424B4 1 ea135452-424b4_longeveron.htm PROSPECTUS

Filed Pursuant to Rule 424(b)(4)

Registration No. 333-252234

Registration No. 333-253029

 

PROSPECTUS

 

2,660,000 Shares

 

 

Longeveron Inc.

 

Class A Common Stock

 

 

 

We are offering 2,660,000 shares of our Class A common stock. Prior to this initial public offering, there has been no public market for our Class A common stock. The initial public offering price is $10.00 per share. Our Class A common stock has been approved for listing on The Nasdaq Capital Market under the symbol “LGVN.”

 

Following this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one (1) vote. Each share of Class B common stock is entitled to five (5) votes and is convertible into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately 96.3% of the voting power of our outstanding capital stock, assuming no exercise of the underwriters’ option to purchase additional shares.

 

 

 

We are an “emerging growth company” under the federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”

 

Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” beginning on page 11 of this prospectus.

 

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

   Per share   Total 
Public offering price  $10.00   $26,600,000 
Underwriting discounts and commissions (1)  $0.70   $1,862,000 
Proceeds, before expenses, to us  $9.30   $24,738,000 

 

 

(1)See “Underwriters” for a description of all compensation payable to the underwriters.

 

We have granted a 30-day option to the underwriters to purchase up to 399,000 additional shares of Class A common stock.

 

We have agreed to issue warrants to Kingswood Capital Market, as representative of the underwriters, upon the closing of this offering, which entitle it to purchase up to 4.0% of the total number of shares of Class A common stock being sold in this offering (the “Underwriter Warrants”). The exercise price of the warrants is equal to 120% of the offering price of the Class A common stock offered hereby.

 

Delivery of the shares of Class A common stock is expected to be made on or about February 17, 2021.

 

Sole Book-Running Manager

 

Kingswood Capital Markets
division of Benchmark Investments, Inc.

 

Co-Manager

 

 

The date of this prospectus is February 12, 2021

 

 

 

TABLE OF CONTENTS

 

  Page
PROSPECTUS SUMMARY 1
RISK FACTORS 11
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 49
INDUSTRY AND OTHER DATA 50
USE OF PROCEEDS 50
DIVIDEND POLICY 52
CORPORATE CONVERSION 52
CAPITALIZATION 53
DILUTION 55
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 57
BUSINESS 70
MANAGEMENT 107
EXECUTIVE AND DIRECTOR COMPENSATION 114
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 123
PRINCIPAL STOCKHOLDERS 124
DESCRIPTION OF CAPITAL STOCK 126
SHARES ELIGIBLE FOR FUTURE SALE 131
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK 132
UNDERWRITERS 137
LEGAL MATTERS 141
EXPERTS 141
WHERE YOU CAN FIND MORE INFORMATION 141
INDEX TO FINANCIAL STATEMENTS F-1

 

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of Class A common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

 

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside the United States.

 

Through and including March 9, 2021 (25 days after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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FINANCIAL STATEMENT PRESENTATION

 

The financial statements for the years ended December 31, 2019 and 2018, and as of and for the nine months ended September 30, 2020 and 2019, represent the operations of Longeveron LLC. Longeveron LLC does not have subsidiaries. Immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, Longeveron LLC converted into a Delaware corporation pursuant to a statutory conversion, and changed its name to Longeveron Inc. All holders of units of Longeveron LLC became holders of shares of Class A common stock or Class B common stock of Longeveron Inc., as described under the heading “Corporate Conversion.” In this prospectus, we refer to all transactions related to our conversion to a corporation as the Corporate Conversion. We expect that the Corporate Conversion will not have a material effect on our financial statements.

 

TRADEMARKS AND TRADENAMES

 

Solely for convenience, trademarks, service marks and tradenames referred to in this prospectus may appear without the ®, TM or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, service marks and tradenames. This prospectus may also contain trademarks, service marks, tradenames and copyrights of other companies, which are the property of their respective owners.

 

ABOUT THIS PROSPECTUS

 

Except where the context otherwise requires or where otherwise indicated, the terms “Longeveron,” “we,” “us,” “our,” “our company,” “Company” and “our business” refer, prior to the Corporate Conversion discussed herein, to Longeveron LLC, and after the Corporate Conversion, to Longeveron Inc. References in this prospectus to our capitalization and other matters pertaining to our common equity relate to the capitalization and common equity of Longeveron Inc. after giving effect to the Corporate Conversion. However, the Financial Statements and summary historical financial data included in this prospectus are those of Longeveron LLC and do not give effect to the Corporate Conversion.

 

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PROSPECTUS SUMMARY

 

This summary highlights, and is qualified in its entirety by, the more detailed information and financial statements included elsewhere in this prospectus. This summary does not contain all of the information that may be important to you in making your investment decision. You should read this entire prospectus carefully, especially the “Risk Factors” section beginning on page 11 and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision.

 

Business Overview

 

We are a clinical stage biotechnology company developing cellular therapies for specific aging-related and life-threatening conditions. Our lead investigational product is the LOMECEL-B™ cell-based therapy product (“Lomecel-B”), which is derived from culture-expanded medicinal signaling cells (MSCs) that are sourced from bone marrow of young healthy adult donors. We believe that by using the same cells that promote tissue repair, organ maintenance, and immune system function, we can develop safe and effective therapies for some of the most difficult disorders associated with the aging process and other medical disorders.

 

We are currently sponsoring Phase 1 and 2 clinical trials in the following indications: Aging Frailty, Alzheimer’s disease, the Metabolic Syndrome, Acute Respiratory Distress Syndrome (ARDS), and hypoplastic left heart syndrome (HLHS). Our mission is to advance Lomecel-B and other cell-based product candidates into pivotal Phase 3 trials, with the goal of achieving regulatory approvals, subsequent commercialization and broad use by the healthcare community.

 

Our philosophy is that healthy aging can be improved through regenerative medicine approaches. Life expectancy has substantially increased over the past century as a result of medical and public health advancements. However, this increase in longevity has not been paralleled by the number of years a person is expected to live in relatively good health, free of chronic disease and disabilities of aging – a period known as healthspan. As we age, we experience a profound decline in our own stem cells, a decrease in immune system function, decline in blood vessel functioning, chronic inflammation and other aging-related declines. Our clinical data suggest that Lomecel-B addresses these conditions through multiple mechanisms of action, or MOAs, that simultaneously target key aging-related processes.

 

Results from our ongoing clinical trials, in which more than 250 subjects have received Lomecel-B, have shown:

 

  Lomecel-B was well-tolerated, with no Serious Adverse Events (SAEs) attributed to the product candidate to date;
     
  Aging Frailty subjects given Lomecel-B showed statistically significant improvement in physical function compared to subjects receiving placebo; and
     
  Aging Frailty subjects, who historically do not respond effectively to vaccines, had a post-vaccination immune response in 19/19 (100%) of the subjects given Lomecel-B in advance of receiving influenza vaccine.

 

Improving healthspan is an imperative for governmental health agencies, and the United States National Institute on Aging (NIA), an institute within the National Institutes of Health (NIH), has promoted the concept of geroscience - the idea that aging itself is the biggest risk factor for many human diseases. The geroscience hypothesis provides a strong rationale for the approach of treating underlying biological processes contributing to aging as a way to reduce the burden of disease and to advance global human health. Our investments into developing and testing biological geroscience products are aimed at reducing aging-related disease burden and improving healthspan.

 

Our Strategy

 

Our core business strategy is to become a world leading regenerative medicine company through development and commercialization of novel cell therapy products for unmet medical needs, with emphasis on aging-related indications. Key elements of our business strategy are as follows:

 

  Advance Lomecel-B and other regenerative medicine product candidates to approval and marketing;
     
  Expand our manufacturing capabilities to commercial-scale production;

 

 

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  Continue to seek non-dilutive funding and grant awards to support our clinical research and product candidate development;
     
  Continue to develop our existing international programs, particularly in Japan;
     
  Seek collaboration arrangements and out-licensing opportunities to expand market opportunities for Lomecel-B; 
     
  Add to our product candidate development pipeline through internal research and development and in-licensing; and
     
  Continue to expand our intellectual property portfolio to build market exclusivity and value around our assets.

 

Clinical Development Pipeline

 

Since our founding in 2014, we have initiated six clinical studies under five U.S. Food and Drug Administration (FDA) Investigational New Drug applications (INDs) for the purpose of evaluating the safety and efficacy of Lomecel-B (See Figure 1). As of the third quarter of 2020, over 250 subjects have received Lomecel-B via peripheral intravenous infusion or direct injection, and there have been no SAEs reported that were considered related to the product candidate.

 

 

(Figure 1: Longeveron Lomecel-B clinical development pipeline)

 

Aging Frailty

     

We have two U.S. clinical trials ongoing in Aging Frailty subjects to assess whether Lomecel-B can improve physical function, reduce inflammation, and improve quality of life, among other endpoints, and to evaluate if Lomecel-B can be an effective vaccine adjuvant to improve immunity against influenza. Data from the Phase 2b Trial is expected in the second half of 2021. We have preliminary data from the HERA Trial (see “Aging Frailty Clinical Trials” on page 78 of this prospectus), with final data expected in the third quarter of 2021.

 

     

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Japan Clinical Trial: The Japanese Pharmaceuticals and Medical Devices Agency (PMDA) has approved a Clinical Trial Notification (CTN), which is equivalent to a U.S. IND, allowing us to sponsor an investigator-initiated Phase 2 clinical study for Aging Frailty subjects in Japan. We expect to initiate this trial in 2021.

     

  The Bahamas Registry Trial: We sponsor and operate a Registry Trial in Nassau, The Bahamas, where participants may receive Lomecel-B for Aging Frailty and other indications, at the participants’ own expense. Lomecel-B is designated as an investigational product in The Bahamas.

     

Alzheimer’s disease. We have completed a Phase 1 clinical trial to evaluate the safety and tolerability of Lomecel-B in individuals with mild Alzheimer’s disease, and to explore efficacy using multiple domains of assessment, including cognition, activities of daily living, quality of life, biomarkers, and changes to brain structure. Top-line results are expected in the fourth quarter of 2020, and preliminary results are reported in “Phase 1 Alzheimer’s Disease Clinical Trial” on page 83 of this prospectus.

     

The Metabolic Syndrome. We are conducting a sub-study of our Aging Frailty program to evaluate whether Lomecel-B may improve the symptoms of the Metabolic Syndrome, and the effects of this comorbidity on response to treatment in Aging Frailty subjects. Top-line results are expected in the second half of 2021.

     

Acute Respiratory Distress Syndrome due to Viral Infection. We are conducting a Phase 1 trial evaluating the safety and efficacy of Lomecel-B for ARDS due to influenza virus or SARS-nCoV-2 (COVID-19) infection. The trial is expected to complete enrollment in 2021.

     

Hypoplastic Left Heart Syndrome. We are conducting a Phase 1 study to evaluate the safety and provisional efficacy of Lomecel-B as a combinatorial therapy to surgery for this ultra-rare heart condition in young children. Top-line results are expected in the first quarter of 2021, and a Phase 2 trial is expected to initiate in 2021.

 

About Our Indications

 

Aging Frailty is a common geriatric condition that disproportionately increases a patient’s risk for poor clinical outcomes due to disease and injury, and is widely believed by geriatricians to ultimately be treatable. Our multinational interventional Aging Frailty clinical research program is one of the most advanced and extensive in the world for a pharmaceutical investigational product. According to various studies by leading geriatricians, Aging Frailty affects approximately 15% of individuals 65 years and older, which translates to roughly 8.1 million people in the U.S. alone. Yet, no medical treatments for Aging Frailty have been approved by the FDA, or anywhere in the world.

 

Alzheimer’s disease is the leading cause of dementia world-wide, and there are no approved medications that can prevent, stop, or reverse the progression of the disease. The only FDA-approved medications for AD provide only symptomatic relief, and do not alter disease progression. Approximately 5.8 million Americans have Alzheimer’s disease, with that number expected to increase to 14 million by 2050 barring significant medical breakthroughs. An estimated 35.6 million people are affected with Alzheimer’s disease worldwide– a number expected to quadruple by 2050.

 

The Metabolic Syndrome is a well-documented and insidious condition which, over the course of years to decades, leads to cardiovascular disease and type II diabetes mellitus. There are no approved therapies for the Metabolic Syndrome, aside from symptomatic treatments. The incidence of the Metabolic Syndrome has reached epidemic proportions and is estimated to impact approximately 35% of the total U.S. population aged 18 and older, or over 80 million people.

 

Acute Respiratory Distress Syndrome (ARDS), which occurs in about 150,000 patients per year, can result in both short-term severe consequences (e.g., prolonged and expensive hospitalization, and death), and long-term debilitating consequences (e.g., severe lung fibrosis and pulmonary dysfunction). ARDS due to viral infection is particularly devastating to those with Aging Frailty, and is especially well-appreciated in the context of the COVID-19 pandemic, in which approximately 80% of deaths have occurred in people aged 65 and older. There are currently limited treatment options for ARDS beyond supportive palliative care, making ARDS a “rare disease or condition” under the Orphan Drug Act, and an extremely important unmet medical need. We have not submitted an orphan drug designation (ODD) request to the FDA, and any determination as to whether ARDS qualifies as a “rare disease or condition” will be made on the basis of the facts and circumstances as of the date of any such ODD request. 

 

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Hypoplastic left heart syndrome (HLHS) is a rare congenital heart condition and our one non-aging related clinical study. Children with this condition undergo three staged life-saving heart surgeries over the course of years. Nonetheless, early-age mortality remains extremely high, and there is thus an urgent unmet medical need to improve both short- and long-term cardiac function for these patients. There are approximately 1,025 babies born each year in the U.S. with HLHS, making it a “rare disease or condition” under the Orphan Drug Act. We have not submitted an ODD request to the FDA, and any determination as to whether HLHS qualifies as a “rare disease or condition” will be made on the basis of the facts and circumstances as of the date of any such ODD request.

 

Our Team

 

We are led by an experienced team of dedicated scientists and experts with decades of experience in clinical drug development, particularly in conducting clinical trials of cell-based therapy. We currently have 16 full-time employees/consultants, five of whom have either an MD or PhD. We have a talented core of cell processing and manufacturing experts who oversee and manage our in-house manufacturing of Lomecel-B and our other experimental product candidates. Our Scientific Advisory Board is comprised of key opinion leaders with deep expertise in our therapeutic indications, and representation in both the U.S. and Japan.

 

Grant Funding and Partnerships

 

We have partnered with the NIA and the National Heart Lung and Blood Institute (NHLBI) of the NIH, the Alzheimer’s Association, and the Maryland Stem Cell Research Fund (Maryland TEDCO) to conduct our clinical trials. Our research programs have been awarded non-dilutive grant awards to support our clinical trial programs, and we intend to continue to seek grant funding for our future trials.

 

Manufacturing

 

We manufacture Lomecel-B under Good Manufacturing Practices (GMP) systems and conditions at our facility in Miami, FL. Operating our own GMP facility allows us to maintain control over our manufacturing process and research and development programs, which we believe offers strategic advantages over competitors, many of whom rely on third parties for production and development. Lomecel-B and other product candidates under development are intended to be “off-the-shelf” products once approved, which means they can be easily administered on demand in an out-patient setting in under one hour.

 

Financial Overview

 

We have experienced significant losses since inception and, at September 30, 2020, had an accumulated deficit of approximately $25.6 million. We expect to incur additional losses in the future and expect cumulative losses to increase. Since 2015, we have received approximately $27.0 million in equity financing and have been awarded approximately $16.2 million in non-dilutive grant funds for our programs ($11.9 million of which has been directly awarded to us and is recognized as revenue when the performance obligations are met). We have also generated approximately $3.3 million in non-grant revenue, primarily from clinical trial income and strategic contract manufacturing agreements.

 

Summary of Risk Factors

 

Our business and operations are subject to a number of risks, which you should be aware of prior to making a decision to invest in our Class A Common Stock. These risks are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. Below is a summary of these risks.

 

Risks Relating to our Business
     
  We have a limited operating history and have no products approved for commercial sale, which may make it difficult for you to evaluate our current business and predict our future success and viability.
     
  The lack of any existing FDA-approved allogeneic, cell-based therapies for Aging Frailty, Alzheimer’s disease, the Metabolic Syndrome and Hypoplastic Left Heart Syndrome could complicate and delay FDA approval of our product candidates for these indications.

 

 

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  Our product development programs are based on novel technologies and are inherently risky. If the potential of our cell-based product candidates to treat diseases is not realized, or the FDA, other regulatory bodies or marketplace fail to understand or accept our technology, the value of our technology and our development programs could be significantly reduced. In addition, ethical and other concerns surrounding the use of human-derived cell products may negatively affect public perception of us or our products or product candidates.
     
  If we are not able to recruit and retain qualified management and scientific personnel, we may fail in developing our technologies and product candidates.
     
  Our use of bone marrow and biologic growth media poses unique challenges to our operations.
     
  We have a history of losses, and will require additional capital to fund our operations. Failure to obtain necessary financing will likely impact our ability to complete the development and commercialization of Lomecel-B or other product candidates.
     
  According to the FDA, neither “Aging Frailty” or simply “Frailty,” nor the Metabolic Syndrome presently have definitions that are acceptable for characterizing the conditions for regulatory purposes, primarily due to either a lack of consensus on the definitions, an insufficient understanding of the underlying pathophysiologic mechanisms that cause any or all of the manifestations, or both. The FDA and the Japanese PMDA have both indicated that the concept of “Frailty” or the Metabolic Syndrome as an indication will require additional clinical data and discussion before future pivotal trials and marketing authorization.
     
  Public health threats including those related to COVID-19, could adversely impact our operations.
     
Risks Related to Intellectual Property
     
  If we are unable to obtain, maintain and protect our intellectual property rights for our technology and our product candidates, or if our intellectual property rights are inadequate, our competitive position could be harmed, and our ability to continue clinical trials and commercially market products could be adversely affected.
     
  Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties; if one or more third parties were to assert that we infringe their patents or are otherwise employing their proprietary technology without authorization, it could impair our ability to commercialize our product candidates and otherwise significantly harm our business.
     
  We are a party to certain licensing agreements that give us rights to specified technology that is material to our business; termination of, or issues relating to, such licenses could have material adverse impact on our ability to commercialize our technology.
     
Risks Related to Regulatory Approval and Other Governmental Regulations
   
  Lomecel-B, and any of our future investigational products, must comply with FDA or other regulatory authority requirements to demonstrate that they are safe and effective for one or more specific indications before they are approved. We cannot guarantee that the FDA or another regulatory authority will accept or interpret our pre-clinical or clinical data in the same way that we do, or that it will approve our marketing application. Even if the FDA or another regulatory authority grants marketing approval, there will be additional, ongoing regulatory obligations that we must meet.
     
  Achieving marketing approval from the FDA and other regulatory authorities is dependent on a number of factors, including our ability to successfully complete our clinical trials, which themselves are dependent on a number of factors. These factors may delay, add additional costs to our process, and otherwise complicate or block our pathway to commercialization.

 

 

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Risks Related to Our Dependence on Third Parties
   
  Our reliance on third parties to provide us with supplies to produce our product candidates, to assist in future approved product manufacturing and/or distribution, and to provide reimbursement for our products, may result in increased costs, shortages, delays or interruptions in the supply of our product candidates for our clinical trials and approved products eventually to our customers. Further, arrangements entered into with third-party collaborators to help us develop and commercialize our product candidates expose us to various risks if they fail to perform in accordance with our expectations or at all.
     
Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
   
  Interim, “topline” and preliminary data from our clinical trials that we announce or publish may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.
     
  Our foreign operations pose additional risks, including obtaining approval from foreign regulatory authorities, or with respect to FDA accepting data from trials conducted in foreign jurisdictions.
     
  We may face difficulties relating to compliance with various laws, including those relating to health and safety, and from changes to current and future legislation, both in the U.S. as well as in other foreign jurisdictions where we may be operating.
     
Risks Related to this Offering and Ownership of Our Class A Common Stock
   
  The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
     
  Two holders, including our co-founder and members of our Board, hold a significant portion of our Class B common stock, and will control the direction of our business and such parties’ ownership of our common stock will prevent you and other stockholders from influencing significant decisions.
     
  We will face risks relating to our new status as a publicly-traded company.
     
Risks Related to Employee Matters, Managing Our Growth and Other Risks Related to Our Business
   
  We will need to grow our organization in order to successfully implement our plans and strategies; this growth involves risk with respect to additional resources, data privacy and protection needs, and marketing concerns.

 

Corporate Conversion

 

Immediately prior to the effectiveness of the registration statement of which this prospectus is a part, Longeveron LLC converted into a Delaware corporation pursuant to a statutory conversion, and changed its name to Longeveron Inc. In this prospectus, we refer to all transactions related to our conversion to a corporation as the Corporate Conversion.

 

In connection with the Corporate Conversion, our outstanding Series A preferred units and Series B preferred units converted into an aggregate of 15,702,834 shares of our Class B common stock, and our Series C preferred units converted into an aggregate of 344,077 shares of our Class A common stock based on the initial public offering price of $10.00 per share of common stock.

 

The purpose of the Corporate Conversion was to reorganize our structure so that the entity that is offering our Class A common stock to the public in this offering is a corporation rather than a limited liability company and so that our existing investors will own our Class A common stock or Class B common stock rather than equity interests in a limited liability company. For further information regarding the Corporate Conversion, see “Corporate Conversion.”

 

 

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Implications of Being an Emerging Growth Company and a Smaller Reporting Company

 

We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. As an “emerging growth company” we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

  the option to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus;
     
  not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act;
     
  not being required to comply with any requirements that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
     
  reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
     
  exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering. However, if any of the following events occur prior to the end of such five-year period, (i) our annual gross revenue exceeds $1.07 billion, (ii) we issue more than $1.0 billion of non-convertible debt in any three-year period, or (iii) we become a “large accelerated filer,” (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), we will cease to be an emerging growth company prior to the end of such five-year period. We will be deemed to be a “large accelerated filer” at such time that we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700.0 million or more as of the last business day of our most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Exchange Act for a period of at least 12 months and (c) have filed at least one annual report pursuant to the Exchange Act. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements.

 

We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

 

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to take advantage of this extended transition period.

 

Corporate Information

 

We were initially formed as a Delaware limited liability company in October 2014. Immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, Longeveron LLC converted into a Delaware corporation pursuant to a statutory conversion, and changed its name to Longeveron Inc. See “Corporate Conversion.” Our principal executive offices are located at 1951 NW 7th Avenue, Suite 520, Miami, Florida 33136 and our telephone number is (305) 909-0840. Our website address is www.longeveron.com. The information contained in, or accessible through, our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

 

 

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The Offering

 

Class A common stock offered by us  

2,660,000 shares.

     
Option to purchase additional shares   We have granted the underwriters an option for a period of 30 days to purchase up to 399,000 additional shares of Class A common stock.
     
Class A common stock to be outstanding after this offering  
3,004,077 shares (or 3,403,077 shares if the underwriters exercise their option to purchase additional shares in full).
     
Class B common stock to be outstanding after this offering  
15,702,834 shares
     
Use of proceeds   We estimate that the net proceeds from this offering will be approximately $24.29 million (or approximately $27.95 million if the underwriters exercise their option to purchase additional shares in full), based on the initial public offering price of $10.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We anticipate that we will use the net proceeds of this offering to fund research and development (including clinical trials), to expand and optimize our manufacturing capacity, and for working capital and other general corporate purposes. For a more complete description of our intended use of the proceeds from this offering, see “Use of Proceeds.”
     
Risk factors   You should read the section titled “Risk Factors” beginning on page 11 and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our Class A common stock.
     
Voting Rights   Shares of Class A common stock are entitled to one (1) vote per share. Shares of Class B common stock are entitled to five (5) votes per share.
     
    Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our certificate of incorporation. Each share of our Class B common stock will be convertible into one share of our Class A common stock at any time and will convert automatically upon certain transfers. The Class A common stock is not convertible into Class B common stock. The holders of our outstanding Class B common stock will hold 96.3% of the voting power of our outstanding capital stock following this offering. Holders of Class B common stock will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change of control transaction. See the sections titled “Principal Stockholders” and “Description of Capital Stock” for additional information.
     
Dividend policy   We do not currently pay dividends and we do not anticipate declaring or paying any dividends for the foreseeable future.
     
Proposed Nasdaq Capital Market symbol   “LGVN.”

 

The number of shares of our Class A common stock and Class B common stock to be outstanding after this offering is based on 344,077 shares of our Class A common stock outstanding and 15,702,834 shares of our Class B common stock outstanding, after giving effect to the Corporate Conversion and the closing of this offering, and excludes:

 

  855,247 shares of our Class A common stock issued in exchange for 159,817 restricted units outstanding under our 2017 Equity Incentive Plan;
     
  106,400 shares of our Class A common stock issuable upon exercise of the Underwriter Warrants to be issued to the underwriter in connection with this offering; and
     
  1,219,155 shares of Class A common stock reserved for future issuance under our 2021 Equity Incentive Plan (the “2021 Incentive Plan”), which will become effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part.

 

8

 

 

 

Unless otherwise indicated, this prospectus reflects and assumes the following:

 

completion of the Corporate Conversion and the closing of this offering, as a result of which all outstanding Units of Longeveron LLC converted into an aggregate of 344,077 shares of Class A common stock and 15,702,834 shares of Class B common stock of Longeveron Inc.;

 

no exercise by the underwriters of their option to purchase additional shares of our Class A common stock in this offering.

 

SUMMARY FINANCIAL DATA

 

The following tables set forth our summary financial data for the periods indicated. We have derived the statements of operations data for the years ended December 31, 2019 and 2018 from our audited financial statements included elsewhere in this prospectus. The statements of operations data for the nine months ended September 30, 2020 and 2019 and the balance sheet data as of September 30, 2020 are derived from our unaudited financial statements included elsewhere in this prospectus. We have prepared the unaudited financial statements on the same basis as the audited financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected for any future period. You should read the following summary financial data together with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.

 

   Years Ended
December 31,
   Nine Months Ended
September 30,
 
   2019   2018   2020   2019 
           (unaudited) 
REVENUES                
Total revenues  $5,639,466   $2,134,775   $4,449,684   $3,796,209 
Cost of revenues   3,885,390    1,454,126    3,152,446    2,649,366 
Gross profit   1,754,076    680,649    1,297,238    1,146,843 
EXPENSES                    
Selling and marketing   185,387    48,164    140,253    180,418 
Research and development   1,791,842    3,875,842    1,522,707    1,449,275 
General and administrative   2,774,953    3,117,260    2,029,410    2,041,221 
Total expenses   4,752,182    7,041,266    3,692,370    3,670,914 
Loss from operations   (2,998,106)   (6,360,617)   (2,395,132)   (2,524,071)
OTHER INCOME AND (EXPENSES)                    
Interest income   2,937    23,821    139    2,531 
Interest expense   (169)       (3,666)   (104)
Other income   35,461        33,871    35,462 
TOTAL OTHER INCOME AND (EXPENSES)   38,229    23,821    30,344    37,889 
Net loss  $(2,959,877)  $(6,336,796)  $(2,364,788)  $(2,486,182)
Pro forma net loss per common share(1)                    
Basic   (0.19)   (0.40)   (0.15)   (0.16)
Diluted   (0.19)   (0.40)   (0.15)   (0.16)
Pro forma weighted average common shares outstanding – (unaudited)(1)                    
Basic   15,912,240    15,906,843    16,017,469    15,911,759 
Diluted   15,912,240    15,906,843    16,017,469    15,911,759 

 

 

(1) We have presented pro forma basic and diluted net loss per share which consists of our historical net loss attributable to Longeveron LLC, divided by the pro forma basic and diluted weighted average number of shares of Class A common stock and Class B common stock outstanding after giving effect to the Corporate Conversion. See Notes to our financial statements included elsewhere in this prospectus for additional information regarding the method used to calculate the pro forma basic and diluted net loss per common share and the pro forma weighted average number of shares used in the computation of the per share amounts.

 

 

9

 

 

 

   As of September 30, 2020 
   Actual   Pro Forma(1)   Pro Forma As
Adjusted(2)
 
Balance Sheet Data:            
Cash and cash equivalents  $1,393,831    1,393,831    25,631,831 
Working capital(3)   (683,443)   (683,443)   23,554,557 
Total assets   9,815,248    9,815,248    34,053,248 
Total liabilities   6,505,420    6,505,420    6,505,420 
Accumulated deficit   (25,536,841)   (25,536,841)   (25,536,841)
Total equity   3,309,828    3,309,828    27,547,828 

 

 

(1)The pro forma balance sheet data give effect to the Corporate Conversion.
(2)The pro forma as adjusted balance sheet data gives effect to the pro forma adjustments described in footnote (1) and to the issuance and sale of shares of Class A common stock in this offering at the initial public offering price of $10.00 per share after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3)We define working capital as current assets less current liabilities.

 

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RISK FACTORS

 

You should carefully consider the risks and uncertainties described below and the other information in this prospectus, including our financial statements and related notes appearing elsewhere in this prospectus and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our Class A common stock. Our business, financial condition, results of operations or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our Class A common stock could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below. For a summary of these risk factors, please see “Summary of Risk Factors” in the section titled “Prospectus Summary” beginning on page 1 of this prospectus.

 

Risks Related to our Business

 

We have a limited operating history and have no products approved for commercial sale, which may make it difficult for you to evaluate our current business and predict our future success and viability.

 

We are a clinical stage biotechnology company with a limited operating history upon which you can evaluate our business and prospects. We have no products approved for commercial sale and have not generated any material revenue from product sales. To date, we have devoted substantially all of our resources and efforts to organizing and staffing our company, business planning, building and equipping our research and development laboratories, building and equipping our manufacturing suites, raising capital, acquiring raw materials for manufacturing, product candidate development and manufacturing, securing related intellectual property rights and conducting clinical trials of Lomecel-B. We have not yet demonstrated our ability to obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. As a result, it may be more difficult for you to accurately predict our future success or viability than it could be if we had a longer operating history.

 

In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors and risks frequently experienced by clinical stage biotechnology companies in rapidly evolving fields, including but not limited to changes in FDA or foreign body regulatory oversight of such products. We also may need to transition from a company with a research focus to a company capable of supporting commercial activities. Such a transition may involve substantial additional capital requirements in order to launch and market a product, changes in the use of proceeds, and significant adjustment to personnel, compared to a clinical-stage development company. If we do not adequately address these risks and difficulties or successfully make such a transition, our business will suffer.

 

If the potential of our product candidates to treat diseases is not realized, the value of our technology and our development programs could be significantly reduced.

 

Our team is currently exploring the potential of our product candidates to treat diseases. We have not yet proven in clinical trials that our product candidates will be a safe and effective treatment for any disease or condition. Our product candidates are susceptible to various risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy, or other characteristics that may prevent or limit their marketing approval or commercial use. We have not yet completed all of the testing necessary to allow us to make a determination that serious unintended consequences will not occur. If the potential of our product candidates to treat disease is not realized, the value of our technology and our development programs could be significantly reduced. Because our product candidates are based on MSCs, any negative developments regarding the therapeutic potential or side effects of our MSCs, or to scientific and medical knowledge about MSCs in general, could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

11

 

 

Our 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 product candidates based on new technologies. The novel nature of our product candidates creates significant challenges in regards to product development and optimization, manufacturing, government regulation, third-party reimbursement, and market acceptance. For example, although the FDA has approved several cell therapy products, the FDA has relatively limited experience with regulating these kinds of therapies, and its regulations and policies are still evolving. As a result, the pathway to regulatory approval for our product candidates may accordingly be more complex and lengthy.

 

Additionally, stem cells that are taken from one person and transplanted into a different individual may pose additional risks. For example, stem cells that are not autologous (i.e., taken from, and given to, the same individual) but are instead allogeneic (i.e., taken from one individual and given to a different person) are subject to donor-to-donor variability, which can make standardization more difficult. As a result of these factors, the development and commercialization pathway for our therapies may be more complex and lengthy, and subject to increased uncertainty, as compared to the pathway for new conventional (i.e., new chemical entity) drugs.

 

There are no FDA-approved allogeneic, cell-based therapies for Aging Frailty, Alzheimer’s disease (AD), the Metabolic Syndrome or other aging-related conditions. This could complicate and delay FDA approval of our product candidate for these indications.

 

Although FDA has approved several cell therapy products, there are no allogeneic cell-based or stem cell therapies currently approved for the treatment of Aging Frailty or our other indications. There are also no conventional drugs or therapies currently approved by the FDA with stated indications for Aging Frailty. According to the FDA, neither “Aging Frailty” or simply “Frailty,” nor the Metabolic Syndrome, presently have definitions that are acceptable for characterizing the conditions for regulatory purposes. This is primarily due to a lack of consensus on the definitions amongst clinicians, researchers and regulators, an insufficient understanding of the underlying pathophysiologic mechanisms that cause any or all of the manifestations, or both. The FDA and the Japanese PMDA have both indicated that the concept of “Frailty” or the Metabolic Syndrome as an indication will require additional clinical data and discussion before future pivotal trials and marketing authorization. More specifically, our ability to begin Phase 3 (i.e., pivotal) trials in a “Frailty” indication will likely depend on our Phase 2 clinical data and subsequent meeting with FDA where we would discuss the size and scope of a Phase 3 program, the appropriate target patient population (i.e., defining the indication), and agreement on one or more primary endpoints that demonstrate clinically meaningful benefit.

 

It is possible that the FDA may never recognize “aging” as a disease, and may never agree to a definition of “Aging Frailty,” “Frailty” or the Metabolic Syndrome. To obtain FDA approval for any indication for the disease states we are studying, we will have to demonstrate, among other things, that our product candidates are safe and effective for that indication in the target population. The results of our clinical trials must be statistically significant, meaning that there must be sufficient data to indicate that it is unlikely the outcome occurred by chance. The FDA will also require us to demonstrate an appropriate dose (i.e., number of cells) and dosing interval for our product candidates, and to identify and define treatment responders, which may require additional clinical trials. As a result, the clinical endpoints, the criteria to measure the intended results of treatment, and the correct dosing for our cell-based therapeutic approaches for these indications may be difficult to determine. These challenges may prevent us from developing and commercializing products on a timely or profitable basis, or at all.

 

If we are not able to recruit and retain qualified management and scientific personnel, we may fail in developing our technologies and product candidates.

 

Our future success depends to a significant extent on the skills, experience, and efforts of the principal members of our scientific and management personnel. These members include Joshua M. Hare, M.D. and our staff of scientific consultants. Our co-founder, Dr. Hare, remains employed by the University of Miami (UM), and provides services to us as a consultant on a limited basis. The loss of Dr. Hare or any or all of these individuals could harm our business and might significantly delay or prevent the achievement of research, development or business objectives. Competition for regulatory, clinical manufacturing and management personnel in the pharmaceutical industry is intense. We may be unable to recruit or retain personnel with sufficient management skills in the area of cell therapeutics or attract or integrate other qualified management and scientific personnel in the future.

 

12

 

 

Our product candidates represent new classes of therapy that the marketplace may not understand or accept.

 

Even if we successfully develop and obtain regulatory approval for our product candidates, the market may not understand or accept them. We are developing product candidates that represent novel treatment approaches and will compete with a number of more conventional products and therapies manufactured and marketed by others, including major pharmaceutical companies. The degree of market acceptance of any of our developed and potential products will depend on a number of factors, including:

 

  the clinical safety and effectiveness of our products and their perceived advantage over alternative treatment methods;
     
  our ability to demonstrate that our cell-based products can have a clinically significant effect, initially for Aging Frailty, AD, HLHS, the Metabolic Syndrome, ARDS and other disease states, for which we may seek marketing approval;
     
  our ability to separate ourselves from the ethical controversies associated with cell product candidates derived from human embryonic or fetal tissue;
     
  ethical controversies that may arise regarding the use of stem cells or human tissue of any kind, including adult stem cells, adult bone marrow, adult cardiac stem cells, and other adult tissues derived from donors;
     
  adverse events involving our product candidates or candidates of others that are cell based;
     
  our ability to supply a sufficient amount of our products to meet regular and repeated demand in order to develop a core group of medical professionals familiar with and committed to the use of our products; and
     
  the cost of our products and the reimbursement policies of government and third-party payors.

 

If the health care community does not accept our product candidates or future approved products for any of the foregoing reasons, or for any other reason, it could affect our sales or have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

Our dependence upon a limited supply of bone marrow donors and biologic growth media may impact our ability to produce sufficient quantities of our product candidates as needed to complete our clinical trials, and if our trials are successful, to meet product demand.

 

The population of acceptable bone marrow donors is limited to volunteers between the ages of 18 and 45. In addition, potential donors are prescreened for a variety of health conditions and are only allowed to donate bone marrow a total of six times in their lifetime, further limiting the total number of potential donors. The amount of bone marrow donated may be insufficient for us to mass produce our product candidates at a scale sufficient to meet our clinical trial needs or to produce a product to meet future commercial demand at an acceptable cost. In addition, the expansion of MSCs through our proprietary manufacturing methods utilizes biologic growth media that may be in limited supply. Our product candidates will be inherently more difficult to manufacture at commercial-scale than conventional pharmaceuticals, which are manufactured using precise chemical formulations and operational methods. Cost-effective production at clinical trial or commercial scale quantities may not be achievable.

 

Future government regulation or health concerns, such as the ongoing COVID-19 pandemic, may also reduce the number of donors or otherwise limit the amount of bone marrow available to us. If we cannot secure quantities of bone marrow or biologic growth media sufficient to meet the manufacturing demands for our clinical trials, we might not be able to complete our clinical trials and obtain marketing approval for our product candidates. Moreover, even if our clinical trials are successful and we obtain marketing approval for our product candidates, our inability to secure enough bone marrow or biologic growth media to meet product demand could limit our potential revenues.

 

MSCs are biological entities obtained from living humans that can pose risks to the recipient.

 

MSC therapies require many manufacturing steps. Cells must be harvested from donor tissue, isolated, and expanded in cell culture to produce a sufficient number of cells for use. Each step carries risks for contamination by other cells, microbes, or adventitious agents. The transfer of cells into a recipient can also carry risks and complications associated with the procedure itself, and a recipient may reject the transplanted cells.

 

13

 

 

Our product candidates are derived from human bone marrow and therefore have the potential for disease transmission.

 

The utilization of donated bone marrow creates the potential for transmission of cancer and communicable disease, including but not limited to human immunodeficiency virus (HIV), viral hepatitis, syphilis, Creutzfeldt-Jakob disease, and other viral, fungal, or bacterial pathogens. Although we and our suppliers are required to comply with federal and state regulations intended to prevent communicable disease transmission, we or our suppliers may fail to comply with such regulations. Further, even with compliance, our products might nevertheless be viewed by the public as being associated with transmission of disease, and a clinical trial subject or patient who contracts an infectious disease might assert that the use of our product candidate or products resulted in disease transmission, even if the individual became infected through another source.

 

Any actual or alleged transmission of communicable disease could result in clinical trial subject or patient claims, litigation, distraction of management’s attention, potentially increased expenses, and adverse regulatory authority action. Further, any failure in screening, whether by us or other manufacturers of similar products, could adversely affect our reputation, the support we receive from the medical community, and overall demand for our products. As a result, such actions or claims, whether or not directed at us, could have a material adverse effect on our reputation with our customers and our ability to market our products, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

If our processing and storage facility or our clinical manufacturing facilities are damaged or destroyed, our business and prospects could be negatively affected.

 

Our processing and storage facility is located in a region which experiences severe weather, notably hurricanes, from time to time. If this facility in Miami, Florida or the equipment in the facility were to be significantly damaged or destroyed, we could suffer a loss of some or all of the stored units of our product candidates and it could force us to halt our clinical trial processes. The risk of tropical storm and hurricane activity historically rises on or about June 1st each year, and subsides on or about November 30th each year. We have not undertaken a systematic analysis of the potential consequences to our business and financial results from a major hurricane or tornado, flood, fire, earthquake, power loss, terrorist activity or other disasters and do not currently have a recovery plan for such disasters. If we underestimate our insurance needs, we will not have sufficient insurance to cover losses above and beyond the limits on our policies. In addition, we do not carry sufficient insurance to compensate us for actual losses from interruption of our business that may occur, and any losses or damages incurred by us could harm our business. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.

 

Ethical and other concerns surrounding the use of stem cell therapy or human tissue may negatively affect public perception of us or our products or product candidates, or may negatively affect regulatory approval of our products or product candidates, thereby reducing demand for our products.

 

The commercial success of our product candidates will depend in part on general public acceptance of the use of MSC therapy for the prevention or treatment of human diseases. The use of embryonic cells and fetal tissue for research and MSC therapy has been the subject of substantial national and international debate regarding related ethical, legal, and social issues. In the U.S., for example, until March 2009, federal government funding of embryonic stem cell research was limited to specifically identified cell lines and was not otherwise available. We do not use embryonic stem cells or fetal tissue, but the public may not be able to, or may fail to, differentiate our use of adult MSCs from the use of embryonic stem cells or fetal tissue by others. This could result in a negative perception of our company or our products or product candidates, thereby reducing demand, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

We may obtain MSCs from volunteer adult bone marrow donors from non-profit organizations that collect and process tissue donations. Bone marrow donors receive payment, but ethical concerns have been raised by some about the use of donated human tissue in a for-profit setting, as we are doing. Future adverse events in the field of stem cell therapy, changes in public policy, or changes to the FDA’s regulatory approval framework for these products could also result in greater governmental regulation of our product candidates or products, and potential regulatory delays relating to their testing or approval.

 

14

 

 

We may eventually compete for product sales with other companies, many of which will have greater resources or capabilities than we have, or may succeed in developing better products or in developing products more quickly than we do, and we may not compete successfully with them.

 

We compete or may eventually compete with other companies and organizations that are marketing or developing therapies for our targeted disease indications, based on traditional pharmaceutical, medical device, or other non-cellular therapy and technologies. In addition, we have other potential competitors developing a variety of therapeutics, and in some cases, such as with AD, there may be tens or hundreds of companies seeking to commercialize therapeutics.

 

We also face competition in the cell therapy field from academic institutions and governmental agencies. Many of our current and potential competitors have greater financial and human resources than we have, including more experience in research and development and more established sales, marketing, and distribution capabilities.

 

We anticipate that competition in our industry will increase. In addition, the health care industry is characterized by rapid technological change, resulting in new product introductions and other technological advancements. Our competitors may develop and market products that render product candidates now or under development by us in the future, or any products manufactured or marketed by us, non-competitive or otherwise obsolete.

 

We have ongoing challenges with respect to our liquidity and access to capital.

 

As we advance the preclinical and clinical development of our programs, we expect to continue to incur significant expenses and operating losses, for which we do not have offsetting revenue. We expect that our sales, research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future programs and product candidates, contracting with contract research organizations (CROs) to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.

 

Since 2015, we have raised approximately $27.0 million in gross proceeds from the sale of shares of our equity securities. As of September 30, 2020, we had $1.3 million in cash and cash equivalents and working capital of approximately $0.2 million. We have $0.5 million of indebtedness as of September 30, 2020 from loans provided by the Small Business Administration (SBA) and the Paycheck Protection Program (PPP). We have applied to have the $0.3 million loan forgiven. To date, we have financed our operations primarily through private equity financings, grant awards, and fees generated from clinical trial income and contract manufacturing services. There are no assurances that we will be able to continue to finance operations through these means, and our inability to generate sufficient revenue in the near term may have an adverse impact on our business, operations and prospects.

 

We have a history of losses and may not be able to achieve profitability going forward.

 

We have experienced significant losses since inception and, at September 30, 2020, had an accumulated deficit of approximately $25.6 million. We expect to incur additional losses in the future and expect the cumulative losses to increase. There is no assurance that operating expenses will remain at current levels, nor that our grant revenues will fund our clinical programs. In such event, we will not have sufficient cash flow to meet our obligations or make progress in our clinical programs, and will need to raise additional capital to provide sufficient funding.

 

We have been funded in part by government and non-profit association grant awards, which is not a guaranteed source of future funding.

 

The funding of government programs is dependent on budgetary limitations, congressional appropriations and administrative allotment of funds, and changes in national health and welfare priorities, all of which are inherently uncertain and may be affected by changes in U.S. government policies resulting from various political and military developments. Our continued receipt of government and non-profit association funding is also dependent on the ability to adhere to the terms and provisions of the original grant and contract documents and other regulations. We can provide no assurance that we will receive or continue to receive funding for grants and contracts that we have been awarded. The loss of government funds or non-profit association grant awards could have a material adverse effect on our clinical programs and on our business, financial condition, and results of operations. For additional detail regarding the grant awards we have received from governmental and non-profit associations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Grant Awards” on page 65 of this prospectus.

 

15

 

 

The use of our product candidates or future products in individuals may expose us to product liability claims, and we may not be able to obtain adequate product liability insurance.

 

Because of the nature of our products, we face an inherent risk of product liability claims. None of our product candidates have been widely used over an extended period of time, and therefore our safety data are limited. We derive the raw materials for our product candidates from human donor sources, the manufacturing process is complex, and the handling requirements are specific, all of which increase the likelihood of quality failures and subsequent product liability claims. We will need to increase our insurance coverage if and when we receive approval for and begin commercializing our product candidates. We may not be able to obtain or maintain product liability insurance on acceptable terms with adequate coverage or at all. If we are unable to obtain insurance, or if claims against us substantially exceed our coverage, then our business could be adversely impacted. Whether or not we are ultimately successful in any product liability litigation, such litigation either before or after product approval and marketing could consume substantial amounts of our financial and managerial resources and could result in, among other things:

 

  significant awards against us;
     
  substantial litigation costs;
     
  recall of products or termination of clinical trials;
     
  FDA withdrawal of marketing approval of products or suspension or revocation of an investigational new drug application (IND) for a product candidate;
     
  injury to our reputation;
     
  withdrawal of clinical trial participants;
     
  withdrawal of clinical trial sites or investigators; or
     
  adverse regulatory action.

 

Any of these results could have a material adverse effect on our business, financial condition, and results of operations.

 

Public health threats, including those related to the novel strain of coronavirus, SARS-CoV-2 (which causes the disease now called COVID-19), have had, and could continue to have an adverse effect on our operations.

 

Public health threats have, and could continue to, adversely affect our ongoing or planned research and development activities. In particular, SARS-CoV-2, which causes the disease now called COVID-19, was first reported to have surfaced in Wuhan, China in December 2019, and has since spread globally, including to every state in the United States. On January 31, 2020, the Secretary of Health and Human Services (HHS) issued a Public Health Emergency determination in response to the spread of COVID-19. A Public Health Emergency determination remains in effect for 90 days and can be renewed for additional 90 day periods, which the Secretary of HHS has since done multiple times. The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly.

 

16

 

 

The COVID-19 pandemic has caused reduced participation in our Bahamas Registry Trial, which primarily enrolls older individuals, due to both travel restrictions and a general unwillingness of participants to travel. Starting on July 22, 2020, the Bahamian government halted travel from the U.S. into The Bahamas, which resulted in the temporary cessation of participation in The Bahamas Registry Trial. When the pandemic began to emerge in the U.S., most of our ongoing clinical trials had completed enrollment, however a few subjects that were currently on study and in follow-up experienced some difficulties in adhering to the protocol schedule. Because we primarily enroll elderly subjects in our trials, who are at particular risk for poor outcomes related to COVID-19 infection, we have experienced some disruption in executing the follow-up visits in our protocols. These disruptions were due to a number of reasons that include an unwillingness of the subject to leave their residence to visit the hospital or clinic, the inability to leave their residence due to regional “stay-at-home” orders, and temporary clinical site closures. We have attempted to mitigate this disruption by conducting remote visits where feasible (telemedicine), arranging for in-home visits for phlebotomy in order to collect blood samples and perform protocol-specific assessments if feasible, and amending protocols to increase the window of time for follow-up visits. In spite of these efforts, several subjects either missed their scheduled follow up visit, had their follow up visit outside of the protocol-defined window of time, or dropped out of the trial prior to completing. While we believe the number of instances where a visit was missed completely is small, we cannot predict whether this will have a material impact on our clinical results in the future. If too many subjects drop out or the protocol is no longer effective, we may have to restart the clinical trial entirely.

 

We cannot presently predict the scope and severity of any other potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the suppliers, clinical trial sites, regulators and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted.

 

The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver components or raw materials on a timely basis. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the coronavirus or treat its impact, among others.

 

Risks Related to Intellectual Property

 

If our trade secret and patent position does not adequately protect our products and uses, others could compete against us more directly, which could harm our business and have a material adverse effect on our business, financial condition and results of operations.

 

Our success depends, in large part, on our ability to obtain and maintain intellectual property protection for our product candidates. The patent position of biotechnology companies is generally highly uncertain, involves complex legal and factual questions, and continues to be the subject of much litigation. Our trade secrets attempt to bridge the gap that threatens patent exclusivity for the protection of products derived from MSCs. Our trade secrets also remain valid and enforceable without regard to limitations such as term restrictions that are imposed on patents. Our trade secrets and know-how are the subject of various license agreements and confidentiality agreements as further discussed below.

 

The claims of existing U.S. and foreign patent applications and patents, and those patents that may issue in the future, or those to be licensed to us, that are owned by the Company or under an obligation of assignment to the Company, may not confer on us significant commercial protection against competing products. Furthermore, to the extent that the Company owns or is assigned or licenses patent rights covering its business, third parties may challenge or design around those patent rights, such as by asserting that the patents are invalid or arguing that the patent claims should be narrowly construed, and thereby avoid infringement actions.

 

Our patent applications on MSC technology, in particular, include claims directed to therapeutic uses and kits comprising MSCs. Patents with such claims tend to be more vulnerable to challenge by other parties than patents with extremely narrow claims. Also, our pending patent applications may not issue, may issue with substantially narrower claims than currently pending claims, or we may not receive any additional patents. Further, the laws of foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States. Our patents might not contain claims that are sufficiently broad to prevent others from practicing our technologies or from competing with us with their own stem cell technology in the fields of interest to us.

 

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Although the Company has obligations of assignment and has been assigned patents and patent applications concerning the stem cell products and their uses, none of those patents or presently pending applications has granted claims or pending claims that, if granted, would prevent a third party from commercializing their own allogeneic stem cell therapy for those indications that we are studying. Consequently, our competitors may independently develop competing products that do not infringe our patents or other intellectual property.

  

Control over patented technology requires the Company to obtain formal assignment of patents and applications from third parties. Although the Company believes it has contracts requiring formal assignment of the patent properties in its patent portfolio, there is risk that the inventors and research partners now of record as owning these patent properties will refuse to execute documents confirming assignment of their rights to the Company or that litigation will be required to compel the execution of those documents. In the meantime those inventors and research partners may claim to be co-owners of some of the patent portfolio.

 

Because of the extensive time required for development, testing, and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of the patent. To the extent our product candidates based on that technology are not commercialized ahead of this patent expiration, to the extent we have no other patent protection on such products, or to the extent that regulatory or patent extensions are not granted, those products might not have the robust protection we currently expect to enjoy. The background technologies used in the development of our product candidates are known in the scientific community, and it may be possible to duplicate the methods we use to create our product candidates, which makes us vulnerable to competition, without the ability to exclude others from potentially commercializing a similar product.

 

If certain license agreements are terminated, our ability to continue clinical trials and commercially market products could be adversely affected.

 

We are a party to various agreements that give us rights to use specified technologies applicable to research, development, and commercialization of our product candidates. If these agreements are voided or terminated, our product development, research, and commercialization efforts may be altered or delayed. Certain aspects of our technology rely on inventions developed using university or other third-party resources. The universities or third parties may have certain rights, as defined by law or applicable agreements, and may choose to exercise such rights. If we fail to comply with any terms or provisions of these agreements, our rights and our access to the universities’ or third parties’ resources could be terminated. The Exclusive License Agreement with the University of Miami dated November 20, 2014, as amended on December 11, 2017, requires the Company to pay fees and royalties and to make commercially reasonable efforts to achieve milestones. The University of Miami may terminate the Exclusive License Agreement for material breach if the fees, royalties, or milestones are not met, or an extension to achieve the milestones is not agreed upon.

 

Some of our employees, including but not limited to Dr. Hare, are employed by third party employers in addition to their employment by the Company. Such employees may owe obligations to the third party employers related to that employment. Those third party employers may assert that they are entitled to assignment of some or all rights of new inventions made by such employees. If we are unable to conclusively prove that we are entitled to assignment of those rights, we may be required to negotiate co-ownership to or a license of those rights, if such an arrangement is available at all.

 

If we are unable to protect the confidentiality of our proprietary information, trade secrets, and know-how, our competitive position could be impaired and our business, financial condition, results of operations, and prospects could be adversely affected.

 

As disclosed above, some aspects of our technology, especially regarding manufacturing processes, are unpatented and maintained by us as trade secrets. In an effort to protect these trade secrets, we require our employees, consultants, collaborators, and advisors to execute confidential disclosure agreements before the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. A breach of confidentiality could affect our competitive position. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators, or advisors have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

 

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Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets could impair our competitive position and could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

Third-party claims of intellectual property infringement may prevent or delay our product development efforts.

 

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates, methods of making product candidates, and methods of using product candidates may give rise to claims of infringement of the patent rights of others.

 

Third parties may assert that we infringe their patents or are otherwise employing their proprietary technology without authorization and may sue us. We are aware of several U.S. patents held by third parties covering potentially similar or related products and their manufacture and use. Generally, conducting clinical trials and other acts relating to FDA approval are not considered acts of infringement in the United States. If and when Lomecel-B MSCs are approved by the FDA, third parties may seek to enforce their patents by filing a patent infringement lawsuit against us. Patents issued in the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standard of proof. We may not be able to prove in litigation that any patent enforced against us is invalid.

 

Additionally, there may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. Some of those patent applications may not yet be available for public inspection. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates, constructs or molecules used in or formed during the manufacturing process, or any final product itself, the holders of any such patents may be able to block our ability to commercialize the product candidate unless we obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held not infringed, unpatentable, invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the product candidate unless we obtained a license or until such patent expires or is finally determined to be held not infringed, unpatentable, invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, our ability to commercialize our product candidates may be impaired or delayed, which could in turn significantly harm our business.

 

Parties making claims against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our product candidates. They might seek an exclusion order from the International Trade Commission to prevent import of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business and may impact our reputation. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize our product candidates, which could harm our business significantly.

 

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We may become involved in lawsuits to protect or enforce our patents or the patents of our collaborators or licensors, which could be expensive and time consuming.

 

Litigation may be necessary to enforce patents issued or licensed to us, to protect trade secrets or know-how, or to determine the scope and validity of the proprietary rights. Litigation, opposition, or other patent office proceedings could result in substantial additional costs and diversion of management focus. If we are ultimately unable to protect our technology, trade secrets, or know-how, we may be unable to operate profitably. Competitors may infringe our patents or the patents of our collaborators or licensors. As a result, we may be required to file infringement claims to protect our proprietary rights, which can be expensive and time-consuming, particularly for a company of our size. In addition, in an infringement proceeding, a court may decide that a patent of ours is invalid or is unenforceable, or may refuse to enjoin the other party from using the technology at issue. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly. Litigation or other patent office proceedings may fail and, even if successful, may result in substantial costs and distraction to our management. We may not be able, alone or with our collaborators and licensors, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

 

Furthermore, though we would seek protective orders where appropriate, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments. If investors perceive these results to be negative, the market price for our Class A common stock could be significantly harmed.

 

The biotechnology industry, including our fields of therapeutic interest, is highly competitive and subject to significant and rapid technological change. Accordingly, our success may depend, in part, on our ability to respond quickly to such change through the development and introduction of new products. Our ability to compete successfully against currently existing and future alternatives to our product candidates and systems and competitors who compete directly with us in the biopharmaceutical industry may depend, in part, on our ability to attract and retain skilled scientific and research personnel, develop technologically superior products, develop competitively priced products, obtain patent or other required regulatory approvals for our products, and be early entrants to the market and manufacture, market, and sell our products, independently or through collaborations. If a third party were to commercialize a competitive product, there is no assurance that we would have a basis for initiating patent infringement proceedings or that, if initiated, we would prevail in such proceedings.

 

If our product candidates are approved by the FDA, then potential competitors who seek to introduce generic versions of our product candidates may seek to take advantage of the abbreviated approval pathway for biological products shown to be biosimilar to or interchangeable with our product candidates. The Biologics Price Competition and Innovation Act of 2009 might permit these potential competitors to enter the market using a shorter and less costly development program for a biosimilar product that competes with our products.

 

If the Company’s intellectual property has not all been properly assigned to the Company, our business, financial condition, results of operation, and prospects could be adversely affected.

 

While the Company believes that each patent application or patent has already been assigned or, if it has not yet been formally assigned, is under an obligation to be assigned to the Company either through direct employment agreements between the Company and the inventors, or through research agreements with a third party and the Company, if such is not the case, our business, financial condition, results of operations, and prospects could be adversely affected.

 

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Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

 

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

  others may be able to develop products that are similar to our product candidates but that are not covered by the claims of the patents that we own or license;
     
  we or our licensors might not have been the first to make the inventions covered by the issued patents or patent application that we own or license;
     
  we or our licensors might not have been the first to file patent applications covering certain of our inventions;
     
  others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
     
  some or all of our licensors’ pending patent applications may not lead to issued patents;
     
  issued patents that we own or license may be held invalid or unenforceable, as a result of legal challenges by our competitors;
     
  our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets or in commercial markets where we do not have patent rights;
     
  we may not develop additional proprietary technologies that are patentable; and
     
  the patents of others may have an adverse effect on our business.

 

Should any of these events occur, it could significantly harm our business, results of operations and prospects.

 

Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common shares to decline.

 

During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our existing products, programs or intellectual property could be diminished. Accordingly, the market price of shares of our Class A common stock may decline. Such announcements could also harm our reputation or the market for our future products, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

 

In September 2011, the Leahy-Smith America Invents Act, or Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first inventor to file” system in which, assuming that other requirements of patentability are met, the first inventor to file a patent application will be entitled to the patent regardless of whether a third party was first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013 but before us could therefore be awarded a patent covering an invention of that we also made even if we had made the invention before the invention was made independently by such third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to either (1) file any patent application related to our product candidates or (2) invent any of the inventions claimed in our patents or patent applications.

 

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The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review (PGR), inter partes review (IPR), and derivation proceedings. An adverse determination in any such submission or proceeding could reduce the scope or enforceability of, or invalidate, our patent rights, which could adversely affect our competitive position.

 

Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a patent claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Thus, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or licensors’ patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

Changes in U.S. patent law, or laws in other countries, could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

 

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve a high degree of technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property and may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to us.

 

For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our or our licensors’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our or our licensors’ ability to obtain new patents or to enforce our existing patents and patents we might obtain in the future.

 

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.

 

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the term of a patent, and the protection it affords, are limited. Even if patents directed to our product candidates are obtained, once the patent term has expired, we may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory review of product candidates, patents directed to our product candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

 

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If we or our licensors do not obtain patent term extension for our product candidates and/or methods of their use, our business may be materially harmed.

 

Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates and their methods of use, one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, or the Biologics Price Competition and Innovation Act of 2009. These laws permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. A maximum of one patent may be extended per FDA-approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended.

 

Patent term extension may also be available in certain foreign countries upon regulatory approval of our product candidates. However, we or our licensors may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Patent term extension may also not be granted because the product candidates and/or methods of use are determined not to be the first permitted marketing or use of those drug candidates in the jurisdiction in question, or patent term extension may not be granted because the product candidates and/or methods of use are determined not to constitute an “active ingredient” or use of an “active ingredient” that is eligible for patent term extension. Moreover, if patent term extension is granted then the additional time period or the scope of patent protection afforded could be less than we request. If we or our licensors are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

 

We may not be able to protect our intellectual property rights throughout the world.

 

Although we have in-licensed issued patents and pending patent applications in the United States and certain other countries, filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our in-licensed inventions in all countries outside the United States or from selling or importing products made using our in-licensed inventions in and into the United States or other jurisdictions. Competitors may use our in-licensed technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we or our licensors have patent protection but enforcement is not as strong as that in the United States. These products may compete with our product candidates, and our or our licensors patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of many foreign countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our or our licensors’ patents or marketing of competing products in violation of our proprietary rights. Proceedings to enforce our or our licensors’ patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our or our licensors’ patents at risk of being invalidated or interpreted narrowly and our or our licensors’ patent applications at risk of not issuing and could provoke third parties to assert claims against us. We or our licensors may not prevail in any lawsuits that we or our licensors initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our or our licensors’ efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

 

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Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patents. If we or our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.

 

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by regulations and governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on third parties to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business, financial condition, and results of operations.

 

Risks Related to Regulatory Approval and Other Government Regulations

 

If we are not able to successfully develop and commercialize our product candidates and obtain the necessary regulatory approvals, we may not generate sufficient revenues to continue our business operations.

 

To generate sales revenue from our product candidates, we must conduct extensive preclinical studies and clinical trials to demonstrate that our product candidates are safe and effective and we must obtain required regulatory approvals. Our early stage product candidates may fail to perform as we expect. Moreover, our product candidates in later stages of development may fail to show the required safety and effectiveness for approval despite having progressed successfully through preclinical or initial clinical testing. We may need to devote significant additional research and development, financial resources, and personnel to develop commercially viable products. If our product candidates do not prove to be safe and efficacious in clinical trials, we will not obtain the required regulatory approvals. If we fail to obtain such approvals, we may not generate sufficient revenues to continue our business operations.

 

Even if we obtain regulatory approval of a product, that approval may be subject to limitations on the indicated uses for which it may be marketed. Even after granting regulatory approval, the FDA and regulatory agencies in other countries continue to review and inspect marketed products, manufacturers, and manufacturing facilities, which may create additional regulatory burdens. Later discovery of previously unknown problems with a product, manufacturer, or facility may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market or a withdrawal of the approved application by the FDA. Furthermore, FDA may require post-approval studies or other commitments from us, and failure to comply with or meet those commitments could result in withdrawal of the approved application by FDA. Regulatory agencies may also establish additional regulations, policies, or guidance that could prevent or delay regulatory approval of our product candidates.

 

We cannot market and sell our product candidates in the United States or in other countries if we fail to obtain the necessary regulatory approvals.

 

We cannot sell our product candidates until regulatory agencies grant marketing approval. The process of obtaining regulatory approval is lengthy, expensive, and uncertain, and the legal requirements for obtaining approval may change. It is likely to take several years to obtain the required regulatory approvals for our lead signaling cell product candidates, or we may never gain the necessary approvals. Any difficulties that we encounter in obtaining regulatory approval may have a substantial adverse impact on our operations. Moreover, because our product candidates are all based on only three platform technologies, any adverse events in any of our clinical trials for one of our product candidates could negatively impact the clinical trials and approval process for our other product candidates.

 

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The pathway to regulatory approval for MSCs may be more complex and lengthy than for approval of a new conventional drug. Similarly, to obtain approval to market our cell products outside of the United States, we, together with our collaborative partners, will need to file appropriate applications and submit clinical data concerning our product candidates and receive regulatory approval from governmental agencies, which in certain countries includes approval of the price we intend to charge for our product. We may encounter delays or rejections if changes occur in regulatory agency regulations, policies or guidance during the period in which we develop a product candidate or during the period required for review of any application for regulatory agency approval. If we are not able to obtain regulatory approvals for use of our product candidates under development, we will not be able to commercialize such products, and therefore may not be able to generate sufficient revenues to support our business.

 

If we are not able to conduct our clinical trials properly and on schedule, marketing approval by FDA and other regulatory authorities may be delayed or denied.

 

The completion of our clinical trials may be delayed or terminated for many reasons, including, but not limited to, if:

 

  the FDA does not grant INDs to test the product candidates in humans;
     
  the FDA does not grant, or suspends, permission to proceed and places the trial on clinical hold;
     
  we are not able to identify sufficient clinical trial sites and/or clinical trial investigators to begin or complete a trial;
     
  subjects do not enroll in our trials at the rate we expect;
     
  subjects experience an unacceptable rate or severity of adverse side effects;
     
  third-party clinical investigators do not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, Current Good Clinical Practice (cGCP) and regulatory requirements, or other third parties do not perform data collection and analysis in a timely or accurate manner;
     
  inspections by the FDA or Institutional Review Boards (IRBs) of clinical trial sites at research institutions participating in our clinical trials find regulatory violations that require us to undertake corrective action, suspend, or terminate one or more sites, or prohibit us from using some or all of the data in support of our marketing applications; or
     
  one or more IRBs suspends or terminates the trial at an investigational site, precludes enrollment of additional subjects, or withdraws its approval of the trial.

 

Our development costs will increase if we have material delays in our clinical trials, or if we are required to modify, suspend, terminate, or repeat a clinical trial. If we are unable to conduct our clinical trials properly and on schedule, marketing approval may be delayed or denied by the FDA.

 

Final marketing approval of our product candidates by the FDA or other regulatory authorities for commercial use may be delayed, limited, or denied, any of which could adversely affect our ability to generate operating revenues.

 

Final marketing approval for our product candidates may be delayed, limited, or denied if, among other factors:

 

  we are unable to satisfy the significant clinical testing required to demonstrate safety and effectiveness of our product candidates before marketing applications can be filed with the FDA;
     
  FDA does not agree with our interpretation of data obtained from preclinical and nonclinical animal testing and clinical trials, even though the data can be interpreted in different ways;
     
  we fail at any stage of the development and testing of our product candidates, which may take years to complete;

 

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  we receive negative or inconclusive results or reports of adverse side effects during a clinical trial; or
     
  the FDA requires us to expand the size and scope of the clinical trials.

 

If marketing approval for our product candidates is delayed, limited, or denied, our ability to market products, and our ability to generate product sales, could be adversely affected.

 

Alzheimer’s disease has failed every attempt at drug approval, and we have not had success to date in developing Alzheimer’s disease therapeutics.

 

Despite billions of dollars invested by the biopharmaceutical industry in research programs to develop novel therapeutics for AD, no FDA approved treatments have been developed. Many new types and classes of drugs have been developed and tested in AD, including monoclonal antibodies, g-secretase modulators and inhibitors, β-site amyloid precursor protein cleaving enzyme (BACE) inhibitors, receptor for advanced glycation end-products (RAGE) inhibitors, nicotinic agonists, serotonin subtype receptor (5HT6) antagonists, and others. All of these scientific programs have failed in clinical testing. Moreover, we have not had any success to date in developing therapeutics for AD, and may never do so.

 

We may not be able to secure and maintain research institutions to conduct our clinical trials.

 

We rely on research institutions to conduct our clinical trials. Specifically, the limited number of bone marrow transplant centers further heightens our dependence on such research institutions for our Phase 3 clinical trials. Our reliance upon research institutions, including hospitals and clinics, provides us with less control over the timing and cost of clinical trials and the ability to recruit subjects. If we are unable to reach agreement with suitable research institutions on acceptable terms, or if any resulting agreement is terminated, we may be unable to quickly replace the research institution with another qualified institution on acceptable terms. Even if we do replace the institution, we may incur additional costs to conduct the trial at the new institution. We may not be able to secure and maintain suitable research institutions to conduct our clinical trials.

 

Producing and marketing an approved drug or other medical product is subject to significant and costly post-approval regulation.

 

Even if approved for commercial sale, we may be required to conduct Phase 4 clinical trials or comply with other post-marketing requirements for the products. Even if we obtain approval of a product, we can only market the product for the approved indications. After granting marketing approval, the FDA and regulatory agencies in other countries continue to review and inspect marketed products, manufacturers, and manufacturing facilities, creating additional regulatory burdens. Later discovery of previously unknown problems with a product, manufacturer, or facility may result in restrictions on the product or manufacturer, including a withdrawal of the product from the market. Further, regulatory agencies may establish different or additional regulations that could impact the post-marketing status of our products.

 

Our business involves the use of hazardous materials that could expose us to environmental and other liability.

 

We have contract facilities in Florida that are subject to various local, state, and federal laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances, including chemicals, micro-organisms, and various radioactive compounds used in connection with our research and development activities. In the United States, these laws include the Occupational Safety and Health Act, the Toxic Test Substances Control Act, and the Resource Conservation and Recovery Act. We cannot guarantee that accidental contamination or injury to our employees and third parties from hazardous materials will not occur. We do not have insurance to cover claims arising from our use and disposal of these hazardous substances other than limited clean-up expense coverage for environmental contamination due to an otherwise insured peril, such as fire.

 

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Risks Related to Our Dependence on Third Parties

 

We rely on third parties to provide us with supplies to produce our product candidates. Any problems experienced by these third parties could result in a delay or interruption in the supply of our product candidates for our clinical trials and future approved products to our customers, which could have a material negative effect on our business.

 

We rely on third parties to provide us with supplies to produce our product candidates. If the operations of these third parties are interrupted or if they are unable to meet our delivery requirements due to capacity limitations or other constraints, we may be limited in our ability to fulfill our supply and product candidate needs. Any prolonged disruption in the operations of third parties could have a significant negative impact on our ability to produce our product candidates for pre-clinical and clinical trials or sell our future approved products, could harm our reputation and could cause us to seek other third-party contracts, thereby increasing our anticipated development and commercialization costs. In addition, if we are required to change third parties for any reason, we will be required to verify that the new third parties maintain facilities and procedures that comply with quality standards required by the FDA and with all applicable regulations and guidelines. The delays associated with the verification of a new third party could negatively affect our ability to develop product candidates or receive approval for any product candidates in a timely manner.

 

We are currently dependent upon third parties for services and raw materials needed for the manufacture of our product candidates, and if these products are successfully commercialized, may become dependent upon third parties for product distribution. If any of these third parties fail or are unable to perform in a timely manner, our ability to manufacture and deliver could be compromised.

 

To produce our product candidates for use in clinical studies, and to produce any of our product candidates that may be approved for commercial sale, we require biologic media, reagents, and other highly specialized materials in addition to the bone marrow aspirate used in the manufacture of our product candidates. These items must be manufactured and supplied to us in sufficient quantities and in compliance with the regulations governing GMP and Current Good Tissue Practice (cGTP) promulgated by the FDA. To meet these requirements, we have entered into supply agreements with firms that manufacture these components to meet GMP and cGTP standards. Our requirements for these items are expected to increase if and when we transition to the manufacture of commercial quantities of our product candidates.

 

In addition, as we proceed with our clinical trial efforts, we must be able to demonstrate to the FDA that we can manufacture our product candidates with consistent characteristics. While we currently produce our product candidates in our own facility, scaling up the manufacturing process would require us to develop a larger facility, which could require significant time and capital investments to conform to applicable manufacturing standards, or outsource manufacturing, which would cause us to be materially dependent on these suppliers for supply of GMP- and cGTP-grade components of consistent quality. Our ability to complete ongoing clinical trials may be negatively affected in the event that we are forced to seek and validate a replacement source for any of these critical components. If we are not able to obtain adequate supplies of these items of consistent quality from our third-party suppliers, it will also be more difficult to manufacture commercial quantities of our product candidates that are approved for commercial sale.

 

In addition, if one or more of our product candidates is approved for commercial sale, we intend to rely on third parties for their distribution. Proper shipping and distribution requires compliance with specific storage and shipment procedures (e.g., prevention of damage to shipping materials and prevention of temperature excursions during shipment). Failure to comply with such procedures will necessitate return and replacement, potentially resulting in additional cost and causing us to fail to meet supply requirements.

 

Use of third-party manufacturers may increase the risk that we will not have adequate quantities of our product candidates.

 

We may use a third-party manufacturer to supply our product candidates for clinical trials or other uses at some point. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured such components ourselves, including:

 

  reliance on the third party for regulatory compliance and quality assurance;

 

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  the possible breach of the manufacturing agreement by the third party; and
     
  the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.

 

Future contract manufacturers are or will be subject to all of the risks and uncertainties that we would have if we manufactured the product candidates on our own. Similar to us, they are subject to ongoing, periodic, and unannounced inspection by the FDA and corresponding state and foreign agencies or their designees to ensure strict compliance with GMP and cGTP regulations and other governmental regulations and corresponding foreign standards. Although we do not control compliance by our contract manufacturers with these regulations and standards, we—as the manufacturer—assume the liabilities for our contract manufacturers’ non-compliance. Our future contract manufacturers might not be able to comply with these regulatory requirements. If our third-party manufacturers fail to comply with applicable regulations, the FDA or other regulatory authorities could impose penalties on us, including fines, injunctions, civil penalties, consent decrees, compliance with FDA’s Application Integrity Policy, issuance of warning or untitled letters, denial of marketing approval of our product candidates, delays, suspensions, or withdrawals of approvals, license revocation, seizures or recalls of product candidates or our other products, operating restrictions, and criminal prosecutions. Any of these actions could significantly and adversely affect supplies of our product candidates or other products and could have a material adverse effect on our business, financial condition, and results of operations.

 

If we decide to use third-party manufacturers in the future, they will likely be dependent upon their own third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

 

The operations of any future third-party manufacturers will likely be dependent upon their own third-party suppliers. A supply interruption or an increase in demand beyond a supplier’s capabilities could harm the ability of any future manufacturers to manufacture our product candidates or intended products until the manufacturer identifies and qualifies new sources of supply. Reliance on these third-party manufacturers and their suppliers could subject us to a number of risks that could harm our business, including:

 

  interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
     
  failure of third-party manufacturers or suppliers to comply with their own legal and regulatory requirements;
     
  delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component;
     
  a lack of long-term supply arrangements for key components with our suppliers;
     
  inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms;
     
  difficulty and cost associated with locating and qualifying alternative suppliers for components in a timely manner;
     
  production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications;
     
  delay in delivery due to suppliers prioritizing other customer orders over ours or those of our third-party manufacturers;
     
  damage to our brand reputation caused by defective components produced by the suppliers; and
     
  fluctuation in delivery by the suppliers due to changes in demand from us, our third-party manufacturers or their other customers.

 

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Any interruption in the supply of components of our product candidates or future products or materials, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demands of our clinical trials or of our future customers, which would have an adverse effect on our business.

 

We will depend on third-party distributors in the future to market and sell our future products which will subject us to a number of risks.

 

We will depend on third-party distributors to sell, market, and service our future products in our intended markets. We are subject to a number of risks associated with reliance upon third-party distributors including:

 

  lack of day-to-day control over the activities of third-party distributors;
     
  failure of the third-party distributors to comply with their own legal and regulatory requirements;
     
  third-party distributors may not commit the necessary resources to market and sell our future products to our level of expectations;
     
  third-party distributors may terminate their arrangements with us on limited or no notice or may change the terms of these arrangements in a manner unfavorable to us; and
     
  disagreements with our future distributors could result in costly and time-consuming litigation or arbitration which we could be required to conduct in jurisdictions with which we are not familiar.

 

If we fail to establish and maintain satisfactory relationships with our future third-party distributors, our revenues and market share may not grow as anticipated, and we could be subject to unexpected costs which could harm our results of operations and financial condition.

 

The successful commercialization of our current or future product candidates will depend on obtaining reimbursement from government and third-party payors.

 

If we successfully develop and obtain necessary regulatory approvals, we intend to sell our product candidates in countries such as the United States and Japan. In the United States, the market for any pharmaceutical product is affected by the availability of reimbursement from government and third-party payors, such as government health administration authorities, private health insurers, health maintenance organizations, and pharmacy benefit management companies. MSC therapies may be expensive compared with conventional pharmaceuticals, due to the higher cost and complexity associated with the research, development, and production of product candidates, the small size and large geographic diversity of the target patient population for some indications, and the complexity associated with distribution of signaling cell therapies which require special handling, storage, and shipment procedures and protocols. This, in turn, may make it more difficult for us to obtain adequate reimbursement from government and third-party payors, particularly if we cannot demonstrate a favorable cost-benefit relationship. Government and third-party payors may also deny coverage or offer inadequate levels of reimbursement for our potential products if they determine that the product has not received appropriate clearances from the FDA or other government regulators or is experimental, unnecessary or inappropriate.

 

In some other countries where we may seek to market our products, such as Japan, the pricing of prescription pharmaceutical products and services and the level of government reimbursement are subject to governmental control. In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we or our potential future collaborators may be required to conduct one or more clinical trials that compare the cost effectiveness of our product candidates or products to other available therapies. Conducting one or more additional clinical trials would be expensive and could result in delays in commercialization of our product candidates.

 

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Managing and reducing health care costs has been a general concern of federal and state governments in the United States and various foreign governments. Although we do not believe that any recently enacted or presently proposed legislation in any jurisdictions in which we currently operate should impact our business based on our current model, we might be subject to future regulations or other cost-control initiatives that materially restrict the price we would receive for our products. In addition, government and third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services, and many limit reimbursement for newly approved health care products. In particular, government and third-party payors may limit the indications for which they will reimburse patients who use any products that we may develop. Cost control initiatives could decrease the price for products that we may develop, which could result in lower product revenues to us.

 

We may enter into arrangements with third-party collaborators to help us develop our product candidates and commercialize our products, and our ability to commercialize such products may be impaired or delayed if collaborations are unsuccessful.

 

We are parties to various collaborations with third parties, and may enter into additional collaborations in the future. We are dependent upon the success of our current and any future collaborators in performing their responsibilities in connection with the relevant collaboration. If we fail to maintain these collaborative relationships for any reason, we would need to perform the activities that we currently anticipate would be performed by our collaborators on our own at our sole expense. This could substantially increase our capital needs, and we may not have the capability or financial capacity to undertake these activities on our own, or we may not be able to find other collaborators on acceptable terms, or at all. This may limit the programs we are able to pursue and result in significant delays in the development, sale, and manufacture of our product candidates and products, and may have a material adverse effect on our business, financial condition, and results of operations.

 

Our dependence upon our current and potential future collaborations exposes us to a number of risks, including that our collaborators (i) may fail to cooperate or perform their contractual obligations, including financial obligations, (ii) may choose to undertake differing business strategies or pursue alternative technologies, or (iii) may take an opposing view regarding ownership of clinical trial results or intellectual property.

 

Due to these factors and other possible events, we could suffer delays in the research, development, or commercialization of our product candidates and future products or we may become involved in litigation or arbitration, which could be time consuming and expensive. We additionally may be compelled to split revenue with our collaborators, which could have a material adverse effect on our business, financial condition, and results of operations.

 

If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

 

From time to time, we may evaluate various acquisition opportunities and strategic partnerships, including licensing or acquiring complementary products or product candidates, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

 

  increased operating expenses and cash requirements;
     
  the assumption of additional indebtedness or contingent liabilities;
     
  the issuance of our equity securities;
     
  assimilation of operations, intellectual property and products or product candidates of an acquired company, including difficulties associated with integrating new personnel;
     
  the diversion of our management’s attention from our existing programs and initiatives in pursuing such a strategic merger or acquisition;
     
  retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships;

 

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  risks and uncertainties associated with the other party to such a transaction, including the prospects of that party to receive marketing approvals for their existing products or product candidates; and
     
  our inability to generate revenue from acquired technology, product candidates and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

 

In addition, if we undertake acquisitions or pursue partnerships in the future, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities, and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

 

Risks Related to the Discovery, Development and Commercialization of Our Product Candidates

 

Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.

 

From time to time, we may publicly disclose preliminary or topline data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data. These results and related findings and conclusions are based on assumptions, estimations, calculations and conclusions, and are subject to change following the generation of additional data or a more comprehensive review of the data related to the particular study or trial. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline and preliminary data should be viewed with caution until the final data are available.

 

From time to time, we may also disclose interim data from our preclinical studies and clinical trials. For example, we have reported interim data from our ongoing clinical trials, elsewhere in this prospectus. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as subject enrollment continues and more subject data become available or as subjects from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our Class A common stock after this offering.

 

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.

 

If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could have a material adverse effect on our business, financial condition, and results of operations.

 

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We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on other product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

 

Because we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other therapeutic platforms or product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs, therapeutic platforms and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights.

 

The U.S. FDA, Japanese PMDA and other comparable foreign regulatory authorities may not accept data from trials conducted in locations outside of their jurisdiction.

 

We may choose to conduct international clinical trials in the future. The acceptance of study data by the U.S. FDA, Japanese PMDA or other comparable foreign regulatory authority from clinical trials conducted outside of their respective jurisdictions may be subject to certain conditions. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (1) the data are applicable to the United States population and United States medical practice; (2) the trials are performed by clinical investigators of recognized competence and pursuant to cGCP requirements; and (3) the FDA is able to validate the data through an on-site inspection or other appropriate means. The FDA may accept the use of some foreign data to support a marketing approval if the clinical trial meets certain requirements. Additionally, the FDA’s clinical trial requirements, including the adequacy of the subject population studied and statistical powering, must be met. Furthermore, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. In Japan, the PMDA is requiring us to conduct our Japanese Phase 2 trial in a Japanese population in order to demonstrate safety and efficacy in Japanese subjects. There can be no assurance that the FDA, PMDA or any applicable foreign regulatory authority will accept data from trials conducted outside of its respective jurisdiction. If the FDA, PMDA or any applicable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving approval for commercialization in the applicable jurisdiction.

 

Obtaining and maintaining regulatory approval of a product in one jurisdiction does not mean that we will be successful in obtaining or maintaining regulatory approval in other jurisdictions.

 

Obtaining and maintaining regulatory approval of a product in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction. For example, even if the FDA or PMDA grants marketing approval of a product, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion and reimbursement of the product in those countries. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. Moreover, product types or regulatory classifications, as well as approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including different or additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

 

Obtaining foreign regulatory approvals and establishing and maintaining compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we or any future collaborator fails to comply with the regulatory requirements in international markets or fails to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.

 

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The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

 

If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular, an approved product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label, which is within their purview as part of their practice of medicine. If we are found to have promoted such off-label uses, however, we may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. The FDA may also issue a public warning letter or untitled letter to the company. If we cannot successfully manage the promotion of our future approved products, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

 

If we are required by the FDA to obtain approval of a companion diagnostic test in connection with approval of any of our product candidates, and we do not obtain or face delays in obtaining FDA approval of a diagnostic test, we will not be able to commercialize such future approved product and our ability to generate revenue will be materially impaired.

 

If safe and effective use of any of our product candidates depends on the use of an in vitro diagnostic test that is not otherwise commercially available, then the FDA generally will require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves our product candidates if at all. According to FDA guidance, if the FDA determines that a companion diagnostic is essential to the safe and effective use of a novel therapeutic product or indication, then the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic is not also approved or cleared for that indication. If a satisfactory companion diagnostic is not commercially available, we may be required to create or obtain one that would be subject to its own regulatory approval requirements. The process of obtaining or creating such diagnostic is time consuming and costly.

 

Companion diagnostics are developed in conjunction with clinical programs for the associated product and are subject to regulation as medical devices by the FDA and comparable regulatory authorities. The approval of a companion diagnostic as part of the therapeutic product labeling limits the use of the therapeutic product to only those patients who express the specific genetic alteration that the companion diagnostic was developed to detect.

 

If the FDA, PMDA or a comparable regulatory authority requires approval of a companion diagnostic for any of our product candidates, whether before or after it obtains marketing approval, we, and/or future collaborators, may encounter difficulties in developing and obtaining approval for such product candidate. Any delay or failure by us or third-party collaborators to develop or obtain regulatory approval of a companion diagnostic could delay or prevent approval of a product candidate or continued marketing of an approved product.

 

We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process for the companion diagnostic or in transferring that process to commercial partners or negotiating insurance reimbursement plans, all of which may prevent us from completing our clinical trials of a product candidate or commercializing an approved product on a timely or profitable basis, if at all.

 

We may attempt to secure approval from the FDA or comparable foreign regulatory authorities through an expedited review program, and if we are unable to do so, then we could face increased expense to obtain, and delays in the receipt of, necessary marketing approvals.

 

We may in the future seek approval for one or more of our product candidates under one of the FDA’s expedited review programs for serious conditions. These programs are available to sponsors of therapies that address an unmet medical need to treat a serious condition. The qualifying criteria and requirements vary for each expedited program. Prior to seeking review under one of these expedited programs for any of our product candidates, we intend to seek feedback from the FDA and will otherwise evaluate our ability to seek and receive marketing approval through an expedited review program.

 

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There can be no assurance that, after our evaluation of the FDA’s feedback and other factors, we will decide to pursue one or more of these expedited review programs. Similarly, there can be no assurance that after subsequent FDA feedback we will continue to pursue one or more of these expedited programs, even if we initially decide to do so. Furthermore, FDA could decide not to grant our request to use one or more of the expedited review programs for a product candidate, even if the FDA’s initial feedback is that the product candidate would qualify for such program(s). Moreover, FDA can decide to stop reviewing a product candidate under one or more of these expedited review programs if, for example, the conditions that warranted expedited review no longer apply to that product candidate.

 

Some of these expedited programs (e.g., accelerated approval) also require post-marketing clinical trials to be completed and, if any such required trial fails, the FDA could withdraw the approval of the product. If one of our product candidates does not qualify for any expedited review program, then this could result in a longer time period to approval and commercialization of such product candidate, could increase the cost of development of such product candidate, and could harm our competitive position in the marketplace.

 

We may face difficulties from changes to current regulations and future legislation, both in the U.S. as well as in other foreign jurisdictions where we may be operating.

 

Existing regulations and regulatory policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

 

For example, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges and attempts to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal, or repeal and replace, all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have passed. On December 22, 2017, President Trump signed into law federal tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act, which includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. In addition, the 2020 federal spending package permanently eliminates, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. The Bipartisan Budget Act of 2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare Part D drug plans. In December 2018, the Centers for Medicare & Medicaid Services, or CMS, published a new final rule permitting further collections and payments to and from certain ACA-qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit ruled that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how these decisions, future decisions, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and our business.

 

In addition, other legislative changes have been proposed and adopted in the United States that could impact our future business and operations, including those that may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for our product candidates, if approved, and accordingly, our business, financial condition, and results of operations.

 

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Moreover, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, at the federal level, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. Although future measures will require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

 

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our product candidates.

 

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for biotechnology products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

 

Our relationships with healthcare professionals, clinical investigators, CROs and third-party payors in connection with our current and future business activities may be subject to federal and state healthcare fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws, which could expose us to, among other things, criminal sanctions, civil penalties, contractual damages, exclusion from governmental healthcare programs, reputational harm, administrative burdens and diminished profits and future earnings.

 

Healthcare providers and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain future marketing approval. Our current and future arrangements with healthcare professionals, clinical investigators, contract research organizations (CROs), third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

 

  the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

  

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  the federal false claims and civil monetary penalties laws, including the civil False Claims Act, which can be enforced by private citizens through civil whistleblower or qui tam actions, prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

  HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
     
  the federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to CMS starting in 2022 information regarding payments and other transfers of value to physicians, certain other healthcare providers and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family members. The information reported is publicly available on a searchable website, with disclosure required annually; and
     
  analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

 

Some state laws require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Some state laws require biotechnology companies to report information on the pricing of certain drug products. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. For instance, the collection and use of health data in the European Union is governed by the General Data Protection Regulation, or the GDPR, which extends the geographical scope of European Union data protection law to non-European Union entities under certain conditions, tightens existing European Union data protection principles, creates new obligations for companies and new rights for individuals. Failure to comply with the GDPR may result in substantial fines and other administrative penalties. In addition, on June 28, 2018, the State of California enacted the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and similar laws have been proposed at the federal level and in other states.

 

Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve on-going substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, temporary or permanent debarment, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of our operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

 

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Inadequate funding for the FDA and other government agencies, or future government shutdown and or furlough of government employees, or public health emergencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being reviewed or approved in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

 

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel, the availability of industry-paid user fees, and statutory, regulatory, and policy changes. Average review times for product approvals at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

 

Disruptions at the FDA and other agencies, including those resulting from the current COVID-19 global pandemic, may also slow the time necessary for new products to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, if a prolonged government shutdown and/or government employee furloughs were to occur, or if FDA’s response to a global pandemic such as COVID-19 diverts FDA resources and attention to other regulatory efforts, then the ability of the FDA to timely review and process our regulatory submissions could be significantly impacted, which could have a material adverse effect on our business, financial condition, and results of operations. Further, upon completion of this offering and in our operations as a public company, future government shutdowns, furloughs or public health emergencies could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

 

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business, financial condition, and results of operations.

 

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

 

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of hazardous and flammable materials, including chemicals and biological materials.

 

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or commercialization efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

 

Our research and development activities could be affected or delayed as a result of possible restrictions on animal testing.

 

Certain laws and regulations require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, or if the laws and regulations regarding animal testing otherwise change, our research and development activities may be interrupted, delayed or become more expensive.

 

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Our business activities may be subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery and anti-corruption laws of other countries in which we operate, as well as U.S. and certain foreign export controls, trade sanctions, and import laws and regulations. Compliance with these legal requirements could limit our ability to compete in foreign markets and subject us to liability if we violate them.

 

If we further expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. Our business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits companies and their employees and third party intermediaries from offering, promising, giving or authorizing the provision of anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, hospitals owned and operated by the government, and doctors and other hospital employees would be considered foreign officials under the FCPA. Recently the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents or contractors, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, disgorgement, and other sanctions and remedial measures, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international activities, our ability to attract and retain employees and our business, prospects, operating results and financial condition.

 

In addition, our products and technology may be subject to U.S. and foreign export controls, trade sanctions and import laws and regulations. Governmental regulation of the import or export of our products and technology, or our failure to obtain any required import or export authorization for our products, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international markets or, in some cases, prevent the export of our products to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. If we fail to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons, or products targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export our products to existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell access to our products would likely adversely affect our business.

 

Risks Related to this Offering and Ownership of Our Class A Common Stock

 

There has been no prior public market for our Class A common stock. We do not know whether an active, liquid and orderly trading market will develop for our Class A common stock or what the market price of our Class A common stock will be and as a result it may be difficult for you to sell your shares of our Class A common stock.

 

Prior to this offering, no public market for shares of our Class A common stock existed and an active trading market for our Class A common stock may never develop or be sustained following this offering. We determined the initial public offering price for our Class A common stock through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of our Class A common stock after this offering. The market value of our Class A common stock may decrease from the initial public offering price. As a result of these and other factors, you may be unable to resell your shares of our Class A common stock at or above the initial public offering price. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. Furthermore, an inactive market may also impair our ability to raise capital by selling shares of our Class A common stock and may impair our ability to enter into strategic collaborations or acquire companies, technologies or other assets by using our shares of Class A common stock as consideration.

 

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The price of our stock may be volatile, and you could lose all or part of your investment.

 

The trading price of our Class A common stock following this offering is likely to be highly volatile and subject to wide fluctuations in response to various factors, some of which we cannot control. The stock market in general, and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.

 

Broad market and industry factors may negatively affect the market price of our Class A common stock, regardless of our actual operating performance. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this prospectus, these factors include:

 

  the timing and results of preclinical studies and clinical trials of our product candidates or those of our competitors;
     
  the success of competitive products or announcements by potential competitors of their product development efforts;
     
  regulatory actions with respect to our or our competitors’ product candidates or products;
     
  actual or anticipated changes in our growth rate relative to our competitors;
     
  regulatory or legal developments in the United States and other countries;
     
  developments or disputes concerning patent applications, issued patents or other proprietary rights;
     
  the recruitment or departure of key personnel;
     
  announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures, or capital commitments;
     
  actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
     
  fluctuations in the valuation of companies perceived by investors to be comparable to us;
     
  market conditions in the pharmaceutical and biotechnology sector;
     
  changes in the structure of healthcare payment systems;
     
  share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
     
  announcement or expectation of additional financing efforts;
     
  sales of our Class A common stock by us, our insiders or our other stockholders;
     
  expiration of market stand-off or lock-up agreements; and
     
  general economic, industry and market conditions.

 

The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have a dramatic and adverse impact on the market price of our Class A common stock.

 

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Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates on unfavorable terms to us.

 

In order to meet our operational goals, we will need to obtain additional capital, which we will likely obtain through a variety of means, including through public or private equity, debt financings or other sources, including up-front payments and milestone payments from strategic collaborations. To the extent that we raise additional capital through the sale of convertible debt or equity securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Such financing may result in dilution to stockholders, imposition of debt covenants, increased fixed payment obligations or other restrictions that may affect our business. If we raise additional funds through up-front payments or milestone payments pursuant to strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

 

The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.

 

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with dual class or multi-class share structures in certain of their indexes. In July 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares of common stock from being added to these indices. Beginning in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. As a result, our dual class capital structure would make us ineligible for inclusion in any of these indices, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our stock. These policies are still fairly new and it is as of yet unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices, but it is possible that they may depress these valuations compared to those of other similar companies that are included. Furthermore, we cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.

 

If securities or industry analysts do not publish research or reports, or if they publish adverse or misleading research or reports, regarding us, our business or our market, our stock price and trading volume could decline.

 

The trading market for our Class A common stock will be influenced by the research and reports that securities or industry analysts publish about us, our business or our market. We do not currently have and may never obtain research coverage by securities or industry analysts. If no or few securities or industry analysts commence coverage of us, the stock price would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue adverse or misleading research or reports regarding us, our business model, our intellectual property, our stock performance or our market, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

Our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.

 

We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

 

  variations in the level of expense related to the ongoing development of our product candidates or future development programs;

 

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  results of clinical trials, or the addition or termination of clinical trials or funding support by us or potential future partners;
     
  our execution of any collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under potential future arrangements or the termination or modification of any such potential future arrangements;
     
  any intellectual property infringement, misappropriation or violation lawsuit or opposition, interference or cancellation proceeding in which we may become involved;
     
  additions and departures of key personnel;
     
  strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
     
  if any of our product candidates receives regulatory approval, the terms of such approval and market acceptance and demand for such approved products;
     
  regulatory developments affecting our product candidates or future products, or those of our competitors; and
     
  changes in general market and economic conditions.

 

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our Class A common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

 

Holders of our Class B common stock will control the direction of our business and such parties’ ownership of our common stock will prevent you and other stockholders from influencing significant decisions.

 

Following the completion of this offering, two holders of our Class B common stock, Dr. Joshua Hare, our co-founder and Chief Scientific Officer, and DS MED LLC, a limited liability company controlled by a member of our Board, Don Soffer, will own approximately 95.35% of the combined voting power of our Class A and Class B common stock (or 94.90 % if the underwriters exercise their option to purchase additional shares in full), with each share of Class A common stock entitling the holder to one (1) vote and each share of Class B common stock entitling the holder to five (5) votes, on all matters submitted to a vote of our stockholders. For so long as holders of Class B common stock continue to hold the shares, they will still be able to significantly influence or effectively control the composition of our board of directors and the approval of actions requiring stockholder approval through their voting power. Accordingly, for such period of time, these holders will have significant influence with respect to our management, business plans and policies. In particular, for so long as the Class B common stock remains outstanding, the holders may be able to cause or prevent a change of control of our Company or a change in the composition of our board of directors, and could preclude any unsolicited acquisition of our Company. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Class A common stock as part of a sale of our Company and ultimately might affect the market price of our Class A common stock.

 

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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our Class A common stock.

 

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior 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 stock.

 

We will be required to disclose changes made in our internal controls and procedures on a quarterly basis and our management will be required to assess the effectiveness of these controls annually. However, for as long as we are an emerging growth company, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls over financial reporting could lead to restatements of our financial statements and require us to incur the expense of remediation.

 

If you purchase shares of our Class A common stock in our initial public offering, you will experience substantial and immediate dilution.

 

The initial public offering price of $10.00 per share is substantially higher than the net tangible book value per share of our outstanding Class A common stock immediately following the completion of this offering. If you purchase shares of Class A common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share of $8.61 per share as of September 30, 2020. That is because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the Class A common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution when those holding derivative securities or warrants vest or exercise their right to purchase Class A common stock under our equity incentive plans or when we otherwise issue additional shares of Class A common stock. See “Dilution.”

 

Sales of a substantial number of shares of our Class A common stock in the public market could cause our stock price to fall.

 

Our Class A common stock price could decline as a result of sales of a large number of shares of Class A common stock after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, might also make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate. Upon the completion of this offering, 3,004,077 shares of Class A common stock will be outstanding (3,403,077 shares if the underwriters exercise their option to purchase additional shares from us in full), based on the number of shares outstanding as of February 1, 2021.

 

All shares of Class A common stock expected to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act unless held by our “affiliates” as defined in Rule 144 under the Securities Act. The resale, following conversion, of 99.0% of our outstanding shares of Class B common stock following this offering, is currently prohibited or otherwise restricted as a result of securities law provisions, market standoff agreements entered into by certain of our stockholders with us or lock-up agreements entered into by our stockholders with the underwriters in connection with this offering. However, subject to applicable securities law restrictions, these shares will be able to be sold in the public market beginning 181 days after the date of this prospectus. Shares issued upon the exercise of stock options and warrants outstanding under our equity incentive plans or pursuant to future awards granted under those plans will become available for sale in the public market to the extent permitted by the provisions of applicable vesting schedules, market stand-off agreements and/or lock-up agreements, as well as Rules 144 and 701 under the Securities Act. For more information, see “Shares Eligible for Future Sale.”

 

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Upon the completion of this offering, the underwriter will have the right, subject to some conditions, to require us to file a registration statements covering the sale of the shares of Class A common stock issuable upon the exercise of their warrants or to include those shares in registration statements that we may file for ourselves or our other stockholders. We also intend to register the offer and sale of all shares of Class A common stock that we may issue under our equity compensation plans. Once we register the offer and sale of shares for the holders of registration rights and shares that may be issued under our equity incentive plans, these shares will be able to be sold in the public market upon issuance, subject to the lock-up agreements described under “Underwriters.”

 

In addition, in the future, we may issue additional shares of Class A common stock, or other equity or debt securities convertible into Class A common stock, in connection with a financing, acquisition, employee arrangement or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and could cause the price of our Class A common stock to decline.

 

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we intend to take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

 

  being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure in this prospectus;
     
  not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
     
  not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
     
  reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements; and
     
  exemptions from the requirements of holding nonbinding advisory stockholder votes on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.

 

We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

 

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards and, therefore, our financial statements may not be comparable to other public companies that comply with public company effective dates. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.

 

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The requirements of being a public company may strain our resources, result in more litigation and divert management’s attention.

 

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, the listing requirements of Nasdaq and other applicable securities rules and regulations. Complying with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on our systems and resources, including management. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are required to disclose changes made in our internal control and procedures on a quarterly basis. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may also need to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

 

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

 

These new rules and regulations may make it more expensive for us to obtain director and officer liability insurance and, in the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

By disclosing information in this prospectus and in future filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If those claims are successful, our business could be seriously harmed. Even if the claims do not result in litigation or are resolved in our favor, the time and resources needed to resolve them could divert our management’s resources and seriously harm our business.

 

We may be subject to securities litigation, which is expensive and could divert management attention.

 

The market price of our Class A common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

 

We do not currently intend to pay dividends on our Class A common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation of the value of our Class A common stock.

 

We have never declared or paid any cash dividends on our equity securities. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to any appreciation in the value of our Class A common stock, which is not certain.

 

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Provisions in our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our Class A common stock.

 

Our certificate of incorporation and bylaws in effect upon closing of the offering contain provisions that could depress the market price of our Class A common stock by acting to discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions, among other things:

 

  establish a classified board of directors so that not all members of our board are elected at one time;
     
  permit only the board of directors to establish the number of directors and fill vacancies on the board;
     
  provide that directors may only be removed “for cause” and only with the approval of two-thirds of our stockholders;
     
  our dual class common stock structure, which provides certain affiliates of ours, including our co-founder and members of our Board, individually or together, with the ability to significantly influence the outcome of matters requiring stockholder approval, even if they own significantly less than a majority of the shares of our outstanding Class A common stock and Class B common stock;
     
  authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan (also known as a “poison pill”);
     
  eliminate the ability of our stockholders to call special meetings of stockholders;
     
  prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
     
  prohibit cumulative voting;
     
  authorize our board of directors to amend the bylaws;
     
  establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; and
     
  require a super-majority vote of stockholders to amend some provisions described above.

 

In addition, Section 203 of the General Corporation Law of the State of Delaware, or the DGCL, prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

 

Any provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our capital stock and could also affect the price that some investors are willing to pay for our Class A common stock.

 

Our certificate of incorporation that will be in effect upon the closing of this offering provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

 

Our certificate of incorporation in effect upon the closing of this offering provides that the Court of Chancery of the State of Delaware is the exclusive forum for:

 

  any derivative action or proceeding brought on our behalf;
     
  any action asserting a claim of breach of fiduciary duty;

 

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  any action asserting a claim against us arising under the DGCL, or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware;
     
  any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; and

 

  any action asserting a claim against us that is governed by the internal-affairs doctrine.

 

Our certificate of incorporation further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision. If a court were to find these exclusive-forum provisions in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business. Nothing in our certificate of incorporation precludes stockholders that assert claims under the Securities Act or the Exchange Act from bringing such claims in state or federal court, subject to applicable law.

 

Risks Related to Employee Matters, Managing Our Growth and Other Risks Related to Our Business

 

We have never commercialized a product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize any products on our own or together with suitable collaborators.

 

We have never commercialized a product candidate, and we currently have no sales force, marketing or distribution capabilities, nor do any of our current employees have any experience in commercializing a regulated product. To achieve commercial success for our product candidates, which we may license to others, we will rely on the assistance and guidance of those collaborators. For product candidates for which we retain commercialization rights, we will have to develop our own sales, marketing and supply organization or outsource these activities to a third party.

 

Factors that may affect our ability to commercialize our future approved products on our own include recruiting and retaining adequate numbers of effective sales and marketing personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our products and other unforeseen costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization will be expensive and time-consuming and could delay the launch of our future approved products. We may not be able to build an effective sales and marketing organization. If we are unable to build our own distribution and marketing capabilities or to find suitable partners for the commercialization of our future approved products, we may not generate revenues from them or be able to reach or sustain profitability.

 

In order to successfully implement our plans and strategies, we will need to grow our organization, and we may experience difficulties in managing this growth.

 

As of September 30, 2020, we had 12 full-time employees, two full-time consultants, and two part-time consultants. Of these full-time employees and consultants, 12 are engaged in research and development activities. In order to successfully implement our development and commercialization plans and strategies, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. 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 preclinical and clinical studies and investigations, as well as FDA, PMDA and other comparable foreign regulatory agencies’ review process for any current or future product candidates, while complying with any contractual obligations to contractors and other third parties we may have; and
     
  improving our operational, financial and management controls, reporting systems and procedures.

 

Our future financial performance and our ability to successfully develop and, if approved, commercialize, any current or future 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.

 

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We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including key aspects of clinical development and manufacturing. We cannot assure you that the services of independent organizations, advisors and consultants 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 third party service providers is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval of our current and future product candidates or otherwise advance our business. We cannot assure you that we will be able to manage our existing third-party service providers or find other competent outside contractors and consultants on economically reasonable terms, or at all.

 

If we are not able to effectively expand our organization by hiring new employees and/or engaging additional third party service providers, we may not be able to successfully implement the tasks necessary to further develop and commercialize our current and future product candidates and, accordingly, may not achieve our research, development and commercialization goals.

 

Our internal computer systems, or those of any of our CROs, manufacturers, other contractors, consultants, collaborators or potential future collaborators, may fail or suffer security or data privacy breaches or other unauthorized or improper access to, use of, or destruction of our proprietary or confidential data, employee data, or personal data, which could result in additional costs, loss of revenue, significant liabilities, harm to our brand and material disruption of our operations.

 

Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and other contractors, consultants, collaborators and third-party service providers, are vulnerable to damage from computer viruses, cybersecurity threats, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failure. If such an event were to occur and cause interruptions in our operations or result in the unauthorized acquisition of or access to personally identifiable information or individually identifiable health information (violating certain privacy laws such as HIPAA, Health Information Technology for Economic and Clinical Health Act and GDPR), it could result in a material disruption of our drug discovery and development programs and our business operations, whether due to a loss of our trade secrets or other similar disruptions. Some of the federal, state and foreign government requirements include obligations of companies to notify individuals of security breaches involving particular personally identifiable information, which could result from breaches experienced by us or by our vendors, contractors, or organizations with which we have formed strategic relationships. Notifications and follow-up actions related to a security breach could impact our reputation, cause us to incur significant costs, including legal expenses and remediation costs. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the lost data. We also rely on third parties to manufacture our product candidates, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data, or inappropriate disclosure of confidential or proprietary information, we could be exposed to litigation and governmental investigations, the further development and commercialization of our product candidates could be delayed, and we could be subject to significant fines or penalties for any noncompliance with certain state, federal and/or international privacy and security laws.

 

Our insurance policies may not be adequate to compensate us for the potential losses arising from any such disruption, failure or security breach. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims made against us and could have high deductibles in any event, and defending a suit, regardless of its merit, could be costly and divert management attention.

 

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

 

The net operating loss carryforwards, or NOLs, could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. NOLs generated in tax years ending on or prior to December 31, 2017 are only permitted to be carried forward for 20 taxable years under applicable U.S. federal tax law. Under the Tax Act, federal NOLs generated in tax years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal NOLs generated in tax years beginning after December 31, 2017 is limited. It is uncertain if and to what extent various states will conform to the Tax Act. As of December 31, 2019, we did not have NOLs available.

 

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In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change” (generally defined as a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period), the corporation’s ability to use its pre-change NOLs and certain other pre-change tax attributes to offset its post-change income and taxes may be limited. Similar rules may apply under state tax laws. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of this offering or subsequent shifts in our stock ownership, some of which are outside our control. We have not conducted any studies to determine annual limitations, if any, that could result from such changes in the ownership. Our ability to utilize those NOLs could be limited by an “ownership change” as described above and consequently, we may not be able to utilize a material portion of our NOLs and certain other tax attributes, which could have a material adverse effect on our cash flows and results of operations.

 

A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business.

 

We plan to seek regulatory approval of our product candidates outside of the United States, including specifically in Japan, and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:

 

  differing regulatory requirements and reimbursement regimes in foreign countries;
     
  unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;
     
  economic weakness, including inflation, or political instability in particular foreign economies and markets;
     
  compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
     
  foreign taxes, including withholding of payroll taxes;
     
  foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
     
  difficulties staffing and managing foreign operations;
     
  workforce uncertainty in countries where labor unrest is more common than in the United States;
     
  potential liability under the FCPA or comparable foreign regulations;
     
  challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;
     
  production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
     
  business interruptions resulting from geo-political actions, including war and terrorism.

 

These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” ,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

  the ability of our clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;
     
  the timing and focus of our ongoing and future preclinical studies and clinical trials, and the reporting of data from those studies and trials;
     
  the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting;
     
  the success of competing therapies that are or may become available;
     
  the beneficial characteristics, safety, efficacy and therapeutic effects of our product candidates;
     
  our ability to obtain and maintain regulatory approval of our product candidates;
     
  our plans relating to the further development of our product candidates, including additional disease states or indications we may pursue;
     
  existing regulations and regulatory developments in the United States, Japan and other jurisdictions;
     
  our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available and our ability to avoid infringing the intellectual property rights of others;
     
  the need to hire additional personnel and our ability to attract and retain such personnel;
     
  our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
     
  our financial performance; and
     
  the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements.

 

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this prospectus, whether as a result of any new information, future events or otherwise.

 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

 

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INDUSTRY AND OTHER DATA

 

This prospectus contains industry, market and competitive position data from our own internal estimates and research as well as industry and general publications and research surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Certain of our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions.

 

The industry in which we operate is subject to risks and uncertainties due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

USE OF PROCEEDS

 

We estimate that the net proceeds to us from this offering will be approximately $24.29 million, based on the initial public offering price of $10.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares from us is exercised in full, we estimate that our net proceeds will be approximately $27.95 million.

 

The principal purposes of this offering are to increase our capitalization and financial flexibility, to create a public market for our Class A common stock and to facilitate our future access to the capital markets. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds we receive from this offering. However, we currently intend to use the net proceeds we receive from this offering as follows:

 

       Total 
General and administrative and working capital purposes      $8,490,000 
Expanding and optimizing our Manufacturing capabilities       $2,000,000 
Research and development          
Complete Phase 2b Frailty trial  $1,000,000      
Support for the NHLBI-funded Phase 2 HLHS trial  $300,000      
Complete Phase 1 ARDS trial  $1,000,000      
Bahamas Treatment Registry Trial  $500,000      
Initiate Phase 2 Japanese Aging Frailty trial  $2,200,000      
Initiate Phase 2 Alzheimer’s Disease trial  $4,900,000      
Initiate Phase 2/3 US Aging Frailty trial  $3,900,000      
Total research and development       $13,800,000 
Net proceeds        24,290,000 

 

We believe that the proceeds of this offering will be sufficient to complete currently ongoing clinical trials; however we do not anticipate that the proceeds of this offering will be sufficient to complete any of the above-referenced trials we intend to initiate, and therefore additional funds will be needed to complete the proposed new clinical trials.

 

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We will have broad discretion over how to use the net proceeds we receive from this offering. We intend to invest the net proceeds we receive from this offering that are not used as described above in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

  

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. We may also use a portion of the net proceeds to in-license, acquire or invest in additional businesses, technologies, products or assets, although currently we have no specific agreements, commitments or understandings in this regard. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering or the amounts that we will actually spend on the uses set forth above. Predicting the cost necessary to develop product candidates can be difficult and we anticipate that we will need additional funds to complete the development of any product candidates we identify. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from pre-clinical studies and any ongoing clinical trials or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

 

We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements through the first half of 2022. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these sources. Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

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DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our capital stock. We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.

 

CORPORATE CONVERSION

 

Immediately prior to the effectiveness of the registration statement of which this prospectus forms a part, Longeveron LLC converted from a Delaware limited liability company into a Delaware corporation pursuant to a statutory conversion, and changed its name to Longeveron Inc. In order to consummate the corporate conversion, a certificate of conversion was filed with the Secretary of State of the State of Delaware. In this prospectus, we refer to all transactions related to our conversion to a corporation as the Corporate Conversion.

 

As part of the Corporate Conversion, based on the initial offering price of $10.00, all of our outstanding units converted, into an aggregate of 344,077 shares of our Class A common stock, 15,702,834 shares of our Class B common stock and rights to receive shares of our Class A common stock as follows:

 

holders of our Series A Units received an aggregate of 7,851,417 shares of our Class B common stock, which included 251,505 shares of our Class B common stock in satisfaction of the distribution priority in respect of the Series A Units;

 

holders of our Series B Units received an aggregate of 7,851,417 shares of our Class B common stock, which included 251,505 shares of our Class B common stock in satisfaction of the distribution priority in respect of the Series B Units;

 

  holders of our Series C Units received an aggregate of 344,077 shares of our Class A common stock; and

 

existing restricted units issued under the 2017 Equity Plan converted into the right to receive an aggregate of 855,247 shares of our Class A common stock upon the vesting thereof.

 

Since effecting the Corporate Conversion, Longeveron Inc. has been governed by a certificate of incorporation filed with the Secretary of State of the State of Delaware and bylaws, the material portions of which are described under the heading “Description of Capital Stock.” On the effective date of the Corporate Conversion, the members of the board of managers of Longeveron LLC became the initial members of Longeveron Inc.’s board of directors, and were joined by three additional directors as described under “Management”.

 

References in this prospectus to our capitalization and other matters pertaining to our equity prior to the Corporate Conversion relate to the capitalization and equity of Longeveron LLC, and after the Corporate Conversion, to Longeveron Inc. The financial statements included elsewhere in this prospectus are those of Longeveron LLC. We expect that the Corporate Conversion will not have a material effect on our financial statements.

 

The purpose of the Corporate Conversion was to reorganize our structure so that the entity that is offering our Class A common stock to the public in this offering is a Delaware corporation rather than a Delaware limited liability company, and so that our existing investors own our Class A common stock or Class B common stock rather than equity interests in a limited liability company.

 

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CAPITALIZATION

 

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2020, as follows:

 

  on an actual basis;
     
 

on a pro forma basis to give effect to the Corporate Conversion; and

     
  on a pro forma as adjusted basis to give further effect to our issuance and sale of 2,660,000 shares of our Class A common stock in this offering at the initial public offering price of $10.00 per share after deducting underwriting discounts and commissions and estimated offering expenses payable by us and therefore providing net proceeds of approximately $24.29 million.

 

You should read this information in conjunction with our financial statements and the related notes included elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Corporate Conversion” sections and other financial information contained in this prospectus.

 

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   As of September 30, 2020 
   Actual   Pro
Forma(1)(2)
   Pro Forma As
Adjusted(1)
 
   (in thousands, except unit, share and per share amounts) 
Cash and cash equivalents  $1,393,831   $1,393,831   $24,193,831 
Members’ Equity:               
Series A Units: 1,000,000 units issued and outstanding, actual; no units issued or outstanding pro forma and pro forma as adjusted  $1,000,000   $   $ 
Series B Units: 1,000,000 units issued and outstanding, actual; no units issued or outstanding pro forma and pro forma as adjusted   1,000,000         
Series C Units: 62,764 units issued and outstanding, actual; no units issued or outstanding pro forma and pro forma as adjusted   62,764         
Stockholders’ Equity               
Class A common stock, $0.001 par value per share: no shares authorized, issued and outstanding, actual; 84,295,000 shares authorized, pro forma and pro forma as adjusted; 344,077 shares issued and shares outstanding, pro forma; 3,004,077 shares issued and outstanding, pro forma as adjusted       344    3,004 
Class B common stock, $0.001 par value per share: no shares authorized, issued and outstanding, actual; 15,705,000 shares authorized, pro forma and pro forma as adjusted; 15,702,834 shares issued and shares outstanding, pro forma; 15,702,834 shares issued and outstanding, pro forma as adjusted       15,703    15,703 
Additional paid-in capital   26,783,905    28,830,622    53,065,962 
Accumulated deficit   (25,536,841)   (25,536,841)   (25,536,841)
Total equity   3,309,828    3,309,828    27,547,828 
Total capitalization  $3,309,828   $3,309,828   $27,547,828 

 

 

(1) In connection with the Corporate Conversion, all units were reduced to zero to reflect the elimination of all outstanding units and other interests in Longeveron LLC and corresponding adjustments were reflected as Class A common stock, Class B common stock and additional paid-in capital.
(2) The following table presents the number of shares of Class A common stock and Class B Common Stock issuable in connection with the Corporate Conversion to holders of Series A Units, Series B Units and Series C Units based on the initial public offering price of $10.00 per share.  

 

   Shares of
Class A
Common Stock
   Shares of
Class B
Common Stock
 
Series A   -    7,851,417 
Series B   -    7,851,417 
Series C   344,077    - 
Totals   344,077    15,702,834 

 

The number of shares of our common stock shown as issued and outstanding in the table excludes:

 

  855,247 shares of our Class A common stock issuable upon the vesting of restricted units granted to our executive officers, directors, and employees under our 2017 Equity Incentive Plan; and

  

  106,400 shares of our Class A common stock issuable upon exercise of the warrants issued to the underwriter in connection with this offering.

 

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DILUTION

 

If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price of $10.00 per share and the pro forma as adjusted net tangible book value per share of our Class A common stock immediately upon the consummation of this offering. Pro forma net tangible book value per share represents the book value of our tangible assets less the book value of our total liabilities divided by the number of shares of Class A common stock then issued and outstanding after giving effect to the Corporate Conversion.

 

After giving effect to the Corporate Conversion, our pro forma net tangible book value as of September 30, 2020 was $1.8 million, or $0.11 per share, based on the shares of our Class A common stock and Class B common stock issued and outstanding after the Corporate Conversion, based on an initial public offering price of $10.00 per share. After giving effect to our sale of 2,660,000 shares of Class A common stock in this offering at an initial public offering price of $10.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2020 would have been approximately $26.1 million, or approximately $1.39 per share (assuming no exercise of the underwriters’ option to purchase additional shares of our Class A common stock). This amount represents an immediate and substantial dilution of $8.61 per share to new investors purchasing Class A common stock in this offering. The following table illustrates this dilution per share:

 

Initial public offering price per share  $10.00 
Pro forma net tangible book value per share as of September 30, 2020  $0.11 
Increase in net tangible book value per share attributable to this offering  $1.28 
Pro forma as adjusted net tangible book value per share after this offering  $1.39 
Dilution per share to new investors participating in this offering  $8.61 

 

If the underwriters exercise their option to purchase additional shares of our Class A common stock in full, the pro forma as adjusted net tangible book value after this offering would be $1.56 per share, and the dilution to new investors would be $8.44 per share.

 

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The following table summarizes, on a pro forma as adjusted basis described above, as of September 30, 2020, the differences between the number of shares of Class A common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by new investors participating in this offering at the initial public offering price of $10.00 per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing Class A common stock in this offering will pay an average price per share substantially higher than our existing stockholders (including our Class A common stockholders, on an as-converted basis) paid (in thousands, except per share amounts and percentages).

 

   Shares Purchased   Total Consideration   Average
Share
 
   Number   Percent   Amount   Percent   Price 
Existing stockholders   16,046,911    86.0%  $53,522,240    67.0%  $3.34 
New investors   2,660,000    14.0%  $26,600,000    33.0   $10.00 
Total   18,706,911    100.0%  $80,122,240    100.0%  $4.28 

 

If the underwriters exercise their option to purchase additional shares of our Class A common stock in full, the percentage of shares of Class A common stock held by existing stockholders will decrease to approximately 84% of the total number of shares of our Class A common stock outstanding after this offering (assuming conversion of Class B common stock), and the number of shares held by new investors will increase to 3,059,000, or approximately 16% of the total number of shares of our Class A common stock outstanding after this offering (assuming conversion of the Class B common stock).

 

The foregoing tables and calculations are based on shares of our Class A common stock and Class B common stock outstanding, after giving effect to the Corporate Conversion, and excludes:

 

855,247 shares of our Class A common stock issuable upon the vesting of restricted units granted to our executive officers, directors, and employees under our 2017 Equity Incentive Plan; and

 

106,400 shares of our Class A common stock issuable upon exercise of the warrants issued to the underwriter in connection with this offering.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of the prospectus captioned “Risk Factors” and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.

 

Overview

 

We are a clinical stage biotechnology company developing cellular therapies for aging-related and life-threatening conditions. Our lead investigational product is Lomecel-B. Lomecel-B is derived from culture-expanded MSCs that are sourced from bone marrow of young healthy adult donors. We believe that by using the same cells that promote tissue repair, organ maintenance, and immune system function, we can develop safe and effective therapies for some of the most difficult disorders associated with the aging process.

 

We are currently sponsoring Phase 1 and 2 clinical trials in the following indications: Aging Frailty, AD, the Metabolic Syndrome, ARDS, and HLHS. Our mission is to advance Lomecel-B and other cell-based product candidates into Phase 3 (i.e. pivotal) trials for multiple indications, with the goal of achieving regulatory approvals, subsequent commercialization, and broad use by the healthcare community.

 

To date, the U.S. FDA has authorized us to conduct six clinical trials evaluating Lomecel-B. We have completed three out of six of these studies, with the remaining three ongoing and data anticipated in 2020 and 2021. We have approval from Japan’s Pharmaceutical and Medical Device Agency (PMDA) to conduct a Phase 2 study in Aging Frailty, and we intend to initiate this trial in 2021. Additionally, we sponsor a registry in The Bahamas under the approval and authority of the National Stem Cell Ethics Committee. The Bahamas Registry Trial administers Lomecel-B to eligible participants at two private clinics in Nassau for a variety of indications. While Lomecel-B is considered an investigational product in The Bahamas, under the approval terms from the National Stem Cell Ethics Committee, we are permitted to charge a fee to participate in the Registry Trial.

 

Since our founding in 2014, we have focused the majority of our time and resources on the following: organizing and staffing our company, building, staffing and equipping a GMP manufacturing facility with research and development labs, business planning, raising capital, establishing our intellectual property portfolio, generating clinical safety and efficacy data in our selected disease conditions and indications, and developing and expanding our manufacturing processes and capabilities.

 

We manufacture all of our own product candidates for clinical trials. In 2017 we opened a manufacturing facility comprised of eight clean rooms, two research and development laboratories, and warehouse and storage space. We have supply contracts with multiple third parties for fresh bone marrow, which we use to produce our product candidate for clinical testing and research and development. From time to time we enter into contract development and manufacturing contracts or arrangements with third parties who seek to utilize our product development capabilities.

 

When appropriate funding opportunities arise, we routinely apply for grant funding to support our ongoing research and since 2016 we have received approximately $16.2 million in grant awards ($11.9 million which has been directly awarded to us and which are recognized as revenue when the performance obligations are met) from the National Institute on Aging (NIA) of the National Institutes of Health (NIH), National Heart Lung and Blood Institute (NHLBI) of the NIH, the Alzheimer’s Association, and the Maryland Stem Cell Research Fund (MSCRF) of the Maryland TEDCO.

 

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Impact of COVID-19 Pandemic

 

We continue to monitor how the COVID-19 pandemic is affecting our employees, business, and clinical trials. In response to the spread of COVID-19, we have instructed all employees who can perform their essential employment duties from home to do so. Our laboratory scientists, cell processing scientists and other manufacturing personnel continue to work from our GMP facility on a day-to-day basis, and as such cell production has been minimally impacted. When the pandemic began to emerge in the U.S., most of our ongoing clinical trials had completed enrollment, however a few subjects that were currently on study and in follow-up experienced some difficulties in adhering to the protocol schedule. Because we primarily enroll elderly subjects in our trials, who are at particular risk for poor outcomes related to COVID-19 infection, we have experienced some disruption in executing the follow-up visits in our protocols. These disruptions were due to a number of reasons that include an unwillingness of the subject to leave their residence to visit the hospital or clinic, the inability to leave their residence due to regional “stay-at-home” orders, and temporary clinical site closures. We have attempted to mitigate this disruption by conducting remote visits where feasible (telemedicine), arranging for in-home visits for phlebotomy in order to collect blood samples and perform protocol-specific assessments if feasible, and amending protocols to increase the window of time for follow-up visits. In spite of these efforts, several subjects either missed their scheduled follow up visit, had their follow up visit outside of the protocol-defined window of time, or dropped out of the trial prior to completing. While we believe the number of instances where a visit was missed completely is small, we cannot predict whether this will have a material impact on our clinical results in the future. If too many subjects drop-out or the protocol is no longer effective, we may have to restart the clinical trial entirely.

 

Starting on July 22, 2020, the Bahamian government halted travel from the U.S. into The Bahamas, which resulted in the temporary cessation of participation in The Bahamas Registry Trial. We expect that the COVID-19 pandemic will continue to impact our business, results of operations, clinical development timelines and financial condition. At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions to and social distancing in the United States and other countries, business closures or business disruptions, the continued impact on financial markets and the global economy, and the effectiveness of the global response to contain and treat the disease.

 

Components of Our Results of Operations

 

Revenue

 

We have generated revenue from three sources:

 

  Grant awards. Extramural grant award funding, which is non-dilutive, has been a core strategy for supporting ongoing clinical research. Since 2016 we have been directly awarded approximately $11.9 million in grants, with details of these awards provided in Grant Award table.
     
  The Bahamas Registry Trial. Participants in The Bahamas Registry Trial pay us a fee to receive Lomecel-B, imported by us into The Bahamas, and administered at one of two private medical clinics in Nassau. While Lomecel-B is considered an investigational product in The Bahamas, under the approval terms received from the National Stem Cell Ethics Committee, we are permitted to charge a fee to participate in the Registry Trial. The fee is recognized as revenue, and is used to pay for the costs associated with manufacturing and testing of Lomecel-B, administration, shipping and importation fees, data collection and management, biological sample collection and sample processing for biomarkers and other data, and overall management of the Registry, including personnel costs. Lomecel-B is considered investigational treatment in The Bahamas and not licensed for commercial sale.
     
  Contract development and manufacturing services. From time to time we enter into fee-for-service agreements with third parties for our product development and manufacturing capabilities.

 

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Selling and Marketing Expenses

 

Selling and marketing expenses consist primarily of royalty and license fees associated with our agreements with the University of Miami (UM), as well as attending and sponsoring industry, investment, organization and medical conferences and events.

  

Research and Development Expenses

 

Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and development include costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries, share-based compensation, employee benefits, property and equipment depreciation and allocation of various corporate costs. We accrue for costs incurred by external service providers, including CROs and clinical investigators, based on estimates of service performed and costs incurred. These estimates include the level of services performed by the third parties, subject enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.

 

We currently do not carry any inventory for our product candidates, as we have yet to launch a product for commercial distribution. Historically our operations have focused on conducting clinical trials, product research and development efforts, and improving and refining our manufacturing processes, and accordingly, manufactured clinical doses of product candidates were expensed as incurred, consistent with the accounting for all other research and development costs. Once we begin commercial distribution, all newly manufactured approved products will be allocated either for use in commercial distribution, which will be carried as inventory and not expensed, or for research and development efforts, which will continue to be expensed as incurred.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

 

We expect that our general and administrative expenses will increase in the future as we increase our headcount to support increased research and development activities relating to our clinical programs. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements; director and officer insurance costs; and investor and public relations costs.

 

Other Income and Expenses

 

Interest income consists of interest earned on cash equivalents and short-term investments. We expect our interest income to increase due to the net proceeds from this offering. Other income consists of funds earned that are not part of our normal operations. In past years they have been primarily a result of tax refunds received for social security taxes as part of a research and development tax credit program.

 

Income Taxes

 

We are treated as a partnership for federal and state income tax purposes. Consequently, we pass our earnings and losses through to our members based on the terms of our Operating Agreement. Accordingly, no provision for income taxes has been recorded. As we convert from an LLC to a C corporation, we may incur taxes if we have earnings. At this time the Company has not evaluated that impact of any future profits.

 

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RESULTS OF OPERATIONS

 

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 

The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019, together with the changes in those items in dollars:

 

   For the Nine Months Ended
September 30,
  Increase
   2020  2019  (Decrease)
Revenues  $4,449,684   $3,796,209   $653,475 
Cost of revenues   3,152,446    2,649,366    503,080 
Gross profit   1,297,238    1,146,843    150,395 
Expenses               
Selling and marketing   140,253    180,418    (40,165)
Research and development   1,522,707    1,449,275    73,432 
General and administrative   2,029,410    2,041,221    (11,811)
Total operating expenses   3,692,370    3,670,914    21,456 
                
Loss from operations   (2,395,132)   (2,524,071)   (128,939)
Interest income   139    2,531    (2,392)
Interest expense   (3,666)   (104)   3,562 
Other income   33,871    35,462    (1,591)
Net loss  $(2,364,788)  $(2,486,182)  $(121,394)

 

Revenues, Cost of Revenues and Gross Profit: Revenues for the nine months ended September 30, 2020 and 2019 were approximately $4,450,000 and $3,796,000, respectively. Revenues for the nine months ended September 30, 2020 were approximately $654,000 or 17% higher when compared to the same period in 2019, primarily due to an increase in grant revenue recorded in 2020. Grant revenue for the nine months ended September 30, 2020 and 2019 was $3,602,000 and $2,629,000, respectively. Grant revenue for the nine months ended September 30, 2020 was approximately $974,000 or 37% higher when compared to the same period in 2019. Clinical trial income for the nine months ended September 30, 2020 and 2019 was $792,000 and $962,000, respectively. Clinical trial income for the nine months ended September 30, 2020 was approximately $170,000 or 18% lower when compared to the same period in 2019. Clinical trial income, which is comprised of The Bahamas Registry Trial, was impacted by COVID-19 travel restrictions. Contract manufacturing income for the nine months ended September 30, 2020 and 2019 was $55,000 and $206,000, respectively. Contract manufacturing income for the nine months ended September 30, 2020 was approximately $151,000 or 73% lower when compared to the same period in 2019. Contract manufacturing activities were not marketed during 2020, and the impact of COVID-19 also contributed to the corresponding decrease.

 

Related cost of revenues was approximately $3,152,000 and $2,649,000 for the nine months ended September 30, 2020 and 2019, respectively. Cost of revenues for the nine months ended September 30, 2020 was approximately $503,000 or 19% higher when compared to the same period in 2019, due to higher cost of revenues for grants incurred in 2020. This resulted in a gross profit of approximately $1,297,000 for the nine months ended September 30, 2020, an increase of approximately $150,000 or 13% when compared with a gross profit of approximately $1,147,000 for the same period in 2019.

 

Selling and Marketing Expenses: Selling and marketing expenses for the nine months ended September 30, 2020, decreased to approximately $140,000, compared to $180,000 for the same period in 2019. The decrease of approximately $40,000, or 22% was primarily due to lower sponsorship fees recorded.

 

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Research and Development Expenses: Research and development expenses for the nine months ended September 30, 2020, increased to approximately $1,523,000, from approximately $1,449,000 for the same period in 2019. The increase of $74,000, or 5%, was primarily due to an increase in research and development expenses that were not reimbursable by grants. Research and development expenses consisted primarily of the following items (less those expenses allocated to the cost of revenues for the grants):

 

   September 30,
2020
   September 30,
2019
 
Clinical trial expenses-statistics, monitoring, labs, sites, etc.  $268,301   $416,008 
Supplies and costs to make Lomecel-B   329,184    

132,417

 
Employee compensation and benefits   276,514    202,730 
Equity-based compensation   14,820    26,440 
Depreciation   542,096    518,108 
Amortization   47,471    55,953 
Travel   5,631    67,199 
Other activities   38,690    30,420 
   $1,522,707   $1,449,275 

 

General and Administrative Expense: General and administrative expenses for the nine months ended September 30, 2020 decreased to approximately $2,029,000, compared to $2,041,000 for the same period in 2019. The decrease of approximately $12,000, or 1%, was primarily related to lower compensation and professional expenses incurred during the current period. For 2020, general and administrative expenses consisted primarily of rent, professional fees, insurance, and paid and accrued compensation costs.

 

Interest Income: Interest income for the nine months ended September 30, 2020 decreased to approximately $0, compared to $3,000 for the same period in 2019. The decrease of approximately $3,000, or 100%, was primarily related to non-recurring interest income earned and recorded in 2019.

 

Other Income: Other income for the nine months ended September 30, 2020, decreased to approximately $34,000, compared to $35,000 for the same period in 2019. The decrease of approximately $1,000 or 4% was primarily a result of tax refunds received for social security taxes as part of a research and development tax credit in 2019.

 

Net Loss: Net loss decreased to approximately $2,365,000 for the nine months ended September 30, 2020, from a net loss of $2,486,000 for the same period in 2019. The decrease in the net loss of $121,000, or 5%, was for reasons outlined above.

 

The Company is treated as a partnership for U.S. federal and state income tax purposes while a limited liability company and prior to the Corporate Conversion. Consequently, the Company passes its earnings and losses through to its members based on the terms of the Company’s Operating Agreement. Accordingly, no provision for income taxes is recorded in the accompanying financial statements.

 

Cash Flows

 

The following table summarizes our sources and uses of cash for the period presented for the nine months ended:

 

   September 30, 
   2020     2019 
Net cash used in operating activities  $(1,858,518 )  $(2,587,807)
Net cash used in investing activities   (221,119 )   (105,500)
Net cash provided by financing activities   1,607,594     200,000 
Net decrease in cash and cash equivalents  $(472,043 )  $(2,493,307)

 

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COMPARISON OF THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

The following table summarizes our results of operations for the years ended December 31, 2019 and 2018, together with the changes in those items in dollars:

 

   Year Ended
December 31,
   Increase 
   2019   2018   (Decrease) 
Revenues  $5,639,466   $2,134,775   $3,504,691 
Cost of revenues   3,885,390    1,454,126    2,431,264 
Gross profit   1,754,076    680,649    1,073,427 
Expenses               
Selling and marketing   185,387    48,164    137,224 
Research and development   1,791,842    3,875,842    (2,084,000)
General and administrative   2,774,953    3,117,260    (342,307)
Total operating expenses   4,752,182    7,041,266    (2,289,083)
                
Loss from operations   (2,998,106)   (6,360,617)   3,362,510 
Interest income   2,937    23,821    2,937 
Interest expense   (169)   -    (169)
Other income   35,461    -    11,640 
Net loss  $(2,959,877)  $(6,336,795)  $3,376,918 

 

Revenue, Cost of Revenues and Gross Profit: Revenues for the year ended December 31, 2019 and 2018 were approximately $5,639,000 and $2,135,000, respectively. Revenues for the year ended December 31, 2019 were approximately, $3,504,000 or 164% higher when compared to the same period in 2018, primarily due to an increase in grant revenue recorded in 2019. Grant revenue for the years ended December 31, 2019 and 2018 was $4,149,000 and $1,235,000, respectively. Grant revenue for the year ended December 31, 2019 was approximately, $2,914,000 or 236% higher when compared to the same period in 2018. Clinical trial income for the years ended December 31, 2019 and 2018 was $1,199,000 and $900,000, respectively. Clinical trial income for the year ended December 31, 2019 was approximately $299,000 or 33% higher when compared to the same period in 2018. Clinical trial income, which is comprised of The Bahamas Registry Trial, experienced significant growth due to interest from participants who learned of the program from unsolicited means. While Lomecel-B is considered an investigational product in The Bahamas, under the approval terms received from the National Stem Cell Ethics Committee, the Company is permitted to charge a fee to participate in the Registry Trial. Contract manufacturing income for the years ended December 31, 2019 and 2018 was $291,000 and nil, respectively. Contract manufacturing services were marketed on a limited basis in 2019 and were able to attract two customers. During 2018 we did not offer contract manufacturing services.

 

Related cost of revenues was approximately $3,885,000 and $1,454,000 in the year ended December 31, 2019 and 2018, respectively. Cost of revenues for the year ended December 31, 2019, was approximately $2,431,000 or 167% higher when compared to the same period in 2018, due to higher grant revenues driving higher grant expenses incurred in 2019. This resulted in a gross profit of approximately $1,754,000 for the year ended December 31, 2019 an increase of approximately $1,073,000 or 158% higher when compared with a gross profit of approximately $681,000 for the same period in 2019.

 

Selling and Marketing Expenses: Sales and marketing expenses for the year ended December 31, 2019, increased to approximately $185,000, compared to $48,000 for the same period in 2018. The increase, of approximately $137,000, or 285% was primarily due to higher royalty and licensing fees and conferences/expo fees recorded.

 

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Research and Development Expenses: Research and development expenses for the year ended December 31, 2019, decreased to approximately $1,792,000, from approximately $3,876,000 to the same period in 2018. The decrease of $2,084,000, or 54%, was primarily due to a decrease in research and development expenses that were not reimbursable by grants. Research and development expenses consisted primarily of the following items (less those expenses allocated to the cost of revenues for the grants):

 

   December 31,
2019
   December 31,
2018
 
Clinical trial expenses-statistics, monitoring, labs, sites, etc.  $421,237   $1,619,180 
Supplies and costs to make Lomecel-B   184,596    522,756 
Employee compensation and benefits   239,236    698,430 
Equity-based compensation   35,186    60,807 
Depreciation   694,620    681,643 
Amortization   74,216    64,131 
Travel   87,364    68,163 
Other activities   55,387    160,732 
   $1,791,842   $3,875,842 

 

General and Administrative Expense: General and administrative expenses for the year ended December 31, 2019, decreased to approximately $2,775,000, compared to $3,117,000 for the same period in 2018. The decrease of approximately $342,000, or 11%, was primarily related to lower compensation costs, and the reduction in rent expenses due to the expiration of a lease for a second laboratory location incurred during the same period. For 2019, general and administrative expenses consisted primarily of rent, professional fees, insurance, and paid and accrued compensation costs.

 

Interest Income: Interest income for the year ended December 31, 2019 decreased to approximately $3,000, compared to $24,000 for the same period in 2018. The decrease of approximately $21,000, or 87%, was primarily related to decrease in cash balances within interest bearing accounts and decreases in interest rates year over.

 

Other Income: Other income for the year ended December 31, 2019, increased to approximately $35,000, compared to nil for the same period in 2018. The increase was primarily a result of a tax refund received for social security taxes as part of a research and development tax credit in 2019.

 

Net Loss: Net loss decreased to approximately $2,960,000, for the year ended December 31, 2019, from a net loss of $6,337,000, for the same period in 2018. The decrease in the net loss of $3,377,000, or 53% was for reasons outlined above.

 

The Company is treated as a partnership for U.S. federal and state income tax purposes while a limited liability company and prior to the Corporate Conversion. Consequently, the Company passes its earnings and losses through to its members based on the terms of the Company’s Operating Agreement. Accordingly, no provision for income taxes is recorded in the accompanying financial statements.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses as we advance the preclinical and clinical development of our programs. We expect that our sales, research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future programs and product candidates, contracting with CROs to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.

 

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To date, we have financed our operations primarily through private equity financings, grant awards, and income generated from clinical trial and contract manufacturing services. As of September 30, 2020, we have an accumulated deficit of $25.5 million. Since 2015, we have raised approximately $27.0 million in gross proceeds from the sale of our membership units. As of September 30, 2020, we had $1.4 million in cash and cash equivalents and a working capital deficit of approximately $0.7 million. We have $0.5 million of indebtedness as of September 30, 2020 from loans provided by the Small Business Administration (SBA) and the Paycheck Protection Program (PPP). Under the provisions of the PPP, the loan amounts will be forgiven as long as: the loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and employee and compensation levels are maintained. In addition, payroll costs are capped at $100,000 on an annualized basis for each employee. We have applied to have $0.3 million of the loan forgiven.

  

Cash Flows

 

The following table summarizes our sources and uses of cash for the period presented:

 

  

Nine Months Ended

September 30

  

Year Ended

December 31,

 
   2020   2019   2019   2018 
Net cash used in operating activities  $(1,858,518)  $(2,587,807)  $(2,390,806)  $(5,178,372)
Net cash used in investing activities   (221,119)   (105,500)   (125,048)   (211,684)
Net cash provided by financing activities   1,607,594    200,000    350,000    1,355,000 
Net decrease in cash and cash equivalents  $(472,043)  $(2,493,307)  $(2,165,854)  $(4,035,056)

 

Operating Activities. We have incurred losses since inception. Net cash used in operating activities for the nine months ended September 30, 2020 was $1.9 million, consisting primarily from our net loss of $2.4 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses. Net cash used in operating activities for the nine months ended September 30, 2019 was $2.6 million, consisting primarily from our net loss of $2.5 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses. Net cash used in operating activities for the year ended December 31, 2019 was $2.4 million, consisting primarily of our net loss of $3.0 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses. Net cash used in operating activities for the year ended December 31, 2018 was $5.2 million, consisting primarily of our net loss of $6.3 million as we incurred expenses associated with research activities for our lead product candidates and incurred general and administrative expenses.

 

Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2020 was $0.2 million, consisting of purchases of property and equipment and capitalized intangible costs. Net cash used in investing activities for the nine months ended September 30, 2019 was $0.1 million, consisting of purchases of property and equipment and capitalized intangible costs. Net cash used in investing activities for the years ended December 31, 2019 and 2018 was $0.1 million and $0.2 million, respectively, in each case consisting primarily of purchases of property and equipment and capitalized intangible costs.

 

Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2020 was $1.6 million, consisting of: $1.1 million in net proceeds received from subscription of our membership units and $0.5 million from loans provided by the SBA. Net cash provided by financing activities for the nine months ended September 30, 2019 was $0.2 million consisting of proceeds received from subscription of our membership units. Net cash provided by financing activities for the year ended December 31, 2019 was $0.4 million consisting of $0.4 million in net proceeds received from a subscription receivable and subscription of our membership units. Net cash provided by financing activities for the year ended December 31, 2018 was $1.4 million net proceeds received from a subscription receivable and subscription of our membership units.

 

Capital in 2020. During the nine months ended September 30, 2020, we received $1.1 million from investors in exchange of 18,335 Series C membership units. During the nine months ended September 30, 2020, we received $0.5 million from loans provided by the SBA. On September 15, 2020, we were awarded a $0.7 million grant from the Maryland Stem Cell Research Commission (TEDCO) for the use of our cell-based technology for ARDS due to COVID-19 and the Flu.

 

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Grant Awards

 

During the last several years we have been awarded several governmental and non-profit association grants. As of September 30, 2020, we have been awarded approximately $11.9 million, which is used to fund our clinical trials, research and development, production and overhead. Grant awards are recognized as income, and depending on the funding mechanism, is deposited directly in our accounts as lump sums, which are staggered over a predetermined period, or drawn down from a federal payment management system account for reimbursement of expenses incurred. Revenue recognition occurs when the grant related expenses are incurred, or supplies and materials are received. For the nine months ended September 30, 2020 and 2019, the amount of unused grant funds that were available for us to draw was approximately $2.2 million and $5.9 million, respectively. The following table summarizes the grants awarded.

 

Longeveron Project  Funding Agency(1)  Total
Amount
($)
   Status of Award 
Aging Frailty Phase 2b Trial  SBIR (DHHS) NIA   3,957,813    Ongoing 
Aging Frailty Phase 2b Trial  SBIR (DHHS) NIA   283,040    Complete 
Alzheimer’s Disease Phase 1 Trial(2)  Alzheimer’s Association   3,000,000    Ongoing 
Alzheimer’s Disease Phase 1 Trial  Alzheimer’s Association   1,000,000    Complete 
The Metabolic Syndrome Sub-Study  STTR (DHHS) NIA   150,000    Complete 
The Metabolic Syndrome Sub-Study  STTR (DHHS) NIA   901,486    Ongoing 
Aging Frailty Influenza Vaccine Trial (“HERA”)  Maryland TEDCO   750,000    Complete 
HLHS Phase 1 Trial  Maryland TEDCO   750,000    Complete 
HLHS Phase 2 Trial(3)  UG3 (DHHS) NHLBI   477,566    Ongoing 
ARDS Phase 1(4)  Maryland TEDCO   650,000    Ongoing 
Total      11,919,905      

 

 

(1) SBIR=Small Business Innovation Research programs; STTR=Small Business Technology Transfer programs; DHHS=Department of Health and Human Services; NIA = National Institute on Aging; NHLBI=National Heart, Lung, and Blood Institute.
(2) Under the grant award agreement with the Alzheimer’s Association, we may be required to make revenue sharing or distribution of income payments for products or inventions generated or resulting from this clinical trial program. The potential payments, although not currently defined, could result in a maximum payment of five times (5x) the award amount.
(3) The HLHS Phase 2b clinical trial grant was awarded to the University of Maryland, and the trial will be conducted under our IND and will test Lomecel-B. The total award was $4.8 million, and we will receive approximately $0.5 million directly.

(4) We have been notified by Maryland TEDCO that we have been awarded this grant; however we have not yet received the first tranche of funds.

 

Terms and Conditions of Grant Awards

 

Grant projects are typically divided into periods (e.g. a three-year grant may have three one-year periods), and the total amount awarded is divided according to the number of periods. At pre-specified time points, which are detailed in the grant award notifications, we are required to submit interim financial and scientific reports to the granting agency totaling funds spent, and in some cases, detailing use of proceed and progress made during the reporting period. After funding the initial period, receipt of additional grant funds is contingent upon satisfactory submission of our interim reports to the granting agency. In order to receive the remaining $2.2 in grant funds after September 20, 2020, we are required to continue to submit financial and scientific progress reports to the granting agencies that outlines spending and progress through the period.

 

Grant awards arise from submitting detailed research proposals to granting agencies, and winning a highly competitive and rigorous application review and process that is judged on the merits of the proposal. There are typically multiple applicants applying and competing for a finite amount of funds. As such we cannot be sure that we will be awarded grant funds in the future despite our past success in receiving such awards.

 

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Funding Requirements

 

Our operating costs will continue to increase substantially for the foreseeable future in connection with our ongoing activities. In past years we have been able to fund a large portion of our clinical programs and our administrative overhead with the use of grant funding.

 

Specifically, our expenses will increase as we:

 

  advance the clinical development of Lomecel-B for the treatment of several disease states and indications;
     
  pursue the preclinical and clinical development of other current and future research programs and product candidates;
     
  in-license or acquire the rights to other products, product candidates or technologies;
     
  maintain, expand and protect our intellectual property portfolio;
     
  hire additional personnel in research, manufacturing and regulatory and clinical development as well as management personnel;
     
  seek regulatory approval for any product candidates that successfully complete clinical development; and
     
  expand our operational, financial and management systems and increase personnel, including personnel to support our operations as a public company.

 

We believe that the anticipated net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements through the first half of 2022.

 

We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.

 

Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:

 

  the progress, costs and results of our clinical trials for our programs for our cell-based therapies;
     
  the progress, costs and results of additional research and preclinical studies in other research programs we initiate in the future;
     
  the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs we advance through preclinical and clinical development;
     
  our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements;
     
  the extent to which we in-license or acquire rights to other products, product candidates or technologies; and
     
  the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims.

 

Further, our operating results may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

 

Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, grant awards, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements and marketing and distribution arrangements.

 

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We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a Class A common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our biologic drug development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

 

Contractual Obligations and Commitments

 

The following is our contractual obligations and commitments as of December 31, 2019:

 

   Payments Due By Period 
   Total   Less than
1 year
   1-3
years
   4-5
years
   More than
5 years
 
Operating lease obligations  $4,996,000   $642,000   $2,013,000   $1,421,000   $920,000 

 

We enter into contracts in the normal course of business with third-party contract organizations for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material and they are not included in the table above.

 

We have not included milestone or royalty payments or other contractual payment obligations in the table above if the timing and amount of such obligations are unknown or uncertain.

 

Off-Balance Sheet Arrangements

 

We have no material off-balance sheet arrangements, no special purpose entities, and no activities that include non-exchange-traded contracts accounted for at fair value.

 

Quantitative and Qualitative Disclosures about Market Risk

 

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. We held cash and cash equivalents of approximately $1.4 million as of September 30, 2020. We generally hold our cash in interest-bearing money market accounts. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents.

 

Critical Accounting Policies and Use of Estimates

 

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

 

While our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

 

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Intangible assets. Intangible assets include payments on license agreements with our co-founder and Chief Science Officer and the University of Miami and legal costs incurred related to patents and trademarks. License agreements have been recorded at the value of cash consideration and/or membership units transferred to the respective parties when acquired. Payments on license agreements are amortized using the straight-line method over the estimated useful life of 20 years. Patents are amortized over their estimated useful life, once issued. We consider trademarks to have an indefinite useful life and evaluates them for impairment on an annual basis. Amortization expense is recorded in the research and development line of the Statement of Operations as the assets are primarily related to our clinical programs.

 

Impairment of Long-Lived Assets. We evaluate long-lived assets for impairment, including property and equipment and intangible assets, when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon the occurrence of a triggering event, the asset is reviewed to assess whether the estimated undiscounted cash flows expected from the use of the asset plus the residual value from the ultimate disposal exceeds the carrying value of the asset. If the carrying value exceeds the estimated recoverable amounts, the asset is written down to the estimated fair value. Any resulting impairment loss is reflected on the statements of operations. Management determined that there was no impairment of long-lived assets during the nine months ended September 30, 2020 and 2019.

 

Deferred income. The unearned portion of advanced grant funds and prepayments for clinical trial income, which will be recognized as income when we meet the respective performance obligations, has been presented as deferred income in the accompanying balance sheets. For the nine months ended September 30, 2020 and 2019, we recognized $0.5 million and $0.4 million, respectively, of funds that were previously classified as deferred income.

 

Revenue recognition. We adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, which establishes a single and comprehensive framework on how much revenue is to be recognized, and when, effective January 1, 2018. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will be recognized by a vendor when control over the goods or services is transferred to the customer. The application of the core principle in ASC 606 is carried out in five steps: Step 1 – Identify the contract with a customer: a contract is defined as an agreement (including oral and implied), between two or more parties, that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations. The contract needs to have commercial substance and it is probable that the entity will collect the consideration to which it will be entitled. Step 2 – Identify the performance obligations in the contract: a performance obligation in a contract is a promise (including implicit) to transfer a good or service to the customer. Each performance obligation should be capable of being distinct and is separately identifiable in the contract. Step 3 – Determine the transaction price: transaction price is the amount of consideration that the entity can be entitled to, in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties. Step 4 – Allocate the transaction price to the performance obligations in the contract: for a contract that has more than one performance obligation, the entity will allocate the transaction price to each performance obligation separately, in exchange for satisfying each performance obligation. The acceptable methods of allocating the transaction price include adjusted market assessment approach, expected cost plus a margin approach, and, the residual approach in limited circumstances. Discounts given should be allocated proportionately to all performance obligations unless certain criteria are met and reallocation of changes in standalone selling prices after inception is not permitted. Step 5 – Recognize revenue as and when the entity satisfies a performance obligation: the entity should recognize revenue at a point in time, except if it meets any of the three criteria, which will require recognition of revenue over time: the entity’s performance creates or enhances an asset controlled by the customer, the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs, and the entity does not create an asset that has an alternative use to the entity and the entity has the right to be paid for performance to date.

 

We recognize revenue when performance obligations related to respective revenue streams are met. For Grant Revenue, we consider the performance obligation met when the grant related expenses are incurred, or supplies and materials are received. For clinical trial income, we consider the performance obligation met when the participant has received the therapy. For Contract Manufacturing Revenue, we consider the performance obligation met when the contractual obligation and / or statement of work has been satisfied.

  

Cost of revenues. We record cost of revenues based on expenses directly related to revenue. For grant revenue, we record allocated expenses for research and development costs to a grant as a cost of revenues. Expenses directly related to clinical trial income are allocated and accrued as incurred. These expenses are similar to as described in the Research and development expense note.

 

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Research and development expense. Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and development include costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries, share-based compensation, employee benefits, property and equipment depreciation and allocation of various corporate costs. We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by the third parties, subject enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.

 

Equity-based compensation. We account for equity-based compensation expense by the measurement and recognition of compensation expense for unit-based awards based on estimated fair values on the date of grant. The fair value of options are estimated at the date of the grant using a Black-Scholes option-pricing model.

 

The Black-Scholes option-pricing model requires the input of highly subjective assumptions, the most significant of which are the expected unit price volatility, the expected life of the option award, the risk-free rate of return, and dividends during the expected term. Because the option-pricing model is sensitive to changes in the input assumptions, different determinations of the required inputs may result in different fair value estimates of the options.

 

As the Company’s units do not trade on an active market, the Company estimates the fair value of its units by using the Black-Scholes option-pricing model. Volatility is a measure of the amount by which a financial variable, such as a unit price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Given the Company’s limited historical data, the Company utilizes the average historical volatility of publicly traded companies that are similar in the same industry. The risk-free interest rate is the average U.S. treasury rate (having a term that most closely approximates the expected life of the option) for the period in which the option was granted. The expected life is the period of time that the options granted are expected to remain outstanding. Options granted have a maximum term of ten years. The Company had insufficient historical data to utilize in determining its expected life assumptions and, therefore, uses the simplified method for determining expected life.

 

Emerging Growth Company Status

 

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b).

 

We will remain an “emerging growth company” until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the completion of this initial public offering, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which generally is when we have more than $700 million in market value of our stock held by non-affiliates and we have been a public company for at least 12 months and have filed one annual report on Form 10-K.

  

Recent Accounting Pronouncements

 

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our audited financial statements included elsewhere in this prospectus.

 

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BUSINESS

 

Overview

 

We are a clinical stage biotechnology company developing cellular therapies for specific aging-related and life-threatening conditions. Our lead investigational product is the LOMECEL-B™ cell-based therapy product (“Lomecel-B”), which is derived from culture-expanded medicinal signaling cells (MSCs) that are sourced from bone marrow of young healthy adult donors. We believe that by using the same cells that promote tissue repair, organ maintenance, and immune system function, we can develop safe and effective therapies for some of the most difficult disorders associated with the aging process.

 

We are currently sponsoring Phase 1 and 2 clinical trials in the following indications: Aging Frailty, Alzheimer’s disease (AD), the Metabolic Syndrome, Acute Respiratory Distress Syndrome (ARDS), and hypoplastic left heart syndrome (HLHS). Our mission is to advance Lomecel-B and other cell-based product candidates into pivotal Phase 3 trials, with the goal of achieving regulatory approvals, subsequent commercialization and broad use by the healthcare community.

 

Our philosophy is that healthy aging can be improved through regenerative medicine approaches. Life expectancy has substantially increased over the past century as a result of medical and public health advancements. However, this increase in longevity has not been paralleled by the number of years a person is expected to live in relatively good health, free of chronic disease and disabilities of aging – a period known as healthspan. As we age, we experience: a profound decline in our own stem cells; a decrease in immune system function, known as immunosenescence; diminished blood vessel functioning; chronic inflammation, known as “inflammaging”; and other aging-related declines. Our clinical data suggest that Lomecel-B addresses these problems through multiple mechanisms of action, or MOAs, that simultaneously target key aging-related processes.

 

Improving healthspan is an imperative for governmental health agencies, and the NIA, an institute of the NIH, has promoted the concept of geroscience – the idea that aging itself is the biggest risk factor for aging-related human diseases. The geroscience hypothesis provides a strong rationale for the approach of treating underlying biological processes contributing to aging as a way to reduce disease burden and advance global human health. Our investments into developing and testing product candidates are aimed at reducing aging-related disease burden and improving healthspan.

 

Our Strategy

 

Our core business strategy is to become a world leading regenerative medicine company through the development and commercialization of novel cell therapy products for unmet medical needs, with emphasis on aging-related indications. Key elements of our business strategy are as follows.

 

  Advance Lomecel-B and other regenerative medicine products to market. Our clinical trial execution capabilities represent one of our key core competencies; and since our founding in 2014, we have executed a robust clinical trials program. We are advancing Lomecel-B through proof-of-concept clinical studies to potentially later stage trials for the purpose of achieving commercialization in one or more indications. Our rigorously-designed studies throughout the clinical development process are intended to increase the likelihood of success of our programs, and to establish foundations for subsequent development and expansion into new areas. We will continue to leverage our technical and clinical expertise, and relationships with clinical investigators, treatment centers, and other key stakeholders, to explore new opportunities.
     
  Expand our manufacturing capabilities to commercial-scale production. We operate a GMP-compliant manufacturing facility and produce our own product candidates for testing. We continue to improve and expand our capabilities with the goal of achieving cost-effective large-scale manufacturing to meet future commercial demand.

 

  Non-dilutive funding. Our clinical programs have received over $16.2 million in competitive extramural grant awards ($11.9 million which has been directly awarded to us and which are recognized as revenue when the performance obligations are met) from the NIH, Alzheimer’s Association, and MSCRF. These prestigious funding awards are non-dilutive and allow us to collaborate with state and federal partners in pursuing safe and effective therapeutics for disorders that have few, if any, available approved treatments. Each of our U.S. clinical trials has received grant support, and we will continue to pursue the strategy of obtaining non-dilutive funding.

 

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  Continue to develop our existing international programs. We have selected Japan as our first non-U.S. territory for a randomized, double-blinded, placebo-controlled clinical trial to evaluate Lomecel-B for Aging Frailty. We intend to explore other indications and other international locations for further development and commercialization.
     
  Collaboration arrangements and out-licensing opportunities. We will be opportunistic and consider entering into co-development, out-licensing, commercialization or other collaboration agreements for the purpose of commercializing Lomecel-B and other products domestically and internationally.
     
  Product candidate development pipeline through internal research and development, and in-licensing. Through our research and development program, and through strategic in-licensing agreements, we will add to our pipeline of product candidates. We are committed to developing safe and effective regenerative medicine products that address aging-related and other life-threatening unmet medical needs.
     
  Continue to expand our intellectual property portfolio. Our intellectual property is vitally important to our business strategy, and we take significant steps to develop this property and protect its value. Results from our ongoing research and development efforts are intended to add to our existing intellectual property portfolio.

 

Clinical Development Pipeline

 

Since our founding in 2014, we have initiated six clinical studies under five U.S. Food and Drug Administration (FDA) Investigational New Drug applications (INDs) for the purpose of evaluating the safety and efficacy of Lomecel-B (See Figure 2). As of the third quarter of 2020, over 250 subjects have received Lomecel-B via peripheral intravenous infusion or direct injection, and there have been no serious adverse events (SAEs) reported that were considered related to the product candidate.

 

 

Figure 2: Lomecel-B clinical development pipeline (“NCT” refers to each study’s identifier in ClinicalTrials.gov).

 

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Aging Frailty. Aging Frailty is a recognized condition that disproportionately increases a patient’s risk for severely poor outcomes due to disease and injury, and is widely believed by geriatricians to be treatable, although no approved medical treatments currently exist. Aging Frailty presently does not have a consensus definition of the indication for regulatory purposes, and will therefore require additional clinical data and discussion with FDA and PMDA before conducting a pivotal trial and gaining marketing authorization.

 

  We have two U.S. clinical trials ongoing under FDA IND 016644: (1) a multicenter, randomized, placebo-controlled Phase 2b trial (“Phase 2b Trial”) to assess whether Lomecel-B can improve physical function, reduce inflammation, and improve quality of life, among other endpoints, in Aging Frailty subjects; and (2) a multicenter, randomized, placebo-controlled Phase 1/2 trial (“HERA Trial”) to evaluate if Lomecel-B can be an effective vaccine adjuvant to improve immunity against influenza virus in Aging Frailty patients, who typically respond inadequately to vaccines. Data from the Phase 2b trial is expected in the second half of 2021. We have preliminary data from the HERA Trial (see “Aging Frailty Clinical Trials” on page 78 of this prospectus.) with final data expected in the third quarter of 2021.
     
  Japan Clinical Trial: The Japanese Pharmaceuticals and Medical Devices Agency (PMDA) has approved a Clinical Trial Notification (CTN), which is equivalent to a U.S. IND, allowing us to sponsor a Phase 2 clinical study for Aging Frailty subjects in Japan. We expect to initiate this trial in 2021.
     
  The Bahamas Registry Trial: We sponsor and operate a Registry Trial in Nassau, The Bahamas, where participants may receive Lomecel-B for Aging Frailty and other indications, at the participant’s own expense. Lomecel-B is designated as an investigational product in The Bahamas.

 

  Alzheimer’s Disease. AD is the leading cause of dementia, and there are no approved medications that can prevent, stop, or reverse the progression of the disease. We have completed a double-blinded, randomized, placebo-controlled Phase 1 clinical trial under FDA IND 016524 to evaluate the safety and tolerability of Lomecel-B in individuals with mild AD. The trial was also designed to explore efficacy in multiple assessment domains, including cognition, activities of daily living (ADLs), quality of life (QOL), and biomarkers. Top-line results are reported in “Phase 1 Alzheimer’s Disease Clinical Trial” on page 83 of this prospectus.

 

  The Metabolic Syndrome. The Metabolic Syndrome is an insidious condition which, over the course of years to decades, leads to cardiovascular disease (CVD) and type II diabetes mellitus (T2MD). There are no approved therapies for the Metabolic Syndrome, aside from symptomatic treatments. Under FDA IND 016644, we are conducting a sub-study to evaluate whether Lomecel-B may improve the symptoms of the Metabolic Syndrome, and the effects of this comorbidity on responses of Aging Frailty subjects to Lomecel-B. Top-line results are expected in the second half of 2021. The Metabolic Syndrome presently does not have an accepted consensus definition as an indication for regulatory purposes, and will therefore require additional clinical data and discussion with FDA and the PMDA before conducting a pivotal trial and gaining marketing authorization.
     
  Acute Respiratory Distress Syndrome due to Viral Infection. ARDS can result in both short-term severe consequences (e.g., prolonged and expensive hospitalization, and death), and long-term debilitating consequences (e.g., severe lung scarring and lung dysfunction). Older persons, those with Aging Frailty, and those with the Metabolic Syndrome are at exceptionally high risk for developing ARDS due to viral infection, as the COVID-19 pandemic has demonstrated, in which 80% of deaths have occurred in older people. We are conducting a multicenter, randomized, placebo-controlled Phase 1 trial under FDA IND 019668 to evaluate the safety and efficacy of Lomecel-B for treating ARDS due to influenza or SARS-CoV-2 virus infection. Both short- and long-term health consequences of ARDS due to viral infection disproportionately affect those with Aging Frailty and the Metabolic Syndrome—two prominent populations under study in our other trials. The trial is expected to complete enrollment in 2021.
     
  Hypoplastic Left Heart Syndrome. We are conducting a multicenter, single arm, open label Phase 1 study under FDA IND 017677 to evaluate the safety and provisional efficacy of Lomecel-B as a combinatorial therapy to surgery for this ultra-rare heart condition. Babies born with this congenital condition have an underdeveloped left ventricle, and undergo multiple surgeries to prevent certain death. We believe that Lomecel-B can improve heart function and long-term clinical outcomes in these patients, who still have a very high early mortality rate despite the life-saving surgeries. Top-line results are expected in the first quarter of 2021, and a Phase 2 trial is expected to initiate sometime in 2021.

 

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The first four indications are core to our geroscience approach for aging-related disorders (See Figure 3). While HLHS is a non-aging-related indication, it illustrates the broader potential for our cell-based therapy.

  

 

Figure 3. Unhealthy aging. Aging-associated processes,
such as chronic inflammation and decline in MSC function,

are thought to contribute to many aging-related disorders.

 

Clinical Trial Grant Funding and Partnerships

 

We have partnered with the NIA and NHLBI of NIH, the Alzheimer’s Association, and the MSCRF of Maryland TEDCO, to conduct our clinical trials.

 

Product Candidate Financial Overview

 

Since 2015, we have received approximately $27.0 million in equity financing, have been awarded approximately $16.2 million in non-dilutive grant funds for our programs ($11.9 million which has been directly awarded to us and which are recognized as revenue when the performance obligations are met), and generated approximately $3.3 million in non-grant revenue, primarily from clinical trial income and strategic contract manufacturing agreements.

 

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Intellectual Property

 

Our intellectual property includes exclusive patent license agreements, exclusive licensing of manufacturing technologies, proprietary manufacturing processes, Company-owned patent applications, and INDs for product candidates that could be awarded a period of marketing exclusivity if we receive future marketing approval. We are also developing additional regenerative medicine product candidates for our pipeline that may be the subject of future patent applications.

 

License Agreements and Strategic Collaborations

 

The University of Miami (UM)

 

On November 20, 2014, we entered into an Exclusive License Agreement with UM (the “UM License”) for the use of certain Aging Frailty-related MSC technology rights developed by our Chief Science Officer at UM. The UM License is a worldwide, exclusive license, with right to sublicense, with respect to any and all know-how specifically related to the development of the culture-expanded MSCs for aging-related frailty used at the Interdisciplinary Stem Cell Institute of UM (“IMSCs”), all SOPs used to create the IMSCs, and all data supporting isolation, culture, expansion, processing, cryopreservation and management of the IMSCs. We are required to pay UM (i) a license issue fee of $5,000, (ii) a running royalty in an amount equal to three percent of annual net sales on products or services developed from the technology, which amounts are payable on a country-by-country basis beginning on the date of first commercial sale and ending on the expiration or termination of the UM License Agreement, and which may be reduced to the extent we are required to pay royalties to a third party for the same product or process, (iii) escalating annual cash payments on the anniversary date of the agreement of ten, fifteen, twenty-five, forty and fifty thousand dollars, which amounts may be offset by other consideration paid. UM also received a one percent (1%) equity grant, which is subject to certain anti-dilution provisions.

 

The agreement extends for up to 20 years from the last date a product or process is commercialized from the technology. This agreement was amended on December 11, 2017. The amendment modified the dates of the milestone completions under the original UM License as follows: (a) by December 31, 2021, to have completed Phase 2 clinical trials for the products; and (b) by June 1, 2025, to have completed Phase 3 clinical trials for products. In addition, one-year extensions may be granted on these milestone dates by making a payment of $5,000. Upon completion of the Phase 2 clinical trials, a milestone payment of $250,000 is due. Upon completion of the Phase 3 clinical trials, a milestone payment of $750,000 is due. To date, the Company has made payments totaling $140,000 to UM, and as of September 30, 2020, we had accrued $50,000 in milestone fees payable to UM based on the estimated progress to date. We have the right to terminate the UM License upon 60 days’ prior written notice, and either party has the right to terminate upon a breach of the UM License. Currently we are in discussions to potentially modify certain terms.

 

JMH MD Holdings

 

On December 22, 2016, we entered into a worldwide exclusive license agreement with JMH MD Holdings (“JMHMD”), an affiliate of our Chief Science Officer, for the use of CD271+ technology, a subpopulation of bone marrow-derived MSCs. We are required to pay JMHMD a running royalty in an amount equal to one percent of the annual net sales of the licensed product(s) used, leased, or sold by or for us by any sub-licensees, which amounts are payable on a country-by-country basis beginning on the date of first commercial sale and ending on the latter of expiration of the last to expire patent rights in such country or ten years from the first commercial sale in such country (provided that if all claims within the patent rights have expired or been finally deemed invalid then the royalty will be reduced by 50%), and which may also be reduced to the extent we are required to pay royalties to a third party for the same product or process. We are also required to pay an initial fee and, by the first day of each anniversary of the Agreement, starting with the second anniversary, a minimum royalty of ten thousand dollars. JMHMD also received an equity grant equal to one-half of one percent of the then outstanding units of the Company on a fully-diluted basis. If we sublicense the technology, we are also required to pay an amount equal to 10% of the net sales of the sub-licensees.

 

Under the agreement, the Company is required to use commercially reasonable efforts to achieve the following milestones: (i) submit an investigational new drug application to FDA (or international equivalent) within one year of effective date of agreement, (ii) initiate a clinical trial utilizing bone marrow derived CD271+ Precursor Cells within three years of the effective date; provided, that any of the milestones may be extended for up to six months for a total of three times by notice and payment of a five thousand dollar extension fee. Failure to achieve these milestones within five years of the effective date triggers a right of termination by JMHMD. Otherwise, the agreement is to remain in effect until either the date all issued patents and filed patent applications have expired or been abandoned, or 20 years after the date of FDA approval of the last commercialized product or process arising from the patent rights whichever comes later. Further, each party has the right to terminate upon sixty days’ prior written notice, or in the event of breach. The Company paid an initial fee of $250,000 to JMHMD, and issued to it 10,000 Series C Units, valued at $250,000. The Company to date has not incurred any royalty or sublicense related expense, and there were no license fees due during the nine months ended September 30, 2020 and 2019 pertaining to this agreement. We paid legal fees of approximately $21,000 and $42,000 for the six months ended September 30, 2020 and 2019, respectively, in connection with the patent prosecution, issuance, and maintenance fees related to CD271+ technology.

 

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Lomecel-B for Aging-Related Indications: a Geroscience Approach

 

While the exact mechanisms of action of Lomecel-B, and MSCs in general, are still active areas of research, based on current evidence, we believe Lomecel-B can treat multiple facets of aging-related disorders simultaneously through multiple mechanisms of actions that include the following.

 

  Reduce inflammation. A pro-inflammatory state is a common attribute among many aging-related disorders. Lomecel-B has the potential to reduce inflammation without leading to toxic immunosuppression, as well as the potential to promote activation of anti-inflammatory biochemical pathways. Broadly speaking, this includes reducing harmful pro-inflammatory proteins that negatively affect muscles, bones, and joints, as well as the brain (inflammation in the brain is called neuroinflammation).
     
  Improve immune function. Lomecel-B has the potential to improve immune system function, such as the ability to make antibodies.
     
  Improve vascular function. Lomecel-B has the potential to improve overall functioning of the blood vessels (called the vasculature). The potential broad impact is to improve blood supply to the muscles, bones, and organs, including the brain (the neurovasculature), and thereby improve nutrient supply and waste removal.
     
  Activate intrinsic repair and regenerative mechanisms. Intrinsic ability to regenerate and repair tissue declines with aging. Lomecel-B has the potential to stimulate these regenerative and repair pathways to promote recovery from damage and a more healthful state.
     
  Home to sites of inflammation and damage. A well-known property of MSCs is that they are attracted to sites of inflammation and damage within the body. This property may be advantageous for treating aging-related diseases where the damage can be diffuse: by delivery into the blood (via intravenous infusion), Lomecel-B should more readily be able to home to these diffuse sites.
     
  Compensate for aging-related loss of MSCs. Lomecel-B may compensate for diminished MSC activity and numbers in the recipient, which are dramatically reduced as a function of aging.

 

Biochemical Properties of Lomecel-B

 

The proposed mechanisms of action of Lomecel-B derive from intrinsic cellular features (See Figure 4). Lomecel-B cells secrete numerous proteins that include cytokines and growth factors, which are believed to be responsible for decreasing inflammation and promoting repair.

 

Lomecel-B also secretes exosomes, which are biochemically active membrane spheres (called vesicles) that carry cargo composed of proteins, ribonucleic acid (RNA), and other molecules. MSC exosomes have been found to include over a thousand proteins and hundreds of different RNAs that can have beneficial effects on numerous pathways. Using exosomes as a therapeutic is an emerging therapeutic principle that we are pursuing through our research and development.

 

Lomecel-B cells can also potentially regulate endogenous cells through actions that include direct cell-cell interactions that can allow for exchange of RNAs, proteins, and other cellular content between the cells through linkages called connexin-mediated gap-junctions. MSCs can also form tunneling nanotubes (TNTs) that allow for exchange of larger cytoplasmic content, including mitochondria (the energy-generating portions of cells). Such exchanges have been documented to occur between MSCs and neuronal stem cells, cardiomyocytes, corneal epithelial cells, lung epithelial cells, retinal ganglion cells, renal epithelial cells, and macrophages.

 

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In the context of treating aging-related disorders, such exchange of mitochondria, proteins, RNA, and other cargo from Lomecel-B sourced from young donors may suggest cellular regenerative mechanisms for older cells of the recipient which have depleted mitochondria, reduced metabolic functioning, etc. In fact, mitochondria released from damaged cells appears to be a signal to induce regenerative mechanisms in MSCs, which can promote a desired shift in energy metabolism in the recipient cells.

 

 

Figure 4. Potential mechanisms of action of Lomecel-B. (1) Lomecel-B cells release growth factors and other proteins, such as anti-inflammatory cytokines. These have the potential to reduce inflammation, and stimulate nearby stem cells and other cells (called paracrine activity) to promote regenerative and repair responses. There is also potential for these factors to be released into the blood and work at a distance, called endocrine activity. (2) Lomecel-B cells also have the potential to engage in direct cell-cell interactions to induce positive pathways in contacted cells. (3) Lomecel-B cells release exosomes, which have cargo consisting of RNA, proteins, and other molecules that can be taken up by other cells to provide beneficial effects. (4) Lomecel-B cells also have the potential to form nanotube bridges or TNTs, which can allow the exchange of mitochondria and other cellular contents between cells.

 

Key Features and Potential Benefits of Lomecel-B

 

The key features of Lomecel-B offer potential benefits as a possible geroscience therapeutic, including the following:

 

  “Off-the-Shelf” and scalable product. Lomecel-B is intended to be an “off-the-shelf” commercialized product that is stored frozen and available for on-demand use. To date, it has been safely administered without eliciting a rejection or allergic response from the recipient. This is because MSCs have unique properties that inhibit a graft rejection response. This property is also known as being immunoprivileged/immunoevasive, and thus Lomecel-B does not require tissue-type matching. Each lot of Lomecel-B is derived from a young, healthy, highly-screened donor, where the cells are present in relatively small quantities. Lomecel-B cells are then culture-expanded in vitro to produce orders of magnitude more cells, which are then cryopreserved and stored for future use. These are advantages over autologous cell therapy interventions, which involve removing cells from an individual through an operative procedure, and then reintroducing the cells back into the same person, sometimes after weeks of culture expansion. Accordingly, autologous approaches lack economies of scale since they serve only a single patient. In our clinical trials, Lomecel-B is administered through intravenous infusion in under one hour on an outpatient basis, or via direct tissue injection, depending upon the indication.

 

  Enduring effects. Our clinical data suggests that the effects of a single dose of Lomecel-B may last over 6 months. This is consistent with previous studies showing human MSCs can persist for months in immunocompetent hosts, thereby helping support the potential duration of effect.

 

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  Young phenotype. The starting raw material source for Lomecel-B is young healthy adult donors. Such sourced cells can provide significantly higher potency over similarly prepared autologous MSCs (i.e., sourced from a person they will be given back to). In the context of aging-related conditions, autologous MSCs can be impaired by advanced age and/or patient co-morbidity. Relative to young adults, MSCs from older adults have reduced regenerative potential, as indicated by: diminished proliferative capacity; diminished differentiation potential; increased senescence; increased expression of deoxyribonucleic acid (DNA)-break repair genes; altered DNA-methylation and gene-expression patterns; impaired migration; altered expression of microRNAs and cell-surface markers; and diminished anti-inflammatory activity. The sourcing and manufacturing of Lomecel-B are designed to minimize these confounding issues.
     
  Safe and consistent manufacturing. Lomecel-B manufacturing is performed in our facility using cGMP-compliant processes. The donors used for sourcing Lomecel-B undergo rigorous screening to ensure safety, including screening for communicable diseases and illicit drug use that exceed federal guidelines. Throughout the production process, the cells are analyzed according to pre-established criteria to ensure that a consistent, well-characterized, safe product candidate is produced.
     
  Well-tolerated and with minimal adverse side-effects. Lomecel-B has thus far in our clinical trials shown to be well-tolerated. Over 250 subjects have received Lomecel-B, and no SAEs have been reported that were considered related to the product candidate. This is consistent with published reports indicating that allogeneic MSCs appear safe and well-tolerated, and do not lead to malignant tumor formation.
     
  Support for efficacy from early clinical trial data. As described above and supported by our clinical results, Lomecel-B has multiple potential MOAs that can potentially address broad aging-related disorders. This has potential advantages over small molecule drugs and biologics that have highly-specific targeting.
     
  Potency, identity, and efficacy assays. We are developing these assays for Lomecel-B as part of our early stage trials, for validation in our pivotal Phase 3 trials. These assays are important steps required by FDA prior to product approval and are needed to qualitatively identify and quantitatively measure biological activity of the product candidate.

 

Our Aging Frailty Research Program

 

Aging Frailty is a clinically-defined and extreme form of unsuccessful aging. It is readily recognized by the hallmark signs of weakness, slowness, fatigue, unintentional weight loss, and low activity. Those with Aging Frailty are disproportionately compromised in their ability to cope with every day and acute stressors, are at high vulnerability to disease and injury, have lowered tolerance to medications, and are at high risk for poor outcomes and death after surgery. Even normally “minor” insults (e.g., minor infection) can have devastating consequences, and lead to a spiral of decline to debility in these patients.

 

The necessity for identifying patients with Aging Frailty is well-acknowledged in the geriatric community, and the treatment of Aging Frailty and promotion of healthful aging are recognized priorities of the National Academy of Medicine and NIA/NIH. Despite the pressing need for interventions, there are no FDA-approved therapies that can slow down, reverse, or prevent Aging Frailty.

 

Biological Underpinnings of Aging Frailty

 

Aging Frailty is a multifaceted biologically-driven process that is distinct from normal aging. While all of the biological mechanisms underlying frailty are still being elucidated, it is thought to involve a low-level chronic pro-inflammatory state referred to as inflammaging. This loss of control over inflammation can be attributed to an imbalance between levels of inflammatory promoters and anti-inflammatory mediators, as well as diminished capacity to restore equilibrium once an inflammatory stimulus has subsided. The ultimate result is measurable elevated serum levels of pro-inflammatory signaling molecules, such as tumor necrosis factor-α (TNF-α), and diminished anti-inflammatory mediators, such as interleukin-10 (IL-10). In particular, serum TNF-α positively correlates to Aging Frailty severity.

  

Inflammation can contribute to the physical decline in Aging Frailty through multiple mechanisms, including detrimental effects on muscles, bone tissue, the immune system, cardiovascular function, and cognition. In muscle cells, pro-inflammatory mediators such as TNF-α stimulate catabolic biochemical pathways that break down muscle tissue, which can explain the clinically observed atrophy, decreased strength and endurance, and increased exhaustion seen in Aging Frailty. Inflammation can also severely diminish immune system function, and accelerate the aging-related decline in the immune system, known as immunosenescence. This ultimately leads to an immune system that is hyporesponsive, making these patients highly vulnerable to disease and cancer.

 

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Aging Frailty (and aging in general) is also characterized by reductions in the number and function of circulating MSCs. Therefore, treatments that can positively affect and/or replenish these endogenous stem cell functions could be of therapeutic value for Aging Frailty.

 

The culmination of these organ system declines can explain the common clinical manifestations of Aging Frailty, such as sarcopenia and cachexia, and forms the basis for the resulting heightened vulnerability to injury, disease, adverse health outcomes, and mortality.

 

Lomecel-B for the Potential Treatment of Aging Frailty

 

We are evaluating Lomecel-B as a therapy for Aging Frailty because the potential mechanisms of action may suitably address many of the features and underpinnings of this condition. Foremost, Lomecel-B has the potential to reduce inflammation associated with Aging Frailty, and to promote an anti-inflammatory state by releasing anti-inflammatory molecules, which can promote physiological restoration to a more normal state. As our early clinical data show, Lomecel-B may be able to improve aspects of physical functioning, as well as immune function.

 

Market Potential.

 

U.S. leading geriatricians and epidemiologists from Johns Hopkins University estimate approximately 15% of community-dwelling individuals 65 years and older in the U.S. have Aging Frailty. Another 45% are considered at risk for becoming frail, or “pre-frail”. These equate to 8.1 million and 24.3 million people, respectively. By 2035, the number of individuals with Aging Frailty is projected to reach over 11.4 million. Those with Aging Frailty are disproportionately high consumers of healthcare resources with potentially crippling economic consequences. Developing treatments for this unmet medical need is a priority for many single-payor healthcare systems

 

Japan is considered a “super-aged” society, with approximately 28% of its population over the age of 65. Aging Frailty and pre-Aging Frailty prevalence estimates for community-dwelling individuals aged 65 and older are 7.4% and 48.1%, respectively. Based on a 65 and older population of 35.9 million, this translates to approximately 2.65 million Aging Frailty patients in Japan.

 

Aging Frailty Clinical Trials

 

We are currently conducting two multicenter trials in the U.S. for Aging Frailty, have received Pharmaceuticals and Medical Devices Agency (PMDA) approval to conduct a Phase 2 Aging Frailty clinical trial in Japan, and have government approval to use Lomecel-B for Aging Frailty participants in a registry trial that is actively enrolling in The Bahamas (See Figure 5). We are the only company that we are aware of that is developing an allogeneic cell therapy for Aging Frailty.

  

 

Figure 5. Longeveron’s international Aging Frailty program.

 

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U.S. Phase 2b Multicenter, Randomized, Double-Blinded, Placebo-Controlled Trial

 

The Phase 2b Trial is our most advanced clinical trial in our Aging Frailty program (ClinicalTrials.gov #NCT03169231). Enrollment was completed in February 2020, and the last subject visit is expected in the first quarter of 2021. The trial design was guided by input from FDA’s Center for Biologics Evaluation and Research (CBER), and Longeveron’s scientific and clinical advisors. Longeveron has designated this as a “Phase 2b” trial because its objectives include a preliminary assessment of Lomecel-B effectiveness. Longeveron did not conduct a “Phase 2a” trial.

 

The specific objectives of this trial are to evaluate the effectiveness of Lomecel-B in multiple domain measures of Aging Frailty: physical functioning biomarkers; patient-reported outcomes (PROs); quality-of-life measures (QOLs); frailty status; and clinical outcomes and other endpoints applicable to Aging Frailty. In addition, this trial will assess a dose-range of Lomecel-B and add further to our understanding of the safety and efficacy profile of this product candidate. The target population comprises 70–85 year-old individuals with mild to moderate Aging Frailty, and systemic inflammation evidenced by elevated tumor necrosis factor-α (TNF-α).

 

The primary efficacy endpoint in this clinical trial is the change from baseline in the six-minute walk test (6MWT) at six months for Lomecel-B subjects compared to placebo subjects. The 6MWT is a commonly used assessment of physical function, and has been used as the primary endpoint of clinical benefit for a number of FDA-approved products. The results of our Aging Frailty trials will be evaluated and discussed with FDA to determine what could be an acceptable and appropriate primary efficacy endpoint(s), in an approvable indication. In lieu of long-term clinical outcomes (e.g., reduction in falls, fractures, hospitalizations, debilitations, and deaths) as endpoints requiring large expensive long trials, the U.S. FDA has indicated that the 6MWT could be a suitable co-primary or composite primary endpoint in this indication, if included with a validated PRO and a suitable biomarker, for example.

 

Trial Status. This Phase 2b Trial is fully-enrolled and patient follow-up is ongoing. We anticipate reporting data in the second quarter of 2021.

 

Grant Funding Award. This study is being supported by a grant award from the NIA/NIH.

 

U.S. Phase 1/2 HERA Trial: Lomecel-B as a Potential Vaccine Adjuvant

 

The aging-related diminution of the immune system (immunosenescence) makes Aging Frailty patients vulnerable to infection and disease. Immunosenescence is the basis for a generally muted response to any type of immune challenge in these patients, including disproportionately low response to vaccines, such as the influenza vaccine.

 

Many efforts are made to try to boost vaccine effectiveness by manipulation of the vaccines themselves, such as increasing vaccine dosage in the case of the High-Dose Flu Vaccine given to older recipients. However, this approach often falls short of providing the sought-after immune protection because of the patients’ diminished intrinsic ability to mount an effective immune response and furthermore, may be associated with increased incidence of adverse events. To date, there are no approved therapeutics shown to improve the intrinsic competence of the immune system (immunocompetence). However, as supported by our preliminary data, Lomecel-B may be a candidate for improving immunocompetence.

 

The HERA Trial was designed to evaluate whether Lomecel-B can improve immune response to influenza vaccine, and to evaluate Lomecel-B’s possible effects on Aging Frailty status and endpoints (ClinicalTrials.gov #NCT02982915). Phase 1 has been completed, and Phase 2 is fully enrolled and subject follow-up is ongoing.

 

Trial Status. We have completed Phase 1, and Phase 2 is anticipated to be completed and have top-line results available in third quarter of 2021. Phase 1 was a 22 patient multicenter, open-label, randomized trial. Phase 2 is a multicenter, randomized, double-blinded, placebo-controlled trial. Lomecel-B has been well-tolerated in all trials to date, and no product-related adverse events have been reported.

 

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Grant Funding Award. This study has been supported in part by a grant award from the MSCRF, part of Maryland TEDCO.

 

HERA Aging Frailty Preliminary Results. At the approximate mid-point of Phase 2 of the HERA Trial, we performed a planned interim analysis in order to re-assess study powering. We evaluated the 6MWT and other physical function measures of Aging Frailty as part of this analysis. The 6MWT is also the primary efficacy endpoint of our larger Phase 2b Aging Frailty trial.

 

The 6MWT is a functional assessment that engages several organ systems, is a reliable indicator of frailty status, and may correlate with an individual’s ability to perform basic activities of daily living (ADLs). This validated and easily-administered test measures how many meters a person can walk in six minutes, and integrates multiple physiological systems for strength, mobility, and endurance. The HERA Phase 2 interim analysis showed that the 6MWT increased in the Lomecel-B arm by 45.20 ± 81.03 meters (n=14) at six months post-administration, versus a decrease of 21.40 ± 81.87 meters (n=15) in the placebo arm (mean ± standard deviation; six-month difference from placebo: 66.60 meters. 95%CI: -4.70 – 137.89. p = 0.0656). A similar trend was seen in the open-label HERA Phase 1 (59.59 ± 140.57 meters. 95%CI: -12.68 – 131.86. n=19. p=0.0996). We performed a combined analysis using the Lomecel-B arms from Phase 1 and the Phase 2 interim analysis Lomecel-B arms, versus the placebo arm of the interim analysis (Figure 6). At six months post-infusion, there was a significant improvement in the combined Lomecel-B arm relative to Baseline (six-month difference from placebo: 75.65 meters. 95%CI: 0.71 – 150.60. p=0.0480). By 12 months post-infusion, the improvements had waned in the Lomecel-B groups (Phase 1, Phase 2 interim analysis, and combined), and were no longer significantly different from Baseline (12-month difference from placebo: 35.31 meters. 95%CI: -16.99 – 87.61. p=0.1796).

 

The HERA Phase 2 interim analysis also showed a trending, but not significant, improvement in the Lomecel-B group on the short physical performance battery (SPPB) relative to placebo. The SPPB is used to evaluate lower body function and balance, and consists of three assessment domains (balance, gait speed, and chair stand). All three domains showed similar trending improvements. The other physical function measures – the Tinetti Performance Oriented Mobility Assessment (POMA) and hand-grip strength – showed minimal changes for Lomecel-B (both within group and relative to baseline).

  

 

Figure 6. 6MWT improved in Lomecel-B administered subjects, but not placebo-treated subjects. For this analysis, data were combined from HERA Phase 1 and from a HERA Phase 2 planned interim analysis. The Phase 2 study is still ongoing, so the interim analysis entailed only study group analyses of select endpoints to maintain the blind (individual patient data remains blinded). Plotted are the mean ± SEM. *, p < 0.05.

 

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HERA Immune-Response Results. Phase 1 of the HERA Trial was an open-label study conducted during the 2017 – 2018 flu season. The primary goal was to evaluate the safety of Lomecel-B as a vaccine adjuvant, and evaluate whether a short (1 week) or longer (4 week) interval between Lomecel-B infusion and vaccination impacted the immune response. Subjects enrolled had mild to moderate Aging Frailty, and received the Fluzone High-Dose Vaccine.

 

All subjects of this Phase received Lomecel-B, and showed significant positive antibody responses as determined by the blood levels of IgM and IgG antibodies raised against influenza A and B strains. IgM antibodies appear early in a normal immune response, and are normally followed by IgG antibodies which appear later. Antibody levels ≥ 1.1 index value (IV) indicate positive antibody response. Figure 7 shows IgM antibodies raised against influenza A virus, and is representative of the IgM and IgG responses against both influenza A and B strains. IgM levels prior to receiving vaccine were < 1.1 IV at the Infusion Visit and Vaccination Visit, where blood samples were taken prior to Lomecel-B administration and vaccination, respectively. Post-vaccination, these increased to > 1.1 IV in every subject for all four antibodies (IgG and IgM for influenza A and B viruses). These increases did not significantly differ between the two study arms (1-week and 4-week interval between Lomecel-B infusion and vaccination).

 

We also examined potential to neutralize the specific influenza virus strains that the vaccine was directed against (Michigan, Hong Kong, and Brisbane viruses). This used a test called the hemagglutinin inhibition (HAI) assay. Overall, the 1-week interval group showed significantly higher HAI results (meaning better performance) compared to the 4-week interval group. Based on these preliminary findings, we elected to use a 1-week interval between infusion with Lomecel-B and vaccination in Phase 2 of HERA. This study is ongoing, with expected unblinding in the second half of 2021.

  

We view these results as encouraging, in light of the reported suboptimal efficacy of the 2017 – 2018 Fluzone High-Dose Vaccine. The Centers for Disease Control & Prevention (CDC) found an overall adjusted vaccine effectiveness (VE) of just 18% against flu-associated medically-attended acute respiratory illness in those ≥ 65 years of age (CI = -25–47%).

 

The cumulative Phase 1 and 2 results from our HERA Trial suggest that Lomecel-B has the potential to improve physical function and immune response, supporting the concept of Lomecel-B as a geroscience product candidate.

 

 

Figure 7. Positive antibody response occurred in all subjects treated with Lomecel-B. Shown are IgM antibody levels against Influenza A. Antibody levels ≥ 1.1 IV (Index Value) indicate positive antibody responses against influenza A virus. Blood samples for antibody analyses at the Infusion Visit were obtained prior to administering Lomecel-B. Blood samples at the Vaccination Visit were obtained prior to giving the Flu vaccine. Shown are mean ± SD. p-values are for the change at the respective time-point versus Baseline. ***, p < 0.001.

 

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Japanese Phase 2 Aging Frailty Trial.

 

We have advanced our clinical initiative in Japan with the objective of capitalizing on the country’s progressive regulatory framework, which has legislation designed specifically to accelerate promising regenerative medicine therapeutics to market. In 2020, the PMDA approved our Clinical Trial Notification (CTN) application for a multicenter Phase 2 clinical study of Lomecel-B infusion in older Japanese subjects with mild to moderate Aging Frailty. The trial is similar in design to our ongoing U.S. Phase 2b Trial, and is expected to begin in 2021. We have engaged in discussions and preliminary trial planning with Japan’s largest private hospital chain, and the National Center for Geriatrics and Gerontology.

 

Under the 2014 law passed by the Japanese government, two new Acts were added that regulate regenerative medicine development and offer two pathways to market for regenerative medicine product candidates: the Act on the Safety of Regenerative Medicine (ASRM) and the Pharmaceutical and Medical Devices Act (PMD Act). A summary of the primary differences and benefits of the two Acts is described in “Japanese Laws and Regulations” on page 104 of this prospectus.

 

The Bahamas Registry Trial.

 

In 2017, we were granted approval by the Bahamian government to sponsor a Registry Trial in Nassau, The Bahamas. Eligible subjects with Aging Frailty who meet Registry eligibility requirements may receive Lomecel-B at their own expense at one of two medical centers with which we are partnered. The medical providers are responsible for the administration of Lomecel-B to these individuals as well as their care and Registry Trial-specific follow-up. The program is regulated by the Stem Cell Research and Therapy Act of 2013, and the Stem Cell Research and Therapy Regulations passed in 2014. Under the terms of the approval, participants in the Registry pay a fee directly to us, and we in turn pay a fee to the medical providers who administer Lomecel-B to the participant. Data collected from the Registry Trial contribute to our overall understanding of the safety profile of Lomecel-B, and for gathering real-world evidence on possible efficacy. Lomecel-B is not licensed for commercial sale in the Bahamas and is considered an investigational therapeutic.

 

In 2019, we received approval to expand the Registry for the following indications: mild cognitive impairment; AD and related dementias; frailty due to reasons other than aging, including overuse and injury; and osteoarthritis.

 

The Registry Trial has specified baseline assessments and a prescribed follow up schedule over a 12 month post-administration time period. Participants are expected to follow up with their local physician at the specified time points so that we may collect safety data and gain additional efficacy information, specifically with respect to physical function, the individual’s global impressions of change, biomarkers, and other indication-specific measures.

 

Participation in the Registry Trial has been adversely impacted by the COVID-19 pandemic due to travel restrictions. Starting on July 22, 2020, the Bahamian government halted travel from the U.S. into The Bahamas, which resulted in the temporary cessation of participation in The Bahamas Registry Trial.

 

Lomecel-B for Alzheimer’s Disease

 

AD is the leading form of dementia. This disease affects millions of Americans, leads to early mortality, and creates a tremendous burden on families and society that costs the U.S. hundreds of billions of dollars annually in direct costs and lost productivity.

 

Patients afflicted with AD have characteristic brain changes that include abnormal protein deposits in the brain, called β-amyloid deposits. Another feature that occurs within the neurons themselves is called neurofibrillary tangles, which interferes with the structure and function of the neurons, and leads to neuron death. Inflammation in the brain – a process called neuroinflammation – is also a key feature of AD. This pro-inflammatory state appears essential for the clinical manifestation of dementia resulting from AD. In addition to affecting the brain tissue itself, neuroinflammation also impairs the blood vessels in the brain and the exchange barrier between the blood and the brain, called the blood-brain barrier (BBB). Ultimately, these pathological processes lead to the structural changes in the brain and resulting dementia.

 

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Despite decades of research, the biotechnology and pharmaceutical industries have not succeeded in developing a safe and effective FDA-approved treatment that can prevent, slow-down, or reverse the progression of AD. Many of these failed investigational drugs narrowly target just one aspect of AD, such as β-amyloid deposits. The five currently approved drugs for AD provide only partial symptomatic relief, but do not treat disease progression. We believe reasons for these failures include the inability of these other approaches to treat multiple pathological aspects of AD, and the inability to promote regenerative responses, which is highly muted in the brain.

 

We are testing Lomecel-B as a potential treatment for AD based on the hypothesis that its multiple possible MOAs can simultaneously address multiple features of AD. Preclinical studies show that MSCs can potentially reduce AD-associated brain inflammation, improve the function of blood vessels in the brain, and reduce brain damage due to AD progression, and promote regenerative responses. We have completed a multicenter, randomized, placebo-controlled Phase 1 safety study of subjects with mild AD, and topline results are expected in the fourth quarter of 2020. Based on preliminary results, we intend to initiate a larger Phase 2 study. If successful in clinical studies, we hope that Lomecel-B may prove to be a disease-modifying therapy for AD.

 

Prevalence of AD and Market Potential. The Alzheimer’s Association estimates that 5.7 million Americans have AD, and as many as 14 million Americans will be afflicted by 2050 barring significant medical breakthroughs. An estimated 35.6 million people are affected with AD worldwide, and that number is expected to quadruple by 2050. Among individuals age 85 and older, half have AD. AD is currently the sixth leading cause of death in the U.S., taking more lives annually than breast cancer and prostate cancer combined, underscoring the critical importance for developing a therapeutic intervention that can delay or reverse the progression of the disease. Arguably, AD represents the only leading cause of death that cannot be prevented, cured, or slowed using existing approved therapies. This disease has a tremendous impact on the quality of lives of the patients and their caregivers, costing American society an estimated $240 billion annually.

 

Analysts have suggested that any disease-modifying AD drug that makes it all the way to market could rapidly achieve over $10 billion in sales. Without a major market competitor, analysts have predicted that that figure could balloon to over $20 billion by 2030.

 

Phase 1 Alzheimer’s Disease Clinical Trial.

 

We have conducted a double-blind, randomized, placebo-controlled Phase 1 trial using a single infusion of Lomecel-B in subjects with mild AD (ClinicalTrials.gov #NCT02600130). The observation period was 12 months post-infusion. Our results support the safety and tolerability of using Lomecel-B in individuals with AD, in which there have been no product-associated SAEs.

 

Results from the AD Phase 1 Trial.

 

While this Phase 1 study was powered for safety as the primary endpoint, it was also designed to evaluate the effects of Lomecel-B in multiple efficacy domains that include cognition, activities of daily living (ADLs), quality-of-life (QOL), and biomarkers.

 

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The Mini Mental State Exam (MMSE) is a validated and commonly used assessment of cognitive function, in which decreasing scores indicate worsening. Statistically significant differences in the mean MMSE score were found between the Lomecel-B and placebo groups (Figure 8). The placebo group showed a steady worsening in the MMSE (p < 0.05 at 3, 9 and 12 months post-treatment versus baseline). However, the rate of decline in the Lomecel-B group after treatment was slower, reaching statistical significance at post-treatment month 9 (difference from placebo: p = 0.0403; 95%CI: 0.16 – 6.38). While other cognitive assessments (“AD Assessment Scale – Cognitive” and the “Trail Making Test”) showed no significant differences between the Lomecel-B and placebo groups, the Lomecel-B group showed trending improvements relative to the placebo group.

 

 

Figure 8. Impact of Lomecel-B on cognitive performance in patients with mild AD. The MMSE showed a steady decline (lowered score) in the placebo group (red). The Lomecel-B group (blue) showed only a slight decline, which was statistically significant at 9-months after the treatment. The gray-box indicates the MMSE inclusion score of 18 – 24 required for enrollment on the trial. Plotted are means ± SEM. *, p < 0.05 for change in Lomecel-B arm versus placebo.

 

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The subjects that received Lomecel-B showed on average no change in the ADCS-ADL, whereas the placebo group showed a significant decline (decreased score) (six-month difference from placebo: 95% CI 2.26 – 13.67). The ADCS-ADL is an assessment given to the patient caregiver, and provides an independent evaluation of how the AD patient is progressing. No significant differences between the Lomecel-B and placebo arms were found in quality-of-life (QOL) measures.

 

 

Figure 9. Impact of Lomecel-B on ability to perform activities of daily living (ADLs) in patients with mild AD. The ADCS-ADL showed a declined (lowered score) in the placebo group while the Lomecel-B group showed a slight improvement. These differences were statistically significant at 6-months after the infusion. Plotted are means ± SEM. **, p < 0.01 for change in Lomecel-B arm versus placebo.

 

Quarterly magnetic resonance imaging (MRI) brain scans were performed on each subject to evaluate safety, as well as efficacy via brain structure changes. No adverse imaging brain changes were noted, supporting the potential safety of Lomecel-B for patients with mild AD.

 

Automated image analysis of the MRI scans were used to obtain unbiased measurements of brain structures (Figure 10). One of these structures, the hippocampus, is a brain region critical for memory formation, is one of the two major brain regions that undergoes rapid constant neuron replacement (the other region being the olfactory bulb), and undergoes significant atrophy (shrinking) in Alzheimer’s disease. Over the first 6 months post-treatment, the hippocampus on both sides of the brain showed trending but not significant size decreases in the placebo group, while the Lomecel-B-treated group did not. At month 6, this divergence reached significance in the left hippocampus between the placebo group and those treated with Lomecel-B at a 100 million cell dose (p = 0.0396; 95% CI 29.7 – 1044.8 mm3). These results are consistent with a proposed mechanism of action that Lomecel-B may stimulate intrinsic neuronal stem cells and regenerative mechanisms, thereby leading to increased volume of the hippocampus. Many brain regions did not show significant changes over the follow-up period. Nevertheless, it is possible that the changes observed in the imaging may be associated with the improvements in cognitive function.

 

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Grant Funding Award. This trial has been supported by two competitive grants from the Alzheimer’s Association.

 

Next Steps. We are still awaiting final results from the Phase 1 trial but are preparing and planning for the next phase trial, which is expected to be a larger, randomized, double-blind, placebo-controlled Phase 2 trial intended to explore the effects of multiple doses of Lomecel-B in subjects with AD.

 

 

Figure 10. Impact of Lomecel-B on brain architecture as assessed by brain MRI imaging. A – E, Representative brain scans of one of the treated subjects from the trial. Automated brain structure analyses were performed using programs that included the Automatic Segmentation of Hippocampal Subfields. Subregions of the whole hippocampus are shown color-coded (B – E). F and G, Hippocampal size changes after treatment with placebo or a single 100 million cell dose (100M) of Lomecel-B. At 6 months post-treatment, the left hippocampus showed a mean decrease in size in the placebo group that was statistically significantly different from the Lomecel-B group, which remained relatively unchanged. The right hippocampus showed a similar trend, but the difference was not statistically significant. Plotted are means ± SEM. *, p < 0.05 for Month 6 Lomecel-B versus placebo group.

 

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Lomecel-B for the Metabolic Syndrome

 

We have an ongoing Phase 1 sub-study exploring whether Lomecel-B can improve the Metabolic Syndrome, and if the Metabolic Syndrome presents confounding issues for this treatment approach in Aging Frailty patients. This sub-study primarily focuses upon blood-based biomarker changes, and non-invasive evaluation of vascular (blood vessel) functioning.

  

The Metabolic Syndrome is a clinically-defined condition (ICD-10: code 277.7) that increases the chances of developing cardiovascular disease (CVD) and Type II diabetes mellitus (T2DM). It is also known as X syndrome, insulin resistance syndrome, cardiometabolic syndrome, and Reaven’s syndrome. The Metabolic Syndrome is defined as a cluster of risk factors for which at least three of the following five criteria must be met.

  

  Elevated serum triglycerides.
     
  Reduced high-density lipoprotein (good cholesterol).
     
  Elevated blood pressure.
     
  Elevated fasting glucose.
     
  Increased waist circumference (central or apple-shaped obesity).

 

The Metabolic Syndrome is associated with vascular dysfunction and damage, and a proinflammatory state marked by elevated serum levels of C-reactive protein (CRP), interleukin-6 (IL-6), and D-dimer. Obesity also directly contributes to this proinflammatory state and the Metabolic Syndrome.

 

Compared to unaffected individuals, patients with the Metabolic Syndrome are twice as likely to develop CVD in 5 – 10 years, five-times as likely for developing T2DM, over twice as likely to have a stroke, over three-times as likely to have a heart attack, and have double the risk of dying from such events.

 

The incidence of the Metabolic Syndrome has reached epidemic proportions and continues to increase, as the overall prevalence in the U.S. is approximately 35% of the total population, or over 80 million individuals.

 

Lomecel-B may be a potential candidate for the Metabolic Syndrome through multiple potential mechanisms of action that include the potential to reduce associated inflammation and improve vascular function. Preclinical studies support the clinical benefits of allogeneic MSC therapy for treating the Metabolic Syndrome, which resulted in improvements in vascular function, atherosclerosis, and glucose homeostasis.

 

For the purpose of analysis, we are evaluating the Metabolic Syndrome in subjects who have been enrolled in our Phase 2b Trial and HERA Trial, and dividing them into two groups: those with and without the Metabolic Syndrome. We will look at the effect of Lomecel-B relative to placebo on the two groups with respect to effect changes relevant to the Metabolic Syndrome. Forty percent of Aging Frailty patients have been reported to have the Metabolic Syndrome, which we have empirically confirmed from our Phase 2b Trial and HERA clinical trial, in which we have identified approximately 45% and 33% of enrolled subjects, respectively, who meet the criteria for the Metabolic Syndrome. The Metabolic Syndrome is also becoming a well-recognized contributor to AD and related dementias.

 

Grant Funding Award. This study is being supported by a grant award from the NIA/NIH.

 

Lomecel-B for Acute Respiratory Distress Syndrome (ARDS)

 

We are conducting a multicenter, double-blinded, randomized, placebo-controlled trial for ARDS due to COVID-19 or influenza virus infection.

 

ARDS can be rapidly induced by a variety of insults, such as coronavirus and influenza virus infection. Approximately 200,000 people suffer from ARDS in the U.S. annually, with a mortality rate of about 40%. These numbers are likely to dramatically increase as a result of COVID-19, which could become a seasonal epidemic. Older persons, those with Aging Frailty, and those with the Metabolic Syndrome, are at significantly increased risk for severely poor outcomes from ARDS due to viral infection, including prolonged hospitalization and death.

 

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Viral infection leading to ARDS can results in severe inflammation called a “cytokine storm”, most pronounced by severely elevated serum levels of C reactive protein (CRP) and interleukin-6 (IL-6). This in turn leads to disruption of the lung cell layers (the endothelial and epithelial barriers), and consequently, to severe inhibition of pulmonary exchange. ARDS can result in long-term adverse effects on patients, such as lung scarring (fibrosis). As now widely appreciated due to COVID-19, there is a dearth of treatment options available for ARDS, and first-line defense measures often have sub-optimal palliative effects.

  

Lomecel-B has the potential to be a treatment for ARDS due to the previously described mechanisms of action. These include the potential to treat the cytokine storm induced in ARDS without leading to toxic immunosuppression, reduce fibrotic damage, promote reparative mechanisms, and improve immune functioning.

 

Status of Clinical Trial. This trial is currently enrolling and we expect the trial to be completed in 2021, with results in either 2021 or early 2022.

 

Grant Funding Award. This study is being supported in part by a grant award from the MSCRF, part of Maryland TEDCO.

 

Emergency Use Expanded Access. In addition to our clinical trial, we have treated patients with ARDS with Lomecel-B under FDA emergency-use expanded-access. The two patients treated had severe ARDS, were on extracorporeal membrane oxygenation (ECMO), and failed to respond to other attempted interventions. One of these patients responded after being given three doses of Lomecel-B. The other died shortly after being given a single dose of Lomecel-B.

 

Lomecel-B for Hypoplastic Left Heart Syndrome (HLHS)

 

We are testing Lomecel-B as a potential combinatorial therapy candidate to surgical intervention for HLHS. The scientific goal underlying this study builds on surgical advances of the past thirty years, and is intended to address remaining obstacles to improving long-term cardiac function in HLHS patients.

 

HLHS is a severe congenital birth defect in which the left ventricle of the heart is either severely underdeveloped or missing. As a consequence, babies born with this condition have severely diminished systemic blood flow, which previously used to lead to a 100% mortality rate shortly after birth. Babies born with HLHS now undergo a complex three stage heart reconstruction over the course of years, in which the single remaining right ventricle is used to support systemic circulation (the right ventricle is normally used for lung circulation, which is a much lower load). While these children can now live into adulthood, early mortality is still extremely high in this population due to right ventricle failure, which is not meant for the increased load demanded for systemic circulation. Furthermore, HLHS patients after undergoing heart reconstructive surgery are often not ideal candidates for a heart transplant. As such, there is an important unmet medical need to improve right ventricular function in these patients to improve both short-term and long-term outcomes.

 

We believe that Lomecel-B has potential as a combinatorial therapy with HLHS surgery to improve both short- and long-term clinical outcomes. We are evaluating whether a direct injection in the heart can improve right ventricle function by promoting regenerative and repair responses. In animal studies, this combinatorial approach resulted in a 10 – 15% improvement in right ventricle function.

 

Prevalence of HLHS. HLHS is an ultra-rare indication, occurring at approximately 2 – 3 cases per 10,000 live births, or roughly 1,000 children annually in the U.S. This indication would therefore meet the prevalence requirements for an orphan drug designation (ODD) if the other designation requirements are met. A sponsor may request an ODD any time before the marketing application for the product for the rare disease or condition is submitted. If we request an ODD for Lomecel-B, which we have not yet done, and if FDA approves Lomecel-B for HLHS, then it may be eligible for a period of orphan drug exclusivity (ODE). A determination as to whether HLHS qualifies as a “rare disease or condition” will be made on the basis of the facts and circumstances as of the date the request for ODD is made. We may also have the opportunity to pursue one of the FDA’s expedited review programs for the use of Lomecel-B in HLHS. We have not sought expedited review from the FDA.

 

Status of the Clinical Trial. We have completed a 10 patient multicenter, open-label Phase 1 clinical trial in HLHS. Children with HLHS undergoing Stage 2 surgery were treated via intramyocardial (direct heart) injection of Lomecel-B. The last subject visit is anticipated to be in the fourth quarter of 2020, and top-line data expected in first quarter of 2021. No Lomecel-B-related adverse events have been reported on trial, supporting the safety of this approach. Phase 2 of this study, which will be randomized, controlled, double-blinded design, is anticipated to begin in 2021.

 

Grant Funding Award. The Phase 1 study was supported by a grant award from the MSCRF, part of Maryland TEDCO. Phase 2 is being supported by the NHLBI/NIH.

 

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Other Investigational Products in Development

 

We have been conducting preclinical research and development work for a next-generation cellular therapy product referred to as CD271+ cells. While similar to Lomecel-B, CD271+ cells may have characteristics that could lead to a more potent product and may have additional uses. We intend to enter into early-stage clinical testing of this product candidate.

 

Manufacturing

 

The manufacture and delivery of cell therapy products to patients involves complex, integrated processes. Commercial success in this area requires manufacturing processes that are reliable, scalable, and economical. We have and will continue to devote significant resources to process development and manufacturing to optimize process robustness and success rates in developing Lomecel-B and other potential product candidates, as well as to reduce per-unit manufacturing costs and enable us to quickly achieve regional and global scale production upon regulatory approval for any of our product candidates.

 

We currently operate a manufacturing site in Miami, FL, which supplies Lomecel-B for our clinical trials. We also intend to expand the manufacturing capacities in the U.S. and potentially Japan or other regions in Asia for commercialization at both a regional and global scale upon regulatory approvals.

 

Our cell manufacturing facility went online in early 2017, and consists of 4,150 ft2 (385.5 m2) of GMP space, with approximately 3,000 ft2 (279 m2) of cleanrooms and 1,150 ft2 (107 m2) of warehouse and Quality Control space. The cleanroom area is used exclusively for processing of human cellular and tissue products for use in clinical trials and research. We have validated the facility according to FDA regulations in 21 C.F.R. Part 210 (GMPs for drugs), Part 211 (GMPs for finished pharmaceuticals), Part 606 (GMPs for blood and blood components) and Part 610 (general biological products standards).

 

Our lead product, Lomecel-B, consists of human allogeneic bone-marrow derived MSCs as the active ingredient. These cells undergo cultured-expansion using proprietary processes, and are then formulated, packaged and stored frozen (cryopreserved) until shortly before use. Fresh bone marrow is procured from established, licensed U.S.-based third-party tissue suppliers, which harvest the tissue from young, healthy consenting donors. Lomecel-B is produced using techniques that FDA has reviewed and authorized as part of our INDs.

 

Technology Capabilities

 

From the commencement of operations in 2014, we recognized the potential for cellular therapy to be a novel therapeutic candidate in our chosen indications. We have assembled a team of experts and proprietary technologies that we believe enables us to take a systematic approach to rapidly develop improved cell therapies. We believe having established manufacturing capabilities and operations within the U.S. early in the development of our product candidates is a competitive advantage. Over time, we expect to expand regional manufacturing capacity and potentially add external supply nodes to meet projected product requirements for commercialization. We believe that anticipated future clinical and commercial demand for Lomecel-B and new pipeline programs can be met, as our process has been designed for meet these demands as milestones are achieved. We believe our scalable robust manufacturing process, along with our proprietary technologies and our industry experienced team, would be challenging and costly for potential competitors to replicate.

 

Contract Development and Manufacturing Services

 

We produce all of our product candidates at our cell manufacturing facility to satisfy our ongoing clinical studies, The Bahamas Registry Trial, and research and development needs. As a revenue-generating opportunity, we utilize excess capacity, when available, to provide contract manufacturing and research and development services to third parties. We are currently serving two clients and have initiated limited business development activity to increase our client base as a means for increasing revenue. In total we have generated $299,000 in contract fees.

 

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Commercialization

 

We currently have no established sales, marketing or product distribution infrastructure. In order to commercialize any of our product candidates if approved for commercial sale, we will need a sales and marketing organization with technical expertise and supporting distribution capabilities or collaborate with third parties that have sales and marketing experience.

 

As we move our product candidates through development toward regulatory approval we will evaluate several options for each product candidate’s commercialization strategy. These options include further building an internal sales force, entering into a joint marketing collaboration with another pharmaceutical or biotechnology company, or out-licensing any future approved product to another pharmaceutical or biotechnology company.

 

Competition

 

The field of regenerative medicine, which includes gene therapies, cell therapies (such as Lomecel-B), and tissue-engineered products, is broadly defined as “products intended to repair, replace or regenerate organs, tissues, cells, genes, and metabolic processes in the body,” per the Alliance for Regenerative Medicine, an international advocacy organization. Regenerative medicine companies number over 1,000 worldwide as of the first half of 2020.

 

In some of our indications, we face competition from both cellular therapy companies, and pharmaceutical/biotechnology companies. The following table is a general list of cellular therapy companies that we believe could be considered our primary competition on the basis that these companies are developers of living cell-based therapies, albeit for different indications in most cases.

 

Name   Corporate Headquarters   Clinical stage pipeline indication(s)
Athersys, Inc.   U.S.   Ischemic stroke; ARDS; GvHD; Acute Myocardial Infarction
BioCardia, Inc.   U.S.   Heart failure; Acute myocardial infarction
BrainStorm Cell Therapeutics   U.S.   ALS; MS
Caladrius Biosciences   U.S.   CLI; refractory disabling angina; CMD
Corestem   South Korea   ALS (Commercial in South Korea); Lupus
Cynata Therapeutics   Australia   GvHD
Healios K.K.   Japan   Ischemic stroke; ARDS
Medipost   South Korea   Osteoarthritis (commercial); BPD; AD
Mesoblast Ltd.   Australia   Heart failure, low back pain, GvHD; ARDS; Crohn’s Disease
Pluristem Therapeutics, Inc.   Israel   CLI; ARDS; ARS; GvHD
ReNeuron   U.K.   Ischemic stroke; Retinitis pigmentosa
SanBio Co., Ltd.   Japan   Ischemic stroke; Traumatic brain injury
Stemedica Cell Technologies   U.S.   Ischemic stroke; heart failure; AD

 

ARDS = Acute Respiratory Distress Syndrome; GvHD = Graft versus host disease; ALS = Amyotrophic lateral sclerosis; MS = Multiple sclerosis; BPD = Bronchopulmonary dysplasia; CLI = Critical limb ischemia; CMD = coronary microvascular disease; ARS = Acute radiation syndrome.

 

Biology of Aging Research Companies

 

To our knowledge, there are no other companies currently conducting clinical trials for Aging Frailty using a regenerative medicine approach. However, this is likely to change as the emphasis on developing an effective treatment grows. As the leader in this field, we believe we are well-positioned to advance our Aging Frailty program into pivotal Phase 3 trials.

 

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Shanghai East Hospital in Shanghai, China is planning to initiate a multicenter, randomized, double-blind, placebo-controlled Phase 2 clinical study of umbilical cord MSC infusion for Aging Frailty.

 

Healeon Medical Inc. is conducting an invitation-only trial to determine the safety and efficacy of delivery of autologous cellular stromal vascular fraction (cSVF) to improve the quality of life and functional health in frailty.

 

The University of Texas Health Science Center in San Antonio is collaborating with the NIH to conduct a randomized, placebo-controlled Phase 2 clinical trial of metformin, the Type-2 diabetes medication, for the prevention of frailty in subjects aged 65 to 95. Other academic groups or hospitals have or are testing hormonal treatments such as ghrelin or testosterone to prevent or treat frailty. The vast majority of interventional trials typically involve lifestyle intervention, specifically evaluating diet, dietary supplements, or exercise modifications, or a combination thereof. A number of companies are researching different approaches and therapeutics in the broad “anti-aging” category, developing therapies that may extend “healthspan” by slowing or reversing diseases associated with aging, or the aging process itself.

 

  Calico Life Sciences, LLC: This Google-backed company is researching compounds that are intended to treat aging-related diseases and conditions, however its first clinical study involves patients with advanced solid tumor cancers.
     
  Unity Biotechnology: Unity’s focus is to “extend human health span, the period in one’s life unburdened by the disease of aging.” UBX is targeting senescence (the process whereby cells cease to divide, and linger in the body releasing harmful proteins) and is in the category called “senolytic medicines”.
     
  AgeX Therapeutics: AgeX is a pre-clinical stage company testing telomerase-expressing Pluripotent Stem Cells (PSCs) in an attempt to reverse cell aging, and extend human health and life spans.

 

Competition in Alzheimer’s Disease

 

There are several companies currently testing cellular therapy in neurologic and cognitive disorders. However, in the United States, we believe we are the furthest advanced in the clinical development of a regenerative medicine approach to treating AD. The following companies have publicly indicated that they are conducting, or intend to conduct, cell therapy clinical trials in AD.

 

  Brainstorm Cell Therapeutics: In 2020, Brainstorm Cell Therapeutics, a U.S. company, announced its intention to initiate a multinational Phase 2 trial to test its autologous MSC neurotrophic factor investigational product in AD.
     
  Medipost Co. Ltd.: Medipost, a South Korean company, has reported that it has completed a Phase 2a study in AD using its umbilical cord-derived allogeneic MSCs.
     
  CHABiotech Ltd.: This South Korea-based company is conducting a Phase 1/2 trial of enhanced placenta-derived stem cells in AD, according to its website.

 

There are many other pharmaceutical and biotechnology companies that are conducting clinical trials of various therapeutics for the treatment of AD. According to the Alzheimer’s Association, in 2020 there are 121 unique therapies registered on ClinicalTrials.gov. Some of the more established and well-known companies in this group include Biogen, Novartis, Eisai, and Eli Lilly.

 

Competition in HLHS

 

Currently there are no FDA-approved treatments for HLHS. In addition to our HLHS clinical program, Boston Children’s Hospital is sponsoring a study of allogeneic mesenchymal precursor cells (rexlemestrocel-L) in HLHS with cells provided by Mesoblast Ltd. We are not aware of any other industry-sponsored clinical trials testing allogeneic stem cell therapy for HLHS in the U.S. or elsewhere.

 

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Competition in ARDS

 

Currently there are no FDA-approved treatments for ARDS. The COVID-19 pandemic has resulted in a spike in research on the potential for allogeneic MSCs to treat acute lung injury resulting from infection with the SARS-CoV-2 virus. Several cellular therapy companies had ongoing ARDS programs prior to the pandemic, and several other companies, including us, initiated clinical studies during the pandemic.