in the
policies of the government, such as measures to control inflation,
changes in the rates or method of taxation and the imposition of
additional restrictions on currency conversion.
Additional risks we
face in connection with having operations in China that may
adversely affect our business and results of operations
include:
●
our inability to
enforce or obtain a remedy under any material
agreements;
●
PRC restrictions on
foreign investment that could impair our ability to conduct our
business or acquire or contract with other entities in the
future;
●
restrictions on
currency exchange that may limit our ability to use cash flow most
effectively or to repatriate our investment;
●
fluctuations in
currency values;
●
cultural, language
and managerial differences that may reduce our overall performance;
and
●
political
instability in China.
Cultural, language and managerial differences can adversely affect
our overall performance.
We have
experienced difficulties in assimilating cultural, language and
managerial differences with our subsidiaries in China. Personnel
issues have developed in consolidating management teams from
different cultural backgrounds. In addition, language translation
issues from time to time have caused miscommunications. These
factors make the management of our operations in China more
difficult. Difficulties in coordinating the efforts of our
U.S.-based management team with our China-based management team may
cause our business, operating results and financial condition to be
materially and adversely affected.
We face risks related to enforcing our rights in China given
certain features of its legal and judicial system.
China’s legal
and judicial system can negatively impact foreign investors. The
legal system in China is evolving rapidly, and enforcement of laws
is inconsistent. Obtaining swift and equitable enforcement of laws
or enforcement of the judgment of one court by a court of another
jurisdiction is not always possible. China’s legal system is
based on civil law or written statutes and a decision by one judge
does not set a legal precedent that must be followed by judges in
other cases. In addition, the interpretation of Chinese laws can
vary to reflect domestic political changes.
Since a
significant portion of our operations are presently based in China,
service of process on our business and officers can be difficult to
effect within the United States. Also, some of our assets are
located outside the United States and a judgment obtained in the
United States against us is not always enforceable outside the
United States.
There
are substantial uncertainties regarding the interpretation and
application to our business of PRC laws and regulations, since many
of the rules and regulations that companies face in China are not
made public. The effectiveness of newly enacted laws, regulations
or amendments may be delayed, resulting in detrimental reliance by
foreign investors. New laws and regulations that apply to future
businesses may be applied retroactively to existing businesses. We
cannot predict what effect the interpretations of existing or new
PRC laws or regulations may have on our
business.
The inability to utilize our assets in China can result in
losses.
The
Company’s Shanghai and Wuxi laboratory facilities were
originally intended for stem cell research and development, but
have been equipped to provide comprehensive cell manufacturing,
collection, processing and storage capabilities to provide cells
for clinical trials. If the Company does determines not to renew
the lease due to limitations on its utility under the new
regulatory initiatives in China or otherwise, the Company will be
subject to certain expenses in connection with returning the
premises to the landlord.
Restrictions on currency exchange can limit our ability to utilize
our cash flow effectively.
Our
interests in China will be subject to China’s rules and
regulations on currency conversion. In particular, the initial
capitalization and operating expenses of the VIE (CBMG Shanghai)
are funded by our WFOE, Cellular Biomedicine Group Ltd. (Wuxi). In
China, the State Administration for Foreign Exchange (the
“SAFE”) regulates the conversion of the Chinese
Renminbi into foreign currencies and the conversion of foreign
currencies into Chinese Renminbi. Foreign investment enterprises
are allowed to open currency accounts including a “basic
account” and “capital account.” However,
conversion of currency in the “capital account,”
including capital items such as direct investments, loans and
securities, require approval of the SAFE even though according
to the Notice of the State Administration of Foreign Exchange on
Reforming the Administration of the Settlement of Foreign Exchange
Capital of Foreign-invested Enterprise promulgated on April 8,
2015, or the SAFE Notice 19, and Notice of the State Administration
of Foreign Exchange on Reforming and Regulating the Policies for
the Administration of Settlement of Foreign Exchange under Capital
Accounts promulgated on June 9, 2016, or the SAFE Notice 16,
foreign-invested enterprises are able to settle foreign exchange
capital at their discretion, Chinese banks restricts foreign
currency conversion for fear of “hot money” going into
China and may continue to limit our ability to channel funds to the
VIE entities for their operation. There can be no assurance that
the PRC regulatory authorities will not impose further restrictions
on the convertibility of the Chinese currency. Future restrictions
on currency exchanges can limit our ability to use our cash flow
for the distribution of dividends to our stockholders or to fund
operations we may have outside of China, which could materially
adversely affect our business and operating results.
Fluctuations in the value of the Renminbi relative to the U.S.
dollar can affect our operating results.
We
prepare our financial statements in U.S. dollars, while our
underlying businesses operate in two currencies, U.S. dollars and
Chinese Renminbi. We anticipate our Chinese operations will conduct
their operations primarily in Renminbi and our U.S. operations will
conduct their operations in dollars. At the present time, we do not
expect to have significant cross currency transactions that will be
at risk to foreign currency exchange rates. Nevertheless, the
conversion of financial information using a functional currency of
Renminbi will be subject to risks related to foreign currency
exchange rate fluctuations. The value of Renminbi against the U.S.
dollar and other currencies may fluctuate and is affected by, among
other things, changes in China’s political and economic
conditions and supply and demand in local markets. As we have
significant operations in China, and will rely principally on
revenues earned in China, any significant revaluation of the
Renminbi can materially and adversely affect our financial results.
For example, to the extent that we need to convert U.S. dollars we
receive from an offering of our securities into Renminbi for our
operations, appreciation of the Renminbi against the U.S. dollar
would likely have a material adverse effect on our business,
financial condition and results of operations.
Future foreign investments in CBMG that are subject to review by
the Committee on Foreign Investment in the United States (CFIUS)
may prevent, delay, limit or otherwise adversely affect any
proposed investment.
The
Foreign Investment Risk Review Modernization Act (FIRRMA) enacted
in August 2018, significantly expanded the jurisdiction of CFIUS,
permitting CFIUS to review certain non-controlling investments by
foreign persons in U.S. businesses. In November 2018, the U.S.
Department of the Treasury initiated a pilot program to implement
this new authority. Under the pilot program, CFIUS requires that it
be given prior notice of and an opportunity to review certain
proposed non-controlling foreign investments in companies engaged
in biotechnology research and development that deal in
“critical technologies.” Depending upon the results of
its review, CFIUS could impose mitigation measures or block the
investment. The term “critical technologies,” includes
items subject to certain U.S. export controls and “emerging
and foundational technologies.” U.S. regulators have yet to
define “emerging and foundational technologies,” but
have indicated that this category may be defined to include certain
biotechnology.
To
date, CBMG has not identified any “critical
technologies” that would subject future foreign investment in
CBMG to CFIUS review. However, depending on the particulars of any
future investments, how the concept of “critical
technologies” is applied to CBMG’s existing business
and any future developments thereto, and any relevant regulatory
developments in the future, future foreign investment in CBMG could
be subject to CFIUS review, which could prevent, delay, limit or
otherwise adversely affect the contemplated financing, any of which
could have a material adverse effect on CBMG’s business,
financial condition and results of operations.
Trade controls and related legal risks can have a material adverse
effect on our business.
We
are subject to trade controls, including U.S. sanctions and export
controls, which impose certain restrictions on our international
operations. We are committed to conducting all of our operations
around the globe ethically and in compliance with applicable laws
and company policy, including these trade controls and, to date, we
have not identified any instances of noncompliance. However,
despite our compliance efforts, we cannot assure you that we will
effectively prevent any and all future noncompliance, particularly
given the uncertainties regarding the interpretation and
implementation of these trade controls in each jurisdiction in
which we have a presence.
New
and changing trade protections, regulatory requirements and
policies affecting trade and investment, trade disputes,
regulations governing imports or exports, economic sanctions and
enforcement activities present added and ever-changing risks for
our global business. However, it is not possible to predict what
types of new controls may be imposed or how existing controls will
be administered, and therefore we cannot predict the effect such
changes could have on our international operations. These changes
could adversely affect our business, and failure to react and adapt
and ultimately comply with any of the foregoing can lead to
sanctions, fines, penalties and other government-imposed mandates
that could have a material adverse effect on our business,
financial condition and results of operations.
Some of the laws and regulations governing our business in China
are vague and subject to risks of interpretation.
Some of
the PRC laws and regulations governing our business operations in
China are vague and their official interpretation and enforcement
may involve substantial uncertainty. These include, but are not
limited to, laws and regulations governing our business and the
enforcement and performance of our contractual arrangements in the
event of the imposition of statutory liens, death, bankruptcy and
criminal proceedings. Despite their uncertainty, we will be
required to comply.
New
laws and regulations that affect existing and proposed businesses
may be applied retroactively. Accordingly, the effectiveness of
newly enacted laws, regulations or amendments may not be clear. We
cannot predict what effect the interpretation of existing or new
PRC laws or regulations will have on our business.
The pharmaceutical industry in China is highly regulated, and such
regulations are subject to change, which may affect approval and
commercialization of our drugs.
The
pharmaceutical industry in China is subject to comprehensive
government regulation and supervision, encompassing the approval,
registration, manufacturing, packaging, licensing and marketing of
new drugs. In recent years, The NMPA and other regulatory
authorities in China have implemented a series of new laws and
regulations regarding the pharmaceuticals industry, including
medical research and the stem cell industry, and we expect such
significant changes will continue. In addition, there are
uncertainties regarding the interpretation and enforcement of PRC
laws, rules and regulations. For example, under the trial
guidelines concerning development and testing of cell therapy
products issued in December 2017, there remain uncertainties
regarding the interpretation and application of PRC Laws on our
clinical studies and these factors could adversely affect the
timing of the clinical studies, the timing of receipt and reporting
of clinical data, the timing of Company-sponsored IND filings, and
our ability to conduct future planned clinical studies, and any of
the above could have a material adverse effect on our
business.
The NMPA’s recent reform of the drug and
approval system may face implementation challenges. On August 26,
2019, the Standing Committee of the PRC National People’s
Congress approved the new Drug Administration Law, which went into
effect on December 1, 2019. The new Drug Administration Law
incorporates many reform measures that have been introduced by
various administrative notices in the past few years, such as the
adoption of a nationwide MAH system, switch from an approval to a
simpler filing process for institutions conducting clinical trials
for new drugs, and the cancellation of the GMP and GSP
certification procedure (though the relevant GMP and GSP rules are
still applicable to the manufacturing and business activities.) The
Drug Administration Law is positioned as the foundational law in
the field of drug regulation and may also materially impact
commercialization of Kymriah® and
our pipeline drugs and increase our compliance costs. The full
impact of such reforms is uncertain and could prevent us from
commercializing our drug candidates in a timely
manner.
The
National Health Commission and other departments jointly issued the
Implementation Plan for Cancer Prevention and Control (2019-2022)
(the “Implementation Plan”) proposing to enhance the
cancer prevention and control. Supported by the development of
integration of the healthcare industry, education and research the
National Health Commission intends to promote cancer prevention and
treatment, covering a broad scope such as medical services, health
management, health insurance, pharmaceutical equipment,
rehabilitation nursing, etc. The Implementation Plan emphasized the
improvement of the availability of anticancer drugs, acceleration
on the registration and approval of new anticancer drugs the PRC
and abroad, the promotion of the synchronous market listing in the
PRC of new anticancer drugs already marketed abroad, and smooth the
temporary import channels of anticancer drugs urgently needed in
clinical trial medicine. Currently, it is not clear on the future
impact of the Implementation Plan on our business and
strategies.
While
we believe our strategies regarding pharmaceutical research,
development, manufacturing and commercialization in China are
aligned with the Chinese government’s policies, these
policies may in the future diverge, such as the new Drug
Administration Law, requiring a change in our strategies. Any such
change can result in increased compliance costs on our business or
cause delays in or prevent the successful research, development,
manufacturing or commercialization of our drug candidates or drugs
in China and reduce the current benefits we believe are available
to us from developing and manufacturing drugs in
China.
Our future capital needs are uncertain, which gives rise to a
substantial doubt about our ability to continue as a going concern.
Our ability to continue as a going concern is dependent on our
ability to raise additional capital or obtain loans from financial
institutions and our operations could be curtailed if we are unable
to obtain the required additional funding when needed. We are not
always able to do so when necessary, and/or the terms of any
financings will not necessarily be advantageous to us.
Our
financial statements for the period ended December 31, 2019 have
been prepared assuming we will continue to operate as a going
concern. However, there can be no assurance that we will have
the financial resources to satisfy our current liabilities and the
capital expenditure needs in the next 12 months, and
therefore, there is substantial doubt about our ability
to continue as a going concern. Our ability to continue as a going
concern is subject to our ability to obtain necessary funding from
outside sources, including obtaining additional funding from the
sale of our securities, grants or other forms of financing. Our
continued negative cash flow increases the difficulty in completing
such sales or securing alternative sources of funding, and there
can be no assurances that we will be able to obtain such funding on
favorable terms or at all. Our inability to obtain sufficient
financing from the sale of our securities or from alternative
sources may require us to reduce, defer or discontinue certain of
our research and development and operating activities or we may not
be able to continue as a going concern. Our financial statements do
not include any adjustments that might result from the outcome of
the uncertainty regarding our ability to continue as a going
concern. If we cannot continue as a going concern, our shareholders
may lose their entire investment in our ordinary shares. Future
reports from our independent registered public accounting firm may
also contain statements expressing doubt about our ability to
continue as a going concern.
Changes and new proposed rulemaking in China regarding foreign
investment can affect our operations in China.
Our
operations in China are subject to government regulations that
limit or prohibit direct foreign investment, which can limit our
ability to control operations based in China. The PRC government
has imposed regulations in various industries, including medical
research and the stem cell industry, that limit foreign
investors’ equity ownership or prohibit foreign investments
altogether in companies that operate in such industries. We are
currently structured as a U.S. corporation (Delaware) with
subsidiaries and controlled entities in China. As a result of these
regulations and the manner in which they may be applied or
enforced, our ability to control our existing operations based in
China may be limited or restricted.
If the
relevant Chinese authorities find us or any business combination to
be in violation of any laws or regulations, they would have broad
discretion in dealing with such violation, including, without
limitation: (i) levying fines; (ii) revoking our business and other
licenses; (iii) requiring that we restructure our ownership or
operations; and (iv) requiring that we discontinue any portion, or
all, of our business.
China’s
legal framework surrounding foreign investment entered into a new
era after the new Foreign Investment Law goes into effect on
January 1, 2020. The Foreign Investment Law is positioned as the
foundational law in the field of foreign investment and will apply
uniformly across all foreign investment in China. It replaces the
Law of the People’s Republic of China on Wholly Foreign-Owned
Enterprises, the Law of the People’s Republic of China on
Sino-Foreign Equity Joint Ventures, and the Law of the
People’s Republic of China on Sino-Foreign Cooperative Joint
Ventures (the three previous foreign investment laws). It is
expected that the relevant authorities will take this opportunity
to systematically evaluate and revise the current foreign
investment system and rules in order to form a unified legal system
for foreign investment, which is comprised of:
●
Pre-establishment
national treatment and negative list system. Foreign investors and
their investments will be granted treatment no less favorable than
that granted to Chinese domestic investors and their investments at
the entrance stage of the investment. Foreign investors may not
invest in fields where a “negative list” prohibits
foreign investment, unless the investor meets certain conditions
stipulated in the list.
●
Foreign
investment information reporting system. Foreign investors or
foreign-invested enterprises must submit investment information to
the competent department of commerce through the enterprise
registration system and the enterprise credit information publicity
system.
●
Foreign
investment national security review system. This system is adopted
to determine whether a foreign investment may affect national
security. Subsequent legislation may clarify the scope, content,
procedure, time limit and legal consequences of the review
process.
The
Foreign Investment Law is expected to affect foreign investors with
regard to organizational structure and governance structure,
transfer of monetary funds and intellectual property protection and
technology transfer. If the relevant Chinese authorities find us or
any business combination to be in violation of the Foreign
Investment Law and its implementation rules, our current corporate
governance practices and business operations may be materially
affected and our compliance costs may increase
significantly.
Certain of our clinical studies are not registered with relevant
authorities.
Under
the trial guidelines concerning development and testing of cell
therapy products issued in December 2017, an applicant of the
clinical trial of the said cell therapy products can be divided
into early clinical trials and confirmatory clinical trials,
instead of the application of the traditional phases I, II and III
of a clinical trial. Certain of our clinical studies initiated or
sponsored or being initiated or being sponsored by our PRC
subsidiaries have not been duly registered or filed by our clinical
trial partners with, or have been issued the approval by, the NMPA
or the National Health Commission of the PRC, or the NHC, in
accordance with then-applicable PRC Law. All clinical studies on
trials conducted in China will be required to be approved,
registered or filed and conducted at hospitals accredited by the
NMPA or by the NHC after the relevant implementing regulations are
implemented within the allotted time and any failure of the
hospitals to register or file the clinical studies with the NMPA
may result in delays or interruptions to such clinical studies or
trials. There remain uncertainties regarding the interpretation and
application of PRC Laws on our clinical studies and these factors
can adversely affect the timing of the clinical studies, the timing
of receipt and reporting of clinical data, the timing of
Company-sponsored IND filings and our ability to conduct future
planned clinical studies, and any of the above could have a
material adverse effect on our business.
The uncertainties surrounding the current healthcare reform
measures in China can affect all material aspects of the research,
development, manufacturing and commercialization of pharmaceutical
products.
In
recent years, the regulatory framework in China regarding the
pharmaceutical industry has undergone significant changes, which we
expect will continue. While we believe our strategies regarding
pharmaceutical research, development, manufacturing and
commercialization in China are aligned with the Chinese
government’s policies, they may in the future diverge,
requiring a change in our strategies. Any such change can result in
increased compliance costs on our business or cause delays in or
prevent the successful research, development, manufacturing or
commercialization of our drug candidates or drugs in China and
reduce the current benefits we believe are available to us from
developing and manufacturing drugs in China.
We
expect that healthcare reform measures by the MOH and NMPA may
result in more rigorous coverage criteria and an additional
downward pressure on the development and manufacturing of drugs.
Legislative and regulatory proposals have been made to expand
approval requirements and restrict clinical trial activities for
pharmaceutical products. We cannot be sure whether additional
legislative changes will be enacted, or whether MOH and NMPA
regulations, guidance or interpretations will be changed, or what
the impact of such changes on the regulatory approvals of our drug
candidates, if any, may be. In particular, because these laws,
rules and regulations are relatively new and often give the
relevant regulator significant discretion in how to enforce them,
and because of the limited number of published decisions and the
nonbinding nature of such decisions, the interpretation and
enforcement of these laws, rules and regulations involve
uncertainties and can be inconsistent and unpredictable. For
example, we may need to amend clinical trial protocols submitted to
applicable regulatory authorities to reflect changes in regulatory
requirements and guidance. Resubmission may impact the costs,
timing or successful completion of a clinical trial. Amendments may
require us to resubmit clinical trial protocols to institutional
review boards or ethics committees for reexamination, which may
impact the costs, timing or successful completion of a clinical
trial. Any delays in completing our clinical trials will increase
our costs, slow down our drug candidate development and approval
process and jeopardize our ability to commence product sales and
generate related revenues for that candidate. Any of these
occurrences may harm our business, financial condition and
prospects significantly.
The PRC government does not permit direct foreign investment in
stem cell research and development businesses. Accordingly, we
operate these businesses through local companies with which we have
contractual relationships but in which we do not have direct equity
ownership.
PRC
regulations prevent foreign companies from directly engaging in
stem cell-related research, development and commercial applications
in China. Therefore, to perform these activities, we conduct much
of our biopharmaceutical business operations in China through a
domestic variable interest entity, or VIE, a Chinese domestic
company controlled by the Chinese employees of the Company. Our
contractual arrangements may not be as effective in providing
control over these entities as direct ownership. For example, the
VIE could fail to take actions required for our business or fail to
conduct business in the manner we desire despite their contractual
obligation to do so. These companies are able to transact business
with parties not affiliated with us. If these companies fail to
perform under their agreements with us, we may have to rely on
legal remedies under PRC law, which may not be effective. In
addition, we cannot be certain that the individual equity owners of
the VIE would always act in our best interests, especially if they
have no other relationship with us.
Although other
foreign companies have used VIE structures similar to ours and such
arrangements are not uncommon in connection with business
operations of foreign companies in China in industry sectors in
which foreign direct investments are limited or prohibited,
recently there has been greater scrutiny by the business community
of the VIE structure and, additionally, the application of a VIE
structure to control companies in a sector in which foreign direct
investment is specifically prohibited carries increased
risks.
In
addition, the Ministry of Commerce (“MOFCOM”)
promulgated the Rules of Ministry of Commerce on Implementation of
Security Review System of Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors in August 2011, or the MOFCOM
Security Review Rules, to implement the Notice of the General
Office of the State Council on Establishing the Security Review
System for Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors promulgated on February 3, 2011, or Circular No.
6. The MOFCOM Security Review Rules came into effect on September
1, 2011 and replaced the Interim Provisions of the Ministry of
Commerce on Matters Relating to the Implementation of the Security
Review System for Mergers and Acquisitions of Domestic Enterprises
by Foreign Investors promulgated by MOFCOM in March 2011. According
to these circulars and rules, a security review is required for
mergers and acquisitions by foreign investors having
“national defense and security” concerns and mergers
and acquisitions by which foreign investors may acquire the
“de facto control” of domestic enterprises having
“national security” concerns. In addition, when
deciding whether a specific merger or acquisition of a domestic
enterprise by foreign investors is subject to the security review,
the MOFCOM will look into the substance and actual impact of the
transaction. The MOFCOM Security Review Rules further prohibit
foreign investors from bypassing the security review requirement by
structuring transactions through proxies, trusts, indirect
investments, leases, loans, control through contractual
arrangements or offshore transactions. There is no explicit
provision or official interpretation stating that our business
falls into the scope subject to the security review, and there is
no requirement for foreign investors in those mergers and
acquisitions transactions already completed prior to the
promulgation of Circular No. 6 to submit such transactions to
MOFCOM for security review. The enactment of the MOFCOM National
Security Review Rules specifically prohibits circumvention of the
rules through VIE arrangement in the area of foreign investment in
business of national security concern. Although we believe that our
business, judging from its scale, should not cause any concern for
national security review at its current state, there is no
assurance that MOFCOM would not apply the same concept of
anti-circumvention in the future to foreign investment in
prohibited areas through VIE structure, the same way that our
investment in China was structured.
Our relationship with our controlled VIE entity, CBMG Shanghai,
through the VIE agreements, is subject to various operational and
legal risks.
Management believes
the holders of the VIE’s registered capital, Chen Mingzhe and
Lu Junfeng, have no interest in acting contrary to the VIE
agreements. However, if Chen or Lu as shareholders of the VIE
entity were to reduce or eliminate their ownership of the
registered capital of the VIE entity, their interests may diverge
from that of CBMG and they may seek to act in a manner contrary to
the VIE agreements (for example by controlling the VIE entity in
such a way that is inconsistent with the directives of CBMG
management and the board; or causing nonpayment by the VIE entity
of services fees). If such circumstances were to occur the WFOE
would have to assert control rights through the powers of attorney,
pledges and other VIE agreements, which would require legal action
through the PRC judicial system. We believe based on the advice of
local counsel that the VIE agreements are valid and in compliance
with PRC laws presently in effect. However, there is a risk that
the enforcement of these agreements may involve more extensive
procedures and costs to enforce, in comparison to direct equity
ownership of the VIE entity. Notwithstanding the foregoing, if the
applicable PRC laws were to change or are interpreted by
authorities in the future in a manner which challenges or renders
the VIE agreements ineffective, the WFOE’s ability to control
and obtain all benefits (economic or otherwise) of ownership of the
VIE entity could be impaired or eliminated. In the event of such
future changes or new interpretations of PRC law, in an effort to
substantially preserve our rights, we may have to either amend our
VIE agreements or enter into alternative arrangements which comply
with PRC laws as interpreted and then in effect.
Failure to comply with the U.S. Foreign Corrupt Practices Act
subjects us to penalties and other adverse
consequences.
We are
subject to the U.S. Foreign Corrupt Practices Act, which generally
prohibits U.S. companies from engaging in bribery or other
prohibited payments to foreign officials for the purpose of
obtaining or retaining business. Foreign companies, including some
that may compete with us, are not subject to these prohibitions.
Corruption, extortion, bribery, payoffs, theft and other fraudulent
practices occur from time-to-time in the PRC. There can be no
assurance, however, that our employees or other agents will not
engage in such conduct for which we might be held responsible. If
our employees or other agents are found to have engaged in such
practices, we are subject to severe penalties and other
consequences that may have a material adverse effect on our
business, financial condition and results of
operations.
Share compensation grants to persons who are PRC citizens may
require registeration with SAFE. We also face regulatory
uncertainties that could restrict our ability to adopt share
compensation plans for our directors and employees and other
parties under PRC laws.
On
April 6, 2007, SAFE issued the “Operating Procedures for
Administration of Domestic Individuals Participating in the
Employee Stock Ownership Plan or Stock Option Plan of An Overseas
Listed Company,” also known as Circular 78. On February 15,
2012, SAFE promulgated the Circular on Relevant Issues Concerning
Foreign Exchange Administration for Domestic Individuals
Participating in an Employees Share Incentive Plan of an
Overseas-Listed Company, often known as Circular 7. Circular 7 has
superseded Circular 78. Under Circular 7, PRC resident individuals
who participate in a share incentive plan of an overseas listed
company are required to register with SAFE and complete certain
other procedures. All such participants need to retain a PRC agent
through PRC subsidiary to handle issues like foreign exchange
registration, account opening, funds transfer and remittance.
Circular 7 further requires that an offshore agent should also be
designated to handle matters in connection with the exercise or
sale of share awards and proceeds transferring for the share
incentive plan participants. We have obtained the SAFE approvals
under Circular 7 for one PRC subsidiary. Failure to comply with
these regulations subjects us or our PRC employees who have been
granted stock options to fines and legal sanctions and we may no
longer be able to grant share compensation to our PRC employees. In
that case, our ability to compensate our employees and directors
through share compensation would be hindered and our business
operations may be adversely affected.
The Labor Contract Law and its implementation regulations can
increase our operating expenses and materially and adversely affect
our business, financial condition and results of
operations.
Substantial
uncertainty of the PRC Labor Contract Law, or Labor Contract Law,
and the Implementation Regulation for the PRC Labor Contract Law,
or Implementation Regulation, remains as to their potential impact
on our business, financial condition and results of operations. The
implementation of the Labor Contract Law and the Implementation
Regulation can increase our operating expenses, in particular our
human resources costs and our administrative expenses. In addition,
as the interpretation and implementation of these regulations are
still evolving, there can be no assurance that our employment
practices will at all times be deemed to be in full compliance with
the law. In the event that we decide to significantly modify our
employment or labor policy or practice, or reduce the number of our
sales professionals, the Labor Contract Law and the Implementation
Regulation can limit our ability to effectuate the modifications or
changes in the manner that we believe to be most cost-efficient or
otherwise desirable, which could materially and adversely affect
our business, financial condition and results of operations. Severe
penalties or incur significant liabilities in connection with labor
disputes or investigations can adversely affect our business and
results of operations.
Relations between the United States and China impacts our stock
price and can lead to difficulty accessing the U.S. capital
markets.
At
various times during recent years, the United States and China have
had disagreements over trade, economic and other policy issues,
leading to future controversies between these two countries. Any
political or trade controversies between the U.S. and China can
adversely affect the market price of our common stock and our and
our clients’ ability to access U.S. capital
markets.
PRC regulations of loans to PRC entities and direct investment in
PRC entities by offshore holding companies can delay or prevent us
from using the proceeds of this offering to make loans or
additional capital contributions to our PRC
subsidiary.
We have
in the past and may in the future transfer funds to our PRC
subsidiary or finance our PRC subsidiary by means of shareholder
loans or capital contributions. Any loans from us to our PRC
subsidiary, which is a foreign-invested enterprise, is subject to a
quota based on the statutory formulas and there are two alternative
applicable quotas: the difference between the registered capital
and total investment of the PRC subsidiary; certain times of the
net asset value of PRC subsidiary (currently up to twice of the net
assets value) and shall be registered with the State Administration
of Foreign Exchange, or SAFE, or its local counterparts. Any
capital contributions we make to our PRC subsidiary shall be
approved by or registered with (as the case may be) the Ministry of
Commerce or its local counterparts. We are not always able to
obtain these government registrations or approvals on a timely
basis, if at all. Failure to receive such registrations or
approvals impacts our ability to provide loans or capital
contributions to our PRC subsidiary in a timely manner may be
negatively affected, which could materially and adversely affect
our liquidity and our ability to fund and expand our
business.
In
addition, registered capital of a foreign-invested company settled
in RMB converted from foreign currencies may only be used within
the business scope approved by the applicable governmental
authority. Foreign-invested companies may not change how they use
such capital without SAFE’s approval, and may not in any case
use such capital to repay RMB loans if proceeds of such loans have
not been utilized. Violations of these regulations may result in
severe penalties. These regulations may significantly limit our
ability to transfer the net proceeds from offshore offering and
subsequent offerings or financings to our PRC subsidiary, which may
adversely affect our liquidity and our ability to fund and expand
our business in China.
We face risks relating to restrictions on our ability to inject
capital into our PRC subsidiary and our PRC subsidiary’s
ability to distribute profits to us in connection with PRC resident
shareholders beneficial owners that fail to comply with relevant
PRC foreign exchange rules.
The
Notice on Relevant Issues Concerning Foreign Exchange
Administration for PRC Residents to Engage in Financing and Inbound
Investment via Offshore Special Purpose Vehicles, often known as
Circular 75, was issued by SAFE in 2005. Circular 75 requires PRC
residents to register with the local SAFE branch in connection with
their establishment or control of any offshore special purpose
vehicle for the purpose of overseas equity financing involving a
roundtrip investment whereby the offshore special purpose vehicle
acquires or controls onshore assets or equity interests held by the
PRC residents. On July 4, 2014, SAFE issued the Notice on Relevant
Issues Concerning Foreign Exchange Administration for PRC Residents
to Engage in Outbound Investment and Financing and Inbound
Investment via Special Purpose Vehicles, or Circular 37, which has
superseded Circular 75. Under Circular 37 and other relevant
foreign exchange regulations, PRC residents who make, or have made,
prior to the implementation of these foreign exchange regulations,
direct or indirect investments in offshore companies are required
to register those investments with SAFE. In addition, any PRC
resident who is a direct or indirect shareholder of an offshore
company is also required to file or update the registration with
SAFE, with respect to that offshore company for any material change
involving its round-trip investment, capital variation, such as an
increase or decrease in capital, transfer or swap of shares,
merger, division, long-term equity or debt investment or the
creation of any security interest. If any PRC shareholder fails to
make the required registration or update the registration, the PRC
subsidiary of that offshore company may be prohibited from
distributing its profits and the proceeds from any reduction in
capital, share transfer or liquidation to that offshore company,
and that offshore company may also be prohibited from injecting
additional capital into its PRC subsidiary. Moreover, failure to
comply with the foreign exchange registration requirements
described above could result in liability under PRC laws for
evasion of applicable foreign exchange restrictions.
We cannot
provide any assurance that all of our shareholders and beneficial
owners who are PRC residents have fully complied or will obtain or
update any applicable registrations or have fully complied or will
fully comply with other requirements required by Circular 37 or
other related rules in a timely manner. The failure or inability of
our shareholders resident in China to comply with the registration
requirements set forth therein may subject them to fines and legal
sanctions and may also limit our ability to contribute additional
capital into our PRC subsidiaries, limit our PRC
subsidiaries’ ability to distribute profits and other
proceeds to our company or otherwise adversely affect our
business.
We and/or our Hong Kong subsidiary may be classified as a
“PRC resident enterprise” for PRC enterprise income tax
purposes. Such classification would likely result in unfavorable
tax consequences to us and our non-PRC shareholders and have a
material adverse effect on our results of operations and the value
of your investment.
The
Enterprise Income Tax Law provides that an enterprise established
outside China whose “de facto management body” is
located in China is considered a “PRC resident
enterprise” and will generally be subject to the uniform 25%
enterprise income tax on its global income. Under the
implementation rules of the Enterprise Income Tax Law, “de
facto management body” is defined as “the
organizational body which effectively manages and controls the
production and business operation, personnel, accounting,
properties and other aspects of operations of an
enterprise.”
Pursuant to the
Notice Regarding the Determination of Chinese-Controlled Offshore
Incorporated Enterprises as PRC Tax Resident Enterprises on the
Basis of De Facto Management Bodies, issued by the State
Administration of Taxation in 2009, a foreign enterprise controlled
by PRC enterprises or PRC enterprise groups is considered a PRC
resident enterprise if all of the following conditions are met:
(i) the senior management and core management departments in
charge of daily operations are located mainly within the PRC;
(ii) financial and human resources decisions are subject to
determination or approval by persons or bodies in the PRC;
(iii) major assets, accounting books, company seals and
minutes and files of board and shareholders’ meetings are
located or kept within the PRC; and (iv) at least half of the
enterprise’s directors with voting rights or senior
management reside within the PRC. Although the notice states that
these standards only apply to offshore enterprises that are
controlled by PRC enterprises or PRC enterprise groups, such
standards may reflect the general view of the State Administration
of Taxation in determining the tax residence of foreign
enterprises.
We
believe that neither our company nor our Hong Kong subsidiary is a
PRC resident enterprise because neither our company nor our Hong
Kong subsidiary meets all of the conditions enumerated. For
example, board and shareholders’ resolutions of our company
and our Hong Kong subsidiary are adopted in Hong Kong and the
minutes and related files are kept in Hong Kong. However, if the
PRC tax authorities were to disagree with our position, our company
and/or our Hong Kong subsidiary may be subject to PRC enterprise
income tax reporting obligations and to a 25% enterprise income tax
on our global taxable income, except for our income from dividends
received from our PRC subsidiary, which may be exempt from PRC tax.
If we and/or our Hong Kong subsidiary are treated as a PRC resident
enterprise, the 25% enterprise income tax may adversely affect our
ability to satisfy any of our cash needs.
In
addition, if we were to be classified as a PRC “resident
enterprise” for PRC enterprise income tax purpose, dividends
we pay to our non-PRC enterprise shareholders and gains derived by
our non-PRC shareholders from the sale of our shares and ADSs may
be become subject to a 10% PRC withholding tax. In addition, future
guidance may extend the withholding tax to dividends we pay to our
non-PRC individual shareholders and gains derived by such
shareholders from transferring our shares and ADSs. In addition to
the uncertainty in how the new “resident enterprise”
classification could apply, it is also possible that the rules may
change in the future, possibly with retroactive effect. If PRC
income tax were imposed on gains realized through the transfer of
our ADSs or ordinary shares or on dividends paid to our nonresident
shareholders, the value of your investment in our ADSs or ordinary
shares may be materially and adversely affected.
Any limitation on the ability of our PRC subsidiary to make
payments to us, or the tax implications of making payments to us,
can have a material adverse effect on our ability to conduct our
business or our financial condition.
We are
a holding company, and we rely principally on dividends and other
distributions from our PRC subsidiary for our cash needs, including
the funds necessary to pay dividends to our shareholders or service
any debt we may incur. Current PRC regulations permit our PRC
subsidiary to pay dividends only out of its accumulated profits, if
any, determined in accordance with PRC accounting standards and
regulations. In addition, our PRC subsidiary is required to set
aside at least 10% of its after tax profits each year, if any, to
fund certain statutory reserve funds until the aggregate amount of
such reserve funds reaches 50% of its registered capital. Apart
from these reserves, our PRC subsidiary may allocate a
discretionary portion of its after-tax profits to staff welfare and
bonus funds at its discretion. These reserves and funds are not
distributable as cash dividends. Furthermore, if our PRC subsidiary
incurs debt, the debt instruments may restrict its ability to pay
dividends or make other payments to us. We cannot assure you that
our PRC subsidiary will generate sufficient earnings and cash flows
in the near future to pay dividends or otherwise distribute
sufficient funds to enable us to meet our obligations, pay interest
and expenses or declare dividends.
Distributions made
by PRC companies to their offshore parents are generally subject to
a 10% withholding tax under the Enterprise Income Tax Law. Pursuant
to the Enterprise Income Tax Law and the Arrangement between the
Mainland of China and the Hong Kong Special Administrative Region
for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income, the withholding tax rate
on dividends paid by our PRC subsidiary to our Hong Kong subsidiary
would generally be reduced to 5%, provided that our Hong Kong
subsidiary is the beneficial owner of the PRC sourced income. Our
PRC subsidiary has not obtained approval for a withholding tax rate
of 5% from the local tax authority and does not plan to obtain such
approval in the near future as we have not achieved
profitability. However, the Notice on How to Understand and
Determine the Beneficial Owners in a Tax Agreement, also known as
Circular 601, promulgated by the State Administration of Taxation
in 2009, provides guidance for determining whether a resident of a
contracting state is the “beneficial owner” of an item
of income under China’s tax treaties and similar
arrangements. According to Circular 601, a beneficial owner
generally must be engaged in substantive business activities. An
agent or conduit company will not be regarded as a beneficial owner
and, therefore, will not qualify for treaty benefits. For this
purpose, a conduit company is a company that is set up for the
purpose of avoiding or reducing taxes or transferring or
accumulating profits. Although our PRC subsidiary is wholly owned
by our Hong Kong subsidiary, we will not be able to enjoy the 5%
withholding tax rate with respect to any dividends or distributions
made by our PRC subsidiary to its parent company in Hong Kong if
our Hong Kong subsidiary is regarded as a “conduit
company.”
In
addition, if Cellular Biomedicine
Group Ltd. (HK), a wholly owned subsidiary of the Company
(“CBMG HK”) were deemed to be a PRC resident
enterprise, then any dividends payable by CBMG HK to CBMG Delaware
Corporation may become subject to PRC dividend withholding
tax.
A new
China taxation rule about the “beneficial owner” in a
tax agreement became effective on April 1, 2018 which superseded
Circular 601 and could affect the determination of whether a
resident of a contracting state is the “beneficial
owner” of an item of income under China’s tax treaties
and similar arrangements.
Restrictions on the remittance of RMB into and out of China and
governmental control of currency conversion can limit our ability
to pay dividends and other obligations, and affect the value of
your investment.
The PRC
government imposes controls on the convertibility of the RMB into
foreign currencies and the remittance of currency out of China. We
receive substantially all of our revenues in RMB and substantially
all of our cash inflows and outflows are denominated in RMB. Under
our current corporate structure, our revenues are primarily derived
from dividend payments from our subsidiary in China after it
receives payments from the VIE under various service and other
contractual arrangements. We may convert a portion of our revenues
into other currencies to meet our foreign currency obligations,
such as payments of dividends declared in respect of our ordinary
shares, if any. Shortages in the availability of foreign currency
may restrict the ability of our PRC subsidiary to remit sufficient
foreign currency to pay dividends or other payments to us, or
otherwise satisfy its foreign currency denominated
obligations.
Under
existing PRC foreign exchange regulations, payments of current
account items, including profit distributions, interest payments
and trade and service-related foreign exchange transactions, can be
made in foreign currencies without prior SAFE approval as long as
certain routine procedural requirements are fulfilled. Therefore,
our PRC subsidiary is allowed to pay dividends in foreign
currencies to us without prior SAFE approval by following certain
routine procedural requirements. However, approval from or
registration with competent government authorities is required
where the RMB is to be converted into foreign currency and remitted
out of China to pay capital expenses such as the repayment of loans
denominated in foreign currencies. The PRC government may at its
discretion restrict access to foreign currencies for current
account transactions in the future. If the foreign exchange control
system prevents us from obtaining sufficient foreign currencies to
satisfy our foreign currency demands, we may not be able to pay
dividends in foreign currencies to our shareholders, including the
U.S. shareholders.
Our financial condition and results of operations can be materially
and adversely affected if recent value added tax reforms in the PRC
become unfavorable to our PRC subsidiary or VIE.
Our PRC
subsidiary and the VIE have been subject to a value added tax, or
VAT, at a base rate of 6% since September 1, 2012. The
VIE’s subsidiary has been subject to VAT at a base rate of 6%
since July 1, 2013. Our financial condition and results of
operations could be materially and adversely affected if the
interpretation and enforcement of these tax rules become materially
unfavorable to our PRC subsidiary and VIE.
Failure to comply with PRC regulations regarding the registration
requirements for stock ownership plans or stock option plans
subjects PRC plan participants or us to fines and other legal or
administrative sanctions.
Under
SAFE regulations, PRC residents who participate in an employee
stock ownership plan or stock option plan in an overseas publicly
listed company are required to register with SAFE or its local
branch and complete certain other procedures. Participants of a
stock incentive plan who are PRC residents must retain a qualified
PRC agent, which could be a PRC subsidiary of such overseas
publicly listed company, to conduct the SAFE registration and other
procedures with respect to the stock incentive plan on behalf of
these participants. Such participants must also retain an overseas
entrusted institution to handle matters in connection with their
exercise or sale of stock options. In addition, the PRC agent is
required to amend the SAFE registration with respect to the stock
incentive plan if there is any material change to the stock
incentive plan, the PRC agent or the overseas entrusted institution
or other material changes.
We and
our PRC resident employees who participate in our share incentive
plans are subject to these regulations as our company is publicly
listed in the United States. We have obtained the SAFE approvals
regarding our PRC resident employees participating in our share
incentive plans. If we or any our PRC resident option grantees fail
to follow the compliance with above regulations, we or our PRC
resident option grantees may be subject to fines and other legal or
administrative sanctions.
Fluctuation in the value of the RMB can have a material adverse
effect on the value of the investment.
The
value of the RMB against the U.S. dollar and other currencies is
affected by changes in China’s political and economic
conditions and China’s foreign exchange policies, among other
things. On July 21, 2005, the PRC government changed its
decades-old policy of pegging the value of the RMB to the U.S.
dollar, and the RMB appreciated more than 20% against the U.S.
dollar over the following three years. Between July 2008 and June
2010, this appreciation halted and the exchange rate between the
RMB and the U.S. dollar remained within a narrow band. The PRC
government has allowed the RMB to appreciate slowly against the
U.S. dollar again, and it has appreciated more than 10% since June
2010. It is difficult to predict how market forces or PRC or U.S.
government policy may impact the exchange rate between the RMB and
the U.S. dollar in the future. In addition, there remains
significant international pressure on the PRC government to adopt a
substantial liberalization of its currency policy, which could
result in further appreciation in the value of the RMB against the
U.S. dollar. In 2015, due to the slow-down of China economic growth
rate and environment, RMB depreciated against the U.S. dollar from
the third quarter.
Our
revenues and costs are mostly denominated in RMB, and a significant
portion of our financial assets are also denominated in RMB,
whereas our reporting currency is the U.S. dollar. Any significant
depreciation of the RMB can materially and adversely affect our
revenues, earnings and financial position as reported in U.S.
dollars. To the extent that we need to convert U.S. dollars we
received from this offering into RMB for our operations,
appreciation of the RMB against the U.S. dollar would have an
adverse effect on the RMB amount we would receive from the
conversion. Conversely, if we decide to convert our RMB into U.S.
dollars for the purpose of making payments for dividends on our
ordinary shares or for other business purposes, appreciation of the
U.S. dollar against the RMB would have a negative effect on the
U.S. dollar amount available to us.
PRC laws and regulations establish more complex procedures for some
acquisitions of Chinese companies by foreign investors, which could
make it more difficult for us to pursue growth through acquisitions
in China.
A
number of PRC laws and regulations, including the Regulations on
Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors adopted by six PRC regulatory agencies in 2006, or the
M&A Rules, the Anti-monopoly Law and the Rules of Ministry
of Commerce on Implementation of Security Review System of Mergers
and Acquisitions of Domestic Enterprises by Foreign
Investors promulgated by the Ministry of Commerce in August
2011, or the Security Review Rules, have established procedures and
requirements that are expected to make merger and acquisition
activities in China by foreign investors more time consuming and
complex. These include requirements in some instances that the
Ministry of Commerce be notified in advance of any change of
control transaction in which a foreign investor takes control of a
PRC domestic enterprise, or that the approval from the Ministry of
Commerce be obtained in circumstances where overseas companies
established or controlled by PRC enterprises or residents acquire
affiliated domestic companies. PRC laws and regulations also
require certain merger and acquisition transactions to be subject
to merger control review or security review.
The
Security Review Rules were formulated to implement the Notice of
the General Office of the State Council on Establishing the
Security Review System for Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors, also known as Circular 6,
which was promulgated in 2011. Under these rules, a security review
is required for mergers and acquisitions by foreign investors
having “national defense and security” concerns and
mergers and acquisitions by which foreign investors may acquire the
“de facto control” of domestic enterprises have
“national security” concerns. In addition, when
deciding whether a specific merger or acquisition of a domestic
enterprise by foreign investors is subject to the security review,
the Ministry of Commerce will look into the substance and actual
impact of the transaction. The Security Review Rules further
prohibits foreign investors from bypassing the security review
requirement by structuring transactions through proxies, trusts,
indirect investments, leases, loans, control through contractual
arrangements or offshore transactions.
There
is no requirement for foreign investors in those mergers and
acquisitions transactions already completed prior to the
promulgation of Circular 6 to submit such transactions to the
Ministry of Commerce for security review. As we have already
obtained the “de facto control” over our affiliated PRC
entities prior to the effectiveness of these rules, we do not
believe we are required to submit our existing contractual
arrangements to the Ministry of Commerce for security
review.
However, as these
rules are relatively new and there is a lack of clear statutory
interpretation on the implementation of the same, there is no
assurance that the Ministry of Commerce will not apply these
national security review-related rules to the acquisition of equity
interest in our PRC subsidiary. If we are found to be in violation
of the Security Review Rules and other PRC laws and regulations
with respect to the merger and acquisition activities in China, or
fail to obtain any of the required approvals, the relevant
regulatory authorities would have broad discretion in dealing with
such violation, including levying fines, confiscating our income,
revoking our PRC subsidiary’s business or operating licenses,
requiring us to restructure or unwind the relevant ownership
structure or operations. Any of these actions could cause
significant disruption to our business operations and may
materially and adversely affect our business, financial condition
and results of operations. Further, if the business of any target
company that we plan to acquire falls into the ambit of security
review, we may not be able to successfully acquire such company
either by equity or asset acquisition, capital contribution or
through any contractual arrangement. We may grow our business in
part by acquiring other companies operating in our industry.
Complying with the requirements of the relevant regulations to
complete such transactions could be time consuming, and any
required approval processes, including approval from the Ministry
of Commerce, may delay or inhibit our ability to complete such
transactions, which could affect our ability to expand our business
or maintain our market share.
On July
30, 2017, MOFCOM issued the Interim Measures on Filing
Administration of Establishment and Changes of Foreign-Invested
Enterprises (2017 Revision) which came into force as of July 30,
2017. It is stipulated in the Interim Measures that the
transformation of a non-foreign invested enterprise into a foreign
invested enterprise through M&A, merger by absorption, foreign
investor’s strategic investment into non-foreign invested
listed company, etc. would no longer be subject to MOFCOM approval,
but instead would only need to undergo the simplified filing
procedures with MOFCOM, in case the business of the target
enterprise does not fall into the foreign investment negative list.
But, if any business of the target enterprise falls into the
foreign investment negative list, the complex procedures for an
acquisition of the target enterprise by foreign investors would be
still applicable.
The heightened scrutiny over acquisition transactions by the PRC
tax authorities can have a negative impact on our business
operations, our acquisition or restructuring strategy or the value
of your investment in us.
Pursuant to the
Notice on Strengthening Administration of Enterprise Income Tax for
Share Transfers by Non-PRC Resident Enterprises, or Circular 698,
issued by the State Administration of Taxation in
December 2009 with retroactive effect from January 1,
2008, where a non-PRC resident enterprise transfers the equity
interests of a PRC resident enterprise indirectly by disposition of
the equity interests of an overseas non-public holding company, or
an Indirect Transfer, and such overseas holding company is located
in a tax jurisdiction that: (i) has an effective tax rate of
less than 12.5% or (ii) does not impose income tax on
foreign income of its residents, the non-PRC resident
enterprise, being the transferor, must report to the competent tax
authority of the PRC resident enterprise this Indirect Transfer and
may be subject to PRC enterprise income tax of up to 10% of the
gains derived from the Indirect Transfer in certain
circumstances.
To
clarify the issues related to Circular 698, the State
Administration of Taxation released the Announcement of the State
Administration of Taxation on Several Issues Relating to the
Administration of Income Tax on Non-resident Enterprises in 2011,
known as Notice 24, and the Announcement on Issues Related to
Applications of Special Tax Treatment for Equity Transfer by
Non-resident Enterprises in 2013.
On
February 3, 2015, the State Administration of Taxation issued the
Announcement on Several Issues Concerning the Enterprise Income Tax
on Indirect Property Transfers by Non-PRC Resident Enterprises, or
Notice 7. Notice 7 introduces a new tax regime that is
significantly different from that under Circular 698. It superseded
the previous tax rules in relation to the offshore indirect equity
transfer, including those under Circular 698 as described above. It
extends the tax jurisdiction of State Administration of Taxation to
capture not only the Indirect Transfer but also the transactions
involving indirect transfer of (i) real properties in China and
(ii) assets of an “establishment or place” situated in
China, by a non-PRC resident enterprise through a disposition of
equity interests in an overseas holding company.
However, Notice 7
also brings uncertainties to the parties of the offshore indirect
transfers as the transferee and the transferor have to make
self-assessment on whether the transactions should be subject to
the corporate income tax and file or withhold the corporate income
tax accordingly. In addition, the PRC tax authorities have
discretion under Notice 7 to adjust the taxable capital gains based
on the difference between the fair value of the transferred equity
interests and the investment cost. We may pursue acquisitions in
the future that may involve complex corporate structures. If we are
considered as a non-PRC resident enterprise under the EIT Law and
if the PRC tax authorities make adjustments to the taxable income
of the transactions under Notice 7, our income tax expenses
associated with such potential acquisitions will be increased,
which may have an adverse effect on our financial condition and
results of operations.
We face risks relating to the real properties that we
lease.
We
primarily lease office and manufacturing space from third parties
for our operations in China. Any defects in lessors’ title to
the leased properties can disrupt our use of our offices, which may
in turn adversely affect our business operations. For example,
certain buildings and the underlying land are not allowed to be
used for industrial or commercial purposes without relevant
authorities’ approval, and the lease of such buildings to
companies like us may subject the lessor to pay premium fees to the
PRC government. We cannot assure you that the lessor has obtained
all or any of approvals from the relevant governmental authorities.
In addition, some of our lessors have not provided us with
documentation evidencing their title to the relevant leased
properties. We cannot assure you that title to these properties we
currently lease will not be challenged. In addition, we have not
registered any of our lease agreements with relevant PRC
governmental authorities as required by PRC law, and although
failure to do so does not in itself invalidate the leases, we will
not necessarily be successful in defending these leases against
bona fide third parties.
As of
the date of this filing, we are not aware of any actions, claims or
investigations being contemplated by government authorities with
respect to the defects in our leased real properties or any
challenges by third parties to our use of these properties.
However, if third parties who purport to be property owners or
beneficiaries of the mortgaged properties challenge our right to
use the leased properties, we may not be able to protect our
leasehold interest and may be ordered to vacate the affected
premises, which could in turn materially and adversely affect our
business and operating results.
Our auditor, like other independent registered public accounting
firms operating in China, is not permitted to be subject to
inspection by Public Company Accounting Oversight Board, and
consequently investors may be deprived of the benefits of such
inspection.
Our
auditor, the independent registered public accounting firm that
issued the audit reports included elsewhere in this report, as an
auditor of companies that are traded publicly in the United States
and a firm registered with the Public Company Accounting Oversight
Board (United States) or PCAOB, is required by the laws of the
United States to undergo regular inspections by the PCAOB to assess
its compliance with the laws of the United States and applicable
professional standards. Our auditor is located in China and the
PCAOB is currently unable to conduct inspections on auditors in
China without the approval of the PRC authorities. Therefore, our
auditor, like other independent registered public accounting firms
operating in China, is currently not inspected by the
PCAOB.
In May
2013, the PCAOB announced that it has entered into a Memorandum of
Understanding (MOU) on Enforcement Cooperation with the China
Securities Regulatory Commission (the CSRC) and the Ministry of
Finance (the MOF). The MOU establishes a cooperative framework
between the parties for the production and exchange of audit
documents relevant to investigations in both countries’
respective jurisdictions. More specifically, it provides a
mechanism for the parties to request and receive from each other
assistance in obtaining documents and information in furtherance of
their investigative duties. In addition to developing enforcement
MOU, the PCAOB has been engaged in continuing discussions with the
CSRC and MOF to permit joint inspections in China of audit firms
that are registered with the PCAOB and audit Chinese companies that
trade on U.S. exchanges.
Inspections of
other firms that the PCAOB has conducted outside of China have
identified deficiencies in those firms’ audit procedures and
quality control procedures, and such deficiencies may be addressed
as part of the inspection process to improve future audit quality.
The inability of the PCAOB to conduct inspections of independent
registered public accounting firms operating in China makes it more
difficult to evaluate the effectiveness of our auditor’s
audit procedures or quality control procedures, and to the extent
that such inspections might have facilitated improvements in our
auditor’s audit procedures and quality control procedures,
investors may be deprived of such benefits.
On
November 18, 2016, the PCAOB issued its 2016 to 2020 Strategic Plan
on improving the quality of the audit for the protection and
benefits of investors, which revised the plan to update initiatives
relating to the PCAOB’s new standard-setting process,
planning for and adopting a permanent broker-dealer inspection
program, inspecting firms located in China, audit quality
indicators, monitoring and developing reports related to
independence and the business model of the firms and business
continuity. This may eventually improve PCAOB’s ability to
conduct inspections of independent registered public accounting
firms operating in China.
RISKS RELATED TO OUR COMMON STOCK
Failure to meet all applicable Nasdaq Global Market requirements
can lead to Nasdaq delisting our common stock, which delisting
could adversely affect the market liquidity of our common stock,
impair the value of your investment, adversely affect our ability
to raise needed funds and subject us to additional trading
restrictions and regulations.
Our
common stock trades on the Nasdaq Global Market. If we fail to
satisfy the continued listing requirements of the Nasdaq Global
Market, such as the corporate governance requirements or the
minimum closing bid price requirement, the Nasdaq Stock Market (or
Nasdaq) may take steps to de-list our common stock. Such a
de-listing would likely have a negative effect on the price of our
common stock and would impair your ability to sell or purchase our
common stock when you wish to do so. In the event of a de-listing,
we would take actions to restore our compliance with Nasdaq’s
listing requirements, but we can provide no assurance that any such
action taken by us would allow our common stock to become listed
again, stabilize the market price or improve the liquidity of our
common stock, prevent our common stock from dropping below the
Nasdaq minimum bid price requirement or prevent future
noncompliance with Nasdaq’s listing
requirements.
If we
fail to meet all applicable Nasdaq requirements and Nasdaq delists
our securities from trading on its exchange, we expect our
securities could be quoted on the Over-The-Counter Bulletin Board
(OTCBB) or the “pink sheets.” If this were to occur, we
face significant material adverse consequences,
including:
●
a limited
availability of market quotations for our securities;
●
reduced liquidity
for our securities;
●
a determination
that our common stock is “penny stock” which will
require brokers trading in our common stock to adhere to more
stringent rules and possibly result in a reduced level of trading
activity in the secondary trading market for our
securities;
●
a limited amount of
news and analyst coverage; and
●
a decreased ability
to issue additional securities or obtain additional financing in
the future.
Furthermore, the
National Securities Markets Improvement Act of 1996 (NSMIA) which
is a federal statute, prevents or preempts the states from
regulating the sale of certain securities, which are referred to as
“covered securities.” Because our common stock is
listed on Nasdaq, they are covered securities for the purpose of
NSMIA. If our securities were no longer listed on Nasdaq and
therefore not “covered securities,” we would be subject
to regulation in each state in which we offer our
securities.
We do not intend to pay cash dividends.
We do
not anticipate paying cash dividends on our common stock in the
foreseeable future. We may not have sufficient funds to legally pay
dividends. Even if funds are legally available to pay dividends, we
may nevertheless decide in our sole discretion not to pay
dividends. The declaration, payment and amount of any future
dividends will be made at the discretion of the board of directors,
and will depend upon, among other things, the results of our
operations, cash flows and financial condition, operating and
capital requirements and other factors our board of directors may
consider relevant. There is no assurance that we will pay any
dividends in the future, and, if dividends are declared, there is
no assurance with respect to the amount of any such
dividend.
Our operating history and lack of profits can lead to wide
fluctuations in our share price. The market price for our common
shares is particularly volatile given our status as a relatively
unknown company with a small and thinly traded public
float.
The
market for our common shares is characterized by significant price
volatility when compared to seasoned issuers, and we expect that
our share price will continue to be more volatile than a seasoned
issuer for the indefinite future. The volatility in our share price
is attributable to a number of factors. First, as noted above, our
common shares are sporadically and thinly traded. As a consequence
of this lack of liquidity, the trading of relatively small
quantities of shares by our stockholders may disproportionately
influence the price of those shares in either direction. The price
for our shares could, for example, decline precipitously in the
event that a large number of our common shares are sold on the
market without commensurate demand, as compared to a seasoned
issuer which could better absorb those sales without adverse impact
on its share price. Secondly, we are a speculative or
“risky” investment due to our limited operating history
and lack of profits to date. As a consequence of this enhanced
risk, more risk-adverse investors may, under the fear of losing all
or most of their investment in the event of negative news or lack
of progress, be more inclined to sell their shares on the market
more quickly and at greater discounts than would be the case with
the stock of a seasoned issuer. Many of these factors are beyond
our control and may decrease the market price of our common shares,
regardless of our operating performance. We cannot make any
predictions or projections as to what the prevailing market price
for our common shares will be at any time, including as to whether
our common shares will sustain their current market prices, or as
to what effect that the sale of shares or the availability of
common shares for sale at any time will have on the prevailing
market price.
We received a preliminary nonbinding proposal from a consortium led
by our Chief Executive Officer to acquire all of our outstanding
equity securities, and uncertainty regarding the potential
transaction and/or announcements related to the potential
transaction can impact our business, financial condition, results
of operations, and the market price of our common
stock.
On
November 11, 2019, the Company received a preliminary nonbinding
proposal letter from a consortium led by our Chief Executive
Officer, Mr. Bizuo (Tony) Liu, certain other senior management
members of the Company, Hillhouse Bio Holdings, L.P., TF Capital
Ranok Ltd., Dangdai International Group Co., Limited and Mission
Right Limited to acquire all outstanding shares of common stock
(each, a “Share,” collectively, the
“Shares”) of the Company (other than those Shares held
by members of the consortium that may be rolled over in connection
with the proposed transaction) for U.S.$19.50 per Share in cash in
a “going-private” transaction (the “Original
Proposed Transaction”). Upon receipt of the letter, the
Company’s Board of Directors (the “Board”) formed
a special committee (the “Special Committee”) comprised
of independent, disinterested directors to evaluate strategic
alternatives with the assistance of its advisors, including the
Original Proposed Transaction. The Special Committee consists of
four members of the Board, Alan Au, Edward Schafer, Terry A.
Belmont and Wen Tao (Steve) Liu, PhD, each of whom are independent,
with Alan Au serving as chairperson.
On
February 21, 2020, the Special Committee received a new preliminary
non-binding proposal letter from a consortium led by Liu, certain
other senior management members of the Company, Hillhouse Bio
Holdings, L.P., TF Capital Ranok Ltd., Dangdai International Group
Co., Limited, Mission Right Limited, Maplebrook Limited, Viktor
Pan, Zheng Zhou, OPEA SRL, Wealth Map Holdings Limited, Earls Mill
Limited (the “Consortium Members”) to acquire all
outstanding Shares of the Company (other than those Shares held by
members of the Consortium that may be rolled over in connection
with the proposed transaction) for U.S.$19.50 per Share in cash in
a “going-private” transaction (the “New Proposed
Transaction”). The Special Committee will consider the New
Proposed Transaction in connection with its evaluation of strategic
alternatives.
The
possibility of a “going-private” transaction, such as
the Original Proposed Transaction or the New Proposed Transaction,
or any other potential strategic alternative transaction, exposes
us and our operations to a number of risks and uncertainties,
including the potential failure to retain, attract or strengthen
our relationships with key personnel, current and potential
customers, suppliers, licensors and partners, which may cause them
to terminate, or not to renew or enter into, arrangements with us;
the potential incurrence of expenses associated with the retention
of legal, financial and other advisors regardless of whether any
transaction is consummated; distractions and disruptions in our
business; and exposure to potential litigation in connection with
this process and effecting any transaction, any of which could
adversely affect our share price, business, financial condition and
results of operations as well as the market price of our common
stock. Moreover, there can be no assurance that any definitive
offer in connection with the Original Proposed Transaction or the
New Proposed Transaction will be made or executed, or that the
Original Proposed Transaction, the New Proposed Transaction, or any
other alternative transaction, will be approved or consummated.
Announcements regarding developments relating to the Original
Proposed Transaction or the New Proposed Transaction can cause the
market price of our common stock to fluctuate
significantly.
ITEM 1B.
UNRESOLVED STAFF
COMMENTS
None.
Our
corporate headquarters are located at 1345 Avenue of Americas, 15th
Floor, New York, New York. On January 1, 2017, CBMG Shanghai
entered into a 10-year lease agreement with Shanghai Chuangtong
Industrial Development Co., Ltd., pursuant to which the Company
leased a 10,501.6 square meter building located in the
“Pharma Valley” of Shanghai, the People’s
Republic of China for research and development, manufacturing and
office space purposes. The term of the Lease is 10 years, starting
from January 1, 2017 and ending on December 31, 2026 (the
“Original Term”). During the Original Term, the monthly
rent will increase by 6% every two years. We are establishing a 43,000 square foot facility
in Shanghai that will house 25 clean-rooms and equipped with
12 independent production lines to support clinical batch
production and commercial scale manufacturing.
We
currently pay rent for a total of $316,000 per month for an
aggregate of approximately 195,000 square feet of space to house
our administration, research and manufacturing facilities in
Maryland and in the cities of Wuxi and Shanghai in
China.
ITEM 3.
LEGAL
PROCEEDINGS
We are
currently not involved in any litigation that we believe could have
a materially adverse effect on our financial condition or results
of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not
applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S
COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Our
common stock is quoted on the Nasdaq Global Market under the symbol
“CBMG.” Our stock was formerly quoted under the symbol
“EBIG.”
As of
February 24, 2020, there were 20,410,791 shares and 19,355,292
shares of common stock of the Company issued and outstanding,
respectively and there were approximately 1,700 stockholders of
record of the Company’s common stock.
Effective January
18, 2013, the Company completed its reincorporation from the State
of Arizona to the State of Delaware (the
“Reincorporation”). In connection with the
Reincorporation, shares of the former Arizona entity were exchanged
into shares of the Delaware entity at a ratio of 100 Arizona shares
for each 1 Delaware share, resulting in the same effect as a 1:100
reverse stock split. The Reincorporation became effective on
January 31, 2013. Please refer to the Current Report on Form 8-K,
filed by the Company on January 25, 2013. All values have been
retroactively adjusted.
Equity Compensation Plans
2009 Stock Option Plan
During
the first quarter of 2009, the Company’s Board of Directors
approved and adopted the 2009 Stock Option Plan (the “2009
Plan”) and designated 100,000 of its common stock for
issuance under the 2009 Plan to employees, directors or consultants
for the Company through either the issuance of shares or stock
option grants. Under the terms of the 2009 Plan, stock option
grants shall be made with exercise prices not less than 100% of the
fair market value of the shares of common stock on the grant date.
As of December 31, 2019, there are 4,593 shares that have not been
issued under this plan.
2011 Incentive Stock Option Plan (as amended)
During
the last quarter of 2011, the Company’s Board of Directors
approved and adopted the 2011 Incentive Plan (the “2011
Plan”) and designated 300,000 of its no par common stock for
issuance under the 2011 Plan to employees, directors or consultants
for the Company through either the issuance of shares or stock
option grants. Under the terms of the 2011 Plan, stock option
grants were authorized to be made with exercise prices not less
than 100% of the fair market value of the shares of common stock on
the grant date. On November 30, 2012, the Company’s Board of
Directors approved the Amended and Restated 2011 Incentive Stock
Option Plan (the “Restated 2011 Plan”), which amended
and restated the 2011 Plan to provide for the issuance of up to
780,000 (increasing up to 1% per year) shares of common stock. The
Restated 2011 Plan was approved by our stockholders on January 17, 2013. There are
2,231 shares available for issuance under this plan as of December
31, 2019.
2013 Stock Incentive Plan
On August 29, 2013, the Company’s Board of
Directors adopted the Cellular Biomedicine Group, Inc. 2013 Stock
Incentive Plan (the “2013 Plan”) to attract and retain
the best available personnel, to provide additional incentive to
employees, directors and consultants and to promote the success of
the Company’s business. The 2013 Plan was approved by our
stockholders on December 9, 2013. There are 90,011 shares
available for issuance under this plan as of December 31,
2019.
The
following summary describes the material features of the 2013 Plan.
The summary, however, does not purport to be a complete description
of all the provisions of the 2013 Plan. The following description
is qualified in its entirety by reference to the Plan.
Description of the 2013 Plan
The
purpose of the 2013 Plan is to attract and retain the best
available personnel, to provide additional incentive to employees,
directors and consultants and to promote the success of the
Company’s business. The Company has reserved up to 1,000,000
of the authorized but unissued or reacquired shares of common stock
of the Company. The Board or its appointed administrator has the
power and authority to grant awards and act as administrator
thereunder to establish the grant terms, including the grant price,
vesting period and exercise date.
Each
sale or award of shares under the 2013 Plan is made pursuant to the
terms and conditions provided for in an award agreement (an
“Award Agreement”) entered into by the Company and the
individual recipient. The number of shares covered by each
outstanding Award Agreement shall be proportionately adjusted for
(a) any increase or decrease in the number of issued shares of
common stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the common stock
or similar transaction affecting the common stock or (b) any other
increase or decrease in the number of issued shares of common stock
affected without receipt of consideration by the
Company.
Under
the 2013 Plan, the Board or its administrator has the authority:
(i) to select the employees, directors and consultants to whom
awards may be granted from time to time hereunder; (ii) to
determine whether and to what extent awards are granted;
(iii) to determine the number of shares or the amount of other
consideration to be covered by each award granted; (iv) to
approve forms of Award Agreements for use under the 2013 Plan;
(v) to determine the terms and conditions of any award
granted; (vi) to establish additional terms, conditions, rules
or procedures to accommodate the rules or laws of applicable
foreign jurisdictions and to afford grantees favorable treatment
under such rules or laws; provided, however, that no award shall be
granted under any such additional terms, conditions, rules or
procedures with terms or conditions which are inconsistent with the
provisions of the 2013 Plan; (vii) to amend the terms of any
outstanding award granted under the 2013 Plan; provided that any
amendment that would adversely affect the grantee’s rights
under an outstanding award shall not be made without the
grantee’s written consent; (viii) to construe and
interpret the terms of the 2013 Plan and awards, including without
limitation, any notice of award or Award Agreement granted pursuant
to the 2013 Plan; and (ix) to take such other action, not
inconsistent with the terms of the 2013 Plan, as the administrator
deems appropriate.
The
awards under the 2013 Plan other than Incentive Stock Options may
be granted to employees, directors and consultants. Incentive Stock
Options may be granted only to employees of the Company, a parent
or a subsidiary. An employee, director or consultant who has been
granted an award may, if otherwise eligible, be granted additional
awards. Awards may be granted to such employees, directors or
consultants who are residing in foreign jurisdictions as the
administrator may determine from time to time. Options granted
under the 2013 Plan will be subject to the terms and conditions
established by the administrator. Under the terms of the 2013 Plan,
the exercise price of the options will not be less than the fair
market value (as determined under the 2013 Plan) of our common
stock at the time of grant. Options granted under the 2013 Plan
will be subject to such terms, including the exercise price and the
conditions and timing of exercise, as may be determined by the
administrator and specified in the applicable award agreement. The
maximum term of an option granted under the 2013 Plan will be ten
years from the date of grant. Payment in respect of the exercise of
an option may be made in cash, by certified or official bank check,
by money order or with shares, pursuant to a
“cashless” or “net issue” exercise, by
a combination thereof or by such other method as the administrator
may determine to be appropriate and has been included in the terms
of the option.
The
2013 Plan may be amended, suspended or terminated by the Board, or
an administrator appointed by the Board, at any time and for any
reason.
2014 Stock Incentive Plan
On September 22, 2014, the Company’s Board
of Directors adopted the Cellular Biomedicine Group, Inc. 2014
Stock Incentive Plan (the “2014 Plan”) covering
1,200,000 shares to attract and retain the best available
personnel, to provide additional incentive to employees, directors
and consultants and to promote the success of the Company’s
business. The 2014 Plan was approved by our stockholders on
November 7, 2014. In 2017, the Company’s Board of
Directors approved the Amended and Restated 2014 Incentive Stock
Option Plan (the “Restated 2014 Plan”), which amended
and restated the 2014 Plan to increase the number of shares
available for issuance by 1,000,000 shares. The Restated 2014 Plan
was approved by our stockholders on April 28, 2017. There are
167,048 shares available for issuance under this plan as of
December 31, 2019.
The
following summary describes the material features of the 2014 Plan.
The summary, however, does not purport to be a complete description
of all the provisions of the 2014 Plan. The following description
is qualified in its entirety by reference to the Plan.
Description of the 2014 Plan
The
purpose of the 2014 Plan is to attract and retain the best
available personnel, to provide additional incentive to employees,
directors and consultants and to promote the success of the
Company’s business. The Company has reserved up to 1,200,000
of the authorized but unissued or reacquired shares of common stock
of the Company. The Board or its appointed administrator has the
power and authority to grant awards and act as administrator
thereunder to establish the grant terms, including the grant price,
vesting period and exercise date.
Each
sale or award of shares under the 2014 Plan is made pursuant to the
terms and conditions provided for in an Award Agreement entered
into by the Company and the individual recipient. The number of
shares covered by each outstanding Award Agreement shall be
proportionately adjusted for (a) any increase or decrease in the
number of issued shares of common stock resulting from a stock
split, reverse stock split, stock dividend, combination or
reclassification of the common stock or similar transaction
affecting the common stock or (b) any other increase or decrease in
the number of issued shares of common stock affected without
receipt of consideration by the Company.
Under
the 2014 Plan, the Board or its administrator has the authority:
(i) to select the employees, directors and consultants to whom
awards may be granted from time to time hereunder; (ii) to
determine whether and to what extent awards are granted;
(iii) to determine the number of shares or the amount of other
consideration to be covered by each award granted; (iv) to
approve forms of Award Agreements for use under the 2014 Plan;
(v) to determine the terms and conditions of any award
granted; (vi) to establish additional terms, conditions, rules
or procedures to accommodate the rules or laws of applicable
foreign jurisdictions and to afford grantees favorable treatment
under such rules or laws; provided, however, that no award shall be
granted under any such additional terms, conditions, rules or
procedures with terms or conditions which are inconsistent with the
provisions of the 2014 Plan; (vii) to amend the terms of any
outstanding award granted under the 2014 Plan; provided that any
amendment that would adversely affect the grantee’s rights
under an outstanding award shall not be made without the
grantee’s written consent; (viii) to construe and
interpret the terms of the 2014 Plan and awards, including without
limitation, any notice of award or Award Agreement granted pursuant
to the 2014 Plan; and (ix) to take such other action, not
inconsistent with the terms of the 2014 Plan, as the administrator
deems appropriate.
The
awards under the 2014 Plan other than Incentive Stock Options may
be granted to employees, directors and consultants. Incentive Stock
Options may be granted only to employees of the Company, a parent
or a subsidiary. An employee, director or consultant who has been
granted an award may, if otherwise eligible, be granted additional
awards. Awards may be granted to such employees, directors or
consultants who are residing in foreign jurisdictions as the
administrator may determine from time to time. Options granted
under the 2014 Plan will be subject to the terms and conditions
established by the administrator. Under the terms of the 2014 Plan,
the exercise price of the options will not be less than the fair
market value (as determined under the 2014 Plan) of our common
stock at the time of grant. Options granted under the 2014 Plan
will be subject to such terms, including the exercise price and the
conditions and timing of exercise, as may be determined by the
administrator and specified in the applicable award agreement. The
maximum term of an option granted under the 2014 Plan will be ten
years from the date of grant. Payment in respect of the exercise of
an option may be made in cash, by certified or official bank check,
by money order or with shares, pursuant to a
“cashless” or “net issue” exercise, by
a combination thereof or by such other method as the administrator
may determine to be appropriate and has been included in the terms
of the option.
The
2014 Plan may be amended, suspended or terminated by the Board, or
an administrator appointed by the Board, at any time and for any
reason.
2019 Stock Incentive Plan
On July 1, 2019, the Company’s Board of
Directors adopted the Cellular Biomedicine Group, Inc. 2019 Stock
Incentive Plan (the “2019 Plan”) covering 1,500,000
shares to attract and retain the best available personnel, to
provide additional incentive to employees, directors and
consultants and to promote the success of the Company’s
business. The 2019 Plan was approved by our stockholders on April
26, 2019. There are 1,418,370 shares available for issuance
under this plan as of December 31, 2019.
The
following summary describes the material features of the 2019 Plan.
The summary, however, does not purport to be a complete description
of all the provisions of the 2019 Plan. The following description
is qualified in its entirety by reference to the Plan.
Description of the 2019 Plan
The
purpose of the 2019 Plan is to attract and retain the best
available personnel, to provide additional incentive to employees,
directors and consultants and to promote the success of the
Company’s business. The Company has reserved up to 1,500,000
of the authorized but unissued or reacquired shares of common stock
of the Company. The Board or its appointed administrator has the
power and authority to grant awards and act as administrator
thereunder to establish the grant terms, including the grant price,
vesting period and exercise date.
Each
sale or award of shares under the 2019 Plan is made pursuant to the
terms and conditions provided for in an Award Agreement entered
into by the Company and the individual recipient. The number of
shares covered by each outstanding Award Agreement shall be
proportionately adjusted for (a) any increase or decrease in the
number of issued shares of common stock resulting from a stock
split, reverse stock split, stock dividend, combination or
reclassification of the common stock or similar transaction
affecting the common stock or (b) any other increase or decrease in
the number of issued shares of common stock affected without
receipt of consideration by the Company.
Under
the 2019 Plan, the Board or its administrator has the authority:
(i) to select the employees, directors and consultants to whom
awards may be granted from time to time hereunder; (ii) to
determine whether and to what extent awards are granted;
(iii) to determine the number of shares or the amount of other
consideration to be covered by each award granted; (iv) to
approve forms of Award Agreements for use under the 2014 Plan;
(v) to determine the terms and conditions of any award
granted; (vi) to establish additional terms, conditions, rules
or procedures to accommodate the rules or laws of applicable
foreign jurisdictions and to afford grantees favorable treatment
under such rules or laws; provided, however, that no award shall be
granted under any such additional terms, conditions, rules or
procedures with terms or conditions which are inconsistent with the
provisions of the 2019 Plan; (vii) to amend the terms of any
outstanding award granted under the 2019 Plan; provided that any
amendment that would adversely affect the grantee’s rights
under an outstanding award shall not be made without the
grantee’s written consent; (viii) to construe and
interpret the terms of the 2019 Plan and awards, including without
limitation, any notice of award or Award Agreement granted pursuant
to the 2019 Plan; and (ix) to take such other action, not
inconsistent with the terms of the 2019 Plan, as the administrator
deems appropriate.
The
awards under the 2019 Plan other than Incentive Stock Options may
be granted to employees, directors and consultants. Incentive Stock
Options may be granted only to employees of the Company, a parent
or a subsidiary. An employee, director or consultant who has been
granted an award may, if otherwise eligible, be granted additional
awards. Awards may be granted to such employees, directors or
consultants who are residing in foreign jurisdictions as the
administrator may determine from time to time. Options granted
under the 2019 Plan will be subject to the terms and conditions
established by the administrator. Under the terms of the 2019 Plan,
the exercise price of the options will not be less than the fair
market value (as determined under the 2019 Plan) of our common
stock at the time of grant. Options granted under the 2019 Plan
will be subject to such terms, including the exercise price and the
conditions and timing of exercise, as may be determined by the
administrator and specified in the applicable award agreement. The
maximum term of an option granted under the 2019 Plan will be ten
years from the date of grant. Payment in respect of the exercise of
an option may be made in cash, by certified or official bank check,
by money order or with shares, pursuant to a
“cashless” or “net issue” exercise, by
a combination thereof or by such other method as the administrator
may determine to be appropriate and has been included in the terms
of the option.
The 2019 Plan may be amended, suspended or terminated by the
Board, or an administrator appointed by the Board, at any time and
for any reason.
Stock Performance Graph
The
line graph that follows compares the cumulative total stockholder
return on our shares of common stock with the cumulative total
return of the Nasdaq Healthcare Index (^IXHC)* and the Russell 3000
Index (RUA)* Index for the five years ended December 31, 2019. The
graph and table assume that $100 was invested on the last day of
trading for the fiscal year 2014 in each of our shares of common
stock, the Nasdaq Healthcare Index and the Russell 3000 Index, and
that no dividends were paid. Cumulative total stockholder returns
for our shares of common stock, Nasdaq Healthcare Index and the
Russell 3000 Index are based on our fiscal year, which is the same
as the calendar year.
Dividends
We have
not in the past and do not anticipate paying cash dividends on our
common stock in the foreseeable future. The declaration, payment
and amount of future dividends, if any, will be made at the
discretion of the board of directors, and will depend upon, among
other things, the results of our operations, cash flows and
financial condition, operating and capital requirements and other
factors our board of directors may consider relevant.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
As previously disclosed on a Current Report on
Form 8-K filed on June 1, 2017, the Company authorized a share
repurchase program (the “2017 Share Repurchase Program”) pursuant to
which the Company may, from time to time, purchase shares of its
common stock for an aggregate purchase price not to exceed $10
million under which approximately $6.52 million in shares of common
stock were repurchased. On October 10, 2018, the Company commenced
a share repurchase program (the “2018 Share Repurchase Program”) pursuant to
which the Company may, from time to time, purchase shares of its
common stock for an aggregate purchase price not to exceed
approximately $8.48 million. We completed all of our repurchase
plans on March 31, 2019 for a grand total of 1,055,499 shares for a
total purchase price of $14.99 million. There were no shares
of common stock repurchased by the Company during the three months
period ended December 31, 2019.
Period
|
Total number of
shares purchased
|
Average price
paid per share
|
|
|
|
June 9, 2017 ~ June
30, 2017
|
170,169
|
$7.98
|
July 1, 2017 ~
September 30, 2017
|
114,156
|
$9.51
|
October 1, 2017 ~
December 31, 2017
|
142,469
|
$10.77
|
January 1, 2018 ~
March 31, 2018
|
37,462
|
$19.10
|
April 1, 2018 ~
June 30, 2018
|
96,512
|
$11.86
|
July 1, 2018 ~
September 30, 2018
|
-
|
$-
|
October 1, 2018 ~
December 31, 2018
|
440,731
|
$16.88
|
January 1, 2019 ~
March 31, 2019
|
54,000
|
$19.24
|
|
|
|
Total
|
1,055,499
|
$14.20
|
ITEM 6.
SELECTED FINANCIAL
DATA
The following
tables set forth certain of our selected consolidated financial
data as of the dates and for the years indicated. Historical
results are not necessarily indicative of the results to be
expected for any future period.
The
following selected consolidated financial information was derived
from our fiscal year end consolidated financial statements. The
following information should be read in conjunction with those
statements and Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Our summary consolidated statement of operations and comprehensive
loss data for the fiscal years ended December 31, 2019, 2018 and
2017 and our summary consolidated balance sheet data as
of December 31, 2019 and 2018, as set forth below, are derived
from, and are qualified in their entirety by reference to, our
audited consolidated financial statements, including the notes
thereto, which are included in this Annual Report. The summary
balance sheet data as of December 31, 2017, 2016 and 2015, and
summary consolidated statement of operations and comprehensive loss
data for the fiscal years ended December 31, 2016 and 2015, set
forth below are derived from our audited consolidated financial
statements which are not included herein.
Our
consolidated financial statements are prepared and presented in
accordance with accounting principles generally accepted in the
United States (“GAAP”).
|
For the Year
EndedDecember 31,
|
|
|
|
|
|
|
|
|
|
|
|
Summary
Consolidated statement of operations and comprehensive loss
data:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales and
revenue
|
$339,920
|
$224,403
|
$336,817
|
$627,930
|
$2,505,423
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Cost of
sales
|
62,378
|
135,761
|
162,218
|
860,417
|
1,880,331
|
General and
administrative
|
13,458,151
|
13,220,757
|
12,780,483
|
11,670,506
|
13,068,255
|
Selling and
marketing
|
141,597
|
308,830
|
360,766
|
425,040
|
709,151
|
Research and
development
|
37,669,978
|
24,150,480
|
14,609,917
|
11,475,587
|
7,573,228
|
Impairment of
non-current assets
|
-
|
2,914,320
|
-
|
4,611,714
|
123,428
|
Total
operating expenses
|
51,332,104
|
40,730,148
|
27,913,384
|
29,043,264
|
23,354,393
|
Operating
loss
|
(50,992,184)
|
(40,505,745)
|
(27,576,567)
|
(28,415,334)
|
(20,848,970)
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
Interest
income
|
809,785
|
392,328
|
133,621
|
78,943
|
42,220
|
Other
income
|
199,390
|
1,172,879
|
1,955,086
|
132,108
|
630,428
|
Total
other income
|
1,009,175
|
1,565,207
|
2,088,707
|
211,051
|
672,648
|
Loss before
taxes
|
(49,983,009)
|
(38,940,538)
|
(25,487,860)
|
(28,204,283)
|
(20,176,322)
|
|
|
|
|
|
|
Income taxes credit
(provision)
|
(1,045)
|
(4,954)
|
(2,450)
|
(4,093)
|
728,601
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$(49,984,054)
|
$(38,945,492)
|
$(25,490,310)
|
$(28,208,376)
|
$(19,447,721)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
Cumulative
translation adjustment
|
8,242
|
(1,079,689)
|
967,189
|
(743,271)
|
(307,950)
|
Unrealized
gain (loss) on investments, net of tax
|
-
|
-
|
(240,000)
|
5,300,633
|
(1,376,540)
|
Reclassification
adjustments, net of tax, in connection with other-than-temporary
impairment of investments
|
-
|
-
|
-
|
(5,557,939)
|
-
|
Total other
comprehensive income (loss):
|
8,242
|
(1,079,689)
|
727,189
|
(1,000,577)
|
(1,684,490)
|
|
|
|
|
|
|
Comprehensive
loss
|
$(49,975,812)
|
$(40,025,181)
|
$(24,763,121)
|
$(29,208,953)
|
$(21,132,211)
|
|
|
|
|
|
|
Net loss per share
:
|
|
|
|
|
|
Basic
and diluted
|
$(2.63)
|
$(2.20)
|
$(1.78)
|
$(2.09)
|
$(1.70)
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
Basic
and diluted
|
18,983,206
|
17,741,104
|
14,345,604
|
13,507,408
|
11,472,306
|
|
|
|
|
|
|
|
|
Summary
Consolidated balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$15,443,649
|
$52,812,880
|
$21,568,422
|
$39,252,432
|
$14,884,597
|
Current working
capital (1)
|
10,356,774
|
46,566,505
|
20,118,725
|
38,328,048
|
13,675,034
|
Total
assets
|
97,324,300
|
107,581,349
|
61,162,296
|
68,628,467
|
49,460,422
|
Other non-current
liabilities
|
17,933,743
|
14,321,751
|
183,649
|
370,477
|
76,229
|
Stockholders’
equity
|
55,717,691
|
85,218,392
|
57,302,526
|
65,893,954
|
46,364,936
|
(1)
Current working
capital is the difference between total current assets and total
current liabilities.
(2)
Current working
capital, total assets and other non-current liabilities do not
include the retrospective adjustments for adoption of ASU No.
2016-02 “Leases (Topic 842)” as of December 31,
2017, 2016 and 2015.
ITEM 7.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The
following is management’s discussion and analysis of certain
significant factors that have affected our financial position and
operating results during the periods included in the accompanying
consolidated financial statements, as well as information relating
to the plans of our current management. This report includes
forward-looking statements. Generally, the words
“believes,” “anticipates,”
“may,” “will,” “should,”
“expect,” “intend,” “estimate,”
“continue” and similar expressions or the negative
thereof or comparable terminology are intended to identify
forward-looking statements. Such statements are subject to certain
risks and uncertainties, including the matters set forth in this
report or other reports or documents we file with the Securities
and Exchange Commission from time to time, which could cause actual
results or outcomes to differ materially from those projected.
Undue reliance should not be placed on these forward-looking
statements which speak only as of the date hereof. We undertake no
obligation to update these forward-looking statements.
The
following discussion and analysis should be read in conjunction
with our consolidated financial statements and the related notes
thereto and other financial information included in Item 8 -
Financial Statements and Supplemental Data of this Annual Report on
Form 10-K.
Critical Accounting Policies and Estimates
We
prepare our consolidated financial statements in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires the
use of estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting
period. Our management periodically evaluates the estimates and
judgments made. Management bases its estimates and judgments on
historical experience and on various factors that are believed to
be reasonable under the circumstances. Actual results may differ
from these estimates as a result of different assumptions or
conditions.
The
following summarizes critical estimates made by management in the
preparation of the consolidated financial statements.
Revenue Recognition
Revenues consist
mainly of cell banking services as well as cell therapy technology
services with customers. The Company evaluates the separate
performance obligation(s) under each contract, allocates the
transaction price to each performance obligation considering the
estimated stand-alone selling prices of the services and recognizes
revenue upon the satisfaction of such obligations over time or at a
point in time dependent on the satisfaction of one of the following
criteria: (1) the customer simultaneously receives and consumes the
economic benefits provided by the vendor’s performance; (2)
the vendor creates or enhances an asset controlled by the customer;
or (3) the vendor’s performance does not create an asset for
which the vendor has an alternative use, and the vendor has an
enforceable right to payment for performance completed to date.
Revenue from rendering of services is measured at the fair value of
the consideration received or receivable under the contract or
agreement. Revenue from cell therapy technology services is
recognized in profit or loss at the point when customers
simultaneously receive and consume the services. Revenue from cell
banking storage is recognized in profit or loss on a straight-line
basis over the storage period.
Property, Plant and Equipment
Property, plant and
equipment are recorded at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets
ranging from three to ten years and begins when the related assets
are placed in service. Maintenance and repairs that neither
materially add to the value of the property nor appreciably prolong
its life are charged to expense as incurred. Betterments or
renewals are capitalized when incurred. Property, plant and
equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash
flow is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair value and carrying
value of the asset. Repair and maintenance costs are charged to
operating expense as incurred.
For the
years ended December 31, 2019, 2018 and 2017, depreciation expense
was $4,187,330, $3,360,517 and $1,195,705,
respectively.
Goodwill and Other Intangibles
Goodwill represents
the excess of the cost of assets acquired over the fair value of
the net assets at the date of acquisition. Intangible assets
represent the fair value of separately recognizable intangible
assets acquired in connection with the Company’s business
combinations. The Company evaluates its goodwill and other
intangibles for impairment on an annual basis or whenever events or
circumstances indicate that impairment may have occurred.
The
evaluation includes comparing the fair value of the reporting unit
to the carrying value, including goodwill. If the fair value
exceeds the carrying value, no impairment loss is recognized.
However, if the carrying value of the reporting unit exceeds its
fair value, the goodwill of the reporting unit may be impaired.
Impairment is measured by comparing the implied fair value of the
goodwill to its carrying value.
The
carrying amount of the goodwill at December 31, 2019 and 2018
represents the cost arising from the business combinations in
previous years and no impairment on goodwill was recognized for the
years ended December 31, 2019 and 2018 as the Company continues to
use the patents and knowhow acquired in the business combination in
the Company’s current immune therapy R&D activities and
there was no indication for impairment.
Government Grants
Government grants
are recognized in the balance sheet initially when there is
reasonable assurance that they will be received and that the
enterprise will comply with the conditions attached to them. When
the Company received the government grants but the conditions
attached to the grants have not been fulfilled, such government
grants are deferred and recorded as deferred income. The
classification of short-term or long-term liabilities is depended
on the management’s expectation of when the conditions
attached to the grant can be fulfilled. Grants that compensate the
Company for expenses incurred are recognized as other income in
statement of income on a systematic basis in the same periods in
which the expenses are incurred.
For the
years ended December 31, 2019, 2018 and 2017, the Company received
government grants of $824,782, $1,105,272 and $1,905,213,
respectively, for purposes of R&D and related capital
expenditure. Government subsidies recognized as other income in the
statement of income for the year ended December 31, 2019, 2018 and
2017 were $671,404, $1,119,827 and $2,077,486,
respectively.
Valuation of Long-lived Asset
The
Company reviews the carrying value of long-lived assets to be held
and used, including other intangible assets subject to
amortization, when events and circumstances warrants such a review.
The carrying value of a long-lived asset is considered impaired
when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value. In
that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived
asset and intangible assets. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets
and intangible assets to be disposed are determined in a similar
manner, except that fair market values are reduced for the cost to
dispose.
Income Taxes
Income
taxes are accounted for using the asset and liability method. Under
this method, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance
would be provided for those deferred tax assets if it is more
likely than not that the related benefit will not be
realized.
A full
valuation allowance has been established against all net deferred
tax assets as of December 31, 2019 and 2018 based on estimates of
recoverability. While the Company has optimistic plans for its
business strategy, we determined that such a valuation allowance
was necessary given the current and expected near term losses and
the uncertainty with respect to the Company’s ability to
generate sufficient profits from its business model.
Share-Based Compensation
The
Company periodically uses stock-based awards, consisting of shares
of common stock and stock options, to compensate certain officers
and consultants. Shares are expensed on a straight-line basis over
the requisite service period based on the grant date fair value,
net of estimated forfeitures, if any. We currently use the Black-Scholes option-pricing
model to estimate the fair value of our stock-based payment awards.
This model requires the input of subjective assumptions, including
the fair value of the underlying common stock, the expected
volatility of the price of our common stock, risk-free interest
rates, the expected term of the option and the expected dividend
yield of our common stock. These estimates involve inherent
uncertainties and the application of management’s judgment.
If factors change and different assumptions are used, our
stock-based compensation expense could be materially different in
the future. These assumptions are estimated as
follows:
●
Fair
Value of Our Common Stock — Our common stock is valued by
reference to the publicly-traded price of our common
stock.
●
Expected
Volatility — Prior to the Eastbridge merger, we did not have
a history of market prices for our common stock and since the
merger, we do not have what we consider a sufficiently active and
readily traded market for our common stock to use historical market
prices for our common stock to estimate volatility. Accordingly, we
estimate the expected stock price volatility for our common stock
by taking the median historical stock price volatility for industry
peers based on daily price observations over a period equivalent to
the expected term of the stock option grants. Industry peers
consist of other public companies in the stem cell industry similar
in size, stage of life cycle and financial leverage. We intend to
continue to consistently apply this process using the same or
similar public companies until a sufficient amount of historical
information regarding the volatility of our own common stock share
price becomes available.
●
Risk-Free
Interest Rate — The risk-free interest rate assumption is
based on observed interest rates appropriate for the expected terms
of our awards. The risk-free interest rate assumption is based on
the yields of U.S. Treasury securities with maturities similar to
the expected term of the options for each option
group.
●
Expected
Term — The expected term represents the period that our
stock-based awards are expected to be outstanding. The expected
terms of the awards are based on a simplified method which defines
the life as the average of the contractual term of the options and
the weighted-average vesting period for all open
tranches.
●
Expected
Dividend Yield — We have never declared or paid any cash
dividends and do not presently plan to pay cash dividends in the
foreseeable future. Consequently, we used an expected dividend
yield of zero.
In
addition to the assumptions used in the Black-Scholes
option-pricing model, the amount of stock option expense we
recognize in our consolidated statements of operations includes an
estimate of stock option forfeitures. We estimate our forfeiture
rate based on an analysis of our actual forfeitures and will
continue to evaluate the appropriateness of the forfeiture rate
based on actual forfeiture experience, analysis of employee
turnover and other factors. Changes in the estimated forfeiture
rate can have a significant impact on our stock-based compensation
expense as the cumulative effect of adjusting the rate is
recognized in the period the forfeiture estimate is changed. If a
revised forfeiture rate is higher than the previously estimated
forfeiture rate, an adjustment is made that will result in a
decrease to the stock-based compensation expense recognized in the
consolidated financial statements. If a revised forfeiture rate is
lower than the previously estimated forfeiture rate, an adjustment
is made that will result in an increase to the stock-based
compensation expense recognized in our consolidated financial
statements.
Fair Value of Financial Instruments
Under
authoritative guidance from the Financial Accounting Standards Board
(“FASB”) on fair value measurements, fair value
is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. In determining the fair
value, the Company uses various methods including market, income
and cost approaches. Based on these approaches, the Company often
utilizes certain assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk
and the risks inherent in the inputs to the valuation technique.
These inputs can be readily observable, market corroborated or
generally unobservable inputs. The Company uses valuation
techniques that maximize the use of observable inputs and minimize
the use of unobservable inputs. Based on observability of the
inputs used in the valuation techniques, the Company is required to
provide the following information according to the fair value
hierarchy. The fair value hierarchy ranks the quality and
reliability of the information used to determine fair values.
Financial assets and liabilities carried at fair value are
classified and disclosed in one of the following three
categories:
Level
1: Valuations for assets and liabilities traded in active exchange
markets. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or
liabilities.
Level
2: Valuations for assets and liabilities traded in less active
dealer or broker markets. Valuations are obtained from third-party
pricing services for identical or similar assets or
liabilities.
Level
3: Valuations for assets and liabilities that are derived from
other valuation methodologies, including option pricing models,
discounted cash flow models and similar techniques, and not based
on market exchange, dealer or broker traded transactions. Level 3
valuations incorporate certain unobservable assumptions and
projections in determining the fair value assigned to such
assets.
All transfers
between fair value hierarchy levels are recognized by the Company
at the end of each reporting period. In certain cases, the inputs
used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, an investment’s level
within the fair value hierarchy is based on the lowest level of
input that is significant to the fair value measurement in its
entirety requires judgment, and considers factors specific to the
investment. The inputs or methodology used for valuing financial
instruments are not necessarily an indication of the risks
associated with investment in those instruments.
The
carrying amounts of other financial instruments, including cash,
accounts receivable, accounts payable and accrued liabilities,
income tax payable and related party payable approximate fair value
due to their short maturities. The carrying value of the Company's
borrowing from China Merchant Bank Shanghai Branch approximates
fair value as the borrowing bears interest rates that are similar
to existing market rates
Lease
We
determine if an arrangement is a lease at inception. Operating
leases are included in operating lease right-of-use
(“ROU”) assets, other current liabilities, and
operating lease liabilities in our consolidated balance
sheets.
ROU
assets represent our right to use an underlying asset for the lease
term and lease liabilities represent our obligation to make lease
payments arising from the lease. Operating lease ROU assets and
liabilities are recognized at commencement date based on the
present value of lease payments over the lease term. As most of our
leases do not provide an implicit rate, we use our incremental
borrowing rate based on the information available at commencement
date in determining the present value of lease payments. We use the
implicit rate when readily determinable. The operating lease ROU
asset also includes any lease payments made and excludes lease
incentives. Our lease terms may include options to extend or
terminate the lease when it is reasonably certain that we will
exercise that option. Lease expense for lease payments is
recognized on a straight-line basis over the lease
term.
Investments
Equity
investments, with or without readily determinable fair values, are
measured at fair value with changes in the fair value recognized
through other income (expense) net.
Recent Accounting Pronouncements
Accounting pronouncements adopted during the year ended December
31, 2019
In June 2018, the Financial Accounting Standards
Board (“FASB”)
issued ASU 2018-07, which
simplifies several aspects of the accounting for nonemployee
share-based payment transactions resulting from expanding the scope
of Topic 718, Compensation-Stock Compensation, to include
share-based payment transactions for acquiring goods and services
from non-employees. Some of the areas for simplification apply only
to nonpublic entities. The amendments specify that Topic 718
applies to all share-based payment transactions in which a grantor
acquires goods or services to be used or consumed in a
grantor’s own operations by issuing share-based payment
awards. The amendments also clarify that Topic 718 does not apply
to share-based payments used to effectively provide (1) financing
to the issuer or (2) awards granted in conjunction with selling
goods or services to customers as part of a contract accounted for
under Topic 606, Revenue from Contracts with Customers. The
amendments in this Update are effective for public business
entities for fiscal years beginning after December 15, 2018,
including interim periods within that fiscal year. Early adoption
is permitted. The adoption of the ASU 2018-07 did not have a material impact on the
Company’s consolidated financial
statements.
In February 2018, the FASB issued
ASU No. 2018-02, “Income
Statement—Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income” (“ASU 2018-02”) which provides
financial statement preparers with an option to reclassify stranded
tax effects within accumulated other comprehensive income to
retained earnings in each period in which the effect of the change
in the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act (or portion thereof) is recorded. The amendments in
this ASU are effective for all
entities for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. Early adoption of ASU
2018-02 is permitted, including adoption in any interim period for
the public business entities for reporting periods for which
financial statements have not yet been issued. The amendments in
this ASU should be applied
either in the period of adoption or retrospectively to each period
(or periods) in which the effect of the change in the U.S. federal
corporate income tax rate in the Tax Cuts and Jobs Act is
recognized. The adoption of the ASU 2018-02 did not have a material
impact on the Company’s consolidated financial
statements.
In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic
260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for
Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Non-controlling Interests with a Scope
Exception” (“ASU
2017-11”) which addresses the complexity of accounting for
certain financial instruments with down round features. Down round
features are features of certain equity-linked instruments (or
embedded features) that result in the strike price being reduced on
the basis of the pricing of future equity offerings.
Current accounting guidance creates
cost and complexity for entities that issue financial instruments
(such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire
instrument or conversion option. The amendments in Part I of
this ASU are effective for
public business entities for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. The
adoption of the ASU 2017-11 did not have a material impact on the
Company’s consolidated financial
statements.
In February 2016, the FASB issued
ASU No.
2016-02, “Leases (Topic
842)” (“ASU
2016-02”). The amendments in this update create Topic 842,
Leases, and supersede the leases requirements in Topic 840, Leases.
Topic 842 specifies the accounting for leases. The objective of
Topic 842 is to establish the principles that lessees and lessors
shall apply to report useful information to users of financial
statements about the amount, timing and uncertainty of cash flows
arising from a lease. The main difference between Topic 842 and
Topic 840 is the recognition of lease assets and lease liabilities
for those leases classified as operating leases under Topic 840.
Topic 842 retains a distinction between finance leases and
operating leases. The classification criteria for distinguishing
between finance leases and operating leases are substantially
similar to the classification criteria for distinguishing between
capital leases and operating leases in the previous leases
guidance. The result of retaining a distinction between finance
leases and operating leases is that under the lessee accounting
model in Topic 842, the effect of leases in the statement of
comprehensive income and the statement of cash flows is largely
unchanged from previous GAAP. The amendments in ASU 2016-02 are
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years for public
business entities. Early application of the amendments in ASU
2016-02 is permitted. The adoption impact of the ASU 2016-02 on the
Company’s consolidated financial statements is illustrated in
notes of the accompanying consolidated financial
statements.
Accounting pronouncements not yet effective
In August 2018, the FASB issued Accounting
Standards Update (“ASU”) No. 2018-13,
“Fair Value
Measurement (Topic 820)” which eliminates, adds and modifies certain
disclosure requirements for fair value measurements. The modified
standard eliminates the requirement to disclose changes in
unrealized gains and losses included in earnings for recurring
Level 3 fair value measurements and requires changes in unrealized
gains and losses be included in other comprehensive income for
recurring Level 3 fair value measurements of instruments. The
standard also requires the disclosure of the range and weighted
average used to develop significant unobservable inputs and how
weighted average is calculated for recurring and nonrecurring Level
3 fair value measurements. The amendment is effective for fiscal
years beginning after December 15, 2019 and interim periods within
that fiscal year with early adoption permitted. We do not expect
the standard to have a material impact on our consolidated
financial statements.
In January 2017, the FASB issued ASU No.
2017-04, “Intangibles—Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill
Impairment” (“ASU
2017-04”) which removes Step 2 from the goodwill impairment
test. An entity will apply a one-step quantitative test and record
the amount of goodwill impairment as the excess of a reporting
unit’s carrying amount over its fair value, not to exceed the
total amount of goodwill allocated to the reporting unit. The new
guidance does not amend the optional qualitative assessment of
goodwill impairment. Public business entity that is a U.S.
Securities and Exchange Commission filer should adopt the
amendments in this ASU for its annual or any interim goodwill
impairment test in fiscal years beginning after December 15, 2019.
Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017.
We do not expect the standard to have a material impact on our
consolidated financial statements.
In June 2016, the FASB issued ASU No.
2016-13, “Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments” (“ASU 2016-13”). Financial
Instruments—Credit Losses (Topic 326) amends guideline on
reporting credit losses for assets held at amortized cost basis and
available-for-sale debt securities. For assets held at amortized
cost basis, Topic 326 eliminates the probable initial recognition
threshold in current GAAP and, instead, requires an entity to
reflect its current estimate of all expected credit losses. The
allowance for credit losses is a valuation account that is deducted
from the amortized cost basis of the financial assets to present
the net amount expected to be collected. For available-for-sale
debt securities, credit losses should be measured in a manner
similar to current GAAP; however, Topic 326 will require that
credit losses be presented as an allowance rather than as a
write-down. ASU 2016-13 affects entities holding financial assets
and net investment in leases that are not accounted for at fair
value through net income. The amendments affect loans, debt
securities, trade receivables, net investments in leases, off
balance sheet credit exposures, reinsurance receivables and any
other financial assets not excluded from the scope that have the
contractual right to receive cash. The amendments in this ASU will
be effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. We do not
expect the standard to have a material impact on our consolidated
financial statements.
Comparison of Year Ended December 31, 2019 to Years Ended December
31, 2018 and 2017
|
For the Year
Ended December 31,
|
|
|
|
|
|
|
|
|
Net sales and
revenue
|
$339,920
|
$224,403
|
$336,817
|
|
|
|
|
Operating
expenses:
|
|
|
|
Cost of sales
*
|
62,378
|
135,761
|
162,218
|
General and
administrative *
|
13,458,151
|
13,220,757
|
12,780,483
|
Selling and
marketing *
|
141,597
|
308,830
|
360,766
|
Research and
development *
|
37,669,978
|
24,150,480
|
14,609,917
|
Impairment of
non-current assets
|
-
|
2,914,320
|
-
|
Total
operating expenses
|
51,332,104
|
40,730,148
|
27,913,384
|
Operating
loss
|
(50,992,184)
|
(40,505,745)
|
(27,576,567)
|
|
|
|
|
Other
income
|
|
|
|
Interest
income
|
809,785
|
392,328
|
133,621
|
Other
income
|
199,390
|
1,172,879
|
1,955,086
|
Total
other income
|
1,009,175
|
1,565,207
|
2,088,707
|
Loss before
taxes
|
(49,983,009)
|
(38,940,538)
|
(25,487,860)
|
|
|
|
|
Income
taxes provision
|
(1,045)
|
(4,954)
|
(2,450)
|
Net
loss
|
$(49,984,054)
|
$(38,945,492)
|
$(25,490,310)
|
Other comprehensive
income (loss):
|
|
|
|
Cumulative
translation adjustment
|
8,242
|
(1,079,689)
|
967,189
|
Unrealized
loss on investments, net of tax
|
-
|
-
|
(240,000)
|
Total other
comprehensive income (loss):
|
8,242
|
(1,079,689)
|
727,189
|
|
|
|
|
Comprehensive
loss
|
$(49,975,812)
|
$(40,025,181)
|
$(24,763,121)
|
|
|
|
|
Net loss per
share:
|
|
|
|
Basic
and diluted
|
$(2.63)
|
$(2.20)
|
$(1.78)
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
Basic
and diluted
|
18,983,206
|
17,741,104
|
14,345,604
|
*
These line items include the following amounts of non-cash,
stock-based compensation expense for the periods
indicated:
|
For the Year
Ended December 31,
|
|
|
|
|
|
|
|
|
Cost of
sales
|
-
|
-
|
51,288
|
General and
administrative
|
1,885,653
|
2,307,191
|
2,935,798
|
Selling and
marketing
|
10,225
|
79,845
|
52,984
|
Research and
development
|
2,168,103
|
2,439,709
|
2,305,141
|
|
4,063,981
|
4,826,745
|
5,345,211
|
Segments
The
Company is engaged in the development of new treatments for
cancerous and degenerative diseases utilizing proprietary
cell-based technologies, which have been organized as one reporting
segment since they have similar nature and economic
characteristics. The Company’s principle operating decision
maker, the Chief Executive Officer, receives and reviews the
results of the operations for all major cell platforms as a whole
when making decisions about allocating resources and assessing
performance of the Company. In accordance with FASB ASC 280-10, the
Company is not required to report the segment
information.
Results of Operations:
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$339,920
|
$224,403
|
$336,817
|
$115,517
|
51%
|
$(112,414)
|
(33)%
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018
Revenue
for the year ended December 31, 2019 was mainly derived from
technology development service whereas revenue for the year ended
December 31, 2018 was mainly derived from both cell banking
services and cell therapy technology service.
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended
December 31, 2017
Revenue
for the year ended December 31, 2018 was mainly derived from both
cell banking services and cell therapy technology service whereas
revenue for the year ended December 31, 2017 was solely derived
from cell therapy technology service. In 2018, we determined to
further deprioritize our cell therapy technology service, which was
only partially offset by the introduction of our cell banking
services.
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$62,378
|
$135,761
|
$162,218
|
$(73,383)
|
(54)%
|
$(26,457)
|
(16)%
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018
The
gross margin change was a result of the revenue mix change toward
technology development services.
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended
December 31, 2017
The
gross margin change was a result of the revenue mix change toward
adipose cell banking services.
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$13,458,151
|
$13,220,757
|
$12,780,483
|
$237,394
|
2%
|
$440,274
|
3%
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018
No
material change compared to the year ended December 31,
2018.
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended
December 31, 2017
Change
in G&A expenses was primarily additional costs related to
advisory in financing, and professional fees in the Novartis
transaction.
Sales
and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$141,597
|
$308,830
|
$360,766
|
$(167,233)
|
(54)%
|
$(51,936)
|
(14)%
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018
Decline
in sales and marketing expenses was mainly attributed to the
decrease in line with the sales team headcount as compared with the
year ended December 31, 2018.
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended
December 31, 2017
No
material change compared to the year ended December 31,
2017.
Research and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$37,669,978
|
$24,150,480
|
$14,609,917
|
$13,519,498
|
56%
|
$9,540,563
|
65%
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018
Research
and development expenses increased by approximately $13,519,000
compared to the year ended December 31, 2018. The increase was
primarily attributed to the increased spending in the growth of our
pipeline in both liquid tumor and solid tumor development and
expansion of our U.S. R&D operations based in Gaithersburg,
Maryland. In the third quarter of 2019, the Company entered into a
Facility Improvement and Process Validation Agreement with Duke
University. Pursuant to the Agreement, Duke University and the
Company agreed to collaborate on a clinical trial of tumor
infiltrating lymphocytes (TIL cells) that will be performed at Duke
and funded by CBMG. In consideration of Duke University’s
performance of the project, the Company agreed to pay Duke
University for improvement of Duke’s GMP facility, which
resulted in higher research and development expenses in
2019.
Research
and development expenses for the year ended December 31, 2019 are
as follows:
|
For the year
ended
December
31,
2019
|
|
|
Research and
pre-clinical studies
|
$10,206,363
|
Development,
clinical development and studies
|
27,463,615
|
|
|
Total
|
$37,669,978
|
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended
December 31, 2017
Research
and development expenses increased by approximately $9,541,000
compared to the year ended December 31, 2017. The increase was
primarily attributed to increased spending in the growth of our
pipeline in both liquid tumor and solid tumor development and
expanding the U.S. research and development operations at
Gaithersburg, Maryland.
Impairment of Non-current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$-
|
$2,914,320
|
$-
|
$(2,914,320)
|
(100)%
|
$2,914,320
|
N/A
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018 and 2017
The
impairment of investments for the year ended December 31, 2018 is
comprised of the recognition of other than temporary impairment on
the value of shares in investments of $29,423 and impairment of
$2,884,896 provided against the net book value of GVAX license. No
such expense existed for the years ended December 31, 2019 and
2017.
The Company provided full impairment of $29,424 for shares
of Alpha Lujo, Inc.
(“ALEV”) for the year ended December 31, 2018 as
ALEV filed Form 15 with the SEC and
has not been traded in the market since 2018.
The
Company reassessed the prioritization of our immuno-oncology
assets, decided to terminate the development of GVAX technology and
its license agreements with the University of South Florida
(“USF”) and the Moffitt Cancer Center
(“Moffitt”). As a result the Company made a full
impairment of $2,884,896 for the USF and Moffitt
licenses.
Operating Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$(50,992,184)
|
$(40,505,745)
|
$(27,576,567)
|
$(10,486,439)
|
26%
|
$(12,929,178)
|
47%
|
The
increase in the operating loss for 2019 compared to 2018 and 2017
was primarily due to changes in research and development expenses
and impairment of investments, each of which was described
above.
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$1,009,175
|
$1,565,207
|
$2,088,707
|
$(556,032)
|
(36)%
|
$(523,500)
|
(25)%
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018 and 2017
Other
income, net for the year ended December 31, 2019 was primarily
government subsidy of $671,000, interest income of $810,000, and
netting of interest expense of $482,000.
Other
income, net for the year ended December 31, 2018 was primarily
government subsidy of $1,120,000, interest income of $392,000, and
netting of the net foreign exchange gain of $74,000.
Other
income, net for the year ended December 31, 2017 was primarily
government subsidy of $2,077,000, interest income of $134,000, and
netting of the net foreign exchange loss of $112,000.
Income Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$(1,045)
|
$(4,954)
|
$(2,450)
|
$3,909
|
(79)%
|
$(2,504)
|
102%
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018 and 2017
While
we have plans for growing and developing our business, we
determined that a valuation allowance was necessary given the
current and expected near term losses and the uncertainty with
respect to our ability to generate sufficient profits from our
business model. Therefore, we established a valuation allowance for
deferred tax assets other than the extent of the benefit from other
comprehensive income. Income tax expenses for the year ended
December 31, 2019 and 2017 all represent U.S. state tax. Income tax
expense for the year ended December 31, 2018 was comprised of U.S.
state tax of $2,475 and the withholding corporation income tax of
$2,479 of our Hong Kong subsidiary for its royalty income derived
from China.
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$(49,984,054)
|
$(38,945,492)
|
$(25,490,310)
|
$(11,038,562)
|
28%
|
$(13,455,182)
|
53%
|
Changes
in net loss are primarily attributable to changes which are
described above.
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December
31,
|
$(49,975,812)
|
$(40,025,181)
|
$(24,763,121)
|
$(9,950,631)
|
25%
|
$(15,262,060)
|
62%
|
Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended
December 31, 2018
Comprehensive
net loss for the years ended December 31, 2019 and 2018 include a
currency translation net gain (loss) of approximately $8,000 and
($1,080,000), respectively, combined with the changes in net
income.
Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended
December 31, 2017
Comprehensive
net loss for 2017 includes unrealized loss on investments of
approximately $240,000 and a currency translation net gain of
approximately $967,000 combined with the changes in net loss. The
unrealized loss on investments was attributed to the valuation
change for the stock investment in Arem Pacific Corporation
(“ARPC”).
Share-Based Compensation
Share-based
compensation totaled $4.1 million in 2019, $4.8 million in 2018 and
$5.3 million in 2017. Share-based compensation was included in cost
of sales and operating expenses.
As of
December 31, 2019, unrecognized share-based compensation costs and
the weighted average periods over which the costs are expected to
be recognized were as follows:
|
|
Unrecognized
Share-Based Compensation Costs
|
|
|
|
|
|
|
|
|
|
Non-vested stock
options
|
263,822
|
$2,248,351
|
1.05 year
|
Non-vested
restricted stock
|
235,822
|
$2,994,358
|
1.24 year
|
Non-vested
restricted stock above does not include restricted stock awards
(RS) linked to the stock price performance to be issued under
long-term incentive plan.
LIQUIDITY AND CAPITAL RESOURCES
We had
working capital of $10,356,774 as of December 31, 2019 compared to
$46,566,505 as of December 31, 2018. Our cash position decreased to
$32,443,649 at December 31, 2019 compared to $52,812,880 at
December 31, 2018, as we had an increase in cash used in operating
and investing activities partially offset by cash inflow generated
from financing activities due to public offering financing in 2019
for aggregate net proceeds of approximately $17.0 million and
short-term debt borrowed of $14.5 million.
Net
cash provided by or used in operating, investing and financing
activities from continuing operations were as follows:
Net
cash used in operating activities was approximately $39,650,000,
$25,113,000 and $18,593,000 for the years ended December 31, 2019,
2018 and 2017, respectively. The following table reconciles net
loss to net cash used in operating activities:
|
|
|
|
|
|
For year ended December 31,
|
|
|
|
|
|
Net
loss
|
$(49,984,054)
|
$(38,945,492)
|
$(25,490,310)
|
$(11,038,562)
|
$(13,455,182)
|
Income statement
reconciliation items
|
9,722,993
|
12,704,688
|
8,331,491
|
(2,981,695)
|
4,373,197
|
Changes in
operating assets, net
|
611,078
|
1,127,805
|
(1,434,573)
|
(516,727)
|
2,562,378
|
Net cash used in
operating activities
|
$(39,649,983)
|
$(25,112,999)
|
$(18,593,392)
|
$(14,536,984)
|
$(6,519,607)
|
The
2018 change in non-cash transaction was primarily due to the
increase in impairment on intangible assets of $2,885,000 as well
as the increase in depreciation and amortization of $2,064,000
compared with same period in 2017. The 2019 change in non-cash
transaction was primarily due to there was no impairment on
intangible assets of $2,885,000 as compared with same period in
2018.
Net
cash used in investing activities was approximately $11,396,000,
$6,609,000 and $10,193,000 for the years ended December 31, 2019,
2018 and 2017, respectively. These amounts were the result of
purchases of property, plant and equipment and intangible
assets.
Cash
provided by financing activities was approximately $30,486,000,
$63,114,000 and $10,826,000 for the years ended December 31, 2019,
2018 and 2017, respectively. These amounts were mainly attributable
to the proceeds received from short-term debt, the issuance of
common stock and exercise of stock options, netting of by the cash
used in repurchase of treasury stock and interest
payment.
Liquidity and Capital Requirements Outlook
We
anticipate that the Company will require approximately $80 million
in cash to operate in the coming 12 months. Of this amount,
approximately $54 million will be used in operation, $14 million
will be used to repay outstanding debt and $12 million will be used
as capital expenditure, although we may revise these plans
according to the catalysts and other business
developments.
The Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its
ability to continue as a going concern. We expect to rely on
current cash balances and additional dilutive financing to provide
for these capital requirements. We do not intend to use and will
not rely on our holdings in securities to fund our operations.
Another stock we hold, Wonder International Education &
Investment Group Corporation (“Wonder”), is no longer
traded on any stock market. We do not know whether we can liquidate
our 8,000,000 shares of Arem Pacific stock or the 2,057,131 shares
of Wonder stock or any of our other portfolio securities, or
if liquidated, whether the realized amount will be meaningful at
all. As a result, we have written down above stocks to their fair
value.
We may also pursue co-development of our clinical assets to defray
operating expenses. We may further explore non-dilutive financing
opportunities forging strategic partnerships with big pharma. As we
continue to incur losses, achieving profitability is dependent upon
the successful development of our cell therapy business and
commercialization of our technology in the research and development
phase, which is a number of years in the future. Once that occurs,
we will have to achieve a level of revenues adequate to support our
cost structure. We may never achieve profitability, and unless and
until we do, we will continue to need to raise additional capital.
Management intends to fund future operations through additional
private or public debt or equity offerings, and may seek additional
capital through arrangements with strategic partners or from other
sources.
Our medium-to-long-term capital needs involve the further
development of our biopharmaceutical business, and may include, at
management’s discretion, new clinical trials for other
indications, strategic partnerships, joint ventures, acquisition of
licensing rights from new or current partners and/or expansion of
our research and development programs. Furthermore, as our
therapies pass through the clinical trial process and if they gain
regulatory approval, we expect to expend significant resources on
sales and marketing of our future products, services and
therapies.
In order to finance our medium to long-term plans, we intend to
rely upon external financing. This financing may be in the form of
equity and or debt, in private placements and/or public offerings
or arrangements with private lenders. Due to our short operating
history and our early stage of development, particularly in our
biopharmaceutical business, we may find it challenging to raise
capital on terms that are acceptable to us, or at all. Furthermore,
our negotiating position in the capital raising process may worsen
as we consume our existing resources. Investor interest in a
company such as ours is dependent on a wide array of factors,
including the state of regulation of our industry in China (e.g.
the policies of MOH and the NMPA), the U.S. and other countries,
political headwinds affecting our industry, the investment climate
for issuers involved in businesses located or conducted within
China, the risks associated with our corporate structure, risks
relating to our partners, licensed intellectual property, as well
as the condition of the global economy and financial markets in
general. Additional equity financing may be dilutive to our
stockholders; debt financing, if available, may involve significant
cash payment obligations and covenants that restrict our ability to
operate as a business; our stock price may not reach levels
necessary to induce option or warrant exercises; and asset sales
may not be possible on terms we consider acceptable. If we are
unable to raise the capital necessary to meet our medium- and
long-term liquidity needs, we may have to delay or discontinue
certain clinical trials, the licensing, acquisition and/or
development of cell therapy technologies and/or the expansion of
our biopharmaceutical business; or we may have to raise funds on
terms that we consider unfavorable.
Off-Balance Sheet Transactions
We do
not have any off-balance sheet arrangements except the lease and
capital commitment described in “Contractual
Obligations” below.
Contractual Obligations
We have various contractual obligations that will affect our
liquidity. The following table sets forth our contractual
obligations as of December 31, 2019.
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Bank Borrowings
|
$ 14,334,398
|
$ 14,334,398
|
$ -
|
$ -
|
$ -
|
Capital Commitment
|
1,177,975
|
1,177,975
|
-
|
-
|
-
|
Operating Lease Obligations
|
25,184,418
|
3,628,949
|
6,396,288
|
6,306,050
|
8,853,131
|
Total
|
$40,696,791
|
$19,141,322
|
$6,396,288
|
$6,306,050
|
$8,853,131
|
ITEM 7A.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Exposure to credit,
liquidity, interest rate and currency risks arise in the normal
course of the Company’s business. The Company’s
exposure to these risks and the financial risk management policies
and practices used by the Company to manage these risks are
described below.
Credit Risk
Credit
risk is the risk that one party to a financial instrument will
cause a financial loss for the other party by failing to discharge
an obligation. The Company’s credit risk is primarily
attributable to cash at bank and receivables, etc. Exposure to
these credit risks are monitored by management on an ongoing
basis.
The
Company’s cash is mainly held with well-known or state-owned
financial institutions, such as HSBC, Bank of China, China CITIC
Bank and China Merchant Bank. Management does not foresee any
significant credit risks from these deposits and does not expect
that these financial institutions may default and cause losses to
the Company.
The
maximum exposure to credit risk is represented by the carrying
amount of each financial asset in the balance sheet.
Liquidity Risk
Liquidity
risk is the risk that an enterprise may encounter deficiency of
funds in meeting obligations associated with financial liabilities.
The Company and its individual subsidiaries are responsible for
their own cash management, including short-term investment of cash
surpluses and the raising of loans to cover expected cash demands.
The Company’s policy is to regularly monitor its liquidity
requirements and its compliance with lending covenants, to ensure
that it maintains sufficient reserves of cash, readily realizable
marketable investments and adequate committed lines of funding from
major financial institutions to meet its liquidity requirements in
the short and longer term.
The
following tables show the remaining contractual maturities at the
balance sheet date of the Company’s financial assets and
financial liabilities, which are based on contractual cash flows
(including interest payments computed using contractual rates or,
if floating, based on rates current at the balance sheet date) and
the earliest date the Group can be required to pay:
As of December 31, 2019
Contractual undiscounted cash flow
|
Within 1 year
or
on
demand
|
More than 1
year
but less than 2
years
|
More than 2
year
but less than 5
years
|
|
|
|
|
|
|
|
|
|
|
Financial
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
15,443,649
|
-
|
-
|
-
|
15,443,649
|
15,443,649
|
Restricted
cash
|
17,000,000
|
-
|
-
|
-
|
17,000,000
|
17,000,000
|
Other
receivables
|
750,943
|
-
|
-
|
-
|
750,943
|
750,943
|
|
|
|
|
|
|
|
Sub-total
|
33,194,592
|
-
|
-
|
-
|
33,194,592
|
33,194,592
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
Short-term
debt
|
14,334,398
|
-
|
-
|
-
|
14,334,398
|
14,334,398
|
Accounts
payable
|
2,039,686
|
-
|
-
|
-
|
2,039,686
|
2,039,686
|
Accrued
expenses
|
1,904,829
|
-
|
-
|
-
|
1,904,829
|
1,904,829
|
Other
current liabilities excluding operating lease liabilities with
lease term over 12 months and deferred income
|
2,861,295
|
-
|
-
|
-
|
2,861,295
|
2,861,295
|
Operating
lease liabilities (lease terms over 12 months)
|
3,536,188
|
3,149,434
|
9,552,904
|
8,853,131
|
25,091,657
|
20,106,163
|
|
|
|
|
|
|
|
Sub-total
|
24,676,396
|
3,149,434
|
9,552,904
|
8,853,131
|
46,231,865
|
41,246,371
|
|
|
|
|
|
|
|
Net
amount
|
8,518,196
|
(3,149,434)
|
(9,552,904)
|
(8,853,131)
|
(13,037,273)
|
(8,051,779)
|
Interest Rate Risk
Interest-bearing
financial instruments at variable rates and at fixed rates expose
the Company to cash flow interest rate risk and fair value interest
risk, respectively. The Company’s interest rate risk arises
primarily from cash deposited at banks and short-term debt. The
Company doesn’t have any interest-bearing long-term payable/
borrowing, therefore its exposure to interest rate risk is
limited.
As
of December 31, 2019, the Company held the following
interest-bearing financial instruments:
|
|
|
|
|
|
|
|
Fixed rate
instruments
|
|
|
Financial
assets
|
|
|
- Cash and cash
equivalents
|
|
11,467,561
|
- Restricted
cash
|
3%
|
17,000,000
|
|
|
|
Financial
liabilities
|
|
|
- Short-term
debt
|
|
14,334,398
|
|
|
|
|
|
14,133,163
|
Currency Risk
The
Company is exposed to currency risk primarily from sales and
purchases which give rise to receivables, payables that are
denominated in a foreign currency (mainly RMB). The Company has
adopted USD as its functional currency, thus the fluctuation of
exchange rates between RMB and USD exposes the Company to currency
risk.
The
following table details the Company’s exposure as of December
31, 2019 to currency risk arising from recognized assets or
liabilities denominated in a currency other than the functional
currency of the entity to which they relate. For presentation
purposes, the amounts of the exposure are shown in USD translated
using the spot rate as of December 31, 2019. Differences resulting
from the translation of the financial statements of entities into
the Company’s presentation currency are
excluded.
|
Exposure to foreign
currencies (Expressed in USD)
|
|
|
|
|
|
Cash and cash
equivalents
|
5,379
|
646
|
Net exposure arising from
recognised assets and liabilities
|
5,379
|
646
|
The
following table indicates the instantaneous change in the
Company’s net loss that would arise if foreign exchange rates
to which the Company has significant exposure at the end of the
reporting period had changed at that date, assuming all other risk
variables remained constant.
|
|
|
increase/(decrease) in
foreign exchange rates
|
Effect on net loss
(Expressed in USD)
|
RMB (against
USD)
|
5%
|
237
|
|
-5%
|
(237)
|
Results
of the analysis as presented in the above table represent an
aggregation of the instantaneous effects on each of the
Company’s subsidiaries’ net loss measured in the
respective functional currencies, translated into USD at the
exchange rate ruling at the end of the reporting period for
presentation purposes.
The
sensitivity analysis assumes that the change in foreign exchange
rates had been applied to remeasure those financial instruments
held by the Company which expose the Company to foreign currency
risk at the end of the reporting period, including inter-company
payables and receivables within the Company which are denominated
in a currency other than the functional currencies of the lender or
the borrower. The analysis excludes differences that would result
from the translation of the financial statements of subsidiaries
into the Company’s presentation currency.
ITEM 8.
FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Attached
hereto and filed as a part of this Annual Report on Form 10-K are
our Consolidated Financial Statements, beginning on page
F-1.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A.
CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and
Procedures
We have
established disclosure controls and procedures, as such term is
defined in the Exchange Act Rules 13a - 15(e) and 15d - 15(e) under
the Securities Exchange Act of 1934. Our disclosure controls and
procedures are designed to ensure that material information
relating to us, including our consolidated subsidiaries, is made
known to our principal executive officer and principal financial
officer by others within our organization. Under the supervision
and with the participation of our management, including our
principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our disclosure
controls and procedures as of December 31, 2019 to ensure that the
information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure
controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 is accumulated and communicated to
our management, including our principal executive officer and
principal financial officer as appropriate, to allow timely
decisions regarding required disclosure. Based on this evaluation,
our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were
effective as of December 31, 2019.
Management’s Annual Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Under the supervision
and with the participation of our management, including our
principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2019, based on
the criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
Based on this evaluation, our management concluded that our
internal control over financial reporting was effective as of
December 31, 2019. Our internal control over financial reporting as
of December 31, 2019, has been audited and attested to by BDO China
Shu Lun Pan Certified Public Accountants LLP, or BDO China, an
independent registered public accounting firm, as stated in its
report, which is included herein.
Changes in Internal Control over Financial Reporting
During
the year ended December 31, 2019, there were no changes in our
internal control over financial reporting that materially affected,
or that are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B.
OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
We
will file with the SEC a definitive Proxy Statement for our Annual
Meeting of Stockholders (the “2020 Proxy Statement”)
not later than 120 days after the fiscal year ended December 31,
2019. The information required by this item is incorporated herein
by reference to the information contained in the 2020 Proxy
Statement as set forth in Governance of the Company. We have
adopted a Code of Business Conduct & Ethics that applies to all
of our directors, officers and employees, including our principal
executive, principal financial and principal accounting officers,
or persons performing similar functions. Our Code of Business
Conduct & Ethics is posted on our website located at
https://www.cellbiomedgroup.com/investor-relations/corporate-governance?lang=en.
We intend to disclose future amendments to certain provisions of
the Code of Business Conduct & Ethics, and waivers of the Code
of Business Conduct & Ethics granted to executive officers and
directors, on the website within four business days following the
date of the amendment or waiver.
ITEM 11. EXECUTIVE
COMPENSATION
The
information required by this item is incorporated herein by
reference to the information contained in the 2020 Proxy Statement
as set forth in Executive Compensation and Related
Information.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
information required by this item is incorporated herein by
reference to the information contained in the 2020 Proxy Statement
as set forth in Security Ownership of Certain Beneficial Owners and
Management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information required by this item is incorporated herein by
reference to the information contained in the 2020 Proxy Statement
as set forth in Certain Relationships and Related
Transactions.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
The
information required by this item is incorporated herein by
reference to the information contained in the 2020 Proxy Statement
as set forth in Proposal 2 - Ratification of Appointment of
Independent Registered Public Accountant.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) List
of Documents Filed as a Part of This Report:
(1) Index
to Consolidated Financial Statements:
Reports
of Independent Registered Public Accounting Firm
Consolidated
Financial Statements
Consolidated
Balance Sheets at December 31, 2019 and 2018
Consolidated
Statements of Operations and Comprehensive Loss for the years ended
December 31, 2019, 2018 and 2017
Consolidated
Statements of Stockholders’ Equity for the years ended
December 31, 2019, 2018 and 2017
Consolidated
Statements of Cash Flows for the years ended December 31, 2019,
2018 and 2017
Notes
to Consolidated Financial Statements
(2) Index
to Financial Statement Schedules: All schedules have been
omitted because the required information is included in the
consolidated financial statements or the notes thereto, or because
it is not required.
(3) Index
to Exhibits: See exhibits listed under Part (b)
below.
(b) Exhibits:
Exhibit Number
|
|
Description
|
2.1
|
|
|
2.2
|
|
|
2.3
|
|
|
2.4
|
|
|
2.5
|
|
|
3.1
|
|
|
3.2
|
|
|
3.3
|
|
|
4.1
|
|
|
10.1
|
|
|
10.2
|
|
|
10.3
|
|
|
10.4
|
|
|
10.5
|
|
|
10.6
|
|
|
10.7
|
|
|
10.8
|
|
|
10.9
|
|
|
10.10
|
|
|
10.11
|
|
|
10.12
|
|
|
10.13
|
|
|
10.14
|
|
|
10.15
|
|
|
10.16
|
|
|
10.17
|
|
|
10.18
|
|
|
10.19
|
|
|
10.20
|
|
|
10.21
|
|
|
10.22
|
|
|
10.23
|
|
|
10.24
|
|
|
10.25
|
|
|
10.26
|
|
|
10.27
|
|
|
10.28
|
|
|
10.29
|
|
|
10.30
|
|
|
10.31
|
|
|
10.32
|
|
|
10.33
|
|
|
10.34
|
|
|
10.35
|
|
|
10.36
|
|
|
10.37
|
|
|
10.38
|
|
|
10.39
|
|
|
10.40
|
|
|
10.41
|
|
|
10.42
|
|
|
21
|
|
Subsidiaries
of the Company (incorporated by reference to the section titled
“Corporate Structure” in Part I, Item 1 of this Annual
Report on the Form 10-K for the Year ended December 31,
2019).
|
23.1
|
|
|
31
|
|
|
32
|
|
|
101.INS*
|
|
XBRL
Instance Document
|
101.SCH*
|
|
XBRL
Taxonomy Extension Schema Document
|
101.CAL*
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
101.DEF*
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
101.LAB*
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
101.PRE*
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
**
Confidential
treatment is requested for portions of this exhibit pursuant to 17
CFR Section 240.24b-2.
†
Management contract
or compensatory plan or arrangement.
———————
ITEM 16. FORM 10-K
SUMMARY
None.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, there unto duly
authorized.
Registrant
|
Cellular Biomedicine Group, Inc.
|
|
|
|
|
|
Date:
February 28, 2020
|
By:
|
/s/
Bizou (Tony) Liu
|
|
|
|
Bizuo
(Tony) Liu
|
|
|
|
Chief
Executive Officer and Chief Financial Officer
(principal
executive officer and financial and accounting
officer)
|
|
|
|
|
|
Pursuant to
the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Terry A. Belmont
|
|
Chairman
of the Board of Directors
|
|
February
28, 2020
|
Terry
A. Belmont
|
|
|
|
|
|
|
|
|
|
/s/
Bizuo (Tony) Liu
|
|
Chief
Executive Officer and Chief Financial Officer
|
|
February
28, 2020
|
Bizuo
(Tony) Liu
|
|
(principal
executive officer and financial and accounting
officer)
|
|
|
|
|
|
|
|
/s/ Wen
Tao (Steve) Liu
|
|
Director
|
|
February
28, 2020
|
Wen Tao
(Steve) Liu
|
|
|
|
|
|
|
|
|
|
/s/
Hansheng Zhou
|
|
Director
|
|
February
28, 2020
|
Hansheng
Zhou
|
|
|
|
|
|
|
|
|
|
/s/
Chun Kwok Alan Au
|
|
Director
|
|
February
28, 2020
|
Chun
Kwok Alan Au
|
|
|
|
|
|
|
|
|
|
/s/
Gang Ji
|
|
Director
|
|
February
28, 2020
|
Gang
Ji
|
|
|
|
|
/s/
Darren O’Brien
|
|
Director
|
|
February
28, 2020
|
Darren
O’Brien
|
|
|
|
|
|
|
|
|
|
/s/
Edward Schafer
|
|
Director
|
|
February
28, 2020
|
Edward
Schafer
|
|
|
|
|
CELLULAR BIOMEDICINE GROUP, INC.
TABLE OF CONTENTS
|
|
Page
|
|
|
F-2
|
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS:
|
|
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
|
|
|
|
F-7
|
|
|
|
|
|
F-8
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cellular Biomedicine Group, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of
Cellular Biomedicine Group, Inc. and its subsidiaries and variable
interest entities (the “Company”) as of December 31,
2019 and 2018 and the related consolidated statements of operations
and comprehensive loss, changes in stockholders’ equity and
cash flows for each of the three years in the period ended December
31, 2019, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 2019 and 2018, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over
financial reporting as of December 31, 2019, based on criteria
established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) and
our report dated February 28, 2020 expressed an unqualified opinion
thereon.
Emphasis Matter Regarding Going Concern Uncertainty
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company has suffered recurring losses from
operations and has an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern.
Management’s plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements,
the Company has changed its method of accounting for leases during
the year ended December 31, 2019 due to the adoption of the
Accounting Standards Codification (“ASC”) Leases
(“ASC 842”).
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ BDO China Shu Lun Pan Certified Public Accountants
LLP
We have served as the Company’s auditor since
2015.
Shenzhen, the People’s Republic of China
February 28, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders of
Cellular
Biomedicine Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of
Cellular Biomedicine Group, Inc. and its subsidiaries and variable
interest entities (the “Company”) as of December 31,
2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the “COSO criteria”). In our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2019, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated balance sheets of the
Company as of December 31, 2019 and 2018, the related consolidated
statements of operations and comprehensive loss, changes in
stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2019, and the related notes
and our report dated February 28, 2020 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Item 9A,
Controls and
Procedures, Management’s Annual Report on Internal Control
Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We
are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in
accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial
Reporting
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ BDO China Shu Lun Pan Certified Public Accountants
LLP
Shenzhen, the People’s Republic of China
February 28, 2020
CELLULAR BIOMEDICINE GROUP,
INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Cash and cash
equivalents
|
$15,443,649
|
$52,812,880
|
Restricted
cash
|
17,000,000
|
-
|
Accounts
receivable, less allowance for doubtful amounts of nil
|
|
|
and $94,868
as of December 31, 2019 and December 31, 2018,
respectively
|
-
|
787
|
Other
receivables
|
750,943
|
101,909
|
Prepaid
expenses
|
835,048
|
1,692,135
|
Total current
assets
|
34,029,640
|
54,607,711
|
|
|
|
Investments
|
240,000
|
240,000
|
Property, plant and
equipment, net
|
21,434,414
|
15,193,761
|
Right of
use
|
20,106,163
|
15,938,203
|
Goodwill
|
7,678,789
|
7,678,789
|
Intangibles,
net
|
7,376,940
|
7,970,692
|
Long-term prepaid
expenses and other assets
|
6,458,354
|
5,952,193
|
Total assets
(1)
|
$97,324,300
|
$107,581,349
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
Liabilities:
|
|
|
Short-term
debt
|
$14,334,398
|
$-
|
Accounts
payable
|
2,039,686
|
422,752
|
Accrued
expenses
|
1,904,829
|
1,878,926
|
Taxes
payable
|
26,245
|
28,950
|
Other current
liabilities
|
5,367,708
|
5,710,578
|
Total current
liabilities
|
23,672,866
|
8,041,206
|
|
|
|
Other non-current
liabilities
|
17,933,743
|
14,321,751
|
Total liabilities
(1)
|
41,606,609
|
22,362,957
|
Commitments and
Contingencies (note 12)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $.001, 50,000,000 shares
|
|
|
authorized;
none issued and outstanding as of
|
|
|
December
31, 2019 and 2018, respectively
|
-
|
-
|
|
|
|
Common
stock, par value $.001, 300,000,000 shares authorized;
|
|
|
20,359,889
and 19,120,781 issued; and 19,304,390 and 18,119,282
outstanding,
|
|
|
as
of December 31, 2019 and 2018, respectively
|
20,360
|
19,121
|
Treasury
stock at cost; 1,055,499 and 1,001,499 shares of common
stock
|
(14,992,694)
|
(13,953,666)
|
as
of December 31, 2019 and December 31, 2018,
respectively
|
|
|
Additional paid in
capital
|
272,117,518
|
250,604,618
|
Accumulated
deficit
|
(199,966,543)
|
(149,982,489)
|
Accumulated
other comprehensive loss
|
(1,460,950)
|
(1,469,192)
|
Total stockholders'
equity
|
55,717,691
|
85,218,392
|
|
|
|
Total liabilities
and stockholders' equity
|
$97,324,300
|
$107,581,349
|
(1)
|
The
Company’s consolidated assets as of December 31, 2019 and
2018 included $54,668,966 and $40,254,691, respectively, of assets
of variable interest entities, or VIEs, that can only be used to
settle obligations of the VIEs. Each of the following amounts
represent the balances as of December 31, 2019 and 2018,
respectively. These assets include cash and cash equivalents of
$13,424,425and $2,376,974; other receivables of $201,532 and
$61,722; prepaid expenses of $770,127 and $1,497,072; property,
plant and equipment, net, of $20,762,271 and $14,280,949; right of
use of $13,541,518 and $15,431,554; intangibles of $1,226,955 and
$1,412,375; and long-term prepaid expenses and other assets of
$4,742,138 and $5,194,045. The Company’s consolidated
liabilities as of December 31, 2019 and 2018 included $32,865,763
and $20,548,793, respectively, of liabilities of the VIEs whose
creditors have no recourse to the Company. These liabilities
include short-term debt of $14,334,398 and nil; accounts payable of
$1,324,792 and $359,980; other payables of $4,090,154 and
$4,937,541; payroll accrual of $1,208,491 and $1,367,658, which
mainly includes bonus accrual of $1,207,560 and $1,358,709;
deferred income of $10,994 and $6,280; and other non-current
liabilities of $11,896,934 and $13,877,334. See further description
in Note 4, Variable Interest Entities.
|
The
accompanying notes are an integral part of these consolidated
financial statements.
CELLULAR BIOMEDICINE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
|
For the Year
EndedDecember 31,
|
|
|
|
|
|
|
|
|
Net sales and
revenue
|
$339,920
|
$224,403
|
$336,817
|
|
|
|
|
Operating
expenses:
|
|
|
|
Cost of
sales
|
62,378
|
135,761
|
162,218
|
General and
administrative
|
13,458,151
|
13,220,757
|
12,780,483
|
Selling and
marketing
|
141,597
|
308,830
|
360,766
|
Research and
development
|
37,669,978
|
24,150,480
|
14,609,917
|
Impairment of
non-current assets
|
-
|
2,914,320
|
-
|
Total
operating expenses
|
51,332,104
|
40,730,148
|
27,913,384
|
Operating
loss
|
(50,992,184)
|
(40,505,745)
|
(27,576,567)
|
|
|
|
|
Other
income:
|
|
|
|
Interest
income
|
809,785
|
392,328
|
133,621
|
Other
income
|
199,390
|
1,172,879
|
1,955,086
|
Total
other income
|
1,009,175
|
1,565,207
|
2,088,707
|
Loss before
taxes
|
(49,983,009)
|
(38,940,538)
|
(25,487,860)
|
|
|
|
|
Income taxes
provision
|
(1,045)
|
(4,954)
|
(2,450)
|
|
|
|
|
|
|
|
|
Net
loss
|
$(49,984,054)
|
$(38,945,492)
|
$(25,490,310)
|
Other comprehensive
income (loss):
|
|
|
|
Cumulative
translation adjustment
|
8,242
|
(1,079,689)
|
967,189
|
Unrealized
loss on investments, net of tax
|
-
|
-
|
(240,000)
|
Total other
comprehensive income (loss):
|
8,242
|
(1,079,689)
|
727,189
|
|
|
|
|
Comprehensive
loss
|
$(49,975,812)
|
$(40,025,181)
|
$(24,763,121)
|
|
|
|
|
Net loss per
share:
|
|
|
|
Basic
and diluted
|
$(2.63)
|
$(2.20)
|
$(1.78)
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
Basic
and diluted
|
18,983,206
|
17,741,104
|
14,345,604
|
The
accompanying notes are an integral part of these consolidated
financial statements.
CELLULAR BIOMEDICINE GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2016
|
14,281,378
|
14,281
|
-
|
-
|
-
|
-
|
152,543,052
|
(85,546,687)
|
(1,116,692)
|
65,893,954
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued with PPM
|
1,208,334
|
1,208
|
-
|
-
|
-
|
-
|
14,494,832
|
-
|
-
|
14,496,040
|
Restricted
stock grants
|
68,446
|
69
|
-
|
-
|
-
|
-
|
832,950
|
-
|
-
|
833,019
|
Accrual
of stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
4,512,192
|
-
|
-
|
4,512,192
|
Exercise
of stock options
|
57,400
|
58
|
-
|
-
|
-
|
-
|
308,313
|
-
|
-
|
308,371
|
Treasury
stock purchase
|
-
|
-
|
-
|
-
|
(426,794)
|
(3,977,929)
|
-
|
-
|
-
|
(3,977,929)
|
Unrealized
loss on investments, net of tax
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(240,000)
|
(240,000)
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
967,189
|
967,189
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(25,490,310)
|
-
|
(25,490,310)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
15,615,558
|
15,616
|
-
|
-
|
(426,794)
|
(3,977,929)
|
172,691,339
|
(111,036,997)
|
(389,503)
|
57,302,526
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued with PPM
|
3,177,581
|
3,177
|
-
|
-
|
-
|
-
|
70,347,996
|
-
|
-
|
70,351,173
|
Restricted
stock grants
|
91,713
|
92
|
-
|
-
|
-
|
-
|
1,642,228
|
-
|
-
|
1,642,320
|
Accrual
of stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
3,184,425
|
-
|
-
|
3,184,425
|
Exercise
of stock options
|
235,929
|
236
|
-
|
-
|
-
|
-
|
2,738,630
|
-
|
-
|
2,738,866
|
Treasury
stock purchase
|
-
|
-
|
-
|
-
|
(574,705)
|
(9,975,737)
|
-
|
-
|
-
|
(9,975,737)
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,079,689)
|
(1,079,689)
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(38,945,492)
|
-
|
(38,945,492)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
19,120,781
|
$19,121
|
-
|
$-
|
(1,001,499)
|
$(13,953,666)
|
$250,604,618
|
$(149,982,489)
|
$(1,469,192)
|
$85,218,392
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued with PPM
|
1,106,961
|
1,107
|
-
|
-
|
-
|
-
|
17,165,092
|
-
|
-
|
17,166,199
|
Restricted
stock grants
|
101,729
|
102
|
-
|
-
|
-
|
-
|
1,647,821
|
-
|
-
|
1,647,923
|
Accrual
of stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
2,416,058
|
-
|
-
|
2,416,058
|
Exercise
of stock options
|
30,418
|
30
|
-
|
-
|
-
|
-
|
283,929
|
-
|
-
|
283,959
|
Treasury
stock purchase
|
-
|
-
|
-
|
-
|
(54,000)
|
(1,039,028)
|
-
|
-
|
-
|
(1,039,028)
|
Foreign
currency translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
8,242
|
8,242
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(49,984,054)
|
-
|
(49,984,054)
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2019
|
20,359,889
|
$20,360
|
-
|
$-
|
(1,055,499)
|
$(14,992,694)
|
$272,117,518
|
$(199,966,543)
|
$(1,460,950)
|
$55,717,691
|
The
accompanying notes are an integral part of these consolidated
financial statements.
CELLULAR BIOMEDICINE GROUP,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$(49,984,054)
|
$(38,945,492)
|
$(25,490,310)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
used
in operating activities:
|
|
|
|
Depreciation and
amortization
|
5,638,303
|
5,049,523
|
2,985,963
|
Loss on disposal of
assets
|
39,033
|
4,957
|
317
|
Stock based
compensation expense
|
4,063,981
|
4,826,745
|
5,345,211
|
Other than
temporary impairment on investments
|
-
|
29,424
|
-
|
Impairment on
intangible assets
|
-
|
2,884,896
|
-
|
Interest income
from six-month deposits with the banks
|
-
|
(175,479)
|
-
|
Interest income
from pledged bank deposits
|
(500,219)
|
-
|
-
|
Interest
expenses
|
481,895
|
-
|
-
|
Allowance for
doubtful account
|
-
|
84,622
|
-
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
774
|
107,263
|
(160,628)
|
Other
receivables
|
(150,222)
|
66,108
|
(467,985)
|
Prepaid
expenses
|
831,686
|
68,435
|
(812,675)
|
Long-term prepaid
expenses and other assets
|
(1,324,924)
|
(538,349)
|
(1,005,029)
|
Accounts
payable
|
1,170,688
|
133,740
|
(814)
|
Accrued
expenses
|
48,762
|
816,936
|
(118,968)
|
Other current
liabilities
|
(43,401)
|
390,181
|
1,339,866
|
Taxes
payable
|
(2,705)
|
75
|
-
|
Other non-current
liabilities
|
80,420
|
83,416
|
(208,340)
|
Net
cash used in operating activities
|
(39,649,983)
|
(25,112,999)
|
(18,593,392)
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Proceeds
from disposal of assets
|
148,393
|
1,625
|
-
|
Withdrawing
six-month deposits with the banks
|
-
|
10,175,479
|
-
|
Putting
six-month deposits with the banks
|
-
|
(10,000,000)
|
-
|
Purchases of
intangible assets
|
(869,110)
|
(196,836)
|
(23,734)
|
Purchases of
property, plant and equipment
|
(10,674,812)
|
(6,589,493)
|
(10,169,134)
|
Net
cash used in investing activities
|
(11,395,529)
|
(6,609,225)
|
(10,192,868)
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Net proceeds from
the issuance of common stock
|
17,166,199
|
70,351,173
|
14,496,040
|
Proceeds from
exercise of stock options
|
283,959
|
2,738,866
|
308,371
|
Proceeds from
short-term debt
|
14,546,035
|
-
|
-
|
Interest
paid
|
(470,901)
|
-
|
-
|
Repurchase of
treasury stock
|
(1,039,028)
|
(9,975,737)
|
(3,977,929)
|
Net
cash provided by financing activities
|
30,486,264
|
63,114,302
|
10,826,482
|
|
|
|
|
EFFECT OF EXCHANGE
RATE CHANGES ON CASH
|
190,017
|
(147,620)
|
275,768
|
|
|
|
|
INCREASE/(DECREASE)
IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
|
(20,369,231)
|
31,244,458
|
(17,684,010)
|
CASH, CASH
EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD
|
52,812,880
|
21,568,422
|
39,252,432
|
CASH, CASH
EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
|
$32,443,649
|
$52,812,880
|
$21,568,422
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Cash paid for
income taxes
|
$3,750
|
$4,879
|
$2,450
|
|
|
|
|
|
|
|
|
Reconciliation of
cash, cash equivalents and restricted cash in condensed
consolidated statements of cash flows:
|
|
|
|
Restricted
cash
|
$17,000,000
|
$-
|
$-
|
Cash and cash
equivalents
|
15,443,649
|
52,812,880
|
21,568,422
|
|
|
|
|
Cash, cash
equivalents and restricted cash
|
$32,443,649
|
$52,812,880
|
$21,568,422
|
The
accompanying notes are an integral part of these consolidated
financial statements.
NOTE 1 – DESCRIPTION OF
BUSINESS
As used
in this report, “we,” “us,”
“our,” “CBMG,” “Company” or
“our company” refers to Cellular Biomedicine Group,
Inc. and, unless the context otherwise requires, all of its
subsidiaries.
Overview
We
are a clinical-stage biopharmaceutical company committed to using
our proprietary cell-based technologies to develop immunotherapies
for the treatment of cancer and stem cell therapies for the
treatment of degenerative diseases. We view ourselves as a leader
in cell therapy industry through our diverse, multi-target, broad
pipeline ranging from immuno-oncology, featuring CAR-T, TCR-T and
TIL to regenerative medicine. Our focus is to bring our potentially
best-in-class products to market while also aiming to reduce
manufacturing cycle time and aggregate cost while striving to
ensure quality products of cell therapies. We provide comprehensive
and integrated research and manufacturing services throughout the
discovery, development and manufacturing spectrum for cell-based
technologies. We have two major components to our global strategy.
First, we intend on developing our own internal pipeline, focusing
on immune cell therapy, regenerative medicine, as well as other
innovative biotechnology modalities that can leverage our
infrastructure, human capital and intellectual property. Second, we
plan to partner with leading companies to monetize our innovative
technologies in markets where we do not currently have a presence
and may also seek to bring their technologies to markets where we
have infrastructure.
Our
end-to-end platform enables discovery, development and
manufacturing of cell-based therapies from concept to commercial
manufacturing in a cost-efficient manner. The manufacturing and
delivery of T-cell therapies involve complex, integrated processes,
comprised of isolating T-cells from patients, T-cell enrichment,
activation, viral vector transduction, expansion, harvest and
fill-finish. Our in-house cell therapy manufacturing is comprised
of a semi-automated, fully closed system and can manufacture high
quality plasmids, and serum-free reagents as well as viral vectors
for our immuno-oncology cell therapy products. Because we are
vertically integrated, we are able to reduce the aggregate cost of
cell therapies. We plan to build out our manufacturing capacity to
scale for commercial supply at an economical cost. We hone our
manufacturing process in our good manufacturing practice (GMP)
facilities in China to achieve cycle time reduction, improve
quality assurance and control and increase efficiency and early
development to understand our therapies’ efficacy. Our other
objective on institutionalizing our manufacturing process is
portability and ease of tech transfer to other facilities and ease
of deployment in future locations.
In September 2018, we executed a License and
Collaboration Agreement (hereinafter Novartis LCA) with Novartis AG
(Novartis) to manufacture and supply their U.S. FDA-approved CD19 CAR-T cell therapy product
Kymriah®
in China. Pursuant to the Novartis LCA
agreement, we also granted Novartis a worldwide license to certain
of our CAR-T intellectual property for the development, manufacture
and commercialization of CAR-T products. We are entitled to an
escalating single-digit percentage royalty of
Kymriah®’s
net sales in China. CBMG is responsible for the cost of
bi-directional technology transfers between the two companies. We
will receive collaboration payments equal to a single-digit
escalating percentage of net sales of Kymriah®
in China, subject to certain caps set
forth under the Novartis LCA, for sales in diffuse large B-cell
lymphoma and pediatric acute lymphoblastic leukemia indications and
up to a maximum amount to be agreed upon for sales in other
indications. We are also obligated to assist Novartis with the
development of Kymriah®
in China as Novartis may request and
we are responsible for a certain percentage of the total
development cost for the development of Kymriah®
in China for indications other than
diffuse large B-cell lymphoma and pediatric acute lymphoblastic
leukemia indications. As of December 31, 2019, we have achieved
three major milestones on the technology transfer and collaboration
with Novartis on commercialization of Kymriah®,
specifically: process and analytical training, feasibility runs and
an export license for
feasibility/comparability.
On October 2, 2018,
we executed a nonexclusive license agreement with the NCI for ten
tumor infiltrating lymphocytes patents, pursuant to which we
acquired rights to the worldwide development, manufacture and
commercialization of autologous, tumor-reactive lymphocyte adoptive
cell therapy products, isolated from tumor infiltrating lymphocytes
for the treatment of non-small cell lung, stomach, esophagus,
colorectal and head and neck cancer(s) in
humans.
In
order to expedite fulfillment of patient treatment, we have been
actively developing technologies and products with strong
intellectual property protection. CBMG’s worldwide exclusive
license to the T Cell patent rights owned by Augusta University
provides an opportunity to expand the application of CBMG’s
cancer therapy-enabling technologies and to initiate clinical
trials with leading cancer hospitals. On February 14, 2019, Augusta
University granted us an exclusive, worldwide license with
sublicense rights to its patent rights to Human Alpha
Fetoprotein-Specific T Cell Receptor modified T-cells (AFP
TCR-T).
Corporate History
Headquartered
in New York, the Company is a Delaware biopharmaceutical company
focused on developing treatment for cancer and orthopedic diseases
for patients in China. We also plan to develop our products
targeting certain solid tumor and other cancer indications in the
United States. The Company started its regenerative medicine
business in China in 2009 and expanded to CAR-T therapies in
2014.
NOTE 2 – BASIS OF PRESENTATION
The
consolidated financial statements include the financial statements
of the Company and all of its subsidiaries and variable interest
entities. All significant intercompany transactions and balances
are eliminated upon consolidation. The consolidated financial
statements have been prepared in accordance with the accounting
principles generally accepted in the United States of America
(“GAAP”).
The
Company recorded accumulated deficit of $199,966,543, cash and cash
equivalents and restricted cash of $32,443,649 as of December 31,
2019, compared with accumulated deficit of $149,982,489, cash and
cash equivalents of $52,812,880 as of December 31, 2018. Although
management believes it can secure financial resources to satisfy
the Company’s current liabilities and the capital expenditure
needs in the next 12 months, there are no guarantees that these
financial resources will be secured. Therefore, there is a
substantial doubt about the ability of the Company to continue as a
going concern that it may be unable to realize its assets and
discharge its liabilities in the normal course of business.
In
order to finance our operation, management intends to rely upon
external financing. This financing may be in the form of equity and
or debt, in private placements and/or public offerings or
arrangements with private lenders. The consolidated
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Significant
accounting policies are as follows:
Principles of Consolidation
The
consolidated financial statements have been prepared in conformity
with GAAP, and reflect the accounts and operations of the Company
and its subsidiaries, beginning with the date of their respective
acquisition. In accordance with the provisions of Financial
Accounting Standards Board (“FASB”), Accounting
Standards Codification (“ASC”) Topic 810, or ASC
810, Consolidation,
the Company consolidates any variable interest entity, or VIE, of
which it is the primary beneficiary. The typical condition for a
controlling financial interest ownership is holding a majority of
the voting interests of an entity; however, a controlling financial
interest may also exist in entities, such as variable interest
entities, through arrangements that do not involve controlling
voting interests. ASC 810 requires a variable interest holder to
consolidate a VIE if that party has the power to direct the
activities of a VIE that most significantly impact the VIE’s
economic performance, and the obligation to absorb losses of the
VIE that could potentially be significant to the VIE or the right
to receive benefits from the VIE that could potentially be
significant to the VIE. The Company does not consolidate a VIE in
which it has a majority ownership interest when the Company is not
considered the primary beneficiary. The Company has determined that
it is the primary beneficiary in a VIE—refer to Note 4,
Variable Interest Entity. The Company evaluates its relationships
with the VIE on an ongoing basis to ensure that it continues to be
the primary beneficiary. All intercompany transactions and balances
have been eliminated in consolidation.
Use of Estimates
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements.
These
estimates and assumptions also affect the reported amounts of
revenues, costs and expenses during the reporting period.
Management evaluates these estimates and assumptions on a regular
basis. Significant accounting estimates reflected in the
Company’s consolidated financial statements include useful
lives of property, plant and equipment and acquired intangibles,
the valuation allowance for deferred income tax assets, valuation
of goodwill, valuation of long-lived assets and share-based
compensation expense. Actual results could materially differ from
those estimates.
Revenue Recognition
Revenues consist
mainly of cell banking services as well as cell therapy technology
services with customers. The Company evaluates the separate
performance obligation(s) under each contract, allocates the
transaction price to each performance obligation considering the
estimated stand-alone selling prices of the services and recognizes
revenue upon the satisfaction of such obligations over time or at a
point in time dependent on the satisfaction of one of the following
criteria: (1) the customer simultaneously receives and consumes the
economic benefits provided by the vendor’s performance (2)
the vendor creates or enhances an asset controlled by the customer
(3) the vendor’s performance does not create an asset for
which the vendor has an alternative use, and the vendor has an
enforceable right to payment for performance completed to date.
Revenue from rendering of services is measured at the fair value of
the consideration received or receivable under the contract or
agreement. Revenue from cell therapy technology services is
recognized in profit or loss at the point when customers
simultaneously receive and consume the services. Revenue from cell
banking storage is recognized in profit or loss on a straight-line
basis over the storage period.
Cash and Cash Equivalents and Restricted Cash
The
Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At
December 31, 2019 and 2018, respectively, cash and cash equivalents
include cash on hand and cash in the bank. At times, cash deposits
may exceed government-insured limits.
Restricted cash
consists of collateral representing cash deposits for
borrowings.
Accounts Receivable
Accounts receivable
represent amounts earned but not collected in connection with the
Company’s sales of goods or services as of December 31, 2019
and 2018. Account receivables are carried at their estimated
collectible amounts.
The
Company follows the allowance method of recognizing uncollectible
accounts receivable. The Company recognizes bad debt expense based
on specifically identified customers and invoices that are
anticipated to be uncollectable. At December 31, 2019 and 2018,
allowance of nil and $94,868, respectively, were provided for
debtors of certain customers as those debts are unrecoverable from
customers.
Property, Plant and Equipment
Property, plant and
equipment are recorded at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets
ranging from three to ten years and begins when the related assets
are placed in service. Maintenance and repairs that neither
materially add to the value of the property nor appreciably prolong
its life are charged to expense as incurred. Betterments or
renewals are capitalized when incurred. Property, plant and
equipment are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash
flow is less than the carrying amount of the asset, a loss is
recognized for the difference between the fair value and carrying
value of the asset. Repair and maintenance costs are charged to
operating expense as incurred.
For the
years ended December 31, 2019, 2018 and 2017, depreciation expense
was $4,187,330, $3,360,517 and $1,195,705,
respectively.
Goodwill and Other Intangibles
Goodwill represents
the excess of the cost of assets acquired over the fair value of
the net assets at the date of acquisition. Intangible assets
represent the fair value of separately recognizable intangible
assets acquired in connection with the Company’s business
combinations. The Company evaluates its goodwill and other
intangibles for impairment on an annual basis or whenever events or
circumstances indicate that impairment may have occurred.
The
evaluation includes comparing the fair value of the reporting unit
to the carrying value, including goodwill. If the fair value
exceeds the carrying value, no impairment loss is recognized.
However, if the carrying value of the reporting unit exceeds its
fair value, the goodwill of the reporting unit may be impaired.
Impairment is measured by comparing the implied fair value of the
goodwill to its carrying value.
The
carrying amount of the goodwill as at December 31, 2019 and 2018
represents the cost arising from the business combinations in
previous years and no impairment on goodwill was recognized for the
years ended December 31, 2019 and 2018 as the Company continues to
use the patents and knowhow acquired in the business combination in
the Company’s current immune therapy R&D activities and
there was no indication for impairment.
Treasury Stock
The
treasury stock is recorded and carried at their repurchase cost.
The Company recorded the entire purchase price of the treasury
stock as a reduction of equity. A gain or loss will be determined
when treasury stock is reissued or retired, and the original issue
price and book value of the stock do not enter into the accounting.
Additional paid-in capital from treasury stock is credited for
gains and debited for losses when treasury stock is reissued at
prices that differ from the repurchase cost.
Government Grants
Government grants
are recognized in the balance sheet initially when there is
reasonable assurance that they will be received and that the
enterprise will comply with the conditions attached to them. When
the Company received the government grants but the conditions
attached to the grants have not been fulfilled, such government
grants are deferred and recorded as deferred income. The
classification of short-term or long-term liabilities is dependent
on the management’s expectation of when the conditions
attached to the grant can be fulfilled. Grants that compensate the
Company for expenses incurred are recognized as other income in the
statement of income on a systematic basis in the same periods in
which the expenses are incurred.
For the
year ended December 31, 2019, 2018 and 2017, the Company received
government grants of $824,782, $1,105,272 and $1,905,213 for
purposes of R&D and related capital expenditure, respectively.
Government subsidies recognized as other income in the statement of
income for the year ended December 31, 2019, 2018 and 2017 were
$671,404, $1,119,827 and $2,077,486, respectively.
Valuation of long-lived asset
The
Company reviews the carrying value of long-lived assets to be held
and used, including other intangible assets subject to
amortization, when events and circumstances warrant such a review.
The carrying value of a long-lived asset is considered impaired
when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value. In
that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived
asset and intangible assets. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets
and intangible assets to be disposed are determined in a similar
manner, except that fair market values are reduced for the cost to
dispose.
Income Taxes
Income
taxes are accounted for using the asset and liability method. Under
this method, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance
would be provided for those deferred tax assets if it is more
likely than not that the related benefit will not be
realized.
A full
valuation allowance has been established against all net deferred
tax assets as of December 31, 2019 and 2018 based on estimates of
recoverability. While the Company has optimistic plans for its
business strategy, we determined that such a valuation allowance
was necessary given the current and expected near term losses and
the uncertainty with respect to the Company’s ability to
generate sufficient profits from its business model.
Share-Based Compensation
The
Company periodically uses stock-based awards, consisting of shares
of common stock and stock options, to compensate certain officers
and consultants. Shares are expensed on a straight line basis over
the requisite service period based on the grant date fair value,
net of estimated forfeitures, if any. We currently use the Black-Scholes option-pricing
model to estimate the fair value of our stock-based payment awards.
This model requires the input of subjective assumptions, including
the fair value of the underlying common stock, the expected
volatility of the price of our common stock, risk-free interest
rates, the expected term of the option and the expected dividend
yield of our common stock. These estimates involve inherent
uncertainties and the application of management’s judgment.
If factors change and different assumptions are used, our
stock-based compensation expense could be materially different in
the future. These assumptions are estimated as
follows:
●
Fair
Value of Our Common Stock — Our common stock is valued by
reference to the publicly traded price of our common
stock.
●
Expected
Volatility — Prior to the Eastbridge merger, we did not have
a history of market prices for our common stock and since the
merger, we do not have what we consider a sufficiently active and
readily traded market for our common stock to use historical market
prices for our common stock to estimate volatility. Accordingly, we
estimate the expected stock price volatility for our common stock
by taking the median historical stock price volatility for industry
peers based on daily price observations over a period equivalent to
the expected term of the stock option grants. Industry peers
consist of other public companies in the stem cell industry similar
in size, stage of life cycle and financial leverage. We intend to
continue to consistently apply this process using the same or
similar public companies until a sufficient amount of historical
information regarding the volatility of our own common stock share
price becomes available.
●
Risk-Free
Interest Rate — The risk-free interest rate assumption is
based on observed interest rates appropriate for the expected terms
of our awards. The risk-free interest rate assumption is based on
the yields of U.S. Treasury securities with maturities similar to
the expected term of the options for each option
group.
●
Expected
Term — The expected term represents the period that our
stock-based awards are expected to be outstanding. The expected
terms of the awards are based on a simplified method which defines
the life as the average of the contractual term of the options and
the weighted-average vesting period for all open
tranches.
●
Expected
Dividend Yield — We have never declared or paid any cash
dividends and do not presently plan to pay cash dividends in the
foreseeable future. Consequently, we used an expected dividend
yield of zero.
In
addition to the assumptions used in the Black-Scholes
option-pricing model, the amount of stock option expense we
recognize in our consolidated statements of operations includes an
estimate of stock option forfeitures. We estimate our forfeiture
rate based on an analysis of our actual forfeitures and will
continue to evaluate the appropriateness of the forfeiture rate
based on actual forfeiture experience, analysis of employee
turnover and other factors. Changes in the estimated forfeiture
rate can have a significant impact on our stock-based compensation
expense as the cumulative effect of adjusting the rate is
recognized in the period the forfeiture estimate is changed. If a
revised forfeiture rate is higher than the previously estimated
forfeiture rate, an adjustment is made that will result in a
decrease to the stock-based compensation expense recognized in the
consolidated financial statements. If a revised forfeiture rate is
lower than the previously estimated forfeiture rate, an adjustment
is made that will result in an increase to the stock-based
compensation expense recognized in our consolidated financial
statements.
Fair Value of Financial Instruments
Under
the FASB’s authoritative guidance on fair value measurements,
fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In determining the
fair value, the Company uses various methods including market,
income and cost approaches. Based on these approaches, the Company
often utilizes certain assumptions that market participants would
use in pricing the asset or liability, including assumptions about
risk and the risks inherent in the inputs to the valuation
technique. These inputs can be readily observable, market
corroborated or generally unobservable inputs. The Company uses
valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. Based on observability of
the inputs used in the valuation techniques, the Company is
required to provide the following information according to the fair
value hierarchy. The fair value hierarchy ranks the quality and
reliability of the information used to determine fair values.
Financial assets and liabilities carried at fair value are
classified and disclosed in one of the following three
categories:
Level
1: Valuations for assets and liabilities traded in active exchange
markets. Valuations are obtained from readily available pricing
sources for market transactions involving identical assets or
liabilities.
Level
2: Valuations for assets and liabilities traded in less active
dealer or broker markets. Valuations are obtained from third-party
pricing services for identical or similar assets or
liabilities.
Level
3: Valuations for assets and liabilities that are derived from
other valuation methodologies, including option pricing models,
discounted cash flow models and similar techniques, and not based
on market exchange, dealer or broker traded transactions. Level 3
valuations incorporate certain unobservable assumptions and
projections in determining the fair value assigned to such
assets.
All transfers
between fair value hierarchy levels are recognized by the Company
at the end of each reporting period. In certain cases, the inputs
used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, an investment’s level
within the fair value hierarchy is based on the lowest level of
input that is significant to the fair value measurement in its
entirety, requires judgment and considers factors specific to the
investment. The inputs or methodology used for valuing financial
instruments are not necessarily an indication of the risks
associated with investment in those instruments.
The
carrying amounts of other financial instruments, including cash,
accounts receivable, accounts payable and accrued liabilities,
income tax payable and related party payable approximate fair value
due to their short maturities.
Lease
We
determine if an arrangement is a lease at inception. Operating
leases are included in operating lease right-of-use
(“ROU”) assets, other current liabilities and operating
lease liabilities in our consolidated balance sheets.
ROU
assets represent our right to use an underlying asset for the lease
term and lease liabilities represent our obligation to make lease
payments arising from the lease. Operating lease ROU assets and
liabilities are recognized at commencement date based on the
present value of lease payments over the lease term. As most of our
leases do not provide an implicit rate, we use our incremental
borrowing rate based on the information available at commencement
date in determining the present value of lease payments. We use the
implicit rate when readily determinable. The operating lease ROU
asset also includes any lease payments made and excludes lease
incentives. Our lease terms may include options to extend or
terminate the lease when it is reasonably certain that we will
exercise that option. Lease expense for lease payments is
recognized on a straight-line basis over the lease
term.
Investments
Equity
investments with or without readily determinable fair values are
measured at fair value with changes in the fair value recognized
through other income (expense) net.
Basic and Diluted Net Loss Per Share
Basic
income (loss) per share is computed based on the average number of
common shares outstanding.
Diluted
net loss per share reflects potential dilution from the exercise or
conversion of securities into common stock. The dilutive effect of
the Company’s share-based awards is computed using the
treasury stock method, which assumes that all share-based awards
are exercised and the hypothetical proceeds from exercise are used
to purchase common stock at the average market price during the
period. Share-based awards whose effects are anti-dilutive are
excluded from computing diluted net loss per share.
Foreign Currency Translation
The
Company’s financial statements are presented in U.S. dollars
($), which is the Company’s reporting currency, while the
Company’s China subsidiaries’ functional currency is
Chinese Renminbi (RMB). Transactions in foreign currencies are
initially recorded at the functional currency rate ruling at the
date of transaction. Any differences between the initially recorded
amount and the settlement amount are recorded as a gain or loss on
foreign currency transaction in the consolidated statements of
operations. Monetary assets and liabilities denominated in foreign
currency are translated at the functional currency rate of exchange
ruling at the balance sheet date. Equity accounts were stated at
their historical rate. The average translation rates applied to the
statements of operations and comprehensive income (loss) during the
periods. Any differences are recorded as an unrealized gain or loss
on foreign currency translation in the statements of operations and
comprehensive loss. In accordance with ASC 830, Foreign
Currency Matters, the Company translates the assets and liabilities
into USD from RMB using the rate of exchange prevailing at the
applicable balance sheet date and the statements of income and cash
flows are translated at an average rate during the reporting
period. Adjustments resulting from the translation are recorded in
shareholders’ equity as part of accumulated other
comprehensive income. The PRC government imposes significant
exchange restrictions on fund transfers out of the PRC that are not
related to business operations.
Comprehensive Loss
We
apply ASC No. 220, Comprehensive
Income (ASC 220). ASC 220 establishes standards for the
reporting and display of comprehensive income or loss, requiring
its components to be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Our comprehensive loss was $49,975,812, $40,025,181 and $24,763,121
for the years ended December 31, 2019, 2018 and 2017,
respectively.
Segment Information
FASB
ASC Topic 280, “Segment Reporting” establishes
standards for reporting information about reportable segments.
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision-making
group in deciding how to allocate resources and in assessing
performance. Based on the analysis, we operate in a single
reportable segment.
Recent Accounting Pronouncements
Accounting pronouncements adopted during the year ended December
31, 2019
In
June 2018, the FASB issued ASU 2018-07, which simplifies several
aspects of the accounting for nonemployee share-based payment
transactions resulting from expanding the scope of Topic 718,
Compensation-Stock Compensation, to include share-based payment
transactions for acquiring goods and services from non-employees.
Some of the areas for simplification apply only to nonpublic
entities. The amendments specify that Topic 718 applies to all
share-based payment transactions in which a grantor acquires goods
or services to be used or consumed in a grantor’s own
operations by issuing share-based payment awards. The amendments
also clarify that Topic 718 does not apply to share-based payments
used to effectively provide (1) financing to the issuer or (2)
awards granted in conjunction with selling goods or services to
customers as part of a contract accounted for under Topic 606,
Revenue from Contracts with Customers. The amendments in this
Update are effective for public business entities for fiscal years
beginning after December 15, 2018, including interim periods within
that fiscal year. Early adoption is permitted. The adoption of the
ASU 2018-07 did not have a material impact on the Company’s
consolidated financial statements.
In February 2018, the FASB issued ASU No.
2018-02, “Income
Statement—Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income” (“ASU 2018-02”) which provides
financial statement preparers with an option to reclassify stranded
tax effects within accumulated other comprehensive income to
retained earnings in each period in which the effect of the change
in the U.S. federal corporate income tax rate in the Tax Cuts and
Jobs Act (or portion thereof) is recorded. The amendments in this
ASU are effective for all entities for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years.
Early adoption of ASU 2018-02 is permitted, including adoption in
any interim period for the public business entities for reporting
periods for which financial statements have not yet been issued.
The amendments in this ASU should be applied either in the period
of adoption or retrospectively to each period (or periods) in which
the effect of the change in the U.S. federal corporate income tax
rate in the Tax Cuts and Jobs Act is recognized. The adoption of
the ASU 2018-02 did not have a material impact on the
Company’s consolidated financial
statements.
In July 2017, the FASB issued ASU No.
2017-11, “Earnings Per Share
(Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for
Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Non-controlling Interests with a Scope
Exception” (“ASU
2017-11”) which addresses the complexity of accounting for
certain financial instruments with down round features. Down round
features are features of certain equity-linked instruments (or
embedded features) that result in the strike price being reduced on
the basis of the pricing of future equity offerings.
Current accounting guidance creates
cost and complexity for entities that issue financial instruments
(such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire
instrument or conversion option. The amendments in Part I of this
ASU are effective for public business entities for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2018. The adoption of the ASU 2017-11 did not have a
material impact on the Company’s consolidated financial
statements.
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic
842).” (“ASU
2016-02”). The amendments in this update create Topic 842,
Leases, and supersede the leases requirements in Topic 840, Leases.
Topic 842 specifies the accounting for leases. The objective of
Topic 842 is to establish the principles that lessees and lessors
shall apply to report useful information to users of financial
statements about the amount, timing and uncertainty of cash flows
arising from a lease. The main difference between Topic 842 and
Topic 840 is the recognition of lease assets and lease liabilities
for those leases classified as operating leases under Topic 840.
Topic 842 retains a distinction between finance leases and
operating leases. The classification criteria for distinguishing
between finance leases and operating leases are substantially
similar to the classification criteria for distinguishing between
capital leases and operating leases in the previous leases
guidance. The result of retaining a distinction between finance
leases and operating leases is that under the lessee accounting
model in Topic 842, the effect of leases in the statement of
comprehensive income and the statement of cash flows is largely
unchanged from previous GAAP. The amendments in ASU 2016-02 are
effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years for public
business entities. Early application of the amendments in ASU
2016-02 is permitted. The Company adopted the new standard on
January 1, 2019 using a modified retrospective approach and elected
the transition method that allows for application of the standard
at the beginning of the earliest comparative period presented in
the financial statements. The Company also elected available
practical expedients. The adoption impact of the ASU 2016-02 on the
Company’s consolidated financial statements is illustrated in
Note 10.
Accounting pronouncements not yet effective
In August 2018, the FASB issued Accounting
Standards Update (“ASU”) No. 2018-13,
“Fair Value
Measurement (Topic 820)” which eliminates, adds and modifies certain
disclosure requirements for fair value measurements. The modified
standard eliminates the requirement to disclose changes in
unrealized gains and losses included in earnings for recurring
Level 3 fair value measurements and requires changes in unrealized
gains and losses be included in other comprehensive income for
recurring Level 3 fair value measurements of instruments. The
standard also requires the disclosure of the range and weighted
average used to develop significant unobservable inputs and how
weighted average is calculated for recurring and nonrecurring Level
3 fair value measurements. The amendment is effective for fiscal
years beginning after December 15, 2019 and interim periods within
that fiscal year with early adoption permitted. We do not expect
the standard to have a material impact on our consolidated
financial statements.
In January 2017, the FASB issued ASU No.
2017-04, “Intangibles—Goodwill
and Other (Topic 350): Simplifying the Test for Goodwill
Impairment” (“ASU
2017-04”) which removes Step 2 from the goodwill impairment
test. An entity will apply a one-step quantitative test and record
the amount of goodwill impairment as the excess of a reporting
unit’s carrying amount over its fair value, not to exceed the
total amount of goodwill allocated to the reporting unit. The new
guidance does not amend the optional qualitative assessment of
goodwill impairment. Public business entity that is a U.S.
Securities and Exchange Commission filer should adopt the
amendments in this ASU for its annual or any interim goodwill
impairment test in fiscal years beginning after December 15, 2019.
Early adoption is permitted for interim or annual goodwill
impairment tests performed on testing dates after January 1, 2017.
We do not expect the standard to have a material impact on our
consolidated financial statements.
In June 2016, the FASB issued ASU No.
2016-13, “Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” (“ASU 2016-13”). Financial
Instruments—Credit Losses (Topic 326) amends guideline on
reporting credit losses for assets held at amortized cost basis and
available-for-sale debt securities. For assets held at amortized
cost basis, Topic 326 eliminates the probable initial recognition
threshold in current GAAP and, instead, requires an entity to
reflect its current estimate of all expected credit losses. The
allowance for credit losses is a valuation account that is deducted
from the amortized cost basis of the financial assets to present
the net amount expected to be collected. For available-for-sale
debt securities, credit losses should be measured in a manner
similar to current GAAP, however Topic 326 will require that credit
losses be presented as an allowance rather than as a write-down.
ASU 2016-13 affects entities holding financial assets and net
investment in leases that are not accounted for at fair value
through net income. The amendments affect loans, debt securities,
trade receivables, net investments in leases, off balance sheet
credit exposures, reinsurance receivables and any other financial
assets not excluded from the scope that have the contractual right
to receive cash. The amendments in this ASU will be effective for
fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. We do not expect the standard to
have a material impact on our consolidated financial
statements.
In
December 2019, the FASB issued ASU No. 2019-12, “Income
Taxes” (Topic 740): Simplifying the Accounting for Income
Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the
accounting for income taxes by removing certain exceptions to the
general principles in Topic 740. The amendments also improve
consistent application of and simplify GAAP for other areas of
Topic 740 by clarifying and amending existing guidance. For public
business entities, the amendments in this Update are effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2020. For all other entities, the
amendments are effective for fiscal years beginning after December
15, 2021, and interim periods within fiscal years beginning after
December 15, 2022. We do not expect that the requirements of ASU
2017-04 will have a material impact on our consolidated financial
statements.
NOTE 4 – VARIABLE INTEREST ENTITY
VIEs are those entities
in which a company, through contractual arrangements, bears the
risk of, and enjoys the rewards normally associated with ownership
of the entity, and therefore the Company is the primary beneficiary
of the entity. Cellular Biomedicine Group Ltd (Shanghai)
(“CBMG Shanghai”) and its subsidiaries are variable
interest entities (VIEs) through which the Company conducts stem
cell and immune therapy research and clinical trials in China. The
registered shareholders of CBMG Shanghai are Lu Junfeng and Chen
Mingzhe, who together own 100% of the equity interests in CBMG
Shanghai. The initial capitalization and operating expenses of
CBMG Shanghai are funded by our wholly foreign-owned enterprise
(“WFOE”), Cellular Biomedicine Group Ltd. (Wuxi)
(“CBMG Wuxi”). The registered capital of CBMG Shanghai
is 10 million RMB and was incorporated on October 19, 2011.
Beijing Agreen Biotechnology Co., Ltd. (“AG”) was 100%
acquired by CBMG Shanghai in September 2014. The registered capital
of AG is 5 million RMB and was incorporated on April 27, 2011. In
2017, CBMG Shanghai established two subsidiaries in Wuxi and
Shanghai. Wuxi Cellular Biopharmaceutical Group Ltd. was
established on January 17, 2017 with registered capital of 20
million RMB and wholly owned by CBMG Shanghai. Shanghai Cellular
Biopharmaceutical Group Ltd. (“SH SBM”) was established
on January 18, 2017 with registered capital of 100 million RMB and
wholly owned by CBMG Shanghai. For the years ended
December 31, 2019, 2018 and 2017, 16%, 29% and 3% of the Company
revenue is derived from VIEs respectively.
In February 2012, CBMG Wuxi provided financing to CBMG Shanghai in
the amount of $1,587,075 for working capital purposes. In
conjunction with the provided financing, exclusive option
agreements were executed granting CBMG Wuxi the irrevocable and
exclusive right to convert the unpaid portion of the provided
financing into equity interest of CBMG Shanghai at CBMG
Wuxi’s sole and absolute discretion. CBMG Wuxi and CBMG
Shanghai additionally executed a business cooperation agreement
whereby CBMG Wuxi is to provide CBMG Shanghai with technical and
business support, consulting services and other commercial
services. The shareholders of CBMG Shanghai pledged their equity
interest in CBMG Shanghai as collateral in the event CBMG Shanghai
does not perform its obligations under the business cooperation
agreement.
The Company has determined it is the primary beneficiary of CBMG
Shanghai by reference to the power and benefits criterion under ASC
Topic 810, Consolidation. This determination was reached after
considering the financing provided by CBMG Wuxi to CBMG Shanghai is
convertible into equity interest of CBMG Shanghai and the business
cooperation agreement grants the Company and its officers the power
to manage and make decisions that affect the operation of CBMG
Shanghai.
There are substantial uncertainties regarding the interpretation,
application and enforcement of PRC laws and regulations, including
but not limited to the laws and regulations governing our business
or the enforcement and performance of our contractual arrangements.
See Risk Factors below regarding “Risks Related to Our
Structure.” The Company has not provided any guarantees
related to VIEs and no creditors of VIEs have recourse to the
general credit of the Company.
As the primary beneficiary of CBMG Shanghai and its subsidiaries,
the Company consolidates in its financial statements the financial
position, results of operations and cash flows of CBMG Shanghai and
its subsidiaries, and all intercompany balances and transactions
between the Company and CBMG Shanghai and its subsidiaries are
eliminated in the consolidated financial statements.
The Company has aggregated the financial information of CBMG
Shanghai and its subsidiaries in the table below. The aggregate
carrying value of assets and liabilities of CBMG Shanghai and its
subsidiaries (after elimination of intercompany transactions and
balances) in the Company’s consolidated balance sheets as of
December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
Assets
|
|
|
Cash
|
$13,424,425
|
$2,376,974
|
Other
receivables
|
201,532
|
61,722
|
Prepaid
expenses
|
770,127
|
1,497,072
|
Total current
assets
|
14,396,084
|
3,935,768
|
|
|
|
Property, plant and
equipment, net
|
20,762,271
|
14,280,949
|
Right of
use
|
13,541,518
|
15,431,554
|
Intangibles
|
1,226,955
|
1,412,375
|
Long-term prepaid
expenses and other assets
|
4,742,138
|
5,194,045
|
Total
assets
|
$54,668,966
|
$40,254,691
|
|
|
|
Liabilities
|
|
|
Short-term
debt
|
$14,334,398
|
$-
|
Accounts
payable
|
1,324,792
|
359,980
|
Other
payables
|
4,090,154
|
4,937,541
|
Accrued payroll
*
|
1,208,491
|
1,367,658
|
Deferred
income
|
10,994
|
6,280
|
Total current
liabilities
|
$20,968,829
|
$6,671,459
|
|
|
|
Other non-current
liabilities
|
11,896,934
|
13,877,334
|
Total
liabilities
|
$32,865,763
|
$20,548,793
|
*
Accrued payroll mainly includes bonus accrual of $1,207,560 and
$1,358,709 as of December 31, 2019 and December 31, 2018,
respectively.
NOTE 5 – RESTRICTED CASH AND SHORT-TERM
DEBT
On
January 19, 2019, SH SBM, a wholly owned subsidiary of CBMG
Shanghai, entered into a credit agreement (the “Credit
Agreement”) with China Merchants Bank, Shanghai Branch (the
“Merchants Bank”). Pursuant to the Credit Agreement,
the Merchants Bank agreed to extend credit of up to 100 million RMB
(approximately $14.5 million) to SH SBM via revolving and/or
one-time credit lines. The types of credit available under the
Credit Agreement, include, but are not limited to, working capital
loans, trade financing, commercial draft acceptance, letters of
guarantee and derivative transactions. The credit period under the
Credit Agreement runs until December 30, 2019. As of December 31,
2019, all $14.3 million had been drawn down under the Credit
Agreement. The Company subsequently repaid all the bank borrowings
in February 2020.
Pursuant
to the Credit Agreement, SH SBM will enter into a supplemental
agreement with the Merchants Bank prior to the applicable drawdown
that will set forth the terms of each borrowing thereunder (except
for working capital loans) including principal, interest rate, term
of loan and use of borrowing proceeds. With regard to working
capital loans to be provided pursuant to the Credit Agreement, SH
SBM shall submit a withdrawal application that includes the
principal amount needed, purposes of the loan and a proposed
quarterly interest rate and term of the loan for the Merchants
Bank’s review and approval. The terms approved by the bank
will govern such working capital loans. The bank has the right to
adjust the interest rate for working capital loans from time to
time based on changes in national policy, changes in interest rate
published by the People’s Bank of China, credit market
conditions and the bank’s credit policies. Upon SH
SBM’s non-compliance with the agreed use of loan proceeds,
the interest rate for the amount of loan proceeds improperly used
will be the original rate plus 100% starting on the first day of
such use. If SH SBM fails to pay a working capital loan on time, an
extra 50% interest will be charged on the outstanding balances
starting on the first day of such default.
Pursuant
to a pledge agreement which became enforceable upon execution of
the Credit Agreement, Cellular Biomedicine Group Ltd. (HK), a
wholly owned subsidiary of the Company (“CBMG HK”),
provided a guarantee of SH SBM’s obligations under the Credit
Agreement. In connection with such guarantee, CBMG HK deposited $17
million into its account at the Merchants Bank for a 12-month
period starting January 7, 2019 and also granted Merchants Bank a
security interest in the cash deposited.
The
details of the bank borrowings as of December 31, 2019 and December
31, 2018 are as follows:
|
|
|
|
|
|
Lender
|
Inception
date
|
Maturity
date
|
|
|
|
|
|
|
|
|
|
Merchants
Bank
|
January 21, 2019 ~
January 31, 2019
|
January 21, 2020 ~
January 31, 2020
|
4.785%
|
$3,496,361
|
$-
|
Merchants
Bank
|
February 22, 2019 ~
June 24, 2019
|
February 22, 2020 ~
June 24, 2020
|
4.35%
|
10,838,037
|
-
|
|
|
|
|
|
|
$14,334,398
|
$-
|
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT
As
of December 31, 2019 and 2018, property, plant and equipment,
carried at cost, consisted of the following:
|
|
|
|
|
|
Office
equipment
|
$160,315
|
$101,608
|
Manufacturing
equipment
|
14,963,621
|
7,636,905
|
Computer
equipment
|
576,499
|
426,507
|
Leasehold
improvements
|
15,516,570
|
12,861,186
|
Construction
in progress
|
196,240
|
1,030,760
|
|
|
|
|
31,413,245
|
22,056,966
|
Less:
accumulated depreciation
|
(9,978,831)
|
(6,863,205)
|
|
$21,434,414
|
$15,193,761
|
Depreciation
expense for the years ended December 31, 2019, 2018 and 2017 was
$4,187,330, $3,360,517 and $1,195,705, respectively.
NOTE 7 – INVESTMENTS
The
Company’s investments represent the investment in equity
securities listed in Over-The-Counter (“OTC”) markets
of the United States of America:
December 31,
2019 and December 31, 2018
|
|
Gross
Unrealized
Gains/(losses)
|
Gross Unrealized
Losses more than 12 months
|
Gross Unrealized
Losses less than 12 months
|
|
|
|
|
|
|
|
Equity position in
Arem Pacific Corporation
|
$480,000
|
$-
|
$(240,000)
|
$-
|
$240,000
|
There
were no sales of investments for the years ended December 31, 2019
and 2018.
The
unrealized holding gain (loss) for the investments, net of tax,
that were recognized in other comprehensive income (loss) for the
year ended December 31, 2019 was nil, as compared to nil and
$(240,000) for the years ended December 31, 2018 and 2017,
respectively.
The Company tracks each investment with an
unrealized loss and evaluates them on an individual basis for
other-than-temporary impairments, including obtaining corroborating
opinions from third-party sources, performing trend analyses and
reviewing management’s future plans. When investments have
declines determined by management to be other-than-temporary, the
Company recognizes write downs through earnings.
Other-than-temporary impairment of investments for the year ended
December 31, 2019 was nil, compared with $29,424 and nil for the
years ended December 31, 2018 and 2017, respectively. The
Company provided full impairment of $29,424 for shares of Alpha
Lujo, Inc. (“ALEV”) for the year ended December 31,
2018 as ALEV filed Form 15 (Certification and Notice of Termination
of Registration under Section 12(g) of the Securities Exchange Act
of 1934 or Suspension of Duty to File Reports) with the SEC and has
not been traded in the market since 2018.
NOTE 8 – FAIR VALUE ACCOUNTING
Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The hierarchy
for determining that distinguishes between (1) market participant
assumptions developed based on market data obtained from
independent sources (observable inputs) and (2) an entity’s
own assumptions about market participant assumptions developed
based on the best information available in the circumstances
(unobservable inputs). The Company has adopted ASC Topic 820, Fair
Value Measurement and Disclosure, which defines fair value,
establishes a framework for measuring fair value in GAAP and
expands disclosures about fair value measurements. It does not
require any new fair value measurements, but provides guidance on
how to measure fair value by providing a fair value hierarchy used
to classify the source of the information. It establishes a
three-level valuation hierarchy of valuation techniques based on
observable and unobservable inputs, which may be used to measure
fair value, and includes the following:
Level
1 – Quoted prices in active markets for identical assets or
liabilities.
Level
2 – Inputs other than Level 1 that are observable, either
directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level
3 – Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the
assets or liabilities.
Classification
within the hierarchy is determined based on the lowest level of
input that is significant to the fair value
measurement.
The
carrying value of financial items of the Company including cash and
cash equivalents, accounts receivable, other receivables, accounts
payable and accrued liabilities, approximate their fair values due
to their short-term nature and are classified within Level 1 of the
fair value hierarchy. As of December 31, 2019, the carrying value
of the Company's borrowings from China Merchant Bank approximates
fair value as the borrowing bears interest rates that are similar
to existing market rates.
The
Company’s investments are classified within Level 2 of the
fair value hierarchy because of the insufficient volatility of the
three stocks traded in OTC market. The Company did not have any
Level 3 financial instruments as of December 31, 2019 and
2018.
Assets
measured at fair value within Level 2 on a recurring basis as of
December 31, 2019 and 2018 are summarized as follows:
|
As of December 31,
2019 and December 31, 2018
|
|
Fair Value
Measurements at Reporting Date Using:
|
|
|
Quoted Prices
in Active Markets
for Identical
Assets (Level
1)
|
Significant
Other Observable
Inputs
(Level
2)
|
Significant
Unobservable
Inputs
(Level
3)
|
Assets:
|
|
|
|
|
Equity position in
Arem Pacific Corporation
|
$240,000
|
$-
|
$240,000
|
$-
|
No
shares were acquired during the years ended December 31, 2019 and
2018.
As of December 31, 2019 and 2018, the Company
holds 8,000,000 shares in Arem Pacific Corporation
(“ARPC”), 2,942,350
shares in ALEV and 2,057,131 shares in Wonder International
Education and Investment Group Corporation
(“Wonder”). Full impairment has been provided
for shares of Wonder and ALEV. All available-for-sale investments
held by the Company at December 31, 2019 and December 31, 2018 have
been valued based on Level 2 inputs due to the limited trading of
these companies.
NOTE 9 – INTANGIBLE ASSETS
Most
of our intellectual properties are developed internally. Because we
do not capitalize our research and development expenses related to
our home-grown intellectual properties, as of December 31, 2019,
the intellectual properties acquired from the Agreen acquisition
still accounted for the majority of the net book value of our
intangible assets. We continue to apply the acquired Agreen
intellectual properties in our immuno-oncology research and
development activities. As such, there is no impairment on the
continued use of the acquired Agreen intellectual
properties.
As
of December 31, 2019 and 2018, intangible assets consisted of the
following:
Patents
& knowhow & license
|
|
|
Cost
basis
|
$15,265,211
|
$14,695,472
|
Less:
accumulated amortization
|
(8,317,085)
|
(6,950,656)
|
|
$6,948,126
|
$7,744,816
|
Software
|
|
|
Cost
basis
|
$612,679
|
$340,918
|
Less:
accumulated amortization
|
(183,865)
|
(115,042)
|
|
$428,814
|
$225,876
|
|
|
|
|
|
|
Total intangibles,
net
|
$7,376,940
|
$7,970,692
|
All software is provided by a third-party vendor,
is not internally developed and has an estimated useful life of
five years. Patents, knowhow and license are amortized using an
estimated useful life of five to ten years. Amortization expense for the years ended December
31, 2019, 2018 and 2017 were $1,450,973, $1,689,006 and $1,790,258,
respectively.
During the years ended December 31, 2019 and 2018,
the Company provided impairment of nil and $2,884,896,
respectively, for intangible assets. During 2018, the Company
reassessed its return on investment to develop GVAX for cancer
therapies in the current competitive market and decided to
terminate its GVAX program and its license agreements with the
University of South Florida (“USF”) and the Moffitt
Cancer Center (“Moffitt”). As a result, the Company
made a full impairment of $2,884,896 for the USF and Moffitt
licenses. CD40LGVAX was licensed in 2015 with the intention of
providing alternative treatment options for late stage non-small
cell lung cancer (NSCLC) patients. Since then, the landscape of
NSCLC has changed dramatically. Pembrolizumab has been approved as
first-line treatment for patients with metastatic NSCLC with high
PD-L1 expression, and for patients with metastatic NSCLC following
disease progression on chemotherapy. In 2018, the U.S. FDA accepted
a supplemental biologics license application for the combination of
nivolumab plus ipilimumab for the frontline treatment of patients
with advanced NSCLC with tumor mutational burden (TMB)
≥10 mutations per megabase
(mut/Mb). In addition, the Company recently licensed TIL patents
from NIH/NCI for multiple indications in solid tumors and decided
that TIL technology platform has a higher potential to capture a
broader solid tumors market. Hence, we decided to terminate the
development of CD40LGVAX and focus our clinical development effort
based on the TCR-T and TIL technologies for solid
tumors.
Estimated
amortization expense for each of the fiscal years ending December
31 are as follows:
Years ending
December 31,
|
|
2020
|
$1,490,985
|
2021
|
1,485,862
|
2022
|
1,474,146
|
2023
|
1,462,583
|
2024 and
thereafter
|
1,463,364
|
|
$7,376,940
|
NOTE 10 – LEASES
The
Company leases facilities and equipment under non-cancellable
operating lease agreements. These facilities and equipment are
located in the United States, Hong Kong and China. The Company
recognizes rental expense on a straight-line basis over the life of
the lease period.
The
Company adopted ASC 842 on January 1, 2019 using a modified
retrospective approach and elected the transition method that
allows for application of the standard at the beginning of the
earliest comparative period presented in the financial statements.
The Company also elected the package of practical expedients
permitted under the transition guidance within the new standard,
which, among other things, allowed us to carry forward the
historical lease classification. We did not elect the practical
expedient allowing the use of hindsight, which would require us to
reassess the lease term of our leases based on all facts and
circumstances through the effective date and did not elect the
practical expedient pertaining to land easements as this is not
applicable to our current contract portfolio. We applied the
short-term lease exception to all leases of one year or
less.
As
a result of the adoption of ASC 842, the Company recognized an
operating liability with a corresponding ROU asset of the same
amounts based on the present value of the minimum rental payments
of such leases. As of December 31, 2018, the ROU asset has a
balance of $15,938,203 which is included in other non-current
assets in the consolidated balance sheets and current liabilities
and non-current liabilities relating to the ROU asset were
$1,874,270 and $14,063,933, respectively, which are included in
other current liabilities and other non-current liabilities in the
consolidated balance sheets, respectively. The discount rate used
for leases accounted under ASC 842 is the Company’s estimated
borrowing rate of 5%.
Quantitative
information regarding the Company’s leases is as
follows:
The components of lease expense were as follows:
|
|
|
|
|
|
|
Lease
cost
|
|
|
Operating
lease cost
|
2,934,003
|
2,601,686
|
Short-term
lease cost
|
159,054
|
620,687
|
Total
lease cost
|
3,093,057
|
3,222,373
|
Supplemental cash flow information related to leases was as
follows:
|
|
|
|
|
|
|
Cash
paid for the amounts included in the measurement of lease
liabilities for operating leases:
|
|
|
Operating
cashflows
|
2,810,145
|
2,499,934
|
Supplemental balance sheet information related to leases was as
follows:
|
|
|
|
|
|
Operating
lease right-of-use assets
|
20,106,163
|
15,938,203
|
Other
current liabilities
|
2,506,413
|
1,874,270
|
Other
non-current liabilities
|
17,599,750
|
14,063,933
|
|
|
|
Weighted
Average Remaining Lease Term (in years): Operating
leases
|
7.9
|
7.7
|
|
|
|
Weighted
Average Discount Rate: Operating leases
|
5%
|
5%
|
As
of December 31, 2019, the Company has the following future minimum
lease payments due under the foregoing lease
agreements:
Years ending December
31,
|
|
2020
|
$3,628,949
|
2021
|
3,149,434
|
2022
|
3,246,854
|
2023
|
3,246,854
|
2024 and
thereafter
|
11,912,327
|
|
|
|
$25,184,418
|
NOTE 11 – RELATED PARTY TRANSACTIONS
The
Company advanced petty cash to officers for business travel
purposes. As of December 31, 2019 and 2018, other receivables due
from officers for business travel purposes were nil.
NOTE 12 – EQUITY
ASC
Topic 505, “Equity,” paragraph 505-50-30-6
establishes that share-based payment transactions with nonemployees
shall be measured at the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is
more reliably measurable.
On
December 15, 2017, the Company entered into a Share Purchase
Agreement with three of its executive officers, pursuant to which
the Company agreed to sell, and the three executive officers agreed
to purchase, an aggregate of 41,667 shares of the Company’s
common stock, par value $0.001 per share, at $12.00 per share, for
total gross proceeds of approximately $500,000. The transaction
closed on December 22, 2017.
On
December 26, 2017, the Company entered into a Share Purchase
Agreement with two investors, pursuant to which the Company agreed
to sell, and the two investors agreed to purchase from the Company,
an aggregate of 1,166,667 shares of the Company’s common
stock, par value $0.001 per share, at $12.00 per share, for total
gross proceeds of approximately $14 million. The transaction closed
on December 28, 2017. Together with a private placement with three
of its executive officers on December 22, 2017, the Company raised
an aggregate of approximately $14.5 million in the two private
placements in December 2017.
On
January 30, 2018 and February 5, 2018, the Company entered into
securities purchase agreements with certain investors pursuant to
which the Company agreed to sell, and the investors agreed to
purchase from the Company, an aggregate of 1,719,324 shares of the
Company’s common stock, par value $0.001 per share, at $17.80
per share, for total gross proceeds of approximately $30.6 million.
The transaction closed on February 5, 2018.
On
September 25, 2018, the Company entered into a share purchase
agreement with Novartis Pharma AG
(“Novartis”) pursuant to which the Company agreed
to sell, and Novartis agreed to purchase from the Company, an
aggregate of 1,458,257 shares of the Company’s common stock,
par value $0.001 per share, at a purchase price of $27.43 per
share, for total gross proceeds of approximately $40 million. The
transaction closed on September 26, 2018.
On
March 21, 2019, the Company entered into an underwriting agreement
with Cantor Fitzgerald & Co. and Robert W. Baird & Co.
Incorporated, as representatives of the several underwriters set
forth therein (collectively, the “Underwriters”)
relating to an underwritten public offering of 1,029,412 shares of
the Company’s common stock, par value $0.001 per share, at an
offering price to the public of $17.00 per share. Under the terms
of the Underwriting Agreement, the Company granted the Underwriters
a 30-day option to purchase up to an additional 154,411 shares of
Common Stock. The offering was closed on March 25, 2019 and the
Company received net proceeds of approximately $16 million. On
April 2, 2019, the underwriters partially exercised their option
and purchased an additional 77,549 shares of Common Stock for net
proceeds of approximately $1.2 million.
During
the years ended December 31, 2019, 2018 and 2017, the Company
expensed $2,416,058, $3,184,425 and $4,512,192 associated with
unvested options awards and $1,647,923, $1,642,320 and $833,019
associated with restricted common stock issuances,
respectively.
During
the years ended December 31, 2019, 2018 and 2017, options for
30,418, 235,929 and 57,400 underlying shares were exercised, and
30,418, 235,929 and 57,400 shares of the Company’s common
stock were issued accordingly.
During
the years ended December 31, 2019, 2018 and 2017, 101,729, 91,713
and 68,446 shares of the Company’s restricted common stock
were issued to directors, employees and advisors,
respectively.
As
previously disclosed on a Current Report on Form 8-K filed on June
1, 2017, the Company authorized a share repurchase program (the
“2017 Share Repurchase Program”) pursuant to which the
Company may, from time to time, purchase shares of its common stock
for an aggregate purchase price not to exceed $10 million under
which approximately $6.52 million in shares of common stock were
repurchased. On October 10, 2018, the Company commenced a share
repurchase program (the “2018 Share Repurchase
Program”) pursuant to which the Company may, from time to
time, purchase shares of its common stock for an aggregate purchase
price not to exceed approximately $8.48 million. We completed all
of our repurchase plans on March 31, 2019 for a grand total of
1,055,499 shares for a total purchase price of $14.99
million.
For
the year ended December 31, 2019, the Company repurchased 54,000
shares of the Company’s common stock with the total cost of
$1,039,028. Details are as follows:
|
Total number
of
shares
purchased
|
Average
price
paid per
share
|
|
|
|
Treasury stock as
of December 31, 2018
|
1,001,499
|
$13.93
|
Repurchased from
January 1, 2019 to March 31, 2019
|
54,000
|
$19.24
|
Repurchased from
April 1, 2019 to June 30, 2019
|
-
|
$-
|
Repurchased from
July 1, 2019 to September 30, 2019
|
-
|
$-
|
Repurchased from
October 1, 2019 to December 31, 2019
|
-
|
$-
|
|
|
|
Treasury stock as
of December 31, 2019
|
1,055,499
|
$14.20
|
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Capital commitments
As of
December 31, 2019, the capital commitments of the Company are
summarized as follows:
|
|
|
|
Contracts
for acquisition of plant and equipment being or to be
executed
|
$1,177,975
|
NOTE 14 – STOCK BASED COMPENSATION
Our
stock-based compensation arrangements include grants of stock
options and restricted stock awards under the stock option plans
(consisting of the 2009 Plan, 2011 Plan, 2013 Plan, the 2014 Plan
and the 2019 Plan) and certain awards granted outside of these
plans. The compensation cost that has been charged against income
related to stock options (including shares issued for services and
expense true-ups and reversals described in Note 12) for the years
ended December 31, 2019, 2018 and
2017 was $2,416,058, $3,184,425
and $4,512,192, respectively. The compensation cost that has
been charged against income related to restrict stock awards for
the years ended December 31, 2019,
2018 and 2017 was $1,647,923,
$1,642,320 and $833,019, respectively.
These
expenses are included in overhead, general and administrative
expense, selling and marketing expense as well as research and
development expenses in our Consolidated Statements of
Operations.
As of
December 31, 2019, there was $2,248,351 all unrecognized
compensation cost related to an aggregate of 263,822 of non-vested
stock option awards and $2,994,358 related to an aggregate of
235,822 of non-vested restricted stock awards. Restricted stock
awards under a long-term incentive plan is not accounted for as the
attendant could chose to surrender part of the restricted stock
awards for individual income tax payment purposes. These costs are
expected to be recognized over a weighted-average period of 1.05
years for the stock options awards and 1.24 years for the
restricted stock awards.
During
the year ended December 31, 2019, the Company issued an aggregate
of 65,341 options under the 2011 Plan, 2013 Plan, 2014 Plan and
2019 Plan to officers, directors, employees and advisors. The grant
date fair value of these options was $751,523 using Black-Scholes
option valuation models with the following assumptions: grant date
strike price from $13.54 to $17.89, volatility 87.26% to 88.03%,
expected life 6.0 years and risk-free rate of 1.43% to 2.36%. The
Company is expensing these options on a straight-line basis over
the requisite service period.
As of
December 31, 2018, there was $4,215,079 all unrecognized
compensation cost related to an aggregate of 492,340 of non-vested
stock option awards and $2,904,245 related to an aggregate of
227,951 of non-vested restricted stock awards. Restricted stock
awards under a long-term incentive plan is not accounted for as the
attendant could chose to surrender part of the restricted stock
awards for individual income tax payment purposes. These costs are
expected to be recognized over a weighted-average period of 1.66
years for the stock options awards and 1.35 years for the
restricted stock awards.
During
the year ended December 31, 2018, the Company issued an aggregate
of 244,682 options under the 2011 Plan, 2013 Plan and 2014 Plan to
officers, directors, employees and advisors. The grant date fair
value of these options was $3,528,715 using Black-Scholes option
valuation models with the following assumptions: grant date strike
price from $14.5 to $23.55, volatility 65.15% to 206.42%, expected
life 6.0 years and risk-free rate of 2.33% to 3.11%. The Company is
expensing these options on a straight-line basis over the requisite
service period.
The
following table summarizes stock option activity as of December 31,
2019 and 2018 and for the year ended December 31,
2019:
|
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average Remaining Contractual Term (in years)
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
Outstanding at
December 31, 2017
|
1,892,189
|
$11.54
|
7.0
|
$4,909,194
|
Grants
|
244,682
|
18.68
|
|
|
Forfeitures
|
(72,076)
|
13.95
|
|
|
Exercises
|
(235,929)
|
7.01
|
|
|
|
|
|
|
|
Outstanding at
December 31, 2018
|
1,828,866
|
$12.41
|
6.5
|
$11,496,058
|
Grants
|
65,341
|
16.17
|
|
|
Forfeitures
|
(74,901)
|
17.99
|
|
|
Exercises
|
(30,418)
|
7.30
|
|
|
Outstanding at
December 31, 2019
|
1,788,888
|
$12.37
|
5.4
|
$9,394,219
|
|
|
|
|
|
Vested and
exercisable at December 31, 2019
|
1,525,066
|
$11.91
|
4.9
|
$8,820,061
|
|
|
|
|
|
|
|
|
$3.00 - $4.95
|
185,547
|
185,547
|
$5.00 - $9.19
|
448,124
|
432,176
|
$9.20 - $15.00
|
518,504
|
404,203
|
$15.01 - $20.00
|
481,713
|
360,840
|
$20.10+
|
155,000
|
142,300
|
|
1,788,888
|
1,525,066
|
The
aggregate intrinsic value for stock options outstanding is defined
as the positive difference between the fair market value of our
common stock and the exercise price of the stock
options.
Cash
received from option exercises under all share-based payment
arrangements for the years ended December 31, 2019, 2018 and 2017
was $283,959, $2,738,866 and $308,371, respectively.
The
Company adopted ASU 2018-07 on January 1, 2019, and the stock-based
compensation expense for grants before the adoption of ASU 2018-07
is based on the grant date fair value as of December 31, 2018,
which was the last business day before the Company adopted ASU
2018-07, for all nonemployee awards that have not vested as of
December 31, 2018. The cumulative-effect adjustment to retained
earnings as of January 1, 2019 was immaterial to the financial
statements as a whole. Accordingly, the Company did not record this
adjustment as of January 1, 2019. Furthermore, for future
nonemployee awards, compensation expense is based on the market
value of the shares at the grant date.
NOTE 15 – NET LOSS PER SHARE
Basic
and diluted net loss per common share is computed on the basis of
our weighted average number of common shares outstanding, as
determined by using the calculations outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$(49,984,054)
|
$(38,945,492)
|
$(25,490,310)
|
|
|
|
|
Weighted average
shares of common stock
|
18,983,206
|
17,741,104
|
14,345,604
|
Dilutive effect of
stock options
|
-
|
-
|
-
|
Restricted stock
vested not issued
|
-
|
-
|
-
|
Common stock and
common stock equivalents
|
18,983,206
|
17,741,104
|
14,345,604
|
|
|
|
|
Net loss per basic
and diluted share
|
$(2.63)
|
$(2.20)
|
$(1.78)
|
For
the years ended December 31, 2019, 2018 and 2017, the effect of
conversion and exercise of the Company’s outstanding options
as well as the unvested restricted stocks are excluded from the
calculations of dilutive net income (loss) per share as their
effects would have been anti-dilutive since the Company had
generated losses for the years ended December 31, 2019, 2018 and
2017.
NOTE 16 – INCOME TAXES
Income
taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the
period during which such rates are enacted.
The
Company considers all available evidence to determine whether it is
more likely than not that some portion or all of the deferred tax
assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
realizable. Management considers the scheduled reversal of deferred
tax liabilities (including the impact of available carry-back and
carry-forward periods) and projected taxable income in assessing
the realizability of deferred tax assets. In making such judgments,
significant weight is given to evidence that can be objectively
verified. Based on all available evidence, in particular our
three-year historical cumulative losses, recent operating losses
and U.S. pretax loss for the year ended December 31, 2019, we
recorded a valuation allowance against our U.S. net deferred tax
assets. In order to fully realize the U.S. deferred tax assets, we
will need to generate sufficient taxable income in future periods
before the expiration of the deferred tax assets governed by the
tax code.
The following represent components
of the income tax (expense) credit for the
years ended December 31, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
Current:
|
|
|
|
US
federal
|
$-
|
$-
|
$-
|
US
state
|
(1,045)
|
(2,475)
|
(2,450)
|
Foreign
|
-
|
(2,479)
|
-
|
Total current tax
credit (expense)
|
$(1,045)
|
$(4,954)
|
$(2,450)
|
Deferred:
|
|
|
|
Federal
|
$-
|
$-
|
$-
|
State
|
-
|
-
|
-
|
Foreign
|
-
|
-
|
-
|
Total deferred tax
expense
|
$-
|
$-
|
$-
|
Total income tax
credit (expense)
|
$(1,045)
|
$(4,954)
|
$(2,450)
|
Tax
effects of temporary differences that give rise to significant
portions of the Company’s deferred tax assets at December 31,
2019 and 2018 are presented below:
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
Net
operating loss carry forwards (offshore)
|
$14,229,745
|
$10,124,478
|
Net
operating loss carry forwards (US)
|
9,554,430
|
5,670,678
|
Accruals
(offshore)
|
465,091
|
429,013
|
Accrued
compensation (US)
|
180,455
|
128,207
|
Stock-based
compensation (US)
|
4,286,546
|
3,665,226
|
Investments
(US)
|
2,363,843
|
2,363,843
|
Credits
(US)
|
644,580
|
395,112
|
Property and
equipment
|
(46,186)
|
(19,675)
|
Goodwill
& intangibles
|
754,248
|
827,994
|
Subtotal
|
32,432,752
|
23,584,876
|
Less:
valuation allowance
|
(32,432,752)
|
(23,584,876)
|
Total
deferred tax assets
|
-
|
-
|
In
each period since inception, the Company has recorded a valuation
allowance for the full amount of net deferred tax assets, as the
realization of deferred tax assets is uncertain. As a result, the
Company has not recorded any federal or state income tax benefit in
the consolidated statements of operations and comprehensive income
(loss).
On
December 22, 2017, the U.S. President signed the tax reform bill
(Tax Cut and Jobs Act (H.R.1)) and reduced the top corporate tax
rate from 35% to 21% effective from January 1, 2018. Pursuant to
this new Act, the non-operating loss carry-back period is
eliminated and an indefinite carry-forward period is permitted. As
of December 31, 2019, the Company had net operating loss
carry-forwards of $36.4 million for U.S. federal purposes and $30.8
million for U.S. state purposes. These federal and
state net operating loss carry-forwards will expire beginning in
2034 and 2034, respectively. Federal NOL generated from 2018 and
after will not expire. At December 31, 2019 and 2018, the Company
also has federal research and development tax credit carry-forwards
of approximately $0.6 million and $0.3 million, respectively, and
state research and development tax credit carry-forwards of
approximately $0.3 million and $0.1 million, respectively. The
federal tax credits begin to expire in 2025, and the state tax
credits carry forward vary based on
state.
The
Company’s effective tax rate differs from statutory rates of
21% for U.S. federal income tax purposes, 15% ~ 25% for Chinese
income tax purpose and 16.5% for Hong Kong income tax purposes due
to the effects of the valuation allowance and certain permanent
differences as the Company's tax rate pertains to book-tax
differences in the value of client shares received for
services.
Pursuant
to the Corporate Income Tax Law of the PRC, all of the
Company’s PRC subsidiaries are liable to PRC Corporate Income
Taxes at a rate of 25% except for CBMG Shanghai and Shanghai
SBM.
According
to Guoshuihan 2009 No. 203, if an entity is certified as an
“advanced and new technology enterprise,” it is
entitled to a preferential income tax rate of 15%. CBMG Shanghai
obtained the certificate of “advanced and new technology
enterprise” dated October 30, 2015 with an effective period
of three years, and the provision for PRC corporate income tax for
CBMG Shanghai is calculated by applying the income tax rate of 15%
from 2015. CBMG Shanghai re-applied and Shanghai SBM applied for
the certificate of “advanced and new technology
enterprise” in 2018. Both of them received approval on
November 27, 2018. On August 23, 2018, State Administration of
Taxation issued a Bulletin on Enterprise Income Tax Issues Related
to the Extension of Loss Carry-forward Period for Advanced and New
Technology Enterprises and Small and Medium-sized Technology
Enterprises (“Bulletin 45”). According to Bulletin 45,
an enterprise that obtains the two types of qualification in 2018
is allowed to carry forward all its prior year losses incurred
between 2013 and 2017 to up to ten years instead of five years. The
same requirement applies to the enterprise obtaining the
qualifications after 2018.
As
of December 31, 2019, the Company had net operating loss
carry-forwards of $43 million and $22 million for Chinese income
tax purposes, which are set to expire in 2024 and 2029 for Chinese
income tax purposes, respectively. All deferred income tax expense
is offset by changes in the valuation allowance pertaining to the
Company’s existing net operating loss carry-forwards due to
the unpredictability of future profit streams prior to the
expiration of the tax losses.
Income
tax expense for the years ended December 31, 2019, 2018 and 2017
differed from the amounts computed by applying the statutory
federal income tax rate of 21% / 35% to pretax income (loss) as a
result of the following:
|
|
|
|
|
|
|
|
Effective
Tax Rate Reconciliation
|
|
|
|
Income
tax provision at statutory rate
|
21%
|
21%
|
35%
|
State
income taxes, net of federal benefit
|
0%
|
0%
|
0%
|
Rate
deduction
|
(7)%
|
(3)%
|
(20)%
|
Foreign
rate differential
|
2%
|
0%
|
(13)%
|
Other
permanent difference
|
0%
|
(1)%
|
(2)%
|
Change
in valuation allowance
|
(16)%
|
(17)%
|
0%
|
|
|
|
|
Total
tax credit (expense)
|
0%
|
0%
|
0%
|
As
of December 31, 2019, the Company had $0.6 million of total
unrecognized tax benefits. The Company currently has a full
valuation allowance against its net deferred tax assets which would
impact the timing of the effective tax rate benefit should any of
these uncertain tax positions be favorably settled in the future.
If the Company is able to eventually recognize these uncertain tax
positions, none of the unrecognized benefit would reduce the
Company's effective tax rate due to full valuation allowance of the
Company's deferred tax assets. The Company's policy is to record
interest and penalties related to unrecognized tax benefits as
income tax expense. During the years ended December 31, 2019, the
Company had immaterial amounts related to the accrual of interest
and penalties.Ú reconciliation of the beginning and ending
unrecognized tax benefit amount is as follows:
|
|
|
|
Beginning
balance
|
$462
|
Current year
addition
|
106
|
Ending
balance
|
$568
|
The Company does
not have any tax positions for which it is reasonably possible the
total amount of gross unrecognized tax benefits will increase or
decrease within 12 months of the years ended December 31,
2019.
NOTE 17 – SEGMENT INFORMATION
The
Company is engaged in the development of new treatments for
cancerous and degenerative diseases utilizing proprietary
cell-based technologies, which have been organized as one reporting
segment as they have substantially similar nature and economic
characteristics. The Company’s principle operating decision
maker, the Chief Executive Officer, receives and reviews the
results of the operations for all major cell platforms as a whole
when making decisions about allocating resources and assessing
performance of the Company. In accordance with FASB ASC 280-10, the
Company is not required to report the segment
information.
NOTE 18 – SUBSEQUENT EVENTS
On January 28, 2020, the Board of Directors
of the Company accepted the Special Committee of the Board and its
advisers’ recommendation to arrange a bridge loan (the
“Bridge Loan”) of
$16 million in accordance with a Bridge Loan Agreement entered into
with Winsor Capital Limited on January 28, 2020. TF Capital Ranok
Ltd., an affiliate of Winsor Capital Limited, is a member of the
consortium that submitted a non-binding going-private proposal to
the Company on November 11, 2019. The Bridge Loan Agreement is not
conditioned upon the consortium bid. The Company received $7
million of the Bridge Loan on January 29,
2020.
On
February 19, 2020, the Company commenced as a collaborator with
Ruijin Hospital on a pilot clinical study on inhalation of
mesenchymal stem cells exosomes treating severe novel coronavirus
pneumonia, other collaborators in this pilot clinical study are the
Shanghai Public Health Clinical Center and the Wuhan Jinyintan
Hospital.
On
February 20, 2020, the Company repaid $14.3 million short-term
borrowings from China Merchant Bank.
On February 20, 2020, Shanghai Cellular
Biopharmaceutical Group Ltd. and Novartis entered into a Quality
Agreement for external manufacturing, pursuant to which both
parties specified the quality assurance roles and responsibilities
of Novartis AG and CBMG Shanghai with regard to the manufacture and
supply of Kymriah®
to Novartis in
China.
On
February 21, 2020, the Special Committee of the Board of Directors
of the Company received a new preliminary non-binding proposal
letter, dated the same day, from the Consortium led by Mr. Bizuo
(Tony) Liu, certain other senior management members of the Company,
Hillhouse Bio Holdings, L.P., TF Capital Ranok Ltd., Dangdai
International Group Co., Limited, Mission Right Limited, Maplebrook
Limited, Viktor Pan, Zheng Zhou, OPEA SRL, Wealth Map Holdings
Limited and Earls Mill Limited (the “Consortium
Members”), to acquire all Shares of the Company (other than
those Shares held by the Consortium Members that may be rolled over
in connection with the transaction proposed in the Letter) for
U.S.$19.50 per Share in cash in a going-private transaction. A
consortium consisting of certain but not all of the Consortium
Members submitted a preliminary non-binding proposal to acquire the
Company in a going-private transaction on November 11,
2019.
NOTE 19 – UNAUDITED QUARTERLY FINANCIAL
INFORMATION
|
Year ended
December 31, 2019
|
|
Q4
|
Q3
|
Q2
|
Q1
|
|
|
|
|
|
|
|
Selected
Income Statement Data:
|
|
|
|
|
|
Net sales and
revenue
|
$290,655
|
$-
|
$-
|
$49,265
|
$339,920
|
Gross
Profit
|
236,364
|
-
|
-
|
41,178
|
277,542
|
Operating
loss
|
(12,799,189)
|
(16,491,596)
|
(12,284,487)
|
(9,416,912)
|
(50,992,184)
|
Net
loss
|
(12,686,663)
|
(15,863,906)
|
(12,096,697)
|
(9,336,788)
|
(49,984,054)
|
Net loss per share
:
|
|
|
|
|
|
Basic
and diluted
|
(0.66)
|
(0.82)
|
(0.63)
|
(0.51)
|
(2.63)
|
|
Year ended
December 31, 2018
|
|
Q4
|
Q3
|
Q2
|
Q1
|
|
|
|
|
|
|
|
Selected
Income Statement Data:
|
|
|
|
|
|
Net sales and
revenue
|
$25,698
|
$70,431
|
$77,313
|
$50,961
|
$224,403
|
Gross
Profit
|
4,113
|
32,948
|
22,920
|
28,661
|
88,642
|
Operating
loss
|
(9,811,604)
|
(12,797,834)
|
(9,387,635)
|
(8,508,672)
|
(40,505,745)
|
Net
loss
|
(8,519,229)
|
(12,743,764)
|
(9,186,076)
|
(8,496,423)
|
(38,945,492)
|
Net loss per share
:
|
|
|
|
|
|
Basic
and diluted
|
(0.45)
|
(0.72)
|
(0.53)
|
(0.51)
|
(2.20)
|
OFFICE LEASE
TABLE
OF CONTENTS
ARTICLE
|
PAGE
|
1
|
DEFINITIONS.
|
1
|
2
|
TERM.
|
6
|
3
|
WORK AGREEMENT; DELIVERY OF PREMISES.
|
7
|
4
|
RENT.
|
8
|
5
|
ADDITIONAL RENT.
|
10
|
6
|
USE.
|
12
|
7
|
CARE OF PREMISES.
|
13
|
8
|
ALTERATIONS BY TENANT.
|
13
|
9
|
EQUIPMENT.
|
15
|
10
|
OWNERSHIP AND REMOVAL OF PROPERTY.
|
17
|
11
|
LANDLORD'S ACCESS TO PREMISES.
|
18
|
12
|
SERVICES AND UTILITIES.
|
19
|
13
|
RULES AND REGULATIONS.
|
21
|
14
|
REPAIR OF DAMAGE CAUSED BY TENANT: INDEMNIFICATION.
|
21
|
15
|
LIMITATION ON LANDLORD LIABILITY.
|
22
|
16
|
FIRE AND OTHER CASUALTY.
|
22
|
17
|
INSURANCE.
|
24
|
18
|
CONDEMNATION.
|
27
|
19
|
DEFAULT.
|
27
|
20
|
NO WAIVER.
|
32
|
21
|
HOLDING OVER.
|
32
|
22
|
SUBORDINATION.
|
32
|
23
|
ASSIGNMENT AND SUBLETTING.
|
33
|
24
|
TRANSFER BY LANDLORD.
|
37
|
25
|
INABILITY TO PERFORM.
|
37
|
26
|
ESTOPPEL CERTIFICATES.
|
37
|
27
|
COVENANT OF QUIET ENJOYMENT.
|
37
|
28
|
WAIVER OF JURY TRIAL.
|
38
|
29
|
BROKERS.
|
38
|
30
|
CERTAIN RIGHTS RESERVED BY LANDLORD.
|
38
|
31
|
NOTICES.
|
39
|
32
|
MISCELLANEOUS PROVISIONS.
|
40
|
A.
|
Benefit and Burden
|
40
|
B.
|
Governing Law
|
40
|
C.
|
No Partnership
|
40
|
D.
|
Delegation by Landlord
|
40
|
E.
|
Tenant Responsibility for Agents
|
40
|
F.
|
Invalidity of Particular Provisions
|
40
|
G.
|
Counterparts
|
40
|
H.
|
Entire Agreement
|
40
|
I.
|
Amendments
|
40
|
J.
|
Mortgagee's Performance
|
40
|
K.
|
Limitation on Interest
|
41
|
L.
|
Remedies Cumulative
|
41
|
M.
|
Annual Financial Statements
|
41
|
N.
|
Construction of Lease
|
41
|
O.
|
Time of the Essence
|
41
|
P.
|
Effect of Deletion of Language
|
41
|
Q.
|
Authority
|
41
|
R.
|
Qualified Leases
|
41
|
S.
|
Prohibited Persons and Transactions
|
42
|
T.
|
Confidentiality
|
42
|
33
|
LENDER APPROVAL.
|
42
|
34
|
PARKING.
|
42
|
35
|
SECURITY DEPOSIT.
|
44
|
36
|
HAZARDOUS MATERIALS.
|
45
|
37
|
[INTENTIONALLY OMITTED.]
|
47
|
38
|
NO RECORDATION.
|
47
|
39
|
SIGNS.
|
48
|
40
|
SURRENDER.
|
48
|
41
|
OPTION TO EXTEND.
|
49
|
42
|
ROOF RIGHTS; RISER SPACE.
|
51
|
|
|
|
SIGNATURES
|
56
|
Exhibit
A
|
-
|
Premises
Plan
|
Exhibit
B
|
-
|
Declaration
of Acceptance
|
Exhibit
C
|
-
|
Work
Agreement
|
Exhibit
D
|
-
|
Building/Project
Rules and Regulations
|
Exhibit
E
|
-
|
Cleaning
Specifications
|
Exhibit
F
|
-
|
Location
of Tenant’s Exterior Signage
|
Exhibit
G
|
-
|
Work
Rules and Regulations
|
OFFICE LEASE
THIS
OFFICE LEASE (the "Lease") is made and entered into this
day of ,
2019 (the “Effective Date”), by and between IPX MEDICAL
CENTER DRIVE INVESTORS, LLC, a Delaware limited liability company
("Landlord") and CELLULAR BIOMEDICINE GROUP, INC., a Delaware
corporation ("Tenant").
In
consideration of the Rent hereinafter reserved and the agreements
hereinafter set forth, Landlord and Tenant mutually agree as
follows:
Lease Specific
A. Building: A
building containing approximately One Hundred Fifteen Thousand Six
Hundred Ninety-One (115,691) square feet of total rentable area as
of the date hereof and located at 9605 Medical Center Drive,
Rockville, Maryland. Except as otherwise expressly provided in this
Lease, the term “Building” shall include all portions
of said building, including, but not limited to, the Premises, the
Common Areas and the Parking Lot.
B. Premises: an agreed
upon Twenty-Two Thousand Four Hundred Seventy-Seven (22,477) square
feet of rentable area known as Suite 100 located on the first
(1st)
floor of the Building, as more particularly designated on
Exhibit A. The
rentable area in the Building and in the Premises has been
determined by Landlord's architect in accordance with the Building
Owners and Managers Association International Standard Method for
Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996 and
agreed upon by Tenant.
C. [Intentionally
Omitted.]
D. Term: Approximately
one hundred twenty-nine (129) months, as more particularly defined
in Section 2.A. hereof.
E. Anticipated
Delivery Date: August 1, 2019. The actual Delivery Date shall be
the date defined as such in Article 3 hereof and the Lease
Commencement Date shall be the date defined as such in Section 2.A.
hereof.
F. Base Rent: Seven
Hundred Sixty-Four Thousand Two Hundred Eighteen and 00/100 Dollars
($764,218.00) for the first Lease Year, divided into twelve (12)
equal monthly installments of Sixty-Three Thousand Six Hundred
Eighty-Four and 83/100 Dollars ($63,684.83) each for the first
Lease Year, and thereafter as increased by the Base Rent Annual
Escalation Percentage, as set forth in Section 4.A
hereof.
G. Base Rent Annual
Escalation Percentage: two and one-half percent
(2.5%).
H. [Intentionally
omitted].
I. [Intentionally
omitted].
J. Security Deposit:
Two Hundred Fifty-Four Thousand Seven Hundred Thirty-Nine and
32/100 Dollars ($254,739.32).
K. Brokers: Cushman
& Wakefield of Maryland, Inc., as agent for Landlord, and
Scheer Partners, Inc., as agent for Tenant.
L. Tenant Notice
Address: 209 Perry Parkway, Suite 13, Gaithersburg, Maryland 20877,
until Tenant has commenced beneficial use of the Premises, and at
the Premises, after Tenant has commenced beneficial use of the
Premises with copies at all times to: Ellenoff Grossman &
Schole LLP, 1345 Avenue of the Americas, 11th Floor, New York,
New York 10105, Attention: Barry Grossman, Esq.
M. Landlord Notice
Address: IPX Medical Center Drive Investors, LLC, c/o BPG
Management Company, L.P., 301 Oxford Valley Road, Suite 1203A,
Yardley, Pennsylvania 19067, Attention: Property Manager, with
copies to: Greenstein DeLorme & Luchs, P.C., 1620 L Street,
N.W., Suite 900, Washington, D.C. 20036, Attention: Jared S.
Greenstein, Esq.
N. Landlord Payment
Address: IPX Medical Center Drive Investors, LLC and delivered to
IPX Medical Center Drive Investors LLC at c/o BPG Management
Company, L.P., 301 Oxford Valley Road, Suite 1203A, Yardley,
Pennsylvania 19067, Attention: Accounts Receivable; provided,
however, that at Landlord’s sole option, following at least
thirty (30) days written notice to Tenant, Tenant shall thereafter
make all payments due and payable to Landlord under this Lease by
means of electronic transfers of funds from Tenant’s
financial institution to Landlord’s designated financial
institution.
O. Building Hours:
8:00 a.m. to 6:00 p.m. on Monday through Friday (excluding
Holidays) and 9:00 a.m. to 1:00 p.m. on Saturday (excluding
Holidays), and such other hours, if any, as Landlord from time to
time determines.
P. Guarantor(s):
None.
Q. Parking Spaces:
Seventy-Eight (78).
General
R. Alterations: Any improvements,
alterations, fixed decorations or modifications, structural or
otherwise, to the Premises, the Building or the Land, as defined
below, including but not limited to the installation or
modification of carpeting, partitions, counters, doors, air
conditioning ducts, plumbing, piping, lighting fixtures, wiring,
hardware, locks, ceilings and window and wall
coverings.
S. Common Areas: Those areas of the
Building and/or Land, as the case may be, made available by
Landlord now or in the future for use by Tenant in common with
Landlord, other tenants of the Building and the employees, agents
and invitees of Landlord and of such other tenants.
T. Default Rate: That rate of interest
which is five (5) percentage points above the annual rate of
interest which is publicly announced by Bank of America or its
successor entity, if applicable ("Bank of America"), from time to
time as its "prime" rate of interest, irrespective of whether such
rate is the lowest rate of interest charged by Bank of America to
commercial borrowers. In the event that Bank of America ceases to
announce such a prime rate of interest, Landlord, in Landlord's
reasonable discretion, shall designate the prime rate of interest
by another bank located in the Washington, D.C. metropolitan area,
which shall be the prime rate of interest used to calculate the
default rate.
U. Ground Leases: All ground and other
underlying leases from which Landlord's title to the Land and/or
the Building is or may in the future be derived. "Ground Lessors"
shall denote those persons and entities holding such ground or
underlying leases.
V. Holidays: New Year's Day, Presidents'
Day, Martin Luther King, Jr.'s Birthday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day,
Christmas Day and any other holidays designated by an executive
order of the President of the United States or by Act of Congress;
provided, however, that Landlord retains the right, in its sole
discretion, to increase or to decrease the legal holidays which it
observes.
W. Land: The real estate that supports the
Building, and all associated easements.
X. Tenant's Work: All work to be performed
by Landlord or Tenant, as applicable, under the Work Agreement,
including Additional Tenant Work (as defined in Exhibit
C).
Y. Lease Commencement Date: The date this
Lease commences, as determined pursuant to Section 2.A.
below.
Z. Lease Year: That period of twelve (12)
consecutive calendar months that commences on the Lease
Commencement Date, and each consecutive twelve (12) month period
thereafter; provided, however, that (i) if the Lease Commencement
Date is not the first day of a month, then the second Lease Year
shall commence on the first day of the month following the month in
which the first anniversary of the Lease Commencement Date occurs,
and (ii) the eleventh (11th) Lease Year is for a period of nine (9)
months. The earliest such twelve (12) month period shall be
referred to as the "first Lease Year," and each of the following
Lease Years shall similarly be numbered for identification
purposes.
AA. Mortgages: All mortgages, deeds of
trust and similar security instruments which may now or in the
future encumber or otherwise affect the Building or the Land,
including mortgages related to both construction and permanent
financing. "Mortgagees" shall denote those persons and entities
holding such mortgages, deeds of trust and similar security
instruments.
BB. Operating Expenses: All actual costs
and expenses incurred by Landlord during any calendar year in
managing, operating and maintaining the Building and the Land (as
well), as determined by Landlord in accordance with an accounting
system established and regularly applied by Landlord. Such costs
and expenses shall include, but not be limited to, the cost of
water, gas (only for the Common Areas), sanitary sewer, storm
sewer, electricity (only for the Common Areas), and other
utilities, trash removal, telephone services, insurance, janitorial
and char services (only for the Common Areas), and supplies,
security services, labor costs (including social security taxes and
contributions and fringe benefits), charges under maintenance and
service contracts (including, but not limited to, chillers,
boilers, elevators, window and security services), central heating
and air conditioning, management fees, business taxes, license
fees, public space and vault rentals and charges, costs, charges
and other assessments made by or for any entity operating a
business improvement district in which the Building is located,
condominium fees, assessments, dues, expenses, and other charges
which are paid by Landlord as a result of the Building, the Land or
part or all of both being part of a condominium, and the cost of
any equipment or services provided by Landlord in connection with
the servicing, operation, maintenance, repair and protection of the
Building and the Land and related exterior appurtenances (whether
or not provided on the Lease Commencement Date). Operating Expenses
shall include the cost of capital improvements made by Landlord to
manage, operate or maintain the Building, together with any
financing charges incurred in connection therewith, provided that
such costs shall be amortized over the useful life of the
improvements and only the portion attributable to the calendar year
shall be included in Operating Expenses for the calendar year;
further provided, that capital expenditures shall be limited to (a)
improvements or building elements added to the Building which in
Landlord’s reasonable judgment will increase the efficiency
of the Building (i.e., are reasonably anticipated by Landlord to
reduce Operating Expenses as they relate to the item which is the
subject of the capital expenditure or to reduce the rate of
increase in the Operating Expense which relates to the item which
is the subject of the capital expenditure from what it otherwise
may have been reasonably anticipated to be in the absence of such
capital expenditure), and (b) improvements or replacements which
are required to comply with the requirements of any laws,
regulations, or insurance or utility company requirements, except
with respect to conditions existing in violation thereof on the
Lease Commencement Date. Operating Expenses shall not include:
(i) Real Estate Tax Expenses; (ii) payments of principal
and interest on any Mortgages; (iii) leasing commissions;
(iv) costs of preparing, improving or altering any space in
preparation for occupancy of any new or renewal tenant; (v) capital
expenditures, except as specified above; (vi) costs of
electricity supplied to the individual premises of tenants of the
Building and the costs of special services and utilities separately
paid by particular tenants of the Building; (vii) costs which
are reimbursed to Landlord by insurers or by governmental
authorities in eminent domain proceedings; (viii) advertising for
space in the Building; (ix) costs of any equipment , services or
utilities which are provided solely to one or more retail tenants
of the Building, (x) ground rent or other rental payments made
under any ground lease or underlying lease except to the extent
that the same constitutes real estate taxes, insurance premiums or
the like; (xi) salaries, wages, or other compensation paid to
officers or executives of Landlord (i.e., employees above the level
of portfolio manager); (xii) salaries, wages, or other compensation
or benefits paid to off-site employees or other employees of
Landlord who are not assigned full-time to the operation,
management, maintenance, or repair of the Building; provided
however, Operating Expenses shall include Landlord's reasonable
allocation of compensation paid for the wages, salary, or other
compensation or benefits paid to the employees at or below the
level of portfolio manager, if offsite, who are assigned part-time
to the operation, management, maintenance, or repair of the
Building (including, but not limited to, accountants and
engineers); (xiii) any costs, fines or penalties incurred due to
the violation by Landlord of any governmental rule or authority, if
such violation existed as of the Lease Commencement Date; (xiv)
costs incurred in connection with disputes with tenants, other
occupants, or prospective tenants, or costs and expenses incurred
in connection with negotiations or disputes with employees,
consultants, management agents, leasing agents, purchasers or
mortgagees of the Building; (xv) costs incurred in connection with
the sale, financing, refinancing, mortgaging, selling or change of
ownership of the Building; (xvi) costs arising from the presence of
Hazardous Materials in or about or below the Land or the Building,
including without limitation, hazardous substances in the
groundwater or soil (unless introduced into, caused or exacerbated
by Tenant); and (xvii) any amounts paid to any person, firm, or
corporation related to or otherwise affiliated with Landlord or any
general partner, officer or director of Landlord or any of its
general partners to the extent they exceed arm’s-length
competitive prices paid in Rockville, Maryland for similar services
of comparable quality rendered by persons or entities of similar
skill, competence and experience. In the event that, during any
calendar year or portion thereof during the Term, Landlord shall
furnish any utility or service which is included in the definition
of Operating Expenses to less than one hundred percent (100%) of
the rentable area of the Building because (i) less than all of
the rentable area of the Building is occupied, (ii) any such
utility or service is not desired or required by any tenant, or
(iii) any tenant is itself obtaining or providing any such
utility or service, then the Operating Expenses for such calendar
year shall be increased to equal the total expenses that Landlord
reasonably estimates it would have incurred if Landlord had
provided all such utilities and services to one hundred percent
(100%) of the rentable area of the Building for the entire calendar
year. For example, if the average occupancy rate of the Building
during a calendar year is eighty percent (80%), the janitorial
contractor's charges are $1.00 per occupied rentable square foot
per year, and the Building contains one hundred thousand (100,000)
rentable square feet of space, then it would be reasonable for
Landlord to estimate that, if the Building had been one hundred
percent (100%) occupied during the entire calendar year, janitorial
charges for such calendar year would have been One Hundred Thousand
Dollars ($100,000) and to compute the Operating Expenses for such
calendar year accordingly. In no event shall the provisions of this
paragraph be used to enable Landlord to collect from the tenants of
the Building more than one hundred percent (100%) of the costs and
expenses incurred by Landlord in managing, operating and
maintaining the Building and the Land.
CC. Premises' Standard Electrical Capacity:
The electrical capacity sufficient to support Tenant's balanced
consumption of five (5.0) watts per square foot of rentable
area for Tenant computer and receptacle loads and two (2.0) watts
per square foot of rentable area for Tenant lighting.
DD. Real Estate Tax Expenses: All (1) real
estate taxes, arena taxes, solid waste taxes and related charges,
front foot benefit charges, special user fees, rates, and
assessments (including general and special assessments, if any),
ordinary and extraordinary, foreseen and unforeseen, which are
imposed upon Landlord or assessed against the Building or the Land
or Landlord's personal property used in connection therewith; (2)
other present or future taxes or governmental charges that are
imposed upon Landlord or assessed against the Building or the Land
which are in the nature of or in substitution for real estate
taxes, including any tax levied on or measured by the rents payable
by tenants of the Building, all taxes and assessments for public
improvements or any other purpose and any gross receipts or
receipts or similar taxes; and (3) out of pocket expenses
(including, without limitation, attorneys' and consultants' fees
and court costs) reasonably incurred in reviewing, protesting or
seeking a reduction of real estate taxes, whether or not such
protest or reduction is ultimately successful. Subject to the
foregoing, Real Estate Tax Expenses shall not include any
inheritance, estate, gift, franchise, corporation, net income or
net profits tax assessed against Landlord from the operation of the
Building.
EE. Rent: All Base Rent and Additional
Rent.
(1) Base Rent: The
amount payable by Tenant pursuant to Section 4.A.
below.
(2) Additional Rent:
All sums of money payable by Tenant pursuant to this Lease other
than Base Rent.
(3) Monthly Rent: A
monthly installment of Base Rent and Additional Rent, if any, which
shall equal one-twelfth (1/12th) of Base Rent and Additional Rent
then in effect.
FF. Rent Commencement Date: As defined in
Section 4.A. below.
GG. Tenant's Personal Property: All
equipment, improvements, furnishings and/or other property now or
hereafter installed or placed in or on the Premises by and at the
sole expense of Tenant or with Tenant's permission (other than any
property of Landlord), with respect to which Tenant has not been
granted any credit or allowance by Landlord, and which: (i) is
removable without damage to the Premises, the Building and the
Land, and (ii) is not a replacement of any property of
Landlord, whether such replacement is made at Tenant's expense or
otherwise. Notwithstanding any other provision of this Lease,
Tenant's Personal Property shall not include any improvements or
other property installed or placed in or on the Premises as part of
Tenant's Work, whether or not any such property was purchased or
installed at Tenant's expense, except that certain laboratory
installations, including, but not limited to, generators, switches,
built-in plumbing, fume hoods, built-in warm and cold rooms,
deionized water, glass washers, autoclaves, chillers and any
related mechanical, electrical and plumbing equipment
(collectively, “Installations”) shall be deemed
Tenant’s Personal Property.
HH. Unavoidable Delay: Any delays due to
strikes, labor disputes, shortages of material, labor or energy,
acts of God, governmental restrictions, enemy action, civil
commotion, fire, unavoidable casualty or any other causes beyond
the control of Landlord.
II. Work Agreement: Exhibit C, the terms of
which are hereby expressly incorporated in this Lease.
A. Term of Lease: The term of this Lease
(the "Term") shall commence on a date (the "Lease Commencement
Date"), as defined below, and shall terminate at Midnight on the
last day of the one hundred twenty-ninth (129th) full calendar
month of the Term, or such earlier date on which this Lease is
terminated pursuant to the provisions hereof (the "Lease Expiration
Date"). The Lease Commencement Date shall be the earlier of
(i) the one hundred eighty-first (181st) day following the
Delivery Date; or (ii) the date Tenant commences beneficial
use of any part of the Premises for the conduct of its business
operations therein. It is presently anticipated that the Premises
will be delivered to Tenant on or about the Anticipated Delivery
Date; provided, however, that if Landlord does not deliver
possession of the Premises by such date, Landlord shall not have
any liability whatsoever, and this Lease shall not be rendered void
or voidable, as a result thereof; further provided, however, that,
if the Delivery Date has not occurred as of the date which is
thirty (30) days following the Effective Date hereof (the
“Outside Commencement Date”) and the reason therefor is
not an Unavoidable Delay or a delay caused by the act or omission
of Tenant or its employees, agents or contractors (hereinafter,
“Tenant Delay”), then, as Tenant’s sole and
exclusive remedy, the Free Rent Period
(defined in Section 4.A. hereof) shall be extended day-for-day for
the period commencing on the day following the Outside Commencement
Date until such time as the Delivery Date occurs. The Outside
Commencement Date shall be extended for any period of delay caused
by an Unavoidable or Tenant Delay. Landlord hereby leases the
Premises to Tenant and Tenant hereby leases the Premises from
Landlord for the Term.
B. Declarations: If requested by Landlord
at any time during the Term, Tenant promptly will execute a
declaration in the form attached hereto as Exhibit B.
C. Effective Date: The rights and
obligations set forth in this Lease, except for the obligation to
pay Rent and as otherwise specifically provided herein to the
contrary, shall become effective on the date of final execution of
this Lease.
3. WORK AGREEMENT; DELIVERY OF
PREMISES.
Tenant
agrees to improve the Premises in accordance with the Work
Agreement. Except as hereinafter provided, Landlord shall have no
obligation to make any other improvements or alterations to the
Premises. The date on which Landlord delivers the Premises in its
“as-is” condition shall be the “Delivery
Date.” As of the Delivery Date, the base Building electrical,
plumbing, sprinkler, fire alarm, heating, ventilation and air
conditioning systems, as well as the Existing Generator (as
hereinafter defined) will be in good working order. In the event
that Tenant delivers notice to Landlord of a latent defect in the
base Building systems during the three hundred sixty-five (365) day
period following the Delivery Date, then Landlord shall, at
Landlord’s sole cost and expense, promptly repair such latent
defect and the costs of such repair shall not be included in
Operating Expenses.
Following the
Delivery Date, Landlord shall install a supplemental heating,
ventilation and air conditioning unit (“HVAC Unit”)
which shall serve the laboratory portion of the Premises. Landlord
shall install the HVAC Unit not later than the Lease Commencement
Date, subject to Unavoidable Delay and delays caused by Tenant or
its agents, employees or contractors. The laboratory portions of
the Premises shall be served by the HVAC Unit and the
non-laboratory portions of the Premises shall be served by the
Building HVAC system in accordance with the provisions of Section
12 hereof.
From
and after the Delivery Date and continuing through the Lease
Commencement Date (the “Buildout Period”), Tenant shall
be permitted to perform the Tenant’s Work pursuant to the
terms and conditions of the Work Agreement. During the Buildout
Period, Tenant and its agents and contractors shall be deemed to be
bound by all of the terms, covenants, provisions and conditions of
this Lease, including, but not limited to, Section 14.B. regarding
Tenant’s indemnification obligations, Section 14.A. regarding
Tenant’s obligation to repair injury, loss or damage which
may occur prior to the Commencement Date, Section 17 regarding
insurance, and the Work Agreement, the same being installed and
maintained solely at Tenant’s risk; (ii) all such entries
prior to the Lease Commencement Date shall be coordinated in
advance with Landlord; and (iii) Tenant shall not interfere with
any work to be performed by Landlord at the Premises; provided,
however, that during the Buildout Period, Tenant shall not be
obligated to pay any Base Rent or Additional Rent pursuant to
Section 5 of this Lease, other than the cost of utilities for the
Premises that are separately metered or submetered, which costs
Tenant shall pay to Landlord within ten (10) days following
Landlord’s delivery to Tenant of an invoice
therefor.
From
and after the Lease Commencement Date, Tenant shall pay to Landlord
Base Rent and Additional Rent as are set forth in this Section 4
and in Section 5 below.
A. Base Rent: Base Rent shall equal the
following amounts:
Lease
Year
|
Rate
of
Base
RentPer Square FootPer Annum
|
Rate
of
Base
RentPer Annum
|
Rate
of
MonthlyBase
Rent
|
1
|
$34.00
|
$764,218.00
|
$63,684.83
|
2
|
$34.85
|
$783,323.45
|
$65,276.95
|
3
|
$35.72
|
$802,878.44
|
$66,906.54
|
4
|
$36.61
|
$822,882.97
|
$68,573.58
|
5
|
$37.53
|
$843,561.81
|
$70,296.82
|
6
|
$38.47
|
$864,690.19
|
$72,057.52
|
7
|
$39.43
|
$886,268.11
|
$73,855.68
|
8
|
$40.42
|
$908,520.34
|
$75,710.03
|
9
|
$41.43
|
$931,222.11
|
$77,601.84
|
10
|
$42.47
|
$954,598.19
|
$79,549.85
|
11*
|
$43.53
|
$978,423.81
|
$81,535.32
|
*a
period of nine (9) months
Tenant
shall pay Base Rent to Landlord in equal monthly installments
("Monthly Base Rent") in advance on the first day of each calendar
month during the Term, without notice, except that the first
monthly installment of Base Rent shall be paid upon execution of
this Lease. If the Lease Commencement Date occurs on a date other
than the first day of a calendar month, Tenant shall receive a
credit equal to the Monthly Base Rent multiplied by the number of
days in said calendar month prior to the Lease Commencement Date
and divided by the number of days in such month, which credit shall
be applied toward the installment of Monthly Base Rent next due
hereunder.
Notwithstanding the
foregoing, Landlord shall grant to Tenant a “rent
holiday” from the payment of the installments of Monthly Base
Rent for the first nine (9) months following the Lease Commencement
Date (the “Free Rent Period”). During such Free Rent
Period, the Monthly Base Rent for the entire Premises shall be
abated (such rental abatement being hereinafter referred to as the
“Free Rent Allowance”); provided, however, that (i) the
Free Rent Period and the granting of the Free Rent Allowance as
provided hereunder shall not affect the Lease Commencement Date
pursuant to Section 2.A. hereof or Tenant’s obligation to pay
the first installment of Base Rent upon execution of this Lease as
provided above, (ii) Tenant shall remain obligated during the Free
Rent Period to perform all of Tenant’s obligations under this
Lease except as expressly set forth above (including, but not
limited to, the payment of all Additional Rent coming due under
this Lease), and (iii) in the event of any termination of this
Lease by Landlord based upon a Default hereunder by Tenant, the
then unamortized portion of Base Rent which would have otherwise
been due and payable hereunder during the Free Rent Period in the
absence of the Free Rent Allowance shall immediately become due and
payable and any remaining Free Rent Allowance hereunder shall be of
no force or effect. If the first day following the last day of the
Free Rent Period (such date being hereinafter referred to as the
“Rent Commencement Date”) is a date other than the
first day of a month, then Monthly Base Rent for the period
commencing with and including the Rent Commencement Date and ending
on and including the day prior to the first day of the following
month shall be prorated at the rate of one-thirtieth (1/30th) of
the Monthly Base Rent per day and shall be due and payable on the
Rent Commencement Date and the first full payment of Monthly Base
Rent shall be applied to the installment of Monthly Base Rent which
is payable for the first full month immediately following the Rent
Commencement Date.
B. Payment: All Base Rent and Additional
Rent due and payable to Landlord under this Lease shall be paid to
Landlord at the Landlord Payment Address. Payments of Rent (other
than in cash), if initially dishonored, shall not be considered
rendered until ultimately honored as cash by Landlord's depository.
Except as expressly set forth otherwise in this Lease, Tenant will
pay all Rent to Landlord without demand, deduction, set-off or
counter-claim. If any sum payable by Tenant under this Lease is
paid by check which is returned due to insufficient funds, stop
payment order, or otherwise, then: (a) such event shall be treated
as a failure to pay such sum when due; and (b) in addition to all
other rights and remedies of Landlord hereunder, Landlord shall be
entitled (i) to impose, as Additional Rent, a returned check charge
of Fifty Dollars ($50.00) to cover Landlord's administrative
expenses and overhead for processing, and (ii) to require that all
future payments be remitted by wire transfer, money order, or
cashier's or certified check.
C. Late Fee: If Tenant fails to make any
payment of Rent on or before the date when payment is due, then
Tenant also shall pay to Landlord a late fee equal to five percent
(5%) of the amount that is past due for each month or part thereof
until such Rent is fully paid. Said late fee shall be deemed
reimbursement to Landlord for its costs of carrying and processing
Tenant's delinquent account. Acceptance by Landlord of said late
fee shall not waive or release any other rights or remedies to
which Landlord may be entitled on account of such late
payment.
D. REIT/UBTI: Landlord and Tenant agree
that no rental or other payment for the use or occupancy of the
Premises is or shall be based in whole or in part on the net income
or profits derived by any person or entity from the Building or the
Premises. Tenant further agrees that it will not enter into any
sublease, license, concession or other agreement for any use or
occupancy of the Premises which provides for a rental or other
payment for such use or occupancy based in whole or in part on the
net income or profits derived by any person or entity from the
Premises so leased, used or occupied. Nothing in the foregoing
sentence, however, shall be construed as permitting or constituting
Landlord's approval of any sublease, license, concession, or other
use or occupancy agreement not otherwise approved by Landlord in
accordance with the provisions of Section 23 of this
Lease.
A. Sales, Use or Other Taxes or Traffic
Mitigation Charges: If during the Term any governmental
authority having jurisdiction over the Building or the Land levies,
assesses or imposes any traffic mitigation charge or any tax on
Landlord, the Premises, the Building or the Land or the rents
payable hereunder, in the nature of a sales tax, use tax or any tax
except (i) taxes on Landlord's income, (ii) estate or
inheritance taxes, or (iii) Real Estate Tax Expenses, then
Tenant shall pay its proportionate share of any such tax or traffic
mitigation charge to Landlord within fifteen (15) days after
receipt by Tenant of notice of the amount of such tax or traffic
mitigation charge.
B. To
Cover Operating Expenses and Real Estate Tax Expenses:
(1) Definitions: As used herein, "Tenant's
Share of Operating Expenses" shall be that percentage of Operating
Expenses which is the equivalent of the number of square feet of
rentable area in the Premises (22,477 on the Lease Commencement
Date) divided by the number of square feet of rentable area in the
Building (115,691 on the Lease Commencement Date). As used herein,
"Tenant's Share of Real Estate Tax Expenses" shall be that
percentage of Real Estate Tax Expenses which is equivalent to the
number of square feet of rentable area in the Premises (22,477 on
the Lease Commencement Date) divided by the number of square feet
of rentable area in the Building (115,691 on the Lease Commencement
Date). However, in no event shall any of the aforesaid sums be less
than zero. Notwithstanding the foregoing provisions of this
Subsection 5.B.(1), in determining Tenant’s Share of
Operating Expenses for any calendar year, the portion of Operating
Expenses for such calendar year which constitute Controllable
Operating Expenses (as hereinafter defined) shall not exceed one
hundred six percent (106%) of the amount of Controllable Operating
Expenses (as hereinafter defined) for the immediately preceding
calendar year (the “Controllable Operating Expenses
Cap”); provided, however, that in the event that Controllable
Operating Expenses exceed such Controllable Operating Expenses Cap
in any calendar year, Landlord may include the portion of
Controllable Operating Expenses from such calendar year which was
in excess of the Controllable Operating Expenses Cap for such
calendar year in Operating Expenses for any future calendar year(s)
until fully charged, so long as such Controllable Operating
Expenses for any such future calendar year(s) do not exceed the
Controllable Operating Expenses Cap for that future calendar year.
As used herein, “Controllable Operating Expenses” shall
mean all Operating Expenses except for the following: (i) taxes,
assessments or other similar governmental charges, (ii) insurance,
(iii) utilities, (iv) costs of snow and ice removal, and (v) costs
incurred to comply with laws and government regulations so long as
the violation did not exist on the Delivery Date.
(2) Payment of Tenant's Share: In addition
to all other Rent set forth herein, for each calendar year during
the Term commencing on the Rent Commencement Date, Tenant shall pay
to Landlord as Additional Rent an amount equal to Tenant's Share of
Operating Expenses and an amount equal to Tenant's Share of Real
Estate Tax Expenses; provided, however, that for the calendar years
during which the Term begins and ends, Tenant's Share of Operating
Expenses and Tenant’s Share of Real Estate Tax Expenses shall
be prorated based upon the greater of: (i) the number of days
during such calendar year that this Lease is in effect, or
(ii) the number of days that Tenant actually occupies the
Premises or any portion thereof.
C. Statements: For each calendar year
during the Term, Landlord shall deliver to Tenant a statement
estimating Tenant's Share of Operating Expenses and Tenant’s
Share of Real Estate Tax Expenses for such calendar year, which
Tenant shall pay in equal monthly installments in advance on the
first day of each calendar month during each calendar year. Tenant
shall continue to pay such estimated Tenant’s Share of
Operating and Tenant’s Share of Real Estate Tax Expenses
until Tenant receives the next such statement from Landlord, at
which time Tenant shall commence making monthly payments pursuant
to Landlord's new statement. With the first payment of Additional
Rent herein which is due at least thirty (30) days after Tenant's
receipt of a statement from Landlord specifying Tenant's Share of
estimated Operating and Tenant’s Share of estimated Real
Estate Tax Expenses payable during the calendar year, Tenant shall
pay the difference between Tenant’s monthly share of such
sums for the preceding months of the calendar year and the monthly
installments which Tenant has actually paid for said preceding
months.
D. Retroactive Adjustments: After the end
of each calendar year, Landlord shall determine the actual
Operating Expenses and Real Estate Tax Expenses for such calendar
year, Landlord shall calculate the foregoing sums and Landlord
shall provide to Tenant a statement of Tenant's Share of Operating
Expenses and Tenant’s Share of Real Estate Tax Expenses for
the calendar year. Within thirty (30) days after delivery of any
such statement, Tenant shall pay to Landlord (i) any deficiency
between the amount shown as Tenant's Share of Operating Expenses
for the calendar year and the estimated payments thereof made by
Tenant and (ii) any deficiency between the amount shown as
Tenant’s Share of Real Estate Tax Expenses for the calendar
year and the estimated payments thereof made by Tenant. Tenant
shall be credited with any excess estimated payments toward
subsequent Rent payments by Tenant.
E. Change In or Contest of Taxes: In the
event of any change by any taxing body in the period or manner in
which any of the Real Estate Tax Expenses are levied, assessed or
imposed, Landlord shall have the right, in its sole discretion, to
make equitable adjustments with respect to computing increases in
Real Estate Tax Expenses. Real Estate Tax Expenses which are being
contested by Landlord shall be included in computing Tenant's Share
of Real Estate Tax Expenses under this Section 5, but if Tenant
shall have paid Rent on account of contested Real Estate Tax
Expenses and Landlord thereafter receives a refund of such taxes,
Tenant shall receive a credit toward subsequent Rent payments in an
amount equal to Tenant's proportionate share of such
refund.
F. Audit: Any statement provided to Tenant
by Landlord pursuant to this Section 5 shall be conclusive and
binding upon Tenant unless, within one hundred twenty (120) days
after receipt thereof, Tenant notifies Landlord of the respects in
which the statement is claimed to be incorrect. If Tenant timely
notifies Landlord within said 120-day period, then within fifteen
(15) days after such notice, Tenant shall have reasonable access
during normal business hours and at Tenant's expense, to
appropriate books and records of Landlord relating to the amount of
expenses covered by the disputed statement, for the purpose of
verifying the statement. Any such review shall be made only by
Tenant's employees and/or by an auditor hired by Tenant who is a
Certified Public Accountant and who is employed on other than a
contingent fee basis. Unless otherwise mutually agreed, any dispute
shall be determined by arbitration in the jurisdiction in which the
Premises are located, in accordance with the then current
commercial rules of the American Arbitration Association. The costs
of the arbitration shall be divided equally between Landlord and
Tenant, except that each party shall bear the cost of its own legal
fees, unless the arbitration results in a determination that
Landlord's statement contained a discrepancy of less than five
percent (5%) in Landlord's favor, in which event Tenant shall bear
all costs incurred in connection with such arbitration, including,
without limitation, legal fees. Pending determination of any
dispute, Tenant shall pay all amounts due pursuant to the disputed
statement, but such payments shall be without prejudice to Tenant's
position.
A. Permitted Use: Tenant shall use and
occupy the Premises solely for general (non-medical and
non-governmental) office and laboratory purposes currently
associated with virus vector, plasmid, cell and gene therapies
research and development and commercialized GMP manufacturing, and
other incidental uses such as a pantry or shower, consistent with
the character of the Building and in accordance with all applicable
Laws, and for no other purpose.
B. Legal and Other Restrictions of Tenant's
Use: Tenant shall not use or occupy the Premises for any
unlawful purpose, or in any manner that will violate the
certificate of occupancy for the Premises or the Building or that
will constitute waste, nuisance or unreasonable annoyance to
Landlord or any other tenant or user of the Building, or in any
manner that will increase the number of parking spaces required for
the Building or its full occupancy as required by law. Tenant shall
comply with all present and future laws (including, without
limitation, the Americans with Disabilities Act (the "ADA") and the
regulations promulgated thereunder, as the same may be amended from
time to time), ordinances (including without limitation, zoning
ordinances and land use requirements), regulations, orders and
recommendations (including, without limitation, those made by any
public or private agency having authority over insurance rates)
(collectively, "Laws") concerning the use, occupancy and condition
of the Premises and all machinery, equipment, furnishings, fixtures
and improvements therein, all of which shall be complied with in a
timely manner at Tenant's sole expense. If any such Law requires an
occupancy or use permit or license for the Premises or the
operation of the business conducted therein (including a
certificate of occupancy or nonresidential use permit), then Tenant
shall obtain and keep current such permit or license at Tenant's
expense and shall promptly deliver a copy thereof to Landlord. Use
of the Premises is subject to all covenants, conditions and
restrictions of record. Tenant shall not use any space in the
Building for the sale of goods to the public at large or for the
sale at auction of goods or property of any kind. Tenant shall not
conduct any operations, sales, promotions, advertising or special
events in, on or about the Building outside of the Premises but may
conduct wholly within the Premises seminars, promotional events or
training sessions for its investors, customers or guests, subject
to the other terms and provisions of this Lease. To the best of
Landlord’s knowledge, general office use and general
laboratory use are permitted uses of the Premises pursuant to the
existing certificate of occupancy; provided, however, that Landlord
makes no representations regarding Tenant’s particular
intended use of the Premises for a use other than general office
use or general laboratory use.
A. Tenant’s Obligations: Tenant
shall at its expense keep the Premises (including all improvements,
fixtures and other property located therein) in a neat and clean
condition and in good order and repair, and will suffer no waste or
injury thereto. Tenant shall maintain all fixtures, furnishings and
equipment located in, or exclusively serving, the Premises in
clean, safe and sanitary condition, shall take good care thereof
and make all required repairs and replacements thereto. Tenant
shall give Landlord prompt written notice of any defects or damage
to the structure of, or equipment or fixtures in, the Building or
any part thereof. Tenant shall surrender the Premises at the end of
the Term in as good order and condition in accordance with the
terms and provisions of the Lease, ordinary wear and tear
excepted.
B. Landlord’s Obligations: Landlord
shall use commercially reasonable efforts to maintain the exterior
and demising walls, the foundation, the roof and the Common Areas
of the Building, and the base Building mechanical, electric, life
safety, HVAC, plumbing systems, pipes and conduits, as well as the
HVAC Unit, in good order, repair, and condition during the Term,
and shall promptly make such repairs thereto as become necessary
after obtaining actual knowledge of the need for such repairs, all
costs of which shall be included in Operating Expenses to the
extent permitted by Section 1.BB. hereof (except that the costs
related to the HVAC Unit for which Tenant shall pay Tenant’s
HVAC Unit Costs [as that term is defined in Section 12.A(2)
hereof]), unless the need for any such maintenance or repair
(including, maintenance and repair of the HVAC Unit) is brought
about by any act or omission of Tenant, its agents, employees or
invitees, in which event Tenant shall have the obligation to make,
at its sole cost and expense, such repairs.
8. ALTERATIONS BY
TENANT.
A. Making of Alterations; Landlord's
Consent: Tenant shall not make or permit to be made any
Alterations without the prior written consent of Landlord both as
to whether the Alterations may be made and as to how and when they
will be made. Notwithstanding the foregoing, Landlord shall not
unreasonably withhold its consent to any non-structural Alteration
which Tenant may desire to make to the Premises; provided, however,
that Landlord shall retain sole and absolute discretion to withhold
its consent to any Alteration, whether structural or
non-structural, which may, in the sole and absolute judgment of
Landlord (1) adversely affect the marketability of the Premises,
(2) exceed the capacity of, hinder the effectiveness of, interfere
with the electrical, mechanical, heating, ventilating, air
conditioning, or plumbing systems of the Premises or the Building
or which will be connected to any of such systems, or (3) be
visible from outside the Premises. Notwithstanding the foregoing,
Tenant shall have the right, after providing at least ten (10) days
prior written notice to Landlord, but without the necessity of
obtaining Landlord’s consent, to recarpet, repaint, or to
make purely “cosmetic” or “decorative”
nonstructural Alterations in and to the Premises that (I) do not
fall within clauses (1) through (3) above, (II) do not require the
issuance of a building permit, and (III) do not cost, when
aggregated with all other Alterations made during the previous
twelve (12) months, more than One Hundred Thousand Dollars
($100,000.00).
Any
Alterations shall be made at Tenant's expense, by its contractors,
in a good, workmanlike and first-class manner, and subcontractors
and in accordance with complete plans and specifications approved
in advance in writing by Landlord, and only after Tenant:
(i) has obtained all necessary permits from governmental
authorities having jurisdiction and has furnished copies thereof to
Landlord, (ii) has submitted to Landlord an architect's
certificate that the Alterations will conform to all applicable
Laws, and (iii) has complied with all other requirements
reasonably imposed by Landlord, including, without limitation, any
requirements due to the underwriting guidelines of Landlord's
insurance carriers. Landlord's consent to any Alterations and
approval of any plans and specifications constitutes approval of no
more than the concept of these Alterations and not a representation
or warranty with respect to the quality or functioning of such
Alterations, plans and specifications. Tenant shall be and is
solely responsible for the Alterations and for the proper
integration thereof with the Building, the Building's systems and
existing conditions. Landlord shall have the right, but not the
obligation, to supervise the making of any Alterations. All
Alterations involving structural, electrical, mechanical or
plumbing work, lab equipment, furniture or fixtures, the heating,
ventilation and air conditioning system of the Premises or the
Building, and the roof of the Building, shall, at Landlord's
election, be performed by Landlord's designated contractor or
subcontractor at Tenant's expense at the same rates charged to
Landlord by such contractor without markup, which rates shall be
consistent with competitive costs for similar services of
comparable quality rendered by persons or entities of similar
skill, competence and experience provided in the same geographic
area as the Building. With respect to future Alterations and not
with respect to the Tenant’s Work, Tenant shall reimburse
Landlord as Additional Rent for any actual sums paid by Landlord
for third party examination of Tenant's plans and specifications
for Alterations, plus a fee to Landlord’s property manager
paid as Additional Rent (a) in the amount equal to one percent (1%)
of the costs of such Alterations if Tenant manages the Alterations,
or (b) in an amount equal to three percent (3%) of the cost of such
work if Landlord, or any affiliate of Landlord, or Landlord’s
property manager manages the Alterations.. If any Alterations which
require Landlord’s approval are made without the prior
written consent of Landlord, or which do not conform to plans and
specifications approved by Landlord or to other conditions imposed
by Landlord pursuant to this Section 8, Landlord may, in its sole
discretion, correct or remove such Alterations at Tenant's expense.
Following completion of any Alterations, except with respect to
cosmetic or decorative nonstructural Alterations which do not
require Landlord’s approval, at Landlord's request, Tenant
either shall deliver to Landlord a complete set of "as built" plans
showing the Alterations or shall reimburse Landlord for any expense
incurred by Landlord in causing the Building plans to be modified
to reflect the Alterations.
B. No Liens: Tenant shall take all
necessary steps to ensure that no mechanic's or materialmen's liens
are filed against the Premises, the Building or the Land as a
result of any Alterations made by the Tenant. If any mechanic's
lien is filed, Tenant shall discharge the lien within ten (10)
business days thereafter, at Tenant's expense, by paying off or
bonding the lien. If Landlord gives its consent to the making of
any Alteration, such consent shall not be deemed to be an agreement
or consent by Landlord to subject its interest in the Premises or
the Building to any liens which may be filed in connection
therewith, nor shall Landlord’s receipt of any fee in
connection with any Alterations or Tenant’s Work or
Landlord’s payment of any allowance to Tenant with respect to
any work performed in or with respect to the Premises by or on
behalf of Tenant be deemed to constitute a basis for
Landlord’s interest in the Premises or the Building to be
subjected to any lien. If Tenant shall lease or finance the
acquisition of equipment, furnishings, or personal property of a
removable nature utilized by Tenant in the operation of
Tenant’s business, Tenant warrants that any Uniform
Commercial Code Financing Statement filed as a matter of public
record by any lessor or creditor of Tenant will upon its face or by
exhibit thereto indicate that such Financing Statement is
applicable only to removable personal property of Tenant located
within the Premises. In no event shall the address of the Building
be furnished on the statement without qualifying language as to the
applicability of the lien only to removable personal property,
located in an identified suite leased by Tenant. Following
Tenant’s written request, Landlord will execute an agreement
on Landlord’s standard form pursuant to which Landlord will
agree with Tenant’s lender in the ordinary course to
subordinate its interest, if any, in Tenant's inventory, trade
fixtures, furnishings or equipment and other personal property in
favor of such lender.
A. Permitted Equipment: Tenant shall not
install or operate in the Premises any equipment or other machinery
that, in the aggregate, will cause Tenant to use more than the
Premises' Standard Electrical Capacity, without: (i) obtaining
the prior written consent of Landlord, who may condition its
consent upon the payment by Tenant of Additional Rent for
additional consumption of utilities, additional wiring or other
expenses resulting therefrom, (ii) securing all necessary
permits from governmental authorities and utility companies and
furnishing copies thereof to Landlord, and (iii) complying
with all other requirements reasonably imposed by Landlord. Tenant
shall provide Landlord with a list of all equipment that Tenant
intends to install or operate in the Premises which operate on more
than one hundred twenty (120) volts, and Tenant shall provide
Landlord with an updated list of such equipment prior to the
installation or use of any additional equipment which operates on
more than one hundred twenty (120) volts. Tenant shall not install
any equipment or machinery which may necessitate any changes,
replacements or additions to or material changes in the use of
water, heating, plumbing, air conditioning or electrical systems of
the Building without obtaining the prior written consent of
Landlord, who may withhold or deny its consent in its absolute
discretion.
B. Payment For Excess Utility Usage: If
Tenant's equipment shall result in electrical demand in excess of
the Premises' Standard Electrical Capacity, Landlord shall have the
right, in its sole discretion, to install additional transformers,
distribution panels, wiring and other applicable equipment at the
expense of Tenant. None of the equipment so installed shall be
deemed to be Tenant's Personal Property. If at any time during the
Term, Tenant's connected electrical load from its use of equipment
and fixtures (including incandescent lighting and power), as
estimated by Landlord, exceeds the Premises' Standard Electrical
Capacity, then Landlord may, at its option: (i) install
separate electrical meter(s) for the Premises, or (ii) cause a
survey to be made by an independent electrical engineer or
consulting firm to determine the amount of electricity consumed by
Tenant beyond the Premises' Standard Electrical Capacity. Tenant
shall reimburse Landlord for the cost of the installation of said
meter(s) or completion of said meter(s) or survey, and shall pay as
Additional Rent the cost of any electricity in excess of an average
of the Premises Standard Electrical Capacity, at the rate charged
by the utility company providing such electricity, assuming
continuous business hours, within ten (10) days after receipt of
any bill therefor from Landlord. Tenant shall reimburse Landlord
for the cost of any excess water, sewer and chiller usage in the
Premises. Excess usage shall mean the excess of the estimated usage
in the Premises (per square foot of rentable area) during any
billing period over the average usage (per square foot of rentable
area) during the same period for the entire Building, as reasonably
calculated by Landlord.
C. Noise; Vibration; Floor Load: Business
machines and equipment belonging to Tenant, which cause noise or
vibration that may be transmitted to any part of the Building to
such a degree as to be reasonably objectionable to Landlord or to
any tenant of the Building, shall be installed and maintained by
Tenant at Tenant's expense on devices that eliminate the noise and
vibration. Tenant shall not place any load upon the floor of the
Premises which exceeds the per square foot load the floor was
designed to carry (eighty (80) pounds per square foot for live
loads and twenty (20) pounds per square foot for dead
loads).
D. Separate Metering of Electricity and
Gas: All electrical consumption (including, but not limited
to, all costs of providing heating and air conditioning to the
Premises) and all costs of consumption of gas within the Premises
shall be separately metered by Tenant, at Tenant’s sole cost
and expense, as part of Tenant’s Work, and Tenant shall
timely pay the full amount of the costs of such consumption
directly to the providers thereof as and when the same become due
and payable. Tenant shall be responsible for the installation,
maintenance, repair and, if applicable, replacement of the
aforesaid meters, all of which shall be performed at Tenant’s
sole cost and expense; provided, however, that in the event that
the meters require maintenance, repair or replacement and Tenant
does not perform same within ten (10) days following notice from
Landlord, then Landlord shall have the right to perform such
maintenance, repair or replacement, in which case Tenant shall
reimburse Landlord as Additional Rent for the costs thereof,
including, but not limited to, an administrative fee to Landlord,
which reimbursement shall be made by Tenant to Landlord within ten
(10) days following Landlord’s written demand therefor to
Tenant. In the event that a failure or malfunction of the meters
installed in the Premises prevents the rendering of accurate
invoices to Tenant from the utility providers, Landlord shall have
the right to prepare and issue to Tenant billings prepared by
Landlord’s property manager, based upon its reasonable
estimate of Tenant’s consumption of electricity and gas in
the Premises, and Tenant shall pay the amount of such billings to
Landlord as Additional Rent in lieu of charges based upon the
measurement from the failed or malfunctioning
meter(s).
E. Shared Backup Generator:
Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the right to use, in common with other tenants of
the Building, the existing generator for the Building (the
“Existing Generator”) in accordance with the terms and
conditions of this Section 9.E; provided, however, that Tenant
shall not connect more than four (4) watts of electricity per
square foot of the Premises to the Existing Generator; and further
provided, that Tenant shall be responsible for Tenant's
proportionate share of all costs of utilities consumed by such
Existing Generator based on Tenant’s actual usage of the
Existing Generator versus the usage of the Existing Generator by
other tenants of the Building (such costs being hereinafter
referred to as “Tenant’s Generator Costs”).
Tenant shall pay Tenant’s Generator Costs to Landlord as
Additional Rent during the Term within thirty (30) days after
Landlord renders an invoice therefor, which invoices may be
rendered by Landlord from time to time during the Term. Tenant
hereby accepts the Existing Generator in its “as-is”
condition as of the Lease Commencement Date, and Tenant agrees that
Landlord shall have no liability to Tenant or others based on any
failure of the Existing Generator, due to Unavoidable Delays,
repair or maintenance work or any other reason, and any such
failure of the Existing Generator shall neither render Landlord
liable for damages to either person or property, nor be construed
as an eviction of Tenant, nor cause a diminution or abatement of
Rent nor relieve Tenant of any of Tenant's obligations hereunder.
Landlord agrees to maintain and repair the Existing Generator in
accordance with manufacturer’s specifications, the costs of
which shall be included in Operating Expenses.
F. Tenant’s Generator: Landlord
acknowledges that Tenant shall have the right, at Tenant's option
and at Tenant’s sole cost and expense, to install, operate,
repair, replace and maintain a supplemental battery operated
generator (collectively, the “Generator”) in a location
to be reasonably determined by Landlord and Tenant (the
“Generator Space”); provided, however, that (i) Tenant
shall be solely responsible for all costs of installation,
maintenance, repair and replacement of the Generator, (ii) Tenant
shall be responsible for all costs of operation of such Generator,
and (iii) Tenant’s installation of the Generator shall be
subject to Landlord’s prior written approval in accordance
with the terms and conditions of Section 8.A. hereof.
Notwithstanding anything contained in this Section 9.F. to the
contrary, Landlord shall use good faith efforts to provide the
Generator Space in a location which can accommodate the Generator
and all Generator appurtenances at no additional rental cost to
Tenant; provided, however, that if Landlord determines that the
Generator or any portion thereof should be located in any space in
the Building which comprises rentable space, then Tenant shall pay
for Tenant's use of the rentable portion of the Generator Space, as
Additional Rent hereunder, the then applicable market rent or
parking fee for such rentable space, as applicable, as reasonably
determined by Landlord. Tenant shall comply with Landlord's
standard requirements regarding Tenant’s use, operation and
maintenance of the Generator with respect to noise, vibration,
screening and testing. Landlord shall have the right, in Landlord's
reasonable judgment, by providing Tenant with not less than one
hundred twenty (120) days’ prior written notice and paying
the reasonable cost of relocation of the Generator, to relocate the
Generator from the Generator Space to another area to be determined
by Landlord. In addition, Landlord and Tenant acknowledge that the
installation of the Generator shall include the costs of demising
the Generator Space, if applicable, the costs of installation of
connecting conduits, and all actual costs of installation,
operation, maintenance, repair, replacement and removal of the
Generator, all of which costs shall be paid solely by Tenant. The
installation and placement of the Generator shall comply with all
applicable Laws. Prior to the Lease Expiration Date, Tenant shall
restore the Generator Space and any damage to the Land, the
Building, the Premises or any combination thereof, to their
condition immediately prior to the installation thereof, reasonable
wear and tear, casualty and condemnation excepted.
10. OWNERSHIP AND REMOVAL OF
PROPERTY.
A. Landlord's Property: Any Alterations
and other improvements and any equipment, machinery, furnishings
and other property, installed or located in the Premises, the
Building or the Land by or on behalf of Landlord or Tenant, except
for Tenant's Personal Property: (i) shall immediately become
the property of Landlord, and (ii) shall be surrendered to
Landlord with the Premises as a part thereof at the end of the
Term; provided, however, that if Landlord requests Tenant to remove
any Alterations installed by or on behalf of Tenant, Tenant shall
cause the same to be removed at Tenant's expense on or before the
Lease Expiration Date, or shall reimburse Landlord for the cost of
such removal, as elected by Landlord (unless Landlord expressly
waives in writing the right to require such removal at the time
Landlord gives its consent to the making of such
Alterations).
B. Removal of Property At End of Term:
Tenant shall remove all of Tenant's Personal Property, and all
computer cabling and wiring installed by or on behalf of Tenant
(irrespective of whether such cabling and wiring constitutes
Tenant's Personal Property under the terms of this Lease, and at
Tenant's expense, using a contractor approved in advance by
Landlord in writing), from the Building and the Land on or before
the Lease Expiration Date. Any personal property belonging to
Tenant or to any other person or entity which is left in the
Building or on the Land after the date this Lease is terminated for
any reason shall be deemed to have been abandoned. In such event,
Landlord shall have the right to store such property at Tenant's
sole cost and/or to dispose of it in whatever manner Landlord
considers appropriate, without waiving its right to claim from
Tenant all expenses and damages caused by Tenant's failure to
remove such property, and Tenant and any other person or entity
shall have no right to compensation from or any other claim against
Landlord as a result.
11. LANDLORD'S ACCESS TO
PREMISES.
Landlord may at any
reasonable time enter the Premises to examine them, to make
alterations or repairs thereto or for any other purposes which
Landlord considers necessary or advisable; however, in the case of
any emergency, Landlord and its agents may enter the Premises at
any time and in any manner. Tenant shall allow the Premises to be
exhibited by Landlord: (i) at any reasonable time to
representatives of lending institutions or to prospective
purchasers of the Building, and (ii) at any reasonable time to
persons who may be interested in leasing the Premises. Landlord
reserves the right and shall be permitted reasonable access to the
Premises to install facilities within and through the Premises and
to install and service any systems deemed advisable by Landlord to
provide services or utilities to any tenant of the Building. Tenant
shall have the right to have a representative of Tenant accompany
Landlord and its agents during any such entry (other than in the
case of emergency) so long as Tenant makes such representative
present at the time of Landlord’s entry on the Premises.
Landlord shall use reasonable efforts to conduct such entries in a
manner and at such times so as to minimize interference with
Tenant's business operations within the Premises (provided that the
foregoing shall not be deemed to require Landlord to incur overtime
expense or to operate outside of Landlord's normal business
hours).
Notwithstanding
anything to the contrary contained in this Lease, Tenant shall be
permitted to maintain “Secured Areas” (which shall mean
certain special access areas and limited access areas as designated
by Tenant to Landlord in advance, provided that such areas are
clearly defined, self-contained facilities that have been so
designated in writing by Tenant to Landlord in advance), in which
case Landlord shall not enter such Secured Areas without being
accompanied by a representative of Tenant, and, in consideration
for such rights granted by Landlord, (a) Tenant hereby authorizes
Landlord and any of its employees, agents and contractors to break
any such locks and the doors and walls to which they are attached
in the event of an emergency, (b) in the event of the need to
perform any services or to make inspections, repairs, maintenance
or improvements and Tenant’s refusal to provide access to
such Secured Areas, Landlord shall have no responsibility for any
such services, inspections, repairs, maintenance or improvements
within said Secured Areas; provided, however, that if Tenant grants
Landlord access into such Secured Areas, then Landlord shall again
be responsible for such services, inspections, repairs, maintenance
or improvements therein from and after the date on which such
access is provided, and (c) Tenant hereby indemnifies Landlord
(including its shareholders, members, partners, employees, agents
and contractors) against and holds Landlord harmless from, any and
all liabilities, losses, damages, causes of action, suits, claims,
demands, judgments, costs and expenses of any kind (including court
costs and reasonable attorneys’ fees) asserted against
Landlord to the extent arising in connection with Tenant’s
access rights and restrictions set forth in this
paragraph.
12. SERVICES AND
UTILITIES.
A. Services Provided by Landlord: As long
as Tenant is not in Default, as defined in Subsection 19.A. below,
Landlord shall provide the following to Tenant, without additional
charge, except as otherwise provided herein (including, but not
limited to, as provided in Sections 5 and 1.BB.
hereof):
(1) Elevator service
for common use, subject to call at all times, including Sundays and
Holidays.
(2) Central heating and
air conditioning for the non-laboratory portions of the Premises
and the Common Areas of the Building during Building Hours,
exclusive of Holidays, during the seasons of the year and within
the temperature ranges usually furnished in comparable office
buildings in the city (or, if not a city, other local jurisdiction)
in which the Building is located. Landlord shall provide heat and
air conditioning at other times at Tenant's expense, provided that
Tenant gives Landlord notice by 1:00 p.m. on weekdays for
after-hour service on the next weekday, two (2) business days'
notice before a Holiday for service on such Holiday and two (2)
business days' notice for after-hour service on Saturday or Sunday.
Landlord shall charge Tenant for such after-hour, Holiday and
special weekend service at the prevailing rates then being charged
by Landlord for such services.
HVAC
services for the laboratory portions of the Premises shall be
served by the HVAC Unit (defined in Section 3 of this Lease). The
HVAC Unit will serve the laboratory portion of the Premises and a
portion of the second floor of the Building. After the installation
of the HVAC Unit by Landlord, Tenant shall be responsible for
Tenant’s proportionate share of the costs of the operation,
maintenance, repair and replacement of the HVAC Unit
(“Tenant’s HVAC Unit Costs”), which proportionate
share shall be a percentage which is the equivalent of the number
of square feet of rentable area in the laboratory portion of
Premises which is served by the HVAC Unit divided by the number of
square feet of rentable area located on the first and second floors
of the Building (including the laboratory portion of the Premises)
served by the HVAC Unit, as reasonably determined by Landlord.
Tenant shall pay Tenant’s HVAC Unit Costs to Landlord as
Additional Rent within thirty (30) days after Landlord renders an
invoice therefor, which invoices may be rendered by Landlord from
time to time during the Term.
(3) Cleaning and char
services for the non-laboratory portions of the Premises and Common
Areas in a manner determined by Landlord.
(4) Electrical
facilities to furnish electricity to the Building up to the
Premises' Standard Electrical Capacity (including the replacement
of Building standard light bulbs in Building standard light
fixtures, it being agreed that if Landlord replaces any other light
bulbs in the Premises, Tenant shall pay Landlord the cost of such
bulbs and all labor costs incurred by Landlord in connection
therewith within fifteen (15) days after Landlord's written demand
therefor), it being understood that electricity in the Premises
will be provided and paid for by Tenant pursuant to Section 9.D.
above.
(5) Common Area rest
room facilities.
(6) Routine
maintenance, painting and electrical lighting service for all
Common Areas of the Building in such manner as Landlord deems
reasonable.
(7) Reasonable access
to the Premises at all times (twenty-four (24) hours a day, seven
(7) days a week, three hundred sixty-five (365) days a year),
subject to such access control procedures, restrictions and other
regulations as Landlord may promulgate.
(8) Reasonable access
and use of the Building’s the loading dock during Building
Hours, subject to prior coordination with Landlord and the rights
of other tenants of the Building.
(9) Access to the
Building via an electronic perimeter access control system, which
access control system shall be operated in a manner which is
consistent with the types of systems used in comparable buildings
of the same age and quality located in the same market area as the
Building. On or prior to the Lease Commencement Date, Landlord
shall provide to Tenant up to fifty (50) access cards or fobs for
Tenant’s employees to access the Building and the Premises,
and all additional or replacement access cards or fobs will be paid
for by Tenant to Landlord at Landlord’s standard charge
therefor from time to time.
B. Failure to Provide Services: Landlord
shall have no liability to Tenant or others based on any failure by
Landlord to furnish the foregoing, due to Unavoidable Delays,
repair or maintenance work or any other reason, and such failure
shall neither render Landlord liable for damages to either person
or property, nor be construed as an eviction of Tenant, nor cause a
diminution or abatement of Rent nor relieve Tenant of any of
Tenant's obligations hereunder. Notwithstanding the foregoing, if
any of the services described in Section 12.A. hereof are suspended
and such suspension renders the Premises untenantable and continues
for more than five (5) consecutive business days, if the reason for
the suspension or the continuation of the suspension is anything
other than an Unavoidable Delay, all Monthly Base Rent and all
Additional Rent due pursuant to Section 5 hereof shall be abated
for the period commencing on the sixth (6th) consecutive business
day of such suspension and concluding on the date that the service
has been restored.
C. Conservation: Tenant hereby agrees to
comply with all energy conservation procedures, controls and
requirements instituted by Landlord pursuant to any government
regulations or otherwise, including but not limited to controls on
the permitted range of temperatures, the volume of energy
consumption or the hours of operation of the Building. Institution
by Landlord of such controls and requirements shall not entitle
Tenant to terminate this Lease or to an abatement of any Rent
payable hereunder.
D. Recycling: Without limiting the
foregoing, Tenant covenants and agrees, at its sole cost and
expense, to comply with all present and future Laws of the
jurisdiction in which the Building is located and of the federal,
municipal, and local governments, departments, commissions,
agencies and boards having jurisdiction over the Building to the
extent that any of them or this Lease impose on Tenant duties and
responsibilities regarding the collection, sorting, separation, and
recycling of trash. Tenant shall pay all costs, expenses, fines,
penalties, or damages that may be imposed on Landlord or Tenant by
reason of Tenant's failure to comply with the provisions of this
Section 12.D., and, at Tenant's sole cost and expense, shall
indemnify, defend and hold Landlord harmless (including legal fees
and expenses) from and against any actions, claims, and suits
arising from such noncompliance, using counsel reasonably
satisfactory to Landlord.
E. Tenant’s Char
and Cleaning Responsibilities:
(1) Laboratory Cleaning
and Removal of Bio-Waste: Tenant shall contract separately to clean
daily the laboratory portions of the Premises and to remove
bio-waste daily (excluding weekends and Holidays) and as otherwise
necessary from all portions of the Premises, including the rest
room facilities, office and laboratory areas, floors, windows,
fixtures and equipment, in a manner consistent with the nature of
the Building and in accordance with Section 36 hereof.
(2) Janitorial
Services: In addition to the foregoing, Tenant, at Tenant’s
sole cost and expense, shall be responsible for providing char and
janitorial services to the laboratory portions of the Premises in a
manner consistent with the janitorial services provided in
buildings comparable to the Building and in space comparable to the
Premises, including, but not limited to, the removal and disposal
of all trash from the laboratory portions of the
Premises.
13. RULES AND
REGULATIONS.
Tenant
shall abide by and observe the rules and regulations attached
hereto as Exhibit D and such other rules and regulations as may be
made by Landlord from time to time, provided that such rules and
regulations shall not be materially inconsistent with the
provisions of this Lease. Nothing contained in this Lease or in any
rules and regulations shall be interpreted to impose upon Landlord
any obligations to enforce against any tenant its rules and
regulations, or the provisions of any lease with any other tenant,
and Landlord shall not be liable to Tenant or any other entity for
any violation of said rules, regulations or lease provisions.
Landlord shall use reasonable efforts not to enforce any rule or
regulation in a manner which unreasonably discriminates among
similarly situated tenants.
14. REPAIR OF DAMAGE CAUSED BY
TENANT: INDEMNIFICATION.
A. Repairs: Except as otherwise expressly
provided in this Lease, all injury, breakage and damage to the
Land, the Building or the Premises, caused by any act or omission
of Tenant shall be repaired by and at the sole expense of Tenant,
except Landlord shall have the right, at its option, to make such
repairs and to charge Tenant for all costs and expenses incurred in
connection therewith as Additional Rent payable within ten (10)
days after the rendering of a bill therefor. Tenant shall notify
Landlord promptly of any injury, breakage or damage to the Land,
the Building, or the Premises caused by Tenant.
B. Indemnification: Tenant hereby agrees
to indemnify and hold Landlord harmless from and against all costs,
damages, claims, liabilities and expenses, including attorneys'
fees, suffered by or claimed against Landlord, directly or
indirectly, based on, arising out of or resulting from:
(i) Tenant's use and occupancy of the Premises or the business
conducted by Tenant therein or Tenant's presence in the Building or
on the Land, (ii) the making by Tenant of any Alterations,
(iii) any act or omission of Tenant or its employees, agents
or invitees, and (iv) any breach or default by Tenant in the
observance or performance of its covenants and obligations under
this Lease. Notwithstanding anything to the contrary contained in
this Lease, in no event shall Tenant be liable for consequential
damages except those resulting from a breach of Tenant’s
obligations under Sections 21 and 36 hereof.
15. LIMITATION ON LANDLORD
LIABILITY.
A. Liability Standard: Landlord shall not
be liable to Tenant or any other individual or entity for any
damage, loss or claim whatsoever, except damages, losses and claims
that are the direct result of Landlord's gross negligence or
willful misconduct; however, in no event shall Landlord be liable
for consequential damages.
B. Limitation on Total Liability:
Notwithstanding any other provision of this Lease, it is expressly
understood and agreed that the total liability of Landlord arising
out of or in connection with this Lease, the relationship of
Landlord and Tenant hereunder and/or Tenant's use of the Premises,
shall be limited to the estate of Landlord in the Building. No
other property or assets of Landlord or any partner or owner of
Landlord shall be subject to levy, execution, or other enforcement
proceedings or other judicial process for the satisfaction of any
judgment or any other right or remedy of Tenant arising out of or
in connection with this Lease, the relationship of Landlord and
Tenant hereunder and/or Tenant's use of the Premises.
16. FIRE AND OTHER
CASUALTY.
If the
Premises shall be damaged by fire or other casualty, other than as
a result of the negligence or misconduct of Tenant, this Lease
shall not terminate and, upon adjustment of insurance claims,
Landlord shall repair the damage to the condition existing on the
Delivery Date, provided that Landlord shall have no obligation to
repair damage to or replace Tenant's Personal Property or
Installations (as defined above). No compensation or reduction of
Rent shall be paid or allowed for inconvenience, annoyance or
injury to Tenant or Tenant's business arising from any damage to or
repair of the Premises or the Building.
Tenant,
at its expense, shall promptly perform, subject to delays arising
from the collection of insurance proceeds, Unavoidable Delay or
obtaining approval from any applicable governmental authority
having jurisdiction over Hazardous Materials to restore the
Premises (“Hazardous Material Clearances”), all repairs
or restoration not required to be done by Landlord and shall
promptly re-enter the Premises and commence doing business in
accordance with this Lease. Provided Tenant fully and promptly
cooperates with Landlord, following written or verbal notice to
Tenant, with all reasonable procedures Landlord deems necessary for
Landlord to obtain such Hazardous Materials Clearances, Rent shall
be abated from the date of such casualty until the Premises are
repaired and restored, in the proportion which the area of the
Premises, if any, which is not usable by Tenant bears to the total
area of the Premises, unless Landlord provides Tenant with other
space during the period of repair that is suitable for the
temporary conduct of Tenant’s business. Such abatement shall
be the sole remedy of Tenant and Tenant waives any right to
terminate this Lease by reason of damage or casualty loss. If
Tenant fails to cooperate as described herein, neither Base Rent
nor Additional Rent shall be abated until the date upon which
Landlord is able to obtain such Hazardous Materials
Clearances.
Notwithstanding
anything herein to the contrary, if (1) insurance proceeds are
insufficient to pay the full cost of such repair and restoration,
(2) the holder of any Mortgage fails or refuses to make insurance
proceeds available for such repair and restoration, (3) zoning or
other applicable Laws do not permit such repair and restoration, or
(4) the Building is damaged by fire or casualty (whether or not the
Premises has been damaged) to such an extent that Landlord decides,
in its sole and absolute discretion, not to rebuild or reconstruct
the Building, then Landlord, at its option, may give Tenant, within
sixty (60) days after the casualty, written notice of termination
of this Lease, and this Lease and the Term shall terminate (whether
or not the Term has commenced) upon the expiration of thirty (30)
days from the date of the notice, with the same effect as if the
new expiration date had been the Lease Expiration Date, and all
Base Rent and Additional Rent payable pursuant to Section 5 of this
Lease shall be apportioned as of such date.
Notwithstanding
anything herein to the contrary, if Landlord estimates that the
restoration of the Premises and the Building cannot be completed by
the two hundred seventieth (270th) day following the date of the
casualty, and all or a substantial portion of the Premises will not
be tenantable during such period, then Tenant may terminate this
Lease by written notice to Landlord, which notice shall be given by
Tenant, if at all, within ten (10) days following the date of such
estimate. If the restoration of the Premises and the Building has
not been completed by the two hundred seventieth (270th) day
following the date of the casualty, and all or a substantial
portion of the Premises is not tenantable as a result of the
casualty, Tenant may terminate this Lease by written notice to
Landlord, which notice shall be given by Tenant, if at all, within
ten (10) days following such two hundred seventieth (270th) day,
but in any event prior to Landlord’s delivery of the Premises
to Tenant with the restoration of the Premises substantially
complete.
If the
Premises or the Building shall be damaged by fire or other casualty
due to the negligence or misconduct of Tenant: (i) Tenant
shall not be permitted to terminate this Lease pursuant to the
immediately preceding paragraph, (ii) Landlord shall have no
obligation to repair the Premises or the Building, (iii) this
Lease shall, at Landlord's option, not terminate,
(iv) Landlord may at Tenant's expense repair the damage, and
(v) Landlord may pursue any legal and equitable remedies
available to it.
A. Tenant's Insurance:
(a) Throughout the
Term, Tenant shall obtain and maintain the following:
(1)
Commercial General Liability insurance (written on an ISO
occurrence form or equivalent basis) including contractual
liability coverage insuring the obligations assumed by Tenant under
this Lease (including those set forth in Sections 14.B. and 36.B.),
premises and operations coverage, broad form property damage
coverage and independent contractors coverage, and personal injury
with a minimum of Two Million Dollars ($2,000,000) each occurrence
and Three Million Dollars ($3,000,000) general aggregate. If the
policy is a blanket policy and also covers locations other than the
Premises, the policy shall include a provision to the effect that
the aggregate limit of Three Million Dollars ($3,000,000) shall
apply separately at the Premises. The policy limits may be obtained
through any combination of primary and excess
insurance.
(2) Property
Insurance written on a “Special Cause of Loss” form
covering Tenant’s business personal property, stock, and, if
applicable, inventory, and leasehold improvements at 100% of the
full replacement value written with a deductible of not more Five
Thousand Dollars ($5,000). Such property insurance shall be in an
amount not less than that required to replace all of the original
tenant improvements installed in the Premises pursuant to Exhibit C
attached hereto or Section 3 hereof, as applicable, and made a part
hereof, all Alterations and all other contents of the Premises
(including, without limitation, Tenant's trade fixtures,
decorations, furnishings, equipment and personal
property).
(3)
Business interruption insurance, loss of income and extra expense
insurance shall be in an amount equal to Tenant's gross earnings
for the then most recently expired twelve (12) month period, but in
no event shall any such insurance coverage be in an amount less
than the Base Rent then in effect during any Lease
Year.
(4)
Comprehensive automobile liability insurance (covering automobiles
owned by Tenant, if any and hired and non-owned automobiles). Such
automobile liability insurance shall be in an amount not less than
One Million Dollars ($1,000,000.00) bodily injury and property
damage for each accident.
(5)
worker's compensation insurance providing statutory limits as
required by the jurisdiction in which the Building is located and
employer's liability insurance with minimum limits of $500,000 each
accident, $500,000 each employee-disease and $500,000 policy
limit-disease. Such policy shall provide a waiver of subrogation in
favor of Landlord.
(b) All insurance
carried by Tenant pursuant to Section 17.A.(a) hereof shall: (1) be
issued by a company that is licensed to do business in the
jurisdiction in which the Building is located, that has been
approved in advance by Landlord and that has a rating equal to or
exceeding A-X from Best's Insurance Guide; (2) name Landlord, the
managing agent of the Building and the holder of any Mortgage as
additional insureds/loss payees (as applicable, provided that such
parties shall only be named as loss payees with respect to any
improvements, alterations or betterments in the Premises which were
paid for by Landlord or which will become the property of Landlord
at the expiration or earlier termination of this Lease but this
requirement shall not apply with respect to any of Tenant’s
Personal Property) providing an Additional Insured – Managers
or Lessors of Premises Endorsement (#CG-20-11-01-96 or equivalent);
(3) contain an endorsement that such policy shall remain in full
force and effect notwithstanding that the insured may have waived
its right of action against any party prior to the occurrence of a
loss (Tenant hereby waiving its right of action and recovery
against and releasing Landlord and its employees and agents
(including, but not limited to, Landlord’s managing agent)
from any and all liabilities, claims and losses for which they may
otherwise be liable to the extent Tenant is covered by insurance
carried or would have been covered by insurance it is required to
carry under this Lease); (4) provide that the insurer thereunder
waives all right of recovery by way of subrogation against
Landlord, its partners, agents (including, but not limited to,
Landlord’s managing agent), employees, and representatives,
in connection with any loss or damage covered by such policy; (5)
be acceptable in form and content to Landlord; (6) be primary and
non-contributory; (7) contain an endorsement for cross liability
and severability of interests; and (8) contain an endorsement
prohibiting cancellation, failure to renew, reduction of amount of
insurance or change in coverage without the insurer first giving
Landlord and any Mortgagee thirty (30) days' prior written notice
(by certified or registered mail, return receipt requested) of such
proposed action. No such policy shall contain any deductible
provision except as otherwise approved in writing by Landlord,
which approval shall not be unreasonably withheld. Landlord
reserves the right from time to time, but not more than three (3)
times during the initial Term of this Lease, to require Tenant to
obtain higher minimum amounts or different types of insurance if it
becomes customary for other landlords of first-class office
buildings in the Washington, D.C., metropolitan area to require
similar sized tenants in similar industries to carry insurance of
such higher minimum amounts or of such different types of
insurance. Tenant shall deliver a certificate (on Acord Form 27) of
all such insurance and receipts evidencing payment therefor (and,
upon request, copies of all required insurance policies, including
endorsements and declarations) to Landlord concurrently with
Tenant's execution of this Lease and at least annually thereafter.
Tenant shall give Landlord immediate notice in case of fire, theft
or accident in the Premises, and in the case of fire, theft or
accident in the Building if involving Tenant, its agents, employees
or Invitees. Neither the issuance of any insurance policy required
under this Lease nor the minimum limits specified herein shall be
deemed to limit or restrict in any way Tenant's liability arising
under or out of this Lease.
Except
for the indemnification contained in Section 36.B. hereof with
respect to Hazardous Materials, neither Landlord nor Tenant shall
be liable to the other or to any insurance company (by way of
subrogation or otherwise) insuring the other party for any loss or
damage to any building, structure or other tangible property, or
any resulting loss of income, or losses under workers' compensation
laws and benefits, even though such loss or damage might have been
occasioned by the negligence of such party or its agents or
employees. The provision of this Section 17.A.(b) shall not limit
the indemnification for liability to third parties pursuant to
Section 14 hereof. In the event of a permitted sublease or other
occupancy agreement for all or a portion of the Premises, the
subtenant or occupant shall expressly agree in writing to be bound
by the provisions of this Section 17.A.(b) (as if such subtenant or
occupant were Tenant hereunder) for the benefit of
Landlord.
B. Tenant's
Contractor's Insurance
Tenant
shall require any contractor of Tenant performing work on the
Premises to carry and maintain at no expense to Landlord, a
non-deductible:
(c) Commercial general
liability insurance policy, including (but not limited to)
contractor's liability coverage, contractual liability coverage,
completed operations coverage, broad form property damage
endorsement and contractor's protective liability coverage, to
afford protection with respect to personal injury, death or
property damage of not less than Three Million Dollars ($3,000,000)
per occurrence combined single limit/Three Million Dollars
($3,000,000) general aggregate (but not less than $3,000,000 per
location aggregate);
(d) Comprehensive
automobile liability insurance policy with a combined single limit
for each occurrence of not less than One Million Dollars
($1,000,000) with respect to personal injury or death and property
damage; and
(e) Worker’s
compensation insurance policy or similar insurance in form and
amounts required by law. Such policy shall provide a waiver of
subrogation in favor of Tenant and Landlord.
C. Landlord's Insurance: Landlord agrees
to carry and maintain special cause of loss property insurance
(with replacement cost coverage) covering the Building and
Landlord's property therein in an amount required by its insurance
company to avoid the application of any coinsurance provision and
as Landlord, in its reasonable judgment, determines to be
appropriate based upon coverages in force with respect to
comparable office buildings in the North Rockville submarket of
Montgomery County, Maryland. Landlord shall use reasonable efforts
to secure a waiver of subrogation endorsement from its insurance
carrier. Landlord also agrees to carry and maintain commercial
general liability insurance in limits it reasonably deems
appropriate.
D. Effect of Tenant's Activities on
Insurance: Tenant shall not conduct or permit to be
conducted any activity, or place any equipment in or about the
Land, the Building or the Premises which will increase the rate of,
or make void or voidable, any fire or other insurance maintained or
required to be maintained by Landlord or any Mortgagee on the
Building, the Land or the property kept thereon or therein, which
will conflict with the provisions of any such insurance policy or
which will make it impracticable for Landlord to obtain insurance
covering any risks against which Landlord reasonably deems it
advisable to obtain insurance. In the event any increases in the
rates of such insurance are, in Landlord's reasonable judgment, due
to Tenant's presence in the Building, to any activity conducted or
property installed or placed by Tenant on or about the Land, the
Building or the Premises or to Alterations installed by Tenant or
at Tenant's request, Tenant shall reimburse Landlord for the amount
of such increases promptly upon demand therefor. Statements by the
applicable insurance company or insurance rating bureau that such
increases are due to any of Tenant's activity, property or
improvements shall be conclusive for the purposes of determining
Tenant's liability hereunder.
E. Termination Right: Landlord shall have
the right to terminate this Lease upon thirty (30) days’
notice to Tenant in the event Landlord receives notice from any of
Landlord's insurance carriers that such carrier intends to cancel
its insurance on the Building, or to increase the cost of such
insurance by more than one hundred percent (100%) above the premium
payable by Landlord immediately prior to such notice, due to the
activities of Tenant or the presence of Tenant in the Building.
However, Landlord shall not terminate this Lease in the event
Landlord is able, with good faith efforts, to obtain equivalent
insurance from an insurance carrier satisfactory to Landlord at a
premium not more than one hundred percent (100%) greater than the
premium for the cancelled insurance; provided that Tenant shall
reimburse Landlord for all additional premiums charged to Landlord
by such new insurance carrier. It is expressly understood that
Landlord shall not have the right to terminate this Lease pursuant
to this Section 17.E. (i) if any cancellation or rate increase is
due to factors generally applicable to the insurance or rental
market, rather than to Tenant's activities or presence in the
Building, or (ii) Tenant is conducting only the permitted use (as
of the date of this Lease) pursuant to Section 6.A. of this Lease
at the Premises, and such use is being conducted in accordance with
all applicable Laws in accordance with the provisions of this
Lease.
A. Landlord's Right to Terminate: If a
substantial part of the Premises, the Building or the Land is taken
or condemned by any governmental or quasi-governmental authority
for any purpose or is granted to any authority in lieu of
condemnation (collectively, a "taking"), Landlord shall have the
right in its sole discretion to terminate this Lease by written
notice to Tenant, and upon the giving of such notice, the Term
shall terminate as of the date title vests in the authority, and
Base Rent and Additional Rent payable pursuant to Section 5 hereof
shall be abated as of that date. For purposes of this Section 18, a
substantial part of the Premises, the Land or the Building shall be
considered to have been taken if, in the sole opinion of Landlord,
the taking shall render it commercially undesirable for Landlord to
permit this Lease to continue or to continue operating the
Building.
B. Adjustment of Rent: If a portion of the
Premises is taken and Landlord does not elect to terminate this
Lease pursuant to Section 18.A. hereof, then Base Rent and
Additional Rent payable pursuant to Section 5 hereof shall be
equitably adjusted as of the date title vests in the authority and
this Lease shall otherwise continue in full force and
effect.
C. Division of Award: Tenant shall have no
claim against Landlord arising out of or related to any taking, or
for any portion of the amount that may be awarded as a result,
damages or compensation attributable to damage to the Premises,
value of the unexpired portion of the Term, loss of profits or
goodwill, leasehold improvements or severance damages, and Tenant
hereby assigns to Landlord all its rights, title and interest in
and to any such award; provided, however, that Tenant may assert
any claim it may have against the authority for compensation for
Tenant's Personal Property and for any relocation expenses
compensable by statute, as long as such awards shall be made in
addition to and stated separately from the award made for the Land,
the Building and the Premises.
A. Default of Tenant: The following events
shall be a default by Tenant (a "Default") under this
Lease:
(1) Failure of Tenant
to pay Rent as and when due; provided, however, that with respect
to the first two (2) such failures in any twelve (12) month period
only, no Default shall be deemed to have occurred unless such
failure continues for a period of three (3) days after written
notice thereof from Landlord to Tenant.
(2) Failure of Tenant
to comply with or perform any covenant or obligation of Tenant
under this Lease, if the failure continues for thirty (30) days
after notice from Landlord to Tenant specifying the failure, other
than (i) those concerning the payment of Rent, (ii) those set forth
in any of Sections 8.B., 17, 21, 22, 26, 35, 36 and 38 hereof, as
to which a specific timeframe for the performance of such covenant
or obligation is set forth therein, and (iii) any Default arising
under subsections (3), (4), (5) or (6) of this Section 19.A.;
provided, however, that if the failure on the part of Tenant is not
capable of being cured within such 30-day period but Tenant
expeditiously commences to cure same and diligently proceeds with
such cure, Tenant’s time to cure such failure shall be
extended for the time necessary to cure same, but in no event
longer than sixty (60) days, inclusive of the original 30-day
period.
(3) [Intentionally
omitted].
(4) If Tenant, any
Guarantor or, if Tenant is a partnership, any partner of Tenant
("Partner"), shall file a voluntary petition in bankruptcy or
insolvency, shall be adjudicated bankrupt or insolvent or shall
file a petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any present or future federal, state or other Laws, or
shall make an assignment for the benefit of creditors, or shall
seek or acquiesce in the appointment of any trustee, receiver or
liquidator of Tenant or of any Guarantor or Partner or of all or
any part of the property of Tenant or of such Guarantor or
Partner.
(5) If, within ninety
(90) days after the commencement of any proceeding against Tenant
or any Guarantor or Partner, whether by the filing of a petition or
otherwise, seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future applicable federal, state or other Laws, such
proceeding shall not have been dismissed or if, within ninety (90)
days after the appointment of any trustee, receiver or liquidator
of Tenant or any Guarantor or Partner, or of all or any part of the
property of Tenant or of any Guarantor or Partner, without the
acquiescence of such individual or entity, such appointment shall
not have been vacated or otherwise discharged, or if any execution
or attachment shall have been issued against the property of Tenant
or of any Guarantor or Partner, pursuant to which the Premises
shall be taken or occupied or attempted to be taken or
occupied.
(6) If Tenant fails to
take possession of the Premises on the Lease Commencement Date or
vacates, abandons or ceases to carry on its ordinary activities in
the Premises prior to the Lease Expiration Date, with or without an
intention of paying Rent; provided, however, that if (i) Tenant
gives Landlord at least thirty (30) days prior written notice that
it intends to vacate the Premises, (ii) Tenant pays the full amount
of all Rent when due under this Lease while the Premises are
vacant, and (iii) Tenant leaves the Premises in the condition
required by this Lease and continues to maintain the Premises in
the condition required by this Lease throughout the remainder of
the Term, then, and in such event only, Tenant shall not be deemed
to be in Default under this Section 19.A.(6).
(7) Failure of Tenant
to comply with or perform any covenant or obligation under Sections
8.B., 17, 21, 22, 26, 35, 36 or 38 hereof within the specific
timeframe for the performance of such covenant or obligation set
forth in the applicable Section.
B. Remedies Upon Default: Upon the
occurrence of a Default, Landlord shall have the right, then or at
any time thereafter:
(1) Without demand or
notice, to reenter and take possession of all or any part of the
Premises in accordance with applicable legal process, to expel
Tenant and those claiming through Tenant and to remove any property
therein, either by summary proceedings or by any other action at
law, in equity or otherwise, with or without terminating this
Lease, without being deemed guilty of trespass and without
prejudice to any other remedies of Landlord for breach of this
Lease, and/or
(2) To terminate this
Lease by written notice to Tenant, whereupon this Lease shall
terminate on the date specified in Landlord's notice, and Tenant's
right to possession of the Premises shall cease as of such
date.
If
Landlord elects to terminate this Lease, everything contained in
this Lease on the part of Landlord to be done shall cease, without
prejudice to Landlord's right to recover from Tenant all Rent, as
set forth in Sections 19.C. and 19.D. below. If Landlord elects to
reenter pursuant to Section 19 above, Landlord may terminate this
Lease, or, from time to time without terminating this Lease, may
relet all or any part of the Premises as the agent of Tenant, for
such term, at such rental and upon such other provisions as
Landlord deems acceptable, with the right to make any alterations
and repairs to the Premises that Landlord deems appropriate,
including, but not limited to, restoring the Premises and Building
to a condition necessary to comply with FDA regulations and any
applicable Laws such that the Premises and Building may be relet to
another tenant without delay due to inability to obtain a permit or
certificate of occupancy, at Tenant's expense. No such reentry or
taking of possession of the Premises shall be construed as an
election to terminate this Lease, unless notice of such intention
is given pursuant to Subsection B.(2) above, or unless termination
be decreed by a court of competent jurisdiction at the instance of
Landlord. Landlord shall in no event be under any obligation to
relet any part of the Premises.
C. Liability of Tenant: If Landlord
terminates this Lease or reenters the Premises (with or without
terminating this Lease), Tenant shall remain liable (in addition to
all other liabilities of Tenant accrued at the time of the Default)
for the sum of (i) any unpaid Rent accrued prior to the time
of termination and/or reentry, as the case may be, plus interest
thereon from the due date at the Default Rate, (ii) all Base
Rent and Additional Rent provided for in this Lease from the time
of termination and/or reentry, as the case may be, until the date
this Lease would have expired had a Default not occurred, plus
interest thereon from the due date at the Default Rate,
(iii) any and all expenses (including but not limited to
reasonable attorneys' and brokerage fees) incurred by Landlord in
reentering and repossessing the Premises, in correcting any
default, in painting, altering or repairing the Premises in order
to place the Premises in first-class rentable condition (whether or
not the Premises are relet), in protecting and preserving the
Premises and in reletting or attempting to relet the Premises, and
(iv) any other amounts necessary to compensate Landlord for
any other injury or detriment caused by the Default; minus the net proceeds (after deducting
any rental abatements, tenant improvement allowances and other
concessions and inducements) actually received by Landlord, if any,
from any reletting to the extent attributable to the period prior
to the date this Lease would have expired had a Default not
occurred. Landlord shall have the option to recover any damages
sustained by Landlord either at the time of reletting, if any, or
in separate actions from time to time as said damages shall have
been made more easily ascertainable by successive relettings or, at
Landlord's option, to defer any such recovery until the date this
Lease would have expired in the absence of a Default, in which
event Tenant hereby agrees that the cause of action shall be deemed
to have accrued on the aforesaid date. The provisions of this
Section 19.C. shall be in addition to, and shall not prevent the
enforcement of, any claim Landlord may have for anticipatory breach
of this Lease.
D. Liquidated Damages: In addition to
Landlord's rights pursuant to Section 19.C. above, if Landlord
terminates this Lease, Landlord shall have the right at any time,
at its sole option, to require Tenant to pay to Landlord on demand,
as liquidated damages, the sum of (i) the total of the Base
Rent, Additional Rent and all other sums which would have been
payable under this Lease from the date of Landlord's demand for
liquidated damages ("Landlord's Demand") until the date this Lease
would have terminated in the absence of the Default, discounted to
present value at the rate of five percent (5%) per annum (the
"Discount Rate"), (ii) all unpaid Rent accrued prior to the
time of Landlord's Demand, plus interest thereon from the due date
at the Default Rate, (iii) any and all expenses (including but
not limited to reasonable attorneys' and brokerage fees) incurred
by Landlord in reentering and repossessing the Premises, in
correcting any default, in painting, altering or repairing the
Premises in order to place the Premises in first-class rentable
condition (whether or not the Premises are relet), in protecting
and preserving the Premises and in reletting or attempting to relet
the Premises, and (iv) any other amounts necessary to
compensate Landlord for any other injury or detriment caused by the
Default; minus the sum of
(a) the net fair market rental value of the Premises for the period
referred to in Section 19.D.(i) above, discounted to present
value at the Discount Rate, and (b) any sums actually paid by
Tenant to Landlord pursuant to Subsection C. above; provided,
however, that if said damages shall be limited by law to a lesser
amount, Landlord shall be entitled to recover the maximum amount
permitted by law. The "net fair market rental value" referred to in
Section 19.D.(a) above shall be the fair market rental value of the
Premises at the time of Landlord's Demand, reduced by any rental
abatements, tenant improvement allowances and other concessions and
inducements generally provided by landlords seeking to lease
comparable commercial property in the area of the Premises at the
time of Landlord's Demand. If reletting is accomplished within a
reasonable time after Lease termination, the "net fair market
rental value" referred to in Section 19.D.(a) above shall be deemed
prima facie to be the net
rental income (after deducting any rental abatements, tenant
improvement allowances and other concessions and inducements)
realized upon such reletting.
E. Waiver: Tenant, on its own behalf and
on behalf of all persons and entities claiming through Tenant,
including but not limited to creditors of Tenant, hereby waives any
and all rights and privileges which Tenant and such other persons
and entities might otherwise have under any present or future Laws:
(i) to redeem the Premises, (ii) to reenter or repossess
the Premises, or (iii) to restore the operation of this Lease,
with respect to any dispossession of Tenant by judgment or warrant
of any court, any reentry by Landlord or any expiration or
termination of this Lease, whether by operation of law or pursuant
to the provisions of this Lease. Tenant hereby expressly waives
receipt of any notice to quit.
F. Lien on Personal Property: Landlord
shall have a lien upon Tenant's Personal Property and other
property brought onto the Premises by Tenant, as and for security
for the Rent and other obligations of Tenant herein provided. Such
lien shall be in addition to all rights of distraint and statutory
liens available under applicable Laws. Within five (5) days after
request from time to time, Tenant shall execute, acknowledge and
deliver to Landlord a financing statement in recordable form and
any other document evidencing or establishing such lien and
security interest which may be requested by Landlord. During the
Term, Tenant shall not sell, transfer or remove from the Premises
any of Tenant's tangible property without Landlord's prior written
consent. In order to further assure Tenant's performance of its
obligations under this Lease, Tenant covenants that during the
Term, it will not convey or otherwise transfer its assets or permit
its assets to be encumbered or subject to financing.
Landlord may, at
any time after a Default, seize and take possession of any and all
such property. If Tenant fails to redeem the property so seized by
payment of whatever sums may be due Landlord pursuant to this
Lease, then Landlord shall have the right, after twenty (20) days
written notice to Tenant to sell such personal property at public
or private sale and upon such terms and conditions as Landlord may
deem advantageous, and after the payment of all proper charges
incident to such sale, apply the proceeds thereof to the payment of
any balance due to Landlord hereunder and pay any remaining balance
to Tenant. The exercise by Landlord of the foregoing remedy shall
not discharge Tenant from any deficiency owed to Landlord, nor
shall it preclude the exercise by Landlord of any other rights and
remedies. Landlord shall not be liable to Tenant, or other owners
of property seized, for damages, general or special, if Landlord
reasonably believed it was acting lawfully in seizing property
located in the Premises. Tenant hereby agrees to indemnify,
protect, save and hold harmless Landlord and its successors,
assigns and agents from any and all liabilities, obligations,
losses, damages, claims, actions, suits, costs or expenses
(including reasonable attorney's fees) of any kind or nature
imposed on, incurred by or asserted against Landlord which in any
way relate to or arise out of a breach of Tenant's obligations
under this paragraph. In event of a termination of this Lease
following a Default by Tenant hereunder, Tenant hereby assigns any
guaranties or warranties with respect to any items of its
furniture, fixtures and equipment to Landlord, it being agreed that
Tenant shall give to Landlord any assignment or other assurance
necessary to affect Landlord’s right of direct enforcement of
any such warranty or guaranty.
G. Right of Distress: Landlord shall, to
the extent permitted by law, have a right of distress for
Rent.
H. Right of Landlord to Cure: If Tenant
defaults in the making of any payment or in the doing of any act
required to be made or done by Tenant under this Lease, then
Landlord may, at its option, make such payment or do such act, and
the expenses thereof, with interest thereon at the Default Rate,
from the date paid by Landlord, shall constitute Additional Rent
hereunder due and payable by Tenant with the next payment of
Monthly Base Rent.
I. Attorneys' Fees: In the event of any
Default hereunder, Tenant shall pay to Landlord all reasonable
attorneys' fees incurred by Landlord in connection with such
Default or the enforcement of Landlord's rights or remedies arising
in connection therewith, whether or not this Lease is terminated
and whether or not Landlord institutes any lawsuit against Tenant
as a result of such Default. In addition to the foregoing, whether
or not this Lease is terminated, Tenant shall pay to Landlord all
other costs incurred by Landlord with respect to any lawsuit
instituted or action taken by Landlord to enforce the provisions of
this Lease.
J. Survival: Tenant's liability pursuant
to this Section 19 shall survive the termination of this Lease, the
institution of summary proceedings and/or the issuance of a warrant
thereunder.
No
failure or delay by Landlord in enforcing its right to strict
performance by Tenant of every provision of this Lease or in
exercising any right or remedy hereunder, and no acceptance by
Landlord of full or partial rent during the continuance of any
Default, shall constitute a waiver of the provision or the Default,
and no provision shall be waived or modified except by a written
instrument executed by Landlord. No payment by Tenant, or receipt
by Landlord, of a lesser amount than the full Rent shall be deemed
to be other than a payment on account, notwithstanding any
endorsement or statement on any check or letter accompanying any
payment of any Rent. No waiver of any Default or settlement of any
proceeding instituted on account of any claimed Default shall
affect or alter this Lease or constitute a waiver of any of
Landlord's rights hereunder.
If
Tenant shall be in possession of the Premises after termination of
this Lease (whether by normal expiration of the Term or otherwise),
at Landlord's option: (i) Landlord may deem Tenant to be
occupying the Premises as a tenant from month-to-month, at the sum
of one hundred fifty percent (150%) of the Monthly Base Rent in
effect for the last full month of the Term, plus the monthly
installment of Additional Rent which is then payable pursuant to
Section 5. of this Lease, and subject to all of the other
provisions of this Lease, as applicable to a month-to-month
tenancy, and (ii) Landlord may exercise any or all remedies
for Default and at law and in equity, including but not limited to
an action against Tenant for wrongfully holding over; provided,
however, Tenant shall only be liable for consequential damages if
such holdover lasts for more than sixty (60) days following the
date of the expiration or earlier termination of this Lease. Any
such holdover shall be deemed to be a tenancy-at-sufferance and not
a tenancy-at-will or tenancy from month-to-month. In no event shall
any holdover be deemed a permitted extension or renewal of the
Term, and nothing contained herein shall be construed to constitute
Landlord's consent to any holdover or to give Tenant any right with
respect thereto.
LL. Lease Subordinate: This Lease shall be
subject and subordinate to the lien of any and all Mortgages and to
any Ground Leases, and any and all renewals, extensions,
modifications, recastings and refinancings thereof. This clause
shall be self-operative, without execution of any further
instrument; but if requested by Landlord or any Mortgagee, Tenant
shall promptly execute a certificate or other document evidencing
and providing for such subordination. Landlord shall have the right
to execute said document on behalf of Tenant if Tenant fails to do
so within ten (10) business days after receipt of the request.
Tenant agrees that, if any Mortgage is foreclosed or Ground Lease
terminated, upon request by the purchaser at the foreclosure sale
or Ground Lessor, as the case may be, Tenant shall attorn to and
recognize the purchaser or Ground Lessor as the landlord under this
Lease and shall make all payments required hereunder to such new
landlord without any deduction or set-off of any kind whatsoever.
Tenant waives the provisions of any Laws, now or hereafter in
effect, which may give or purport to give Tenant any right to
terminate or otherwise affect this Lease or the obligations of
Tenant hereunder in the event that any such foreclosure,
termination or other proceeding is filed, prosecuted or completed.
Notwithstanding anything herein to the contrary, any Mortgagee may
at any time subordinate the lien of its Mortgage to the operation
and effect of this Lease without Tenant's consent, by giving Tenant
written notice of such subordination, in which event this Lease
shall be deemed to be senior to such Mortgage, and thereafter such
Mortgagee shall have the same rights as it would have had if this
Lease had been executed, delivered and recorded before said
Mortgage.
MM. Modifications to Lease: If any of
Landlord's insurance carriers or any Mortgagee requests
modifications to this Lease, then Tenant shall execute a written
amendment incorporating such requested modifications within thirty
(30) days after the same has been submitted to Tenant by Landlord,
provided that such modifications do not materially adversely affect
Tenant's use of the Premises as herein permitted or increase the
rentals and other sums payable by Tenant hereunder. In the event
that Tenant refuses or fails to execute such amendment within
thirty (30) days after Landlord’s delivery of same to Tenant,
then Landlord shall have the right, at its sole option, in addition
to Landlord's other remedies for Default, to terminate and cancel
this Lease by written notice to Tenant specifying the date on which
this Lease will terminate. From and after said termination date,
both Landlord and Tenant shall be relieved of any and all further
obligations hereunder, except liabilities arising prior to the date
of termination.
NN. SNDA: Simultaneously with
Landlord’s execution of this Lease, Landlord shall, at no
cost to Tenant, deliver to Tenant a subordination, attornment and
non-disturbance agreement for the benefit of Tenant from the
current Mortgagee on such Mortgagee’s standard form
(“SNDA”). Notwithstanding the foregoing or anything to
the contrary contained herein, provided that no default exists
under this Lease (or if a default then exists, it is cured within
the applicable notice and cure period), Landlord shall use
commercially reasonable efforts to deliver to Tenant a commercially
reasonable SNDA from any future Mortgagees, at no cost to Tenant;
provided, however, that in the event that Landlord does not obtain
such SNDA, Landlord shall have no liability for such failure, and
this Lease shall be and remain subject and subordinate to the lien
of said Mortgage and to any and all renewals, extensions,
modifications, recastings and refinancings thereof.
23. ASSIGNMENT AND
SUBLETTING.
A. No Transfer Without Consent: Tenant
shall not, without the prior written consent of Landlord in each
instance (which consent may be withheld in Landlord's sole and
absolute discretion) (i) assign, mortgage or otherwise
encumber this Lease or any of its rights hereunder;
(ii) sublet the Premises or any part thereof or permit the
occupancy or use of the Premises or any part thereof by any persons
or entities other than Tenant; or (iii) permit the assignment
of this Lease or any of Tenant's rights hereunder by operation of
law. Any attempted assignment, mortgaging or encumbering of this
Lease or any of Tenant's rights hereunder and any attempted
subletting or grant of a right to use or occupy all or a portion of
the Premises in violation of the foregoing sentence shall be void.
If at any time during the Term Tenant desires to assign, sublet or
mortgage all or part of this Lease or the Premises, then in
connection with Tenant's request to Landlord for Landlord's consent
thereto, Tenant shall give thirty (30) days’ notice prior to
Landlord in writing ("Tenant's Request Notice") containing: the
identity of the proposed assignee, subtenant or other party and a
description of its business; the terms of the proposed assignment,
subletting or other transaction; the commencement date of the
proposed assignment, subletting or other transaction (the "Proposed
Sublease or Assignment Commencement Date"); the area proposed to be
assigned, sublet or otherwise encumbered (the "Proposed Sublet or
Assignment Space"); the proposed use of the proposed assignee or
subtenant, including the Hazardous Materials intended to be used,
stored, handled, treated, generated, disposed or released from the
Premises and related permits, reports and management, storage and
installation plans; the most recent financial statement or other
evidence of financial responsibility of such proposed assignee,
subtenant or other party; and a certification executed by Tenant
and such party stating whether or not any premium or other
consideration is being paid for the assignment, sublease or other
transaction. Notwithstanding the foregoing, Landlord agrees that it
shall not unreasonably withhold, condition or delay its consent to
a proposed subletting, provided that all of the following
conditions are satisfied: (1) there shall be no default at the time
of the proposed subletting, (2) the proposed subtenant shall be
creditworthy, (3) the proposed subtenant shall not be a
governmental entity or a person or entity enjoying sovereign or
diplomatic immunity, (4) the use of the Premises by the proposed
subtenant shall not attract a volume, frequency or type of visitor
or employee to the Building which is not consistent with the
standards of a high-quality office building, (5) the proposed
subtenant shall specifically covenant and agree to perform the
obligations of Tenant hereunder and to occupy the Premises subject
to the provisions of this Lease, and (6) Tenant remains liable for
the faithful performance of this Lease.
B. [Intentionally
Omitted.]
C. Transfer of Ownership Interests: If
Tenant is a partnership, then any event (whether voluntary,
concurrent or related) resulting in a dissolution of Tenant, any
withdrawal or change (whether voluntary, involuntary or by
operation of law) of partners owning a controlling interest in
Tenant (including each general partner), or any structural or other
change having the effect of limiting the liability of the partners
shall be deemed a voluntary assignment of this Lease subject to the
provisions of this Section 23. If Tenant is a corporation (or a
partnership with a corporate general partner), then any event
(whether voluntary, concurrent or related) resulting in a
dissolution, merger, consolidation or other reorganization of
Tenant (or such corporate general partner), or the sale or transfer
or relinquishment of the interest of shareholders who, as of the
date of this Lease, own a controlling interest of the capital stock
of Tenant (or such corporate general partner), shall be deemed a
voluntary assignment of this Lease subject to the provisions of
this Section 23; provided, however, that this sentence shall not
apply to corporations whose stock is traded through a national or
regional exchange or over-the-counter market. If Tenant is a
limited liability company, then any dissolution of Tenant or a
withdrawal or change, whether voluntary, involuntary or by
operation of law, of members owning a controlling interest in
Tenant shall be deemed a voluntary assignment of this Lease which
is subject to the provisions of this Section 23. In addition, a
transfer of all or substantially all of the assets of Tenant,
either by merger, consolidation, or otherwise shall be deemed to be
an assignment which is subject to the provisions of this Section
23. Whether Tenant is a partnership, corporation or any other type
of entity, then at the option of Landlord, a sale of all or
substantially all of Tenant's assets, a change in Tenant's name of
which Landlord has not received prior notice, or a conversion into
any other type of entity shall also be deemed a voluntary
assignment of this Lease which is subject to the provisions of this
Section 23.
D. Expenses
and Profits; Effect of Consent:
(1) In the event
Landlord permits Tenant to assign or sublet all or a portion of the
Premises to a third party, fifty percent (50%) of any sums that are
paid by such third party for the right to occupy the Premises, in
excess of the Rent then in effect, after Tenant has first deducted
its actual and reasonable out-of-pocket third party costs incurred
by Tenant in connection with a sublease or assignment for brokerage
commissions, advertising fees, attorneys’ fees and tenant
improvements, shall be paid by Tenant to Landlord on a monthly
basis as Additional Rent.
(2) Tenant shall be
responsible for all costs and expenses, including attorneys' fees,
incurred by Landlord in connection with any proposed or purported
assignment or sublease and an administrative fee of Two Thousand
Five Hundred Dollars ($2,500.00).
(3) The consent by
Landlord to any assignment or subletting shall neither be construed
as a waiver or release of Tenant from any covenant or obligation of
Tenant under this Lease, nor as relieving Tenant from giving
Landlord the aforesaid thirty (30) days’ notice of, or from
obtaining the consent of Landlord to, any further assignment or
subletting. The collection or acceptance of Rent from any such
assignee or subtenant shall not constitute a waiver or release of
Tenant from any covenant or obligation of Tenant under this Lease,
except as expressly agreed by Landlord in writing.
E. Conditions of Assignment or Sublease:
All restrictions and obligations imposed pursuant to this Lease on
Tenant shall be deemed to extend to any subtenant, assignee,
licensee, concessionaire or other occupant or transferee, and
Tenant shall cause such person to comply with such restrictions and
obligations. Any assignee shall be deemed to have assumed
obligations as if such assignee had originally executed this Lease
and at Landlord's request shall execute promptly a document
confirming such assumption. Each sublease is subject to the
condition that if the Term is terminated or Landlord succeeds to
Tenant's interest in the Premises by voluntary surrender or
otherwise, at Landlord's sole option, the subtenant shall be bound
to Landlord for the balance of the term of such sublease and shall
attorn to and recognize Landlord as its landlord under the then
executory terms of such sublease or, at Landlord's sole option, the
subtenant shall execute a direct lease with Landlord on Landlord's
then current standard form.
F. Permitted Subleases and Assignments:
Notwithstanding the foregoing provisions of this Article 23,
Landlord agrees that so long as (a) no default is then continuing
beyond any applicable cure period, (b) no circumstance shall have
occurred which with the giving of notice, the passage of time, or
both would constitute a Default by Tenant, and (c) the
creditworthiness and liquidity factor of any entity into which
Tenant shall merge are greater than or equal to the
creditworthiness and liquidity factor of Tenant as of the date of
execution of this Lease and such entity’s tangible net worth
is equal to or greater than Eighty-Five Million Dollars
($85,000,000), the provisions of Sections 23.A., 23.B., 23.C.,
23.D.(1) and 23.D.(2) shall not be applicable with regard to an
assignment of this Lease or a subletting of all or any portion of
the Premises to Tenant’s Affiliate (as hereinafter defined),
so long as (1) Tenant originally named herein shall remain
primarily liable under this Lease, notwithstanding any such
assignment or subletting (unless Tenant has merged into such
entity, in which case such surviving entity shall assume all of the
obligations of Tenant under this Lease), (2) no other or further
assignment or subletting to other than an Affiliate shall be
permitted without Landlord’s prior written consent and (3) in
the case of an assignment, the assignee executes an assignment and
assumption agreement in Landlord’s then standard form with
respect to the assumption by the assignee of all of Tenant’s
then existing and future obligations under this Lease. An
“Affiliate” shall be a person or entity that directly,
or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Tenant, or
which has succeeded to the ownership of Tenant or of substantially
all of Tenant’s assets by merger or consolidation.
“Control” shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person or entity, whether through
ownership of voting securities, by contract, or otherwise.
Notwithstanding the other provisions of this Section 23, in the
event that Tenant is prevented from providing Landlord with prior
notice of an assignment or other transfer of its interests under
this Lease to an Affiliate as a result of laws and governmental
regulations applicable to publicly traded companies prohibiting
such disclosure, then, Tenant shall provide Landlord with written
notice of such transfer as soon as reasonably practically
thereafter, but in any event within ten (10) business days
following the occurrence of the same.
G. Permitted Occupants: Notwithstanding
anything contained in this Section 23 to the contrary (except
Section 23.E above), if (1) there is no Default hereunder and no
monetary default on the part of Tenant then exists hereunder and
(2) CBG (as defined in Section 41.A. hereof), remains in occupancy
of at least seventy-five percent (75%) of the Premises, then CBG
may, without Landlord’s prior written consent and without
being subject to Landlord’s rights and Tenant’s
obligations set forth in Sections 23.A., 23.C., 23.D.(1) and
23.D.(2) above, grant short-term occupancy rights to third parties
(of no longer than twelve (12) months); provided, however, that (a)
such portions of the Premises so affected shall not be separately
demised or segregated from the Premises by the construction of a
partition wall or entrances and shall not be greater than
twenty-five percent (25%) of the Premises in the aggregate of all
such occupancy rights, (b) such arrangements shall be with entities
whose use shall be substantially similar and harmonious to the use
of the Premises by CBG, (c) Tenant shall not charge a fee or rent
to any such occupant in excess of the Rent payable by Tenant under
this Lease for the same space, (d) any such permitted occupant
shall agree to indemnify Landlord, Landlord’s management
agent and any Mortgagees and to hold them harmless from and against
all costs, damages, claims, liabilities and expenses, including,
but not limited to, reasonable attorneys' fees, directly or
indirectly, based on, arising out of or resulting from: (i) such
permitted occupant’s use and occupancy of the Premises or the
business conducted by such permitted occupant therein or such
permitted occupant’s presence in the Premises, (ii) any act
or omission of such permitted occupant or its employees, agents or
contractors, (iii) any breach or default by such permitted occupant
in the observance or performance of Tenant’s covenants and
obligations under this Lease (other than Tenant’s obligations
to pay Base Rent and Additional Rent hereunder), and (e) Tenant
shall notify Landlord of such arrangement at least ten (10)
business days prior to such arrangement(s) commencing.
24. TRANSFER BY
LANDLORD.
Landlord (and any
successor or affiliate of Landlord) may freely sell, assign or
transfer all or any portion of its interest in this Lease or the
Premises, the Building or the Land and, in the event of any such
sale, assignment or transfer, shall be relieved of any and all
obligations under this Lease from and after the date of the sale,
assignment or transfer. From and after said date, Tenant shall be
bound to such purchaser, assignee or other transferee, as the case
may be, as though the latter had been the original Landlord
hereunder, provided that the purchaser, assignee or transferee
agrees to assume the obligations of Landlord
hereunder.
25. INABILITY TO
PERFORM.
This
Lease and Tenant's obligation hereunder shall in no way be
affected, impaired or excused, nor shall Tenant have any claim
against Landlord for damages, because Landlord, due to Unavoidable
Delays, is unable to fulfill any of its obligations under this
Lease, including, but not limited to, any obligations to provide
any services, repairs, replacements, alterations or decorations or
to supply any improvements, equipment or fixtures.
26. ESTOPPEL
CERTIFICATES.
Tenant
shall, without charge, within ten (10) business days after receipt
of any request therefor, execute and deliver to Landlord a
certificate stating: (i) whether this Lease is unmodified and
in full force and effect (or if there have been modifications, that
the Lease is in full force and effect and setting forth all such
modifications); (ii) whether there then exist any defenses
against the enforcement of any right of Landlord hereunder (and, if
so, specifying the same in detail); (iii) the dates to which
rent and any other charges hereunder have been paid by Tenant;
(iv) that Tenant has no knowledge of any then uncured defaults
under this Lease (or, if Tenant has knowledge of any such defaults,
specifying the same in detail); (v) that Tenant has no
knowledge of any event that will or may result in the termination
of this Lease (or if Tenant has such knowledge, specifying the same
in detail); (vi) the address to which notices to Tenant are to be
sent; and (vii) such other information as may be reasonably
requested. It is understood that any such certificate may be relied
upon by Landlord, any Mortgagee, prospective Mortgagee, Ground
Lessor, prospective Ground Lessor, or purchaser or prospective
purchaser of the Land or the Building. Not more than once a year,
Tenant, at its sole cost, shall be entitled to obtain similar
estoppel certificates from Landlord, upon which Tenant or its
designee shall be entitled to rely.
27. COVENANT OF QUIET
ENJOYMENT.
Landlord covenants
that it has the right to make this Lease and that, if Tenant shall
pay all Rent and perform all of Tenant's other obligations under
this Lease, Tenant shall have the right, during the Term and
subject to the provisions of this Lease, to quietly occupy and
enjoy the Premises without hindrance by Landlord or its successors
and assigns.
28. WAIVER OF JURY
TRIAL.
Landlord and Tenant
hereby waive trial by jury in any action, proceeding or
counterclaim brought by either of them against the other with
respect to any matter arising out of or connected with this
Lease.
Landlord and Tenant
each represents and warrants to the other that, except as
hereinafter set forth, neither of them has employed any broker in
procuring or carrying on any negotiations relating to this Lease.
Landlord and Tenant shall indemnify and hold each other harmless
from any loss, claim or damage relating to the breach of the
foregoing representation and warranty. Landlord recognizes only the
Broker(s) (as set forth in Section 1.K. hereof) as broker(s) with
respect to this Lease and agrees to be responsible for the payment
of any leasing commissions owed to said broker(s).
30. CERTAIN RIGHTS RESERVED BY
LANDLORD.
Landlord shall have
the following rights, exercisable without notice, without liability
for damage or injury to property, person or business and without
effecting an eviction, constructive or actual, or disturbance of
Tenant's use or possession of the Premises or giving rise to any
claim for set-off, abatement of Rent or otherwise:
A. To change the
Building's name or street address.
B. To affix, maintain
and remove any and all signs on the exterior and interior of the
Building.
C. To designate and
approve, prior to installation, all window shades, blinds, drapes,
awnings, window ventilators, lighting and other similar equipment
to be installed by Tenant that may be visible from the exterior of
the Premises or the Building.
D. To decorate and
make repairs, alterations, additions and improvements, whether
structural or otherwise, in, to and about the Building and any part
thereof, and for such purposes to enter the Premises, and, during
the continuance of any such work, to close temporarily doors, entry
ways, Common Areas in the Building and to interrupt or temporarily
suspend Building services and facilities, all without affecting
Tenant's obligations hereunder, as long as the Premises remain
tenantable.
E. To grant to anyone
the exclusive right to conduct any business or render any service
in the Building, provided Tenant is not thereby excluded from uses
expressly permitted herein.
F. To alter, relocate,
reconfigure and reduce the Common Areas of the Building, as long as
the Premises remain reasonably accessible.
G. To alter, relocate,
reconfigure, reduce and withdraw the Common Areas located outside
the Building, including parking and access roads, as long as the
Premises remain reasonably accessible.
H. To erect, use and
maintain pipes and conduits in and through the
Premises.
I. To construct
improvements (including kiosks) on the Land and in the Common Areas
of the Building.
J. To prohibit smoking
in the entire Building or portions thereof (including the Premises)
and on the Land, so long as such prohibitions are in accordance
with applicable Laws.
K. If any excavation
or other substructure work shall be made or authorized to be made
upon land adjacent to the Building or the Land, to enter the
Premises for the purpose of doing such work as is required to
preserve the walls of the Building and to preserve the land from
injury or damage and to support such walls and land by proper
foundations.
L. Building Specific:
Notwithstanding anything contained herein to the contrary, Landlord
may at any time elect to alter, rehabilitate or renovate all or any
portion of the Building so long as such construction does not
substantially and unreasonably interfere with Tenant’s access
to the Premises or substantially and unreasonably interfere with
Tenant’s use of the Premises. Tenant acknowledges that
Landlord has the right to undertake major renovations (including
work with respect to the exterior façade of the Building) with
respect to the Building and that Landlord may hereafter perform
additional work, improvements and renovations with respect to the
Building. In connection with any such work, improvements and
renovations, the Landlord may erect scaffoldings, sidewalk bridges
and other such appurtenances. Tenant agrees not to interfere with
such work, improvements and renovations and further agrees that
such work, improvements and renovations (and the construction
appurtenances which Landlord may place at or near the Premises)
shall not constitute an eviction or constructive eviction of
Tenant, in whole or in part, and the Base Rent and all other items
of Additional Rent hereunder shall not abate while such work,
improvements and renovations are being made by reason of loss or
interruption of the business of Tenant or otherwise, nor shall
Tenant have any claims against Landlord by reason of such
work.
No
notice, request, approval, waiver or other communication which may
be or is required or permitted to be given under this Lease shall
be effective unless the same is in writing and hand-delivered, sent
by registered or certified mail, return receipt requested,
first-class postage prepaid, or sent with charges prepaid by a
nationally recognized air courier service, addressed to Landlord at
the Landlord Notice Address or to Tenant at the Tenant Notice
Address, as applicable, or at any other address of which either
party shall notify the other in accordance with this Section 31.
Such communications, if sent by registered or certified mail, shall
be deemed to have been given two (2) days after the date of
mailing, or if sent by a nationally recognized air courier service,
shall be deemed to have been given one (1) business day after the
date of deposit of the notice with such service. If any Mortgagee
shall notify Tenant that it is the holder of a Mortgage affecting
the Premises, no notice, request or demand thereafter sent by
Tenant to Landlord shall be effective until a copy of same shall be
sent to such Mortgagee in the manner prescribed in this Section 31
at such address as such Mortgagee shall designate.
32. MISCELLANEOUS
PROVISIONS.
: The
provisions of this Lease shall be binding upon, and shall inure to
the benefit of, the parties hereto and each of their respective
successors and permitted assigns.
: This
Lease shall be construed and enforced in accordance with the Laws
of the jurisdiction in which the Building is located.
:
Nothing contained in this Lease shall be deemed to create a
partnership or joint venture between Landlord and Tenant, or to
create any other relationship between the parties other than that
of Landlord and Tenant.
D. Delegation by
Landlord»
:
Wherever Landlord has the authority to take any action under this
Lease, Landlord shall have the right to delegate such authority to
others, and Landlord shall be responsible for the authorized
actions of such agents, employees and others, to the same extent as
if Landlord had taken such action itself.
E. Tenant Responsibility for
Agents»
: In
any case where Tenant is responsible for performing or refraining
from an act or for preventing an action or result from occurring,
Tenant shall also be responsible for any actions taken or omitted
by Tenant's agents, employees, business invitees, licensees,
contractors, subtenants, family members, guests and any other
individuals or entities present in the Building or on the Land at
Tenant's invitation.
F. Invalidity of Particular
Provisions»
: If
any provision of this Lease or the application thereof to any
person, entity or circumstance shall, to any extent, be held
invalid or unenforceable, the remaining provisions and the
application of such invalid or unenforceable provisions to persons,
entities and circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby. Each
provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
: This
Lease may be executed in several counterparts, all of which shall
constitute one and the same document.
: This
Lease, and any exhibits and addenda attached hereto, embody the
entire agreement of the parties hereto, and no representations,
inducements or agreements, oral or otherwise, between the parties
not contained in this Lease or in the exhibits or addenda shall be
of any force or effect. No rights, privileges, easements or
licenses are granted to Tenant hereby, except as expressly set
forth herein.
: This
Lease may not be modified in whole or in part in any manner other
than by an agreement in writing.
J. Mortgagee's
Performance»
:
Tenant shall accept performance of any of Landlord's obligations
hereunder by any Mortgagee.
K. Limitation on
Interest»
: In
any case where this Lease provides for a rate of interest that is
higher than the maximum rate permitted by law, the rate specified
herein shall be deemed to equal, and the party designated as
recipient of such interest shall be entitled to receive, the
maximum rate of interest permitted by law.
: All
rights and remedies of Landlord shall be cumulative and shall not
be exclusive of any other rights or remedies of Landlord hereunder
or now or hereafter existing at law or in equity.
M. Annual Financial
Statements»
:
Within ten (10) days after written request from Landlord and not
more than once in any twelve (12) month period during the Term
(except in the event of any Default hereunder, or a proposed or
actual sale or financing of the Building, the Land or both) Tenant
shall submit to Landlord an audited financial statement covering
the preceding calendar year, which has been prepared in accordance
with generally accepted accounting principles by an independent
certified public accountant. Notwithstanding the foregoing, if
Tenant is an entity that is domiciled in the United States of
America, and whose securities are funded through a public
securities exchange subject to regulation by the United States of
America publicly traded over exchanges based in the United States
and whose financial statements are readily available at no cost to
Landlord, the terms of this Section 32.M. shall not
apply.
N. Construction of
Lease»
: There shall be no presumption that
this Lease be construed more strictly against the party who itself
or through its agent prepared it. Landlord and Tenant hereby agree
that all parties hereto have participated in the preparation of
this Lease and that each party had the opportunity to consult legal
counsel before the execution of this Lease.
: Time is of the essence with respect
to each of Tenant’s obligations hereunder.
P. Effect of Deletion of
Language»
: The deletion of any printed, typed or
other portion of this Lease shall not evidence the parties'
intention to contradict such deleted portion. Such deleted portion
shall be deemed not to have been inserted in this
Lease.
: Tenant and the person executing and
delivering this Lease on Tenant's behalf each represents and
warrants that such person is duly authorized to so act; that Tenant
is duly organized, is qualified to do business in the jurisdiction
in which the Building is located, is in good standing under the
Laws of the state of its organization and the Laws of the
jurisdiction in which the Building is located, and has the power
and authority to enter into this Lease; and that all action
required to authorize Tenant and such person to enter into this
Lease has been duly taken.
: The parties intend that all payments
made to Landlord under this Lease will qualify as rents from real
property for purposes of Sections 512(b)(3) and 856(d) of the
Internal Revenue Code of 1986, as amended (“Qualified
Rents”). If Landlord, in its sole discretion, advises Tenant
that there is any risk that all or part of any payments made under
this Lease will not qualify as Qualified Rents, Tenant agrees (i)
to cooperate with landlord to restructure this Lease in such manner
as may be necessary to enable such payments to be treated as
Qualified Rents, and (ii) to permit an assignment of this Lease, in
each case provided such restructuring or assignment will not have a
material economic impact on Tenant.
S. Prohibited Persons and
Transactions
:
Tenant represents and warrants that neither Tenant, nor any of its
affiliates, partners, members, shareholders or other equity owners,
and none of their respective employees, officers, directors,
representatives or agents is, nor will they become, a person or
entity with whom U.S. persons or entities are restricted from doing
business under regulations of the Office of Foreign Assets Control
(“OFAC”) of the Department
of the Treasury (including those named on OFAC’s Specially
Designated Nationals and Blocked Persons List) or under any
statute, executive order (including the September 24, 2001,
Executive Order Blocking Property and Prohibiting Transactions with
Persons Who Commit, Threaten to Commit, or Support Terrorism), or
other governmental action and is not and will not assign or
otherwise transfer this Lease to, contract with or otherwise engage
in any dealings or transactions or be otherwise associated with
such persons or entities. Landlord represents and warrants that
there exists no direct foreign ownership of the entity comprising
Landlord as of the date of this Lease. Landlord represents that it
will not lease space in, or sell the Property or any interest
therein, to a person or entity with whom Landlord is restricted
from doing business with under OFAC (including, but not limited to,
those named on OFAC's Specially Designated and Blocked Persons
list).
: The parties acknowledges that the
terms and conditions of this Lease are to remain confidential for
the benefit of both Landlord and Tenant, and may not be disclosed
to anyone, by any manner or means, directly or indirectly, without
the other party’s prior written consent; however, either
party may disclose the terms and conditions of this Lease to its
partners, attorneys, accountants, employees and existing or
prospective lenders, financial partners, purchasers, or if required
by Law or court order, provided all parties to whom such party is
permitted hereunder to disclose such terms and conditions are
advised by such party of the confidential nature of such terms and
conditions and agree to maintain the confidentiality thereof (in
each case, prior to disclosure).
If the
Mortgagee fails to give its consent to this Lease, Landlord shall
have the right, at its sole option, to terminate and cancel this
Lease. Such option shall be exercisable by Landlord by written
notice to Tenant of such termination, whereupon this Lease shall be
deemed cancelled and terminated, and both Landlord and Tenant shall
be relieved of any and all liabilities and obligations
hereunder.
A. Use of Parking.
(1) During the Term,
Tenant shall have the right to use (on a non-exclusive first-come,
first-served basis) the Parking Spaces (as defined in Section 1.Q
hereof) for the unreserved parking of passenger automobiles in the
parking areas designated from time to time by Landlord for the use
of tenants of the Building (the "Parking Lot"). Landlord reserves
the right to institute either a valet parking system or a
self-parking system. Tenant and its employees shall observe
reasonable precautions in the use of the Parking Lot and shall at
all times abide by all rules and regulations governing the use of
the Parking Lot promulgated by Landlord or the operator of the
Parking Lot (the “Parking Lot Operator”). The Parking
Lot will remain open on Monday through Friday (excluding Holidays)
and during the Building Hours. Landlord reserves the right to close
the Parking Lot during periods of unusually inclement weather or
for repairs. At all times when the Parking Lot is closed, monthly
permit holders shall be afforded access to the Parking Lot by means
of a magnetic card or other procedure provided by Landlord or the
Parking Lot Operator. Tenant shall not use parking areas for repair
of vehicles or for the overnight storage of vehicles. It is
understood and agreed that Landlord assumes no responsibility, and
shall not be held liable, for any damage or loss to any automobiles
parked in the parking facilities or to any personal property
located therein or for any injury sustained by any person in or
about the parking facilities. In the event that Tenant uses less
than the number of spaces provided for in this Lease at any time,
Tenant’s right to use such spaces shall thereafter be
decreased to the number of spaces Tenant is actually using. At
Landlord’s election, Tenant shall access such Parking Lot by
means of an electronic access gate currently operated by electronic
access cards, and Tenant shall deposit with Landlord Twenty Dollars
($20.00) for each access card requested by Tenant; provided,
however, that Tenant shall receive a number of such access cards in
the same number of Parking Spaces then provided to Tenant under
this Lease without charge at such time as Landlord implements such
system, and thereafter Landlord shall charge Tenant the prevailing
rates for any additional or replacement access cards. Landlord
reserves the right to modify in any way Landlord deems appropriate
the manner in which the Parking Lot is accessed during the
Term.
(2) Landlord’s
granting of parking rights hereunder does not create a bailment
between the parties, it being expressly agreed that the only
relationship created between Landlord and Tenant hereby is that of
right grantor and right grantee. All motor vehicles (including all
contents thereof) shall be in the Parking Lot at the sole risk of
their owners and Tenant, and Landlord is not responsible for the
protection and security of such vehicles. Neither Landlord nor any
agent, employee or contractor of Landlord shall have any liability
for any property damage or personal injury arising out of or in
connection with said motor vehicles, and Tenant shall indemnify and
hold Landlord and any agent, employee or contractor of Landlord
harmless from and against all demands, claims, damages, costs,
expenses, liabilities, or causes of action arising out of or
connected with use of the Parking Lot by Tenant or by any of
Tenant's employees, agents, invitees, guests, assignees,
subtenants, contractors or visitors (collectively, "Tenant's
Invitees"), or any acts or omissions arising out of or in
connection with said motor vehicles.
(3) In its use of the
Parking Lot, Tenant will follow all terms of all applicable Rules
and Regulations enacted by Landlord with respect to the Building
and/or the Parking Lot, shall observe reasonable safety precautions
in the use of the Parking Lot, and will cause Tenant’s
Invitees to do the same. Any violation of said applicable Rules and
Regulations or failure by Tenant to pay parking fees will
constitute a Default hereunder. Upon any such Default, in addition
to Landlord’s other rights and remedies, Landlord may
terminate Tenant’s rights to lease parking spaces in the
Parking Lot in accordance with the terms of Section 34.A.(1).
above.
(4) If: (i) all or a
portion of the Parking Lot is damaged by fire or other casualty or
taken by power of eminent domain or purchased in lieu thereof by
any governmental authority, (ii) the insurance proceeds payable as
a result of a casualty to the Parking Lot are applied to a
Mortgage, or (iii) there is any material uninsured loss to the
Parking Lot, Landlord may terminate Tenant’s right to lease
spaces in the Parking Lot in accordance with the terms of
subsection (1) above. If Landlord does not so elect to terminate
such rights of Tenant pursuant to the foregoing provisions of this
Section 34.A.(4), then: (1) Landlord will either (a) proceed to
restore the Parking Lot (and Landlord shall have no obligation to
provide any alternative parking while such restoration is being
performed), or (b) not restore the Parking Lot, but provide Tenant,
at Tenant’s sole cost and expense, with alternate parking
throughout the remainder of the Term (if such alternative parking
is reasonably available under the circumstances).
B. Rates: The Parking Spaces shall be
provided to Tenant free of charge during the initial Term of the
Lease.
C. No Transfers: Tenant shall not assign,
sublet or transfer any Parking Spaces without Landlord’s
prior written consent. Any attempted assignment, sublet, or
transfer shall be void.
A. Amount and Uses: Landlord acknowledges
receipt from Tenant of the Security Deposit, to be held by Landlord
as security for the payment of all Rent payable by Tenant and for
the faithful performance by Tenant of all other obligations of
Tenant under this Lease. Said Security Deposit shall be repaid to
Tenant after the termination of this Lease (or any renewal
thereof), provided Tenant shall have made all such payments and
performed all such obligations hereunder. Landlord shall not be
required to maintain the Security Deposit in a separate account.
The Security Deposit shall not be mortgaged, assigned, transferred
or encumbered by Tenant without the prior written consent of
Landlord, and any such act shall be void. Landlord may, at
Landlord's option, appropriate and apply the entire Security
Deposit, or so much thereof as Landlord believes may be necessary,
to compensate Landlord for the payment of any past-due Rent and for
loss or damage sustained by Landlord due to any Default. In the
event Landlord appropriates or applies the Security Deposit in such
a manner, Tenant, within five (5) days after notice thereof, shall
pay to Landlord an amount sufficient to restore the Security
Deposit to the original sum deposited. Tenant's failure to restore
any such deficiency shall constitute a Default hereunder. In the
event of bankruptcy or other debtor-creditor proceedings by or
against Tenant, the Security Deposit shall be applied first to the
payment of Rent due Landlord for all periods prior to the filing of
such proceedings.
B. Transferability: In the event of a sale
or transfer of Landlord's interest in the Building or of the
interest of any successor or assign of Landlord, Landlord (or such
successor or assign) shall have the right to transfer the Security
Deposit to any vendee or transferee and shall thereupon be released
automatically from any liability therefor. Tenant shall look solely
to the transferee for the return of the Security Deposit. No
Mortgagee or purchaser of any or all of the Building at any
foreclosure proceeding shall (regardless of whether the Lease is at
the time subordinated to the lien of said Mortgage) be liable to
Tenant or any other person for any of the Security Deposit, or any
other payment made by Tenant hereunder, unless Landlord has
actually delivered said deposit or other such sum to such Mortgagee
or purchaser. In the event of any rightful and permitted assignment
of Tenant's interest in this Lease, the Security Deposit shall be
deemed to be held by Landlord as a deposit made by the assignee,
and Landlord shall have no liability to the assignor with respect
to the return of the Security Deposit.
A. Definition. As used in this Lease, the
term "Hazardous Material" means any flammable items, explosives,
radioactive materials, hazardous or toxic substances, material or
waste or related materials, including any substances defined as or
included in the definition of "hazardous substances", "hazardous
wastes", "infectious wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any state, local or
federal Laws, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act and the
Resource Conservation and Recovery Act (“Environmental
Rules”). Such substances, materials and wastes may include,
without limitation, oil, synthetic or natural gases,
petroleum-based products, paints, solvents, lead, cyanide, DDT,
printing inks, acids, pesticides, ammonia compounds and other
chemical products, asbestos, PCBs and similar compounds, and
including any different products and materials which are
subsequently found to have adverse effects on the environment or
the health and safety of persons or animals under any Environmental
Rules. As defined in Environmental Rules, Tenant is and shall be
deemed to be the “operator” of Tenant’s
“facility” and the “owner” of all Hazardous
Materials brought on the Premises by Tenant or any of its agents,
employees, licensees, guests or invitees, and the wastes,
by-products, or residues generated, resulting, or produced
therefrom.
B. General Prohibition. Tenant shall not
cause or permit any Hazardous Material to be generated, produced,
brought upon, used, stored, treated, discharged, released, spilled
or disposed of on, in under or about the Premises, the Building, or
the Land (hereinafter referred to collectively as the "Property")
by Tenant or Tenant's Invitees upon full execution of this Lease,
throughout the Term and following the expiration or earlier
termination of this Lease. Tenant shall indemnify, defend and hold
Landlord, Landlord's managing agent and all Mortgagees harmless
from and against any and all actions (including, without
limitation, remedial or enforcement actions of any kind,
administrative or judicial proceedings, and orders or judgments
arising out of or resulting therefrom), costs, claims, actual and
consequential damages (including without limitation, attorneys',
consultants', and experts' fees, court costs and amount paid in
settlement of any claims or actions), fines, forfeitures or other
civil, administrative or criminal penalties, injunctive or other
relief (whether or not based upon personal injury, property damage,
or contamination of, or adverse effects upon, the environment,
water tables or natural resources), liabilities or losses arising
from a breach of this prohibition by Tenant or Tenant's
Invitees.
C. Permitted Use. Landlord acknowledges
that it is not the intent of this Article 36 to prohibit Tenant
from using the Premises for the Permitted Use. Tenant may operate
its business according to prudent industry practices so long as the
use or presence of Hazardous Materials complies with, and is
properly monitored according to, all then applicable Environmental
Rules. As a material inducement to Landlord to allow Tenant to use
Hazardous Materials in connection with its business, Tenant agrees
to deliver to Landlord prior to the Lease Commencement Date a list
identifying each type of Hazardous Materials to be brought upon,
kept, used, stored, handled, treated, generated on, or released or
disposed of from, the Premises and setting forth any and all
governmental approvals or permits required in connection with the
presence, use, storage, handling, treatment, generation, release or
disposal of such Hazardous Materials on or from the Premises
(“Hazardous Materials List”). Tenant shall deliver to
Landlord an updated Hazardous Materials List at least once a year
and shall also deliver an updated list before any new Hazardous
Material is brought onto, treated, generated on, or released from,
the Premises. Tenant is not required, however, to provide Landlord
with any information on the Hazardous Materials List of a
proprietary nature which, in and of themselves, do not contain a
reference to any Hazardous Materials or hazardous activities. It is
not the intent of this Section 36 to provide Landlord with
information which could be detrimental to Tenant’s business
should such information become possessed by Tenant’s
competitors.
D. Tenant’s Representation and
Warranty. Tenant hereby represents and warrants to Landlord
that (i) neither Tenant nor any of its legal predecessors has been
required by any prior landlord, lender or any governmental
authority at any time to take remedial action in connection with
Hazardous Materials contaminating a property which contamination
was permitted by Tenant or such predecessor or resulted from
Tenant’s or such predecessor’s action or use of the
property in question, and (ii) Tenant is not subject to any
enforcement order issued by any governmental authority in
connection with the use, storage, treatment, generation, release or
disposal of Hazardous Materials (including, without limitation, any
order related to the failure to make a required report to any
governmental authority). If Landlord determines that this
representation and warranty was false as of the date of this Lease,
Tenant shall be deemed to be in Default hereunder and Landlord
shall have the right to terminate this Lease in Landlord’s
sole and absolute discretion and to pursue all applicable remedies
for such Default set forth in Article 19 hereof.
E. Tests. Landlord shall have the right to
conduct annual tests, or more frequently if Landlord reasonably
deems it necessary, of the Premises to determine whether any
contamination of the Premises or the Project has occurred as a
result of Tenant’s use. If such testing determines a
contamination of the Premises or the Project has occurred as a
result of Tenant’s use, Tenant shall be required to pay the
cost of each such test of the Premises. If Tenant conducts its own
tests of the Premises using third party contractors and test
procedures acceptable to Landlord which tests are certified to
Landlord, Landlord shall accept such tests in lieu of the tests to
be paid for by Tenant. In connection with such testing, upon the
request of Landlord, Tenant shall deliver to Landlord or its
consultant such non-proprietary information concerning the use of
Hazardous Materials in or about the Premises by Tenant or any of
its agents. Landlord shall provide Tenant, upon Tenant’s
written request, with a copy of all third party, non-confidential
reports and tests of the Premises concerning environmental
contamination made by or on behalf of Landlord during the Term
without representation or warranty and subject to a confidentiality
agreement. Tenant shall, at its sole cost and expense, promptly and
satisfactorily remediate any environmental conditions identified by
such testing in accordance with all Environmental Rules.
Landlord’s receipt of or satisfaction with any environmental
assessment in no way waives any rights which Landlord may have
against Tenant.
F. Waste Disposal. Tenant recognizes that
the Building does not contain a lab waste system. Tenant also
acknowledges that any violation by Tenant of the Washington
Suburban Sanitary Commission (“WSSC”) rules and
regulations governing illegal discharges would cause substantial
harm to the Building and the Property, and that such violation
would be unlawful and constitute a Default under this Lease.
Therefore, Tenant shall be solely responsible for any improper
discharge or disposal by Tenant or its agents, contractors,
employees, guests or invitees during Tenant’s occupancy of
the Premises or any of the aforementioned parties’ access of
the Premises. Tenant shall, at its sole cost and expense, test such
waste prior to discharging or disposing the same and cause such
waste to be disposed or discharged in accordance with WSSC
regulations and any other applicable Laws.
G. Notice. In the event that Hazardous
Materials are discovered upon, in, or under the Property, and any
governmental agency or entity having jurisdiction over the Property
requires the removal of such Hazardous Materials, Tenant shall be
responsible for removing those Hazardous Materials arising out of
or related to the use or occupancy of the Property by Tenant or
Tenant's Invitees but not those of its predecessors.
Notwithstanding the foregoing, Tenant shall not take any remedial
action in or about the Property or any portion thereof without
first notifying Landlord of Tenant's intention to do so and
affording Landlord the opportunity to protect Landlord's interest
with respect thereto. Tenant immediately shall notify Landlord in
writing of: (i) any spill, release, discharge or disposal of
any Hazardous Material in, on or under the Property or any portion
thereof; (ii) any enforcement, cleanup, removal or other
governmental or regulatory action instituted, contemplated, or
threatened (if Tenant has notice thereof) pursuant to any laws
respecting Hazardous Materials; (iii) any claim made or
threatened by any person against Tenant or the Property or any
portion thereof relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from or claimed to result
from any Hazardous Materials; and (iv) any reports made to any
governmental agency or entity arising out of or in connection with
any Hazardous Materials in, on under or about or removed from the
Property or any portion thereof, including any complaints, notices,
warnings, reports or asserted violations in connection therewith.
Tenant also shall supply to Landlord as promptly as possible, and
in any event within five (5) business days after Tenant first
receives or sends the same, copies of all claims, reports,
complaints, notices, warnings or asserted violations relating in
any way to the Premises, the Property or Tenant's use or occupancy
thereof.
H. Survival. The respective rights and
obligations of Landlord and Tenant under this Section 36 shall
survive the expiration or earlier termination of this Lease. During
any period of time after the expiration or earlier termination of
this Lease required by Tenant or Landlord to complete the removal
from the Premises or the Building of any Hazardous Materials
(including, without limitation, the release and termination of any
licenses or permits restricting the use of the Premises), Tenant
shall continue to pay the full Base Rent and Additional Rent in
accordance with this Lease for any portion of the Premises not
relet by Landlord in Landlord’s sole and absolute discretion,
which Rent shall be prorated on a daily basis.
37. [INTENTIONALLY
OMITTED.]
Tenant
shall not record or attempt to record this Lease or any memorandum
hereof in any public records without the prior written approval of
Landlord, which may be denied in Landlord's sole and absolute
discretion. In the event that Landlord grants its approval to
record this Lease or a memorandum hereof, Tenant shall pay all
recordation fees, taxes and charges in connection with such
recordation.
A. General Signage Rights: Landlord will,
at Landlord’s cost, list Tenant's name in the Building
directory, if any, and provide Building standard signage on one
suite entry door of the Premises. Except as otherwise provided
herein, no other sign, advertisement or notice shall be inscribed,
painted, affixed or otherwise displayed on any part of the exterior
or interior of the Building (including windows and doors) without
the prior written approval of Landlord, which may be granted or
withheld in Landlord's sole and absolute discretion. If any such
item that has not been approved by Landlord is so displayed, then
Landlord shall have the right to remove such item at Tenant's
expense or to require Tenant to do the same. Landlord reserves the
right to install and display signs, advertisements and notices on
any part of the exterior or interior of the Building.
VB Building Exterior Signage: So long as
Tenant is leasing the entire Premises is not in default of this
Lease, Tenant shall have the non-exclusive right to install its
signage on the exterior of the Building in the location designated
as Option 2 on Exhibit F attached hereto and made a part hereof
(“Tenant’s Exterior Signage”), such specific
location to be agreed upon by Landlord and Tenant, but only if such
installation is permitted by applicable Laws. Tenant’s
Exterior Signage shall not be installed unless (A) prior to the
installation of any such Tenant’s Exterior Signage, Tenant
shall submit to Landlord a written request for Landlord’s
approval thereof, accompanied by plans depicting Tenant’s
Exterior Signage, (B) Tenant’s Exterior Signage shall be of a
type, style, size, color, design and method of fabrication approved
by Landlord, (C) the exact location of Tenant’s Exterior
Signage shall be approved by Landlord in its sole discretion, and
(D) Tenant’s Exterior Signage shall comply with all
applicable Laws and zoning and site plan requirements, including,
but not limited to, Laws promulgated by Montgomery County,
Maryland.
A. Surrender Plan. Upon the expiration of
the Term or earlier termination of Tenant’s occupancy, Tenant
shall surrender the Premises to Landlord in the same condition as
the Premises were in on the Lease Commencement Date, subject to any
Alterations or Installations permitted or required by Landlord to
remain in the Premises, free of Hazardous Materials brought upon,
kept, used, stored, handled, treated, generated in, or released or
disposed of from, the Premises and released of all Hazardous
Materials Clearances, broom clean, ordinary wear and tear and
casualty loss and condemnation covered in Sections 16 and 18 hereof
excepted. At least ninety (90) days prior to the expiration of the
Term or anticipated earlier termination or vacancy of the Premises
by Tenant, Tenant shall deliver to Landlord a narrative description
of the actions proposed (or required by any governmental authority)
that Tenant plans to perform to surrender the Premises (including
any Installations permitted by Landlord to remain in the Premises)
at the expiration or earlier termination of this Lease or vacancy
of the Premises, free from any residual impact from Hazardous
Materials (the “Surrender Plan”). Such Surrender Plan
shall be accompanied by a current listing of (i) all Hazardous
Materials licenses and permits held by or on behalf of Tenant or
its agents with respect to the Premises and (ii) all Hazardous
Materials used, stored, handled, treated, generated, released or
disposed of from the Premises, and shall be subject to the review
and approval of Landlord or Landlord’s environmental
consultant. In connection with the review and approval of the
Surrender Plan, upon the request of Landlord, Tenant shall deliver
to Landlord or its consultant such additional non-proprietary
information concerning Tenant’s use of Hazardous Materials as
Landlord shall request. On or before the date of such surrender,
Tenant shall deliver to Landlord evidence that the approved
Surrender Plan shall have been satisfactorily completed and
Landlord shall have the right, subject to reimbursement at
Tenant’s expense as set forth below, to cause
Landlord’s environmental consultant to inspect the Premises
and perform such additional procedures as may be deemed reasonably
necessary to confirm that the Premises are, as of the effective
date of such surrender or early termination of this Lease, free
from any residual impact from Tenant’s use of Hazardous
Materials. Tenant shall reimburse Landlord, as Additional Rent, for
the actual out-of-pocket expense incurred by Landlord for
Landlord’s environmental consultant to review and approve the
Surrender Plan and to visit the Premises and verify satisfactory
completion of all actions described therein. Landlord shall have
the unrestricted right to deliver such Surrender Plan and any
report by Landlord’s environmental consultant with respect to
the surrender of the Premises to third parties.
B. Landlord’s Right to Act. If
Tenant shall fail to prepare or submit a Surrender Plan approved by
Landlord, or if Tenant shall fail to complete the approved
Surrender Plan, or if such Surrender Plan, whether or not approved
by Landlord, shall fail to adequately address any residual effect
of Tenant’s use of Hazardous Materials in the Premises or the
Property, Landlord shall have the right to take such actions as
Landlord may deem reasonable or appropriate to assure that the
Premises and the Project are surrendered free from any residual
impact from Hazardous Materials, the cost of which actions shall be
reimbursed by Tenant as Additional Rent, without regard to the
limitation set forth in the first paragraph of this Section
40.
C. Other Terms Applicable to
Surrender. Tenant shall immediately return
to Landlord all keys and/or access cards to the parking area, the
Building, restrooms and all or any portion of the Premises
furnished to or otherwise procured by Tenant. If any such access
card or key is lost, Tenant shall pay to Landlord, at
Landlord’s election, within fifteen (15) days after
Landlord’s demand therefor, either the cost of replacing such
lost access card or key or the cost of reprogramming the access
security system in which such access card was used or changing the
lock or locks opened by such lost key. All obligations of Tenant
hereunder not fully performed as of the expiration of the Term or
earlier termination of this Lease shall survive the expiration of
the Term or earlier termination of this Lease, including, without
limitation, Tenant’s indemnity obligations, payment
obligations with respect to Rent and obligations concerning the
condition and repair of the Premises.
A. Option to Extend: Provided that
Cellular Biomedicine Group, Inc., a Delaware corporation
(“CBG”) is not then in default (or if a default then
exists, it is cured within the applicable notice and cure period),
and has not been in Default more than once during the immediately
preceding two (2) year period, in each case both at the time of
exercise of the Renewal Option (as hereinafter defined), and at the
commencement of the Renewal Period (as hereinafter defined), and is
then in occupancy of the Premises at the time of exercise of the
Renewal Option, and at the time of the commencement of the Renewal
Period, CBG shall have one (1) option (the “Renewal
Option”) to extend the Term of this Lease for one (1)
additional five (5) year period (the “Renewal Period”)
after the expiration of the initial Term. The Renewal Option shall
be exercisable only by written notice given by CBG to Landlord not
later than nine (9) months, nor earlier than fifteen (15) months,
prior to the expiration of the initial Term. In the event that CBG
does not timely exercise said Renewal Option, said Renewal Option
shall be null and void and of no further force or effect, time
being of the essence in the exercise of said Renewal Option and it
being acknowledged and agreed by CBG that Landlord shall be
entitled to rely on any failure by CBG to give written notice of
its exercise of its Renewal Option by the date set forth herein for
such exercise thereof.
B. Renewal Option Terms. All terms and
conditions of this Lease shall be applicable during the Renewal
Period, except that (i) there shall be no further option to renew
the Term of this Lease pursuant to this Article 40, (ii) Landlord
shall not be required to furnish any materials or perform any work
to prepare the Premises for Tenant’s occupancy, and Landlord
shall not be required to make any tenant allowance or reimburse
Tenant for any Alterations made or to be made by Tenant, or grant
to Tenant any rent concession, except to the extent established
pursuant to the determination of Prevailing Market Rent (as
hereinafter defined), and (iii) the amount Base Rent charged for
the Renewal Period shall be the then “Prevailing Market
Rent”, which shall be the rent for comparable office and
laboratory space being leased to renewal tenants in buildings which
are of a size, class and location comparable to those of the
Building in the North Rockville submarket of Montgomery County,
Maryland, taking into account such market concessions, if any, as
are then being offered to renewal tenants leasing office and
laboratory space of a comparable size to the Premises in buildings
which are of a size, class and location comparable to those of the
Building in the North Rockville submarket of Montgomery County,
Maryland; provided, however, that in no event shall the Prevailing
Market Rent determined as aforesaid be deemed to be less than the
Base Rent payable under this Lease during the Lease Year
immediately preceding the first Lease Year of the Renewal Period.
If within thirty (30) days following delivery of CBG’s
notice, Landlord and CBG have not mutually agreed on the Prevailing
Market Rent for the Renewal Period, then the parties shall use the
following method to determine the Prevailing: within ten (10)
business days after the expiration of such thirty-day period, each
party shall give written notice to the other setting forth the name
and address of a Broker (as hereinafter defined) selected by such
party who has agreed to act in such capacity, to determine the
Prevailing Market Rent. If either party has failed to select a
Broker as aforesaid, the Prevailing Market Rent shall be determined
by the Broker selected by the other party. Each Broker shall
thereupon independently make his determination of the Prevailing
Market Rent within twenty (20) days after the appointment of the
second Broker. If the two Brokers’ determinations are not the
same, but the higher of such two values is not more than one
hundred five percent (105%) of the lower of them, then the
Prevailing Market Rent shall be deemed to be the average of the two
values. If the higher of such two values is more than one hundred
five percent (105%) of the lower of them, then the two Brokers
shall jointly appoint a third Broker within ten (10) days after the
second of the two determinations described above has been rendered.
The third Broker shall independently make his determination of the
Prevailing Market Rent within twenty (20) days after his
appointment. The highest and the lowest determinations of value
among the three Brokers shall be disregarded and the remaining
determination shall be deemed to be the Prevailing Market
Rent.
C. Amendment. Within thirty (30) days
(subject to written extension by Landlord) after the determination
of the Prevailing Market Rent as set forth above, Landlord and CBG
shall execute an amendment to this Lease setting forth the terms as
to the Renewal Period. If CBG shall fail to execute said amendment
within such thirty (30) day period (as the same may be extended as
aforesaid), then Landlord shall have the right, at Landlord’s
option exercisable by written notice to CBG: (a) to cancel the
exercise by CBG of its option and to offer to lease and to lease
the Premises to others upon such terms and conditions as shall be
acceptable to Landlord, or (b) to not cancel the exercise by CBG of
its option, in which case CBG shall remain bound by the exercise
thereof and CBG shall be deemed to be in default of this
Lease.
D. Definition of Broker: For the purposes
of this Article 41, “Broker” shall mean a real estate
broker or salesperson licensed in the State of Maryland, who has
been regularly engaged in such capacity in the business of
commercial office and laboratory leasing in the North Rockville
submarket of Montgomery County, Maryland for at least ten (10)
years immediately preceding such person’s appointment
hereunder. Each party shall pay for the cost of its Broker and
one-half of the cost of the third Broker.
42. ROOF RIGHTS; RISER
SPACE.
DD. Roof-top
Equipment:
(1) Subject to the
satisfaction of all the conditions in this Section 42, Tenant shall
have the right to install and maintain on a proportionate share of
space designated for use by tenants of the Building by Landlord on
the roof of the Building (the "Rooftop Equipment Area"), without
charge for use of the Rooftop Equipment Area, at a location
determined by Landlord, (a) not more than one (1) satellite dish
antenna, the dimensions of which shall be subject to
Landlord’s reasonable approval, together with the cables
extending therefrom to the Premises and (b) such items of equipment
required for Tenant’s permitted use, including, but not
limited to, exhaust fans, a back-up generator, and supplemental
HVAC equipment, as Landlord approves pursuant to this Section 42
and Exhibit C attached hereto and subject to the limits of the
Rooftop Equipment Area (collectively, the "Equipment"). Landlord
shall use commercially reasonable efforts to accommodate
Tenant’s request to place Equipment on the roof of the
Building, provided, however, notwithstanding the inclusion of
examples of the type of equipment Tenant may desire to place on the
roof set forth in the preceding sentence, nothing herein shall
obligate Landlord to approve such equipment or to allow Tenant to
use space on the roof in excess of the Rooftop Equipment Area and
Tenant’s inability to place equipment on the roof of the
Building shall not create any liability on the part of Landlord
whatsoever, and this Lease shall not be rendered void or voidable,
as a result thereof. Tenant shall not be permitted to install any
additional equipment on the roof of the Building without
Landlord’s prior written consent, which shall not be
unreasonably withheld, subject to the other terms and conditions of
this Section. The location, size, weight, height and all other
features and specifications of the Equipment and the manner of the
installment of the same shall be subject to Landlord's prior
written approval, which approval may be granted or withheld in
Landlord's sole and absolute discretion. Notwithstanding the
foregoing, Tenant shall not be entitled to install any such
Equipment (i) if such installation or manner thereof would
adversely affect any warranty with respect to the roof of the
Building, (ii) if such installation or manner thereof would
adversely affect the structure or any of the building systems of
the Building, (iii) if such installation or manner thereof would
require any structural alteration to the Building, (iv) if such
installation would disturb the roof membrane or make any other
penetration on the roof or the exterior facade of the Building
other than through then-existing conduit or risers unless Landlord
in its sole and absolute discretion approves in writing such
structural alteration, (v) if such installation or manner thereof
would violate any covenant, condition, or restriction of record
affecting the Building or any applicable federal, state or local
law, rule or regulation, (vi) unless Tenant has obtained and
maintains at Tenant's expense, and has submitted to Landlord copies
of, all permits and approvals relating to such Equipment and such
installation and maintenance (including, without limitation, any
permit required if a crane is necessary to place such Equipment on
the roof) and timely pays all taxes and fees related thereto, (vii)
unless such Equipment is white or of a beige or lighter color (or
otherwise appropriately screened), (viii) unless such Equipment is
installed, at Tenant's sole cost and expense, by a qualified
contractor chosen by Tenant and approved in advance by Landlord,
which approval shall not be unreasonably withheld, conditioned or
delayed, (ix) if the installation or operation of the equipment
would interfere with or disrupt the use or operation of any other
equipment on the roof of the Building, (x) unless Tenant obtains
Landlord's prior consent, to the manner and time in which such
installation work is to be done, which consent shall not be
unreasonably withheld, conditioned or delayed as to the time of
such installation, (xi) unless sufficient room therefor exists on
the roof, as determined by Landlord in its reasonable discretion,
at the time of the proposed installation, (xii) unless screened
from view from the grounds adjacent to the Building in a manner and
with materials acceptable to Landlord in its reasonable discretion,
or (xiii) unless all required approvals and consents of all holders
of Mortgages encumbering the Building are obtained. Notwithstanding
the foregoing, Tenant shall not be entitled to change the location,
line of sight or method of operation of any items of the Equipment
if such change results in any interference with any other antenna
on the roof of the Building.
(2) Prior to
installation of the Equipment, Tenant shall deliver plans and
specifications concerning such installation to Landlord for
Landlord's prior written approval, which approval shall not be
unreasonably withheld, conditioned or delayed, and, following
Tenant’s initial installation of the Equipment, Tenant shall
reimburse Landlord's actual out of pocket expenses reasonably
incurred in such review. All installations, and the method of
making repairs and materials to be used in connection therewith,
required after the installation of the Equipment also shall be
subject to Landlord's prior written approval.
(3) Tenant shall not
have access to any such Equipment without Landlord's prior consent
(which may be requested and given verbally by the property manager
or the Building engineer in the event of an emergency), which
consent shall be granted to the extent necessary for Tenant to
perform its maintenance obligations hereunder and only if Tenant is
accompanied by Landlord's representative (if Landlord so requests).
Any such access by Tenant shall be subject to rules and regulations
relating thereto established from time to time by Landlord,
including, without limitation, rules and regulations prohibiting
such access unless Tenant is accompanied by Landlord's
representative. Landlord shall provide Tenant with such rules and
regulations prior to enforcement of such rules and regulations with
respect to Tenant.
(4) At all times during
the Term, Tenant shall (i) maintain the Equipment in clean, good
and safe condition and in a manner that avoids interference with or
disruption to Landlord and other tenants of the Building and (ii)
comply with all Laws and with the requirements of all public
authorities and insurance companies which shall impose any order or
duty upon Landlord with respect to or affecting the Equipment or
wiring out of Tenant's use or manner of use thereof. During the
Term of the Lease and any subsequent renewals thereof, Tenant shall
pay and discharge all costs and expenses incurred by Landlord in
connection with the furnishing, installation, maintenance,
operation and removal of the Equipment within thirty (30) days
after written demand. All repairs to the Building made necessary by
reason of the furnishing, installation, maintenance, operation or
removal of the Equipment or any replacements thereof (including,
without limitation, any invalidation of the roof warranty due to
the Equipment or Tenant's actions) shall be at Tenant's sole cost.
Such maintenance shall be performed by a qualified contractor
approved by Landlord, which approval shall not be unreasonably
withheld, conditioned or delayed.
(5) At the expiration
or earlier termination of the Term, at Landlord’s election,
Tenant shall surrender all or a portion of such Equipment to
Landlord together with the Premises, or Tenant shall remove any
such Equipment as Landlord shall designate from the Building and
surrender the Rooftop Equipment Area in good condition, ordinary
wear and tear and casualty excepted. Notwithstanding the foregoing,
Tenant, upon submitting its request for Landlord’s consent to
the installation of any such Equipment pursuant to Section 42.A.(2)
hereof, shall have the right to request therein that Landlord
specify whether and to what extent Landlord will require Tenant to
remove the Equipment in question at the end of the Term. If Tenant
submits its request for such information in accordance with the
foregoing provision and Landlord consents to the installation of
such Equipment requested, Landlord shall, together with its
consent, specify in writing whether and to what extent it will
require Tenant to remove the Equipment in question at the end of
the Term, and if Landlord fails so to specify, Tenant shall have no
further obligation to remove such Equipment which was the subject
of Tenant’s request.
(6) [Intentionally
Omitted].
(7) It is expressly
understood that by granting Tenant the right hereunder, Landlord
makes no representation as to the legality of the Equipment or its
installation. In the event that any federal, state, county,
regulatory or other authority requires the removal or relocation of
any items of the Equipment, Tenant shall remove or relocate such
items at Tenant's sole cost and expense, and Landlord shall under
no circumstances be liable to Tenant therefor.
(8) The Equipment may
be used by Tenant only in the conduct of Tenant's customary
business at the Premises. No assignee or subtenant shall have any
rights pursuant to this Section 42, except that Tenant shall have
the right to permit the use of such Equipment by its subtenants and
assignees permitted pursuant to Section 23 of this Lease in
accordance with the terms and provisions of this Section
42.A.
(9) Tenant shall
maintain such insurance as is appropriate with respect to the
installation, operation and maintenance of the Equipment. Landlord
shall have no liability on account of any damage to or interference
with the operation of the Equipment and Landlord expressly makes no
representations or warranties with respect to the capacity for any
items of the Equipment placed on the roof of the Building to
receive or transmit signals. The operation of the Equipment shall
be at Tenant's sole and absolute risk.
B. Risers. Tenant and its
contractor shall be permitted non-exclusive access equal to space
in the Building risers and telecommunications closets, except such
risers or closets being utilized exclusively by Landlord or other
users or occupants of the Building (collectively, the
“Risers”), at no additional charge therefor, for the
sole purpose of installing, inspecting, maintaining, repairing and
replacing telecommunications cabling therein; provided, however,
that Tenant’s contractor is subject to Landlord’s prior
written approval. In furtherance of the foregoing, Landlord and
Tenant agree as follows:
(1) Tenant shall submit
to Landlord for Landlord’s review and prior written approval
reasonably detailed plans and specifications showing the locations
within the Risers where such cabling and equipment will be
installed.
(2) Tenant shall
appropriately mark and/or tag all such cabling and equipment as are
required by Landlord to identify the owner and user thereof. If any
such cabling and equipment are installed without Landlord’s
prior written approval or without such appropriate identification,
and Tenant fails to remove same within thirty (30) days after
written notice from Landlord to do so, then Landlord shall have the
right to remove and correct such improvements and restore the
Risers to their condition immediately prior thereto, and Tenant
shall be liable for all expenses incurred by Landlord in connection
therewith.
(3) Tenant shall not be
entitled to use or occupy a disproportionate amount of the
available space in the Risers, based upon the proportion of the
rentable area then comprising the Premises to the aggregate
rentable office area in the Building. Landlord makes no
representation or warranty that the Risers will be adequate to
satisfy Tenant’s needs.
(4) Tenant and its
contractor(s) shall coordinate any access to the Risers with
Landlord’s property manager for the Building.
(5) If Tenant requests
Landlord or its employees to provide after hours or non-standard
services, Tenant shall pay to Landlord, as Additional Rent, all
actual, out-of-pocket costs and expenses incurred by Landlord in
connection therewith (at Tenant’s request, Landlord shall
notify Tenant whether any particular service is non-standard prior
to the commencement of such work by Landlord).
(6) Tenant and its
contractor(s) shall conduct their work in a manner that minimizes
disruption and inconvenience to other tenants and occupants of the
Building.
(7) During the
installation, maintenance, repair, replacement, and removal of such
cabling and equipment, Tenant shall keep all public areas of the
Building where such work is being performed neat and clean at all
times and Tenant shall remove or cause all debris to be removed
from the Building at the end of each workday.
(8) Tenant shall
promptly repair, at its sole cost and expense, any damage done to
the Building or to the premises of any other tenant in the Building
or to any electrical, mechanical, HVAC, sprinkler, life safety and
other operating system serving the Building or other Common Areas
that are caused by or arise out of any work performed by Tenant or
its contractor pursuant to this Section 42.
(9) Any contractor
performing such work shall be subject to the prior written approval
of Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed (it being agreed that it shall be reasonable
for Landlord to withhold or deny its approval if such contractor is
not properly licensed or insured, is subject to any bankruptcy
proceeding, or is not a telecommunications provider which provides
services to office buildings in Rockville, Maryland on a general
basis).
(10) In performing such
work, Tenant and its contractor shall observe Landlord’s
rules and regulations regarding the construction, installation, and
removal of Tenant improvements in the Building, which rules and
regulations, together with any modifications thereto, shall be
provided to Tenant, in writing, prior to enforcement.
(11) Tenant shall be
solely responsible at its sole cost and expense to correct and to
repair any work or materials installed by Tenant or Tenant’s
contractor. Landlord shall have no liability to Tenant whatsoever
on account of any work performed or material provided by Tenant or
its contractor.
(12) Tenant shall not be
required to remove any cabling and equipment installed by or on
behalf of Tenant in the Risers in compliance with this Section
42.B. (whether on or after the date hereof) from the Building upon
the expiration or earlier termination of this Lease.
(13) Landlord’s
representative shall have the right to inspect any work performed
by Tenant or its contractor at any time.
(14) All work done and
materials furnished by Tenant and/or its contractor shall be of
good quality and shall be performed in a good and workmanlike
manner and in accordance and compliance with all applicable Laws
and the other applicable provisions of this Lease.
(15) Any casualty or
other damage to all or any portion of the Risers shall not affect
Tenant’s obligations, duties, or responsibilities under this
Lease.
C. Indemnification. Tenant agrees
that, in addition to any indemnification provided to Landlord in
this Lease, Tenant shall indemnify and hold Landlord,
Landlord’s mortgagees, Landlord’s managing agent, and
their employees, shareholders, partners, officers and directors,
harmless from and against all costs, damages, claims, liabilities
and expenses (including, but not limited to, reasonable
attorneys’ fees and any costs of litigation) suffered by or
claimed against Landlord, directly or indirectly, based on, arising
out of or resulting from Tenant’s use of the Equipment or the
Risers or the cabling and telecommunications equipment located
therein (said use shall include, without limitation, any
installation or removal of the cabling and telecommunications
equipment), except to the extent caused by Landlord's gross
negligence or willful misconduct. In addition, Tenant shall be
liable to Landlord for any actual damages suffered by Landlord or
any other tenant or occupant of the Building for any cessation or
shortages of electrical power or any other systems failure arising
from Tenant’s use of the Equipment or the Risers or the
cabling and telecommunications equipment located
therein.
[Signatures
appear on the following page.]
IN
WITNESS WHEREOF, Landlord and Tenant have executed this Lease under
seal as of the day and year first above written.
WITNESS:
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LANDLORD:
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IPX
MEDICAL CENTER DRIVE INVESTORS, LLC, a Delaware limited liability
company
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By:
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By:
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Name:
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Name:
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Its:
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ATTEST:
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TENANT:
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[Corporate
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CELLULAR
BIOMEDICINE GROUP, INC., a Delaware corporation
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By:
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EXHIBIT A
PREMISES PLAN SHOWING LOCATION ON FIRST FLOOR
EXHIBIT B
DECLARATION BY LANDLORD AND TENANT
AS TO
DATE OF DELIVERY AND ACCEPTANCE OF
POSSESSION,
LEASE COMMENCEMENT DATE, ETC.
THIS
DECLARATION made this ______ day of ________________, 20__ is
hereby attached to and made a part of the Lease dated the _____ day
of _______________ ,
20___ (the “Lease”), entered into by and between IPX
MEDICAL CENTER DRIVE INVESTORS, LLC, a Delaware limited liability
company, as Landlord, and CELLULAR BIOMEDICINE GROUP, INC., a
Delaware corporation, as Tenant. All terms used in this Declaration
have the same meaning as they have in the Lease.
(i) Landlord and Tenant
do hereby declare that Tenant accepted possession of the Premises
on the ____
day of _____________________ ,
20__;
(ii) As
of the date hereof, the Lease is in full force and effect, and
Landlord has fulfilled all of its obligations under the Lease
required to be fulfilled by Landlord on or prior to said
date;
(iii) The
Lease Commencement Date is hereby established to be
_____________________, 20__;
(iv) The
Rent Commencement Date is hereby established to be _____________;
and
(v) The Lease
Expiration Date is hereby established to be
__________________________, unless the Lease is sooner terminated
pursuant to any provision thereof.
WITNESS:
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LANDLORD:
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IPX
MEDICAL CENTER DRIVE INVESTORS, LLC, a Delaware limited liability
company
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ATTEST:
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TENANT:
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[Corporate
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CELLULAR
BIOMEDICINE GROUP, INC., a Delaware corporation
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By:
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[NOTE:
NOT TO BE EXECUTED
AT TIME OF EXECUTION OF LEASE]
EXHIBIT C
WORK AGREEMENT
THIS
WORK AGREEMENT is hereby attached to and made part of the Office
Lease dated ,
2019, entered into by and between IPX MEDICAL CENTER DRIVE
INVESTORS, LLC, a Delaware limited liability company, as Landlord,
and CELLULAR BIOMEDICINE GROUP, INC., a Delaware corporation, as
Tenant (the "Lease"). All terms used in this Work Agreement have
the same meaning as they have in the Lease.
1. ARCHITECTURAL
DESIGN SERVICES.
Tenant
shall provide a space plan and completed, finished and detailed
architectural drawings and specifications for all work to be
provided by Tenant under Paragraph 4 hereof (the "Architectural
Drawings and Specifications"), which Architectural Drawings and
Specifications shall be completed at Tenant's sole cost and
expense, which shall be payable out of the Tenant Allowance (as
hereinafter defined) to the extent that funds are available
therefrom for such purpose. All such Architectural Plans and
Specifications are expressly subject to Landlord's review and
written approval, which approval shall not be unreasonably
withheld, conditioned or delayed with respect to any proposed work
which does not affect any of the structural components of the
Building or any of the Building's heating, ventilating, air
conditioning, electrical, mechanical, plumbing, fire and life
safety or other systems. Landlord shall grant or deny such approval
in writing within ten (10) business days following Landlord's
receipt of the proposed Architectural Drawings and
Specifications.
2. ENGINEERING DESIGN
SERVICES.
Tenant,
at Tenant's sole cost and expense, which shall be payable out of
the Tenant Allowance (as hereinafter defined) to the extent that
funds are available therefrom for that purpose, shall provide the
design services of a licensed professional engineer, to prepare
complete mechanical and electrical plans and specifications, as
necessary for Tenant's Work (as hereinafter defined) to be
performed pursuant to Paragraph 3 hereof (the "Engineering Plans
and Specifications"). Any and all such Engineering Plans and
Specifications are expressly subject to Landlord's review and
written approval, which approval shall not be unreasonably
withheld, conditioned or delayed with respect to any proposed work
which does not affect any of the structural components of the
Building or any of the Building's heating, ventilating, air
conditioning, electrical, mechanical, plumbing, fire and life
safety or other systems. Landlord shall grant or deny such approval
in writing within ten (10) business days following Landlord's
receipt of the proposed Engineering Plans and
Specifications.
3. TENANT'S
WORK.
The
Architectural Drawings and Specifications and the Engineering Plans
and Specifications, as approved by Landlord, shall thereupon
collectively constitute the "Tenant's Plans". Tenant shall improve
the Premises in accordance with the Tenant’s Plans. The work
set forth in the Tenant’s Plans is hereinafter referred to as
“Tenant’s Work”. From and after the date of
Landlord’s approval of the Tenant’s Plans, any changes
to the Tenant’s Plans shall not be binding unless approved in
writing by both Landlord and Tenant. Landlord’s approval of
the Tenant’s Plans shall constitute approval of
Tenant’s design concept only and shall in no event be deemed
a representation or warranty by Landlord as to whether the
Tenant’s Plans comply with any and all legal requirements
applicable to the Tenant’s Plans and Tenant’s
Work.
In the
performance of Tenant’s Work, Tenant shall comply with all
applicable laws, codes and regulations. Tenant shall obtain all
permits, certificates and other governmental approvals from all
governmental entities having jurisdiction thereover which are
necessary for the prosecution and completion of Tenant’s
Work. Tenant’s Work shall include, but not be limited to, the
cost of all permits and governmental inspections, all architectural
and engineering fees, the preparation and delivery to Landlord of a
complete set of “as-built” plans showing Tenant’s
Work, in hard copy and an electronic version thereof which is
acceptable to Landlord (the "As-Built Plans") (which As-Built Plans
shall be delivered to Landlord not later than the tenth (10th) day
following the substantial completion of Tenant’s
Work).
Prior
to commencing Tenant’s Work, Tenant shall provide to Landlord
the name and address of each contractor and subcontractor which
Tenant intends to employ to perform Tenant’s Work, the use of
which subcontractors and contractors shall be subject to
Landlord’s prior written approval, which shall not be
unreasonably withheld, conditioned or delayed if (1) the contractor
or subcontractor is properly licensed, (2) Landlord has had no
prior experience with such contractor or subcontractor which was
unsatisfactory to Landlord and (3) Landlord knows of no prior
unsatisfactory experience that a third party has had with such
contractor or subcontractor. Prior to the commencement of any of
Tenant’s Work, Tenant shall deliver to Landlord, with respect
to each contractor and subcontractor which Tenant intends to employ
to perform any of Tenant’s Work, a certificate of insurance
from each such contractor or subcontractor specifying Landlord as a
named insured and evidencing that each such contractor or
subcontractor has obtained the insurance coverages described in
Section 17.B. of the Lease. Tenant shall not be obligated to use
union labor in connection with Tenant’s Work.
Said
contractors and subcontractors shall also comply with other
reasonable industry requirements of Landlord. Tenant shall pay to
Landlord a coordination fee in an amount equal to one percent (1%)
of the cost of the Tenant Allowance (as hereinafter defined) (the
"Coordination Fee"), which Coordination Fee shall be deducted from
the Tenant Allowance to the extent that funds are available
therefrom for such purpose or otherwise paid directly by Tenant to
Landlord upon the substantial completion of Tenant’s
Work.
4. TENANT
ALLOWANCE.
Landlord shall make
available for the performance of Tenant's Work, and for the other
purposes hereinafter specified, an allowance (the "Tenant
Allowance") in an amount equal to the product of (i) One
Hundred Thirty Dollars ($130.00) multiplied by (ii) the number
of rentable square feet comprising the Premises. Tenant shall
perform Tenant’s Work and shall pay directly to its general
contractor and other service providers and vendors the cost of
performing all improvements shown and contemplated by the Tenant's
Plans, including, but not limited to, the cost of all permits and
governmental inspections, all architectural and engineering fees,
the preparation and delivery to Landlord of the As-Built Plans, as
provided in Paragraph 3 of this Work Agreement, and the
Coordination Fee, all of which costs shall be payable out of the
Tenant Allowance to the extent that the Tenant Allowance is
sufficient for that purpose, and any excess amount of which costs
shall be paid directly by Tenant; provided, however, that (i) the
portion of the Tenant Allowance which may be used for cabling,
moving-related costs, furniture, fixtures and equipment, consultant
fees and any other soft costs shall not in the aggregate exceed an
amount equal to Twelve Dollars ($12.00) multiplied by (ii) the
number of rentable square feet comprising the Premises (the
“Permitted Soft Costs Portion”).
Landlord shall pay
the Tenant Allowance to Tenant in installments not more than once
in any thirty (30) day period following Tenant’s completion
of portions of Tenant’s Work and Landlord’s receipt
from Tenant of (i) invoices reasonably evidencing work or services
performed with respect to the portion of Tenant’s Work for
which Tenant is seeking payment, (ii) receipted bills or other
evidence that the aforesaid invoices have been paid in full, (iii)
waivers or releases of liens from each of Tenant’s
contractors, subcontractors and suppliers in connection with the
work performed or materials supplied as evidenced by the aforesaid
invoices, (iv) an architect’s certification that the portion
of Tenant’s Work for which reimbursement has been requested
has been finally completed, including (with respect to the last
application for payment only) any punch-list items, on the
appropriate AIA form or another form approved by Landlord, and (v)
with respect only to the payment of the final ten percent (10%) of
the Tenant Allowance, the delivery of the As-Built Plans, and
copies of all final inspectional sign-offs for the Tenant’s
Work performed by applicable governmental authorities. Landlord
shall have the right to retain ten percent (10%) of the amount of
the hard costs of Tenant’s Work contained in each such
request until completion of Tenant’s Work. All of the
retained amounts shall be paid to Tenant upon completion of
Tenant’s Work and satisfaction of the other requirements of
this Exhibit C. Notwithstanding the foregoing, in the event that
Tenant is retaining amounts which are at least equal to those
required by the immediately preceding sentence from Tenant’s
general contractor and Tenant’s payment request reflects such
retainage, then Landlord shall not impose an additional retainage
upon such payment request. The portion of the Tenant’s Work
which shall be payable out of the Tenant Allowance for each
disbursement shall be an amount equal to the portion of the
Tenant’s Work which has been completed multiplied by a
fraction, the numerator of which is the amount of the Tenant
Allowance and the denominator of which is the total cost of
Tenant’s Work as set forth in the Tenant’s contract
with its general contractor for Tenant’s Work, including any
change orders in determining such total amount of Tenant’s
Work, and Tenant shall be obligated to pay from another source of
funds the remaining costs for such portion of Tenant’s Work
which are not paid for from the Tenant Allowance (in accordance
with the remaining provisions of this paragraph). For example, if
the total cost of Tenant’s Work is estimated to be an amount
equal to One Hundred Dollars ($100.00) per square foot of rentable
area comprising the Premises, and the Tenant Allowance is an amount
equal to Eighty Dollars ($80.00) per square foot of rentable area
comprising the Premises, then, for each disbursement of the Tenant
Allowance, Landlord shall pay from the Tenant Allowance (to the
extent available for such purpose), eighty percent (80%) of such
costs and Tenant shall pay from another source of funds the
remaining twenty percent (20%) of such costs. Prior to Landlord's
disbursing any portion of the Tenant Allowance to Tenant or
Tenant’s general contractor, in addition to the other
requirements for disbursement set forth herein, Tenant shall
provide to Landlord evidence reasonably acceptable to Landlord that
all furniture, fixtures and equipment that will be incorporated
into the Premises for use in the operation of the business from the
Premises is being paid for from Tenant's own source of funds, is
lien free and is not subject to any encumbrances or other rights of
third parties whatsoever. Once Tenant has provided such evidence to
Landlord of Tenant’s ownership interests in all furniture,
fixtures and equipment as required by this paragraph, and provided
that Tenant has obtained and delivered to Landlord lien waivers for
such work together with other evidence reasonably satisfactory to
Landlord that such funds have been expended by Tenant's own source
of funds and not from financing from any third party, and otherwise
satisfied Landlord’s reasonable requirements with respect to
all Tenant’s Work as set forth herein, Landlord shall
disburse the Tenant Allowance, in accordance with, and subject to,
the requirements set forth herein. All Tenant's Work (including any
furniture, fixtures and equipment installed as part of Tenant's
Work) shall be subject to Landlord's rights as set forth in Section
19.F of the Lease. Any portion of the Tenant Allowance as to which
disbursement has not been properly requested prior to the first
anniversary of the Lease Commencement Date shall be deemed to have
been forfeited by Tenant and shall no longer be available to
Tenant. Tenant shall have no right to receive any portion of the
Tenant Allowance at any time that Tenant is in default under the
Lease.
5. DEMOLITION
ALLOWANCE.
Tenant,
as part of Tenant’s Work, shall be responsible for the
demolition of certain existing improvements currently located in
the Premises in accordance with Tenant’s Plans (the
“Demolition Work”). The Demolition Work shall be
performed by Tenant, at Tenant’s cost and expense, the cost
of which may be paid from the Tenant Allowance to the extent
available for such purpose; provided, however, that Landlord shall
also provide Tenant with an additional allowance (the
“Demolition Allowance”) in the amount of Four Dollars
($4.00) per rentable square foot in the Premises, which shall be
added to the Tenant Allowance and paid subject to the same terms as
are applicable to the Tenant Allowance.
6. CHANGES IN TENANT'S
WORK.
Tenant
shall not have the right to order extra work or change orders with
respect to the construction of Tenant’s Work without the
prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed. Tenant shall pay for
any and all increases in the actual cost of constructing
Tenant’s Work occasioned by a change to the Tenant's Plans
requested by Tenant.
7. VERTICAL CHASES;
MONITORING PORTS FOR LAB DRAIN LINES; EMERGENCY BACK-UP
PANEL.
Landlord shall
provide Tenant with non-exclusive access to its proportionate share
of those existing vertical chases in the Building designated by
Landlord for the installation by Tenant of Tenant’s outside
air and exhaust systems to be installed by Tenant as part of
Tenant’s Work in accordance with this Work Agreement, which
installation shall be at Tenant’s sole cost and expense,
subject to reimbursement from the Tenant Allowance to the extent
available for such purpose. Landlord shall expand the existing
vertical chases and/or provide new vertical chases, at
Landlord’s sole cost and expense, to the extent necessary to
accommodate Tenant’s outside air and exhaust systems, as
determined by Landlord in connection with its approval of
Tenant’s Plans.
As part
of Tenant’s Work, Tenant shall be permitted to connect its
lab drain lines to the existing monitoring port for the Building on
a non-exclusive basis, at Tenant’s sole cost and expense,
subject to reimbursement from the Tenant Allowance to the extent
available for such purpose. If Tenant is required by a regulatory
agency to install a specific monitoring port for Tenant’s lab
drain lines, such monitoring port shall be installed by Tenant, as
Tenant’s sole cost and expense, subject to reimbursement from
the Tenant Allowance to the extent available for such purpose, as
part of Tenant’s Work in accordance with the provision of
this Work Agreement.
Landlord shall
provide, at Landlord’s sole cost and expense, an emergency
back-up panel to service the Premises at not less than four (4)
watts per square foot of space in the Premises (the
“Emergency Back-Up Panel”). The Emergency Back-Up Panel
shall be (i) installed and connected to by Tenant as part of
Tenant’s Work, at Tenant’s sole cost and expense,
subject to reimbursement from the Tenant Allowance to the extent
available for such purpose, and (ii) operated (including the cost
of all utilities), repaired, maintained and replaced by Tenant, at
Tenant’s sole cost and expense, in accordance with Section
7.A. of the Lease.
8. LANDLORD’S
LOADING AREA WORK.
On or
before the Lease Commencement Date, Landlord, at its sole cost and
expense, shall install LVT or other similar flooring in the Common
Area hallway leading from the loading dock for the Building to the
Premises and install protective corner guards through such hallway
and protective kickplates on all doors leading to the Premises
which are located in the Common Area hallway leading from the
loading dock to the Premises. The scope of such work and the
materials to be used in connection therewith shall be determined by
Landlord, in its sole discretion.
[Signatures Appear
on Following Page.]
IN
WITNESS WHEREOF, Landlord and Tenant have executed this Work
Agreement under seal as of the day and year first above
written.
WITNESS:
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LANDLORD:
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IPX
MEDICAL CENTER DRIVE, LLC, a Delaware limited liability
company
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By:
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ATTEST:
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TENANT:
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[Corporate
Seal]
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CELLULAR
BIOMEDICINE GROUP, INC., a Delaware corporation
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By:
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EXHIBIT D
BUILDING/PROJECT RULES AND REGULATIONS
1.
No sign, placard,
picture, advertisement, name or notice shall be installed or
displayed on any part of the exterior of the Project or interior
common areas of the Building without the prior written consent of
Landlord. Landlord shall have the right to remove, at
Tenant’s expense and without notice, any sign installed or
displayed in violation of this rule. All approved sings or
lettering on doors and walls, shall be printed, painted, affixed or
inscribed at the expense of Tenant by a person chosen by
Landlord.
2.
No awning shall be
permitted on any part of the Premises. Tenant shall not place
anything against, near or on any glass partitions, doors, windows
or window sills which may appear unsightly from outside the
Premises and Tenant is specifically prohibited from sitting or
placing anything on the window sills of the Premises. Tenant shall
not obstruct any windows, doors, partitions or lights within the
Premises which admit or reflect light into the hallways or other
common areas of the Building. Tenant shall not attach or hand any
curtains, blinds, shades, or screens used in connection with any
window or door of the Premises without first obtaining the written
consent of Landlord. Said curtains, blinds or shades must be of a
quality, type, design and color and attached in a manner approved
by Landlord.
3.
Landlord shall
retain the right to control and prevent access to the Building of
all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation and interest of
the Building and its tenants; provided that nothing herein
contained shall be construed to prevent such access to persons with
whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities. No
tenant and no employee or invitee of any tenant shall go upon the
roof of the Building.
4.
All cleaning and
janitorial services for the Building and the Premises shall be
provided exclusively through Landlord, and except as provided in
the Lease or otherwise with the written consent of Landlord, no
person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Building for the
purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order
and cleanliness of the Premises. Landlord shall not in any way be
responsible to any Tenant for any loss of property on the Premises,
however occurring, or for any damage to any Tenant’s property
by the janitor or any other employee or any other
person.
5.
Landlord shall
furnish Tenant, free of charge, a key to each door lock in the
Premises. Landlord may charge an additional amount $2 per key for
additional keys requested by Tenant. Tenant shall not alter any
lock or install a new additional lock or bolt in the entrance door
of its Premises without written consent of Landlord. Tenant upon
termination of its tenancy, shall deliver to Landlord the keys of
all doors which have been furnished to Tenant, and in the event of
loss of any keys so furnished, shall pay Landlord
therefor.
6.
If Tenant requires
telegraphic, telephonic, burglar alarm or similar services, it
shall first obtain, and comply with, Landlord’s instructions
in their installation.
7.
Any freight
elevator shall be available for use by all tenants in the Building,
subject to such reasonable scheduling as Landlord in its discretion
shall deem appropriate. No equipment, furniture or other bulky
property will be received in the Building or carried in the
elevators except between such hours and in such elevators as may be
designated by Landlord.
8.
Tenant shall not
place a load upon any floor of the Premises which exceeds the load
per square foot which such floor was designed to carry as provided
in the Lease and which is allowed by law. Landlord shall have the
right to prescribe the weight, size and position of all equipment,
materials, furniture or other property brought into the Building.
Heavy objects shall, if considered necessary by Landlord, stand on
such platforms as determined by Landlord to be necessary to
properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant, which cause noise or vibration that
may be transmitted to the structure of the Building or to any space
therein to such a degree as to objectionable to Landlord or to any
tenants in the Building, shall be placed and maintained by Tenant,
at Tenant’s expense, on vibration eliminators or other
devices sufficient to eliminate noise or vibration. The persons
employed to move such equipment in or out of the Building must be
acceptable to Landlord. Landlord will not be responsible for loss
of, or damage to, any such equipment or other property from any
cause, and all damage done to the Building by maintaining or moving
such equipment or other property shall be repaired at the expense
of Tenant.
9.
Tenant shall not
use or keep in the Premises any kerosene, gasoline or inflammable
or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office
equipment. Tenant shall not use or permit to be used in the
Premises any foul or noxious gas or substance, or permit or allow
the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations, mot shall Tenant bring into
or keep in or about the Premises any birds or animals.
10.
Unless otherwise
agreed to within the Lease, Tenant shall not use any method of
heating or air-conditioning other than that supplied by
Landlord.
11.
Tenant shall
cooperate fully with Landlord to assure the most effective
operation of the Building’s heating and air-conditioning and
to comply with any government energy-saving rules, laws or
regulations of which Tenant has actual notice, and shall refrain
from attempting to adjust controls other than room thermostats
installed for Tenant’s use. Tenant shall use reasonable
efforts to keep corridor doors closed, and shall close window
coverings at the end of each business day.
12.
Landlord reserves
the right to exclude from the Building between the hours of 6 p.m.
and 8 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and
Building Holidays, any person unless that person is known to the
person or employee in charge of the Building and has a pass or is
properly identified. Tenant shall be responsible for all persons
for whom it requests passes and shall be liable to Landlord for all
acts of such persons. Landlord shall not be liable for damages for
any error with regard to the admission or exclusion from the
Building of any person. Landlord reserves the right to prevent
access to the Building in case of invasion, mob, riot, public
excitement or other commotion by closing the doors or by other
appropriate actions.
13.
Tenant shall use
reasonable efforts to close and lock the doors of the Premises and
entirely shut off all water faucets or other water apparatus, and
electricity, gas, or air outlets before tenant and its employees
leave the Premises. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or
by Landlord for noncompliance with this rule.
14.
The toilet rooms,
toilets, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown
thereto. The expense of any breakage, stoppage or damage resulting
from the violation of this rule shall be borne by the tenant who,
or whose employees or invitees shall have caused it.
15.
Tenant shall not
sell or permit the sale at retail, of newspapers, magazines,
periodicals, theatre tickets or any other goods or merchandise to
the general public (except for Tenant’s members) in or on the
Premises. Tenant shall not make any room-to-room solicitation of
business from other tenants in the Building; provided, Tenant may
make sales in response to telephone, telefax or internet orders
received by Tenant at the Premises.
16.
Tenant shall not
install any radio or television antenna, loudspeaker or other
device on the roof or exterior walls of the Building, except as
otherwise provided in the Lease. Tenant shall not interfere with
radio or television broadcasting or reception from or in the
Building or elsewhere.
17.
Tenant shall not in
any way deface the Premises or any part thereof. Landlord reserves
the right to direct electricians as to where and how telephone and
telegraph wires are to be introduced to the Premises. Tenant shall
not cut or bore holes for wire. Tenant shall not affix any floor
covering to the floor of the Premises in any manner except as
approved by Landlord. Tenant shall repair any damage resulting from
noncompliance with this rule.
18.
Except as permitted
in the Lease, Tenant shall not install, maintain or operate upon
the Premises any vending machine without the written consent of
Landlord.
19.
Canvassing,
soliciting and distribution of handbills or any other written
material and peddling in the Building are prohibited, and each
tenant shall cooperate to prevent same.
20.
Landlord reserves
the right to exclude or expel from the Building any person who, in
Landlord’s judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
21.
Tenant shall store
all its trash and garbage within the Premises. Tenant shall not
place in any trash box or receptacle any material which cannot be
disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse disposal shall be made in
accordance with direction issued from time to time by
Landlord.
22.
The Premise shall
not be used for the storage of merchandise held for sale to the
general public, except for publications or for lodging or for
manufacturing of any kind, nor shall the Premises be used for any
improper, immoral or objectionable purpose. No cooking shall be
done or permitted by any tenant on the Premises, except that use by
Tenant of Underwriters’ Laboratory approved equipment for
brewing coffee, tea, hot chocolate and similar beverages or use of
a microwave oven shall be permitted provided that such equipment
and use is in accordance with all applicable federal, state, county
and city laws, codes, ordinances, rules and
regulations.
23.
Tenant shall not
use in any space or in public halls of the Building any hand trucks
except those equipped with rubber tires and side guards or such
other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicle of any kind into the
Building.
24.
Without the written
consent of Landlord, Tenant shall not use the name of the Building
in connection with or in promoting or advertising the business of
Tenant except as Tenant’s address.
25.
Tenant shall comply
with all safety fire protection and evacuation procedures and
regulations established by Landlord or any government
agency.
26.
Tenant assumes any
and all responsibilities for protecting the Premises from theft,
robbery and pilferage.
27.
The requirements of
Tenants will be attended to only upon written application to the
office of the Building Manager by an authorized
individual.
28.
Tenant shall not
park its vehicles in any parking areas designated by Landlord as
areas for parking by visitors to the Building or the
Project.
29.
Any single delivery
or shipment to the loading docks that would exceed thirty (30)
minutes shall be scheduled in advance with Landlord.
EXHIBIT E
CLEANING SPECIFICATIONS
EXHIBIT F
LOCATION OF TENANT’S EXTERIOR SIGNAGE
EXHIBIT G
WORK RULES AND REGULATIONS
A.
No work is
permitted to be performed until the Construction Supervisor has
received two (2) sets of the Final Plans.
B.
All modifications
to the Building or to any Building systems and equipment must be
compliant with Laws and approved in writing by Landlord in
accordance with the Lease.
C.
Impairments to
fire/life safety systems and hot work conducted during the project
will be conducted in accordance with the requirements of the
Landlord’s insurance loss control programs as stated in these
Work Rules and Regulations.
D.
Mechanical
fastening is not permitted to the existing curtain wall and or
window systems.
E.
Building standard
soffit is to be installed at perimeters and any areas with windows
and curtain wall.
F.
In the event a
window/curtain wall is removed or a penetration in the roof/walls
is completed, a mold inspection/certification report will be
required to be completed by the General Contractor and copies
provided to Landlord.
G.
Prior to the work
commencing, a building permit, and all other required trade permits
must be obtained and displayed, a certificate of insurance from the
General Contractor must be furnished to Landlord evidencing the
insurance required by the Lease and the General Contractor has
filed with Landlord its written safety plan complying with these
Work Rules and Regulations. During the performance of the
Tenant’s Work all inspections must be performed to satisfy
permit requirements.
H.
No later than sixty
(60) days after the completion of the Tenant’s Work, the
General Contractor shall furnish Landlord with one set of
reproducible and two (2) sets of blue-line prints showing the final
as-built construction work performed together with an AutoCAD
Computer Assisted Drafting and Design System (or other compatible
system or medium) using naming conventions issued by the American
Institute of Architects in June 1990 (or other reasonable naming
convention) and magnetic computer media of such record drawings and
specifications, translated into DXF format or another format
acceptable to Landlord.
I.
The Construction
Supervisor must be notified by the General Contractor of all work
scheduled and shall be provided with a list of all personnel
working on the Premises.
J.
No work is
permitted to be performed between 8:00 a.m. and 6:00 p.m. which
will materially disturb or materially inconvenience other tenants
in the Building (e.g. core drilling, shooting track, noxious odors,
etc.), except so long as there are no other tenant occupying the
Building. The Construction Supervisor must pre-approve, in its
reasonable judgment, any work that entails significant noise or
vibration. Construction operations requiring curing of compounds
that emits noxious odors must include work plan ventilation,
stand-by and security as required by building
operations.
K.
Before any new
electrical or mechanical equipment is installed in the Building,
the General Contractor must submit a copy of the
manufacturer’s data sheet to the Construction Supervisor. Any
structural modifications or design modifications shall be performed
at Tenant’s sole cost and expense and should be included as
part of the Final Plans.
L.
All carts must be
furnished with pneumatic tires.
M.
Smoking is not
allowed in the Building.
N.
Intentionally
omitted.
O.
The General
Contractor must furnish the Construction Supervisor with a list of
all sub-contractors, including emergency phone and/or pager numbers
prior to commencing the work.
P.
The General
Contractor must provide an on-site project superintendent at all
times during which construction work is in progress. This
supervisor must be knowledgeable of the project’s scope of
work and have adequate on-site reference materials such as plans
and specifications.
Q.
All workers must be
dressed appropriately when working in an occupied building. Shirts
must be worn at all times.
R.
Any work that
requires access to another tenant’s space must be first
coordinated through the Construction Supervisor. All cost
associated with security or building engineer services shall be
charged to the General Contractor.
S.
Any roof related
work must be performed by Landlord’s designated contractor
and details for penetration of the roof must be submitted for
approval in accordance with the terms of the Lease and these Work
Rules and Regulations. All details will conform with
manufacturer’s recommendations and be performed in a
workmanlike manner so as not to void or interrupt the roof
warranty.
T.
Dumping of
construction debris into any portion of the Building or the Land
not specifically designated for same is strictly prohibited. All
rubbish refuse and debris is to be removed by a licensed hauler to
regulated/licensed landfills or recovery stations.
U.
Prior to starting
work, the Tenant is to provide an emergency call list to
Landlord.
V.
Door and hardware
specifications match the base Building standards.
W.
Tenant to provide
details of fire-safe penetrations through the rated walls and
floors for Landlord review and comment.
X.
The Architect and
or Engineer to provide specifications for the low VOC materials to
be used in the Tenant’s Work (adhesives, paints, carpet, wall
covering, etc.).
Y.
Tenant to turn over
the Landlord any base Building devices such as unit heaters, fire
alarm, and such which are removed and not intended for re-use
during the fit-out.
Z.
Utility shut downs
shall be coordinated at least 14 days in advance with the
Construction Supervisor.
AA.
Tenant is to
coordinate and provide master keying compatible with the Building
locks. This is to be submitted and approved by Landlord prior to
installation of any locks.
BB.
The General
Contractor shall comply with Landlord’s Mold Operation and
Maintenance Plan for Contractors, a copy of which has been provided
to Tenant.
CC.
The General
Contractor shall comply with Landlord’s standards for low of
no VOCs products, a copy of which has been provided to
Tenant.
A.
The General
Contractors shall not disconnect, tamper with, delete, obstruct,
relocate, or expand any life safety equipment except as indicated
on approved Final Plans.
B.
The General
Contractors will take necessary precautions to prevent accidental
fire alarms. Any unit or device temporarily incapacitated will be
red-tagged “Out of Service” and the Construction
Supervisor will be alerted prior to the temporary
outage.
C.
All tenant
installed special fire extinguisher /alarm detection systems shall
be monitored by the base Building fire alarm system.
D.
Tenant installed
fire alarm initiation and notification devices operating directly
from the base Building fire alarm system shall be specified by the
Landlord.
E.
All connections to
the Building’s existing fire alarm system are to be made only
by the subcontractor specified by the Construction
Supervisor.
F.
Fire alarm testing
will be scheduled, if possible, at least twenty-four (24) hours in
advance with the Construction Supervisor and any required
governmental agent.
G.
Combustible and
hazardous materials are not allowed to be stored in the Building or
anywhere else on the Project without prior approval of the
Construction Supervisor. Material safety data sheets on all other
materials to be stored in the Building must be kept onsite and a
copy submitted to the Construction Supervisor.
H.
Dust protection of
smoke detectors must be installed and removed on a daily basis.
Dust protection is required during construction to avoid false fire
alarm. Filter media must be installed over all return air paths to
any equipment rooms prior to demolition. The media must be
maintained during construction and removed at substantial
completion.
I.
All of the Premises
is to be fully protected by automatic sprinkler
systems.
J.
All systems and
equipment are to be designed and installed in accordance with the
current standards of the National Fire Protection
Association.
K.
Any sprinkler work
shall be permitted by the local municipality
authority.
L.
All equipment,
devices and materials used in the installation should be listed by
UL and FM Approved.
M.
Connection to the
base Building sprinkler/standpipe riser shall be provided with a
control valve and water flow alarm device. Sprinkler systems
control valves shall be UL Listed and FM Approved, clockwise
closing, indicating valves with supervisory switches.
N.
The entire system
shall be designed and installed in accordance with NFPA Pamphlet
No. 13, 231 and 231C latest issues and local codes.
O.
The General
Contractor shall comply with Landlord’s indoor air quality
management plan, a copy of which has been provided to
Tenant.
3.
PARKING
– LOADING DOCK
A.
Neither the General
Contractor nor its personnel will use loading dock area for daytime
parking without first obtaining permission from the Construction
Supervisor forty-eight (48) hours in advance to better assure dock
availability. Unauthorized vehicle will be ticked and
towed.
B.
Use of the loading
dock for deliveries/trash removal must be scheduled through the
Construction Supervisor.
A.
Utilities (i.e.
electric, gas, water, telephone/cable) will not be cut off or
interrupted without permission of the Construction Supervisor and
affected tenants and at least forty-eight (48) hours prior
notice.
A.
When it is deemed
necessary by the Construction Supervisor to temporarily issue any
keys to the General Contractor, the General Contractor will be
responsible for controlling possession and use of the key(s) and
will return them daily to the person that issued them. Failure to
return keys may result in re-keying and costs associated with
re-keying will be borne by the General Contractor.
The General Contractor will be responsible for locking any area
made available to the General Contractor whenever that area is
unattended.