Overview
MetaStat is a biotechnology company focused on discovering and
developing personalized therapeutic (Rx) and diagnostic (Dx)
treatment solutions for cancer patients. Our Mena protein isoform
“driver-based” diagnostic biomarkers also serve as
novel therapeutic targets for anti-metastatic drugs. Unlike
surrogate cancer markers, which are indirect measures of cancer and
its progression, our driver-based biomarkers are the critical
components of intracellular cancer pathways responsible for driving
the aggressive activity of cancer cells. Our core expertise
includes a deep understanding of the mechanisms and pathways that
drive tumor cell invasion and metastasis, as well as drug
resistance to certain targeted therapies and cytotoxic
chemotherapies. We are developing therapeutic product candidates
and paired companion diagnostics based on a novel approach that
makes the Mena isoform protein a drugable
target.
Our
integrated Rx/Dx strategy for treating cancer patients has
three key product development
programs:
1)
The
rapeutic (Rx)
candidates
: Our drug discovery
program is focused on the development of novel therapeutic product
candidates that target the Mena protein isoform. We are
investigating therapeutic candidates for the potential to prevent
or delay aggressive cancer from spreading and becoming resistant to
other commonly used targeted and cytotoxic therapies. In targeting
the movement of tumor cells from the primary site to distant sites,
we are directly addressing the major contributor to the deaths of
cancer patients.
Elevated
expression of
Mena
INV
,
a Mena protein isoform also drives resistance to certain Receptor
Tyrosine Kinase (RTK) inhibitors that target EGFR, HGFR,
IGF-R1 and other key receptors, as well as cytotoxic
chemotherapeutics, including anti-microtubule agents, such as
docetaxel, paclitaxel and albumin-bound paclitaxel. We believe
co-administration of an effective anti-Mena therapeutic agent
provides an opportunity to expand the utility of these therapies
and addresses a significant challenge to the clinical management of
advanced cancers. RTK and anti-microtubule drugs are widely used to
treat a number of types of cancer, including ovarian, breast, lung
cancer, squamous cell carcinoma of the lung, colorectal cancer,
Kaposi’s sarcoma, cervical cancer and pancreatic cancer. We
are using multiple targeted approaches including proprietary small
molecules, therapeutic peptides, camelid nanobodies, monoclonal
antibodies and RNA-based technologies to test therapeutic
candidates in our
in vitro
and
in vivo
metastatic models for efficacy in reversing
Mena-dependent phenotypes of drug resistance, tumor cell invasion,
dissemination, and metastasis. Our objective is to select suitable
drug candidates to advance into human clinical studies. We plan to
use the
Mena
INV
companion diagnostic assay to
identify and select appropriate patient populations most likely to
benefit from targeted Mena isoform therapy. Our therapeutic program
will be implemented using internal resources and in partnership
with therapeutic biopharmaceutical companies.
2)
Companion Diagnostics (CDx):
Our
companion diagnostic program is focused on developing companion
tests t
o be
used in combination with cancer drugs,
that provide
essential information for the safe and effective use of a
corresponding drug or biological product
to improve patient
outcomes
. We are developing quantitative immunofluorescent,
or QIF companion diagnostic assays using our proprietary monoclonal
antibodies, or Mabs, that predict how well a cancer patient is
likely to respond to treatment with RTK inhibitors and
anti-microtubule drugs. Not everyone responds in the same way to
these treatments. Patients with tumors expressing high levels of
Mena have been shown to develop resistance to treatment with RTK
inhibitors (EGFR, HGFR and IGF-R1inhibitors) and anti-microtubule
drugs (docetaxel, paclitaxel and albumin-bound paclitaxel). Our
companion diagnostics aim to help oncologists refine diagnosis and
tailor treatment strategies, saving patients precious time and
expense by predicting response to these therapies prior to
administration. We are exploring business development opportunities
with pharmaceutical and biotechnology companies developing next
generation RTK inhibitors and anti-microtubule drugs who see the
value of companion diagnostics that identify patients most likely
to benefit from these treatments. We believe using our proprietary
companion diagnostics to target appropriate patient populations
creates selective therapeutic opportunities to repurpose shelved
drug candidates that have previously failed clinical testing or
enhance the probability of success of drugs currently under
development.
3)
Prognostic
Diagnostics
(PDx)
:
Our
prognostic diagnostic program is focused on developing diagnostic
tests that
predict the
risk of
future metastasis in cancer patients following initial treatment of
their primary tumor
.
Our first
prognostic diagnostic product candidates, the MetaSite
Breast™
and MenaCalc™
tests, aim to provide actionable information to early stage breast
cancer or ESBC patients and their physicians regarding the risk of
distant metastasis and if the use of adjuvant chemotherapy is
warranted.
We
are seeking to monetize or commercialize our CLIA-validated
prognostic diagnostic tests for breast cancer through strategic
partnerships. Our MetaSite
Breast
™
test has been
shown to be complementary to the Oncotype DX test, the most
widely used breast cancer gene panel assay. These published
results were presented at the San Antonio Breast Cancer Symposium
in December 2016. We plan to develop additional prognostic
diagnostic tests based on the
Mena
INV
biomarker
for additional indications including lung, prostate and colorectal
cancers.
Business Strategy
Our vision is to become a leading healthcare company focused on
advancing the field of personalized medicine. Since discovering a
methodology to make Mena protein isoform targets drugable, our
business strategy evolved from a pure play prognostic diagnostic
company to a value-added integrated Rx/Dx company focused on
therapeutics and companion diagnostics. We have leveraged our
technology and core expertise to broaden our intellectual property
position through a deep understanding of the functionality of Mena
protein isoforms and their roles in shaping the tumor
microenvironment and driving the spread of aggressive cancers. To
this end, we are currently testing several therapeutic product
candidates in our research and development laboratories and have
filed provisional methods, use and composition of matter
patents.
Key elements of our integrated Rx/Dx strategy are to:
●
Continue
advancing our pre-clinical therapeutic discovery and development
programs focused on the Mena protein isoform drug targets using
different approaches developed (i) internally or through
in-licensing, and (ii) in collaboration with strategic partners.
These therapeutic approaches include small molecule inhibitors,
therapeutic peptides, camelid nanobodies, monoclonal antibodies,
and RNA-based technologies;
●
Expand access to the Mena
INV
companion diagnostic test to ensure
broad adoption through development of alternative test methods and
kits that can be run on a wide variety of different instrument
platforms and seeking marketing authorization approvals from
applicable regulatory agencies including the FDA and
EMA;
●
Use
our driver-based biomarkers to identify shelved drug candidates
that have previously failed clinical testing or drug candidates
currently under development that represent suitable candidates for
co-development with our companion diagnostics;
●
Innovate
and advance our patent and intellectual property portfolio
supporting our licensed platform technologies. We plan to augment
our internal capabilities through product in-licensing, selective
acquisitions, R&D collaborations and strategic partnerships to
facilitate broadening of our product pipeline and extension of our
novel proprietary technologies;
●
Commercialize
our diagnostic assays through our state-of-the-art CLIA-certified
and state-licensed laboratory. We plan to maintain our commercial
CLIA-certified laboratory and in parallel pursue non-exclusive
strategic partnerships with organizations that have established
high complexity, IHC, QIF compatible digital CLIA-certified labs;
and
●
Pu
rsue
a de-risked commercialization strategy of our diagnostic tests
based on non-exclusive agreements with strategic partners and/or
Contract Sales Organizations (CSO) in the U.S. and distributors in
Europe and throughout the rest-of-world. We seek commercialization
partners that have existing commercialization infrastructure,
established distribution channels, and strong relationships with
our target audience in the medical community. Our goal is to avoid
the cost and risk associated with building a new sales and
marketing infrastructure. Initially, we plan to build the necessary
commercial infrastructure only when needed to supplement existing
partnerships and not economically available through third party
vendors. As profitability and market penetration grow, we may
supplement our strategic partnership/CSO strategy with a phased-in
internal sales and marketing effort.
Scientific Background and Technology
Our proprietary and patented platform technologies are derived from
novel ways of observing cancer cell behavior in living functioning
tumors in live animals and are based on the discovery of a common
pathway for the development of aggressive or metastatic cancer in
solid epithelial-based tumors. These technologies are the result of
nearly 20 years of study and collaboration among four
scientific/academic institutions, including Massachusetts Institute
of Technology (“MIT”), Albert Einstein College of
Medicine (“AECOM”), Cornell University
(“Cornell”), and the IFO-Regina Elena Cancer Institute
in Rome, Italy (“IFO-Regina” and, collectively with
MIT, AECOM, and Cornell, the “Licensors”). This
collaboration has enabled us to understand the underlying biology,
including the direct mechanisms of action and specific
microenvironmental factors that drive systemic metastasis and drug
resistance to certain cancer treatments.
As described in
Nature Reviews Cancer
(Condeelis and Segall, 2003),
multiphoton-based intravital imaging was used to capture real-time
high-resolution, three-dimensional images of cancer cell behavior
in live breast cancer tumors. This led to new insights about the
mechanisms or drivers of cell migration during invasion and
intravasation, and information about the microenvironment that is
required for driving these key steps in
metastasis.
The Licensors were the first to discover the mechanism by which
metastatic breast cancer cells polarize, move toward and invade
blood vessels and intravasate into circulating blood in search of a
new host or metastatic site. As described in
Cancer Research
(Wyckoff et al., 2004)
and further detailed in
Cell
(Condeelis and Pollard, 2006),
breast cancer migration, invasion and metastasis is driven by a
self-propagating paracrine loop between perivascular macrophages
that secrete epidermal growth factor (EGF) and tumor cells, which
secrete colony-stimulating factor (CSF)-1. EGF elicits several
responses including chemotaxis (chemical-induced movement) that
recruits cancer cells along the extra-cellular matrix towards and
into blood vessels. An artificial blood vessel was developed using
a microneedle that mimics this chemotactic signaling to attract,
capture, and isolate a discrete population of metastatic cancer
cells, which was first described in
Cancer Research
(Wyckoff et al., 2000).
As first published in
Cancer
Research
(Wang et al
., 2004),
gene expression analysis of these invasive cancer cells was
performed and compared against a general population of cancer cells
that resulted in the identification of a specific gene expression
profile or “invasion signature” of highly metastatic
breast cancer cells that exhibit a rapid amoeboid migratory
phenotype. Analysis of the invasion signature showed that number of
genes were identified that must be coordinately up or downregulated
in the invasive tumor cells in order for their invasion to lead to
cancer metastasis. One of the key upregulated genes in invasive
tumor cells encodes Mena, an actin regulatory protein, which is
central in the regulation of the pathways encoded by the invasion
signature.
Further intravital imaging led to the discovery of the
micro-anatomical site in the tumor microenvironment, or
“portal” in the blood vessels that metastatic cells
squeeze through to enter the blood stream. This portal was
originally named the “Tumor Microenvironment of Metastasis
(TMEM)”, however we have re-named this site of metastasis in
breast cancer the “MetaSite™”. The
MetaSite™ is consists of three cells in direct apposition: an
endothelial cell (a type of cell that lines the blood vessels), a
peri-vascular macrophage (a type of immune cell found near blood
vessels), and a tumor cell that expresses the Mena protein.
Clinical data initially presented in
Clinical Cancer
Research
(Robinson
et
al.
, 2009) showed the density
of these “portals” or MetaSites™ present in a
tumor tissue sample correlated to the probability of distant cancer
metastasis. This is the basis of our prognostic diagnostic test for
breast cancer, the MetaSite
Breast
™ test, which is more fully described
herein.
The Mena protein isoforms and our driver-based
biomarkers
Mena, a member of the Ena/VASP family of proteins, regulates
cytoskeletal dynamics, membrane protrusion, and cell movement,
adhesion and shape change in a variety of cell types and contexts
by influencing the geometry and assembly of actin filament
networks. The growth and elongation of actin fibers, part of the
cell’s cytoskeleton, are controlled by a process that caps
their ends. Mena interferes with the actin capping allowing the
actin fibers to lengthen by continuously polymerizing, thus pushing
forward the leading edge of the cell. A detailed summary of the
Mena protein was published in
Trends in Cell Biology
(Gertler and Condeelis,
2011).
The Mena gene can be alternatively spliced to produce multiple
isoforms of which the Mena
11a
and Mena
INV
isoforms dominate.
Alternative splicing is the process by which exons within a
pre-mRNA transcript of a gene are differentially spliced, resulting
in multiple protein isoforms being encoded by a single gene.
Post-transcriptional processing of the Mena gene provides
anopportunity for gene regulation and increases the functional
informational capacity of the gene. These small differences in Mena
structure produce large differences in Mena protein function. The
Mena gene corresponds to a 570-amino acid protein with the
Mena
INV
isoform containing a
supplementary exon corresponding to a 19-amino acid addition to the
EVH1 domain of the protein. Mena
11a
contains a supplementary exon
corresponding to a 21-amino acid addition to the EVH2 domain of the
protein. The invasive Mena isoform, Mena
INV
, and the less dangerous Mena isoform,
Mena
11a
, play distinct roles
in cancer morphology. In research published in
Development Cell
(Philippar
et al
., 2008),
Mena
INV
was shown to promote
invasion and metastasis by helping cancer cells subvert normal
regulatory networks regulating cell motility and increasing
sensitivity to the chemo-attractant EGF by up to forty (40x) times.
Mena
INV
allows cancer cells to
respond to lower EGF concentrations.
Results published in
Clinical
Experimental Metastasis
(Roussos
et al.
, 2011) showed that
Mena
INV
expressing tumor cells
are significantly less cohesive and have discontinuous cell-cell
contacts compared to Mena
11a
expressing tumor cells. Metastatic breast cancer cells expressed
7.5-fold more Mena
INV
than
non-metastatic cells. Furthermore, Mena
INV
expression correlated with
MetaSite™ score, while Mena
11a
did not. These results suggest that
Mena
INV
, but not
Mena
11a
, is associated with
intravasation and metastasis. Our MenaCalc™ test, is based on
determining the relative levels of the Mena protein isoforms, which
is more fully described herein.
Further, in a nonclinical proof-of-concept study published
in
Breast
Cancer Research
(Roussos
et
al.
, 2010), the role of Mena in
tumor progression and metastasis was investigated. A “Mena
null” mouse, a mouse unable to produce the Mena protein or
its isoforms was developed. These Mena null mice were crossbred
with polyoma middle T oncoprotein or “PyMT” mice (mice
genetically predisposed to spontaneously develop highly metastatic
breast cancer tumors). The resulting Mena null PyMT mice were
compared to control PyMT mice. Both groups of mice developed breast
cancer tumors, however, the Mena null mice’s tumors stayed
localized while the control mice developed systemic metastasis.
More importantly, all the control mice succumbed to metastatic
disease while the Mena null mice showed significant survival
advantage with most dying of old age.
As described in
Nature Reviews Cancer
(Kavallaris, 2010), microtubules are
critical cytoskeletal structures that mediate cell division. The
primary building block of microtubules is tubulin and Tubulin
Binding Agents (TBAs), such as taxanes, which are potent
anti-mitotic agents that inhibit cellular growth, drug binding,
and/or cell signaling. TBAs, in part, act to stabilize
microtubules thus preventing dynamic microtubule polymerization and
activity. Although TBAs are a widely used
chemotherapeutic regimen, predicting patients who are resistant
and/or who will become resistant is problematic and largely
unresolved. Although there are several possible mechanisms of
resistance, one possible mechanism is augmenting the actin
cytoskeleton as these two independent cytoskeletal systems have
been shown to interact and influence one another as detailed
in
Nature
Cell Biology
(Rodriguez
et
al
., 2003) and
Cancer Metastasis
Review
(Hall
et
al.
,
2009). Specifically, agents that inhibit actin
de-polymerization as shown in
Cancer Research
(Dan
et al.
, 2002) and/or promote actin polymerization,
like
Mena
INV
,
may confer and therefore be used to predict resistance to TBAs or
taxane-based drugs.
As described above, Mena promotes cancer cell invasion and
migration toward blood vessels by potentiating EGF signaling. Data
published in November 2015 in
Molecular Biology of the Cell
(Hughes
et al.
, 2015) describes how
Mena associates constitutively with the tyrosine phosphatase PTP1B
to mediate a novel negative feedback mechanism that attenuates RTK
signaling. On EGF stimulation, complexes containing Mena and PTP1B
are recruited to the EGF receptor, or EGFR, causing receptor
dephosphorylation (the removal of phosphate groups that can prevent
ligation) and leading to decreased motility responses. When
Mena
INV
is expressed, PTP1B
recruitment to the EGFR is impaired, providing a mechanism for
growth factor sensitization to EGF, as well as HGF and IGF, and
increased resistance to EGFR and Met inhibitors. Notably,
Mena
INV
disrupts this negative
feedback mechanism to drive sensitivity to EGF, HGF, and IGF growth
factors and resistance to RTKs that target EGFR, HGFR (c-Met), and
IGF-R1. Disruption of this attenuation by Mena
INV
sensitizes tumor cells to low growth
factor concentrations, thereby increasing the migration and
invasion responses that contribute to
metastasis.
Genetic, epigenetic, and gene expression alterations often fail to
explain adaptive drug resistance in cancer. Kinase inhibitor
resistance often involves upregulation of poorly understood
"bypass" signaling pathways. Results published in April 2016
in
Cancer
Discovery
(Miller et al., 2016)
show that extracellular proteomic adaptation is one path to bypass
signaling and drug resistance. Kinase inhibitors, particularly
targeting MAPK signaling, increase tumor cell surface receptor
levels due to widely reduced proteolysis, allowing tumor signaling
to circumvent intended drug action.
Results published in
Clinical Experimental
Metastasis
in March 2016 (Oudin
et al., 2016) demonstrated the specificity and utility of a
Mena
INV
isoform-specific monoclonal antibody
in
in
vitro
models.
As described in a study published in
Molecular Biology of the
Cell
in October 2016, (Oudin et
al., 2016) Mena
INV
was
associated with metastasis by driving chemotaxis via dysregulation
of phosphatase PTP1B and more recently in haptotaxis via
interaction with integrin a5b1. The results demonstrate that
Mena
INV
-driven
haptotaxis on fibronectin gradients requires intact signaling
between a5b1 integrin and EGFR, which is influenced by PTP1B.
Furthermore, Mena
INV
-driven
haptotaxis and
extracellular
matrix
reorganization both
require the Rab-coupling protein RCP, which mediates a5b1 and EGFR
recycling. Finally, Mena
INV
promotes
synergistic migratory response to combined EGF and
fibronectin
in vitro
and
in vivo
, leading to hyperinvasive phenotypes. This
demonstrates that Mena
INV
is
a shared component of multiple prometastatic pathways that
amplifies their combined effects, promoting synergistic cross-talk
between RTKs and integrins.
Data published in January 2017 in
Molecular Cancer
Therapeutic
s (Oudin et al.,
2017) show Mena/Mena
INV
confer resistance to the taxane
paclitaxel, but not to the widely-used DNA-damaging agents
doxorubicin or cisplatin. Furthermore, paclitaxel treatment does
not attenuate growth of Mena
INV
-driven
metastatic lesions. Mechanistically, Mena isoform expression alters
the ratio of dynamic and stable microtubule populations in
paclitaxel-treated cells. Mena expression also increases MAPK
signaling in response to paclitaxel treatment. Decreasing ERK
phosphorylation by co-treatment with a MEK inhibitor restored
paclitaxel sensitivity by driving microtubule stabilization in Mena
isoform-expressing cells. These results reveal a novel mechanism of
taxane resistance in highly metastatic breast cancer cells and
identify a potential combination therapy to overcome such
resistance.
As a result of the above, we believe there is a scientific
rationale and biological basis to develop and explore
anti-metastatic drugs that target the Mena protein isoforms, and
the utility of Mena
INV
tests to predict patient response to
select RTKs and taxane-based chemotherapies in the treatment of
breast cancer, colorectal, non-small cell lung cancer or NSCLC,
pancreatic and other cancers.
Cancer Background
Cancer is a complex disease characterized most simply by
uncontrolled growth and spread of abnormal cells. Cancer remains
one of the world's most serious health problems and is the second
most common cause of death in the United States after heart
disease. The American Cancer Society, or ACS estimates in 2017,
there will be nearly 1.7 million new cases of cancer and
approximately 600,000 deaths from cancer in the United States
alone.
When dealing with cancer, patients and physicians need to develop
strategies for local, regional, and distant control of the disease.
Ultimately, however, aggressive cancer that spreads or
“metastasizes" to other parts of the body is responsible for
more than 90% of all cancer related deaths in patients with such
common types of solid tumors as breast, lung, prostate and colon.
The most common methods of treating cancer are surgery, radiation
and drug therapy, or a combination of these methods, with varying
degrees of benefit and side effects that may not always justify the
expense and burden of the therapy.
MetaStat’s therapeutic drug targets and driver-based cancer
biomarkers are common to a type of cancer called carcinoma which
are malignancies of epithelial tissue and represent approximately
80-90% of all cancer cases. Our product candidates have the
potential to have broad pan-cancer applicability to redefine
diagnosis and tailor treatment.
Prior to the advent of personalized medicine, most cancer patients
with a specific type and stage of cancer received the same
treatment, which historically consisted of cytotoxic
chemotherapies, including taxanes, such as paclitaxel and
docetaxel. These chemotherapies kill rapidly proliferating cancer
cells through non-specific mechanisms, such as deterring cell
metabolism or causing damage to cellular components required for
survival and rapid growth. While these drugs have been effective in
the treatment of some cancers, many unmet medical needs remain.
This approach is not optimal as some treatments worked well for
some patients but not for others.
Differences in the genome and how these genes are expressed, called
the expressome, explain many of these differences in response to
treatment. The convergence between understanding the expressome and
our ability to identify and develop biomarkers for certain disease
is accelerating growth and interest in personalized medicine and
the attractiveness of our intergraded Rx/Dx strategy.
Advances in personalized medicine and cancer treatment are
progressing rapidly and are enabling a shift in clinical treatment
from a one-size-fits-all approach to one that is highly
individualized. Recently, more targeted therapies and
immunotherapies have represented some of the most promising agents
in development for the treatment of cancer. Targeted therapies are
drugs that block the growth and spread of cancer by interfering
with specific molecules that are involved in the growth,
progression and spread of cancer. Targeted therapies, such as RTK
inhibitors that selectively target kinase signaling pathways, are
designed to preferentially kill cancer cells and spare normal
cells, improve efficacy and minimize side effects. RTK inhibitors
typically have less severe side effects than cytotoxic
chemotherapies, however, a main limitation is that a significant
number of patients do not respond to treatment, and the emergence
of secondary drug resistance for those patients that do show an
initial benefit. The use of predictive biomarkers allows
oncologists to better understand and overcome drug resistance
through the clinical assessment of rational therapeutic drug
combinations. The ability to treat the patient relying on validated
data will improve patient outcomes and eliminate excessive cost in
the health care system.
Research and development of targeted therapies and immunotherapies
is rapidly accelerating. Between the 2005 and 2013, there were
approximately 680 clinical trials in the United States
investigating personalized medicine in oncology. In 2016, we
believe this number exceeded 3,000 clinical trials. To keep pace
with this shift to personalized medicine, there is an increasing
focus on the use of companion diagnostics to guide physicians in
selecting the most appropriate therapy for each
patient.
We believe as the number of available targeted therapies expands
and as physicians gain further experience using molecular
biomarkers in their routine treatment decisions, the market
potential of our anti-metastatic drugs and companion diagnostics
will grow.
Product Pipeline
Based on our integrated Rx/Dx strategy, we are developing
anti-metastatic therapeutics, companion diagnostics to predict drug
response and define patient populations, and prognostic diagnostics
for risk of cancer metastasis.
Therapeutics (Rx)
During 2016, we developed a methodology that makes the
Mena
protein isoform a
drugable target. We are testing preclinical therapeutic candidates
in our research and development laboratory using our
in vitro
and
in vivo
metastatic models for efficacy
in reversing Mena-dependent phenotypes of drug resistance, tumor
cell invasion, dissemination, and metastasis. Our objective is to
select suitable drug candidates to advance into human clinical
studies either alone or in combination with strategic clinical
development partners.
Rationale for targeting Mena protein isoforms
The goal of treatment with anti-Mena therapeutics is to reduce the
activity or expression of the Mena protein and thereby reverse the
Mena-dependent cancer phenotypes of drug resistance, tumor cell
invasion, dissemination, and metastasis. In targeting the movement
of tumor cells from the primary site to distant sites, we are
directly addressing the major contributor to the deaths of cancer
patients. Since elevated expression of Mena protein isoforms also
drives resistance to certain RTK inhibitors and cytotoxic
chemotherapeutics, co-administration of an effective anti-Mena
therapeutic provides an opportunity to expand the utility and
effectiveness of these drugs by addressing a significant challenge
to the clinical management of advanced cancers. These drugs are
widely used to treat a number of types of cancer including ovarian,
breast, lung cancer, squamous cell carcinoma of the lung,
colorectal cancer, Kaposi’s sarcoma, cervical cancer and
pancreatic cancer.
Diagnostics (Dx)
Mena
INV
Assay
We are currently developing a
Mena
INV
assay for use as both a companion
diagnostic and prognostic diagnostic. The Mena
INV
assay is currently undergoing analytical
validation.
The
Mena
INV
assay
is a tissue-based QIF assay that measures
expression levels of the Mena
INV
protein isoform and is broadly applicable to many
epithelial-based solid tumors, including breast, lung, colorectal
and prostate cancers, among others. The Mena
INV
protein isoform is key potentiator and modulator
of cellular phenotype and behavior, including increasing cell
chemotaxis, motility, migration and invasiveness and are central to
the metastatic cascade. Overexpression of Mena
INV
and down regulation of Mena
11a
in tumor cells correlate with increased metastatic
potential and decreased overall
survival.
Mechanism-of-action for use as a companion diagnostic to predict
RTK inhibitor drug response
Mena participates in a mechanism that attenuates RTK signaling by
interacting with the tyrosine phosphatase PTP1B and the 5‟
inositol phosphatase SHIP2. Elevated expression of
Mena
INV
disrupts this regulation, and results
in a pro-metastatic phenotype characterized by increased RTK
activation signaling from low ligand stimulation and resistance to
targeted RTK inhibitors.
A main limitation of therapies that selectively target kinase
signaling pathways is a significant number of patients do not
respond and for those patients that do respond the emergence of
secondary drug resistance after an initial benefit. We believe the
Mena
INV
assay has the potential to be used as a highly actionable clinical
biomarker and/or companion diagnostic to predict response to
targeted RTK inhibitors.
Mechanism-of-action for use as a companion diagnostic to predict
anti-microtubule drug response
Taxane-based drugs, including
paclitaxel and docetaxel are widely used and highly efficacious as
single chemotherapy agents or in combination with other
chemotherapeutic drugs to treat breast, lung, ovarian, pancreatic
and other cancers. Side effects associated with taxane-based
treatment include bone marrow suppression, nausea, vomiting, hair
loss and peripheral neuropathy. Taxanes interfere with the normal
breakdown of microtubules which are critical cytoskeletal
structures that mediate cell division. The primary building block
of microtubules is tubulin and TBAs such as taxanes, which are
potent anti-mitotic agents that inhibit cellular growth, drug
binding, and/or cell signaling. The Mena protein participates in a
mechanism of dynamic cytoskeletal changes through actin
polymerization allowing for active cell motility and thus invasion.
Taxane-based chemotherapeutic treatments act to stabilize
cytoskeletal elements thus preventing active mitosis (cell
division) and/or motility (cell movement).
In vitro
and
in vivo
studies have demonstrated increased expression of
the Mena protein isoforms desensitize cells to taxane-based
treatments.
There is a significant clinical need
to develop biomarkers that predict response to initial treatment or
the development of secondary resistance to taxane-based
chemotherapy, while minimizing the risk of unnecessary side
effects. We believe the
Mena
INV
assay has the potential to be used as
a highly actionable clinical biomarker and/or companion diagnostic
to predict response to taxane-based
drugs.
Liquid blood-based biopsy
There is excitement within the
oncology community about the promise of liquid biopsy assays for
their potential to improve cancer diagnosis and optimize patient
care. Should the prognostic and predictive role of
Mena
INV
be clinically validated using FFPE
tissue for patients treated with RTKs and taxane-based
chemotherapies, we believe there will be a compelling need for the
development of a blood-based version of the Mena
INV
assay. In addition to allowing for repeat
non-invasive testing, a blood-based Mena
INV
test would be especially useful for patients with
advanced cancer undergoing multiple cycles of treatment to predict
initial drug response or the development of secondary resistance.
We intend to evaluate the potential for developing the blood-based
version of the Mena
INV
assay through collaborative research and
development partnerships with companies developing compatible
exosome and/or circulating tumor cell (CTC) technology
platforms.
MenaCalc™ Assay
The MenaCalc™ test has been analytically validated under
CLIA, tested in 3 clinical studies in over 1,400 patients, and is
available for clinical use in most states. The MenaCalc™
assay is being developed as a prognostic diagnostic and intended
for all patients with early stage invasive breast cancer,
independent of molecular subtype and other clinical factors,
including nodal status. This includes triple negative (TNC), and
HER2-positive breast cancer patients, for whom there are no
clinically available diagnostic assays. The MenaCalc™ test is
also intended for all patients with early stage squamous cell
carcinoma of the lung.
The
MenaCalc™ assay is a tissue-based QIF assay which measures
expression levels of the Mena protein and the non-invasive isoform
Mena
11a
.
The Mena protein and its isoforms are key potentiators and
modulators of cellular phenotype and behavior, including increasing
cell chemotaxis, motility, migration and invasiveness and are
central to the metastatic cascade. Mena is expressed in multiple
isoforms, including Mena
INV
and
Mena
11a
.
Overexpression of Mena
INV
and down
regulation of Mena
11a
in tumor cells
correlate with increased metastatic potential and decreased overall
survival.
MenaCalc™ Clinical Studies
In September 2012, the positive results of a combined 797 (cohort 1
with 501 and cohort 2 with 296) breast cancer patient clinical
study using the MenaCalc™ assay on tissue microarrays (TMAs)
were published in
Breast Cancer
Research
(Agarwal
et
al
., 2012). The prognostic impact of MenaCalc™ using
20-year follow-up for association with risk of disease-specific
death was tested. Results showed that relatively high
MenaCalc™ scores are associated with poor outcome in two
independent cohorts (P=0.0004 for cohort 1 and P=0.0321 for cohort
2). Multivariate analysis on the combined cohorts of 797 patients
revealed that high MenaCalc™ scores are associated with poor
outcome, independent of age, node status, receptor status and tumor
size. MenaCalc™ retained its prognostic value such that
patients in the highest quartile had a 60% increase in risk of
breast cancer death compared to those in the lowest three quartiles
[HR=1.597 (95% CI = 1.2-2.13); P=0.0015]. The linear trend in risk
across MenaCalc™ scores was statistically significant
[HR=1.211 (95% CI = 1.08-2.36); P=0.00164]. The conclusion from
this study is that MenaCalc™ can be used successfully to
stratify patients into high and low-risk for developing metastasis
and may have value in node-positive and ER-negative breast cancer
patients.
In April 2015, we presented positive results from a clinical study
of 201 patients demonstrating MenaCalc™ as an independent
prognostic factor and predictor of metastasis in patients with
early stage NSCLC at the American Association for Cancer Research
(AACR) Annual Meeting 2015. Results from this study demonstrated
that MenaCalc™ scores were significantly (p=0.001) higher in
patients with Squamous Cell Carcinoma (N=32) as compared to other
subtypes. High MenaCalc™ scores were associated (10%
significance level) with decrease 5-year disease specific survival
in all patients [HR=1.78 (95% CI: 0.92-3.43); P=0.08], and were
significantly associated with survival when either corrected for
histological subtype [HR=2.10 (95% CI: 1.04-4.26); P=0.04] or in
the squamous-only population [HR=6.60 (95% CI: 1.22-53.75);
P=0.04].
In June 2015, positive results from a
clinical study of MenaCalc™ in patients with axillary node
negative (ANN) invasive breast cancer was published in
BMC Cancer
(Forse
et al.
, 2015). Data from this study confirmed earlier
results that MenaCalc™ scores are a strong predictor of
disease-specific overall survival in patients with node-negative
invasive breast cancer (P=0.0199), and had good performance in a
subset of patients who did not receive hormone or chemotherapy
(P=0.0052). This clinical study of 403 patients, compared 261 women
who received adjuvant treatment (chemotherapy and/or hormone
therapy) to 142 patients did not received adjuvant treatment. Women
who had high MenaCalc™ scores had a 2.2-fold greater risk of
death compared to patients with low MenaCalc™ scores
(P=0.0199) when controlled for other traditional clinical factors.
A similar association was found with the subgroup who did not
receive adjuvant treatment P=0.0353; n=142), but as expected, the
association with patients who received adjuvant treatment was not
significant, providing preliminary evidence that patients with high
MenaCalc™
scores may benefit from added
therapy.
In
January 2016, we announced positive results from the analytic
validation study of our fully-automated
commercial
MenaCalc™
assay,
which confirmed the test’s
overall assay performance and precision. In this study, we assessed
the overall assay performance, imaging, and scoring performance of
our commercial MenaCalc™ test using FFPE tissue samples
(n=28) from patients with invasive breast cancer. The
MenaCalc™ test demonstrated strong assay performance
(day-to-day reproducibility) as measured by linear regression
analysis showing Pearson’s R greater than 0.85 and linear
slopes greater than 0.98 with a mean
%CV
of 2.3% (Range 0.07-6.95). Further,
imaging and scoring performance (run-to-run precision) was also
highly precise with Pearson’s R and linear slopes greater
than 0.99 as well as %CV of 0.45% (Range 0.02-2.32).
Me
taSite
Breast™ Assay
The MetaSite
Breast
™ test has been analytically validated under
CLIA, tested in 6 clinical studies in over
1,700
patients, and is available for clinical use in
most states. The MetaSite
Breast
™ test is a tissue-based
immunohistochemistry, or IHC assay performed on formalin-fixed
paraffin-embedded, or FFPE tissue from a biopsy that directly
identifies and quantifies the active sites of the metastatic
process. The MetaSite
Breast
™ test is intended for patients with early
stage (stage 1-3) invasive breast cancer who have node-negative or
node-positive (1-3), ER-positive, HER2-negative
disease.
Mechanism of action for use as a prognostic diagnostic to predict
risk of cancer metastasis
In order for breast cancer tumor cells to enter a blood vessel
(intravasate), three types of cells must self-assemble in
apposition to each other in individual three-cell
structures. This structure termed a
“MetaSite™”, is composed of an endothelial cell
(cells that lines blood vessels), a perivascular macrophage (a type
of immune cell), and a tumor cell that expresses the Mena protein.
We have demonstrated in clinical studies that the number of
MetaSites™ correlates with increased risk of cancer
metastasis.
Me
taSite
Breast
™
Clinical
Studies
In April 2009, the positive results of
a clinical study using the MetaSite
Breast
™ assay on patient tumor samples with
invasive breast cancer was published in
Clinical Cancer
Research
(Robinson
, et al.
, 2009). In this case-controlled 5-year
retrospective study, a cohort of 60 patients with invasive ductal
breast carcinoma, including 30 patients who developed metastatic
disease was studied using the MetaSite
Breast
™ assay. The results from this
study demonstrated MetaSite™ score density was statistically
significantly greater in patients who subsequently developed
systemic metastasis compared with the patients who had only
localized breast cancer (median, 105 vs. 50, respectively;
P=0.00006). For every 10-unit increase in MetaSites™ the odds
ratio of systemic metastasis increased by 1.9 (95% confidence
interval, 1.1-3.4). The number of MetaSites™ observed per
patient ranged from 12 to 240 and the odds of metastasis nearly
doubled for every increase of 10
MetaSites™. Importantly, the MetaSite™ score
density was not correlated with tumor size, lymph node metastasis,
lymphovascular invasion, or hormone receptor
status.
In August 2014, the positive results
of a 481-patient clinical study demonstrating the prognostic
utility of the MetaSite
Breast
™ assay was published in the
Journal of the
National Cancer Institute
(Rohan
et al.
, 2014) In a case-controlled nested
prospective-retrospective study, a cohort of 3,760 patients was
examined with invasive ductal breast carcinoma diagnosed between
1980 and 2000 and followed through 2010. The association between
the MetaSite™ score from the MetaSite
Breast
™ assay and risk of distant metastasis was
prospectively examined. A total of 481 blocks
representing 259 case-controlled pairs were usable and selected for
inclusion in this study. Control and case subjects had very similar
distributions with respect baseline characteristics such as age and
tumor size. Results from this study demonstrated a
statistically significant association between increasing
MetaSite™ score and risk of metastasis in the ER-positive,
HER2-negative subpopulation (N=295) (OR high vs. low tertile =
2.70, 95% CI=1.39 to 5.26, Ptrend 0.004; OR per 10-unit increase in
MetaSite™ score = 1.16, 95% CI = 1.03 to 1.30). The absolute
risk of distant metastasis for the low, medium and high-risk groups
was estimated to be 5.9% (95% CI=5.1-6.9%), 14.1% (95%
CI=13.0-15.0%), and 30.3% (95% CI=26.1-35.4%), respectively.
Statistical significance was not achieved in the triple negative
(TNC) (N=98) or HER2-positive subpopulations (N=75). The conclusion
from this study was the MetaSite™ score predicted the risk of
distant metastasis in ER-positive, HER2-negative breast cancer
patients independently of traditional clinicopathologic features
such as age and tumor size.
In September 2015, we announced
topline data from a prospectively defined case-controlled nested
cohort of 3,760 patients with invasive ductal carcinoma of the
breast diagnosed between 1980 and 2000 followed through 2010 from
the Kaiser Permanente Northwest health care system. Of the
3,760 patients treated in this cohort, we received 573 breast
cancer tissue blocks of which 481, representing 259 case-controlled
pairs, were usable and included in the study. In this study, the
MetaSite
Breast
™ Score was found to be significantly and
directly associated with increased risk of distant metastasis in
ER-positive, HER2-negative invasive breast cancer for both high
(>35 MetaSites™) versus low (<12 MetaSites™)
MetaSite™ scores (OR = 3.4; 95% CI = 2.8-4.1; P=0.0002) as
well as between intermediate (12-35 MetaSites™) and low
MetaSite™ scores (OR=3.24; 95% CI = 2.6-3.9; P=0.0006). This
study demonstrated the MetaSite
Breast
™ Score predicted risk of distant metastasis
in ER-positive, HER2-negative early stage invasive breast cancer
independent of traditional clinical factors. Data from this study
was presented at the San Antonio Breast Cancer Symposium (SABCS) in
December 2016.
In December 2015, we presented results from the
analytic
validation study of our
fully-automated commercial
MetaSite
Breast
™ assay at the
Tumor Metastasis meeting of the American Associations for Cancer
Research (AACR). The reliability of our commercial MetaSite
Breast
™ test was
supported by confirming the test’s analytical accuracy,
reproducibility, and precision. Reproducibility across operators,
instruments and different sections of a tumor sample ranged from
91% to 97% and analytical precision was found to be greater than
97%
with a mean percent coefficient of
variation (%CV) of 6.6% (n=35)
.
Our commercial MetaSite
Breast
™ assay
showed a high degree of
analytical accuracy with the reference standard with AUCs of 0.84
and 0.90 for low and high risk cut-points, respectively. The
gold standard method
was
originally developed at
AECOM,
where results from their study published in August 2014 in the
Journal of the National Cancer
Institute
(Rohan
et
al
., 2014) demonstrated the number of MetaSites
™
in tumors was predictive of
metastatic disease in ER-positive breast cancer.
In December 2016, Dr. Joseph Sparano,
principal investigator for MetaStat’s ECOG 2197 Cohort Study,
presented study results at the 39th
annual San Antonio Breast Cancer Symposium
(SABCS). In this study, MetaSite
Breast
™ test was prognostic for distant metastatic
recurrence within 5 years and provided complementary prognostic and
potentially clinically actionable information to the low/mid-range
Recurrence Score from Genomic Health’s Oncotype DX, breast
cancer test. The ECOG 2197 Cohort Study is a prospectively designed
retrospective study (n=600) in an independent cohort of ESBC
patients treated with surgery, 4 cycles of adjuvant chemotherapy
(doxorubicin 60 mg/m2 and cyclophosphamide 600 mg/m2 (AC) or
docetaxel 60 mg/m2 (AT)) and endocrine therapy. Results from this
study revealed a significant positive association between
continuous MetaSite Score and distant recurrence-free interval
(DRFI) p=0.001 and recurrence-free interval (RFI) p=0.00006 in
HR-positive HER2-negative disease in years 0-5 and by MetaSite
Score tertiles for DRFI (p=0.04) and RFI (p=0.01). Proportional
hazards models including clinical covariates (N0 vs. N1; T1 vs. T2;
high vs. int. vs. low grade) also revealed significant positive
associations for continuous MetaSite Score with RFI (p=0.04), and
borderline association with DRFI (p=0.08). Importantly,
MetaSite
Breast
™ provided useful prognostic information
beyond the Genomic Health’s Oncotype DX Recurrence Score.
Patients with high MetaSite Score (MS>17) and low Recurrence
Score (RS<18) results had 9.7-fold greater risk (HR=9.7, 95%CI
1.8-54.1) of distant metastasis compared to patients with low
MetaSite Score (MS<6) results. Patients with intermediate
MetaSite Score (MS=6-17) and low Recurrence Score (RS<18)
results had approximately 4.7-fold greater risk (HR=4.7,
95%CI=0.9-24.2) of distant metastasis compared to patients with low
MetaSite Score (MS<6) results.
In December 2016, we presented results
from the Kaiser Permanente Cohort Study conducted by MetaStat, that
demonstrated MetaSite Score was a statically significant predictor
of distant metastasis and a binary cutpoint was able to
discriminate high and low risk patient groups when adjusted for
clinical factors. Independent verification and clinical validation
of MetaStat’s fully automated and analytically validated
tissue-based MetaSite
Breast
™ test for risk of cancer metastasis in
HR-positive HER2-negative ESBC. The Kaiser Permanente Cohort
Prognostic Study is a case-control nested cohort of 3,760 patients
diagnosed with ESBC from the Kaiser Permanente Northwest Health
Care System in which 464 tumor samples were tested using the
MetaSite
Breast™
assay. MetaSite Score was a
statistically significant predictor of distant metastasis (p=0.039)
in patients with HR-positive HER2-negative disease. Using
predefined cutpoints based on tertiles for the control group in the
overall study population (n=282), MetaSite Score was significantly
associated with distant metastasis for the high (MS>41) versus
low (MS<13) score tertiles (OR=2.94; 95%CI=1.62-5.41, P=0.0005)
and the intermediate (MS=13-41) versus low score tertiles (OR=2.24;
95%CI=1.23-4.13, P=0.009). A binary cut-point for the high-risk
group (MS>14) was significant with a 2-fold higher risk (OR=2.1,
95%CI=1.06-3.96) of distant metastasis versus the low risk group
and adjusted for clinical covariates
(P=0.036).
Competition
The life sciences, biotechnology and molecular diagnostic
industries are characterized by rapidly advancing technologies,
intense competition and a strong emphasis on proprietary
technologies and products. Any therapeutic, companion diagnostic
and prognostic diagnostic product candidates that we are able to
successfully develop and commercialize will compete with both
existing therapies and diagnostics and new therapies and
diagnostics that may become available in the future. While we
believe that our technology and scientific knowledge provide us
with competitive advantages, we face potential competition from
many different sources, including pharmaceutical, specialty
pharmaceutical and biotechnology companies, both large and small
molecular diagnostic companies, academic institutions and
governmental agencies and public and private research institutions,
among others.
We plan to compete in segments of the pharmaceutical, biotechnology
and other related markets that pursue personalized medicine
approaches to treating cancer. There are many companies presently
developing therapies for cancer in the field of precision
medicines, including divisions of large pharmaceutical companies,
specialty pharmaceutical and biotechnology companies of various
sizes, including Pfizer Inc., Merck & Co., Inc., Novartis
Pharmaceuticals Corp., F. Hoffmann-La Roche Ltd, Bristol-Myers
Squibb Company, Eli Lilly and Company, AstraZeneca, PLC, Amgen,
Inc., Biogen, Inc., Genentech, Inc., Celgene Corp., Bayer AG,
Takeda Pharmaceutical Company Limited, through its wholly owned
subsidiary ARIAD Pharmaceuticals, Inc., Clovis Oncology, Inc.,
Ignyta, Inc., and Deciphera Pharmaceuticals LLC, among many
others.
We believe our main diagnostic competition will be from a number of
private and public companies that offer molecular diagnostic tests,
including gene profiling and expression in multiple cancers
indications, including companies such as Genomic Health, Inc.,
Agendia Inc., BioTheranostics, Inc., Exact Sciences, Inc. GenomeDx
Biosciences Inc., Hologic Inc., Myriad Genetics, Inc., NanoString
Technologies Inc., NeoGenomics, Inc., Novartis AG, Qiagen N.V.,
Roche Diagnostics, a division of Roche Holding, Ltd, Siemens AG,
Veridex LLC, a Johnson & Johnson company, Celera Corporation,
and GE Healthcare, a business unit of General Electric Company, as
well as others. Commercial laboratories, such as Laboratory
Corporation of America Holdings and Quest Diagnostics Incorporated,
with strong distribution networks for diagnostic tests, may also
compete with us. We may also face competition from Illumina, Inc.
and Thermo Fisher Scientific Inc., both of which have announced
their intention to enter the clinical diagnostics market as well as
other companies and academic and research institutions. We may also
face completion from companies focused on liquid biopsies and
pan-cancer clinical diagnostics, such as Danaher Corporation and
its Cepheid, Inc. subsidiary, Foundation Medicine, Inc., Guardant
Health, MDxHealth, Inc., Metamark Inc., Natera Inc. and Response
Genetics, Inc., among many others.
Our competitors may develop and market therapeutic, companion
diagnostic and prognostic diagnostic products or other novel
technologies that are more effective, safer, more convenient or
less costly than any that may be commercialized by us, or may
obtain regulatory approval for their products more rapidly than we
may obtain approval for ours. Many of our present and potential
competitors have widespread brand recognition, distribution and
substantially greater financial and technical resources and
development, production and marketing capabilities than we do. If
we are unable to compete successfully, we may be unable to gain
market acceptance and therefore revenue from our therapeutics and
diagnostics may be limited.
Patents and Intellectual Property
We believe that clear and extensive patent coverage and protection
of the proprietary nature of our technologies is central to our
success. Our intellectual property strategy is intended to develop
and maintain a competitive position and long-term value through a
combination of patents, patent applications, copyrights,
trademarks, and trade secrets. We have invested and will continue
to invest in our intellectual property portfolio, which has been
partially accomplished in conjunction with the resources of our
Licensors. This applies to both domestic and international patent
coverage.
Three (3) patents and allowance of claims pursuant to a divisional
patent application in the United States, and three (3)
international patents have been issued covering key aspects of our
core driver-based biomarker technologies for epithelial-based solid
tumors including breast, lung, prostate and colorectal. The issued
patents are listed below:
1.
U.S.
Patent No. 8,642,277, entitled “Tumor Microenvironment of
Metastasis (TMEM) and Uses Thereof in Diagnosis, Prognosis, and
Treatment of Tumors;” Inventors: Frank Gertler, John
Condeelis, Thomas Rohan, and Joan Jones; assigned to MIT, Cornell
and AECOM;
2.
U.S.
Patent No. 8,603,738, entitled “Metastasis specific splice
variants of Mena and uses thereof in diagnosis, prognosis and
treatment of tumors;” Inventors: John Condeelis, Sumanta
Goswami, Paola Nistico, and Frank Gertler; assigned to AECOM, IFO
and MIT;
3.
U.S.
Patent No. 8,298,756 entitled “Isolation, Gene Expression,
And Chemotherapeutic Resistance of Motile Cancer Cells;”
Inventor: John S. Condeelis;
4.
U
.S.
Divisional Application No. 14/074,089, entitled “Metastasis
specific splice variants of Mena and uses thereof in diagnosis,
prognosis and treatment of tumors;” Inventors: John
Condeelis, Sumanta Goswami, Paola Nistico, and Frank Gertler;
assigned to AECOM, IFO and MIT;
5.
European
Patent No. 1784646 entitled “Methods for Identifying
Metastasis in Motile Cells;” Inventor: John S.
Condeelis;
6.
European
Patent No. 2126566 B1 entitled “Metastasis specific splice
variants of Mena and uses thereof in diagnosis, prognosis and
treatment of tumors;” Inventors John S. Condeelis, Sumanta
Goswami, Frank Gertler, and Paola Nisticò.
7.
Canadian
Patent No. 2,676,179 entitled
“Metastasis specific splice variants of Mena and uses thereof
in diagnosis, prognosis and treatment of tumors;” Inventors:
John Condeelis, Sumanta Goswami, Paola Nistico, and Frank Gertler;
assigned to AECOM, IFO and MIT.
These patents expire between 2028 and
2031.
We have and intend to continue to file additional patent
applications to strengthen our therapeutic and diagnostic
intellectual property rights, as well as seek to add to our
intellectual property portfolio through licensing, partnerships,
joint development and joint venture agreements.
Our employees and key technical consultants working for us are
required to execute confidentiality and assignment agreements in
connection with their employment and consulting relationships.
Confidentiality agreements provide that all confidential
information developed or made known to others during the course of
the employment, consulting or business relationship shall be kept
confidential except in specified circumstances. Additionally, our
employment agreements provide that all inventions conceived by such
employee while employed by us are our exclusive property. We cannot
provide any assurance that employees and consultants will abide by
the confidentiality and assignment terms of these agreements.
Despite measures taken to protect our intellectual property,
unauthorized parties might copy aspects of our technology or obtain
and use information that we regard as proprietary.
License Agreements
In August 2010, we entered into a License Agreement (the
“License Agreement”) with AECOM, MIT, Cornell and
IFO-Regina. The License Agreement covers patents and patent
applications, patent disclosures, cell lines and technology
surrounding discoveries in the understanding of the underlying
mechanisms of systemic metastasis in solid epithelial cancers,
including our core diagnostic technologies, including the
MetaSite
Breast
™ and MenaCalc™ assays. The
License Agreement calls for certain customary payments such as a
license signing fee, reimbursement of patent expenses, annual
license maintenance fees, milestone payments, and the payment of
royalties on sales of products or services covered under the
agreement. See “Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
License Agreement.
Effective March 2012, we entered into a second license agreement
(the “Second License Agreement”) with AECOM. The Second
License Agreement covers patent and patent applications, patent
disclosures, and other technology surrounding discoveries in the
understanding of the underlying mechanisms of systemic metastasis
in solid epithelial cancers, including the isolation (capture of),
gene expression profile (the “Human Invasion
Signature”) and chemotherapeutic resistance of metastatic
cells. The Second License Agreement requires certain customary
payments such as a license signing fee, reimbursement of patent
expenses, annual license maintenance fees, milestone payments, and
the payment of royalties on sales of products or services covered
under such agreements. See “Contractual Obligations” in
the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Second License Agreement.
Pursuant to both the License Agreement and the Second License
Agreement, we have the right to initiate legal proceedings on our
behalf or in the Licensors’ names, if necessary, against any
infringer, or potential infringer, of a licensed intellectual
property who imports, makes, uses, sells or offers to sell
products. Any settlement or recovery received from any such
proceeding shall be divided eighty percent (80%) to us and twenty
percent (20%) to the Licensors after we deduct from any such
settlement or recovery our actual counsel fees and out-of-pocket
expenses relative to any such legal proceeding. If we decide not to
initiate legal proceedings against any such infringer, then the
Licensors shall have the right to initiate such legal proceedings.
Any settlement or recovery received from any such proceeding
initiated by the Licensors shall be divided twenty percent (20%) to
us and eighty percent (80%) to the Licensors after the Licensors
deduct from any such settlement or recovery their actual counsel
fees and out-of-pocket expenses relative to any such legal
proceeding.
Effective December 2013, we entered into two separate worldwide
exclusive license agreements with MIT and its David H. Koch
Institute for Integrative Cancer Research at MIT and its Department
of Biology, AECOM, and Montefiore Medical Center
(“Montefiore” and, together with MIT and AECOM, the
“Alternative Splicing Licensors”). The diagnostic
license agreement (the “Alternative Splicing Diagnostic
License Agreement”) and the therapeutic license agreement
(the “Alternative Splicing Therapeutic License
Agreement” and, together with the Diagnostic License
Agreement, the “2014 Alternative Splicing License
Agreements”) covers pending patent applications, patent
disclosures, and technology surrounding discoveries of
alternatively spliced mRNA and protein isoform markers for the
treatment and/or prevention of cancer through the
epithelial-mesenchymal transition (EMT) in epithelial solid tumor
cancers. The 2014 Alternative Splicing License Agreements call for
certain customary payments such as a license signing fee,
reimbursement of patent expenses, annual license maintenance fees,
milestone payments, and the payment of royalties on sales of
products or services covered under the agreement. See
“Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Alternative Splicing License Agreements.
Further, pursuant to the 2014 Alternative Splicing License
Agreements, we have the right to initiate legal proceedings on our
behalf or in the Licensors’ names, if necessary, against any
infringer, or potential infringer, of any licensed intellectual
property who imports, makes, uses, sells or offers to sell
products. Any settlement or recovery received from any such
proceeding shall be divided 80% to us and 20% to the Licensors
after we deduct from any such settlement or recovery our actual
counsel fees and out-of-pocket expenses relative to any such legal
proceeding. If we decide not to initiate legal proceedings against
any such infringer, then the Licensors shall have the right to
initiate such legal proceedings. Any settlement or recovery
received from any such proceeding initiated by the Licensors shall
be divided 20% to us and 80% to the Licensors after the Licensors
deduct from any such settlement or recovery their actual counsel
fees and out-of-pocket expenses relative to any such legal
proceeding.
Effective June 2014, we entered into a License Agreement (the
“Antibody License Agreement”) with MIT. The Antibody
License Agreement covers proprietary technology and know-how
surrounding monoclonal and polyclonal antibodies specific to the
Mena protein and its isoforms. The Antibody License Agreement calls
for certain customary payments such as a license signing fee,
reimbursement of patent expenses, annual license maintenance fees,
milestone payments, and the payment of royalties on sales of
products or services covered under the agreement. See
“Contractual Obligations” in the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” section for more
information regarding our financial obligations related to the
Antibody License Agreement.
As part of our intellectual property strategy, we have terminated
certain license agreements and patent applications related to
non-core technologies.
Partnerships and Collaborations
In connection with our business strategy, we may enter into
exclusive and/or non-exclusive research and development and other
collaboration or partnership agreements.
Celgene Corporation
On August 22, 2016, we executed a pilot materials transfer
agreement (the “MTA”) with Celgene Corporation
(“Celgene”) to conduct a mutually agreed upon pilot
research project (the “Pilot Project”). On September
29, 2016, we entered into an amendment (the
“Amendment”) to the MTA (the “Amendment,”
and together with the MTA, the “Research Agreement”),
which provided for milestone payments to MetaStat of up to
approximately $973,000. Under the terms of the Research Agreement,
Celgene will provide certain proprietary materials to MetaStat and
MetaStat will evaluate Celgene’s proprietary materials in its
metastatic cell line and animal nonclinical models. See Note 11 for
accounting treatment related to the Research
Agreement.
Albert Einstein College of Medicine and Montefiore Medical
Center
Effective January 9, 2015, we executed a collaboration agreement
(the “Collaboration Agreement”) with AECOM and
Montefiore Medical Center (“Montefiore,” and together
with AECOM, the “Institutions”) to collaborate on
research projects (the “Research Projects”) including
conducting studies that establish the clinical validity and
clinical utility of MetaStat’s prognostic diagnostic tests,
including the MetaSite
Breast
™ test, the MenaCalc™ test, and a
combined MetaSite
Breast
™ and MenaCalc™ test. The term of the
Collaboration Agreement is five years, which may be terminated by
either party with thirty days written notice.
National Institutes of Health, National Cancer
Institute
Effective September 21, 2016, we
executed an agreement with the National Institutes of Health,
National Cancer Institute (the “NCI"), whereby the NCI will
contract with MetaStat to perform the MetaSite
Breast
™ and MenaCalc™ analysis of breast
cancer tumor tissue as part of a clinical study. In addition,
MetaStat will collaborate with the Department of Cancer
Epidemiology and Genetics (DCEG) at the NCI on interpretation of
the study analysis and dissemination of
results.
Government Regulations
Regulation by governmental authorities in the United States
,
at the federal, state and local level, and in
and other countries is a significant factor in the
research and development, manufacture, commercialization and
marketing of both diagnostic tests and
pharmaceuticals.
Diagnostic Regulation
The United States Food and Drug
Administration, or the FDA, regulates the sale or distribution, in
interstate commerce, of medical devices, including
in vitro
diagnostic test kits or IVDs, such as
our companion diagnostics. Devices subject to FDA regulation must
undergo pre-market review prior to commercialization unless the
device is of a type exempted from such review. Additionally,
medical device manufacturers must comply with various regulatory
requirements under the Federal Food, Drug and Cosmetic Act, or
FDCA, and regulations promulgated under that Act, including quality
system review regulations, unless exempted from those requirements
for particular types of devices. Entities that fail to comply with
FDA requirements can be liable for criminal or civil penalties,
such as recalls, detentions, orders to cease manufacturing and
restrictions on labeling and
promotion.
Clinical laboratory services, such as our prognostic diagnostic
tests are currently not subject to FDA regulation, but IVDs and
analyte-specific reagents and equipment used by these laboratories
may be subject to FDA regulation. Clinical laboratory tests that
are developed and validated by a laboratory for use in examinations
the laboratory performs itself are called “home brew”
tests or more recently, Laboratory Developed Tests, or LDTs. LDTs
are subject to the Clinical Laboratory Improvement Amendments of
1988, or CLIA.
Beginning in January 2006, the FDA began indicating its belief that
LDTs were subject to FDA regulation as devices and issued a series
of guidance documents intending to establish a framework by which
to regulate certain laboratory tests. In September 2006, the FDA
issued draft guidance on a new class of tests called "In Vitro
Diagnostic Multivariate Index Assays", or IVDMIAs. Under this draft
guidance, specific tests could be classified as either a Class II
or a Class III medical device, which may require varying levels of
FDA pre-market review depending on intended use and the level of
control necessary to assure the safety and effectiveness of the
test. In July 2007, the FDA posted revised draft guidance that
addressed some of the comments submitted in response to the
September 2006 draft guidance. In May 2007, the FDA issued a
guidance document "Class II Special Controls Guidance Document:
Gene Expression Profiling Test System for Breast Cancer Prognosis."
This guidance document was developed to support the classification
of gene expression profiling test systems for breast cancer
prognosis into Class II. In addition, the Secretary of the
Department of Health and Human Services, or HHS, requested that its
Advisory Committee on Genetics, Health and Society make
recommendations about the oversight of genetics testing. A final
report was published in April 2008. In June 2010, the FDA announced
a public meeting to discuss the agency's oversight of LDTs prompted
by the increased complexity of LDTs and their increasingly
important role in clinical decision making and disease management.
The FDA indicated that it is considering a risk-based application
of oversight to LDTs. The public meeting was held in July 2010 and
further public comments were submitted to the FDA in September
2010. In June 2011, the FDA issued draft guidance regarding
"Commercially Distributed In Vitro Diagnostic Products Labeled for
Research Use Only or Investigational Use Only," which was finalized
in November 2013.
In October 2014, the FDA published two draft guidance documents
that, if finalized, would implement a regulatory approach for most
LDTs. In the draft guidance documents, the FDA stated that it had
serious concerns regarding the lack of independent review of the
evidence of clinical validity of LDTs and asserted that the
requirements under CLIA do not address the clinical validity of any
LDT. The draft guidance documents proposed to impose a risk-based,
phased-in approach for LDTs similar to the existing framework
for
in
vitro
diagnostic devices. On
November 18, 2016, the FDA announced that it would not finalize the
draft guidance documents for LDTs prior to the end of the Obama
administration. The decision of whether and how to proceed with the
draft guidance will be left to the Trump administration, which
began on January 20, 2017.
In January 2017, the FDA released a discussion paper synthesizing
public comments on the 2014 draft guidance documents and outlining
a possible approach to regulation of LDTs. The discussion paper has
no legal status and does not represent a final version of the LDT
draft guidance documents. In the discussion paper, the FDA states
that there is “a growing consensus that additional oversight
of LDTs is necessary.” Similar to the FDA’s 2014 draft
guidance, the FDA’s discussion paper proposes a risk-based
framework that would require most LDTs to comply with most of the
FDA’s regulatory requirements for medical devices. Unlike the
draft guidance, however, the discussion paper proposes to exempt
currently marketed LDTs from premarket review, requiring only new
or modified tests to be approved or cleared by the agency. In
addition, the FDA proposed requiring LDTs to comply with only a
subset of the medical device Quality System Regulation, or QSRs and
proposed other changes from the 2014 draft guidance. We cannot
predict whether the FDA will take action to regulate LDTs under the
new administration or what approach the FDA will seek to
take.
Legislative proposals have been introduced in Congress or publicly
circulated, each of which would implement differing approaches to
the regulation of LDTs. We cannot predict the ultimate form of any
such guidance or regulation and the potential impact on our
prognostic diagnostic tests or materials used to perform our
prognostic diagnostic tests. If pre-market review is required, our
business could be negatively impacted until such review is
completed and clearance to market or approval is
obtained. FDA could require we seek pre-market clearance
or approval for tests currently under development delaying product
commercialization or following product launch to require that we
stop selling our tests. If our tests are allowed to remain on the
market but there is uncertainty about our tests, if they are
labeled investigational by the FDA, or if labeling claims the FDA
allows us to make are limited, orders or reimbursement may decline.
The regulatory approval process may involve, among other things,
successfully completing additional clinical trials and submitting a
pre-market clearance notice or filing a pre-market application, or
PMA with the FDA. If pre-market review is required by the FDA,
there can be no assurance that our tests will be cleared or
approved on a timely basis, if at all, nor can there be assurance
that labeling claims will be consistent with our current claims or
adequate to support continued adoption of and reimbursement for our
tests. Ongoing compliance with FDA regulations would increase the
cost of conducting our business, and subject us to inspection by
the FDA and to the requirements of the FDA and penalties for
failure to comply with these requirements. We may also decide
voluntarily to pursue FDA pre-market review of our tests if we
determine that doing so would be appropriate.
While we expect all materials used in our tests to qualify
according to CLIA regulations, we cannot be certain that the FDA
might not enact rules or guidance documents which could impact our
ability to purchase materials necessary for the performance of our
tests. Should any of the reagents obtained by us from vendors and
used in conducting our tests be affected by future regulatory
actions, our business could be adversely affected by those actions,
including increasing the cost of testing or delaying, limiting or
prohibiting the purchase of reagents necessary to perform
testing.
Regulation of Medical Devices and In Vitro Diagnostic Devices
(IVDs) – Companion Diagnostics
We may seek to develop or seek to partner with third parties to
develop
in
vitro
companion diagnostics for
use in selecting the patients that we believe will respond to
certain drugs. We expect our Mena protein isoform companion
diagnostic tests will be regulated by the FDA as an IVD, companion
diagnostic. As defined by the FDA, an IVD companion diagnostic is a
medical device that provides information that is essential for the
safe and effective use of a corresponding drug or biological
product. An IVD companion diagnostic helps a health care
professional determine whether a therapeutic product’s
benefits to patients will outweigh any potential side effects or
risks.
In August 2014, the FDA issued guidance that addresses issues
critical to developing
in vitro
companion diagnostics. The guidance states that if
safe and effective use of a therapeutic product depends on an
in vitro
diagnostic, then
the FDA generally will require approval or clearance of the
diagnostic at the same time that the FDA approves the therapeutic
product. In July 2016, the FDA issued a draft guidance intended to
assist sponsors of the drug therapeutic and
in vitro
companion diagnostic device on issues related to
co-development of the products. The FDA generally requires
in vitro
companion diagnostics intended to
select the patients intended to receive a cancer treatment to
obtain approval of a PMA approval, for that diagnostic
simultaneously with approval of the drug.
To be commercially distributed in the United States, a medical
device, including IVDs, must receive either 510(k) clearance, de
novo authorization, or PMA approval from the FDA prior to
marketing. There are three classes of medical devices recognized by
the FDA, Class I (low risk), Class II (moderate risk), and Class
III (high risk).
Class I devices are those for which reasonable assurance of safety
and effectiveness can be provided by adherence to the FDA’s
general controls for medical devices, which include applicable
portions of the FDA’s Quality System Regulation, or QSR,
requirements, facility registration and product listing; reporting
of adverse medical events or AEs; and appropriate, truthful, and
non-misleading labeling, advertising and promotional materials.
Many Class I devices are exempt from premarket regulation; however,
some Class I devices require premarket clearance by the FDA through
the 510(k) premarket notification process discussed
below.
Class II devices are subject to the FDA’s general controls,
and any other special controls, such as performance standards,
post-market surveillance, and FDA guidelines, deemed necessary by
the FDA to provide reasonable assurance of the devices’
safety and effectiveness. Premarket review and clearance by the FDA
for Class II devices are accomplished through the 510(k) premarket
notification procedure, although some Class II devices are exempt
from the 510(k) requirements. Premarket notifications are subject
to user fees, unless a specific exemption applies. To obtain 510(k)
clearance, a manufacturer must submit a premarket notification
demonstrating that the proposed device is “substantially
equivalent” to a predicate device, which is a previously
cleared 510(k) device or a preamendment device that was in
commercial distribution before May 28, 1976, for which the FDA has
not yet called for the submission of a PMA. In determining
substantial equivalence, the FDA assesses whether the proposed
device has the same intended use and technical characteristic as
the predicate device, or whether the proposed device has different
technological characteristics, but the information submitted in the
premarket notification demonstrates the device is as safe and
effective as a legally marketed device and does not raise different
questions of safety and effectiveness than the predicate device.
The FDA may request additional information, including clinical
data. Under the FDCA, a manufacturer must submit a premarket
notification at least 90 days before introducing a device into
interstate commerce, but the FDA’s review of the premarket
notification can take significantly longer. If the FDA determines
that the device is substantially equivalent to the predicate
device(s), the subject device may be marketed. However, if the FDA
determines that a device is not substantially equivalent to the
predicate device(s), then the device would be regulated as a Class
III device, discussed below. If a manufacturer obtains a 510(k)
clearance for its device and then makes a modification that could
significantly affect the device’s safety or effectiveness, a
new premarket notification must be submitted to the
FDA.
Class III devices are those deemed by the FDA to pose the greatest
risk, such as those for which reasonable assurance of the
device’s safety and effectiveness cannot be assured solely by
the general controls and special controls described above and that
are life-sustaining or life-supporting. Some preamendment Class III
devices for which the FDA has not yet required a PMA require the
FDA’s clearance of a premarket notification in order to be
marketed. However, most Class III devices are required to undergo
the PMA process in which the manufacturer must demonstrate
reasonable assurance of the safety and effectiveness of the device
to the FDA’s satisfaction. A PMA application must provide
valid scientific evidence, typically extensive preclinical and
clinical trial data, and information about the device and its
components regarding, among other things, device design,
manufacturing, and labeling. PMA applications (and supplemental PMA
applications) are subject to significantly higher user fees than
510(k) premarket notifications. Some PMA applications are exempt
from a user fee, for example, a small business’s first
PMA.
A PMA for an IVD typically includes data from preclinical studies
and well-controlled clinical trials. Preclinical data for an IVD
includes many different tests, including how reproducible the
results are when the same sample is tested multiple times by
multiple users at multiple laboratories. The clinical data need to
establish that the test is safe and effective for the proposed
intended use in the indicated population. In addition, the PMA must
include information regarding the test’s clinical utility,
meaning that an IVD provides information that is clinically
meaningful. Such information must be provided even if the clinical
significance of the biomarker is obvious. The applicant may also
rely upon published literature or submit data to the FDA to show
clinical utility.
A PMA also must provide information about the device and its
components regarding, among other things, device design,
manufacturing and labeling. The sponsor must pay an application fee
to the FDA upon submission of a PMA, which is approximately
$250,000 for 2017.
As part of the PMA review, the FDA will typically inspect the
manufacturer’s facilities for compliance with QSR
requirements, which impose elaborate testing, control,
documentation and other quality assurance procedures.
Upon submission, the FDA determines if the PMA is sufficiently
complete to permit a substantive review, and, if so, the FDA
accepts the application for filing. The FDA then commences an
in-depth review of the PMA. The entire process can typically take
multiple years from submission of the PMA to approval, but may take
longer. The review time is often significantly extended as a result
of the FDA asking for more information or clarification of
information already provided. The FDA also may respond with a not
approvable determination based on deficiencies in the PMA
application and require additional clinical trial or other data
that are often expensive and time-consuming to generate and can
substantially delay approval.
During the review period, an FDA advisory committee, typically a
panel of clinicians, may be convened to review the PMA application
and recommend to the FDA whether, or upon what conditions, the
device should be approved. Although the FDA is not bound by the
advisory panel decision, the panel’s recommendation is
important to the FDA’s overall decision-making
process.
If the FDA’s evaluation of the PMA is favorable, the FDA
typically issues an approvable letter requiring the
applicant’s agreement to specific conditions, such as changes
in labeling, or specific additional information, such as submission
of final labeling, in order to secure final approval of the PMA. If
the FDA concludes that the applicable criteria have been met, the
FDA will issue a PMA approval for the approved indications, which
can be more limited than those originally sought by the applicant.
The PMA approval can include post-approval conditions that the FDA
believes necessary to ensure the safety and effectiveness of the
device, including, among other things, restrictions on labeling,
promotion, sale and distribution. Failure to comply with the
conditions of approval can result in an enforcement action,
including the loss or withdrawal of the approval.
Even after approval of a PMA, a new PMA or PMA supplement may be
required in the event of a modification to the device, its labeling
or its manufacturing process. Supplements to a PMA often require
the submission of the same type of information required for an
original PMA, except that the supplement is generally limited to
the information needed to support the proposed change from the
product covered by the original PMA.
After a PMA application is submitted and found to be sufficiently
complete, the FDA begins an in-depth review of the submitted
information. During this review period, the FDA may request
additional information or clarification of information already
provided. The FDA also may convene an advisory panel of outside
experts to review and evaluate the application and provide
recommendations to the FDA as to the approvability of the device.
In addition, the FDA generally will conduct a pre-approval
inspection of the manufacturing facility to ensure compliance with
the QSR. The FDA can delay, limit, or deny approval of a PMA
application for many reasons.
Failure to comply with applicable regulatory requirements can
result in enforcement action by the FDA, which may include any of
the following sanctions: public warning letters, fines,
injunctions, civil or criminal penalties, recall or seizure of
products, operating restrictions, partial suspension or total
shutdown of production, delays in or denial of 510(k) clearance or
PMA applications for new products, challenges to existing 510(k)
clearances or PMA applications, and a recommendation by the FDA to
disallow a device manufacturer from entering into government
contracts. The FDA also has the authority to request repair,
replacement, or refund of the cost of any device manufactured or
distributed. In the event that a supplier fails to maintain
compliance with a device manufacturer’s quality requirements,
the manufacturer may have to qualify a new supplier and could
experience manufacturing delays as a result.
We believe that products we may develop in the future for use as
companion diagnostic tests are likely to be regulated as Class III
devices requiring PMA approval.
Clinical Trials and IDEs
A clinical trial is almost always required to support a PMA. For
significant risk devices, the FDA regulations require that human
clinical investigations conducted in the U.S. be approved via an
Investigational Device Exemption, or IDE, which must be approved
before clinical testing may commence. In some cases, one or more
smaller IDE studies may precede a pivotal clinical trial intended
to demonstrate the safety and efficacy of the investigational
device. A 30-day waiting period after the submission of each IDE is
required prior to the commencement of clinical testing in humans.
The FDA may disapprove, or approve with conditions, the IDE within
the 30-day period. If disapproved, the clinical trial may not begin
until the deficiencies noted by the FDA are addressed, and another
IDE is submitted to the FDA for approval. If approved with
conditions, the sponsor must address the conditions prior to
commencement of the trial. If the FDA does not respond to the
sponsor within the 30-day period, the IDE is deemed approved and
the clinical study may commence.
IVD trials usually do not require an IDE approval, so long as,
among other things, the results of the IVD test are not used
diagnostically without confirmation of the test results by another,
medically established diagnostic product or procedure. For a trial
where the IVD result directs the therapeutic care of patients with
cancer, we believe that the FDA would likely consider the
investigation to require an IDE application.
An IDE application must be supported by appropriate data, such as
laboratory test results, showing that it is safe to test the device
in humans and that the testing protocol is scientifically sound.
The IDE application must also include a description of product
manufacturing and controls, and a proposed clinical trial protocol.
The FDA typically grants IDE approval for a specified number of
patients. All clinical studies of investigational devices,
regardless of whether IDE approval is required, require approval
from an institutional review board, or
IRB.
During the clinical trial, the sponsor must comply with the
FDA’s IDE requirements for investigator selection, trial
monitoring, reporting and record keeping. The investigators must
obtain patient informed consent, rigorously follow the
investigational plan and study protocol, control the disposition of
investigational devices and comply with all reporting and record
keeping requirements. These IDE requirements apply to all
investigational devices, whether considered significant or
nonsignificant risk. Prior to granting PMA approval, the FDA
typically inspects the records relating to the conduct of the study
and the clinical data supporting the PMA for compliance with
applicable requirements.
Clinical trials must be conducted: (i) in compliance with federal
regulations; (ii) in compliance with good clinical practice, or
GCP, an international standard intended to protect the rights and
health of patients and to define the roles of clinical trial
sponsors, investigators, and monitors; and (iii) under protocols
detailing the objectives of the trial, the parameters to be used in
monitoring safety, and the effectiveness criteria to be
evaluated.
The FDA may order the temporary, or permanent, discontinuation of a
clinical trial at any time, or impose other sanctions, if it
believes that the clinical trial either is not being conducted in
accordance with FDA requirements or presents an unacceptable risk
to the clinical trial patients. An IRB may also require the
clinical trial at a study site to be halted, either temporarily or
permanently, for failure to comply with the IRB’s
requirements, or may impose other conditions.
Although the QSR does not fully apply to investigational devices,
the requirement for controls on design and development does apply.
The sponsor also must manufacture the investigational device in
conformity with the quality controls described in the IDE
application and any conditions of IDE approval that the FDA may
impose with respect to manufacturing.
Investigational IVDs may only be distributed for use in an
investigation, and the labeling must prominently contain the
statement “For Investigational Use Only. The performance
characteristics of this product have not been
established.”
Expedited Access Pathway Program
In April 2015, the FDA issued a final guidance document
establishing the Expedited Access Pathway, or EAP program. The EAP
program is intended to speed patient access to devices (including
companion diagnostics) that demonstrate the potential to address
unmet medical needs for life threatening or irreversibly
debilitating diseases or conditions and are subject to PMA approval
or de novo authorization. In order to be accepted into the EAP
program, a sponsor must demonstrate to the FDA’s satisfaction
that the device is intended to treat or diagnose a life-threatening
or irreversibly debilitating disease or condition and that it
addresses an unmet need. The sponsor must also submit an acceptable
draft Data Development Plan. Once accepted into the program, the
FDA intends to engage with sponsors of EAP devices earlier and more
interactively during the device’s development, assessment,
and review. The FDA will also work with the device sponsor to try
to reduce the time and cost from development to an approval
decision. Elements of the EAP program may include priority review,
interactive review, senior management involvement, and assignment
of a case manager.
Post-Market Device Regulation
After a device obtains FDA approval and is on the market, numerous
regulatory requirements apply. These requirements include the QSR,
labeling regulations, the FDA’s general prohibition against
promoting products for unapproved or “off-label” uses,
the Medical Device Reporting regulation, which requires that
manufacturers report to the FDA if their device may have caused or
contributed to a death or serious injury or malfunctioned in a way
that would likely cause or contribute to a death or serious injury
if it were to recur, and the Reports of Corrections and Removals
regulation, which requires manufacturers to report recalls and
field actions to the FDA if initiated to reduce a risk to health
posed by the device or to remedy a violation of the
FDCA.
The FDA enforces these requirements by inspection and market
surveillance. If the FDA finds a violation, it can institute a wide
variety of enforcement actions, ranging from a public warning
letter to more severe sanctions such as fines, injunctions and
civil penalties; recall or seizure of products; operating
restrictions, partial suspension or total shutdown of production;
refusing requests for PMA approval of new products; withdrawing PMA
approvals already granted; and criminal prosecution.
Clinical Laboratory Improvement Amendments of 1988, or CLIA –
Prognostic Diagnostics
LDTs, such as our prognostic
diagnostic tests, are subject to the Clinical Laboratory
Improvement Amendments of 1988, or CLIA, and are not currently
regulated as medical devices under the FDCA. Under CLIA, a
laboratory is any facility which performs laboratory testing on
specimens derived from humans for the purpose of providing
information for the diagnosis, prevention or treatment of disease,
or the impairment of, or assessment of health. We have a current
certificate of accreditation under CLIA to perform high complexity
testing of our prognostic diagnostic tests for breast cancer,
including the MetaSite
Breast
™ and MenaCalc™
assays.
As a clinical reference laboratory as defined under CLIA, we are
required to hold a certificate applicable to the type of work we
perform and comply with certain standards. CLIA further regulates
virtually all clinical laboratories by requiring they be certified
by the federal government and comply with various operational,
personnel, facilities administration, quality, and proficiency
requirements intended to ensure that their clinical laboratory
testing services are accurate, reliable, and timely. Laboratories
must register and list their tests with The Centers for Medicare
& Medicaid Services, or CMS, the agency that oversees CLIA.
CLIA compliance and certification is also a prerequisite to be
eligible to bill for services provided to governmental payor
program beneficiaries and for many private payors. CLIA is user-fee
funded. Therefore, all costs of administering the program must be
covered by the regulated facilities, including certification and
survey cost.
To renew our CLIA certificate, we will be subject to survey and
inspection every two years to assess compliance with program
standards and may be subject to additional inspections without
prior notice. The standards applicable to the testing which we
perform may change over time. We cannot assure that we will be able
to operate profitably should regulatory compliance requirements
become substantially costlier in the future.
If our clinical reference laboratory falls out of compliance with
CLIA requirements, we may be subject to sanctions such as
suspension, limitation or revocation of our CLIA certificate, as
well as directed plan of correction, state on-site monitoring,
civil money penalties, civil injunctive suit or criminal penalties.
Additionally, we must maintain CLIA compliance and certification to
be eligible to bill for tests provided to Medicare beneficiaries.
If we were to be found out of compliance with CLIA program
requirements and subjected to sanction, our business would be
harmed.
CLIA provides that a state may adopt laboratory regulations that
are more stringent than those under federal law, and a number of
states have implemented their own more stringent laboratory
regulatory requirements. State laws may require that laboratories
meet certain personnel qualifications, specify certain quality
control procedures, meet facility requirements, or prescribe record
maintenance requirements.
If regulated by the FDA, we believe that our LDTs would likely be
regulated as either Class II or Class III devices. Accordingly,
premarket review—either a 510(k), de novo application, or a
PMA—would likely be required for our tests if the FDA no
longer applies its enforcement discretion to LDTs and our tests do
not qualify as grandfathered tests that are exempted from premarket
review. While the data requirements are typically greater for Class
III devices, the data required for Class II devices has increased,
and it is likely that some amount of clinical data (retrospective
or prospective or both) would be required for any type of
submission to the FDA. Ongoing compliance with FDA regulations
would increase the cost of conducting our business, subject us to
inspection by the FDA and to the requirements of the FDA and
penalties for failure to comply with the requirements of the FDA.
We cannot assure you that our current prognostic diagnostic
products and other future products will not require 510(k)
clearance or PMA approval in the future, or, in such an event, that
such approval or clearance would be forthcoming. Should any of the
clinical laboratory device reagents obtained by us from vendors and
used in conducting our home brew test be affected by future
regulatory actions, we could be adversely affected by those
actions, including increased cost of testing or delay, limitation
or prohibition on the purchase of reagents necessary to perform
testing.
Massachusetts and Other States’ Laboratory
Testing
Our clinical reference laboratory is located in Boston,
Massachusetts. Accordingly, we are required to be licensed by
Massachusetts, under Massachusetts laws and regulations, as well as
CLIA under CMS regulations, which both establish standards
for:
●
Day-to-day
operation of a clinical laboratory, personnel standards including
training and competency of all laboratory staff;
●
Physical
requirements of a facility, including, policies
and procedures; and safety;
●
Quality
control, including quality assurance; and
proficiency testing.
In 2015, we received the necessary certifications and licenses from
both CLIA and Massachusetts for our clinical reference laboratory
to perform testing services of our prognostic diagnostic breast
cancer tests.
If a laboratory is not in compliance with Massachusetts statutory
or regulatory standards, or CLIA regulations as mandated by CMS,
the Massachusetts State Department of Health and/or CMS may
suspend, limit, revoke or annul the laboratory’s
Massachusetts license, and CLIA certification, censure the holder
of the license or assess civil money penalties. Additionally,
statutory or regulatory noncompliance may result in a
laboratory’s operator being found guilty of a misdemeanor. In
the event that we should be found not to be in compliance with
Massachusetts or CLIA laboratory requirements, we could be subject
to such sanctions, which could harm our business.
California, New York, Florida, Maryland, Pennsylvania and Rhode
Island require out-of-state laboratories, which accept specimens
from those states to be licensed in each state. We have received
licensing from Massachusetts, California, Florida, Pennsylvania and
Rhode Island and are currently seeking licensing from New York and
Maryland.
From time to time, we may become aware of other states that require
out-of-state laboratories to obtain licensure in order to accept
specimens from the state, and it is possible that other states do
have such requirements or will have such requirements in the
future. If we identify any other state with such requirements or if
we are contacted by any other state advising us of such
requirements, we intend to follow instructions from the state
regulators as to how we should comply with such
requirements.
Therapeutic Regulation
United States Drug Approval Process
In the United States, the FDA regulates drugs under the FDCA, and
implementing regulations. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal,
state, local and foreign statutes and regulations requires the
expenditure of substantial time and financial resources. Failure to
comply with the applicable U.S. requirements at any time during the
product development process, approval process or after approval,
may subject an applying company to a variety of administrative or
judicial sanctions.
Before
a drug may be marketed in the U.S., the FDA generally requires the
following:
●
completion of
preclinical laboratory tests, animal studies and formulation
studies in compliance with good laboratory practice, or GLP,
regulations;
●
submission of an
Investigational New Drug or IND application
to the FDA
,
which must become effective before human clinical trials may
begin;
●
approval of each
phase of the proposed clinical trials and related informed consents
by an IRB, at each clinical site where such trial will be
performed;
●
performance of
adequate and well-controlled human clinical trials in accordance
with good clinical practice, or GCP, standards and regulations to
establish the safety and efficacy of the proposed drug for each
indication;
●
submission of a New
Drug Application, or NDA
to the
FDA
;
●
satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the product is produced to assess compliance
with current good manufacturing practice, or cGMP, requirements and
to assure that the facilities, methods and controls are adequate to
preserve the drug’s identity, strength, quality and purity;
and
●
FDA review and
approval of the NDA.
Preclinical Studies and IND
Preclinical studies include laboratory evaluation of product
chemistry and formulation, as well as
in vitro
and animal studies to assess
the potential for AEs and, in some cases, to establish a rationale
for therapeutic use. The conduct of preclinical studies is subject
to federal regulations and requirements, including GLP regulations
for safety/toxicology studies. An IND sponsor must submit the
results of the preclinical tests, together with manufacturing
information, analytical data, any available clinical data or
literature and plans for clinical trials, among other things, to
the FDA as part of an IND. Some long-term preclinical testing, such
as animal tests of reproductive AEs and carcinogenicity, may
continue after the IND is submitted. An IND automatically becomes
effective 30 days after receipt by the FDA, unless before that time
the FDA raises concerns or questions related to one or more
proposed clinical trials and places the trial on clinical hold. In
such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical trial can begin. As a
result, submission of an IND may not result in the FDA allowing
clinical trials to commence.
Clinical Trials
Clinical trials involve the administration of the investigational
new drug to human subjects under the supervision of qualified
investigators in accordance with GCP requirements, which include,
among other things, the requirement that all research subjects
provide their informed consent in writing before their
participation in any clinical trial. Clinical trials are conducted
under written protocols detailing, among other things, the
objectives of the trial, the parameters to be used in monitoring
safety, and the safety and effectiveness criteria to be evaluated.
A protocol for each clinical trial and any subsequent protocol
amendments must be submitted to the FDA as part of the IND. In
addition, an IRB at each institution participating in the clinical
trial must review and approve the plan for any clinical trial
before it commences at that institution, and the IRB must conduct
continuing review. The IRB must review and approve, among other
things, the study protocol and informed consent information to be
provided to study subjects. An IRB must operate in compliance with
FDA regulations. In addition, a sponsor must provide information
regarding most clinical trials to be disclosed on
http://clinicaltrials.gov, a website maintained by the National
Institutes of Health.
Human clinical trials are typically conducted in three sequential
phases that may overlap or be combined:
●
Phase 1: The drug is initially introduced into
healthy human subjects or patients with the target disease or
condition and tested for safety, dosage tolerance, absorption,
metabolism, distribution, excretion and, if possible, to gain an
early indication of its effectiveness
;
●
Phase 2: The drug is administered to a limited
patient population to identify possible adverse effects and safety
risks, to preliminarily evaluate the efficacy of the product for
specific targeted diseases and to determine dosage tolerance and
optimal dosage
; and
●
Phase
3: The drug is administered to an expanded patient population in
adequate and well-controlled clinical trials to generate sufficient
data to statistically confirm the efficacy and safety of the
product for approval for specified indications, to establish the
overall risk-benefit profile of the product and to provide adequate
information for the labeling of the product.
Progress reports detailing the results of the clinical trials must
be submitted at least annually to the FDA, and more frequently if
serious adverse events, or AEs occur. The FDA or the sponsor may
suspend or terminate a clinical trial at any time on various
grounds, including a finding that the research subjects are being
exposed to an unacceptable health risk. Similarly, an IRB can
suspend or terminate approval of a clinical trial at its
institution if the clinical trial is not being conducted in
accordance with the IRB’s requirements or if the drug has
been associated with unexpected serious harm to
patients.
Pursuant to the 21st Century Cures Act, which was enacted on
December 13, 2016, the manufacturer of an investigational drug for
a serious or life-threatening disease is required to make
available, such as by posting on its website, its policy on
evaluating and responding to requests for expanded access. This
requirement applies on the later of 60 days after the date of
enactment or the first initiation of a Phase 2 or Phase 3 trial of
the investigational drug.
Marketing Approval
Assuming successful completion of the required clinical testing,
the results of the preclinical studies and clinical trials,
together with detailed information relating to the product’s
chemistry, manufacture, controls and proposed labeling, among other
things, are submitted to the FDA as part of an NDA requesting
approval to market the product for one or more indications. Under
federal law, the submission of most NDAs is subject to a
substantial application user fee.
The FDA generally conducts a preliminary review of all NDAs to
determine if they are sufficiently complete to permit substantive
review within the first 60 days after submission before accepting
them for filing. The FDA may request additional information in
connection with this preliminary review rather than accept an NDA
for filing. In this event, the application must be resubmitted with
the additional information. The resubmitted application is subject
to further review before the FDA accepts it for filing. Once the
submission is accepted for filing, the FDA begins an in-depth
substantive review. The FDA has agreed to specified performance
goals in the review of NDAs. Under these goals, the FDA has
committed to review most such applications for non-priority
products within 10 months, and most applications for priority
review products, that is, drugs that the FDA determines represent a
significant improvement over existing therapy, within six months.
The FDA may also refer applications for novel drugs or products
that present difficult questions of safety or efficacy to an
advisory committee, typically a panel that includes clinicians and
other experts, for review, evaluation and a recommendation as to
whether the application should be approved. The FDA is not bound by
the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions. The FDA is not
required to adhere its review time goals, and its review could
experience delays that cause those goals to not be
met.
Before approving an NDA, the FDA typically will inspect the
facility or facilities where the product is manufactured. The FDA
will not approve an application unless it determines that the
manufacturing processes and facilities are in compliance with cGMP
requirements and are adequate to assure consistent production of
the product within required specifications. In addition, before
approving an NDA, the FDA will typically inspect one or more
clinical sites to assure compliance with GCP and integrity of the
clinical data submitted.
The testing and approval process for each product candidate
requires substantial time, effort and financial resources, and each
may take many years to complete. Data obtained from preclinical and
clinical activities are not always conclusive and may be
susceptible to varying interpretations, which could delay, limit or
prevent regulatory approval. The FDA may not grant approval of an
application for a product candidate on a timely basis, or at all.
Further, applicants often encounter difficulties or unanticipated
costs in their efforts to develop product candidates and secure
necessary governmental approvals, which could delay or preclude the
marketing of those products.
After the FDA’s evaluation of the NDA and inspection of the
manufacturing facilities, the FDA may issue an approval letter or a
complete response letter. An approval letter authorizes commercial
marketing of the drug with specific prescribing information for
specific indications. A complete response letter generally outlines
the deficiencies in the submission and may require substantial
additional testing or information in order for the FDA to
reconsider the application. If and when those deficiencies have
been addressed to the FDA’s satisfaction in a resubmission of
the NDA, the FDA may then issue an approval letter. The FDA has
committed to reviewing such resubmissions in two or six months
depending on the type of information included. Even with submission
of this additional information, the FDA ultimately may decide that
the application does not satisfy the regulatory criteria for
approval and refuse to approve the NDA.
Programs for Expedited Review and Approval
The FDA has developed certain programs and designations that enable
NDAs for product candidates meeting specified criteria to be
eligible for certain expedited review and approval processes such
as fast track designation, priority review, accelerated approval,
and breakthrough therapy designation. Even if a product qualifies
for one or more of these programs, the FDA may later decide that
the product no longer meets the conditions for qualification or
decide that the time period for FDA review or approval will not be
shortened. These include Fast Track Designation, Priority Review,
Accelerated Approval, and Breakthrough Therapy
Designation.
In addition to the expedited review and approval programs and
designations, the FDA also recognizes certain other designations
and alternative approval pathways that afford certain benefits,
such as the orphan drug designation and alternative types of NDAs
under the Hatch-Waxman Act.
Under the Orphan Drug Act, the FDA may grant orphan drug
designation to drugs intended to treat a rare disease or condition,
which is generally defined as a disease or condition that affects
fewer than 200,000 individuals in the United States. Orphan drug
designation must be requested before submitting an NDA. After the
FDA grants orphan drug designation, the generic identity of the
drug and its potential orphan use are disclosed publicly by the
FDA. Orphan drug designation does not convey any advantage in, or
shorten the duration of, the regulatory review and approval
process. The first NDA applicant to receive FDA approval for a
particular active moiety to treat a particular disease with FDA
orphan drug designation is entitled to a seven-year exclusive
marketing period in the United States for that product and for that
indication. During the seven-year exclusivity period, the FDA may
not approve any other applications to market the same drug for the
same orphan indication, except in limited circumstances, such as a
showing of clinical superiority to the product with orphan drug
exclusivity, such that it is shown to be safer, more effective or
makes a major contribution to patient care. Orphan drug exclusivity
does not prevent the FDA from approving a different drug for the
same disease or condition, or the same drug for a different disease
or condition. Among the other benefits of orphan drug designation
are tax credits for certain research and a waiver of the NDA
application user fee.
Combination Products
The FDA regulates combinations of products that cross FDA centers,
such as drug, biologic or medical device components that are
physically, chemically or otherwise combined into a single entity,
as a combination product. The FDA center with primary jurisdiction
for the combination product will take the lead in the premarket
review of the product, with the other center consulting or
collaborating with the lead center. The 21st Century Cures Act, or
Cures Act, amended the provisions of the FDCA relating to the
regulation of combination products to, among other things, require
the FDA to conduct the premarket review of any combination product
under a single application whenever appropriate.
In practice, the FDA’s Office of Combination Products, or
OCP, determines which center will have primary jurisdiction for the
combination product based on the combination product’s
“primary mode of action.” A mode of action is the means
by which a product achieves an intended therapeutic effect or
action. The primary mode of action is the mode of action that
provides the most important therapeutic action of the combination
product, or the mode of action expected to make the greatest
contribution to the overall intended therapeutic effects of the
combination product.
It is often difficult for the OCP to determine with reasonable
certainty the most important therapeutic action of the combination
product. In those difficult cases, the OCP will consider
consistency with other combination products raising similar types
of safety and effectiveness questions, or which center has the most
expertise to evaluate the most significant safety and effectiveness
questions raised by the combination product.
If a combination product sponsor disagrees with OCP’s primary
mode of action determination, the Cures Act permits the sponsor to
request that the FDA provide a substantive rationale for its
determination. The sponsor can then propose one or more studies to
establish the relevance of the chemical action in achieving the
product’s primary mode of action and the FDA and the sponsor
will collaborate to reach agreement on the design of such studies
within 90 calendar days. If the sponsor conducts the agreed-upon
studies, the FDA must consider the resulting data when reevaluating
the product’s primary mode of action.
Post-Market Drug Regulation
If the FDA approves a drug product for commercial marketing, it may
limit the approved indications for use of the product, require that
contraindications, warnings or precautions be included in the
product labeling, require that post-approval studies, including
Phase 4 clinical trials, be conducted to further assess a
drug’s safety and/or other factors after approval, require
testing and surveillance programs to monitor the product after
commercialization and/or patients using the product for observation
of the product’s long-term effects, or impose other
conditions, including distribution restrictions or other risk
management mechanisms, including Risk Evaluation and Mitigation
Strategies, or REMS, which can materially affect the potential
market and profitability of the product. Any approved product is
also subject to requirements relating to recordkeeping, periodic
reporting, product sampling and distribution, advertising and
promotion, labeling, and reporting of adverse experiences with the
product. The FDA may prevent or limit further marketing of a
product based on the results of post-market studies or surveillance
programs. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and
additional labeling claims, are subject to further testing
requirements and FDA review and re-approval.
In addition, drug manufacturers and other entities involved in the
manufacture and distribution of approved drugs are required to
register their establishments with the FDA and state agencies, and
are subject to periodic unannounced inspections by the FDA and
these state agencies for compliance with cGMP requirements. Changes
to the manufacturing process are strictly regulated and often
require prior FDA approval before being implemented. FDA
regulations also require investigation and correction of any
deviations from cGMP and impose reporting and documentation
requirements upon drug developers and their manufacturers.
Accordingly, manufacturers must continue to expend time, money and
effort in the areas of production and quality control to maintain
cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if
compliance with regulatory requirements and standards is not
maintained or if problems occur after the product reaches the
market. Later discovery of previously unknown problems with a
product, including AEs of unanticipated severity or frequency, or
with manufacturing processes, or failure to comply with regulatory
requirements, may result in revisions to the approved labeling to
add new safety information, imposition of post-market studies or
clinical trials to assess new safety risks or imposition of
distribution or other restrictions under a REMS program. Other
potential consequences of a failure to comply with regulatory
requirements during or after the FDA approval process include,
among other things:
●
restrictions on the marketing or manufacturing of
the product, product recalls or complete withdrawal of the product
from the market
;
●
fines, warning or untitled letters or holds on
post-approval clinical trials
;
●
refusal of the FDA to approve pending applications
or supplements to approved applications, or suspension or
revocation of product license approvals
;
●
product
seizure or detention, or refusal to permit the import or export of
products; or
●
consent
decrees, injunctions or the imposition of civil or criminal
penalties.
The FDA strictly regulates marketing, labeling, advertising and
promotion of products that are placed on the market. Drugs may be
promoted only for the approved indications and in accordance with
the provisions of the approved label. The FDA and other agencies
actively enforce the laws and regulations prohibiting the promotion
of off label uses, and a company that is found to have improperly
promoted off label uses may be subject to significant
liability.
Additional Regulations and Environmental Matters
He
alth
Insurance Portability and Accountability Act (HIPAA) and
HITECH
Under the administrative simplification provisions the federal
Health Insurance Portability and Accountability Act of 1996, or
HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act, or the HITECH Act, the United States
Department of Health and Human Services (HHS) issued regulations
that establish uniform standards governing the conduct of certain
electronic health care transactions and protecting the privacy and
security of protected health information used or disclosed by
health care providers and other covered entities, such as MetaStat.
Three principal regulations with which we are required to comply
have been issued in final form under HIPAA: privacy regulations,
security regulations, and standards for electronic transactions,
which establish standards for common health care transactions. The
privacy and security regulations were extensively amended in 2013
to incorporate requirements from the HITECH Act.
The privacy regulations cover the use and disclosure of protected
health information by health care providers and other covered
entities. They also set forth certain rights that an individual has
with respect to his or her protected health information maintained
by a health care provider, including the right to access or amend
certain records containing protected health information, or to
request restrictions on the use or disclosure of protected health
information. The security regulations establish requirements for
safeguarding the confidentiality, integrity, and availability of
protected health information that is electronically transmitted or
electronically stored.
The HITECH Act, among other things, established certain protected
health information security breach notification requirements. A
covered entity must notify affected individual(s) and the HHS when
there is a breach of unsecured protected health information. The
HIPAA privacy and security regulations establish a uniform federal
“floor” that health care providers must meet and do not
supersede state laws that are more stringent or provide individuals
with greater rights with respect to the privacy or security of, and
access to, their records containing protected health information.
Massachusetts, for example, has a state law that protects the
privacy and security of personal information of Massachusetts
residents that is more prescriptive than HIPAA.
These laws contain significant fines and other include civil and
criminal penalties for wrongful use or disclosure of protected
health information. Additionally, to the extent that we submit
electronic health care claims and payment transactions that do not
comply with the electronic data transmission standards established
under HIPAA and the HITECH Act, payments to us may be delayed or
denied.
We have policies and procedures to comply with these regulations.
The requirements under these regulations may change periodically
and could have an adverse effect on our business operations if
compliance becomes substantially costlier than under current
requirements.
In addition to federal privacy regulations, there are a number of
state and international laws governing confidentiality of health
information that may be applicable to our operations. The United
States Department of Commerce, the European Commission and the
Swiss Federal Data Protection and Information Commissioner have
agreed on a set of data protection principles and frequently asked
questions (the "Safe Harbor Principles") to enable U.S. companies
to satisfy the requirement under European Union and Swiss law that
adequate protection is given to personal information transferred
from the European Union or Switzerland to the United States. The
European Commission and Switzerland have also recognized the Safe
Harbor Principles as providing adequate data
protection.
New laws governing privacy may be adopted in the future as well. We
have taken steps to comply with health information privacy
requirements to which we are aware that we will be subject.
However, we can not provide assurance that we will be in compliance
with diverse privacy requirements in all of the jurisdictions in
which we do business. Failure to comply with privacy requirements
could result in civil or criminal penalties, which could have a
materially adverse impact on our
business.
Federal and State Physician Self-referral Prohibitions
We will be subject to the federal physician self-referral
prohibitions, commonly known as the Stark Law, and to similar state
restrictions such as the California's Physician Ownership and
Referral Act, or PORA. Together these restrictions generally
prohibit us from billing a patient or any governmental or private
payer for any test when the physician ordering the test, or any
member of such physician's immediate family, has an investment
interest in or compensation arrangement with us, unless the
arrangement meets an exception to the prohibition. Both the Stark
Law and PORA contain an exception for compensation paid to a
physician for personal services rendered by the physician. We would
be required to refund any payments we receive pursuant to a
referral prohibited by these laws to the patient, the payer or the
Medicare program, as applicable.
Both the Stark Law and certain state restrictions such as PORA
contain an exception for referrals made by physicians who hold
investment interests in a publicly traded company that has
stockholders’ equity exceeding $75 million at the end of its
most recent fiscal year or on average during the previous three
fiscal years, and which satisfies certain other requirements. In
addition, both the Stark Law and certain state restrictions such as
PORA contain an exception for compensation paid to a physician for
personal services rendered by the physician.
However, in the event that we enter into any compensation
arrangements with physicians, we cannot be certain that regulators
would find these arrangements to be in compliance with Stark, PORA
or similar state laws. In such event, we would be required to
refund any payments we receive pursuant to a referral prohibited by
these laws to the patient, the payer or the Medicare program, as
applicable.
Sanctions for a violation of the Stark Law include the
following:
●
denial
of payment for the services provided in violation of the
prohibition;
●
refunds
of amounts collected by an entity in violation of the Stark
Law;
●
a
civil penalty of up to $15,000 for each service arising out of the
prohibited referral;
●
possible
exclusion from federal healthcare programs, including Medicare and
Medicaid; and
●
a
civil penalty of up to $100,000 against parties that enter into a
scheme to circumvent the Stark Law’s
prohibition.
These prohibitions apply regardless of the reasons for the
financial relationship and the referral. No finding of intent to
violate the Stark Law is required for a violation. In addition,
under an emerging legal theory, knowing violations of the Stark Law
may also serve as the basis for liability under the Federal False
Claims Act.
Further, a violation of PORA is a misdemeanor and could result in
civil penalties and criminal fines. Finally, other states have
self-referral restrictions with which we have to comply that differ
from those imposed by federal and California law. It is possible
that any financial arrangements that we may enter into with
physicians could be subject to regulatory scrutiny at some point in
the future, and we cannot provide assurance that we will be found
to be in compliance with these laws following any such regulatory
review.
Federal, State and International Anti-kickback Laws
The Federal Anti-kickback Law makes it a felony for a provider or
supplier, including a laboratory, to knowingly and willfully offer,
pay, solicit or receive remuneration, directly or indirectly, in
order to induce business that is reimbursable under any federal
health care program. A violation of the Anti-kickback Law may
result in imprisonment for up to five years and fines of up to
$250,000 in the case of individuals and $500,000 in the case of
organizations. Convictions under the Anti-kickback Law result in
mandatory exclusion from federal health care programs for a minimum
of five years. In addition, HHS has the authority to impose civil
assessments and fines and to exclude health care providers and
others engaged in prohibited activities from Medicare, Medicaid and
other federal health care programs.
Actions which violate the Anti-kickback Law or similar laws may
also involve liability under the Federal False Claims Act, which
prohibits the knowing presentation of a false, fictitious or
fraudulent claim for payment to the United States Government.
Actions under the Federal False Claims Act may be brought by the
Department of Justice or by a private individual in the name of the
government.
Although the Anti-kickback Law applies only to federal health care
programs, a number of states have passed statutes substantially
similar to the Anti-kickback Law pursuant to which similar types of
prohibitions are made applicable to all other health plans and
third-party payers.
Federal and state law enforcement authorities scrutinize
arrangements between health care providers and potential referral
sources to ensure that the arrangements are not designed as a
mechanism to induce patient care referrals and opportunities. The
law enforcement authorities, the courts and the United States
Congress have also demonstrated a willingness to look behind the
formalities of a transaction to determine the underlying purpose of
payments between health care providers and actual or potential
referral sources. Generally, courts have taken a broad
interpretation of the scope of the Anti-kickback Law, holding that
the statute may be violated if merely one purpose of a payment
arrangement is to induce future referrals.
In addition to statutory exceptions to the Anti-kickback Law,
regulations provide for a number of safe harbors. If an arrangement
meets the provisions of a safe harbor, it is deemed not to violate
the Anti-kickback Law. An arrangement must fully comply with each
element of an applicable safe harbor in order to qualify for
protection.
Among the safe harbors that may be relevant to us is the discount
safe harbor. The discount safe harbor potentially applies to
discounts provided by providers and suppliers, including
laboratories, to physicians or institutions where the physician or
institution bills the payer for the test, not when the laboratory
bills the payer directly. If the terms of the discount safe harbor
are met, the discounts will not be considered prohibited
remuneration under the Anti-kickback Law. We anticipate that this
safe harbor may be potentially applicable to any agreements that we
enter into to sell tests to hospitals where the hospital submits a
claim to the payer.
The personal services safe harbor to the Anti-kickback Law provides
that remuneration paid to a referral source for personal services
will not violate the Anti-kickback Law provided all of the elements
of that safe harbor are met. One element is that, if the agreement
is intended to provide for the services of the physician on a
periodic, sporadic or part-time basis, rather than on a full-time
basis for the term of the agreement, the agreement specifies
exactly the schedule of such intervals, their precise length, and
the exact charge for such intervals. Failure to meet the terms of
the safe harbor does not render an arrangement illegal. Rather,
such arrangements must be evaluated under the language of the
statute, taking into account all facts and
circumstances.
In the event that we enter into relationships with physicians,
hospitals and other customers, there can be no assurance that our
relationships with those physicians, hospitals and other customers
will not be subject to investigation or a successful challenge
under such laws. If imposed for any reason, sanctions under the
Anti-kickback Law or similar laws could have a negative effect on
our business.
Other Federal and State Fraud and Abuse Laws
In addition to the requirements that are discussed above, there are
several other health care fraud and abuse laws that could have an
impact on our business. For example, provisions of the Social
Security Act permit Medicare and Medicaid to exclude an entity that
charges the federal health care programs substantially in excess of
its usual charges for its services. The terms “usual
charge” and “substantially in excess” are
ambiguous and subject to varying interpretations.
Further, the Federal False Claims Act prohibits a person from
knowingly submitting a claim, making a false record or statement in
order to secure payment or retaining an overpayment by the federal
government. In addition to actions initiated by the government
itself, the statute authorizes actions to be brought on behalf of
the federal government by a private party having knowledge of the
alleged fraud. Because the complaint is initially filed under seal,
the action may be pending for some time before the defendant is
even aware of the action. If the government is ultimately
successful in obtaining redress in the matter or if the plaintiff
succeeds in obtaining redress without the government’s
involvement, then the plaintiff will receive a percentage of the
recovery. Finally, the Social Security Act includes its own
provisions that prohibit the filing of false claims or submitting
false statements in order to obtain payment. Violation of these
provisions may result in fines, imprisonment or both, and possible
exclusion from Medicare or Medicaid programs.
Corporate Practice of Medicine
Numerous states have enacted laws prohibiting business
corporations, such as MetaStat, from practicing medicine and
employing or engaging physicians to practice medicine, generally
referred to as the prohibition against the corporate practice of
medicine. These laws are designed to prevent interference in the
medical decision-making process by anyone who is not a licensed
physician. For example, California’s Medical Board has
indicated that determining what diagnostic tests are appropriate
for a particular condition and taking responsibility for the
ultimate overall care of the patient, including providing treatment
options available to the patient, would constitute the unlicensed
practice of medicine if performed by an unlicensed person.
Violation of these corporate practice of medicine laws may result
in civil or criminal fines, as well as sanctions imposed against us
and/or the professional through licensure proceedings. Typically,
such laws are only applicable to entities that have a physical
presence in the state.
Compliance with Environmental Laws
We expect to be subject to regulation under federal, state and
local laws and regulations governing environmental protection and
the use, storage, handling and disposal of hazardous substances.
The cost of complying with these laws and regulations may be
significant. Our planned activities may require the controlled use
of potentially harmful biological materials, hazardous materials
and chemicals. We cannot eliminate the risk of accidental
contamination or injury to employees or third parties from the use,
storage, handling or disposal of these materials. In the event of
contamination or injury, we could be held liable for any resulting
damages, and any liability could exceed our resources or any
applicable insurance coverage we may have.
Other Regulations
The U.S. Occupational Safety and Health Administration has
established extensive requirements relating to workplace safety for
health care employers, including requirements to develop and
implement programs to protect workers from exposure to blood-borne
pathogens by preventing or minimizing any exposure through needle
stick or similar penetrating injuries.
Foreign Regulation
To obtain marketing approval of a drug under European Union
regulatory systems, we may submit marketing authorization
applications, or MAAs, either under a centralized or decentralized
procedure. The centralized procedure provides for the grant of a
single marketing authorization that is valid for all European Union
member states. The centralized procedure is compulsory for
medicines produced by specified biotechnological processes,
products designated as orphan medicinal products, and products with
a new active substance indicated for the treatment of specified
diseases, and optional for those products that are highly
innovative or for which a centralized process is in the interest of
patients. Under the centralized procedure in the European Union,
the maximum timeframe for the evaluation of an MAA is 210 days,
excluding clock stops, when additional written or oral information
is to be provided by the applicant in response to questions asked
by the Scientific Advice Working Party of the Committee of
Medicinal Products for Human Use, or the CHMP. Accelerated
evaluation might be granted by the CHMP in exceptional cases, when
a medicinal product is expected to be of a major public health
interest, defined by three cumulative criteria comprising the
seriousness of the disease, such as heavy disabling or
life-threatening diseases, to be treated; the absence or
insufficiency of an appropriate alternative therapeutic approach;
and anticipation of high therapeutic benefit. In this circumstance,
the European Medicines Agency, or EMA, ensures that the opinion of
the CHMP is given within 150 days.
The EMA grants orphan drug designation to promote the development
of products that may offer therapeutic benefits for
life-threatening or chronically debilitating conditions affecting
not more than five in 10,000 people in the European Union. In
addition, orphan drug designation can be granted if the drug is
intended for a life threatening, seriously debilitating or serious
and chronic condition in the European Union and without incentives
it is unlikely that sales of the drug in the European Union would
be sufficient to justify developing the drug. Orphan drug
designation is only available if there is no other satisfactory
method approved in the European Union of diagnosing, preventing or
treating the condition, or if such a method exists, the proposed
orphan drug will be of significant benefit to patients. Orphan drug
designation provides opportunities for free protocol assistance,
fee reductions for access to the centralized regulatory procedures
before and during the first year after marketing authorization and
between 6 and 10 years of market exclusivity following drug
approval.
The decentralized procedure for submitting an MAA provides an
assessment of an application performed by one member state, known
as the reference member state, and the approval of that assessment
by one or more other member states, known as concerned member
states. Under this procedure, an applicant submits an application,
or dossier, and related materials, including a draft summary of
product characteristics, and draft labeling and package leaflet, to
the reference member state and concerned member states. The
reference member state prepares a draft assessment and drafts of
the related materials within 120 days after receipt of a valid
application. Within 90 days of receiving the reference member
state’s assessment report, each concerned member state must
decide whether to approve the assessment report and related
materials. If a member state cannot approve the assessment report
and related materials on the grounds of potential serious risk to
public health, the disputed points may eventually be referred to
the European Commission, whose decision is binding on all member
states. Prior to submitting an MAA for use of drugs in pediatric
populations, the EMA requires submission of, or a request for
waiver or deferral of, a Pediatric Investigation Plan.
In the European Union, new chemical entities qualify for eight
years of data exclusivity upon marketing authorization and an
additional two years of market exclusivity. This data exclusivity,
if granted, prevents regulatory authorities in the European Union
from assessing a generic (abbreviated) application for eight years,
after which generic marketing authorization can be submitted but
not approved for two years. Even if a compound is considered to be
a new chemical entity and the sponsor is able to gain the
prescribed period of data exclusivity, another company nevertheless
could also market another version of the drug if such company can
complete a full MAA with a complete human clinical trial database
and obtain marketing approval of its product.
Healthcare Reform
Containing healthcare expenditures is a major trend in the U.S. and
the rest of the world. Both government authorities and third-party
payors have attempted to control costs by limiting coverage and the
amount of reimbursement for particular medical products, including
therapeutics and diagnostics, implementing reductions in Medicare
and other healthcare funding, and applying new payment
methodologies. For example, in March 2010, the Affordable Care Act
was enacted, which, among other things, subjected drug
manufacturers to new annual fees based on pharmaceutical
companies’ share of sales to federal healthcare programs;
created a new Patient Centered Outcomes Research Institute to
oversee, identify priorities in, and conduct comparative clinical
effectiveness research, along with funding for such research;
creation of the Independent Payment Advisory Board, which has
authority to recommend certain changes to the Medicare program that
could result in reduced payments for prescription drugs; and
establishment of a Center for Medicare Innovation at the CMS to
test innovative payment and service delivery models to lower
Medicare and Medicaid spending.
We expect that the new presidential administration and U.S.
Congress will seek to modify, repeal, or otherwise invalidate all,
or certain provisions of, the Affordable Care Act. There is
uncertainty with respect to the impact the new presidential
administration and the U.S. Congress may have, if any, and any
changes will likely take time to unfold, and could have an impact
on coverage and reimbursement for healthcare items and services
covered by plans that were authorized by the Affordable Care Act.
However, we cannot predict the ultimate content, timing or effect
of any healthcare reform legislation or the impact of potential
legislation on us.
In addition, other legislative changes have also been proposed and
adopted in the U.S. to reduce healthcare expenditures. These
changes include aggregate reductions of Medicare payments to
providers of 2% per fiscal year that, due to subsequent legislative
amendments, will remain in effect through 2025 unless additional
action is taken by Congress. The American Taxpayer Relief Act of
2012 was signed into law in January 2013, which, among other
things, further reduced Medicare payments to several types of
providers, including hospitals, imaging centers and cancer
treatment centers, and increased the statute of limitations period
for the government to recover overpayments to providers to five
years from three. Recently there has been heightened scrutiny over
the manner in which manufacturers set prices for their marketed
products.
Reimbursement
Sales
of any of our therapeutic and companion diagnostic product
candidates that may be approved will depend, in part, on the extent
to which the cost of the products will be covered by government and
third party payers. Third party payers may limit coverage to an
approved list of products, or formulary, which might not include
all drug products approved by the FDA for an indication. Any
product candidates for which we obtain marketing approval may not
be considered medically necessary or cost-effective by third party
payers, and we may need to conduct expensive pharmacoeconomic
studies in the future to demonstrate the medical necessity and/or
cost effectiveness of any such product.
The reimbursement environment is evolving as regulators and payors
try to establish new rules and frameworks for the reimbursement of
molecular diagnostic tests. There has been an increased interest in
implementing cost containment programs to limit government-paid
health care costs, including price controls and restrictions on
reimbursement. Continued interest in and adoption of such controls
and measures, and tightening of restrictive policies in
jurisdictions with existing controls and measures, could limit
payments for product candidates we are
developing.
Our prognostic diagnostic tests are expected to be offered as a
clinical laboratory service. Revenue for clinical laboratory
diagnostics may come from several sources, including commercial
third-party payers, such as insurance companies and health
maintenance organizations (HMOs), government payers, such as
Medicare and Medicaid in the United States, patient self-pay and,
in some cases, from hospitals or referring laboratories who, in
turn, may bill third-party payers.
The proportion of private payers compared to government payers such
as Medicaid/Medicare will impact the average selling price
(discounting), length of payables, and losses due to uncollectible
accounts receivable. Working with relevant medical societies and
other appropriate constituents to obtain appropriate reimbursement
amounts by all payers will be key. The objective of this effort
will be to ensure the amount paid by Medicare and other payers for
our assays accurately reflects the technology costs, the benefit
that the analysis brings to patients, and its positive impact on
healthcare economics. In order to gain broad reimbursement
coverage, we expect substantial resources will need to be devoted
to educating payers such as Kaiser Permanente, Aetna, United
Healthcare, and others on the following attributes of our
prognostic diagnostic assays, including, but not limited
to:
●
t
est performance (specificity, selectivity, size of
the risk groups);
●
clinical
utility and effectiveness;
●
p
eer-reviewed publication and consistent study
outcomes;
●
patient
and physician demand; and
●
i
mproved health economics.
Billing codes are the means by which Medicare and private insurers
identify certain medical services that are provided to patients in
the United States. CPT codes are established by the American
Medical Association (AMA). The amounts reimbursed by Medicare for
the CPT codes are established by the Centers for Medicare &
Medicaid Services (CMS) using a relative value system, with
recommendations from the AMA's Relative Value Update Committee and
professional societies representing the various medical
specialties.
Reimbursement for our prognostic diagnostic tests, including
MetaSite
Breast
TM
and MenaCalc
TM
will be based on:
●
eligibility
for reimbursement under well-established medical billing CPT code
88361;
●
reimbursement
under the CPT miscellaneous procedure code; or
●
qualification
under any applicable new molecular diagnostic codes currently under
consideration.
As part of our longer-term reimbursement strategy, we or any
potential partners may choose to apply for a unique CPT code once
our prognostic diagnostic assays are commercially available and
health economic data have been established.
Well-established medical billing CPT code 88361
CPT code 88361 is specific to computer-assisted image analysis and
went into effect in 2004. Our prognostic diagnostic tests involve
both a technical and professional component. The technical
component involves preparation of the patient sample and scanning
the image, while the professional component involves the
physician's reading and evaluation of the test results. Since our
prognostic diagnostic tests will be billed as a service, we
anticipate payments for both the professional and technical
components. The actual payment varies based upon a geographic
factor index for each state and may be higher or lower than the
Medicare national amounts in particular cases based on geographic
location.
CMS coding policy defines the unit of service for each IHC stain
charge is one unit per different antigen tested and individually
reported, per specimen. Medicare contractors cannot bill for
multiple service units of CPT code 88361 (Immunohistochemistry,
each antibody) for “cocktail” stains containing
multiple antibodies in a single “vial” applied in a
single procedure, even if each antibody provides distinct
diagnostic information. We believe this CMS policy is not
applicable to our procedure because our multiple stain reaction
involves multiple separate steps of multiple primary antibodies
binding followed by counterstaining.
CPT Miscellaneous Procedure Code
Tests that are billed under a non-specific, unlisted procedure code
are subject to manual review of each claim. Claims are paid at a
rate established by the local Medicare carrier in Massachusetts and
based upon the development and validation costs of developing the
assays, the costs of conducting the tests, the reimbursement rates
paid by other payers and the cost savings impact of the tests.
Because there is no specific code or national fee schedule rate for
the test, payment rates established by the local Medicare
contractor may be subject to review and adjustment at any
time.
Sales and Marketing
We have
not yet established a sales and marketing infrastructure. For any
of our therapeutic or companion diagnostic product candidates for
which we may in the future receive marketing approvals, we may seek
to commercialize the product ourselves or through one or more
strategic commercialization collaborations.
Our prognostic diagnostic tests are expected to be offered as a
clinical laboratory service
through our CLIA-certified
laboratory located in Boston, Massachusetts. We plan to implement a
de-risked commercialization strategy based on non-exclusive
agreements with strategic distribution partners and/or CSOs in the
U.S. and distributors in Europe and throughout the
rest-of-world.
We aim
to enter into agreements with commercialization or strategic
partners that have existing commercialization infrastructure,
established distribution channels, and strong relationships with
our target audience in the medical community. We aim to avoid the
cost and risk associated with building a new sales and marketing
infrastructure.
Manufacturing
We do
not own or operate, and currently have no plans to establish, any
manufacturing facilities. We expect to rely on third parties for
the manufacture of any therapeutic product candidates for
preclinical and clinical testing, as well as for commercial
manufacture of any products that we may commercialize. We generally
expect to rely on third parties for the manufacture of our
companion diagnostics, including Mena
protein isoform
Mabs.
Our
state-of-the-art CLIA-certified reference laboratory is located at
27 Drydock Avenue in Boston, MA. Our CLIA-certified laboratory is
our primary location for prognostic diagnostic testing and data
analysis of patient tumor samples. Although the science behind our
prognostic diagnostic technology is cutting edge and sophisticated,
a key competitive advantage of our approach is that we have
simplified our testing methods and procedures based on established
immunohistochemical, or IHC, and quantitative immunofluorescence,
or QIF techniques and utilize common inexpensive
materials.
The
MetaSite
Breast
™
assay uses widely available IHC dyeing techniques to identify
individual cell types. This staining technique uses antibodies that
recognize individual cell types. By attaching different dye colors
to different antibody types, the operator can view different cell
types on a single slide. We believe this approach to diagnosis and
prognosis of cancer is more cost effective than many genomic-based
approaches currently on the market. We believe the most economical
way to enter the market with the MetaSite
Breast
™ test will be through
contract manufacturing for these IHCs.
The
MenaCalc™ and Mena
INV
assays use widely
available QIF techniques to identify individual cell types,
allowing the test to interrogate tumor cells separately within
tumor microenvironment rather than measuring homogenous biopsies
containing tumor and non-tumor cell types. This staining technique
uses antibodies that recognize or detect the different protein
variants of Mena. The antibodies used are detected by labeling the
different antibody types different fluorescent dyes that allow the
operator to measure and quantify the levels selectively within the
tumor cells on the slide. We believe this approach to diagnosis and
prognosis of cancer is more cost effective than many genomic-based
approaches currently on the market that utilize heterogeneous
mixtures of tumor and stromal cells in patient
samples.
Employees
We currently have six full-time employees. In addition, we utilize
outside consultants to support certain elements of our research and
development, information technology, and commercial operations.
From time to time we have also engaged several consulting firms
involved with public relations, investor relations and other
functions.
Insurance
We have general and umbrella liability insurance, employment
practices liability insurance as well as directors and officers
(D&O) insurance in amounts that we believe comply with industry
standards.
We operate in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. Certain factors may have
a material adverse effect on our business, prospects, results of
operations, financial condition and cash flows, and you should
carefully consider them. Accordingly, in evaluating our business,
we encourage you to consider the following discussion of risk
factors, in its entirety, in addition to other information
contained in this Annual Report on Form 10-K and our other public
filings with the SEC. Other events that we do not currently
anticipate or that we currently deem immaterial may also affect our
business, prospects, financial condition and results of
operations.
Risks Relating to Our
Financial
Condition and Capital Resources
If we are unable to continue as a going concern, our securities
will have little or no value.
The report of our independent registered public accounting firm
that accompanies our audited consolidated financial statements
for the years ended February 28, 2017 and February 29, 2016 contain
a going concern qualification in which such firm expressed
substantial doubt about our ability to continue as a going concern.
As of February 28, 2017, and February 29, 2016, we had an
accumulated deficit of approximately $26.3 million and $23.4
million, respectively. At February 28, 2017, we have a negative
working capital. We currently anticipate that our cash and cash
equivalents will not be sufficient to fund our operations for
the next twelve months, without raising additional capital. Our
continuation as a going concern is dependent upon continued
financial support from our shareholders, the ability of us to
obtain necessary equity and/or debt financing to continue
operations, and the attainment of profitable operations. These
factors raise substantial doubt regarding our ability to continue
as a going concern. Although we are actively working to obtain
additional funding, we cannot make any assurances that additional
financings will be available to us and, if available, completed on
a timely basis, on acceptable terms or at all. If we are unable to
complete an equity or debt offering, or otherwise obtain sufficient
financing when and if needed, it would negatively impact our
business and operations, which would likely cause the price of our
common stock to decline. It could also lead to the reduction or
suspension of our operations and ultimately force us to cease our
operations.
We are at an early stage of development as a company and do not
have, and may never have, any products that generate
revenue.
We are a pre-commercial biotechnology company. At this time,
we do not have any commercial products or laboratory services that
generate revenue. Our business has evolved to an integrated
Rx/Dx company focused on developing and commercializing
therapeutics and companion diagnostics from a pure play prognostic
diagnostic company. We are not profitable, and have incurred losses
in each year since our inception and expect we expect to continue
to incur losses for the foreseeable future.
Our therapeutic and companion diagnostic product candidates are at
early stages of development, have not obtained regulatory marketing
approval, have never generated any sales and require extensive
testing before commercialization. Our limited operating history may
adversely affect our ability to implement our business strategy and
achieve our business goals, which include, among others, the
following activities:
●
develop
our therapeutic or diagnostic product candidates;
●
obtain
the human and financial resources necessary to develop, test,
commercialize and market our product candidates;
●
continue
to build and maintain an intellectual property portfolio covering
our technology and our product candidates;
●
satisfy
the requirements of clinical trial protocols, including patient
enrollment, establish and demonstrate the clinical efficacy, safety
and utility of our product candidates and obtain necessary
regulatory approvals;
●
commercialize
and
market our product
candidates that receive regulatory approvals to achieve acceptance
and use by the medical community in general;
●
develop
and maintain successful collaboration, strategic and other
relationships for the development and commercialization of our
product candidates; and
●
manage
our cash flows and any growth we may experience in an environment
where costs and expenses relating to clinical trials, regulatory
approvals and commercialization continue to increase.
Additionally, our prognostic diagnostic product candidates will
require additional development, analytical validation, clinical
evaluation, additional state and CLIA licensing, potential
regulatory review, significant sales and marketing efforts and
substantial investment or collaboration before they could provide
any revenue.
If we are unsuccessful in accomplishing these objectives, we may
not be able to successfully develop product candidates, raise
capital,
generate significant revenue, or any revenue at
all,
grow our business or continue our
operations.
Even if we achieve profitability in the future,
we may not be able to sustain profitability in subsequent periods.
Our prior losses, combined with expected future losses, have had
and will continue to have an adverse effect on our
stockholders’ equity and working capital.
We have a history of net losses, and we expect to incur net losses
for the foreseeable future and we expect to continue to incur
significant expenses to develop and commercialize our
products.
We have
incurred substantial net losses since our inception. For the fiscal
year ended February 28, 2017 and February 29, 2016, we incurred net
losses of approximately $2.9 million and approximately $4.7
million, respectively. From our inception in July 2009 through
February 28, 2017, we had an accumulated deficit of approximately
$26.3 million. To date, we have not achieved, and we may never
achieve, revenue sufficient to offset expenses. We expect to devote
substantially all of our resources to research and development and
commercialization of our product offerings based on our
Rx/Dx strategy
. We expect to
incur additional losses in the future, and we may never achieve
profitability
We expect our losses to continue as a result of costs relating to
ongoing research and development primarily for our therapeutic drug
discovery and companion diagnostic programs, clinical studies,
operational expenses, and other commercialization costs. These
losses have had, and will continue to have, an adverse effect on
our working capital, total assets and stockholders’ equity.
Because of the numerous risks and uncertainties associated with our
commercialization efforts, we are unable to predict when we will
become profitable, if ever. Even if we do achieve profitability, we
may not be able to sustain or increase profitability on a quarterly
or annual basis.
We have incurred significant indebtedness under our convertible
note with a shareholder.
On January 17, 2017, we issued to a convertible promissory note in
the principal amount of $1,000,000 (the “Convertible
Note”) in exchange for the cancellation of (i) $600,000
principal amount of the Promissory Note plus $96,000 of accrued and
unpaid interest, and (ii) $290,400 principal amount of the OID
Note. The Convertible Note matures on September 30, 2017, accrues
interest at a rate of ten percent (10%) per annum commencing as of
January 1, 2017, and may be prepaid upon 10 days’ advanced
written notice by us at any time prior to the maturity date without
penalty or premium. The noteholder has the right to
convert the outstanding principal balance of the Convertible Note
plus all accrued and unpaid interest thereon into shares of our
common stock at a conversion price per share of $2.00.
Our
ability to repay or to refinance our indebtedness depends on our
future performance and ability to raise additional sources of cash,
which is subject to economic, financial, competitive and other
factors beyond our control. If we are unable to generate sufficient
cash to service our indebtedness we may be required to adopt one or
more alternatives, such as restructuring our debt or obtaining
additional equity capital on terms that may be onerous or highly
dilutive, or selling assets. If we desire to refinance our
indebtedness, our ability to do so will depend on the capital
markets and our financial condition at such time. We may not be
able to engage in any of these activities or engage in these
activities on desirable terms, which could result in a default on
our debt obligations.
Risks Relating to Our
Business and
Strategy
We expect to continue to incur significant research and development
expenses, which may make it difficult for us to achieve and
maintain profitability.
Our operations have consumed substantial amounts of cash since
inception. We expect to need substantial additional funding to
pursue our development programs and launch and commercialize any
product candidates for which we receive regulatory approval, which
may include building internal sales and marketing forces to address
certain markets.
In recent years, we have incurred significant costs in connection
with the development of our prognostic diagnostic tests, including
the MetaSite
Breast™
and MenaCalc
™
tests. Our research and development expenses
were a
pproximately
$1.0 million
and $1.4 million for the fiscal years ended February 28, 2017 and
February 29, 2016, respectively.
We expect our research and development expenses to increase and
remain high for the
foreseeable future as we execute our
Rx/Dx strategy to develop our driver-based biomarkers primarily for
anti-metastatic drugs and companion diagnostics. Additionally,
we may not be able to successfully monetize or commercialization
our
prognostic diagnostic
tests.
As a result, we will need to generate significant
revenue in order to achieve profitability. Our failure to
achieve revenue or profitability in the future could cause the
market price of our common stock to decline. Our prior losses,
combined with expected future losses, have had and will continue to
have an adverse effect on our stockholders’ equity and
working capital.
Our research and development efforts are based on a rapidly
evolving area of science, and our approach to development is novel
and may never lead to marketable products.
Biopharmaceutical
product development is generally a highly speculative undertaking
and involves substantial risk. The field of personalized medicine,
in which we engage, is an emerging field, and the scientific
discoveries that form the basis for our Rx/Dx efforts to develop
product candidates are relatively new. Further, the scientific
evidence to support the feasibility of developing product
candidates based on those discoveries is both preliminary and
limited. The failure of the scientific underpinnings of our
business model to produce viable product candidates would
substantially harm our operations and prospects.
If we are unable to commercialize and generate sales from our
products or successfully develop and commercialize other product
candidates, our revenue will be insufficient for us to achieve
profitability.
We are a pre-commercial biotechnology company. We do not have
any commercial products or laboratory services that generate
revenue. Our
therapeutic and companion diagnostics programs
are in an early stage of development. Our future success is
substantially dependent on our ability to successfully develop,
obtain regulatory approval for, and then successfully commercialize
our therapeutic and companion diagnostic product products resulting
from these programs and any others we may develop or acquire in the
future, which may never occur.
Before
we could generate any revenues from our therapeutic and companion
diagnostic product candidates, we must complete the following
activities for each of them, any one of which we may not be able to
successfully complete:
●
conduct
substantial preclinical development;
●
manage
preclinical and clinical activities;
●
achieve
regulatory approval;
●
manage
manufacturing activates and establish manufacturing
relationships;
●
develop our companion diagnostics and conduct
clinical testing and achieve regulatory approvals for our companion
diagnostics
;
●
b
uild a commercial sales and marketing
infrastructure, if we choose to market any such products ourselves,
or enter into a collaboration to access sales and marketing
functions;
●
develop
and implement marketing and reimbursement strategies;
and
●
invest
significant additional cash in each of the above
activities.
If we
are unable to commercialize and generate sales of our product
candidates, or successfully develop, monetize or commercialization
our
prognostic diagnostic
tests
, we will not produce sufficient revenue to become
profitable.
Our product candidates are in various stages of development and may
never be fully developed in a manner suitable for
commercialization. If we do not develop commercially successful
products, our ability to generate revenue will be
limited.
We are a pre-commercial biotechnology company. We do not have
any commercial products or laboratory services that generate
revenue.
All of our product candidates are in various stages
of development, and significant research and development, financial
resources and personnel will be required to develop commercially
viable products and obtain regulatory approvals. If we are unable
to develop, receive approval for, or successfully commercialize any
of our product candidates, we may be unable to generate meaningful
revenue and will incur continued net losses and negative cash
flows, which could substantially harm our operations and
prospects.
We may not be successful in our efforts to build a pipeline of
product candidates.
A key
element of our Rx/Dx strategy is to use and expand our driver-based
biomarker platform to build a pipeline of therapeutic drug
candidates and companion diagnostics, and progress those product
candidates through preclinical and clinical development for the
treatment of epithelial-based solid tumors. We may not be able to
develop product candidates that are safe and effective. Even if we
are successful in building a product pipeline, the potential
product candidates that we identify may not be suitable for
clinical development for a number of reasons, including causing
harmful side effects or demonstrating other characteristics that
indicate a low likelihood of receiving marketing approval or
achieving market acceptance. If our methods of identifying
potential product candidates fail to produce a pipeline of
potentially viable product candidates, then our success as a
business will be dependent on the success of fewer potential
product candidates, which introduces risks to our business model
and potential limitations to any success we may
achieve.
We may expend our limited resources to pursue a particular product
candidate or indication that does not produce any commercially
viable products and may fail to capitalize on product candidates or
indications that may be more profitable or for which there is a
greater likelihood of success.
Because
we have limited financial and operational resources, we must focus
our efforts on particular product candidates for specific
indications. As a result, we may forego or delay pursuit of
opportunities with other product candidates or for other
indications that later prove to have greater commercial potential.
Further, our resource allocation decisions may result in our use of
funds for research and development programs and product candidates
for specific indications that may not yield any commercially viable
products. If we do not accurately evaluate the commercial potential
or target market for a particular product candidate, we may
relinquish valuable rights to that product candidate through
collaboration, licensing or other royalty arrangements in cases in
which it would have been more advantageous for us to retain sole
development and commercialization rights to such product candidate.
Any such failure to properly assess potential product candidates
could result in missed opportunities and/or our focus on product
candidates with low market potential, which would harm our business
and financial condition.
Drug development involves a lengthy and expensive process with
uncertain outcomes, and any of our preclinical development and
clinical trials or studies could produce unsuccessful results or
fail at any stage in the testing process.
Preclinical
development and clinical testing is expensive and can take many
years to complete. The outcomes are inherently uncertain and
failure can occur at any time during the preclinical development
and clinical trial process. Additionally, any positive results of
preclinical studies and early clinical trials of a product
candidate may not be predictive of the results of later-stage
clinical trials, such that product candidates may reach later
stages of clinical trials and fail to show the desired safety and
efficacy traits despite having shown indications of those traits in
earlier studies. A number of companies in the pharmaceutical and
biopharmaceutical industry have suffered significant setbacks in
advanced clinical trials due to lack of efficacy or adverse safety
profiles, notwithstanding promising results in earlier trials. The
results of any preclinical development and clinical trials we
conduct may be delayed or unsuccessful for a variety of
reasons.
If we experience delays or difficulties in the enrollment of
patients in clinical trials, those clinical trials could take
longer than expected to complete and our receipt of necessary
regulatory approvals could be delayed or prevented.
If any of our product candidates enter the clinical development
stage, we may not be able to initiate or continue clinical trials
for our product candidates if we are unable to locate and enroll a
sufficient number of eligible patients to participate in these
trials as required by the FDA or similar regulatory authorities
outside the United States. In particular, because we are primarily
focused on patients with molecularly defined cancers, which may
have relatively low incidence rates, our pool of suitable patients
may be smaller and more selective and our ability to enroll a
sufficient number of suitable patients may be limited or take
longer than anticipated. Additionally, some of our competitors have
ongoing clinical trials for product candidates that treat the same
indications that our product candidates target, and patients who
would otherwise be eligible for our clinical trials may instead
enroll in clinical trials of our competitors’ product
candidates.
The
inability to enroll a sufficient number of patients for our
clinical trials would result in significant delays and could
require us to abandon our clinical trials altogether. Enrollment
delays in our clinical trials would likely result in increased
development costs, and we may not have or be able to obtain
sufficient cash to fund such increased costs when needed, which
could result in the further delay or termination of the
trials.
The approval processes of regulatory authorities are lengthy, time
consuming, expensive and inherently unpredictable. If we are unable
to obtain approval for our product candidates from applicable
regulatory authorities, we will not be able to market and sell
those product candidates in those countries or regions and our
business will be substantially harmed.
The
time required to obtain approval by the FDA and comparable foreign
authorities is unpredictable, but typically takes many years
following the commencement of clinical trials and depends upon
numerous factors, including the substantial discretion of the
regulatory authorities. We have not submitted an NDA or similar
filing or obtained regulatory approval for any product candidate in
any jurisdiction and it is possible that none of our existing
product candidates or any product candidates we may seek to develop
in the future will ever obtain regulatory approval.
Our
product candidates could fail to receive regulatory approval for
many reasons, including any one or more of the
following:
●
the
FDA or comparable foreign regulatory authorities may disagree with
the design or implementation of our clinical trials;
●
we may be unable to
demonstrate to the satisfaction of the FDA or comparable foreign
regulatory authorities that a product candidate is safe and
effective for its proposed indication
;
●
the results of
clinical trials may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory authorities
for approval
;
●
we may be unable to
demonstrate that a product candidate’s clinical and other
benefits outweigh its safety risks
;
●
the FDA or
comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical studies or clinical
trials
;
●
the data collected
from clinical trials of our product candidates may not be
sufficient to support the submission of an NDA or other submission
or to obtain regulatory approval in the United States or
elsewhere
;
●
the FDA or
comparable foreign regulatory authorities may fail to hold to
previous agreements or commitments;
●
the FDA or
comparable foreign regulatory authorities may fail to approve the
manufacturing processes or facilities of third-party manufacturers
with which we contract for clinical and commercial
supplies;
●
the FDA or
comparable foreign regulatory authorities may fail to approve our
companion diagnostics;
●
invest
significant additional cash in each of the above activities;
and
●
the approval
policies or regulations of the FDA or comparable foreign regulatory
authorities may significantly change in a manner rendering our
clinical data insufficient for approval
.
The
time and expense of the approval process, as well as the
unpredictability of clinical trial results and other contributing
factors, may result in our failure to obtain regulatory approval to
market, in one or more jurisdictions, any of our or future product
candidates, which would significantly harm our business, results of
operations and prospects.
In
order to market and sell our products in any jurisdiction, we or
our third-party collaborators must obtain separate marketing
approvals in that jurisdiction and comply with its regulatory
requirements. The approval procedure can vary drastically among
countries, and each jurisdiction may impose different testing and
other requirements to obtain and maintain marketing approval.
Further, the time required to obtain those approvals may differ
substantially among jurisdictions. Approval by the FDA or an
equivalent foreign authority does not ensure approval by regulatory
authorities in any other countries or jurisdictions. As a result,
the ability to market and sell a product candidate in more than one
jurisdiction can involve significant additional time, expense and
effort to undertake separate approval processes, and could subject
us and our collaborators to the numerous and varying post-approval
requirements of each jurisdiction governing commercial sales,
manufacturing, pricing and distribution of our product candidates.
We or any third parties with whom we may collaborate may not have
the resources to pursue those approvals, and we or they may not be
able to obtain any approvals that are pursued. The failure to
obtain marketing approval for our product candidates in foreign
jurisdictions could severely limit their potential markets and our
ability to generate revenue.
In
addition, even if we were to obtain regulatory approval in one or
more jurisdictions, regulatory authorities may approve any of our
product candidates for fewer or more limited indications than we
request, may not approve the prices we may propose to charge for
our products, may grant approval contingent on the performance of
costly post-marketing clinical trials, or may approve a product
candidate with labeling that does not include the claims necessary
or desirable for the successful commercialization of that product
candidate. Any of the foregoing circumstances could materially harm
the commercial prospects for our product candidates.
Our product candidates may cause undesirable side effects or have
other properties that could delay or prevent their regulatory
approval, limit the commercial profile of the approved labeling, or
result in significant negative consequences following marketing
approval, if any.
Results
of future clinical trials of our product candidates could reveal a
high and/or unacceptable severity and frequency of these or other
side effects. In such an event, our trials could be suspended or
terminated and the FDA or comparable foreign regulatory authorities
could order us to cease further development of, or deny approval
of, our product candidates for any or all targeted indications.
Further, any observed drug-related side effects could affect
patient recruitment or the ability of enrolled patients to complete
the trial, or result in potential product liability claims. Any of
these occurrences could materially harm our business, financial
condition and prospects.
Additionally,
if any of our product candidates receives marketing approval, and
we or others later identify undesirable side effects caused by our
products, a number of potentially significant negative consequences
could result, including:
●
regulatory
authorities may withdraw approvals of such product;
●
regulatory
authorities may require additional warnings in the product’s
labeling;
●
we may be required
to create a medication guide for distribution to patients that
outlines the risks of such side effects;
●
we could be sued
and held liable for harm caused to patients; and
●
our reputation may
suffer
.
Any of
these events could prevent us from achieving or maintaining market
acceptance of the particular product, if approved, and could
significantly harm our business, results of operations and
prospects.
Failure to successfully validate, develop and obtain regulatory
approval for our companion diagnostics could harm our business
strategy and operational results.
As one
of the central elements of our Rx/Dx business strategy, we seek to
identify
appropriate patient
populations most likely to benefit from our anti-metastatic
therapeutic agents or next generation RTK inhibitors and
anti-microtubule drugs being developed by potential pharmaceutical
and biotechnology partners
. In order to assist in
identifying those subsets of patients, a companion diagnostic,
which is a test or measurement that evaluates the presence of
biomarkers in a patient, could be used. We anticipate that the
development of companion diagnostics concurrently with our
therapeutic agents or with our drugs
from potential strategic partners will
help us more
accurately identify the patients who belong to the target subset,
both during the clinical trials and in connection with the
commercialization of product candidates.
Companion
diagnostics are subject to regulation by the FDA and comparable
foreign regulatory authorities as medical devices and require
separate regulatory clearance or approval prior to their
commercialization. We may be dependent on the sustained cooperation
and effort of any third-party collaborators with whom we may
partner in the future to develop and obtain clearance or approval
for these companion diagnostics, and we may not be able to
establish arrangements with any such third-party collaborators for
the development and production of companion diagnostics when needed
or on terms that are beneficial to us, or at all. We and our
potential future collaborators may encounter difficulties in
developing and obtaining approval for these companion diagnostics,
including issues relating to the selectivity and/or specificity of
the diagnostic, analytical validation, reproducibility, or clinical
validation.
Since
the FDA generally requires concurrent approval of a companion
diagnostic and therapeutic product, any delay or failure by us or
our potential future collaborators to develop or obtain regulatory
clearance or approval of any companion diagnostics could delay or
prevent approval of our related product candidates. The occurrence
of any delay or failure could adversely affect and/or delay the
development or commercialization of our product
candidates.
If we are unable to execute our sales and marketing strategy for
our products and are unable to gain market acceptance, we may be
unable to generate sufficient revenue to sustain our
business.
We are
a pre-commercial biotechnology company and have yet to begin to
generate revenue from our product candidates. Our therapeutic and
companion diagnostic product candidates are in an early stage of
development, and, if we obtain marketing approval for any of
products in the future, which we anticipate would not occur for
several years, if at all. Additionally, we are seeking to monetize
or
commercialize through
strategic partnerships our
prognostic diagnostics through
our CLIA-certified laboratory, located in Boston,
Massachusetts.
Although we believe that our
prognostic diagnostics
represent a promising commercial
opportunity, we may never gain significant market acceptance and
therefore may never generate substantial revenue or profits for us.
We will need to establish a market for our prognostic diagnostic
tests and build that market through physician education, awareness
programs and the publication of clinical data. Gaining acceptance
in medical communities requires, among other things, publication in
leading peer-reviewed journals of results from studies using our
current tests and/or our planned cancer tests. The process of
publication in leading medical journals is subject to a peer review
process and peer reviewers may not consider the results of our
studies sufficiently novel or worthy of publication. Failure to
have our studies published in peer-reviewed journals would limit
the adoption of our current tests and our planned tests. Our
ability to successfully market our prognostic diagnostic tests that
we may develop will depend on numerous factors,
including:
●
conducting validation studies of such tests in collaboration with
key thought leaders to demonstrate their use and value in important
medical decisions such as treatment selection;
●
conducting clinical utility studies of such tests to demonstrate
economic usefulness to providers and payers;
●
whether our current or future partners, support our
offerings;
●
the success of the sales force and marketing effort;
●
whether healthcare providers believe such diagnostic tests provide
clinical utility;
●
whether the medical community accepts that such diagnostic tests
are sufficiently sensitive and specific to be meaningful in patient
care and treatment decisions; and
●
whether private health insurers, government health programs and
other third-party payers will cover such diagnostic tests and, if
so, whether they will adequately reimburse us.
Failure to achieve significant market acceptance of our products
would materially harm our business, financial condition and results
of operations.
If third-party payers, including managed care organizations and
Medicare, do not provide reimbursement for our products, our
commercial success could be compromised.
Physicians and patients may decide not to order our prognostic
diagnostic tests unless third-party payers, such as managed care
organizations as well as government payers such as Medicare and
Medicaid, pay a substantial portion or all of the test’s
price. There is significant uncertainty concerning third-party
reimbursement of any test incorporating new technology, including
our prognostic diagnostic tests and any of our future diagnostic
tests. Reimbursement by a third-party payer may depend on a
number of factors, including a payer’s determination that
tests using our technologies are:
●
not experimental or investigational;
●
appropriate for the specific patient;
●
supported by peer-reviewed publications; and
●
provide a clinical utility.
Uncertainty surrounds third-party payor coverage and adequate
reimbursement of any diagnostic test incorporating new technology,
including tests developed using our technologies. Technology
assessments of new medical tests conducted by research centers and
other entities may be disseminated to interested parties for
informational purposes. Third-party payors and health care
providers may use such technology assessments as grounds to deny
coverage for a test or procedure. Technology assessments can
include evaluation of clinical utility studies, which define how a
test is used in a particular clinical setting or situation. Because
each payor generally determines for its own enrollees or insured
patients whether to cover or otherwise establish a policy to
reimburse our cancer diagnostic tests, seeking payor approvals is a
time-consuming and costly process. We cannot be certain that
coverage for our current tests and our planned future tests will be
provided in the future by additional third-party payors or that
existing agreements, policy decisions or reimbursement levels will
remain in place or be fulfilled under existing terms and
provisions. If we cannot obtain coverage and adequate reimbursement
from private and governmental payors such as Medicare and Medicaid
for our current tests, or new tests or test enhancements that we
may develop in the future, our ability to generate revenue could be
limited, which may have a material adverse effect on our financial
condition, results of operations and cash flows. Further, we may
experience delays and interruptions in the receipt of payments from
third-party payors due to missing documentation and/or other
issues, which could cause delay in collecting our
revenue.
In addition, to the extent that our testing is ordered for Medicare
inpatients and outpatients, only the hospital may receive payment
from the Medicare program for the technical component of pathology
services and any clinical laboratory services that we perform,
unless the testing is ordered at least 14 days after discharge and
certain other requirements are met. We therefore must look to the
hospital for payment for these services under these circumstances.
If hospitals refuse to pay for the services or fail to pay in a
timely manner, our ability to generate revenue could be limited,
which may have a material adverse effect on our financial
condition, results of operations and cash flows.
Additionally,
there is significant uncertainty related to the third-party
coverage and reimbursement of newly approved drugs and companion
diagnostics. Market acceptance and sales of any of our product
candidates that obtain regulatory approval in domestic or
international markets will depend significantly on the availability
of adequate coverage and reimbursement from third-party payers and
may be affected by existing and future healthcare reform
measures.
In some
foreign countries, particularly in the European Union, the pricing
of prescription pharmaceuticals is subject to governmental control.
In these countries, pricing negotiations with governmental
authorities can be a long and expensive process after the receipt
of marketing approval for a product candidate. To obtain
reimbursement or pricing approval in some countries, we may be
required to conduct additional clinical trials that compare the
cost-effectiveness of our product candidates to other available
therapies. If reimbursement of our product candidates is
unavailable or limited in scope or amount in a particular country,
or if pricing is set at unsatisfactory levels, we may be unable to
achieve or sustain profitability for sales of any of our product
candidates that are approved for marketing in that
country.
Long payment cycles of Medicare, Medicaid and/or other third-party
payers, or other payment delays, could hurt our cash flows and
increase our need for working capital.
Medicare and Medicaid have complex billing and documentation
requirements that we will need to satisfy in order to receive
payment, and the programs can be expected to carefully audit and
monitor our compliance with these requirements. We will also need
to comply with numerous other laws applicable to billing and
payment for healthcare services, including, for example, privacy
laws. Failure to comply with these requirements may result in,
among other things, non-payment, refunds, exclusion from government
healthcare programs, and civil or criminal liabilities, any of
which may have a material adverse effect on our revenue and
earnings. In addition, failure by third-party payors to properly
process our payment claims in a timely manner could delay our
receipt of payment for our products and services, which may have a
material adverse effect on our cash flows and
business.
We expect to rely on third parties to conduct preclinical and
clinical trials of our therapeutic and companion diagnostic product
candidates. If these third parties do not successfully carry out
their contractual duties or meet expected deadlines, we may not be
able to obtain regulatory approval for or commercialize our product
candidates and our business could be substantially
harmed.
We
rely, and expect to continue to rely, upon third-party
collaborators, including CROs to execute our preclinical
development and clinical trials and to monitor and manage data
produced by and relating to those trials. However, we may not be
able to establish arrangements with collaborators and CROs when
needed or on terms that are acceptable to us, or at all, which
could negatively affect our development efforts with respect to our
drug product candidates and materially harm our business,
operations and prospects.
Our research and development and commercialization efforts for our
prognostic diagnostics will be hindered if we are not able to
contract with third parties for access to clinical
samples.
Under standard clinical practice, tumor biopsies removed from
patients are typically chemically preserved and embedded in
paraffin wax and stored. Our clinical development relies on our
ability to secure access to these archived tumor biopsy samples, as
well as information pertaining to their associated clinical
outcomes. Generally, the agreements under which we gain access to
archival samples are nonexclusive. Other companies study archival
samples and often compete with us for access. Additionally, the
process of negotiating access to archived samples is lengthy since
it typically involves numerous parties and approval levels to
resolve complex issues such as usage rights, institutional review
board approval, privacy rights, publication rights, intellectual
property ownership and research parameters. If we are not able to
negotiate access to clinical samples with hospitals, clinical
partners, pharmaceutical companies, or companies developing
therapeutics on a timely basis, or at all, or if other laboratories
or our competitors secure access to these samples before us, our
ability to research, develop and commercialize future products will
be limited or delayed. In addition, access to these clinical
samples may be costly, and involve large upfront acquisition costs,
which may have a material adverse effect on our cash flows and
business.
We may experience delays in our clinical studies that could
adversely affect our financial position and our commercial
prospects.
Any delays in completing our preclinical development and clinical
studies for any of our product candidates may delay our ability to
raise additional capital or to generate revenue, and we may have
insufficient capital resources to support our
operations. Even if we have sufficient capital
resources, the ability to become profitable will be delayed if
there are problems with the timing or completion of our clinical
studies.
We are conducting,
and expect to conduct,
certain preclinical development, validation
studies and clinical studies alone and/or in collaboration with
select academic institutions and other third-party institutions
through services and collaboration agreements. We may experience
delays that are outside of our control in connection with such
services and collaboration agreements, including, but not limited
to, receiving tissue samples, accompanying medical and clinical
data, preparation, review and sign-off of results and/or
manuscripts in a timely fashion. Any delays in completing our
clinical studies and publishing of results in peer-reviewed
journals will delay our commercialization efforts and may
materially harm our business, financial condition and results of
operations.
If we cannot maintain our current clinical collaborations and enter
into new collaborations, our product development could be
delayed.
We rely on, and expect to continue to rely on, clinical
collaborators, including CROs to perform portions of our clinical
trial functions. If any of our collaborators were to breach or
terminate its agreement with us or otherwise fail to conduct the
contracted activities successfully and in a timely manner, the
research, development or commercialization of the products
contemplated by the collaboration could be delayed or terminated.
If any of our collaboration agreements are terminated, or if we are
unable to renew those agreements on acceptable terms, we would be
required to seek alternatives. We may not be able to negotiate
additional collaborations on acceptable terms, if at all, and these
collaborations may not be successful.
Our success in the future depends in part on our ability to enter
into agreements with other leading cancer organizations. This can
be difficult due to internal and external constraints placed on
these organizations. Some organizations may limit the number of
collaborations they have with any one company so as to not be
perceived as biased or conflicted. Organizations may also have
insufficient administrative and related infrastructure to enable
collaborations with many companies at once, which can prolong the
time it takes to develop, negotiate and implement collaboration.
Additionally, organizations often insist on retaining the rights to
publish the clinical data resulting from the collaboration. The
publication of clinical data in peer-reviewed journals is a crucial
step in commercializing and obtaining reimbursement for products
such as ours, and our inability to control when, if ever, results
are published may delay or limit our ability to derive sufficient
revenue from any product that may result from a
collaboration.
From time to time we expect to engage in discussions with potential
clinical collaborators, which may or may not lead to
collaborations. However, we cannot guarantee that any discussions
will result in clinical collaborations or that any clinical
studies, which may result will be completed in a reasonable time
frame or with successful outcomes. If news of discussions regarding
possible collaborations become known in the medical community,
regardless of whether the news is accurate, failure to announce a
collaboration agreement or the entity’s announcement of a
collaboration with an entity other than us could result in adverse
speculation about us, our products or our technology, resulting in
harm to our reputation and our business.
Clinical utility studies are important in demonstrating to both
customers and payers a test’s clinical relevance and value.
If we are unable to identify collaborators willing to work with us
to conduct clinical utility studies, or the results of those
studies do not demonstrate that a product provides clinically
meaningful information and value, commercial adoption of such test
may be slow, which would negatively impact our
business.
Clinical utility studies show when and how to use a clinical test,
and describe the particular clinical situations or settings in
which it can be applied and the expected results. Clinical utility
studies also show the impact of the product results on patient care
and management. Clinical utility studies are typically performed
with collaborating oncologists or other physicians at medical
centers and hospitals, analogous to a clinical trial, and generally
result in peer-reviewed publications. Sales and marketing
representatives use these publications to demonstrate to customers
how to use a clinical test, as well as why they should use it.
These publications are also used with payers to obtain coverage for
a test, helping to assure there is appropriate reimbursement. We
anticipate commencing clinical utility studies for our prognostic
diagnostic tests following product launch. We will need to conduct
additional studies for our prognostic diagnostic tests, and other
tests we plan to introduce, to increase the market adoption and
obtain coverage and adequate reimbursement. Should we not be able
to perform these studies, or should their results not provide
clinically meaningful data and value for oncologists and other
physicians, adoption of our product could be impaired and we may
not be able to obtain coverage and adequate reimbursement for
them.
If our sole laboratory facility becomes inoperable, we will be
unable to perform our research and development and commercial
activities and our business will be harmed.
Our state-of-the-art research and development and commercial
laboratory facility located in Boston, Massachusetts received CLIA
certification and licensing from Massachusetts, California,
Florida, Pennsylvania and Rhode Island. We are seeking licensing
from other states including New York and Maryland, in order to
process samples from such states, however we cannot guarantee that
we will receive the necessary certifications and approvals in a
timely fashion. Delays in receiving the necessary state
certifications may delay commercialization efforts in these states
and may materially harm our business, financial condition and
results of operations.
The laboratory facility may be harmed or rendered inoperable by
natural or man-made disasters, including earthquakes, flooding,
fire and power outages, or loss of our commercial lease, which may
render it difficult or impossible for us to perform our testing
services for some period of time. The inability to perform our
research and development and/or commercial activities even for a
short period of time, may result in the loss of customers or harm
our reputation or relationships with scientific or clinical
collaborators, and we may be unable to regain those customers or
repair our reputation in the future. Although we possess
insurance for damage to our property and the disruption of our
business, this insurance may not be sufficient to cover all of our
potential losses and may not continue to be available to us on
acceptable terms, or at all.
In order to rely on a third party to perform our tests, we could
only use another facility with established CLIA certification and
state licensure under the scope of which our diagnostic tests could
be performed following validation and other required
procedures. We cannot assure you that we would be able to find
another CLIA-certified and state-licensed laboratory facility
willing to license, transfer or adopt our diagnostic tests and
comply with the required procedures, or that such partner or
laboratory would be willing to perform the tests for us on
commercially reasonable terms.
In order to establish a redundant laboratory facility, we would
have to spend considerable time and money securing adequate space,
constructing the facility, recruiting and training employees, and
establishing the additional operational and administrative
infrastructure necessary to support a second
facility. Additionally, any new clinical laboratory facility
opened by us would be subject to certification under
CLIA, licensing by several states, including New York,
California, Florida, Maryland, Pennsylvania and Rhode Island, which
can take a significant amount of time and result in delays in our
ability to begin operations.
We may experience limits on our revenue if oncologists and other
physicians decide not to order our prognostic diagnostic tests or
our future tests, we may be unable to generate sufficient revenue
to sustain our business.
If medical practitioners do not order our prognostic diagnostic
assays or any future tests developed by us, we will likely not be
able to create demand for our products in sufficient volume for us
to become profitable. To generate demand, we will need to
continue to make oncologists, surgeons, pathologists and other
health care professionals aware of the benefits, value and clinical
utility of our diagnostic tests and any products we may develop in
the future through published papers, presentations at scientific
conferences and one-on-one education by our sales force. We
need to hire or outsource commercial, scientific, technical and
other personnel to support this process. Some physicians may decide
not to order our test due to its price, part or all of which may be
payable directly by the patient if the applicable payer denies
reimbursement in full or in part. Even if patients recommend their
physicians use our diagnostic tests, physicians may still decide
not to order them, either because they have not been made aware of
their utility or they wish to pursue a particular course of
treatment and/or therapy regardless. If only a small portion
of the physician population decides to use our tests, we will
experience limits on our revenue and our ability to achieve
profitability. In addition, we will need to demonstrate our
ability to obtain adequate reimbursement coverage from third-party
payers.
We may experience limits on our revenue if patients decide not to
use our prognostic diagnostic tests.
Some patients may decide not to order our prognostic diagnostic
tests due to its price, part or all of which may be payable
directly by the patient if the applicable payer denies
reimbursement in full or in part. Even if medical
practitioners recommend that their patients use our test, patients
may still decide not to use our prognostic diagnostic tests, either
because they do not want to be made aware of the likelihood of
metastasis or they wish to pursue a particular course of therapy
regardless of test results. If only a small portion of the patient
population decides to use our test, we will experience limits on
our revenue and our ability to achieve profitability.
If we are unable to develop our product candidates to keep pace
with rapid technological, medical and scientific change, our
operating results and competitive position would be
harmed.
In recent years, there have been numerous advances in technologies
relating to the diagnosis, prognosis and treatment of
cancer. These advances require us to continuously develop new
products and enhance existing products to keep pace with evolving
standards of care. Several new cancer drugs have been
approved, and a number of new drugs in clinical development may
increase patient survival time. There have also been advances in
methods used to identify patients likely to benefit from these
drugs based on analysis of biomarkers. Our tests could become
obsolete unless we continually innovate and expand our products to
demonstrate benefit in the diagnosis, monitoring or prognosis of
patients with cancer. New treatment therapies typically have
only a few years of clinical data associated with them, which
limits our ability to develop cancer diagnostic tests based on for
example, biomarker analysis related to the appearance or
development of resistance to those therapies. If we cannot
adequately demonstrate the applicability of our current tests and
our planned tests to new treatments, by incorporating important
biomarker analysis, sales of our tests could decline, which would
have a material adverse effect on our business, financial condition
and results of operations.
If we become subject to product liability claims, the damages may
exceed insurance coverage levels.
We could be subject to product liability lawsuits based on the use
of our product candidates in clinical testing or, if obtained,
following marketing approval and commercialization. If product
liability lawsuits are brought against us, we may incur substantial
liabilities and may be required to cease clinical testing or limit
commercialization of our product candidates. We plan to obtain
liability insurance for our product candidates as each is entered
into clinical studies, large population validation studies and/or
any other studies where such liability insurance is
needed.
We cannot predict all of the possible harms or side effects that
may result from the use of our products and, therefore, the amount
of insurance coverage we currently hold, or that we or our
collaborators may obtain, may not be adequate to protect us from
any claims arising from the use of our products that are beyond the
limit of our insurance coverage. If we cannot protect against
potential liability claims, we or our collaborators may find it
difficult or impossible to commercialize our products, and we may
not be able to renew or increase our insurance coverage on
reasonable terms, if at all.
The marketing, sale and use of our products and our planned future
products could lead to the filing of product liability claims
against us if someone alleges that our products failed to perform
as designed. We may also be subject to liability for errors in the
test results we provide to physicians or for a misunderstanding of,
or inappropriate reliance upon, the information we provide. A
product liability or professional liability claim could result in
substantial damages and be costly and time-consuming for us to
defend.
Any product liability or professional liability claim brought
against us, with or without merit, could increase our insurance
rates or prevent us from securing insurance coverage. Additionally,
any product liability lawsuit could damage our reputation, result
in the recall of tests, or cause current partners to terminate
existing agreements and potential partners to seek other partners,
any of which could impact our results of operations.
Our dependence on commercialization partners for sales of our
prognostic diagnostic tests could limit our success in realizing
revenue growth.
We are seeking to monetize or commercialize through
the use of distribution and
commercialization partners for the sales, marketing and
distribution, billing, collection and reimbursement efforts, and to
do so we must enter into agreements with these partners to sell,
market or commercialize our tests. We may experience launch delays
as a result of the timing of clinical data, establishment of a
final product profile, and the lead time required to
execute commercialization agreements. These agreements may
contain exclusivity provisions and generally cannot be terminated
without cause during the term of the agreement. We may need to
attract additional partners to expand the markets in which we sell
tests. These partners may not commit the necessary resources to
market and sell our cancer diagnostics tests to the level of our
expectations, and we may be unable to locate suitable alternatives
should we terminate our agreement with such partners or if such
partners terminate their agreement with us. Any relationships we
form with commercialization partners are subject to change over
time. If current or future commercialization partners do not
perform adequately, or we are unable to locate commercialization
partners, we may not realize revenue growth.
If we are unable to develop adequate sales, marketing or
distribution capabilities or enter into agreements with third
parties to perform some of these functions, we will not be able to
commercialize our products effectively.
We likely will have a limited infrastructure in sales, marketing
and distribution. Initially, we are not planning to directly market
and distribute our products. We may not be able to enter into
sales, marketing and distribution capabilities of our own or enter
into such arrangements with third parties in a timely manner or on
acceptable terms.
Our sales force collaborator with marketing and distribution rights
to one or more of our products may not commit enough resources to
the marketing and distribution of our products, limiting our
potential revenue from the commercialization of these products.
Disputes may arise delaying or terminating the commercialization or
sales of our diagnostic tests that may result in significant legal
proceedings that may harm our business, limit our revenue and our
ability to achieve profitability.
We depend on third parties for the supply of tissue samples and
other biological materials that we use in our research and
development efforts. If the costs of such tissue samples and
materials increase or our third-party suppliers terminate their
relationship with us, our business may be materially
harmed.
We have relationships and plan to enter into new relationships with
suppliers and institutions that provide us with tissue samples,
tissue microarrays (TMA’s), and other biological materials
including antibodies that we use in developing and validating our
product candidates tests. If one or more suppliers terminate their
relationship with us or are unable to meet our requirements for
samples, we will need to identify other third parties to provide us
with samples and biological materials, which could result in a
delay in our research and development activities, clinical studies
and negatively affect our business. In addition, as we grow, our
research and academic institution collaborators may seek additional
financial contributions from us, which may negatively affect our
results of operations.
We rely on a limited number of suppliers or, in some cases, a sole
supplier, for some of our laboratory instruments and materials and
may not be able to find replacements in the event our supplier no
longer supplies that equipment.
We expect to rely on several vendors, including, but not limited to
Perkin Elmer, ThermoFisher Scientific and VisioPharm AS to supply
some of the laboratory equipment and software on which we perform
our diagnostic tests. We will periodically forecast our needs
for laboratory equipment and software and enter into standard
purchase orders or leasing arrangements based on these
forecasts. We believe that there are relatively few equipment
manufacturers that are currently capable of supplying the equipment
necessary for our prognostic diagnostics tests. Even if we
were to identify other suppliers, there can be no assurance that we
will be able to enter into agreements with such suppliers on a
timely basis on acceptable terms, if at all. If we should
encounter delays or difficulties in securing from key vendors the
quality and quantity of equipment and software we require for our
diagnostic tests, we may need to reconfigure our test process,
which would result in delays in commercialization or an
interruption in sales. If any of these events occur, our
business and operating results could be harmed. Additionally,
if key vendors including Perkin Elmer and other vendors deem us to
have become uncreditworthy, they have the right to require
alternative payment terms from us, including payment in
advance. We may also be required to indemnify key vendors
including Perkin Elmer and other vendors against any damages caused
by any legal action or proceeding brought by a third party against
such vendors for damages caused by our failure to obtain required
approval with any regulatory agency.
We may also rely on several sole suppliers for certain laboratory
materials such as reagents, which we use to perform our diagnostic
tests. Although we believe that we will be able to develop
alternate sourcing strategies for these materials, we cannot be
certain that these strategies will be effective. If we should
encounter delays or difficulties in securing these laboratory
materials, delays in commercialization or an interruption in sales
could occur.
We currently rely, and expect to continue to rely, on third-party
suppliers for critical materials needed to perform research and
development activities and our prognostic diagnostic tests and our
planned future products and any problems experienced by them could
result in a delay or interruption of their supply to
us.
We currently purchase raw materials, including Mabs for our
driver-based biomarkers and testing reagents under purchase orders
and do not have long-term commercial contracts with the suppliers
of these materials. If suppliers were to delay or stop producing
our materials or reagents, or if the prices they charge us were to
increase significantly, or if they elected not to sell to us, we
would need to identify other suppliers. We could experience delays
in our research and development efforts and delays in performing
our prognostic diagnostic tests while finding another acceptable
supplier, which could impact our results of operations. The changes
could also result in increased costs associated with qualifying the
new materials or reagents and in increased operating costs.
Further, any prolonged disruption in a supplier’s operations
could have a significant negative impact on our ability to perform
our prognostic diagnostic tests in a timely manner. Some of the
components used in our current or planned products are currently
sole-source, and substitutes for these components might not be able
to be obtained easily or may require substantial design or
manufacturing modifications. Any significant problem experienced by
one of our sole source suppliers may result in a delay or
interruption in the supply of components to us until that supplier
cures the problem or an alternative source of the component is
located and qualified. Any delay or interruption would likely lead
to a delay or interruption in our operations. The inclusion of
substitute components must meet our product specifications and
could require us to qualify the new supplier with the appropriate
government regulatory authorities.
Our success depends on retention of key personnel and the hiring of
additional key personnel. The loss of key members of our executive
management team could adversely affect our business.
We are dependent on our management team members, including Douglas
A. Hamilton, our president and chief executive officer. Our future
success also will depend in large part on our continued ability to
attract and retain other highly qualified personnel. We intend to
recruit and hire other senior executives, scientific, technical and
management personnel, as well as personnel with expertise in sales
and marketing including reimbursement, clinical testing, and
governmental regulation. Such a management transition subjects us
to a number of risks, including risks pertaining to coordination of
responsibilities and tasks, creation of new management systems and
processes, differences in management style, effects on corporate
culture, and the need for transfer of historical
knowledge.
In addition, Douglas A. Hamilton has not previously been the chief
executive officer of a public or private company. While he has had
experience as a chief financial officer, chief operating officer
and other executive level positions in public companies, a lack of
significant experience in being the chief executive officer of a
public company could have an adverse effect on our ability to
quickly respond to problems or effectively manage issues
surrounding the operation of a public company. Our success in
implementing our business strategy depends largely on the skills,
experience and performance of key members of our executive
management team and others in key management positions. The
collective efforts of our executive management and others working
with them as a team are critical to us as we continue to develop
our technologies, diagnostic tests, research and development
efforts and sales and marketing programs. As a result of the
difficulty in locating qualified new management, the loss or
incapacity of existing members of our executive management team
could adversely affect our operations. If we were to lose one or
more of our key employees, we could experience difficulties in
finding qualified successors, competing effectively, developing our
technologies and implementing our business strategy. We do not
maintain “key person” life insurance on any of our
employees.
In addition, we rely on collaborators, consultants and advisors,
including scientific and clinical advisors, to assist us in our
research and development and commercialization strategy. Our
collaborators, consultants and advisors are generally employed by
employers other than us and may have commitments under agreements
with other entities that may limit their availability to
us.
The loss of a key employee, the failure of a key employee to
perform in his or her current position or our inability to attract
and retain skilled employees could result in our inability to
continue to grow our business or to implement our business
strategy.
There is a scarcity of experienced professionals in our industry.
If we are not able to retain and recruit personnel with the
requisite technical skills, we may be unable to successfully
execute our business strategy.
The specialized nature of our industry results in an inherent
scarcity of experienced personnel in the field. Our future success
depends upon our ability to attract and retain highly skilled
personnel, including scientific, technical, commercial, business,
regulatory and administrative personnel, necessary to support our
anticipated growth, develop our business and perform certain
contractual obligations. Given the scarcity of professionals with
the scientific knowledge that we require and the competition for
qualified personnel among life science businesses, we may not
succeed in attracting or retaining the personnel we require to
continue and grow our operations.
Our operations may involve hazardous materials, and compliance with
environmental laws and regulations is expensive.
Our future research and development and commercial activities may
involve the controlled use of hazardous materials, including
chemicals that cause cancer, volatile solvents, radioactive
materials and biological materials including human tissue samples
that have the potential to transmit diseases. Our operations
may also produce hazardous waste products. We are subject to a
variety of federal, state and local regulations relating to the
use, handling and disposal of these materials. We generally
may contract with third parties for the disposal of such substances
and may store certain low level radioactive waste at our facility
until the materials are no longer considered
radioactive. While we believe that we will comply with then
current regulatory requirements, we cannot eliminate the risk of
accidental contamination or injury from these materials. We
may be required to incur substantial costs to comply with current
or future environmental and safety regulations. If an accident
or contamination occurred, we would likely incur significant costs
associated with civil penalties or criminal fines and in complying
with environmental laws and regulations.
If we use biological and hazardous materials in a manner that
causes injury, we could be liable for damages.
Our activities may require the controlled use of potentially
harmful biological materials, hazardous materials and chemicals and
may in the future require the use of radioactive compounds. We
cannot eliminate the risk of accidental contamination or injury to
employees or third parties from the use, storage, handling or
disposal of these materials. In the event of contamination or
injury, we could be held liable for any resulting damages, and any
liability could exceed our resources or any applicable insurance
coverage we may have. Additionally, we are subject on an
ongoing basis to federal, state and local laws and regulations
governing the use, storage, handling and disposal of these
materials and specified waste products. The cost of compliance
with these laws and regulations might be significant and could
negatively affect our operating results. In the event of an
accident or if we otherwise fail to comply with applicable
regulations, we could lose our permits or approvals or be held
liable for damages or penalized with fines.
Security breaches, loss of data and other disruptions could
compromise sensitive information related to our business or prevent
us from accessing critical information and expose us to liability,
which could adversely affect our business and our
reputation.
We expect to along with certain third party vendors that we
contract with to collect and store sensitive data, including
legally protected health information, credit card information,
personally identifiable information about our employees, customers
and patients, intellectual property, and our proprietary business
information and that of our customers, payers and collaboration
partners. We expect to manage and maintain our
applications and data utilizing a combination of on-site systems,
managed data center systems and cloud-based data center systems.
These applications and data encompass a wide variety of
business-critical information including research and development
information, commercial information and business and financial
information. We face four primary risks relative to protecting this
critical information, including loss of access risk, inappropriate
disclosure risk and inappropriate modification risk combined with
the risk of our being able to identify and audit our controls over
the first three risks.
The secure processing, storage, maintenance and transmission of
this critical information will be vital to our operations and
business strategy. As such we plan to devote significant resources
to protecting such information. Although we plan to take measures
to protect sensitive information from unauthorized access or
disclosure, our information technology and infrastructure, and that
of our third-party vendors, may be vulnerable to attacks by hackers
or viruses or breached due to employee error, malfeasance or other
disruptions. Any such breach or interruption could compromise our
networks and the information stored there could be accessed by
unauthorized parties, publicly disclosed, lost or stolen. Any such
access, disclosure or other loss of information could result in
legal claims or proceedings, liability under laws that protect the
privacy of personal information, such as the Health Insurance
Portability and Accountability Act of 1996, and regulatory
penalties. Unauthorized access, loss or dissemination could also
disrupt our operations, including our ability to process tests,
provide test results, bill payers or patients, process claims and
appeals, provide customer assistance services, conduct research and
development activities, collect, process and prepare company
financial information, provide information about our tests and
other patient and physician education and outreach efforts through
our website, manage the administrative aspects of our business and
damage our reputation, any of which could adversely affect our
business.
In addition, the interpretation and application of consumer,
health-related and data protection laws in the U.S., Europe and
elsewhere are often uncertain, contradictory and in flux. It is
possible that these laws may be interpreted and applied in a manner
that is inconsistent with our practices. If so, this could result
in government imposed fines or orders requiring that we change our
practices, which could adversely affect our business. Complying
with these various laws could cause us to incur substantial costs
or require us to change our business practices and compliance
procedures in a manner adverse to our business.
We depend on our information technology and telecommunications
systems, and any failure of these systems could harm our
business.
We depend on information technology or IT, and telecommunications
systems for significant aspects of our operations. In addition, we
expect to outsource aspects of our billing and collections to a
third-party provider, whom maybe dependent upon telecommunications
and data systems provided by outside vendors and information we
provide on a regular basis. These information technology and
telecommunications systems will support a variety of functions,
including test processing, sample tracking, quality control,
customer service and support, billing and reimbursement, research
and development activities and our general and administrative
activities. Information technology and telecommunications systems
are vulnerable to damage from a variety of sources, including
telecommunications or network failures, malicious human acts and
natural disasters. Moreover, despite network security and back-up
measures we plan to implement, some or all of our servers are
potentially vulnerable to physical or electronic break-ins,
computer viruses and similar disruptive problems. Despite the
precautionary measures we plan on taking to prevent unanticipated
problems that could affect our information technology and
telecommunications systems, failures or significant downtime of our
information technology or telecommunications systems or those used
by our third-party service providers could prevent us from
processing tests, providing test results to oncologists,
pathologists, billing payers, processing reimbursement appeals,
handling patient or physician inquiries, conducting research and
development activities and managing the administrative aspects of
our business. Any disruption or loss of information technology or
telecommunications systems on which critical aspects of our
operations depend could have an adverse effect on our
business.
We may acquire other businesses or form joint ventures or make
investments in other companies or technologies that could harm our
operating results, dilute our stockholders’ ownership,
increase our debt or cause us to incur significant
expense.
As part of our business strategy, we may pursue acquisitions of
businesses and assets. We also may pursue strategic alliances and
joint ventures that leverage our core Rx/Dx technology and
expertise to expand our offerings or distribution. We have minimal
experience with acquiring and integrating other companies or assets
and limited experience with forming strategic alliances and joint
ventures. We may not be able to find suitable partners or
acquisition candidates, and we may not be able to complete such
transactions on favorable terms, if at all. If we make any
acquisitions, we may not be able to integrate these acquisitions
successfully into our existing business, and we could assume
unknown or contingent liabilities. Any future acquisitions also
could result in significant write-offs or the incurrence of debt
and contingent liabilities, any of which could have a material
adverse effect on our financial condition, results of operations
and cash flows. Integration of an acquired company also may disrupt
ongoing operations and require management resources that would
otherwise focus on developing our existing business. We may
experience losses related to investments in other companies, which
could have a material negative effect on our results of operations.
We may not identify or complete these transactions in a timely
manner, on a cost-effective basis, or at all, and we may not
realize the anticipated benefits of any acquisition, technology
license, strategic alliance or joint venture.
To finance any acquisitions or joint ventures, we may choose to
issue shares of our common stock or securities convertible into
shares of our common stock as consideration, which would dilute the
ownership of our stockholders. If the price of our common stock is
low or volatile, we may not be able to acquire other companies or
fund a joint venture project using our stock as consideration.
Alternatively, it may be necessary for us to raise additional funds
for acquisitions through public or private financings. Additional
funds may not be available on terms that are favorable to us, or at
all.
We may not be able to support demand for our diagnostic
tests
or future
tests. We may have difficulties managing the evolution of our
technology and manufacturing platforms, which could cause our
business to suffer.
We anticipate that our diagnostic tests may will be well received
by the marketplace, and demand will increase as market acceptance
grows. As expected test volumes grow, we will need to increase our
testing capacity, increase our scale and related processing,
customer service, billing, collection and systems process
improvements and expand our internal quality assurance program and
technology to support testing on a larger scale. We will also need
additional clinical laboratory scientists, pathologists and other
scientific and technical personnel to process these additional
tests. Any increases in scale, related improvements and quality
assurance may not be successfully implemented and appropriate
personnel may not be available. We will also need to add capacity
to our information technology infrastructure, which may be costly.
As diagnostic tests for additional cancer indications are
commercialized, we may need to bring new equipment on line,
implement new systems, technology, controls and procedures and hire
personnel with different qualifications. Failure to implement
necessary procedures or to hire the necessary personnel could
result in a higher cost of processing or an inability to meet
market demand. We cannot assure you that we will be able to perform
tests on a timely basis at a level consistent with demand, that our
efforts to scale our commercial operations will not negatively
affect the quality of our test results or that we will respond
successfully to the growing complexity of our testing operations.
If we encounter difficulty meeting market demand or quality
standards for our current tests and our planned future tests, our
reputation could be harmed and our future prospects and business
could suffer, which may have a material adverse effect on our
financial condition, results of operations and cash
flows.
Declining general economic or business conditions may have a
negative impact on our business.
Continuing concerns over United States health care reform
legislation and energy costs, geopolitical issues, the availability
and cost of credit and government stimulus programs in the United
States and other countries have contributed to increased volatility
and diminished expectations for the global economy. These factors,
combined with low business and consumer confidence and high
unemployment, precipitated an economic slowdown and recession. If
the economic climate does not improve, or it deteriorates, our
business, including our access to patient samples and the
addressable market for diagnostic tests that we may successfully
develop, as well as the financial condition of our suppliers and
our third-party payers, could be adversely affected, resulting in a
negative impact on our business, financial condition and results of
operations.
International expansion of our business exposes us to business,
regulatory, political, operational, financial and economic risks
associated with doing business outside of the United
States.
Our business strategy contemplates potential international
expansion, including partnering with academic and commercial
testing partners for research and development and clinical studies,
and commercializing our diagnostic tests outside the United States
and expanding relationships with international payers and
distributors. Doing business internationally involves a number of
risks, including:
●
multiple, conflicting and changing laws and regulations such as tax
laws, export and import restrictions, employment laws, regulatory
requirements and other governmental approvals, permits and
licenses;
●
competition from local and regional product offerings;
●
failure by us or our distributors to obtain regulatory approvals
for the use of our tests in various countries;
●
difficulties in staffing and managing foreign
operations;
●
complexities associated with managing multiple payer reimbursement
regimes, government payers or patient self-pay
systems;
●
logistics and regulations associated with shipping tissue samples,
including infrastructure conditions and transportation
delays;
●
limits in our ability to penetrate international markets if we are
not able to process tests locally;
●
lack of intellectual property protection in certain
markets;
●
financial risks, such as longer payment cycles, difficulty
collecting accounts receivable, the impact of local and regional
financial crises on demand and payment for our tests and exposure
to foreign currency exchange rate fluctuations;
●
natural disasters, political and economic instability, including
wars, terrorism, and political unrest, outbreak of disease,
boycotts, curtailment of trade and other business restrictions;
and
●
regulatory and compliance risks that relate to maintaining accurate
information and control over the activities of our sales force and
distributors that may fall within the purview of the FCPA, its
books and records provisions or its anti-bribery
provisions.
Any of these factors could significantly harm our future
international expansion and operations and, consequently, our
revenue and results of operations.
If we cannot compete successfully with our competitors, we may be
unable to generate, increase or sustain revenue or achieve and
sustain profitability.
We believe our principal competition for our prognostic
diagnostic assays will come from existing diagnostic methods
used by pathologists and oncologists. These methods have been used
for many years and are therefore difficult to change or supplement.
In addition, companies offering capital equipment and kits or
reagents to local pathology laboratories represent another source
of potential competition. These kits are used directly by the
pathologist, which potentially facilitates adoption more readily
than tests like ours that are performed outside the pathology
laboratory.
We also face competition from companies that offer products or have
conducted research to profile genes, gene expression or protein
expression in breast, lung, prostate and colorectal cancer,
including public companies such as Genomic Health Inc., Agendia
Inc., GE Healthcare, a business unit of General Electric Company,
Hologic Inc., Myriad Genetics Inc., NanoString Technologies Inc.,
Novartis AG, Qiagen N.V., and Response Genetics Inc., and many
other public and private companies. We also face competition from
commercial laboratories with strong distribution networks for
diagnostic tests, such as Laboratory Corporation of America
Holdings and Quest Diagnostics Incorporated. We may also face
competition from Illumina Inc. and Thermo Fisher Scientific Inc.,
both of which have announced their intention to enter the clinical
diagnostics market. Other potential competitors include companies
that develop diagnostic tests such as Roche Diagnostics, a division
of Roche Holding Ltd., Siemens AG and Veridex LLC, a Johnson &
Johnson company, as well as other companies and academic and
research institutions.
Others may invent and commercialize technology platforms such as
next generation sequencing approaches that will compete with our
test. Projects related to cancer genomics have received government
funding, both in the United States and internationally. As more
information regarding cancer genomics becomes available to the
public, we anticipate that more products aimed at identifying
targeted treatment options will be developed and that these
products may compete with ours. In addition, competitors may
develop their own versions of our tests in countries where we did
not apply for patents, where our patents have not been issued or
where our intellectual property rights are not recognized and
compete with us in those countries, including encouraging the use
of their test by physicians or patients in other
countries.
The list price of our test may change as well as the list price of
our competitor’s products. Any increase or decrease in
pricing could impact reimbursement of and demand for our tests.
Many of our present and potential competitors have widespread brand
recognition and substantially greater financial and technical
resources and development, production and marketing capabilities
than we do. Others may develop lower
-
priced tests that could be viewed by physicians
and payers as functionally equivalent to our tests, or offer tests
at prices designed to promote market penetration, which could force
us to lower the list prices of our tests and impact our operating
margins and our ability to achieve sustained profitability. Some
competitors have developed tests cleared for marketing by the FDA.
There may be a marketing differentiation or perception that an
FDA
-
cleared test is more desirable than our
diagnostic test, and that may discourage adoption of and
reimbursement for our diagnostic test. If we are unable to
compete successfully against current or future competitors, we may
be unable to increase market acceptance for and sales of our tests,
which could prevent us from increasing or sustaining our revenue or
achieving sustained profitability and could cause the market price
of our common stock to decline.
Regulatory Risks Relating to Our Business
Healthcare policy changes, including recently enacted legislation
reforming the U.S. healthcare system, may have a material adverse
effect on our financial condition and results of
operations.
There have been, and may continue to be, legislative and regulatory
proposals at the federal and state levels and in foreign
jurisdictions directed at broadening the availability and
containing or lowering the cost of healthcare. The continuing
efforts of the government, insurance companies, managed care
organizations and other payers to contain or reduce costs of
healthcare may adversely affect our ability to set prices for our
products that would allow us to achieve or sustain profitability.
In addition, governments may impose price controls on any of our
product candidates that obtain marketing approval, which may
adversely affect our future profitability.
In the United States, there have been and continue to be a number
of legislative initiatives to contain healthcare costs. For
example, in March 2010, the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation
Act, or the Affordable Care Act, was passed, which substantially
changed the way health care is financed by both governmental and
private insurers, and significantly impacted the U.S.
pharmaceutical industry. The Affordable Care Act, among other
things, increased the minimum Medicaid rebates owed by
manufacturers under the Medicaid Drug Rebate Program and extended
the rebate program to individuals enrolled in Medicaid managed care
organizations, established annual fees and taxes on manufacturers
of certain branded prescription drugs, and established a new
Medicare Part D coverage gap discount program, in which
manufacturers must agree to offer 50% point-of-sale discounts off
negotiated prices of applicable brand drugs to eligible
beneficiaries during their coverage gap period, as a condition for
the manufacturer’s outpatient drugs to be covered under
Medicare Part D.
We expect that the new presidential administration and U.S.
Congress will seek to modify, repeal, or otherwise invalidate all,
or certain provisions of, the Affordable Care Act. Since taking
office, President Trump has continued to support the repeal of all
or portions of the Affordable Care Act. In January 2017, the House
and Senate passed a budget resolution that authorizes congressional
committees to draft legislation to repeal all or portions of the
Affordable Care Act and permits such legislation to pass with a
majority vote in the Senate. In May 2017, the House passed
legislation to repeal and replace the Affordable Care Act, which
will proceed to the Senate for vote. President Trump has also
recently issued an executive order in which he stated that it is
his administration’s policy to seek the prompt repeal of the
Affordable Care Act and directed executive departments and federal
agencies to waive, defer, grant exemptions from, or delay the
implementation of the provisions of the Affordable Care Act to the
maximum extent permitted by law. There is still uncertainty with
respect to the impact President Trump’s administration and
the U.S. Congress may have, if any, and any changes will likely
take time to unfold, and could have an impact on coverage and
reimbursement for healthcare items and services covered by plans
that were authorized by the Affordable Care Act. However, we cannot
predict the ultimate content, timing or effect of any healthcare
reform legislation or the impact of potential legislation on
us.
In addition, other legislative changes have been proposed and
adopted in the United States since the Affordable Care Act was
enacted. These changes include aggregate reductions of Medicare
payments to providers of 2% per fiscal year, which went into effect
on April 1, 2013 and, due to subsequent legislative amendments to
the statute, will remain in effect through 2025 unless additional
Congressional action is taken. On January 2, 2013, the American
Taxpayer Relief Act of 2012 was signed into law, which, among other
things, further reduced Medicare payments to several types of
providers, including hospitals, imaging centers and cancer
treatment centers, and increased the statute of limitations period
for the government to recover overpayments to providers from three
to five years. Recently there has also been heightened governmental
scrutiny over the manner in which manufacturers set prices for
their marketed products, which has resulted in several
Congressional inquiries and proposed bills 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.
Moreover, payment methodologies, including payment for companion
diagnostics, may be subject to changes in healthcare legislation
and regulatory initiatives. For example, CMS began bundling the
Medicare payments for certain laboratory tests ordered while a
patient received services in a hospital outpatient setting.
Additionally, on April 1, 2014, the Protecting Access to Medicare
Act of 2014, or PAMA, was signed into law, which, among other
things, significantly alters the current payment methodology under
the CLFS. Under the new law, starting January 1, 2017 and every
three years thereafter (or annually in the case of advanced
diagnostic lab tests), clinical laboratories must report laboratory
test payment data for each Medicare-covered clinical diagnostic lab
test that it furnishes during a time period to be defined by future
regulations. The reported data must include the payment rate
(reflecting all discounts, rebates, coupons and other price
concessions) and the volume of each test that was paid by each
private payer (including health insurance issuers, group health
plans, Medicare Advantage plans and Medicaid managed care
organizations). Beginning in 2018, the Medicare payment rate for
each clinical diagnostic lab test, with some exceptions, will be
equal to the weighted median private payer payment for the test, as
calculated using data collected by applicable laboratories during
the data collection period and reported to CMS during a specified
data reporting period. Also under PAMA, CMS is required to adopt
temporary billing codes to identify new clinical diagnostic
laboratory tests and advanced diagnostic laboratory tests that do
not already have unique diagnostic codes, and that have been
cleared or approved by the FDA.
We expect that additional state and federal healthcare reform
measures will be adopted in the future, any of which could limit
the amounts that federal and state governments will pay for
healthcare products and services, which could result in reduced
demand for our therapeutic and diagnostic products or additional
pricing pressures.
If the FDA were to
begin regulating our prognostic diagnostic tests, including
the
MetaSite
Breast
™
and MenaCalc
TM
tests,
we could experience significant delays in commercializing our
prognostic diagnostics, be forced to stop our sales, experience
significant delays in commercializing any future products, incur
substantial costs and time delays associated with meeting
requirements for pre-market clearance or approval as well as
experience decreased demand for our prognostic diagnostic tests and
demand for reimbursement of our prognostic diagnostic
tests.
Clinical laboratory tests, like our prognostic diagnostic tests
including the MetaSite
Breast
™ and MenaCalc
TM
assays, are regulated under the
Clinical Laboratory Improvement Amendments of 1988, or CLIA, as
administered through the CMS, as well as by applicable state
laws. Diagnostic kits that are sold and distributed through
interstate commerce are regulated as medical devices by
FDA. Clinical laboratory tests that are developed and
validated by a laboratory for its own use are called Laboratory
Development Tests, or “LDTs". Most LDTs currently are
not subject to FDA regulation, although reagents or software
provided by third parties and used to perform LDTs may be subject
to regulation. We believe that our prognostic diagnostic tests
are not a diagnostic kit and we also believe that they are
LDTs. As a result, we believe our prognostic diagnostic tests
should not be subject to regulation under established FDA
policies.
A
t
various times since 2006, the FDA has issued guidance documents or
announced draft guidance regarding initiatives that may require
varying levels of FDA oversight of our tests. In October 2014,
the FDA issued draft guidance that sets forth a proposed risk-based
regulatory framework that would apply varying levels of FDA
oversight to LDTs. On November 18, 2016, the FDA announced that it
would not finalize the draft guidance documents for LDTs prior to
the end of the Obama administration. The decision of whether and
how to proceed with the draft guidance will be left to the new
administration, which began on January 20, 2017. In January 2017,
the FDA released a discussion paper synthesizing public comments on
the 2014 draft guidance documents and outlining a possible approach
to regulation of LDTs. The discussion paper has no legal status and
does not represent a final version of the LDT draft guidance
documents. It is unclear at this time if or when the draft guidance
will be finalized, and even then, the new regulatory requirements
are proposed to be phased-in consistent with the schedule set forth
in the guidance. If this draft guidance is finalized as presently
written, it includes an oversight framework that would require
pre-market review for high and moderate risk LDTs
Legislative proposals addressing oversight of genetic testing and
LDTs have been introduced in previous Congresses and we expect that
new legislative proposals will be introduced from time to time in
the future. We cannot provide any assurance that FDA regulation,
including pre-market review, will not be required in the future for
our tests, whether through finalization of guidance issued by the
FDA, new enforcement policies adopted by the FDA or new legislation
enacted by Congress. It is possible that legislation will be
enacted into law or guidance could be issued by the FDA which may
result in increased regulatory burdens for us to continue to offer
our tests or to develop and introduce new tests. If pre-market
review is required, our business could be negatively impacted until
such review is completed and clearance or approval is obtained, and
the FDA could require that we stop selling our tests pending
pre-market clearance or approval. If our tests are allowed to
remain on the market but there is uncertainty about the regulatory
status of our tests, if they are labeled investigational by the
FDA, or if labeling claims the FDA allows us to make are more
limited than the claims we currently make, orders or reimbursement
may decline. The regulatory approval process may involve, among
other things, successfully completing additional clinical studies
and submitting a pre-market clearance notice or filing a pre-market
approval application with the FDA. If pre-market review is required
by the FDA, there can be no assurance that our tests will be
cleared or approved on a timely basis, if at all. Ongoing
compliance with FDA regulations would increase the cost of
conducting our business, and subject us to inspection by and the
regulatory requirements of the FDA, for example registration and
listing and medical device reporting, and penalties for failure to
comply with these requirements. We may also decide voluntarily to
pursue FDA pre-market review of our tests if we determine that
doing so would be appropriate.
We cannot predict the ultimate timing or form of final FDA guidance
or regulations addressing LDTs and the potential impact on our
diagnostic tests, our diagnostic tests in development or the
materials used to perform our tests. While we expect to qualify all
materials used in our tests according to CLIA regulations, we
cannot be certain that the FDA will not enact rules or
guidance documents which could impact our ability to purchase
certain materials necessary for the performance of our tests, such
as products labeled for research use only. Should any of the
reagents obtained by us from suppliers and used in conducting our
tests be affected by future regulatory actions, our business could
be adversely affected by those actions, including increasing the
cost of testing or delaying, limiting or prohibiting the purchase
of reagents necessary to perform testing.
Testing of potential products may be required and there is no
assurance of FDA or any other regulatory approval.
The FDA and comparable agencies in foreign countries impose
substantial requirements upon the introduction of both therapeutic
and diagnostic biomedical products, through lengthy and detailed
laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures. Satisfaction of
these requirements typically takes several years or more and varies
substantially based upon the type, complexity, and novelty of the
product. The effect of government regulation and the need for FDA
approval may be to delay marketing of new products for a
considerable period of time, to impose costly procedures upon our
activities, and to provide an advantage to larger companies that
compete with us. There can be no assurance that FDA or other
regulatory approval for any products developed by us will be
granted on a timely basis or at all. Any such delay in obtaining,
or failure to obtain, such approvals would materially and adversely
affect the marketing of any contemplated products and the ability
to earn product revenue. Further, regulation of manufacturing
facilities by state, local, and other authorities is subject to
change. Any additional regulation could result in limitations or
restrictions on our ability to
utilize any of our technologies, thereby adversely affecting our
operations. Human diagnostic and pharmaceutical products are
subject to rigorous preclinical testing and clinical studies and
other approval procedures mandated by the FDA and foreign
regulatory authorities. Various federal and foreign statutes and
regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of pharmaceutical
products. The process of obtaining these approvals and the
subsequent compliance with appropriate United States and foreign
statutes and regulations are time-consuming and require the
expenditure of substantial resources. In addition, these
requirements and processes vary widely from country to country.
Among the uncertainties and risks of the FDA approval process are
the following: (i) the possibility that studies and clinical
studies will fail to prove the safety and efficacy of the product,
or that any demonstrated efficacy will be so limited as to
significantly reduce or altogether eliminate the acceptability of
the product in the marketplace, (ii) the possibility that the costs
of development, which can far exceed the best of estimates, may
render commercialization of the drug marginally profitable or
altogether unprofitable, and (iii) the possibility that the amount
of time required for FDA approval of a product may extend for years
beyond that which is originally estimated. In addition, the FDA or
similar foreign regulatory authorities may require additional
clinical studies, which could result in increased costs and
significant development delays. Delays or rejections may also be
encountered based upon changes in FDA policy and the establishment
of additional regulations during the period of product development
and FDA review. Similar delays or rejections may be encountered in
other countries.
If we were required to conduct additional clinical studies prior to
marketing our prognostic diagnostic tests, those studies could lead
to delays or failure to obtain necessary regulatory approvals and
harm our ability to become profitable.
If the FDA decides to regulate our prognostic diagnostic tests, it
may require additional pre-market clinical testing before clearing
or approving our prognostic diagnostic tests for commercial sales.
Such pre-market clinical testing could delay the commencement or
completion of clinical testing, significantly increase our test
development costs, delay commercialization of any future tests, and
potentially interrupt sales of our tests. Although, we plan on
performing our future clinical studies at such FDA standards, there
is no assurance that such clinical studies will meet certain FDA
standards. Many of the factors that may cause or lead to a delay in
the commencement or completion of clinical studies may also
ultimately lead to delay or denial of regulatory clearance or
approval. The commencement of clinical studies may be delayed due
to access to adequate tissue samples and corresponding clinical
data, insufficient patient enrollment, which is a function of many
factors, including the size of the patient population, the nature
of the protocol, the proximity of patients to clinical sites and
the eligibility criteria for the clinical trial. Moreover, the
clinical trial process may fail to demonstrate that our breast
cancer tests and our planned future tests are effective for the
proposed indicated uses, which could cause us to abandon a test
candidate and may delay development of other tests.
We may find it necessary to engage CROs to perform data collection
and analysis and other aspects of our clinical studies, which might
increase the cost and complexity of our studies. We may also depend
on clinical investigators, medical institutions, academic
institutions and contract research organizations to perform the
studies. If these parties do not successfully carry out their
contractual duties or obligations or meet expected deadlines, or if
the quality, completeness or accuracy of the clinical data they
obtain is compromised due to the failure to adhere to our clinical
protocols or for other reasons, our clinical studies may have to be
extended, delayed, repeated or terminated. Many of these factors
would be beyond our control. We may not be able to enter into
replacement arrangements without undue delays or considerable
expenditures. If there are delays in testing or approvals as a
result of the failure to perform by third parties, our research and
development costs would increase, and we may not be able to obtain
regulatory clearance or approval for our tests. In addition, we may
not be able to establish or maintain relationships with these
parties on favorable terms, if at all. Each of these outcomes would
harm our ability to market our tests, or to achieve sustained
profitability.
Complying with numerous regulations pertaining to our business is
an expensive and time-consuming process, and any failure to comply
could result in substantial penalties.
We believe our prognostic diagnostic tests are subject to CLIA, a
federal law that regulates clinical laboratories that perform
testing on specimens derived from humans for the purpose of
providing information for the diagnosis, prevention or treatment of
disease. CLIA is intended to ensure the quality and
reliability of clinical laboratories in the United States by
mandating specific standards in the areas of personnel
qualifications, administration, and participation in proficiency
testing, patient test management, quality control, quality
assurance and inspections. Effective October 2015, we received
a certificate of accreditation under CLIA to perform testing of our
prognostic diagnostic tests for breast cancer. In order to
renew the certificate of accreditation, we will be subject to
survey and inspection every two years. Moreover, CLIA
inspectors may make random inspections of our laboratory outside of
the renewal process. The failure to comply with CLIA requirements
can result in enforcement actions, including the revocation,
suspension, or limitation of our CLIA certificate of accreditation,
as well as a directed plan of correction, state on-site monitoring,
civil money penalties, civil injunctive suit and/or criminal
penalties. We must maintain CLIA compliance and certification to be
eligible to bill for tests provided to Medicare beneficiaries. If
we were to be found out of compliance with CLIA program
requirements and subjected to sanctions, our business and
reputation could be harmed. Even if it were possible for us to
bring our laboratory back into compliance, we could incur
significant expenses and potentially lose revenue in doing so.
Additionally, we will seek to have our laboratory accredited by the
College of American Pathologists, or CAP, one of six CLIA-approved
accreditation organizations.
In addition, our laboratory is located in Boston, Massachusetts and
is required by state law to have a Massachusetts state license; as
we expand our geographic focus, we may need to obtain laboratory
licenses from additional states.
In addition, we need to have licenses from other states including
the states of California, New York, Pennsylvania, Florida, Maryland
and Rhode Island among others to test specimens from patients in
those states or received from ordering physicians in those states.
Other states may have similar requirements or may adopt similar
requirements in the future. Finally, we may be subject to
regulation in foreign jurisdictions if we seek to expand
international distribution of our tests outside the United
States.
If we were to lose our CLIA certification or appropriate state
license(s), whether as a result of a revocation, suspension or
limitation, we would no longer be able to sell our prognostic
diagnostic tests, or other diagnostic tests, which would
significantly harm our business. If we were to lose our license in
other states where we are required to hold licenses, we would not
be able to test specimens from those states.
We are subject, directly or indirectly, to federal and state
healthcare fraud and abuse laws, false claims laws, physician
payments transparency and health information privacy and security
laws. If we are unable to comply with any such laws, we could face
substantial penalties.
We are subject to various federal and state fraud and abuse laws,
including, without limitation, anti-kickback and false claims
statutes. Including, but not limited to:
●
Medicare billing and payment regulations applicable to clinical
laboratories;
●
the federal Medicare and Medicaid Anti-kickback Law and state
anti-kickback prohibitions;
●
the federal physician self-referral prohibition, commonly known as
the Stark Law, and the state equivalents;
●
the federal Health Insurance Portability and Accountability Act of
1996;
●
the Medicare civil money penalty and exclusion requirements;
and
●
the federal civil and criminal False Claims Act.
We have and will continue to adopt policies and procedures designed
to comply with these laws, including policies and procedures
relating to financial arrangements between us and physicians who
refer patients to us. In the ordinary course of our business,
we conduct internal reviews of our compliance with these
laws. Our compliance is also subject to governmental
review. The growth of our business and sales organization may
increase the potential of violating these laws or our internal
policies and procedures. The risk of our being found in
violation of these laws and regulations is further increased by the
fact that many of them have not been fully interpreted by the
regulatory authorities or the courts, and their provisions are open
to a variety of interpretations. Any action brought against us
for violation of these laws or regulations, even if we successfully
defend against it, could cause us to incur significant legal
expenses and divert our management’s attention from the
operation of our business. If our operations are found to be
in violation of any of these laws and regulations, we may be
subject to any applicable penalty associated with the violation,
including civil and criminal penalties, damages and fines, we could
be required to refund payments received by us, and we could be
required to curtail or cease our operations. Any of the
foregoing consequences could seriously harm our business and our
financial results.
Our corporate compliance program cannot guarantee that we are in
compliance with all potentially applicable
regulations.
The development, manufacturing, pricing, sales, and reimbursement
of our products, together with our general operations, are subject
to extensive regulation by federal, state and other authorities
within the United States and numerous entities outside of the
United States. While we have developed, and instituted a
corporate compliance program based on what we believe are the
current best practices, we cannot assure you that we are or will be
in compliance with all potentially applicable regulations. If
we fail to comply with any of these regulations, we could be
subject to a range of regulatory actions, including suspension or
termination of clinical studies, the failure to approve a product
candidate, restrictions on our products or manufacturing processes,
withdrawal of products from the market, significant fines, or other
sanctions or litigation.
Risks Relating to our Intellectual Property
If we are unable to protect our intellectual property, we may not
be able to compete effectively.
We rely upon a combination of patents, patent applications, trade
secret protection, and confidentiality agreements to protect the
intellectual property related to our technologies, products and
services. Our success will depend in part on our ability to obtain
or license patents and enforce patent protection of our products
and licensed technologies, as well as the ability of the Licensors
to enforce patent protection covering the patents which we license
pursuant to the License Agreement, Second License Agreement, the
Alternative Splicing License Agreements, and the Antibody License
Agreement or other such license agreements we may enter into both
in the United States and other countries to prevent our competitors
from developing, manufacturing and marketing products based on our
technology.
The patent positions of biotechnology and molecular diagnostic
companies, such as us, are generally uncertain and involve complex
legal and factual questions. We will be able to protect our
intellectual property rights from unauthorized use by third parties
only to the extent that our licensed technologies are covered by
any valid and enforceable patents or are effectively maintained as
trade secrets. We could incur substantial costs in seeking
enforcement of any eventual patent rights against infringement, and
we cannot guarantee that patents that we obtain or in-license will
successfully preclude others from using technology that we rely
upon. We have applied and intend to apply for patents in the
United States and other countries covering our technologies and
products as and when we deem appropriate. However, these
applications may be challenged or may fail to result in issued
patents. We cannot predict the breadth of claims that maybe
allowed and issued in patents related to biotechnology
applications. The laws of some foreign countries do not
protect intellectual property rights to the same extent as the laws
of the United States, and many companies have encountered
significant problems in protecting and defending such rights in
foreign jurisdictions. For example, methods of treating humans
are not patentable in many countries outside of the United
States.
The coverage claimed in a patent application can be significantly
narrowed before a patent is issued, both in the United States and
other countries. We do not know whether any of the pending or
future patent applications will result in the issuance of
patents. Any patents we or the Licensors obtain may not be
sufficiently broad to prevent others from using our technologies or
from developing competing therapeutic products based on our
technology or proprietary therapies. Once any such patents
have issued, we cannot predict how the claims will be construed or
enforced. Furthermore, others may independently develop
similar or alternative technologies or design around our
patents.
To the extent patents have been issued or may be issued, we do not
know whether these patents will be subject to further proceedings
that may limit their scope, provide significant proprietary
protection or competitive advantage, or cause them to be
circumvented or invalidated. Furthermore, patents that have or
may issue on our or the Licensors patent applications may become
subject to dispute, including interference, reissue or
reexamination proceedings in the United States, or opposition
proceedings in foreign countries. Any of these proceedings
could result in the limitation or loss of rights.
We may rely on trade secret protection for our confidential and
proprietary information. We have taken measures to protect our
proprietary information and trade secrets, but these measures may
not provide adequate protection. While we seek to protect our
proprietary information by entering into confidentiality agreements
with employees, collaborators and consultants, we cannot assure
that our proprietary information will not be disclosed, or that we
can meaningfully protect our trade secrets. In addition,
competitors may independently develop or may have already developed
substantially equivalent proprietary information or may otherwise
gain access to our trade secrets.
The pending patent applications that we have in-licensed or that we
may in-license in the future may not result in issued patents, and
we cannot assure you that our issued patents or any patents that
might ultimately be issued by the United States Patent and
Trademark Office, or USPTO will protect our technology. Any patents
that may be issued to us might be challenged by third parties as
being invalid or unenforceable, or third parties may independently
develop similar or competing technology that avoids our patents. We
cannot be certain that the steps we have taken will prevent the
misappropriation and use of our intellectual property, particularly
in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
Inventions, and the intellectual property rights covering them,
that are discovered under research, material transfer or other such
collaboration agreements may become solely owned by us in some
cases, jointly owned by us and the other party to such agreements
in some cases, and may become the exclusive property of other party
to such agreements in other cases. Under some circumstances, it may
be difficult to determine which party owns a particular invention,
or whether it is jointly owned, and disputes could arise regarding
ownership of those inventions. These disputes could be costly and
time consuming and an unfavorable outcome could have a significant
adverse effect on our business if we were not able to protect or
license rights to these inventions.
Unauthorized uses of our proprietary intellectual property by any
such research collaborators, and publications by our research
collaborators and scientific advisors containing such information,
either with our permission or in contravention of the terms of
their agreements with us, may limit or harm our ability to obtain
patent protection for our product candidates or protect our
proprietary information, which could materially harm our business,
prospects, financial condition and results of
operations.
Patent policy and rule changes could increase the uncertainties and
costs surrounding the prosecution of our patent applications and
the enforcement or defense of our issued patents.
Changes in either the patent laws or interpretation of the patent
laws in the United States and other countries may diminish the
value of our patents or narrow the scope of our patent protection.
The laws of foreign countries may not protect our rights to the
same extent as the laws of the United States. Publications of
discoveries in the scientific literature often lag behind the
actual discoveries, and patent applications in the United States
and other jurisdictions are typically not published until 18 months
after filing, or in some cases not at all. We therefore cannot be
certain that we or our licensors were the first to make the
invention claimed in our owned and licensed patents or pending
applications, or that we or our licensor were the first to file for
patent protection of such inventions. Assuming the other
requirements for patentability are met, in the United States prior
to March 15, 2013, the first to make the claimed invention is
entitled to the patent, while outside the United States, the first
to file a patent application is entitled to the patent. After March
15, 2013, under the Leahy-Smith America Invents Act, or the
Leahy-Smith Act, enacted on September 16, 2011, the United States
has moved to a first to file system. The Leahy-Smith Act also
includes a number of significant changes that affect the way patent
applications will be prosecuted and may also affect patent
litigation. The effects of these changes are currently unclear as
the USPTO must still implement various regulations, the courts have
yet to address any of these provisions and the applicability of the
act and new regulations on specific patents discussed herein have
not been determined and would need to be reviewed. In general, the
Leahy-Smith Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of our patent
applications and the enforcement or defense of our issued patents,
all of which could have a material adverse effect on our business
and financial condition.
Litigation or third party claims of intellectual property
infringement could impair our ability to develop and commercialize
our products successfully.
Our research, development and commercialization activities, as well
as any product candidates or products resulting from those
activities, may infringe or be alleged to infringe a patent or
other form of intellectual property under which we do not hold a
license or other rights. Third parties may assert that we are
employing their proprietary technology without authorization. Our
success will depend in part on our ability to avoid infringing
patents and proprietary rights of third parties, and not breaching
any licenses that we have entered into with regard to our
technologies. A number of pharmaceutical companies,
biotechnology companies, independent researchers, universities and
research institutions may have filed patent applications or may
have been granted patents that cover technologies similar to the
technologies owned by or licensed to us. For instance, a
number of patents may have issued and may issue in the future on
tests and technologies that we have developed or intend to
develop. If patents covering technologies required by our
operations are issued to others, we may have to rely on licenses
from third parties, which may not be available on commercially
reasonable terms, or at all.
We have no knowledge of any infringement or patent litigation,
threatened or filed at this time. It is possible that we may
infringe on intellectual property rights of others without being
aware of the infringement. If a patent holder believes that
one of our product candidates infringes on our patent, it may sue
we even if we have received patent protection for our
technology. Third parties may claim that we are employing our
proprietary technology without authorization. In addition,
third parties may obtain patents that relate to our technologies
and claim that use of such technologies infringes these
patents. Regardless of their merit, such claims could require
us to incur substantial costs, including the diversion of
management and technical personnel, in defending ourselves against
any such claims or enforcing our patents. In the event that a
successful claim of infringement is brought against us, we may be
required to pay damages and obtain one or more licenses from third
parties. We may not be able to obtain these licenses at a
reasonable cost, or at all. Defense of any lawsuit or failure
to obtain any of these licenses could adversely affect our ability
to develop and commercialize our products. Although we carry
general liability insurance, our insurance may not cover potential
claims of this type. The occurrence of any of the above events
could prevent us from continuing to develop and commercialize one
or more of our product candidates or practice our related methods,
and our business could materially suffer.
Our rights to use technologies licensed from third parties are not
within our control, and we may not be able to develop,
commercialize, and sell our products if we lose our existing rights
or cannot obtain new rights on reasonable terms.
We license technology necessary to develop certain products from
third parties. For example, we license technology from MIT,
AECOM, Cornell and IFO-Regina located in Rome, Italy, that we use
in certain diagnostic products and that we may use to develop
certain additional products. As a result, our current business
plans are dependent upon our satisfaction of certain conditions to
the maintenance of those license agreements and the rights we
license under them. Each of the license agreements provides that we
are subject to diligence obligations relating to the development
and commercialization of product candidates, milestone payments,
royalty payments and other obligations. In addition to these
license agreements, we may seek to enter into additional agreements
with other third parties in the future granting similar license
rights with respect to other potential product candidates. If we
fail to comply with any of the conditions or obligations or
otherwise breach the terms of any of these license agreements, or
any future license agreement we may enter on which our business or
product candidates are dependent, the licensor may have the right
to assert a claim for damages against us or terminate the
applicable agreement in whole or in part and thereby extinguish our
rights to the licensed technology and intellectual property and/or
any rights we have acquired to develop and commercialize certain
product candidates. If we become liable for material damages under
any of these license agreements, this could materially harm our
business, prospects, financial condition and results of operations.
Similarly, the loss of the rights licensed to us under these
license agreements, or any future license agreement that we may
enter granting us rights on which our business or product
candidates are dependent, would eliminate our ability to further
develop the applicable product candidates and would materially harm
our business, prospects, financial condition and results of
operations.
Our liquidity issues in the past have sometimes caused a delay in
payment under our existing license agreements. Our business may
suffer if we are unable to meet our obligations, financial or
otherwise, under our existing license agreements and if these
licenses terminate, if the licensors fail to abide by the terms of
the licenses or fail to prevent infringement by third parties, if
the licensed patents or other rights are found to be invalid or if
we are unable to enter into necessary additional licenses on
acceptable terms.
We may be subject to claims that our employees, consultants, or
independent contractors have wrongfully used or disclosed
confidential information of third parties or that our employees
have wrongfully used or disclosed alleged trade secrets of their
former employers.
We employ certain individuals who were previously employed at
universities, medical institutions, other diagnostic and
biotechnology companies, including potential competitors. Although
we try to ensure that our employees, consultants, and independent
contractors do not use the proprietary information or know-how of
others in their work for us, and we are not currently subject to
any claims that our employees, consultants, or independent
contractors have wrongfully used or disclosed confidential
information of third parties, we may in the future be subject to
such claims. Litigation may be necessary to defend against these
claims. If we fail in defending any such claims, in addition to
paying monetary damages, we may lose valuable intellectual property
rights or personnel, which could adversely impact our business.
Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction
to management and other employees.
We may be subject to claims challenging the inventorship of our
patents and other intellectual property.
Although we are not currently experiencing any claims challenging
the inventorship of our licensed patents, or ownership of our
intellectual property, we may in the future be subject to claims
that former employees, collaborators or other third parties have an
interest in our licensed patents, future patent applications or
other intellectual property as an inventor or co-inventor. For
example, we may have inventorship disputes arise from conflicting
obligations of consultants or others who are involved in developing
our products or services including clinical studies. Litigation may
be necessary to defend against these and other claims challenging
inventorship. If we fail in defending any such claims, in addition
to paying monetary damages, we may lose valuable intellectual
property rights, such as exclusive ownership of, or right to use,
valuable intellectual property. Such an outcome could have a
material adverse effect on our business. Even if we are successful
in defending against such claims, litigation could result in
substantial costs and be a distraction to management and other
employees.
We may desire, or be forced, to seek additional licenses to use
intellectual property owned by third parties, and such licenses may
not be available on commercially reasonable terms or at
all.
A third party may hold intellectual property, including patent
rights, that are important or necessary to the development or
commercialization of our product candidates or to practice our
related methods, in which case we would need to obtain a license
from that third party or develop a different method relating to the
product candidate that does not infringe the applicable
intellectual property, which may not be possible. Additionally, we
may identify product candidates that we believe are promising and
whose composition of matter, use or manufacture are covered by the
intellectual property rights of third parties. In such a case, we
may desire to seek a license to pursue the development and
commercialization of those product candidates. Any license that we
may desire to obtain, or that we may be forced to pursue, may not
be available when needed on commercially reasonable terms, or at
all. Any inability to secure a license that we need or desire could
have a material adverse effect on our business, financial condition
and prospects.
Changes in U.S. patent law could diminish the value of patents in
general, thereby impairing our ability to protect our
products.
As is the case with other diagnostic and biopharmaceutical
companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining and enforcing patents in
the diagnostic and biopharmaceutical industry involves both
technological and legal complexity. Therefore, obtaining and
enforcing diagnostic and biotechnology patents is costly, time
consuming, and inherently uncertain. In addition, the United States
has recently enacted and is currently implementing wide-ranging
patent reform legislation. Recent U.S. Supreme Court rulings have
narrowed the scope of patent protection available in certain
circumstances and weakened the rights of patent owners in certain
situations. In addition to increasing uncertainty with regard to
our 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 future actions by the U.S.
Congress, the federal courts, and the USPTO, the laws and
regulations governing patents could change in unpredictable ways
that would weaken our ability to obtain new patents or to enforce
our existing patents and patents that we might obtain in the
future.
Our collaborators may assert ownership or commercial rights to
inventions we develop from our use of the biological materials,
which they provide to us, or otherwise arising from the
collaboration.
We collaborate with several institutions, universities, medical
centers, physicians and researchers in scientific matters and
expect to continue to enter into additional collaboration
agreements. In certain cases, we do not have written agreements
with certain of such collaborators, or the written agreements we
have do not cover intellectual property rights. Also, we rely on
numerous third parties to provide us with tissue samples and
biological materials that we use to develop products. If we cannot
successfully negotiate sufficient ownership and commercial rights
to any inventions that result from our use of a third-party
collaborator’s materials, or if disputes arise with respect
to the intellectual property developed with the use of a
collaborator’s samples, or data developed in a
collaborator’s study, we may be limited in our ability to
capitalize on the market potential of these inventions or
developments.
We may be involved in lawsuits or administrative proceedings to
protect or enforce our patents or the patents of our licensors,
which could be expensive, time-consuming and
unsuccessful.
Competitors may infringe our patents or the patents of our current
or potential licensors. We cannot predict if, when or where a third
party may infringe one or more of our issued patents. To attempt to
stop infringement or unauthorized use, we may need to enforce one
or more of our patents, which can be expensive and time-consuming,
a significant diversion of employee resources, and distract our
management. There is no assurance such action will ultimately be
successful in halting third party infringing activities, for
example, through a permanent injunction, or that we would be fully
or even partially financially compensated for any harm to our
business caused by such third-party infringement. Even if such
action were initially successful, it could be overturned upon
appeal. Even if we are successful in proving in a court of law that
a third party is infringing one or more of our issued patents we
may be forced to enter into a license or other agreement with the
infringing third party on terms less commercially acceptable to us
than if the license or agreement were negotiated under conditions
between those of a willing licensee and a willing licensor. We may
not become aware of a third-party infringer within legal timeframes
that would enable us to seek adequate compensation, or at all,
thereby possibly losing the ability to be compensated for any harm
to our business. Such a third-party may be operating in a foreign
country where the infringer is difficult to locate, where we do not
have issued patents and/or the patent laws may be more difficult to
enforce. If we pursue any litigation, a court may decide that a
patent of ours or our licensor’s is not of sufficient breath,
is invalid, or is unenforceable, or may refuse to stop the other
party from using the relevant technology on the grounds that our
patents do not cover the technology in question. Further, the legal
systems of certain countries, particularly certain developing
countries, do not favor the enforcement of patents, which could
reduce the likelihood of success of any infringement proceeding we
pursue in any such jurisdiction. An adverse result in any patent
litigation could put one or more of our patents at risk of being
invalidated, held unenforceable, or interpreted narrowly and could
put our pending patent applications at risk of not issuing, which
could limit our ability to exclude competitors from directly
competing with us in the applicable jurisdictions.
Certain administrative proceedings may be provoked by third parties
before the USPTO and certain foreign patent offices, such as
interference proceedings, opposition proceedings, re-examination
proceedings, inter partes review, post-grant review, derivation
proceedings and pre-grant submissions, in which third parties may
challenge the validity or breadth of claims contained in our
patents or those of our licensors. An adverse result in any such
administrative proceeding could put one or more of our patents at
risk of being canceled or invalidated or interpreted narrowly and
could put our pending patent applications at risk of not issuing,
which could limit our ability to exclude competitors from directly
competing with us in the applicable jurisdictions.
Interference proceedings provoked by third parties or brought by us
or the USPTO may be necessary to determine the priority of
inventions with respect to our patents or patent applications or
those of our licensors. Derivation proceedings may be brought by us
or a third party to determine whether a patent or application was
filed by the true inventor. An unfavorable outcome in an
interference or derivation proceeding could require us to cease
using the related technology or to attempt to license rights to use
it from the prevailing party. Our business could be harmed if the
prevailing party does not offer us a license on commercially
reasonable terms, or at all. Litigation, interference, or
derivation proceedings may have undesirable outcomes and, even if
successful, may result in substantial costs, be a significant
diversion of employee resources, and distract our
management.
We may not be able to protect our intellectual property rights
throughout the world.
Filing, prosecuting, and defending patents on products and services
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 inventions
in all countries outside the United States, or from selling or
importing products made using our inventions in and into the United
States or other jurisdictions. Competitors may use our technologies
in jurisdictions where we have not obtained patent protection to
develop their own products and may also export infringing products
to territories where we have patent protection, but enforcement is
not as strong as that in the United States. These products may
compete with our products and our 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 certain countries, particularly
certain developing countries, do not favor the enforcement of
patents, trade secrets, and other intellectual property protection,
particularly those relating to biotechnology products, which could
make it difficult for us to stop the infringement of our patents or
marketing of competing products in violation of our proprietary
rights generally. Proceedings to enforce our patent rights in
foreign jurisdictions, whether or not successful, could result in
substantial costs and divert our efforts and attention from other
aspects of our business, could put our patents at risk of being
invalidated or interpreted narrowly and our patent applications at
risk of not issuing and could provoke third parties to assert
claims against us. We may not prevail in any lawsuits that we
initiate and the damages or other remedies awarded, if any, may not
be commercially meaningful. Accordingly, our 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.
Risks Relating to our Securities
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely
continue to be highly volatile, as is the stock market in general
and the market for OTC or “bulletin board” quoted
stocks in particular. Market prices for securities of
early-stage life sciences companies have historically been
particularly volatile Some of the factors that may materially
affect the market price of our common stock are beyond our control,
may include, but are not limited to:
●
progress, or lack of progress, in developing and commercializing
our current tests and our planned future cancer diagnostic
tests;
●
favorable or unfavorable decisions about our tests from government
regulators, insurance companies or other third-party
payers;
●
changes in key personnel and our ability to recruit and retain
qualified research and development personnel;
●
changes in investors’ and securities analysts’
perception of the business risks and conditions of our
business;
●
changes in our relationship with key collaborators;
●
changes in the market valuation or earnings of our competitors or
companies viewed as similar to us;
●
depth of the trading market in our common stock;
●
termination of the lock-up agreements or other restrictions on the
ability of our existing stockholders to sell shares;
●
changes in our capital structure, such as future issuances of
securities or the incurrence of additional debt;
●
the granting or exercise of employee stock options or other equity
awards;
●
realization of any of the risks described under this section
entitled “Risk Factors”; and
●
general market and economic conditions.
In addition, the equity markets have experienced significant price
and volume fluctuations that have affected the market prices for
the securities for a number of reasons, including reasons that may
be unrelated to our business or operating performance. These broad
market fluctuations may result in a material decline in the market
price of our common stock and you may not be able to sell your
shares at prices you deem acceptable. In the past, following
periods of volatility in the equity markets, securities class
action lawsuits have been instituted against public companies. Such
litigation, if instituted against us, could result in substantial
cost and the diversion of management attention.
We cannot assure you that our common stock will become liquid or
that it will be listed on a national securities exchange. In
addition,
there may
not be sufficient liquidity in the market for our securities in
order for investors to sell their securities.
Currently, our common stock trades on the OTCQB venture stage
marketplace for early stage and developing U.S. and international
companies. Investors may find it difficult to obtain accurate
quotations as to the market value of our common stock. In
addition, if we fail to meet the criteria set forth in SEC
regulations, by law, various requirements would be imposed on
broker-dealers who sell its securities to persons other than
established customers and accredited investors. Consequently,
such regulations may deter broker-dealers from recommending or
selling our common stock, which may further affect its
liquidity. In addition, there is currently only a limited
public market for our common stock and there can be no assurance
that a trading market will develop further or be maintained in the
future.
We anticipate listing our common stock on a national securities
exchange in the future and have applied to list our common
stock on the NASDAQ Capital Market, however we cannot make any
assurances that we satisfy the listing requirements of such
national securities exchange, including, but not limited
to:
●
closing or bid price requirements;
●
stockholders’ equity requirement;
●
market value of publicly held shares;
●
number of shareholders;
●
number of market makers; and
●
market value of listed securities.
In order to raise sufficient funds to expand our operations, we may
have to issue additional securities at prices which may result in
substantial dilution to our shareholders.
If we raise additional funds through the sale of equity or
convertible debt, our current stockholders’ percentage
ownership will be reduced. In addition, these transactions may
dilute the value of our outstanding securities. We may have to
issue securities that may have rights, preferences and privileges
senior to our common stock. We cannot provide assurance that
we will be able to raise additional funds on terms acceptable to
us, if at all. If future financing is not available or is not
available on acceptable terms, we may not be able to fund our
future needs, which would have a material adverse effect on our
business plans, prospects, results of operations and financial
condition.
Future sales of our common stock, or the perception that future
sales may occur, may cause the market price of our common stock to
decline, even if our business is doing well.
Sales of substantial amounts of our common stock, or the perception
that these sales may occur, could materially and adversely affect
the price of our common stock and could impair our ability to raise
capital through the sale of additional equity
securities. As of February 28, 2017, we had outstanding
4,707,942 shares of common stock, 3,620,556 of which are
restricted securities that may be sold only in accordance with the
resale restrictions under Rule 144 of the Securities Act of 1933,
as amended. In addition, as of February 28, 2017, we had
outstanding convertible preferred stock, convertible into 1,350,109
shares of common stock, outstanding options to purchase 966,474
shares of our common stock, outstanding warrants to purchase
2,698,694 shares of our common stock, and outstanding convertible
debt convertible into 507,946 shares of our common stock. Shares
issued upon the exercise of stock options and warrants will be
eligible for sale in the public market, except that affiliates will
continue to be subject to volume limitations and other requirements
of Rule 144 under the Securities Act. The issuance or sale of such
shares could depress the market price of our common
stock.
In the future, we also may issue our securities if we need to raise
additional capital. The number of new shares of our common stock
issued in connection with raising additional capital could
constitute a material portion of the then-outstanding shares of our
common stock.
Rule 144 Related Risk
The SEC adopted amendments to Rule 144 which became effective on
February 15, 2008 that apply to securities acquired both before and
after that date. Under these amendments, a person who has
beneficially owned restricted shares of our common stock for at
least six months would be entitled to sell their securities
provided that: (i) such person is not deemed to have been one of
our affiliates at the time of, or at any time during the three
months preceding a sale, (ii) we are subject to the Exchange Act
periodic reporting requirements for at least 90 days before the
sale and (iii) if the sale occurs prior to satisfaction of a
one-year holding period, we provide current information at the time
of sale. Persons who have beneficially owned restricted shares of
our common stock for at least six months but who are our affiliates
at the time of, or at any time during the three months preceding a
sale, would be subject to additional restrictions, by which such
person would be entitled to sell within any three-month period only
a number of securities that does not exceed the greater of either
of the following:
●
1% of the total number of securities of the same class then
outstanding; or closing or bid price requirements;
●
the average weekly trading volume of such securities during the
four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale;
provided, in each case, that we are subject to the Exchange Act
periodic reporting requirements for at least three months before
the sale. Such sales by affiliates must also comply with the manner
of sale, current public information and notice provisions of Rule
144.
Restrictions on the reliance of Rule 144 by shell companies or
former shell companies.
We are a former shell company. Historically, the SEC staff has
taken the position that Rule 144 is not available for the resale of
securities initially issued by companies that are, or previously
were, blank check companies. The SEC has codified and expanded this
position in amendments to Rule 144 which became effective in
February 2008 by prohibiting the use of Rule 144 for resale of
securities issued by any shell companies (other than
business-combination related shell companies) or any issuer that
has been at any time previously a shell company. The SEC has
provided an important exception to this prohibition, however, if
the following conditions are met:
●
The issuer of the securities that was formerly a shell company has
ceased to be a shell company;
●
The issuer of the securities is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange
Act;
●
The issuer of the securities has filed all Exchange Act reports and
material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to
file such reports and materials), other than Current Reports on
Form 8-K; and
●
At least one year has elapsed from the time that the issuer has
filed current comprehensive disclosure with the SEC reflecting its
status as an entity that is not a shell company.
As a result, it is possible that pursuant to Rule 144, stockholders
may not be able to sell our shares without registration if one of
the aforementioned conditions are not satisfied.
Because we became a public company by means of a “reverse
merger,” we may not be able to attract the attention of major
brokerage firms.
Additional risks may exist since we became public through a
“reverse takeover.” Securities analysts of major
brokerage firms may not provide coverage of our securities since
there is little incentive to brokerage firms to recommend the
purchase of our common stock. No assurance can be given that
brokerage firms will want to conduct any secondary offerings on our
behalf in the future.
We have incurred and will continue to incur significant increased
costs as a result of operating as a public company, and our
management will be required to devote substantial time to new
compliance initiatives.
As a public company, we are subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended, the Dodd-Frank
Wall Street Reform and Consumer Protection Act, or the Dodd-Frank
Act, the listing requirements of the OTCQB venture stage
marketplace and other applicable securities rules and regulations.
Compliance with these rules and regulations has increased and will
continue to increase our legal and financial compliance costs, make
some activities more difficult, time-consuming or costly, and
increase demand on our systems and resources. The Sarbanes-Oxley
Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over
financial reporting. 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 harm our business and operating results.
Further, there are significant corporate governance and executive
compensation related provisions in the Dodd-Frank Wall Street
Reform and Consumer Protection Act, enacted in 2010, that require
the SEC to adopt additional rules and regulations in these areas
such as “say on pay” and proxy access. Recent
legislation permits smaller “emerging growth companies”
to implement many of these requirements over a longer period. We
intend to take advantage of this new legislation but cannot
guarantee that we will not be required to implement these
requirements sooner than budgeted or planned and thereby incur
unexpected expenses. Stockholder activism, the current political
environment and the current high level of government intervention
and regulatory reform may lead to substantial new regulations and
disclosure obligations, which may lead to additional compliance
costs and impact the manner in which we operate our business in
ways we cannot currently anticipate.
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 practice, regulatory authorities may
initiate legal proceedings against us and our business may be
harmed.
Additionally, we may be subject to increased corporate governance
requirements in connection with the listing of our common stock on
a national securities exchange, such as the NASDAQ Capital Market,
which may lead to additional compliance costs and impact the manner
in which we operate our business.
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. As a result, current and potential investors
could lose confidence in our financial reporting, which could harm
our business and have an adverse effect on our stock
price.
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,
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we
are required to annually furnish a report by our management on our
internal control over financial reporting. Such report must
contain, among other matters, an assessment by our principal
executive officer and our principal financial officer on the
effectiveness of our internal control over financial reporting,
including a statement as to whether or not our internal control
over financial reporting is effective as of the end of our fiscal
year. This assessment must include disclosure of any material
weakness in our internal control over financial reporting
identified by management. In addition, under current SEC
rules, we may be required to obtain an attestation from our
independent registered public accounting firm as to our internal
control over financial reporting for our annual report on Form 10-K
covering our next fiscal year. Performing the system and process
documentation and evaluation needed to comply with Section 404 is
both costly and challenging. During the course of our testing
we may identify deficiencies which we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act of
2002 for compliance with the requirements of Section 404. In
addition, if we fail to maintain the adequacy of our internal
controls, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002. Failure to achieve and
maintain an effective internal control environment could also cause
investors to lose confidence in our reported financial information,
which could have a material adverse effect on the price of our
common stock.
Our common stock is considered “penny
stock”.
The SEC has adopted regulations, which generally define
“penny stock” to be an equity security that has a
market price of less than $5.00 per share, subject to specific
exemptions. The market price of our common stock is currently
less than $5.00 per share and therefore may be a “penny
stock.” Brokers and dealers effecting transactions in
“penny stock” must disclose certain information
concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable
to purchase the securities. These rules may restrict the
ability of brokers or dealers to sell the common stock and may
affect your ability to sell shares.
The market for penny stocks has experienced numerous frauds and
abuses, which could adversely impact investors in our
stock.
Our common stock trades on the OTCQB venture stage marketplace for
early stage and developing U.S. and international companies. OTCQB
securities and other “bulletin board” securities are
frequent targets of fraud or market manipulation, both because of
their generally low prices and because OTCQB and other bulletin
board” reporting requirements are less stringent than those
of national securities exchanges, including the NASDAQ Capital
Market.
Patterns of fraud and abuse include:
●
Control
of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
●
Manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases;
●
“Boiler
room” practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales
persons;
●
Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
●
Wholesale
dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the inevitable collapse of those prices with consequent investor
losses.
Our quarterly operating results may fluctuate
significantly.
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:
●
the rate of adoption and/or continued use of our current tests and
our planned future tests by healthcare practitioners;
●
variations in the level of expenses related to our development and
commercialization programs;
●
addition or reduction of resources for product
commercialization;
●
addition or termination of clinical validation studies and clinical
utility studies;
●
any intellectual property infringement lawsuit in which we may
become involved;
●
third
party payer determinations affecting our tests; and
●
regulatory developments affecting our tests.
We expect operating results to be subject to quarterly
fluctuations. Our net loss and other operating results will be
affected by numerous factors, including:
If our quarterly operating results fall below the expectations of
investors or securities analysts, the price of our 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.
Because we do not expect to pay cash dividends to our common
stockholders for the foreseeable future, you must rely on
appreciation of our common stock price for any return on your
investment. Even if we change that policy, we may be restricted
from paying dividends on our common stock.
We do not intend to pay cash dividends on shares of our common
stock for the foreseeable future. Any determination to pay
dividends in the future will be at the discretion of our board of
directors and will depend upon results of operations, financial
performance, contractual restrictions, restrictions imposed by
applicable law and other factors our board of directors deems
relevant. Accordingly, you will have to rely on capital
appreciation, if any, to earn a return on your investment in our
common stock. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock.
Cumulative dividends on the Series B Preferred Stock accrue at the
rate of 8% of the Stated Value per annum, payable quarterly on
March 31, June 30, September 30, and December 31 of each year, from
and after the date of the initial issuance. Dividends
are payable in kind in additional shares of Series B Preferred
Stock valued at the Stated Value or in cash at the sole option of
the Company. At February 28, 2017 and February 29, 2016, the
dividend payable to the holders of the Series B Preferred Stock
amounted to approximately $16,000 and approximately $48,000,
respectively. During the year ended February 28, 2017 and February
29, 2016, the Company issued 34.5085 and 42.8202 shares of Series B
Preferred Stock, respectively, for payment of dividends amounting
to approximately $190,000 and approximately $236,000,
respectively.
Our ability to use our net operating loss carryforwards and certain
other tax attributes may be limited.
Our ability to utilize our federal net operating loss,
carryforwards and federal tax credits may be limited under Sections
382 and 383 of the Internal Revenue Code of 1986, as amended, or
the Code. The limitations apply if an “ownership
change,” as defined by Section 382 of the Code, occurs.
If we have experienced an “ownership change” at any
time since our formation, we may already be subject to limitations
on our ability to utilize our existing net operating losses and
other tax attributes to offset taxable income. In addition, future
changes in our stock ownership (including in connection with this
or future offerings, as well as other changes that may be outside
of our control), may trigger an “ownership change” and,
consequently, limitations under Sections 382 and 383 of the
Code. As a result, if we earn net taxable income, our ability to
use our pre-change net operating loss carryforwards and other tax
attributes to offset United States federal taxable income may be
subject to limitations, which could potentially result in increased
future tax liability to us. As of February 28, 2017, we had federal
net operating loss tax credit carryforwards of approximately
$18.7
million, which could be limited if we have
experienced or do experience any “ownership changes.”
We have not completed a study to assess whether an “ownership
change” has occurred or whether there have been multiple
“ownership changes” since our formation, due to the
complexity and cost associated with such a study, and the fact that
there may be additional ownership changes in the
future.
We could be subject to securities class action
litigation.
In the past, securities class action litigation has often been
brought against a company following a decline in the market price
of its securities. This risk is especially relevant for us because
early-stage life sciences and diagnostic companies have experienced
significant stock price volatility in recent years. If we face such
litigation, it could result in substantial costs and a diversion of
management’s attention and resources, which could harm our
business.