ITEM 1. BUSINESS
Unless otherwise indicated
or the context otherwise requires, references to the “Company”, “Aethlon”, “we”, “us”
and “our” refer to Aethlon Medical, Inc.
Overview and Corporate History
Aethlon Medical, Inc., or
Aethlon, the Company, we or us, is a medical therapeutic company focused on developing products to treat cancer and life-threatening infectious
diseases. The Aethlon Hemopurifier is a clinical-stage immunotherapeutic device designed to combat cancer and life-threatening viral infections.
In cancer, the Hemopurifier is designed to deplete the presence of circulating tumor-derived exosomes that promote immune suppression,
seed the spread of metastasis and inhibit the benefit of leading cancer therapies. The U.S. Food and Drug Administration, or FDA, has
designated the Hemopurifier as a “Breakthrough Device” for two independent indications:
| · | the treatment
of individuals with advanced or metastatic cancer who are either unresponsive to or intolerant of standard of care therapy, and with
cancer types in which exosomes have been shown to participate in the development or severity of the disease; and |
| | |
| · | the treatment
of life-threatening viruses that are not addressed with approved therapies. |
We believe the Hemopurifier
can be a substantial advance in the treatment of patients with advanced and metastatic cancer through the clearance of exosomes that promote
the growth and spread of tumors through multiple mechanisms. We are currently working with our new contract research organization, or
CRO, on preparations to conduct a clinical trial in Australia in patients with solid tumors, including head and neck cancer, gastrointestinal
cancers and other cancers.
On October 4, 2019, the FDA
approved our Investigational Device Exemption, or IDE, application to initiate an Early Feasibility Study, or EFS, of the Hemopurifier
in patients with head and neck cancer in combination with standard of care pembrolizumab (Keytruda). The primary endpoint for the EFS,
designed to enroll 10 to 12 subjects at a single center, is safety, with secondary endpoints including measures of exosome clearance and
characterization, as well as response and survival rates. This clinical trial, initially conducted at the UPMC Hillman Cancer Center in
Pittsburgh, PA, or UPMC, treated two patients. Due to lack of further patient enrollment, we and UPMC terminated this trial.
In January 2023, we entered
into an agreement with North American Science Associates, LLC, or NAMSA, a world leading MedTech CRO offering global end-to-end development
services, to oversee our clinical trials investigating the Hemopurifier for oncology indications. Pursuant to the agreement, NAMSA will
manage our clinical trials of the Hemopurifier for patients in the United States and Australia with various types of cancer tumors. We
anticipate that the initial clinical trials will begin in Australia.
We also believe the Hemopurifier
can be part of the broad-spectrum treatment of life-threatening highly glycosylated, or carbohydrate coated, viruses that are not addressed
with an already approved treatment. In small-scale or early feasibility human studies, the Hemopurifier has been used in the past to treat
individuals infected with human immunodeficiency virus, or HIV, hepatitis-C and Ebola.
Additionally, in vitro, the
Hemopurifier has been demonstrated to capture Zika virus, Lassa virus, MERS-CoV, cytomegalovirus, Epstein-Barr virus, Herpes simplex virus,
Chikungunya virus, Dengue virus, West Nile virus, smallpox-related viruses, H1N1 swine flu virus, H5N1 bird flu virus, Monkeypox virus
and the reconstructed Spanish flu virus of 1918. In several cases, these studies were conducted in collaboration with leading government
or non-government research institutes.
On June 17, 2020, the FDA
approved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with
SARS-CoV-2/COVID-19, or COVID-19, in a New Feasibility Study. That study was designed to enroll up to 40 subjects at up to 20 centers
in the United States. Subjects had to have an established laboratory diagnosis of COVID-19, be admitted to an intensive care unit, or
ICU, and have acute lung injury and/or severe or life-threatening disease, among other criteria. Endpoints for this study, in addition
to safety, included reduction in circulating virus as well as clinical outcomes (NCT # 04595903). In June 2022, the first patient in this
study was enrolled and completed the Hemopurifier treatment phase of the protocol. Due to lack of COVID-19 patients in the ICUs of our
trial sites, we terminated this study in 2022.
Under Single Patient Emergency
Use regulations, the Company has treated two patients with COVID-19 with the Hemopurifier, in addition to the COVID-19 patient treated
with our Hemopurifier in our COVID-19 clinical trial discussed above.
We currently are experiencing
a disruption in our Hemopurifier supply, as our existing supply of Hemopurifiers expired on September 30, 2022, and as previously disclosed,
we are dependent on FDA approval of qualified suppliers to manufacture our Hemopurifier. Our intended transition to a new supplier for
galanthus nivalis agglutinin, or GNA, a component of our Hemopurifier, is delayed as we work with the FDA for approval of our supplement
to our IDE, which is required to make this manufacturing change.
In October 2022, we launched
a wholly owned subsidiary in Australia, formed to conduct clinical research, seek regulatory approval and commercialize our Hemopurifier
in that country. The subsidiary will initially focus on oncology trials in Australia.
We also obtained Ethics Review
Board, or ERB, approval and entered into a clinical trial agreement with Medanta Medicity Hospital, a multi-specialty hospital in Delhi
NCR, India, for a COVID-19 clinical trial at that location. One patient has completed participation in the Indian COVID-19 study. The
relevant authorities in India have accepted the use of the Hemopurifiers made with the GNA from our new supplier.
In May 2023, we also received
ERB approval from the Maulana Azad Medical College, or MAMC, for a second site for our clinical trial in India to treat severe COVID-19.
MAMC was established in 1958 and is located in New Delhi, India. MMAC is affiliated with the University of Delhi and is operated by the
Delhi government.
We also recently announced
that we also have begun investigating the use of our Hemopurifier in the organ transplant setting. Our objective is to confirm that the
Hemopurifier, in our translational studies, when incorporated into a machine perfusion organ preservation circuit, can remove harmful
viruses and exosomes from harvested organs. We have previously demonstrated the removal of multiple viruses and exosomes from buffer solutions,
in vitro, utilizing a scaled-down version of our Hemopurifier. This process potentially may reduce complications following transplantation
of the harvested organ, which can include viral infection, delayed graft function and rejection. We believe this new approach could be
additive to existing technologies that currently are in place to increase the number of viable organs for transplant.
Previously, we were the majority
owner of Exosome Sciences, Inc., or ESI, a company formed to focus on the discovery of exosomal biomarkers to diagnose and monitor life-threatening
diseases, and thus consolidated ESI in our consolidated financial statements. For more than four years, the primary activities of ESI
were limited to the payment of patent maintenance fees and applications. In September 2022, the Board of Directors of ESI and we, as the
majority stockholder of ESI, approved the dissolution of ESI.
Successful outcomes of human
trials will also be required by the regulatory agencies of certain foreign countries where we plan to market and sell the Hemopurifier.
Some of our patents may expire before FDA approval or approval in a foreign country, if any, is obtained. However, we believe that certain
patent applications and/or other patents issued more recently will help protect the proprietary nature of the Hemopurifier treatment technology.
In addition to the foregoing,
we are monitoring closely the impact of inflation, recent bank failures and the war in Ukraine on our business. Given the level of uncertainty
regarding the duration and impact of these events on capital markets and the U.S. economy, we are unable to assess the impact on our timelines
and future access to capital. The full extent to which inflation, recent bank failures and the war in Ukraine will impact our business,
results of operations, financial condition, clinical trials and preclinical research will depend on future developments, as well as the
economic impact on national and international markets that are highly uncertain.
We incorporated in Nevada
on March 10, 1999. Our executive offices are located at 11555 Sorrento Valley Road, Suite 203, San Diego, California 92121. Our telephone
number is (619) 941-0360. Our website address is www.aethlonmedical.com.
The Mechanism of the Hemopurifier
The Hemopurifier is an affinity
hemofiltration device designed for the single-use removal of exosomes and life-threatening viruses from the human circulatory system.
In the United States, the Hemopurifier is classified as a combination product whose regulatory jurisdiction is the Center for Devices
and Radiological Health, or CDRH, the branch of FDA responsible for the premarket approval of all medical devices.
In our current applications,
our Hemopurifier can be used on the established infrastructure of continuous renal replacement therapy, or CRRT, and dialysis instruments
located in hospitals and clinics worldwide. It could also potentially be developed as part of a proprietary closed system with its own
pump and tubing set, negating the requirement for dialysis infrastructure. Incorporated within the Hemopurifier is a protein called a
lectin, that aids in binding exosomes and viruses.
The Hemopurifier - Clinical Trials In Viral Infections
The initial development of
the Hemopurifier was focused on viral infections. In non-clinical bench experiments using a laboratory version of the Hemopurifier, performed
in Company labs as well as in multiple other outside labs, including the Centers for Disease Control, or CDC, the United States Army Medical
Research Institute of Infectious Diseases, or USAMRIID, Battelle Memorial Research Institute and others, we have demonstrated that a miniature
version of the Hemopurifier can bind and clear multiple different glycosylated viruses. These viruses include HIV, HCV, Dengue, West Nile,
multiple strains of influenza, Ebola, Chikungunya, smallpox, monkeypox, multiple herpes viruses, a MERS-CoV related pseudovirus and others.
Initial clinical trials on
the Hemopurifier were conducted overseas on dialysis patients with HCV, with a subsequent EFS conducted in the United States under an
FDA approved IDE.
On March 13, 2017, we concluded
an FDA-approved EFS under an IDE in end stage renal disease patients on dialysis who were infected with HCV. The study was conducted at
DaVita MedCenter Dialysis in Houston, Texas. We reported that there were no device-related adverse events in enrolled subjects who met
the study inclusion-exclusion criteria. We also reported that an average capture of 154 million copies of HCV (in International Units,
I.U.) within the Hemopurifier during four-hour treatments. Prior to this approval, we collected supporting Hemopurifier data through investigational
human studies conducted overseas.
SARS-CoV-2/COVID-19
SARS-COV-2, the causative
agent of COVID-19 is a member of the coronavirus family, which includes the original SARS virus, SARS-CoV, and the MERS virus. SARS-CoV-2,
like all coronaviruses, is glycosylated. This suggests that the Hemopurifier could potentially clear it from biologic fluids, including
blood.
On June 17, 2020, the FDA
approved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients with
SARS-CoV-2/COVID-19 in a New Feasibility Study. That study was designed to enroll up to 40 subjects
at up to 20 centers in the United States. Subjects had to have an established laboratory diagnosis of COVID-19, be admitted to an ICU,
and have acute lung injury and/or severe or life threatening disease, among other criteria. Endpoints for this study, in addition to safety,
include reduction in circulating virus, as well as clinical outcomes (NCT # 04595903). In June 2022, the Company completed the treatment
protocol for its first patient in this study.
In
September 2021, we entered into an agreement with a leading global CRO to oversee our U.S. clinical studies investigating the Hemopurifier
for critically ill COVID-19 patients. Due to lack of COVID-19 patients in the ICUs of our trial sites, we terminated this study
in 2022.
Under
Single Patient Emergency Use regulations, we have also treated two patients with COVID-19 with the Hemopurifier, in addition to
the COVID-19 patient treated with our Hemopurifier in our COVID-19 clinical trial discussed above. We
published a manuscript reviewing case studies covering those two Single Patient Emergency Use treatments entitled “Removal of COVID-19
Spike Protein, Whole Virus, Exosomes and Exosomal microRNAs by the Hemopurifier® Lectin-Affinity Cartridge in Critically Ill Patients
with COVID-19 Infection.”
The
manuscript described the use of the Hemopurifier for a total of nine sessions in two critically ill COVID-19 patients. The first case
study demonstrated the improvement in the patient who was a SARS-COV-2 positive COVID-19 present at entry to the hospital, with associated
coagulopathy, or CAC, lung injury, inflammation, and tissue injury despite the absence of demonstrable COVID-19 viremia at the start of
treatment at Day 22 and having demonstrated strong viremia earlier in the patient’s disease cycle, suggesting that the significant
removal of exosomes contributed to the patient’s recovery. This patient received eight Hemopurifier treatments without complications
and eventually was weaned from a ventilator and was discharged from the hospital.
The
second patient case study demonstrated in vivo removal of SARS-CoV-2 virus from the blood stream of an infected patient. This patient
completed a six-hour Hemopurifier treatment without complications and subsequently was placed on continuous renal replacement therapy,
or CRRT. The patient ultimately expired three hours after being placed on CRRT because of the advanced stage of the patient’s disease.
In
May 2022, we announced the publication of a pre-print manuscript featuring data that demonstrated Aethlon's proprietary GNA affinity resin
was able to bind seven clinically relevant SARS-CoV-2 variants in vitro, including the Delta and Omicron variants. Viral capture efficiency
with the GNA affinity resin ranged from 53% to 89% for all variants tested. The GNA affinity resin is a key component of the Aethlon Hemopurifier®.
The manuscript is titled "Removal of Clinically Relevant SARS-CoV-2 Variants by An Affinity Resin Containing Galanthus nivalis Agglutinin"
and was published in bioRxiv.
We
previously commissioned Battelle Memorial Institute in 2008 to run a monkeypox virus, or MPV, in vitro study using a mini-Hemopurifier.
This study demonstrated that high concentrations of MPV (approximately 35 thousand cpu/ml) were rapidly depleted from cell culture fluids
when circulated through the Hemopurifier. The study data indicated that the Hemopurifier removed 44 percent of infectious MPV in the first
hour of testing, 82 percent after six hours, and 98 percent after 20 hours. The studies were conducted in triplicate and data verification
was provided by real-time polymerase chain reaction.
The Hemopurifier – Clinical Trials Conducted Overseas in Viral
Infections
EBOLA Virus
In December of 2014, Time
Magazine named the Hemopurifier a “Top 25 Invention” as the result of treating an Ebola-infected physician at Frankfurt
University Hospital in Germany. The physician was comatose with multiple organ failure at the time of treatment with the Hemopurifier.
At the American Society of Nephrology Annual Meeting, Dr. Helmut Geiger, Chief of Nephrology at Frankfurt University Hospital reported
that the patient received a single 6.5 hour Hemopurifier treatment. Prior to treatment, viral load was measured at 400,000 copies/ml.
Post-treatment viral load reported to be at 1,000 copies/ml. Dr. Geiger also reported that 242 million copies of Ebola virus were captured
within the Hemopurifier during treatment. The patient ultimately made a full recovery. Based on this experience, the Company filed an
Expanded Access protocol with the FDA to treat Ebola virus infected patients in up to ten centers in the United States and a corresponding
protocol was approved by HealthCanada. These protocols remain open allowing Hemopurifier treatment to be offered to patients presenting
for care in both countries. In 2018, we applied for and were granted a Breakthrough Designation by the FDA “… for the treatment
of life-threatening viruses that are not addressed with approved therapies.”
Hepatitis C Virus (HCV)
Prior to FDA approval of the
IDE feasibility study, we conducted investigational HCV treatment studies at the Apollo Hospital, Fortis Hospital and the Medanta Medicity
Institute in India. In the Medanta Medicity Institute study, 12 HCV-infected individuals were enrolled to receive three six-hour Hemopurifier
treatments during the first three days of a 48-week peginterferon+ribavirin treatment regimen. The study was conducted under the leadership
of Dr. Vijay Kher. Dr. Kher’s staff reported that Hemopurifier therapy was well tolerated and without device-related adverse events
in the 12 treated patients.
Of these 12 patients, ten
completed the Hemopurifier-peginterferon+ribavirin treatment protocol, including eight genotype-1 patients and two genotype-3 patients.
Eight of the ten patients achieved a sustained virologic response, which is the clinical definition of treatment cure and is defined as
undetectable HCV in the blood 24 weeks after the completion of the 48-week peginterferon+ribavirin drug regimen. Both genotype-3 patients
achieved a sustained virologic response, while six of the eight genotype-1 patients achieved a sustained virologic response, which defines
a cure of the infection.
Hemopurifier - Human Immunodeficiency Virus (HIV)
In addition to treating Ebola
and HCV-infected individuals, we also conducted a single proof-of-principle treatment study at the Sigma New Life Hospital in an AIDS
patient who was not being administered HIV antiviral drugs. In the study, viral load was reduced by 93% as the result of 12 Hemopurifier
treatments (each four hours in duration) that were administered over the course of one month.
The Hemopurifier in Cancer
Our primary focus in recent
years has been on the evaluation of the Hemopurifier in cancer, where we have previously shown in non-clinical studies and in a COVID-19
emergency use patient that it is capable of clearing exosomes, which are subcellular particles that are secreted by both normal and malignant
cells. Tumor derived exosomes, have been shown in multiple laboratories to be critical components in the progression of cancers. They
can mediate resistance to chemotherapy, resistance to targeted agents such as trastuzumab (Herceptin), metastasis and resistance to the
newer immuno-oncology agents, such as pembrolizumab (Keytruda). Based on these observations and data, in November 2019 the FDA granted
us a second Breakthrough Designation “…for the treatment of individuals with advanced or metastatic cancer who are either
unresponsive to or intolerant of standard of care therapy, and with cancer types in which exosomes have been shown to participate in the
development or severity of the disease.”
U.S. GOVERNMENT CONTRACTS
We have recognized revenue
under the following government contracts/grants over the past two years:
Phase 2 Melanoma Cancer Contract
On September 12, 2019, the
National Cancer Institute, or NCI, part of the National Institutes of Health, or NIH, awarded to us an SBIR Phase II Award Contract, for
NIH/NCI Topic 359, entitled “A Device Prototype for Isolation of Melanoma Exosomes for Diagnostics and Treatment Monitoring”,
or the Award Contract. The Award Contract amount was $1,860,561 and, as amended, ran for the period from September 16, 2019 through September
15, 2022.
The work performed pursuant
to this Award Contract was focused on melanoma exosomes. This work followed from our completion of a Phase I contract for the Topic 359
solicitation that ran from September 2017 through June 2018, as described below. Following on the Phase I work, the deliverables in the
Phase II program involved the design and testing of a pre-commercial prototype of a more advanced version of the exosome isolation platform.
The Award Contract ended on
September 15, 2022 and we presented the required final report to the NCI. As the NCI completed its close out review of the contract, we
recognized as revenue the $574,245 previously recorded as deferred revenue on our December 31, 2022 balance sheet.
Subaward with University of Pittsburgh
In December 2020, we entered
into a cost reimbursable subaward arrangement with the University of Pittsburgh in connection with an NIH contract entitled “Depleting
Exosomes to Improve Responses to Immune Therapy in HNNCC.” Our share of the award was $256,750. We did not record revenue related
to this subaward in the fiscal year ended March 31, 2023. We recorded $64,467of revenue related to this subaward in the fiscal year ended
March 31, 2022.
In October 2022, we agreed
with the University of Pittsburgh to terminate the subaward arrangement, effective as of November 10, 2022, since it related to our clinical
trial in head and neck cancer in which the University of Pittsburgh was unable to recruit patients. There are no provisions in the subaward
arrangement requiring repayment of cash received for work completed through November 10, 2022.
Research and Development Costs
A substantial portion of our
operating budget is used for research and development activities. The cost of research and development, all of which has been charged
to operations, amounted to approximately $2,745,000 and $2,341,000 in the fiscal years ended March 31, 2023 and 2022, respectively.
Intellectual Property
We currently own or have license
rights to a number of U.S. and foreign patents and patent applications and endeavor to continually improve our intellectual property position.
We consider the protection of our technology, whether owned or licensed, to the exclusion of use by others, to be vital to our business.
While we intend to focus primarily on patented or patentable technology, we also rely on trade secrets, unpatented property, know-how,
regulatory exclusivity, patent extensions and continuing technological innovation to develop our competitive position. We also own certain
trademarks.
Our success depends in large
part on our ability to protect our proprietary technology, including the Hemopurifier product platform, and to operate without infringing
the proprietary rights of third parties. We rely on a combination of patent, trade secret, copyright and trademark laws, as well as confidentiality
agreements, licensing agreements and other agreements, to establish and protect our proprietary rights. Our success also depends, in part,
on our ability to avoid infringing patents issued to others. If we were judicially determined to be infringing on any third-party patent,
we could be required to pay damages, alter our products or processes, obtain licenses or cease sales of products or certain activities.
To protect our proprietary
medical technologies, including the Hemopurifier product platform and other scientific discoveries, we have a portfolio of over 50 issued
patents and pending applications worldwide. We currently have five issued U.S. patents and 32 issued patents in countries outside of the
United States. In addition, we have thirteen patent applications pending worldwide related to our Hemopurifier product platform and other
technologies. We are seeking additional patents on our scientific discoveries.
It is possible that our pending
patent applications may not result in issued patents, that we will not develop additional proprietary products that are patentable, that
any patents issued to us may not provide us with competitive advantages or will be challenged by third parties and that the patents of
others may prevent the commercialization of products incorporating our technology. Furthermore, others may independently develop similar
products, duplicate our products or design around our patents. U.S. patent applications are not immediately made public, so it is possible
that a third party may obtain a patent on a technology we are actively using.
There is a risk that any patent
applications that we file and any patents that we hold or later obtain could be challenged by third parties and declared invalid or unenforceable.
For many of our pending applications, patent interference proceedings may be instituted with the U.S. Patent and Trademark Office, or
the USPTO, when more than one person files a patent application covering the same technology, or if someone wishes to challenge the validity
of an issued patent. At the completion of the interference proceeding, the USPTO will determine which competing applicant is entitled
to the patent, or whether an issued patent is valid. Patent interference proceedings are complex, highly contested legal proceedings,
and the USPTO’s decision is subject to appeal. This means that if an interference proceeding arises with respect to any of our patent
applications, we may experience significant expenses and delays in obtaining a patent, and if the outcome of the proceeding is unfavorable
to us, the patent could be issued to a competitor rather than to us. Third parties can file post-grant proceedings in the USPTO,
seeking to have issued patent invalidated, within nine months of issuance. This means that patents undergoing post-grant proceedings may
be lost, or some or all claims may require amendment or cancellation, if the outcome of the proceedings is unfavorable to us. Post-grant
proceedings are complex and could result in a reduction or loss of patent rights. The institution of post-grant proceedings against our
patents could also result in significant expenses.
Patent law outside the United
States is uncertain and in many countries, is currently undergoing review and revisions. The laws of some countries may not protect our
proprietary rights to the same extent as the laws of the United States. Third parties may attempt to oppose the issuance of patents to
us in foreign countries by initiating opposition proceedings. Opposition proceedings against any of our patent filings in a foreign country
could have an adverse effect on our corresponding patents that are issued or pending in the United States. It may be necessary or useful
for us to participate in proceedings to determine the validity of our patents or our competitors’ patents that have been issued
in countries other than the United States. This could result in substantial costs, divert our efforts and attention from other aspects
of our business, and could have a material adverse effect on our results of operations and financial condition. Outside of the United
States, we currently have pending patent applications or issued patents in Europe, India, Russia, Canada, Japan, Singapore and Hong Kong.
In addition to patent protection,
we rely on unpatented trade secrets and proprietary technological expertise. It is possible that others could independently develop or
otherwise acquire substantially equivalent technology, somehow gain access to our trade secrets and proprietary technological expertise
or disclose such trade secrets, or that we may not successfully ultimately protect our rights to such unpatented trade secrets and proprietary
technological expertise. We rely, in part, on confidentiality agreements with our marketing partners, employees, advisors, vendors and
consultants to protect our trade secrets and proprietary technological expertise. We cannot assure you that these agreements will not
be breached, that we will have adequate remedies for any breach or that our unpatented trade secrets and proprietary technological expertise
will not otherwise become known or be independently discovered by competitors.
Patents
The following table lists our issued patents and
patent applications, including their ownership status:
Patents Issued in the United States
PATENT # |
PATENT NAME |
ISSUANCE
DATE |
OWNED OR
LICENSED |
EXPIRATION
DATE |
9,707,333 |
Extracorporeal removal of microvesicular particles |
7/18/17 |
Owned |
1/6/29 |
9,364,601 |
Extracorporeal removal of microvesicular particles |
6/14/16 |
Owned |
10/2/29 |
8,288,172 |
Extracorporeal removal of microvesicular particles |
10/16/12 |
Owned |
3/30/29 |
7,226,429 |
Method for removal of viruses from blood by lectin affinity hemodialysis |
6/5/07 |
Owned |
1/20/24 |
10,022,483 |
Method for removal of viruses from blood by lectin affinity hemodialysis |
7/17/18 |
Owned |
1/20/24 |
Patent Applications Pending in the United States
APPLICATION # |
APPLICATION NAME |
FILING
DATE |
OWNED OR
LICENSED |
16/415,713 |
Affinity capture of circulating biomarkers |
5/17/19 |
Owned |
17/301,666 |
Method for removal of viruses from blood by lectin affinity hemodialysis |
4/09/21 |
Owned |
16/459,220 |
Methods and compositions for quantifying exosomes |
7/01/19 |
Owned |
17/918,085 |
Devices and methods for treating a coronavirus infection and symptoms thereof |
10/10/22 |
Owned |
Foreign Patents
PATENT # |
PATENT NAME |
ISSUANCE
DATE |
OWNED OR
LICENSED |
EXPIRATION
DATE |
2353399 |
Method for removal of viruses from blood by lectin affinity hemodialysis (Russia) |
4/27/09 |
Owned |
1/20/24 |
1624785 |
Method for removal of viruses from blood by lectin affinity hemodialysis (Belgium) |
7/17/13 |
Owned |
1/20/24 |
1624785 |
Method for removal of viruses from blood by lectin affinity hemodialysis (Ireland) |
7/17/13 |
Owned |
1/20/24 |
1624785 |
Method for removal of viruses from blood by lectin affinity hemodialysis (Italy) |
7/17/13 |
Owned |
1/20/24 |
1624785 |
Method for removal of viruses from blood by lectin affinity hemodialysis (Great Britain) |
7/17/13 |
Owned |
1/20/24 |
1624785 |
Method for removal of viruses from blood by lectin affinity hemodialysis (France) |
7/17/13 |
Owned |
1/20/24 |
1624785 |
Method for removal of viruses from blood by lectin affinity hemodialysis (Germany) |
7/17/13 |
Owned |
1/20/24 |
2516403 |
Method for removal of viruses from blood by lectin affinity hemodialysis (Canada) |
8/12/14 |
Owned |
1/20/24 |
2591359 |
Methods for quantifying exosomes (Germany) |
3/01/17 |
Owned |
7/07/31 |
2591359 |
Methods for quantifying exosomes (France) |
3/01/17 |
Owned |
7/07/31 |
2591359 |
Methods for quantifying exosomes (Great Britain) |
3/01/17 |
Owned |
7/07/31 |
2591359 |
Methods for quantifying exosomes (Spain) |
3/01/17 |
Owned |
7/07/31 |
2644855 |
Extracorporeal removal of microvesicular particles (Canada) |
11/19/19 |
Owned |
1/20/24 |
3061952 |
Extracorporeal removal of microvesicular particles (Canada) |
7/19/22 |
Owned |
1/20/24 |
1993600 |
Extracorporeal removal of microvesicular particles (Germany) |
4/24/19 |
Owned |
1/20/24 |
1993600 |
Extracorporeal removal of microvesicular particles (Switzerland) |
4/24/19 |
Owned |
1/20/24 |
1993600 |
Extracorporeal removal of microvesicular particles (Spain) |
4/24/19 |
Owned |
1/20/24 |
1993600 |
Extracorporeal removal of microvesicular particles (France) |
4/24/19 |
Owned |
1/20/24 |
1993600 |
Extracorporeal removal of microvesicular particles (Great Britain) |
4/24/19 |
Owned |
1/20/24 |
1993600 |
Extracorporeal removal of microvesicular particles (Italy) |
4/24/19 |
Owned |
1/20/24 |
1993600 |
Extracorporeal removal of microvesicular particles (Netherlands) |
4/24/19 |
Owned |
1/20/24 |
1993600 |
Extracorporeal removal of microvesicular particles (Sweden) |
4/24/19 |
Owned |
1/20/24 |
1126138 |
Extracorporeal removal of microvesicular particles (Hong Kong) |
6/19/20 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (Switzerland) |
4/21/21 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (Germany) |
4/21/21 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (Denmark) |
4/21/21 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (Spain) |
4/21/21 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (France) |
4/21/21 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (Great Britain) |
4/21/21 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (Ireland) |
4/21/21 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (Netherlands) |
4/21/21 |
Owned |
1/20/24 |
3517151 |
Extracorporeal removal of microvesicular particles (Sweden) |
4/21/21 |
Owned |
1/20/24 |
Pending Foreign Patent Applications
APPLICATION # |
APPLICATION NAME |
FILING
DATE |
OWNED OR LICENSED |
8139/DELNP/2008 |
Extracorporeal removal of microvesicular particles (exosomes) (India) |
3/9/07 |
Owned |
2939652 |
Brain specific exosome based diagnostics and extracorporeal therapies (Canada) |
8/12/06 |
Owned |
2021256402 |
Devices and methods for treating a coronavirus infection and symptoms thereof (Australia) |
10/16/22 |
Owned |
3178687 |
Devices and methods for treating a coronavirus infection and symptoms thereof (Canada) |
9/29/22 |
Owned |
21788894.0 |
Devices and methods for treating a coronavirus infection and symptoms thereof (Europe) |
10/26/22 |
Owned |
297109 |
Devices and methods for treating a coronavirus infection and symptoms thereof (Israel) |
10/26/22 |
Owned |
2023-505809 |
Devices and methods for treating a coronavirus infection and symptoms thereof (Japan) |
10/12/22 |
Owned |
11202253625T |
Devices and methods for treating a coronavirus infection and symptoms thereof (Singapore) |
9/29/22 |
Owned |
Pending International Patent Applications
APPLICATION # |
APPLICATION NAME |
FILING
DATE |
OWNED OR
LICENSED |
PCT/US2022/077885 |
Devices and methods for treating a viral infection and symptoms thereof |
10/11/22 |
Owned |
Trademarks
APPLICATION NAME |
FILING DATE |
OWNED OR LICENSED |
TAUSOME |
7/24/2015 |
Owned |
SANSAGITTA |
7/8/2021 |
Owned |
HEMOSAGITTA |
1/13/2021 |
Owned |
Trademarks
In addition to the Tausome,
Sansagitta and Hemosagitta trademarks noted in the above table, we also have trademark registrations in the United States for Hemopurifier
and Aethlon Medical, Inc., and obtained a trademark registration in India for Hemopurifier. We also have common law trademark rights in
Aethlon ADAPT™ and ELLSA™.
Licensing and Assignment Agreements
On November 7, 2006, we executed
an assignment agreement with the London Health Science Center Research, Inc. under which an invention and related patent rights for a
method to treat cancer were assigned to us. The invention provides for the "Extracorporeal removal of microvesicular particles"
for which the U.S. Patent and Trademark Office granted a patent (Patent No.8,288,172) in the United States as of October 2012. The agreement
provided for an upfront payment of 53 shares of unregistered common stock and a 2% royalty on any future net sales of all products or
services, the sale of which would infringe in the absence of the assignment granted under this agreement. We are also responsible for
paying certain patent application and filing costs. Under the assignment agreement, we own the patents until their respective expirations.
Under certain circumstances, ownership of the patents may revert to the London Health Science Center Research, Inc. if there is an uncured
substantial breach of the assignment agreement.
Industry & Competition
The industry for treating
infectious disease and cancer is extremely competitive, and companies developing new treatment procedures face significant capital and
regulatory challenges. As our Hemopurifier is a clinical-stage device, we have the additional challenge of establishing medical industry
support, which will be driven by treatment data resulting from human clinical studies. Should our device become market cleared by the
FDA or the regulatory body of another country, we may face significant competition from well-funded pharmaceutical organizations. Additionally,
we would likely need to establish large-scale production of our device in order to be competitive. We believe that our Hemopurifier is
a first-in-class therapeutic candidate and we are not aware of any affinity hemofiltration device being market cleared in any country
for the single-use removal of circulating viruses or tumor-derived exosomes.
Government Regulation
The Hemopurifier is subject
to regulation by numerous regulatory bodies, primarily the FDA, and comparable international regulatory agencies. These agencies require
manufacturers of medical devices to comply with applicable laws and regulations governing the development, testing, manufacturing, labeling,
marketing, storage, distribution, advertising and promotion, and post-marketing surveillance reporting of medical devices. As the primary
mode of action of the Hemopurifier is attributable to the device component of this combination product, the CDRH has primary jurisdiction
over its premarket development, review and approval. Failure to comply with applicable requirements may subject a device and/or its manufacturer
to a variety of administrative sanctions, such as issuance of warning letters, import detentions, civil monetary penalties and/or judicial
sanctions, such as product seizures, injunctions and criminal prosecution.
FDA’s Pre-market Clearance and Approval
Requirements
Each medical device we seek
to commercially distribute in the United States will require either a prior 510(k) clearance, unless it is exempt, or a pre-market approval
from the FDA. Generally, if a new device has a predicate that is already on the market under a 510(k) clearance, the FDA will allow that
new device to be marketed under a 510(k) clearance; otherwise, a premarket approval, or PMA, is required. Medical devices are classified
into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each
medical device and the extent of control needed to provide reasonable assurance of safety and effectiveness. Class I devices are
deemed to be low risk and are subject to the general controls of the Federal Food, Drug and Cosmetic Act, such as provisions that relate
to: adulteration; misbranding; registration and listing; notification, including repair, replacement, or refund; records and reports;
and good manufacturing practices. Most Class I devices are classified as exempt from pre-market notification under section 510(k)
of the FD&C Act, and therefore may be commercially distributed without obtaining 510(k) clearance from the FDA. Class II devices
are subject to both general controls and special controls to provide reasonable assurance of safety and effectiveness. Special controls
include performance standards, post market surveillance, patient registries and guidance documents. A manufacturer may be required to
submit to the FDA a pre-market notification requesting permission to commercially distribute some Class II devices. Devices deemed
by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially
equivalent to a previously cleared 510(k) device, are placed in Class III. A Class III device cannot be marketed in the United
States unless the FDA approves the device after submission of a PMA. However, there are some Class III devices for which FDA has
not yet called for a PMA. For these devices, the manufacturer must submit a pre-market notification and obtain 510(k) clearance in orders
to commercially distribute these devices. The FDA can also impose sales, marketing or other restrictions on devices in order to assure
that they are used in a safe and effective manner. We believe that the Hemopurifier will be classified as a Class III device and as such
will be subject to PMA submission and approval.
Pre-market Approval Pathway
A pre-market approval application
must be submitted to the FDA for Class III devices for which the FDA has required a PMA. The pre-market approval application process
is much more demanding than the 510(k) pre-market notification process. A pre-market approval application must be supported by extensive
data, including but not limited to technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s
satisfaction reasonable evidence of safety and effectiveness of the device.
After a pre-market approval
application is submitted, the FDA has 45 days to determine whether the application is sufficiently complete to permit a substantive review
and thus whether the FDA will file the application for review. The FDA has 180 days to review a filed pre-market approval application,
although the review of an application generally occurs over a significantly longer period of time and can take up to several years. During
this review period, the FDA may request additional information or clarification of the information already provided. Also, an advisory
panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as
to the approvability of the device.
Although the FDA is not bound
by the advisory panel decision, the panel’s recommendations are important to the FDA’s overall decision making process. In
addition, the FDA may conduct a preapproval inspection of the manufacturing facility to ensure compliance with the Quality System Regulation,
or QSR. The agency also may inspect one or more clinical sites to assure compliance with FDA’s regulations.
Upon completion of the PMA
review, the FDA may: (i) approve the PMA which authorizes commercial marketing with specific prescribing information for one or more
indications, which can be more limited than those originally sought; (ii) issue an approvable letter which indicates the FDA’s
belief that the PMA is approvable and states what additional information the FDA requires, or the post-approval commitments that must
be agreed to prior to approval; (iii) issue a not approvable letter which outlines steps required for approval, but which are typically
more onerous than those in an approvable letter, and may require additional clinical trials that are often expensive and time consuming
and can delay approval for months or even years; or (iv) deny the application. If the FDA issues an approvable or not approvable
letter, the applicant has 180 days to respond, after which the FDA’s review clock is reset.
Emergency Use Authorizations,
or EUAs, are granted by FDA in public health emergencies but allow use of the authorized device only during the period of the respective
public health emergency, and do not change the requirement to ultimately seek PMA approval after the authorization period has ended.
Clinical Trials
Clinical trials are almost
always required to support pre-market approval and are sometimes required for 510(k) clearance. In the United States, for significant
risk devices, these trials require submission of an application for an IDE to the FDA. The IDE application must be supported by appropriate
data, such as animal and laboratory testing results, showing it is safe to test the device in humans and that the testing protocol is
scientifically sound. The IDE must be approved in advance by the FDA for a specific number of patients at specified study sites. During
the trial, the sponsor must comply with the FDA’s IDE requirements for investigator selection, trial monitoring, reporting and recordkeeping.
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 recordkeeping requirements. Clinical trials for significant risk devices
may not begin until the IDE application is approved by the FDA and the appropriate institutional review boards, or IRBs, at the clinical
trial sites. An IRB is an appropriately constituted group that has been formally designated to review and monitor medical research involving
subjects and which has the authority to approve, require modifications in, or disapprove research to protect the rights, safety and welfare
of human research subjects. The FDA or the IRB at each site at which a clinical trial is being performed may withdraw approval of a clinical
trial at any time for various reasons, including a belief that the risks to study subjects outweigh the benefits or a failure to comply
with FDA or IRB requirements. Even if a trial is completed, the results of clinical testing may not demonstrate the safety and effectiveness
of the device, may be equivocal or may otherwise not be sufficient to obtain approval or clearance of the product.
Ongoing Regulation by the FDA
Even after a device receives clearance or approval
and is placed on the market, numerous regulatory requirements apply. These include:
|
· |
establishment registration and device listing; |
|
· |
the QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process; |
|
· |
labeling regulations and the FDA prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses and other requirements related to promotional activities; |
|
· |
medical device reporting regulations, which require that manufactures report to the FDA if their device may have caused or contributed to a death or serious injury, or if their device malfunctioned and the device or a similar device marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur; |
|
· |
corrections and removal reporting regulations, which require that manufactures report to the FDA field corrections or removals if undertaken to reduce a risk to health posed by a device or to remedy a violation of the FDCA that may present a risk to health; and |
|
· |
post market surveillance regulations, which apply to certain Class II or III devices when necessary to protect the public health or to provide additional safety and effectiveness data for the device. |
Some changes to an approved
PMA device, including changes in indications, labeling or manufacturing processes or facilities, require submission and FDA approval of
a new PMA or PMA supplement, as appropriate, before the change can be implemented. 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 that information needed
to support the proposed change from the device covered by the original PMA. The FDA uses the same procedures and actions in reviewing
PMA supplements as it does in reviewing original PMAs.
Failure by us or by our suppliers
to comply with applicable regulatory requirements can result in enforcement action by the FDA or state authorities, which may include
any of the following sanctions:
|
· |
warning or untitled letters, fines, injunctions, consent decrees and civil penalties; |
|
· |
customer notifications, voluntary or mandatory recall or seizure of our products; |
|
· |
operating restrictions, partial suspension or total shutdown of production; |
|
· |
delay in processing submissions or applications for new products or modifications to existing products; |
|
· |
withdrawing approvals that have already been granted; and |
The Medical Device Reporting
laws and regulations require us to provide information to the FDA when we receive or otherwise become aware of information that reasonably
suggests our device may have caused or contributed to a death or serious injury as well as a device malfunction that likely would cause
or contribute to death or serious injury if the malfunction were to recur. In addition, the FDA prohibits an approved device from being
marketed for off-label use. 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, including substantial
monetary penalties and criminal prosecution.
Newly discovered or developed
safety or effectiveness data may require changes to a product’s labeling, including the addition of new warnings and contraindications,
and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting
from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory clearance or
approval of our products under development.
Healthcare Regulation
In addition to the FDA’s
restrictions on marketing of pharmaceutical products, the U.S. healthcare laws and regulations that may affect our ability to operate
include: the federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security
laws; and federal transparency laws related to payments and/or other transfers of value made to physicians (defined to include doctors,
dentists, optometrists, podiatrists and chiropractors) and other healthcare professionals (such as physicians assistants and nurse practitioners)
and teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways,
thus complicating compliance efforts. For example, states have anti-kickback and false claims laws that may be broader in scope than analogous
federal laws and may apply regardless of payor. In addition, state data privacy laws that protect the security of health information may
differ from each other and may not be preempted by federal law. Moreover, several states have enacted legislation requiring pharmaceutical
manufacturers to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public
disclosures on sales and marketing activities, report information related to drug pricing, require the registration of sales representatives,
and prohibit certain other sales and marketing practices. These laws may adversely affect our sales, marketing and other activities with
respect to any product candidate for which we receive approval to market in the United States by imposing administrative and compliance
burdens on us.
Because of the breadth of
these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business
activities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States,
could be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and
state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and
administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare
programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to
resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business and our results of operations.
From time to time, legislation
is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture
and marketing of regulated products or the reimbursement thereof. For example, in the United States, the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, ACA, among other things, reduced and/or
limited Medicare reimbursement to certain providers and imposed an annual excise tax of 2.3% on any entity that manufactures or imports
medical devices offered for sale in the United States, with limited exceptions. However, the 2020 federal spending package permanently
eliminated, effective January 1, 2020, this ACA-mandated medical device tax. On June 17, 2021, the U.S. Supreme Court dismissed a challenge
on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed
by Congress. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which among other
things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. The
IRA also eliminates the "donut hole" under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary
maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the ACA will be subject to judicial or
Congressional challenges in the future. It is unclear how such challenges and any additional healthcare reform measures will impact the
ACA.
Other legislative changes
have been proposed and adopted since the ACA was enacted. The Budget Control Act of 2011, as amended by subsequent legislation, further
reduces Medicare’s payments to providers by two percent through fiscal year 2032. These reductions may reduce providers’ revenues
or profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare industry in the United States has
experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment
rates and negotiating reduced contract rates with service providers. In July 2021, the Biden Administration released an executive order,
“Promoting Competition in the American Economy,” which contained provisions relating to prescription drugs. On September 9,
2021, in response to this executive order, the U.S. Department of Health and Human Services, or HHS, released a Comprehensive Plan for
Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies
that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. Further, the IRA, among
other things (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics covered under Medicare
and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions
will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. HHS has and will continue
to issue and update guidance as these programs are implemented. It is currently unclear how the IRA will be implemented but is likely
to have a significant impact on the pharmaceutical industry. In addition, in response to the Biden administration’s October 2022
executive order, on February 14, 2023, HHS released a report outlining three new models for testing by the Center for Medicare and Medicaid
Innovation which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality of care. It
is unclear whether the models will be utilized in any health reform measures in the future.
Legislation could be adopted
in the future that limits payments for our products from governmental payors. It is possible that additional governmental action will
be taken to address the COVID-19 pandemic. In addition, commercial payors such as insurance companies, could adopt similar policies that
limit reimbursement for medical device manufacturers’ products.
Coverage and Reimbursement
In both the U.S. and international
markets, the use of medical devices is dependent in part on the availability of reimbursement from third-party payors, such as government
and private insurance plans. Healthcare providers that use medical devices generally rely on third-party payors to pay for all or part
of the costs and fees associated with the medical procedures being performed or to compensate them for their patient care services. Should
our Hemopurifier or any other products under development be approved for commercialization by the FDA, any such products may not be considered
cost-effective, reimbursement may not be available in the United States or other countries, if approved, and reimbursement may not be
sufficient to allow sales of our future products on a profitable basis. The coverage decisions of third-party payors will be significantly
influenced by the assessment of our future products by health technology assessment bodies. If approved for use in the United States,
we expect that any products that we develop, including the Hemopurifier, will be purchased primarily by medical institutions, which will
in turn bill various third-party payors for the health care services provided to patients at their facility. Payors may include the Centers
for Medicare & Medicaid Services, or CMS, which administers the Medicare program and works in partnership with state governments to
administer Medicaid, other government programs and private insurance plans. The process involved in applying for coverage and reimbursement
from CMS is lengthy and expensive. Further, Medicare coverage is based on our ability to demonstrate that the treatment is “reasonable
and necessary” for Medicare beneficiaries. Even if products utilizing our Aethlon Hemopurifier technology receive FDA and other
regulatory clearance or approval, they may not be granted coverage and reimbursement by any payor, including by CMS. Many private payors
use coverage decisions and payment amounts determined by CMS as guidelines in setting their coverage and reimbursement policies and amounts.
However, no uniform policy for coverage and reimbursement for medical devices exists among third-party payors in the United States. Therefore,
coverage and reimbursement can differ significantly from payor to payor.
Manufacturing
To date, manufacturing of
our Hemopurifier occurs in collaboration with a contract manufacturer based in California under current Good Manufacturing Practice, or
cGMP, regulations promulgated by the FDA. Our contract manufacturer is registered with the FDA. To date, our manufacture of the Hemopurifier
has been limited to quantities necessary to support our clinical studies.
Our costs of compliance with federal, state and
local environmental laws have been immaterial to date.
Sources and Availability of Raw Materials and the Names
of Principal Suppliers
Our Hemopurifiers were previously
assembled by Aethlon personnel in a cGMP manufacturing facility provided by Life Science Outsourcing, Inc, or LSO. Currently, we are in
the process of bringing our manufacturing operations in-house. Aethlon personnel assemble the various components of the Hemopurifier with
materials from our various suppliers, which are purchased and released by Aethlon. Specifically, the Hemopurifier contains three critical
components with limited available suppliers. The GNA lectin is sourced from Vector Laboratories Inc. and also is available from other
suppliers. We currently are experiencing a disruption in our Hemopurifier supply, as our existing supply of Hemopurifiers expired on September
30, 2022, and as previously disclosed, we are dependent on FDA approval of qualified suppliers to manufacture our Hemopurifier. Our intended
transition to a new supplier for GNA is delayed as we work with the FDA for approval of our supplement to our IDE, which is required to
make this manufacturing change. The base cartridge on which the Hemopurifier is constructed is sourced from Medica S.p.A and we are dependent
on the continued availability of these cartridges. Although there are other suppliers, the process of qualifying a new supplier takes
time and regulatory approvals must be obtained. We currently purchase the diatomaceous earth from Janus Scientific, Inc., as the distributor;
however, the product is manufactured by Imerys Minerals Ltd. There potentially are other suppliers of this product, but as with the cartridges,
qualifying and obtaining required regulatory approvals takes time and resources.
Sales and Marketing
We do not currently have any
sales and marketing capability. With respect to commercialization efforts in the future, we intend to build or contract for distribution,
sales and marketing capabilities for any product candidate that is approved. From time to time, we have had and are having strategic discussions
with potential collaboration partners for our product candidates, although no assurance can be given that we will be able to enter into
one or more collaboration agreements for our product candidates on acceptable terms, if at all.
Product Liability
The risk of product liability
claims, product recalls and associated adverse publicity is inherent in the testing, manufacturing, marketing and sale of medical products.
We have limited clinical trial liability insurance coverage. It is possible that future insurance coverage may not be adequate or available.
We may not be able to secure product liability insurance coverage on acceptable terms or at reasonable costs when needed. Any liability
for mandatory damages could exceed the amount of our coverage. A successful product liability claim against us could require us to pay
a substantial monetary award. Moreover, a product recall could generate substantial negative publicity about our products and business
and inhibit or prevent commercialization of other future product candidates.
Employees
As of June 26, 2023, we had
15 full-time employees and no part-time employees. All of our employees are located in the United States. We do intend to hire additional
employees. We utilize, whenever appropriate, consultants in order to conserve cash and resources.
We believe our employee relations
are good. None of our employees are represented by a labor union or are subject to collective-bargaining agreements.
ITEM 1A. RISK FACTORS
An investment in our securities
involves a high degree of risk. You should carefully consider the risks described below as well as the other information in this Annual
Report before deciding to invest in or maintain your investment in our company. The risks described below are not intended to be an all-inclusive
list of all of the potential risks relating to an investment in our securities. Any of the risk factors described below could significantly
and adversely affect our business, prospects, financial condition and results of operations. Additional risks and uncertainties not currently
known or that are currently considered to be immaterial may also materially and adversely affect our business. As a result, the trading
price or value of our securities could be materially adversely affected and you may lose all or part of your investment.
Risks Relating to Our Financial Position and Need for Additional
Capital
We have incurred significant losses and expect to continue to
incur losses for the foreseeable future.
We have never been profitable.
We have generated revenues during the fiscal years ended March 31, 2023 and March 31, 2022 in the amounts of $574,245 and $294,165, respectively,
primarily from our contract with the NIH, which ended in September 2022. Our revenues, from research grants, continue to be insufficient
to cover our cost of operations. It is possible that we may not be able to enter into future government contracts. Future profitability,
if any, will require the successful commercialization of our Hemopurifier technology or any other product that we develop or from additional
government contract or grant income we may obtain. We may not be able to successfully commercialize the Hemopurifier or any other products,
and even if commercialization is successful, we may never be profitable.
We will require additional financing to sustain our operations,
achieve our business objectives and satisfy our cash obligations, which may dilute the ownership of our existing stockholders.
We will require significant
additional financing for our operations and for expected additional future clinical trials in the United States, India and Australia,
regulatory clearances, and continued research and development activities for the Hemopurifier and other future products. In addition,
as we expand our activities, our overhead costs to support personnel, laboratory materials and infrastructure will increase. We may also
choose to raise additional funds in debt or equity financings if they are available to us on reasonable terms to increase our working
capital and to strengthen our financial position. Any sale of additional equity or convertible debt securities could result in dilution
of the equity interests of our existing stockholders. Additionally, new investors may require that we and certain of our stockholders
enter into voting arrangements that give them additional voting control or representation on our Board of Directors. If required financing
is unavailable to us on reasonable terms, or at all, we may be unable to support our operations, including our research and development
activities, which would have a material adverse effect on our ability to commercialize our products or continue our business.
Our ability to raise additional
funds may be adversely impacted by our ability to remain listed on Nasdaq, the potential worsening global economic conditions and disruptions
to and volatility in the credit and financial markets in the United States, including due to bank
failures, actual or perceived changes in interest rates and economic inflation, and worldwide resulting from macroeconomic factors.
Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased
expenses and cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Risks Related to Our Business Operations
Delays, interruptions or the cessation of
production by our third-party suppliers of important materials or delays in qualifying new materials, has and may continue to prevent
or delay our ability to manufacture our Hemopurifier.
Most of the raw materials
used in the process for manufacturing our Hemopurifier are available from more than one supplier. However, there are materials within
the manufacturing and production process that come from single suppliers. We do not have written contracts with all of our single source
suppliers, and at any time they could stop supplying our orders. FDA review of a new supplier is required if these materials become unavailable
from our current suppliers. Currently, we are experiencing an interruption in the manufacturing of our Hemopurifier as we transition to
a new supplier of galanthus nivalis agglutinin, or GNA, used in the manufacture of our Hemopurifier. We have not received the required
FDA approval of our proposal to approve a new qualified supplier of the GNA and are working with the FDA to gain approval of this supplier.
Although we have completed the manufacture of 112 Hemopurifiers, which have passed our quality control measures, we cannot ship the cartridges
for domestic use until we have FDA approval of our new GNA supplier. FDA review of the new supplier could take several additional months
to obtain.
In addition, an uncorrected
impurity, a supplier’s variation in a raw material or testing, either unknown to us or incompatible with its manufacturing process,
or any other problem with our materials, testing or components, would prevent or delay the release of our Hemopurifiers for use in our
clinical trials. For example, in late 2020, we identified during our device quality review procedures prior to product release that one
of our critical suppliers had produced a Hemopurifier component that was not produced to our specifications, although no affected Hemopurifiers
were released into our inventory or to any clinical trial sites. Our current inventory of Hemopurifiers expired on September 30, 2022.
Any further delay in achieving the required FDA approvals for our new supplier will limit our ability to meet any demand for the Hemopurifier
in the United States and delay our clinical trials in the United States, which could have a material adverse impact on our business, results
of operations and financial condition.
Difficulties in manufacturing our Hemopurifier
could have an adverse effect upon our expenses, our product revenues and our ability to complete our clinical trials.
We currently outsource most
of the manufacturing of our Hemopurifier. The manufacturing of our Hemopurifier is difficult and complex. To support our current clinical
trial needs, we comply with and intend to continue to comply with cGMP in the manufacture of our product. Our ability to adequately manufacture
and supply our Hemopurifier in a timely matter is dependent on the uninterrupted and efficient operation of our facilities and those of
third parties producing raw materials and supplies upon which we rely in our manufacturing. We currently are experiencing an interruption
in our Hemopurifier manufacturing due to delays in obtaining necessary regulatory approval of a new manufacturer of GNA. The manufacture
of our products may also be impacted by:
|
· |
availability or contamination of raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier; |
|
· |
our ability to comply with new regulatory requirements, including our ability to comply with cGMP; |
|
· |
changes in forecasts of future demand for product components; |
|
· |
potential facility contamination by microorganisms or viruses; |
|
· |
updating of manufacturing specifications; |
|
· |
product quality success rates and yields; and |
|
· |
global viruses and pandemics, including the current COVID-19 pandemic. |
The current interruption in
the manufacture and supply of our Hemopurifier has and may continue to delay shipments of our Hemopurifier for use in clinical trials
in the United States.
Our products are
manufactured with raw materials that are sourced from specialty suppliers with limited competitors and we may therefore be unable to access
the materials we need to manufacture our products.
Specifically,
the Hemopurifier contains three critical components with limited supplier numbers. The base cartridge on which the Hemopurifier is constructed
is sourced from Medica S.p.A and we are dependent on the continued availability of these cartridges. We currently purchase the diatomaceous
earth from Janus Scientific Inc., our distributor; however, the product is manufactured by Imerys Minerals Ltd., which is the only supplier
of this product. The GNA is sourced from Vector Laboratories, Inc. and also is available from other suppliers; however, Sigma Aldrich
is our only back up supplier at this time and we are in the process of working with the FDA to obtain regulatory approval for this supplier.
A business interruption at any of these sources, including the interruption resulting from the delay in obtaining FDA approval of our
new GNA supplier, has and may continue to have a material impact on our ability to manufacture the Hemopurifier.
We face intense competition in the medical device industry.
We compete with numerous
U.S. and foreign companies in the medical device industry, and many of our competitors have greater financial, personnel, operational
and research and development resources than we do. We believe that because the field of exosome research is burgeoning, multiple competitors
are or will be developing competing technologies to address exosomes in cancer. Progress is constant in the treatment and prevention
of viral diseases, so the opportunities for the Hemopurifier may be reduced there as well. Diagnostic technology may be developed that
can supplant diagnostics we are developing for viruses and cancer. Our commercial opportunities will be reduced or eliminated if our
competitors develop and market products for any of the diseases we target that:
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have fewer or less severe adverse side effects; |
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are more adaptable to various modes of dosing; |
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are easier to administer; or |
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are less expensive than the products or product candidates we are developing. |
Even if we are successful
in developing the Hemopurifier and obtain FDA and other regulatory approvals necessary for commercialization, our products may not compete
effectively with other successful products. Researchers are continually learning more about diseases, which may lead to new technologies
for treatment. Our competitors may succeed in developing and marketing products that are either more effective than those that we may
develop, alone or with our collaborators, or that are marketed before any products we develop are marketed. Our competitors include fully
integrated pharmaceutical companies and biotechnology companies as well as universities and public and private research institutions.
Many of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities,
greater experience in product development and in obtaining regulatory approvals, and greater marketing capabilities than we do. If our
competitors develop more effective pharmaceutical treatments for infectious disease or cancer, or bring those treatments to market before
we can commercialize the Hemopurifier for such uses, we may be unable to obtain any market traction for our products, or the diseases
we seek to treat may be substantially addressed by competing treatments. If we are unable to successfully compete against larger companies
in the pharmaceutical industry, we may never generate significant revenue or be profitable.
We have limited experience in identifying
and working with large-scale contracts with medical device manufacturers; manufacture of our devices must comply with good manufacturing
practices in the United States.
To achieve the levels of production
necessary to commercialize our Hemopurifier and any other future products, we will need to secure large-scale manufacturing agreements
with contract manufacturers which comply with good manufacturing practice standards and other standards prescribed by various federal,
state and local regulatory agencies in the United States and any other country of use. We have limited experience coordinating and overseeing
the manufacture of medical device products on a large-scale. It is possible that manufacturing and control problems will arise as we attempt
to commercialize our products and that manufacturing may not be completed in a timely manner or at a commercially reasonable cost. In
addition, we may not be able to adequately finance the manufacture and distribution of our products on terms acceptable to us, if at all.
If we cannot successfully oversee and finance the manufacture of our products if they obtain regulatory clearances, we may never generate
revenue from product sales and we may never be profitable.
Our Hemopurifier technology may become obsolete.
Our Hemopurifier product may
be made unmarketable prior to commercialization by us by new scientific or technological developments by others with new treatment modalities
that are more efficacious and/or more economical than our products. The homeland security industry is growing rapidly with many competitors
that are trying to develop products or vaccines to protect against infectious disease. Any one of our competitors could develop a more
effective product which would render our technology obsolete. Further, our ability to achieve significant and sustained penetration of
our key target markets will depend upon our success in developing or acquiring technologies developed by other companies, either independently,
through joint ventures or through acquisitions. If we fail to develop or acquire, and manufacture and sell, products that satisfy our
customers’ demands, or we fail to respond effectively to new product announcements by our competitors by quickly introducing competitive
products, then market acceptance of our products could be reduced and our business could be adversely affected. Our products may not remain
competitive with products based on new technologies.
Our success is dependent in part on our
executive officers.
Our success depends to a critical
extent on the continued services of our Chief Executive Officer, Charles J. Fisher, Jr., M.D., our Chief Financial Officer, James B. Frakes,
our Chief Medical Officer, Steven LaRosa, M.D., our Chief Scientific Officer, Lee D. Arnold, Ph.D., and our Chief Business Officer, Guy
Cipriani. If any of these key executive officers were to leave us, we would be forced to expend significant time and money in the pursuit
of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital.
The unique knowledge and expertise of these individuals would be difficult to replace within the biotechnology field. We do not currently
carry key man life insurance policies on any of our key executive officers which would assist us in recouping our costs in the event of
the loss of those officers. If any of our key officers were to leave us, it could make it impossible, if not cause substantial delays
and costs, to implement our long-term business objectives and growth.
Our inability to attract and retain qualified
personnel could impede our ability to achieve our business objectives.
We have 15 full-time employees. We utilize, whenever
appropriate, consultants in order to conserve cash and resources. Although we believe that these employees and consultants will be
able to handle most of our additional administrative, research and development and business development in the near term, we will nevertheless
be required over the longer-term to hire highly skilled managerial, scientific and administrative personnel to fully implement our business
plan and growth strategies. Due to the specialized scientific nature of our business, we are highly dependent upon our ability to attract
and retain qualified scientific, technical and managerial personnel. Competition for these individuals, especially in San Diego, California,
where many biotechnology companies are located, is intense and we may not be able to attract, assimilate or retain additional highly qualified
personnel in the future. We may not be able to engage the services of qualified personnel at competitive prices or at all, particularly
given the risks of employment attributable to our limited financial resources and lack of an established track record. Also, if we are
required to attract personnel from other parts of the U.S. or abroad, we may have significant difficulty doing so due to the high cost
of living in the Southern California area and due to the costs incurred with transferring personnel to the area. If we cannot attract
and retain qualified staff and executives, we will be unable to develop our products and achieve regulatory clearance, and our business
could fail.
We plan to expand our operations, which
may strain our resources; our inability to manage our growth could delay or derail implementation of our business objectives.
We will need to significantly expand our operations to implement our
longer-term business plan and growth strategies. We will also be required to manage multiple relationships with various strategic partners,
technology licensors, customers, manufacturers and suppliers, consultants and other third parties. This expansion and these expanded relationships
will require us to significantly improve or replace our existing managerial, operational and financial systems, procedures and controls;
to improve the coordination between our various corporate functions; and to manage, train, motivate and maintain a growing employee base.
The time and costs to effectuate these steps may place a significant strain on our management personnel, systems and resources, particularly
given the limited amount of financial resources and skilled employees that may be available at the time. We may not be able to institute,
in a timely manner or at all, the improvements to our managerial, operational and financial systems, procedures and controls necessary
to support our anticipated increased levels of operations and to coordinate our various corporate functions, or that we will be able to
properly manage, train, motivate and retain our anticipated increased employee base. If we cannot manage our growth initiatives, including
our expansion of our clinical trials in India and potentially in other countries, we will be unable to commercialize our products on a
large-scale in a timely manner, if at all, and our business could fail.
We may enter new business areas, such as the organ transplant
market or diagnostics. We do not have any experience in these areas. We would likely face competition from entities more familiar with
these businesses and our efforts may not succeed.
In the future, we may expand
our operations into business areas, such as the organ transplant market which we currently are exploring, where we do not have any experience.
These areas would be new to our product development and management personnel, and we may not be successful in these new areas. Even if
we are successful in developing our Hemopurifier for the organ transplant market, we may not be able to compete effectively or generate
significant revenues in this new area. Many companies of all sizes, including major pharmaceutical companies, specialized biotechnology
companies, and traditional healthcare providers, are engaged in redesigning organ transplant care and diagnostic medicine. Competitors
operating in these potential new business areas may have substantially greater financial and other resources, larger research and development
staff, and more experience in these business areas. It is possible that, even if we are successful in these new areas, that the market
will not accept our product, or that our product will generate significant revenues for us.
As a public company with limited financial resources undertaking
the launch of new medical technologies, we may have difficulty attracting and retaining executive management and directors.
The directors and management
of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims,
as well as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws
imposing additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and management
are also becoming increasingly concerned with the availability of directors’ and officers’ liability insurance to pay on a
timely basis the costs incurred in defending such claims. While we currently carry directors’ and officers’ liability insurance,
such insurance is expensive and difficult to obtain. If we are unable to continue or provide directors’ and officers’ liability
insurance at affordable rates or at all, it may become increasingly more difficult to attract and retain qualified outside directors to
serve on our Board of Directors. We may lose potential independent board members and management candidates to other companies in the biotechnology
field that have greater directors’ and officers’ liability insurance to insure them from liability or to biotechnology companies
that have revenues or have received greater funding to date which can offer greater compensation packages. The fees of directors are also
rising in response to their increased duties, obligations and liabilities. In addition, our products could potentially be harmful to users,
and we are exposed to claims of product liability including for injury or death. We have limited insurance and may not be able to afford
robust coverage even as our products are introduced into the market. As a company with limited resources and potential exposures to management,
we will have a more difficult time attracting and retaining management and outside independent directors than a more established public
or private company due to these enhanced duties, obligations and potential liabilities.
If we fail to comply with extensive regulations
of U.S. and foreign regulatory agencies, the commercialization of our products could be delayed or prevented entirely.
Our Hemopurifier product is
subject to extensive government regulations related to development, testing, manufacturing and commercialization in the United States
and other countries. The determination of when and whether a product is ready for large-scale purchase and potential use will be made
by the U.S. Government through consultation with a number of governmental agencies, including the FDA, the National Institutes of Health,
the Centers for Disease Control and Prevention and the Department of Homeland Security. Our Hemopurifier has not received required regulatory
approval from the FDA, or any foreign regulatory agencies, to be commercially marketed and sold. The process of obtaining and complying
with FDA and other governmental regulatory approvals and regulations in the United States and in foreign countries is costly, time consuming,
uncertain and subject to unanticipated delays. Obtaining such regulatory approvals, if any, can take several years. Despite the time and
expense exerted, regulatory approval is never guaranteed. We also are subject to the following risks and obligations, among others:
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the FDA may refuse to approve an application if it believes that applicable regulatory criteria are not satisfied; |
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the FDA may require additional testing for safety and effectiveness; |
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the FDA may interpret data from pre-clinical testing and clinical trials in different ways than we interpret them; |
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if regulatory approval of a product is granted, the approval may be limited to specific indications or limited with respect to its distribution; and |
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the FDA may change its approval policies and/or adopt new regulations. |
Failure to comply with these
or other regulatory requirements of the FDA may subject us to administrative or judicially imposed sanctions, including:
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product seizure or detention; |
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total or partial suspension of productions. |
Delays in successfully completing our planned
clinical trials could jeopardize our ability to obtain regulatory approval.
Our business prospects depend
on our ability to complete studies, clinical trials, including our ongoing and planned studies in COVID-19 patients and solid tumors in
cancer, obtain satisfactory results, obtain required regulatory approvals and successfully commercialize our Hemopurifier product candidate.
Completion of our clinical trials, announcement of results of the trials and our ability to obtain regulatory approvals could be delayed
for a variety of reasons, including:
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slow patient enrollment; |
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serious adverse events related to our medical device candidates; |
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unsatisfactory results of any clinical trial; |
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the failure of our principal third-party investigators to perform our clinical trials on our anticipated schedules; |
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different interpretations of our pre-clinical and clinical data, which could initially lead to inconclusive results; and |
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delays resulting from the coronavirus pandemic. |
Our development costs will
increase if we have material delays in any clinical trial or if we need to perform more or larger clinical trials than planned. If the
delays are significant, or if any of our product candidates do not prove to be safe or effective or do not receive required regulatory
approvals, our financial results and the commercial prospects for our product candidates will be harmed. Furthermore, our inability to
complete our clinical trials in a timely manner could jeopardize our ability to obtain regulatory approval for our Hemopurifier or any
other potential product candidates.
If we or our suppliers fail to comply with
ongoing FDA or foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products
could be subject to restrictions or withdrawal from the market.
Any product for which we obtain
clearance or approval, if any, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities
for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and
foreign regulatory bodies. In particular, we and our third-party suppliers may be required to comply with the FDA’s Quality System
Regulation, or QSR. These FDA regulations cover the methods and documentation of the design, testing, production, control, quality assurance,
labeling, packaging, sterilization, storage and shipping of our products. Compliance with applicable regulatory requirements is subject
to continual review and is monitored rigorously through periodic inspections by the FDA. If we, or our manufacturers, fail to adhere to
QSR requirements in the United States, this could delay production of our products and lead to fines, difficulties in obtaining regulatory
clearances, recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn,
have a material adverse effect on our financial condition or results of operations.
In addition, the FDA assesses
compliance with the QSR through periodic announced and unannounced inspections of manufacturing and other facilities. The failure by us
or one of our suppliers to comply with applicable statutes and regulations administered by the FDA, or the failure to timely and adequately
respond to any adverse inspectional observations or product safety issues, could result in any of the following enforcement actions:
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untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; |
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unanticipated expenditures to address or defend such actions; |
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customer notifications or repair, replacement, refunds, recall, detention or seizure of our products; |
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operating restrictions or partial suspension or total shutdown of production; |
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refusing or delaying our requests for 510(k) clearance or premarket approval of new products or modified products; |
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withdrawing 510(k) clearances or premarket approvals that have already been granted; |
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refusal to grant export approval for our products; or |
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criminal prosecution. |
Moreover, the FDA strictly
regulates the promotional claims that may be made about approved products. In particular, a product may not be promoted for uses that
are not approved by the FDA as reflected in the product’s approved labeling. However, companies may share truthful and not misleading
information that is otherwise consistent with a product’s FDA approved labeling. 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 civil, criminal and administrative penalties.
Any of these sanctions could
have a material adverse effect on our reputation, business, results of operations and financial condition. Furthermore, our key component
suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result
in our failure to produce our products on a timely basis and in the required quantities, if at all.
If our products, or malfunction of our products,
cause or contribute to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary
corrective actions or agency enforcement actions.
Under the FDA medical device
reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused
or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury
if the malfunction of the device or one of our similar devices were to recur. If we fail to report these events to the FDA within the
required timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving our products also could
result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement
action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication
of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
We outsource many of our operational and
development activities, and if any party to which we have outsourced certain essential functions fails to perform its obligations under
agreements with us, the development and commercialization of our lead product candidate and any future product candidates that we may
develop could be delayed or terminated.
We rely on third-party consultants
or other vendors to manage and implement much of the day-to-day conduct of our clinical trials and the manufacturing our Hemopurifier
product candidate. Accordingly, we are and will continue to be dependent on the timeliness and effectiveness of the efforts of these third
parties. Our dependence on third parties includes key suppliers and third-party service providers supporting the development, manufacture
and regulatory approval of our Hemopurifier, as well as support for our information technology systems and other infrastructure. While
our management team oversees these vendors, failure of any of these third parties to meet their contractual, regulatory and other obligations
or the development of factors that materially disrupt the performance of these third parties could have a material adverse effect on our
business. For example, all of the key oversight responsibilities for the development and manufacture of our Hemopurifier are conducted
by our management team, but all other activities are the responsibility of third-party vendors.
If a clinical research organization
that we utilize is unable to allocate sufficient qualified personnel to our studies in a timely manner or if the work performed by it
does not fully satisfy the requirements of the FDA or other regulatory agencies, we may encounter substantial delays and increased costs
in completing our development efforts. Any manufacturer that we select may encounter difficulties in the manufacture of new products in
commercial quantities, including problems involving product yields, product stability or shelf life, quality control, adequacy of control
procedures and policies, compliance with FDA regulations and the need for further FDA approval of any new manufacturing processes and
facilities. If any of these occur, the development and commercialization of our Hemopurifier product candidate could be delayed, curtailed
or terminated, because we may not have sufficient financial resources or capabilities to continue such development and commercialization
on our own.
If we or our contractors or service providers
fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could affect our ability
to develop, market and sell our Hemopurifier product candidate and any other future product candidates that we may develop, if any, and
may harm our reputation.
If we or our manufacturers
or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to
regulatory actions, which could affect our ability to successfully develop, market and sell our Hemopurifier product candidate or any
future product candidates, if any, and could harm our reputation and lead to reduced or non-acceptance of our proposed product candidates
by the market. Even technical recommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia
or biotechnology companies may make the manufacturing of a clinical product extremely labor intensive or expensive, making the product
candidate no longer viable to manufacture in a cost-efficient manner. The mode of administration may make the product candidate not commercially
viable. The required testing of the product candidate may make that candidate no longer commercially viable. The conduct of clinical trials
may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional Biosafety Committee, which may
delay or make impossible clinical testing of a product candidate. The Institutional Review Board for a clinical trial may stop a trial
or deem a product candidate unsafe to continue testing. This would have a material adverse effect on the value of the product candidate
and our business prospects.
We will need to outsource and rely on third
parties for the clinical development and manufacturing, sales and marketing of our Hemopurifier or any future product candidates that
we may develop, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We do not have the required
financial and human resources to carry out on our own all the pre-clinical and clinical development for our Hemopurifier product candidate
or any other or future product candidates that we may develop, and do not have the capability and resources to manufacture, market or
sell our Hemopurifier product candidate or any future product candidates that we may develop. Our business model calls for the partial
or full outsourcing of the clinical and other development and manufacturing, sales and marketing of our product candidates in order to
reduce our capital and infrastructure costs as a means of potentially improving our financial position. Our success will depend on the
performance of these outsourced providers. If these providers fail to perform adequately, our development of product candidates may be
delayed and any delay in the development of our product candidates would have a material and adverse effect on our business prospects.
We are and will be exposed to product liability risks, and clinical
and preclinical liability risks, which could place a substantial financial burden upon us should we be sued.
Our business exposes us to
potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of medical devices.
Claims may be asserted against us. A successful liability claim or series of claims brought against us could have a material adverse effect
on our business, financial condition and results of operations. We may not be able to continue to obtain or maintain adequate product
liability insurance on acceptable terms, if at all, and such insurance may not provide adequate coverage against potential liabilities.
Claims or losses in excess of any product liability insurance coverage that we may obtain could have a material adverse effect on our
business, financial condition and results of operations.
Our Hemopurifier product candidate
may be used in connection with medical procedures in which it is important that those products function with precision and accuracy. If
our product candidates, including our Hemopurifier, do not function as designed, or are designed improperly, we may be forced by regulatory
agencies to withdraw such products from the market. In addition, if medical personnel or their patients suffer injury as a result of any
failure of our products to function as designed, or our products are designed inappropriately, we may be subject to lawsuits seeking significant
compensatory and punitive damages. The risk of product liability claims, product recalls and associated adverse publicity is inherent
in the testing, manufacturing, marketing and sale of medical products. We have obtained general clinical trial liability insurance coverage.
However, our insurance coverage may not be adequate or available. We may not be able to secure product liability insurance coverage on
acceptable terms or at reasonable costs when needed. Any product recall or lawsuit seeking significant monetary damages may have a material
effect on our business and financial condition. Any liability for mandatory damages could exceed the amount of our coverage. Moreover,
a product recall could generate substantial negative publicity about our products and business and inhibit or prevent commercialization
of other future product candidates.
We have not received, and may never receive,
approval from the FDA to market a medical device in the United States.
Before a new medical device
can be marketed in the United States, it must first receive a PMA or 510(k) clearance from the FDA, unless an exemption applies. A PMA
submission, which is a higher standard than a 510(k) clearance, is used to demonstrate to the FDA that a new or modified device is safe
and effective. The 510(k) is used to demonstrate that a device is “substantially equivalent” to a predicate device, that is,
one that has been cleared by the FDA. We expect that any product we seek regulatory approval for, including the Hemopurifier, will require
a PMA. The FDA approval process involves, among other things, successfully completing clinical trials and filing for and obtaining a PMA.
The PMA process requires us to prove the safety and effectiveness of our products to the FDA’s satisfaction. This process, which
includes preclinical studies and clinical trials, can take many years and requires the expenditure of substantial resources and may include
post-marketing surveillance to establish the safety and efficacy of the product. Notwithstanding the effort and expense incurred, the
process may never result in the FDA granting a PMA. Data obtained from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Delays or rejections may also be encountered based upon changes
in governmental policies for medical devices during the period of product development. The FDA can delay, limit or deny approval of a
PMA application for many reasons, including:
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our inability to demonstrate safety or effectiveness of the Hemopurifier, or any other product we develop, to the FDA’s satisfaction; |
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insufficient data from our preclinical studies and clinical trials, including for our Hemopurifier, to support approval; |
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failure of the facilities of our third-party manufacturer or suppliers to meet applicable requirements; |
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inadequate compliance with preclinical, clinical or other regulations; |
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our failure to meet the FDA’s statistical requirements for approval; and |
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changes in the FDA’s approval policies, or the adoption of new regulations that require additional data or additional clinical trials. |
Modifications to products
that are approved through a PMA application generally need FDA approval. Similarly, some modifications made to products cleared through
a 510(k) may require a new 510(k). The FDA’s 510(k) clearance process usually takes from three to 12 months, but may last longer.
The process of obtaining a PMA is much costlier and more uncertain than the 510(k) clearance process and generally takes from one to three
years, or even longer, from the time the application is submitted to the FDA until an approval is obtained. Any of our products considered
to be a class III device, which are considered to pose the greatest risk and the approval of which is governed by the strictest guidelines,
will require the submission and approval of a PMA in order for us to market it in the United States. We also may design new products in
the future that could require the clearance of a 510(k).
Although we have received
approval to proceed with clinical trials of the Hemopurifier in the United States under the investigational device exemption, the current
approval from the FDA to proceed could be revoked, the study could be unsuccessful, or the FDA PMA approval may not be obtained or could
be revoked. Even if we obtain approval, the FDA or other regulatory authorities may require expensive or burdensome post-market testing
or controls. Any delay in, or failure to receive or maintain, clearance or approval for our future products could prevent us from generating
revenue from these products or achieving profitability. Additionally, the FDA and other regulatory authorities have broad enforcement
powers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some physicians from using our products
and adversely affect our reputation and the perceived safety and efficacy of our products.
The approval requirements for medical products used to fight
bioterrorism and pandemics are still evolving, and any products we develop for such uses may not meet these requirements.
We are advancing product candidates
under governmental policies that regulate the development and commercialization of medical treatment countermeasures against bioterror
and pandemic threats. While we intend to pursue FDA market clearance to treat infectious bioterror and pandemic threats, it is often
not feasible to conduct human studies against these deadly high threat pathogens. For example, the Hemopurifier is an investigational
device that has not yet received FDA approval for any indication. We continue to investigate the potential for the use of the Hemopurifier
in viral diseases under an open IDE and our FDA Breakthrough Designation for “…the treatment of life-threatening glycosylated
viruses that are not addressed with an approved therapy.” We currently have an open FDA approved Expanded Access Protocol for the
treatment of Ebola infected patients in the United States and a corresponding HealthCanada approval in Canada. Based on our studies to
date, the Hemopurifier can potentially clear many viruses that are pathogenic in humans, including HCV, HIV, Monkeypox and Ebola.
For example, in June 2020,
the FDA approved a supplement to our open IDE for the Hemopurifier in viral disease to allow for the testing of the Hemopurifier in patients
with SARS-CoV-2/COVID-19 in a New Feasibility Study. This study was designed to enroll up to 40
subjects at up to 20 centers in the United States. Subjects had to have an established laboratory diagnosis of COVID-19, be admitted to
an intensive care unit, or ICU, and have had acute lung injury and/or severe or life threatening disease, among other criteria. Due
to lack of COVID-19 patients in the ICUs of our trial sites, we terminated this study in 2022.
As a result of the termination
of our COVID-19 study due to lack of patients in the ICUs, we were unable to demonstrate the effectiveness of our treatment countermeasures
through controlled human efficacy studies in this U.S. study. Additionally, a change in government policies could impair our ability to
obtain regulatory approval for the Hemopurifier.
The results of our clinical trials may not
support our product candidate claims or may result in the discovery of adverse side effects.
Any research and development,
pre-clinical testing and clinical trial activities involving our Hemopurifier and any additional products that we may develop are subject
to extensive regulation and review by numerous governmental authorities both in the United States and abroad. Clinical studies must be
conducted in compliance with FDA regulations or the FDA may take enforcement action. The data collected from these clinical studies may
ultimately be used to support market clearance for these products. Even if our clinical trials are completed as planned, the results of
these trials may not support our product candidate claims and the FDA may not agree with our conclusions regarding the trial results.
Success in pre-clinical studies and early clinical trials does not ensure that later clinical trials will be successful, and the later
trials may not replicate the results of prior trials and pre-clinical studies. The clinical trial process may fail to demonstrate that
our product candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and
may delay development of others. Any delay or termination of our clinical trials will delay the filing of our product submissions and,
ultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that patients enrolled in clinical
trials will experience adverse side effects that are not currently part of the product candidate’s profile.
U.S. legislative or FDA regulatory reforms may make it more
difficult and costly for us to obtain regulatory approval of our product candidates and to manufacture, market and distribute our products
after approval is obtained.
From time to time, legislation
is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture
and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted
by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations
of existing regulations may impose additional costs or lengthen review times of future products. It is impossible to predict whether legislative
changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be on
our product development efforts.
Our current and future business activities
are subject to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and
security and other healthcare laws and regulations, which could expose us to significant penalties.
We are currently and will
in the future be subject to healthcare regulation and enforcement by the U.S. federal government and the states in which we will conduct
our business if our product candidates are approved by the FDA and commercialized in the United States. In addition to the FDA’s
restrictions on marketing of approved products, the U.S. healthcare laws and regulations that may affect our ability to operate include:
the federal fraud and abuse laws, including the federal anti-kickback and false claims laws; federal data privacy and security laws; and
federal transparency laws related to payments and/or other transfers of value made to physicians (defined to include doctors, dentists,
optometrists, podiatrists and chiropractors) and other healthcare professionals (such as physicians assistants and nurse practitioners)
and teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways,
thus complicating compliance efforts. These laws may adversely affect our sales, marketing and other activities with respect to any product
candidate for which we receive approval to market in the United States by imposing administrative and compliance burdens on us.
Because of the breadth of
these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business
activities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States,
could be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and
state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and
administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare
programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to
resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely
affect our ability to operate our business and our results of operations.
We are subject to stringent and changing
U.S. and foreign laws, rules, regulations and standards as well as policies, contracts and other obligations related to data privacy and
security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, fines and
penalties, a disruption of our clinical trials or commercialization of our products, private litigation, harm to our reputation, or other
adverse effects on our business or prospects.
In the ordinary course of
business, we collect, receive, store, process, use, generate, transfer, disclose, make accessible, protect, secure, dispose of, transmit,
and share (collectively, “Process” or “Processing”) personal information and other Sensitive Information (as defined
below), including proprietary and confidential business data, trade secrets, and intellectual property that we collect in connection with
clinical trials, as necessary to operate our business, for legal and marketing purposes, and for other business-related purposes. Our
data Processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance,
industry standards, external and internal privacy and security policies, representations, certifications, standards, publications, frameworks,
and contractual requirements and other obligations related to privacy, information security and Processing (collectively, “Data
Protection Obligations”).
In the United States, federal,
state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data
privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping
laws). For example, 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 HITECH, imposes specific requirements relating to the privacy, security, and transmission
of individually identifiable health information. In addition, the California Consumer Privacy Act of 2018, CCPA, applies to personal information
of consumers, business representatives, and employees, and requires covered businesses to provide specific disclosures in privacy notices
and honor requests of California residents to exercise certain privacy rights. The CCPA also provides for civil penalties for noncompliance
(up to $7,500 per violation) and allows private litigants affected by certain data breaches to recover significant statutory damages.
Although there are limited exemptions for clinical trial data under the CCPA, the CCPA increases compliance costs and potential liability
with respect to other personal data we maintain about California residents. In addition, the California Privacy Rights Act of 2020, or
CPRA, expands the CCPA’s requirements, including by adding a new right for individuals to correct their personal information and
establishing a new regulatory agency to implement and enforce the law. Other states, including Colorado, Connecticut, Utah and Virginia,
have enacted data privacy laws and similar laws are being considered in other states and at the federal level, reflecting a trend toward
more stringent privacy legislation in the United States. While these states, like the CCPA, also exempt some data processing in the context
of clinical trials, the enactment of such laws and others could have potentially conflicting requirements that would make compliance challenging
and expose us to additional liability.
Outside the United States,
an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union’s
General Data Protection Regulation, or EU GDPR, and the United Kingdom’s GDPR, or UK GDPR, or collectively GDPR, Australia’s
Privacy Act, and India’s Information Technology Act and supplementary rules impose strict requirements for processing personal data.
Companies that violate the GDPR can face private litigation related to processing of personal data brought by classes of data subjects
or consumer protection organizations authorized at law to represent their interests, temporary or definitive restrictions on data processing
and other corrective actions, and fines of up to the greater of 20 million Euros under the EU GDPR / 17.5 million pounds streamline under
the UK GDPR or 4% of their worldwide annual revenue, whichever is greater. GDPR litigation risk may increase as a result of a recent decision
of the EU’s highest court finding that a consumer protection association may bring representative actions alleging violations of
the GDPR even without a mandate to do so from any specific individuals and whether or not specific individuals’ data protection
rights have been violated.
In addition, we may be unable
to transfer personal data from Europe and other jurisdictions to the United States or other countries due to data localization requirements
or limitations on cross-border data flows. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting
the transfer of personal data to other countries. In particular, the European Economic Area, or EEA, and the United Kingdom, or UK, have
significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate.
Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although
there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance
with law, such as the EEA and UK’s standard contractual clauses, these mechanisms are subject to legal challenges, and there is
no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful
manner for us to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for
a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation
of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant
expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners,
vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business.
Some European regulators have ordered certain companies to suspend or permanently cease certain transfers of personal data to recipients
outside Europe for allegedly violating the EU GDPR’s cross-border data transfer limitations. Additionally, companies that transfer
personal data to recipients outside of the EEA and/or UK to other jurisdictions, particularly to the United States, are subject to increased
scrutiny from regulators individual litigants and activist groups.
We publish privacy policies
and may publish marketing materials and other statements, such as compliance with certain certifications or self-regulatory principles,
regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive,
unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators, or other adverse
consequences.
Data Protection Obligations
are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally,
these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions.
Preparing for and complying with these obligations requires significant resources and may necessitate changes to our information technologies,
systems, and practices and to those of any third parties that process personal data on our behalf.
Although we endeavor to comply
with all applicable Data Protection Obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our
efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our
business operations and compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations,
or contractual obligations could result in adverse effects, including inability to or interruption in our ability to operate our business
and proceedings against us by governmental entities or others.
If we fail, or are perceived
to have failed, to address or comply with Data Protection Obligations, it could: increase our compliance and operational costs; expose
us to regulatory scrutiny, actions, fines and penalties; result in reputational harm; interrupt or stop our clinical trials; result in
litigation and liability; result in an inability to process personal data or to operate in certain jurisdictions; harm our business operations
or financial results or otherwise result in a material harm to our business, or other material adverse impact on our business, results
of operations and financial condition. Additionally, given that Data Protection Obligations impose complex and burdensome obligations
and that there is substantial uncertainty over the interpretation and application of these obligations, we may be required to incur material
costs, divert management attention, and change our business operations, including our clinical trials, in an effort to comply, which could
materially adversely affect our business operations and financial results.
Any of these events could
have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions
or stoppages in our business operations including, as relevant, clinical trials inability to process personal data or to operate in certain
jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry;
adverse publicity; or revision or restructuring of our operations.
If our information technology systems or
data, or those of third parties upon which we rely, are or were compromised we could experience adverse consequences resulting from such
compromise, including but not limited to: regulatory investigations or actions; litigation; fines and penalties; disruptions of our business
operations; reputational harm; loss of revenue or profits; and other adverse consequences.
In the ordinary course of
our business, we and third parties upon which we rely may process proprietary, confidential and sensitive information, including personal
data, intellectual property, trade secrets, and proprietary business information owned or controlled by ourselves or other third parties,
or collectively, Sensitive Information. We may use and share Sensitive Information with service providers and subprocessors and other
third parties upon whom we rely to help us operate our business. If we, our service providers, partners, or other relevant third parties
have experienced, or in the future experience, any security incident(s) that result in any data loss; deletion or destruction; unauthorized
access to; loss, unauthorized acquisition, disclosure, or exposure of, Sensitive Information, or compromise related to the security, confidentiality,
integrity of our (or their) information technology, software, services, communications or data (any, a “Security Breach”),
it may result in a material adverse impact on our business, results of operations and financial condition, including the diversion of
funds to address the breach, and interruptions, delays, or outages in our operations and development programs.
Cyberattacks, malicious internet-based
activity and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect.
These threats come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,”
organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported
actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors
for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts,
we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks,
that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.
We and the third parties upon
which we rely may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through
phishing attacks), supply-chain attacks, loss of data or other information technology assets, adware, software bugs, malicious code (such
as viruses and worms), employee theft or misuse, denial-of-service attacks (such as credential stuffing) and ransomware attacks. We may
also be the subject of phishing attacks, viruses, malware (including as a result of advanced persistent threat intrusions), server malfunction,
software or hardware failures, loss of data or other computer assets, telecommunications failures, earthquakes, fires, floods, or other
similar issues.
Ransomware attacks, including
by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe,
and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion
payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for
example, applicable laws or regulations prohibiting such payments.
Remote work has become more
common and has increased risks to our information technology systems and data, as more of our employees utilize network connections, computers,
and devices outside our premises or network, including working at home, while in transit and in public locations. Additionally, future
or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities,
as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.
Furthermore, we may discover security issues that were not found during due diligence of such acquired or integrated entities, and it
may be difficult to integrate companies into our information technology environment and security program.
We rely on third-party service
providers and technologies to operate critical business systems to process Sensitive Information in a variety of contexts, including,
without limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, content
delivery to customers, and other functions. We also rely on third-party service providers to assist with our clinical trials, provide
other products or services, or otherwise to operate our business. Our ability to monitor these third parties’ information security
practices is limited, and these third parties may not have adequate information security measures in place. If our third-party service
providers experience a Security Breach or other interruption, we could experience adverse consequences. While we may be entitled to damages
if our third-party service providers fail to satisfy their privacy or security-related obligations to us, any award may be insufficient
to cover our damages, or we may be unable to recover such award. In addition, supply-chain attacks have increased in frequency and severity,
and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have
not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information
technology systems (including our services) or the third-party information technology systems that support us and our services.
Any of the previously identified
or similar threats could cause a Security Breach or other interruption and disrupt our ability (and that of third parties upon whom we
rely) to provide our services.
We may be required to expend
significant resources, fundamentally change our business activities and practices, or modify our operations, including clinical trial
activities, or information technology in an effort to protect against Security Breaches and to mitigate, detect and remediate actual and
potential vulnerabilities. Applicable Data Protection Obligations (as defined above) may require us to implement specific security measures
or use industry-standard or reasonable measures to protect against Security Breaches. There can be no assurances that our security measures,
or those of third parties upon whom we rely, will be effective in protecting against Security Breaches.
While we have implemented
security measures designed to protect against Security Breaches, there can be no assurance that these measures will be effective. We take
steps to detect and remediate vulnerabilities in our information technology systems (including our products), but we may not be able to
detect and remediate all vulnerabilities because the threats and techniques used to exploit vulnerabilities change frequently and are
often sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a Security Breach
has occurred. These vulnerabilities pose material risks to our business. Further, we may experience delays in developing and deploying
remedial measures designed to address any such identified vulnerabilities.
Applicable Data Protection
Obligations (as defined above) may require us to notify relevant stakeholders of Security Breaches, including affected individuals, partners,
collaborators, regulators, law enforcement agencies and others. Such disclosures are costly, and the disclosures or the failure to comply
with such requirements could lead to a material adverse impact on our business, results of operations and financial condition. If we (or
a third party upon whom we rely) experience a Security Breach or are perceived to have experienced a Security Breach, we may experience
adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits,
and inspections); additional reporting requirements and/or oversight; restrictions on processing Sensitive Information (including personal
data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions;
interruptions in our operations (including availability of data); financial loss; and other similar harms. Security Breaches or other
interruptions and attendant consequences may cause customers to stop using our services, deter new customers from using our services,
and negatively impact our ability to grow and operate our business.
There can be no assurances
that any limitations or exclusions of liability in our contracts would be adequate or would otherwise protect us from liabilities or damages
if we fail to comply with Data Protection Obligations related to information security or Security Breaches.
We cannot be sure that our
insurance coverage will be adequate or otherwise protect us from or adequately mitigate liabilities or damages with respect to claims,
costs, expenses, litigation, fines, penalties, business loss, data loss, regulatory actions or other material adverse impact on our business,
results of operations and financial condition arising out of our Processing operations, privacy and security practices, or Security Breaches
that we may experience. The successful assertion of one or more large claims against us that exceeds our available insurance coverage,
or results in changes to our insurance policies (including premium increases or the imposition of large excess or deductible or co-insurance
requirements), could have a material adverse impact on our business, results of operations and financial condition.
In addition to experiencing
a Security Breach, third parties may gather, collect, or infer Sensitive Information about us from public sources, data brokers, or other
means that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or
market position.
Should our products be approved for commercialization,
lack of third-party coverage and reimbursement for our devices could delay or limit their adoption.
In both the U.S. and international
markets, the use of medical devices is dependent in part on the availability of reimbursement from third-party payors, such as government
and private insurance plans. Healthcare providers that use medical devices generally rely on third-party payors to pay for all or part
of the costs and fees associated with the medical procedures being performed or to compensate them for their patient care services. Should
our products under development be approved for commercialization by the FDA, any such products may not be considered cost-effective, reimbursement
may not be available in the United States or other countries, if approved, and reimbursement may not be sufficient to allow sales of our
future products, including the Hemopurifier, on a profitable basis. The coverage decisions of third-party payors will be significantly
influenced by the assessment of our future products by health technology assessment bodies. These assessments are outside our control
and any such evaluations may not be conducted or have a favorable outcome.
If approved for use in the
United States, we expect that any products that we develop, including the Hemopurifier, will be purchased primarily by medical institutions,
which will in turn bill various third-party payors for the health care services provided to patients at their facility. Payors may include
the Centers for Medicare & Medicaid Services, or CMS, which administers the Medicare program and works in partnership with state governments
to administer Medicaid, other government programs and private insurance plans. The process involved in applying for coverage and incremental
reimbursement from CMS is lengthy and expensive. Further, Medicare coverage is based on our ability to demonstrate that the treatment
is “reasonable and necessary” for Medicare beneficiaries. Even if products utilizing our Aethlon Hemopurifier technology receive
FDA and other regulatory clearance or approval, they may not be granted coverage and reimbursement by any payor, including by CMS. For
some governmental programs, such as Medicaid, coverage and adequate reimbursement differ from state to state and some state Medicaid programs
may not pay adequate amounts for the procedure necessary to utilize products utilizing our technology system, or any payment at all. Moreover,
many private payors use coverage decisions and payment amounts determined by CMS as guidelines in setting their coverage and reimbursement
policies and amounts. However, no uniform policy requirement for coverage and reimbursement for medical devices exists among third-party
payors in the United States. Therefore, coverage and reimbursement can differ significantly from payor to payor. If CMS or other agencies
limit coverage or decrease or limit reimbursement payments for doctors and hospitals, this may affect coverage and reimbursement determinations
by many private payors for any products that we develop.
Should any of our potential products, including
the Hemopurifier, be approved for commercialization, certain health reform measures and adverse changes in reimbursement policies and
procedures may impact our ability to market and sell our products.
Healthcare costs have risen
significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and third-party payors
to decrease costs. Third-party payors are increasingly challenging the prices charged for medical products and services and instituting
cost containment measures to control or significantly influence the purchase of medical products and services.
For example, in the United
States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively,
ACA, among other things, reduced and/or limited Medicare reimbursement to certain providers. On June 17, 2021, the U.S. Supreme Court
dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate”
was repealed by Congress. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or IRA, into law, which
among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year
2025. The IRA also eliminates the "donut hole" under the Medicare Part D program beginning in 2025 by significantly lowering
the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is unclear how any such challenges, and
the healthcare reform measures of the Biden administration will impact the ACA and our business. The Budget Control Act of 2011, as amended
by subsequent legislation, further reduces Medicare’s payments to providers by two percent through fiscal year 2032These reductions
may reduce providers’ revenues or profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare
industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare
costs by imposing lower payment rates and negotiating reduced contract rates with service providers. In July 2021, the Biden Administration
released an executive order, “Promoting Competition in the American Economy,” which contained provisions relating to prescription
drugs. On September 9, 2021, in response to this executive order, the U.S. Department of Health and Human Services, or HHS, released a
Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential
legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles.
Further, the IRA, among other things (i) directs HHS to negotiate the price of certain high-expenditure, single-source drugs and biologics
covered under Medicare and (ii) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation.
These provisions will take effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. HHS has
and will continue to issue and update guidance as these programs are implemented. It is currently unclear how the IRA will be implemented
but is likely to have a significant impact on the pharmaceutical industry. In addition, in response to the Biden administration’s
October 2022 executive order, on February 14, 2023, HHS released a report outlining three new models for testing by the Center for Medicare
and Medicaid Innovation which will be evaluated on their ability to lower the cost of drugs, promote accessibility, and improve quality
of care. It is unclear whether the models will be utilized in any health reform measures in the future.
Legislation could be adopted
in the future that limits payments for our products from governmental payors. In addition, commercial payors such as insurance companies,
could adopt similar policies that limit reimbursement for medical device manufacturers’ products. Therefore, it is possible that
our product or the procedures or patient care performed using our product will not be reimbursed at a cost-effective level. We face similar
risks relating to adverse changes in reimbursement procedures and policies in other countries where we may market our products. Reimbursement
and healthcare payment systems vary significantly among international markets. Our inability to obtain international reimbursement approval,
or any adverse changes in the reimbursement policies of foreign payors, could negatively affect our ability to sell our products and have
a material adverse effect on our business and financial condition.
Our ability to use net operating loss carryforwards
and certain other tax attributes to offset future taxable income or taxes may be limited.
Under current law, federal
net operating losses incurred in tax years beginning after December 31, 2017, may be carried forward indefinitely, but the deductibility
of such federal net operating losses is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform
to federal tax laws. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions
of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change in
its equity ownership value over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards
and other pre-change tax attributes to offset its post-change income or taxes may be limited. If we achieve profitability and an ownership
change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operating results
by effectively increasing our future tax obligations. In addition, at the state level, there may be periods during which the use of net
operating loss carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Uncertainties in the interpretation and
application of existing, new and proposed tax laws and regulations could materially affect our tax obligations and effective tax rate.
The tax regimes to which we
are subject or under which we operate are unsettled and may be subject to significant change. The issuance of additional guidance related
to existing or future tax laws, or changes to tax laws or regulations proposed or implemented by the current or a future U.S. presidential
administration, Congress, or taxing authorities in other jurisdictions, including jurisdictions outside of the United States, could materially
affect our tax obligations and effective tax rate. To the extent that such changes have a negative impact on us, including as a result
of related uncertainty, these changes may adversely impact our business, financial condition, results of operations, and cash flows.
The amount of taxes we pay
in different jurisdictions depends on the application of the tax laws of various jurisdictions, including the United States, to our international
business activities, tax rates, new or revised tax laws, or interpretations of tax laws and policies, and our ability to operate our business
in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which
we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree
with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were
to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result
in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations. Our financial
statements could fail to reflect adequate reserves to cover such a contingency. Similarly, a taxing authority could assert that we are
subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent
establishment” under international tax treaties, and such an assertion, if successful, could increase our expected tax liability
in one or more jurisdictions.
Effective January 1, 2022,
the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenses for tax purposes in the year incurred
and requires taxpayers to capitalize and subsequently amortize such expenses over five years for research activities conducted in the
United States and over 15 years for research activities conducted outside the United States. Although there have been legislative proposals
to repeal or defer the capitalization requirement to later years, there can be no assurance that the provision will be repealed or otherwise
modified. Future guidance from the Internal Revenue Service and other tax authorities with respect to such legislation may affect us,
and certain aspects of such legislation could be repealed or modified in future legislation.
Our use of hazardous materials, chemicals
and viruses exposes us to potential liabilities for which we may not have adequate insurance.
Our research and development
involves the controlled use of hazardous materials, chemicals and viruses. The primary hazardous materials include chemicals needed to
construct the Hemopurifier cartridges and the infected plasma samples used in preclinical testing of the Hemopurifier. All other chemicals
are fully inventoried and reported to the appropriate authorities, such as the fire department, which inspects the facility on a regular
basis. We are subject to federal, state, local and foreign laws governing the use, manufacture, storage, handling and disposal of such
materials. Although we believe that our safety procedures for the use, manufacture, storage, handling and disposal of such materials comply
with the standards prescribed by federal, state, local and foreign regulations, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. We have had no incidents or problems involving hazardous chemicals or biological samples.
In the event of such an accident, we could be held liable for significant damages or fines.
We currently carry a limited
amount of insurance to protect us from bodily injury or property damages arising from hazardous materials. Our product liability policy
has a $5,000,000 limit of liability. For our facilities, our property policy provides $25,000 in coverage for contaminant clean-up or
removal and $100,000 in coverage for damages to the premises resulting from contamination. Should we violate any regulations concerning
the handling or use of hazardous materials, or should any injuries or death result from our use or handling of hazardous materials, we
could be the subject of substantial lawsuits by governmental agencies or individuals. We may not have adequate insurance to cover all
or any of such claims, if any. If we were responsible to pay significant damages for violations or injuries, if any, we might be forced
to cease operations since such payments could deplete our available resources.
Our products may in the future be subject
to product recalls. A recall of our products, either voluntarily or at the direction of the FDA or another governmental authority, including
a third-country authority, or the discovery of serious safety issues with our products, could have a significant adverse impact on us.
The FDA and similar foreign
governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or
defects in design or manufacture. For the FDA, the authority to require a recall must be based on a finding that there is reasonable probability
that the device would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recall
of our products in the event of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative,
recall a product if any material deficiency in a device is found. The FDA requires that certain classifications of recalls be reported
to the FDA within ten working days after the recall is initiated. A government-mandated or voluntary recall by us or one of our international
distributors could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design
or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and
have an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to produce our
products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be subject to liability claims,
be required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate
profits. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA or another third-country
competent authority. We may initiate voluntary recalls involving our products in the future that we determine do not require notification
of the FDA or another third-country competent authority. If the FDA disagrees with our determinations, they could require us to report
those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our sales. In addition,
the FDA could take enforcement action for failing to report recalls. We are also required to follow detailed recordkeeping requirements
for all firm-initiated medical device corrections and removals.
Even though we have received breakthrough
device designation for the Hemopurifier for two independent indications, this designation may not expedite the development or review of
the Hemopurifier and does not provide assurance ultimately of PMA submission or approval by the FDA.
The Breakthrough Devices Program
is a voluntary program intended to expedite the review, development, assessment and review of certain medical devices that provide for
more effective treatment or diagnosis of life-threatening or irreversibly debilitating human diseases or conditions for which no approved
or cleared treatment exists or that offer significant advantages over existing approved or cleared alternatives. All submissions for devices
designated as Breakthrough Devices will receive priority review, meaning that the review of the submission is placed at the top of the
appropriate review queue and receives additional review resources, as needed.
Although breakthrough designation
or access to any other expedited program may expedite the development or approval process, it does not change the standards for approval.
Although we obtained breakthrough device designation for the Hemopurifier for two indications, we may not experience faster development
timelines or achieve faster review or approval compared to conventional FDA procedures. For example, the time required to identify and
resolve issues relating to manufacturing and controls, the acquisition of a sufficient supply of our product for clinical trial purposes
or the need to conduct additional nonclinical or clinical studies may delay approval by the FDA, even if the product qualifies for breakthrough
designation or access to any other expedited program. Access to an expedited program may also be withdrawn by the FDA if it believes that
the designation is no longer supported by data from our clinical development program. Additionally, qualification for any expedited review
procedure does not ensure that we will ultimately obtain regulatory approval for the product.
Our bylaws designate the Eighth Judicial
District Court of Clark County, Nevada, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated
by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our
directors, officers, employees or agents.
Our bylaws require that, to
the fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, the Eighth Judicial
District Court of Clark County, Nevada, will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the
following:
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any derivative action or proceeding brought in the name or right of the Company or on its behalf, |
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any action asserting a claim for breach of any fiduciary duty owed by any director, officer, employee or agent of the Company to the Company or the Company’s stockholders, |
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any action arising or asserting a claim arising pursuant to any provision of NRS Chapters 78 or 92A or any provision of our articles of incorporation or bylaws, or |
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any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of our articles of incorporation or bylaws. |
However, our bylaws provide
that the exclusive forum provisions do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any
other claim for which the federal courts have exclusive jurisdiction. We note that there is uncertainty as to whether a court would enforce
the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although
we believe this provision benefits us by providing increased consistency in the application of Nevada law in the types of lawsuits to
which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.
Risks Related to Our Intellectual Property and Related Litigation
We rely upon licenses and patent rights from third parties which
are subject to termination or expiration.
We rely in part upon third-party
licenses and ownership rights assigned from third parties for the development of specific uses for our Hemopurifier devices. For example,
we are researching, developing and testing cancer-related applications for our devices under patents assigned from the London Health Science
Center Research, Inc. Should any of our licenses be prematurely terminated for any reason, or if the patents and intellectual property
assigned to us or owned by such entities that we have licensed are challenged or defeated by third parties, our research efforts could
be materially and adversely affected. Our licenses and patents assigned to us may not continue in force for as long as we require for
our research, development and testing of cancer treatments. It is possible that, if our licenses terminate or the underlying patents and
intellectual property is challenged or defeated or the patents and intellectual property assigned to us is challenged or defeated, suitable
replacements may not be obtained or developed on terms acceptable to us, if at all. There is also the related risk that we may not be
able to make the required payments under any patent license or assignment agreement, in which case we may lose to ability to use one or
more of the licensed or assigned patents.
We could become subject to intellectual
property litigation that could be costly, result in the diversion of management’s time and efforts, require us to pay damages, prevent
us from selling our commercially available products and/or reduce the margins we may realize from our products.
The medical devices industry
is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a
product infringes a patent involves complex legal and factual issues, and the determination is often uncertain. There may be existing
patents of which we are unaware that our products under development may inadvertently infringe. The likelihood that patent infringement
claims may be brought against us increases as the number of participants in the infectious market increases and as we achieve more visibility
in the marketplace and introduce products to market.
Any infringement claim against
us, even if without merit, may cause us to incur substantial costs, and would place a significant strain on our financial resources, divert
the attention of management from our core business, and harm our reputation. In some cases, litigation may be threatened or brought by
a patent holding company or other adverse patent owner who has no relevant product revenues and against whom our patents may provide little
or no deterrence. If we are found to infringe any patents, we could be required to pay substantial damages, including triple damages if
an infringement is found to be willful. We also could be required to pay royalties and could be prevented from selling our products unless
we obtain a license or are able to redesign our products to avoid infringement. We may not be able to obtain a license enabling us to
sell our products on reasonable terms, or at all. If we fail to obtain any required licenses or make any necessary changes to our technologies
or the products, we may be unable to commercialize one or more of our products or may have to withdraw products from the market, all of
which would have a material adverse effect on our business, financial condition and results of operations.
If the combination of patents, trade secrets
and contractual provisions upon which we rely to protect our intellectual property is inadequate, our ability to commercialize our products
successfully will be harmed.
Our success depends significantly
on our ability to protect our proprietary rights to the technologies incorporated in our products. We currently have five issued U.S.
patents and four pending U.S. patent applications. We also have 32 issued foreign patents and have applied for nine additional foreign
and international patents. Our issued patents begin to expire in 2024, with the last of these patents expiring in 2036, although terminal
disclaimers, patent term extension or patent term adjustment can shorten or lengthen the patent term. We rely on a combination of patent
protection, trade secret laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology.
However, these may not adequately protect our rights or permit us to gain or keep any competitive advantage.
The issuance of a patent is
not conclusive as to its scope, validity or enforceability. The scope, validity or enforceability of our issued patents can be challenged
in litigation or proceedings before the U.S. Patent and Trademark Office or foreign patent offices where our applications are pending.
The U.S. Patent and Trademark Office or foreign offices may deny or require significant narrowing of claims in our pending patent applications.
Patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or be
issued in a form that is advantageous to us. Proceedings before the U.S. Patent and Trademark Office or foreign offices could result in
adverse decisions as to the priority of our inventions and the narrowing or invalidation of claims in issued patents. The laws of some
foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S., if at all. Some of our
patents may expire before we receive FDA approval to market our products in the United States or we receive approval to market our products
in a foreign country. Although we believe that certain patent applications and/or other patents issued more recently will help protect
the proprietary nature of the Hemopurifier treatment technology, this protection may not be sufficient to protect us during the development
of that technology.
Our competitors may successfully
challenge and invalidate or render unenforceable our issued patents, including any patents that may issue in the future, which could prevent
or limit our ability to market our products and could limit our ability to stop competitors from marketing products that are substantially
equivalent to ours. In addition, competitors may be able to design around our patents or develop products that provide outcomes that are
comparable to our products but that are not covered by our patents.
We have also entered into
confidentiality and assignment of intellectual property agreements with all of our employees, consultants and advisors directly involved
in the development of our technology as one of the ways we seek to protect our intellectual property and other proprietary technology.
However, these agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information
in the event of unauthorized use or disclosure or other breaches of the agreements.
In the event a competitor
infringes upon any of our patents or other intellectual property rights, enforcing our rights may be difficult, time consuming and expensive,
and would divert management’s attention from managing our business. We may not be successful on the merits in any enforcement effort.
In addition, we may not have sufficient resources to litigate, enforce or defend our intellectual property rights.
We may rely on licenses for new technology,
which may affect our continued operations with respect thereto.
As we develop our technology,
we may need to license additional technologies to optimize the performance of our products. We may not be able to license these technologies
on commercially reasonable terms or at all. In addition, we may fail to successfully integrate any licensed technology into our proposed
products. Our inability to obtain any necessary licenses could delay our product development and testing until alternative technologies
can be identified, licensed and integrated. The inability to obtain any necessary third-party licenses could cause us to abandon a particular
development path, which could seriously harm our business, financial position and results of our operations.
New technology may lead to our competitors
developing superior products which would reduce demand for our products.
Research into technologies
similar to ours is proceeding at a rapid pace, and many private and public companies and research institutions are actively engaged in
the development of products similar to ours. These new technologies may, if successfully developed, offer significant performance or price
advantages when compared with our technologies. Our existing patents or our pending and proposed patent applications may not offer meaningful
protection if a competitor develops a novel product based on a new technology.
If we are unable to protect our proprietary
technology and preserve our trade secrets, we will increase our vulnerability to competitors which could materially adversely impact our
ability to remain in business.
Our ability to successfully
commercialize our products will depend on our ability to protect those products and our technology with domestic and foreign patents.
We will also need to continue to preserve our trade secrets. The issuance of a patent is not conclusive as to its validity or as to the
enforceable scope of the claims of the patent. The patent positions of technology companies, including us, are uncertain and involve complex
legal and factual issues. Our patents may not prevent other companies from developing similar products or products which produce benefits
substantially the same as our products, and other companies may be issued patents that may prevent the sale of our products or require
us to pay significant licensing fees in order to market our products.
From time to time, we may
need to obtain licenses to patents and other proprietary rights held by third parties in order to develop, manufacture and market our
products. If we are unable to timely obtain these licenses on commercially reasonable terms, our ability to commercially exploit such
products may be inhibited or prevented. Our pending patent applications may not result in issued patents, patent protection may not be
secured for any particular technology, and our issued patents may not be valid or enforceable or provide us with meaningful protection.
If we are required to engage in expensive
and lengthy litigation to enforce our intellectual property rights, such litigation could be very costly and the results of such litigation
may not be satisfactory.
Although we have entered into
invention assignment agreements with our employees and with certain advisors, and we routinely enter into confidentiality agreements with
our contract partners, if those employees, advisors or contract partners develop inventions or processes independently that may relate
to products or technology under development by us, disputes may arise about the ownership of those inventions or processes. Time-consuming
and costly litigation could be necessary to enforce and determine the scope of our rights under these agreements. In addition, we may
be required to commence litigation to enforce such agreements if they are violated, and it is certainly possible that we will not have
adequate remedies for breaches of our confidentiality agreements as monetary damages may not be sufficient to compensate us. We may be
unable to fund the costs of any such litigation to a satisfactory conclusion, which could leave us without recourse to enforce contracts
that protect our intellectual property rights.
Other companies may claim that our technology
infringes on their intellectual property or proprietary rights and commence legal proceedings against us which could be time-consuming
and expensive and could result in our being prohibited from developing, marketing, selling or distributing our products.
Because of the complex and
difficult legal and factual questions that relate to patent positions in our industry, it is possible that our products or technology
could be found to infringe upon the intellectual property or proprietary rights of others. Third parties may claim that our products or
technology infringe on their patents, copyrights, trademarks or other proprietary rights and demand that we cease development or marketing
of those products or technology or pay license fees. We may not be able to avoid costly patent infringement litigation, which will divert
the attention of management away from the development of new products and the operation of our business. We may not prevail in any such
litigation. If we are found to have infringed on a third-party’s intellectual property rights, we may be liable for money damages,
encounter significant delays in bringing products to market or be precluded from manufacturing particular products or using particular
technology.
Other parties may challenge
certain of our foreign patent applications. If any such parties are successful in opposing our foreign patent applications, we may not
gain the protection afforded by those patent applications in particular jurisdictions and may face additional proceedings with respect
to similar patents in other jurisdictions, as well as related patents. The loss of patent protection in one jurisdiction may influence
our ability to maintain patent protection for the same technology in other jurisdictions.
Risks Related to U.S. Government Contracts
We may not obtain additional U.S. Government
contracts to further develop our technology.
While we have previously had
U.S. government contracts, we may not be successful in obtaining additional government grants or contracts. The process of obtaining government
contracts is lengthy with the uncertainty that we will be successful in obtaining announced grants or contracts for therapeutics as a
medical device technology. Accordingly, although we have obtained government contracts in the past, we may not be awarded any additional
U.S. Government grants or contracts utilizing our Hemopurifier platform technology.
U.S. Government agencies have special contracting
requirements, including a right to audit us, which create additional risks; a negative audit would be detrimental to
us.
Our business plan to utilize
the Aethlon Hemopurifier technology may seek to involve contracts with the U.S. Government. Many government contracts, typically contain
unfavorable termination provisions and are subject to audit and modification by the government at its sole discretion, which would subject
us to additional risks should we obtain contracts with the U.S. Government in the future. These risks include the ability of the U.S.
Government to unilaterally:
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suspend or prevent us for a period of time from receiving new contracts or extending existing contracts based on violations or suspected violations of laws or regulations; |
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audit and object to our contract-related costs and fees, including allocated indirect costs; |
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control and potentially prohibit the export of our products; and |
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change certain terms and conditions in our contracts. |
As a former and potential
future U.S. Government contractor, we are required to comply with applicable laws, regulations and standards relating to our accounting
practices and would be subject to periodic audits and reviews. As part of any such audit or review, the U.S. Government may review the
adequacy of, and our compliance with, our internal control systems and policies, including those relating to our purchasing, property,
estimating, compensation and management information systems. Based on the results of its audits, the U.S. Government may adjust our contract-related
costs and fees, including allocated indirect costs. In addition, if an audit or review uncovers any improper or illegal activity, we would
possibly be subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of
profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government. We could also suffer
serious harm to our reputation if allegations of impropriety were made against us. Although we have not had any government audits and
reviews to date, future audits and reviews could cause adverse effects. In addition, under U.S. Government purchasing regulations, some
of our costs, including most financing costs, amortization of intangible assets, portions of our research and development costs, and some
marketing expenses, would possibly not be reimbursable or allowed under such contracts. Further, as a former and potential future U.S.
Government contractor, we would be subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits
and other legal actions and liabilities.
As a potential future U.S. Government contractor, we would be
subject to a number of procurement rules and regulations.
Government contractors must
comply with specific procurement regulations and other requirements. These requirements, although customary in government contracts, would
impact our performance and compliance costs. In addition, current U.S. Government budgetary constraints could lead to changes in the procurement
environment, including the Department of Defense’s initiative focused on efficiencies, affordability and cost growth and other changes
to its procurement practices. If and to the extent such changes occur, they could affect whether and, if so, how we pursue certain opportunities
and the terms under which we are able to do so.
In addition, failure to comply
with these regulations and requirements could result in reductions of the value of contracts, contract modifications or termination, and
the assessment of penalties and fines, which could negatively impact our results of operations and financial condition. Our failure to
comply with these regulations and requirements could also lead to suspension or debarment, for cause, from government contracting or subcontracting
for a period of time. Among the causes for debarment are violations of various statutes, including those related to procurement integrity,
export control, government security regulations, employment practices, protection of the environment, accuracy of records and the recording
of costs, and foreign corruption. The termination of any government contract we may obtain as a result of any of these acts could have
a negative impact on our results of operations and financial condition and could have a negative impact on our reputation and ability
to procure other government contracts in the future.
Risks Relating to Our Common Stock and Our Corporate Governance
If we are unable to regain compliance with
the listing requirements of the Nasdaq Capital Market, our common stock may be delisted from the Nasdaq Capital Market which could have
a material adverse effect on our financial condition and could make it more difficult for you to sell your shares.
Our common stock is listed
on the Nasdaq Capital Market and we are therefore subject to its continued listing requirements, including requirements with respect to
the market value of publicly held shares, market value of listed shares, minimum bid price per share (subject to a 180-day grace period,
as discussed below), and minimum stockholders' equity, among others, and requirements relating to board and committee independence. If
we fail to satisfy one or more of the requirements, we may be delisted from the Nasdaq Capital Market.
On October 25, 2022, we received
a notice, or Notice, from The Nasdaq Stock Market, or Nasdaq, that we were not in compliance with the $1.00 minimum bid price requirement
for continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2), or the Minimum Bid Price Requirement.
The Notice indicated that, consistent with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 days to regain compliance with the Minimum Bid
Price Requirement by having the closing bid price of our common stock meet or exceed $1.00 per share for at least ten consecutive business
days. We subsequently requested an extension of time to regain compliance with the Nasdaq Listing Rule 5550(a)(2) and submitted to Nasdaq
a plan to regain compliance. On April 25, 2023, Nasdaq informed us that the request for extension was granted. As a result of the extension,
we have until October 23, 2023 to provide evidence that we have regained compliance with Nasdaq Listing Rule 5550(a)(2), by trading at
or above $1.00 per share for ten consecutive trading dates prior to that date.
There can be no assurance,
however, that we will be able to regain compliance with the Minimum Bid Price Requirement. Even if we do regain compliance, we may not
be able to maintain compliance with the continued listing requirements for the Nasdaq Capital Market or our common stock could be delisted
in the future. In addition, we may be unable to meet other applicable listing requirements of the Nasdaq Capital Market, including maintaining
minimum levels of stockholders’ equity or market values of our common stock in which case, our common stock could be delisted notwithstanding
our ability to demonstrate compliance with the Minimum Bid Price Requirement.
Delisting from the Nasdaq
Capital Market may adversely affect our ability to raise additional financing through the public or private sale of equity securities,
may significantly affect the ability of investors to trade our securities and may negatively affect the value and liquidity of our common
stock. Delisting also could have other negative results, including the potential loss of employee confidence, the loss of institutional
investors or interest in business development opportunities.
Historically we have not paid dividends
on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have never paid cash dividends
on our common stock. We intend to retain our future earnings, if any, to fund operational and capital expenditure needs of our business,
and do not anticipate paying any cash dividends in the foreseeable future. As a result, capital appreciation, if any, of our common stock
will be the sole source of gain for our common stockholders in the foreseeable future.
Our stock price is speculative, and there
is a risk of litigation.
The trading price of our common
stock has in the past and may in the future be subject to wide fluctuations in response to factors such as the following:
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failure to raise additional funds when needed; |
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announcements regarding our ongoing development of the Hemopurifier; |
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results regarding the progress of our clinical trials with the Hemopurifier; |
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results reported from our clinical trials with the Hemopurifier; |
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failure to meet the continued listing requirements of and maintain our listing on Nasdaq; |
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results of operations or revenue in any quarter failing to meet the expectations, published or otherwise, of the investment community; |
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reduced investor confidence in equity markets; |
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speculation in the press or analyst community; |
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wide fluctuations in stock prices, particularly with respect to the stock prices for other medical device companies; |
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announcements of technological innovations by us or our competitors; |
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new products or the acquisition of significant customers by us or our competitors; |
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changes in interest rates; |
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changes in investors’ beliefs as to the appropriate price-earnings ratios for us and our competitors; |
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changes in recommendations or financial estimates by securities analysts who track our common stock or the stock of other medical device companies; |
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sales of common stock by directors and executive officers; |
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rumors or dissemination of false or misleading information, particularly through Internet chat rooms, instant messaging, and other rapid-dissemination methods; |
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conditions and trends in the medical device industry generally; |
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the announcement of acquisitions or other significant transactions by us or our competitors; |
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adoption of new accounting standards affecting our industry; |
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changes in the structure of healthcare payment systems; |
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general market conditions; |
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domestic or international terrorism and other factors; and |
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the other factors described in this section. |
Fluctuations in the price
of our common stock may expose us to the risk of securities class action lawsuits. Although no such lawsuits are currently pending against
us and we are not aware that any such lawsuit is threatened to be filed in the future, future lawsuits are possible as a result of fluctuations
in the price of our common stock. Defending against any such suits could result in substantial cost and divert management’s attention
and resources. In addition, any settlement or adverse determination of such lawsuits could subject us to significant liability.
If at any time our common stock is subject
to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity
in our securities may be adversely affected.
If at any time our common
stock is not listed on a national securities exchange or we have net tangible assets of $2,000,000 or less, or we have an average revenue
of less than $6,000,000 for the last three years, and our common stock has a market price per share of less than $5.00, transactions in
our common stock will be subject to the SEC’s “penny stock” rules. Currently, our common stock is subject to the SEC’s
“penny stock” rules promulgated under the Exchange Act and as a result, broker-dealers may find it difficult to effectuate
customer transactions and trading activity in our securities may be adversely affected. For any transaction involving a penny stock, unless
exempt, the rules require:
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that a broker or dealer approve a person’s account for transactions in penny stocks; |
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furnish the investor a disclosure document describing the risks of investing in penny stocks; |
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disclose to the investor the current market quotation, if any, for the penny stock; |
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disclose to the investor the amount of compensation the firm and its broker will receive for the trade; and |
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The broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s
account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience objectives of the person; and |
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must
also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:
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sets forth the basis on which the broker or dealer made the suitability determination; and |
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be
less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available
to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in penny stocks.
Our common stock has had an unpredictable
trading volume which means you may not be able to sell our shares at or near trading prices or at all.
Trading in our common shares
historically has been volatile and often has been thin, meaning that the number of persons interested in purchasing our common shares
at or near trading prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors,
including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and
others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons,
they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of
our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when
trading activity in our shares is minimal, as compared to a seasoned issuer which has a large and steady volume of trading activity that
will generally support continuous sales without an adverse effect on share price. A broader or more active public trading market for our
common shares may not develop or be sustained, and current trading levels may decrease.
The market price for our common stock is
volatile; you may not be able to sell our common stock at or above the price you have paid for it, which may result in losses to you.
The market for our common
stock is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue
to be more volatile than a seasoned issuer for the indefinite future. During the 52-week period ended March 31, 2023, the high and low
closing sale prices for a share of our common stock were $1.99 and $0.25, respectively. The volatility in our share price is attributable
to a number of factors. First, as noted above, trading in our common stock often has been thin. As a consequence of this lack of liquidity,
the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in
either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares
are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse
impact on its share price. Secondly, we are a speculative investment due to our limited operating history, limited amount of cash and
revenue, lack of profit to date, and the uncertainty of future market acceptance for our potential products. As a consequence of this
enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news
or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case
with the stock of a seasoned issuer.
The following factors also
may add to the volatility in the price of our common stock: actual or anticipated variations in our quarterly or annual operating results;
announcements regarding our clinical trials and the development and manufacture of our Hemopurifier; acceptance of our proprietary technology
as a viable method of augmenting the immune response of clearing viruses and toxins from human blood; government regulations, announcements
of significant acquisitions, strategic partnerships or joint ventures; our capital commitments and additions or departures of our key
personnel. Many of these factors are beyond our control and may decrease the market price of our common shares regardless of our operating
performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any
time, including as to whether our common shares will sustain their current market prices, or as to what effect the sale of shares or the
availability of common shares for sale at any time will have on the prevailing market price.
Our issuance of additional shares of common
stock or convertible securities, could be dilutive.
We are entitled under our
articles of incorporation to issue up to 60,000,000 shares of common stock. As of March 31, 2023, we have reserved for issuance 2,045,006
of those shares of common stock for outstanding restricted stock units, stock options and warrants, excluding an aggregate of 348,837
issuances of restricted stock units to our independent directors under our 2020 Equity Incentive Plan made subsequent to March 31, 2023.
As of March 31, 2023, we had issued and outstanding 22,992,466 shares of common stock. As a result, as of March 31, 2023 we had 34,962,528
shares of common stock available for issuance to new investors or for use to satisfy indebtedness or pay service providers.
On March 24, 2022, we entered
into an At the Market Offering Agreement, or the 2022 ATM Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, which established
an at-the-market equity program pursuant to which we may offer and sell shares of our common stock from time to time as set forth in the
2022 ATM Agreement. Through March 31, 2023, we sold an aggregate of 7,480,836 shares under the 2022 ATM Agreement for net proceeds of
$8,927,211.
Our Board of Directors may
generally issue shares of common stock, restricted stock units or stock options or warrants to purchase those shares, without further
approval by our stockholders, based upon such factors as our Board of Directors may deem relevant at that time. It is likely that we will
be required to issue a large amount of additional securities to raise capital to further our development. It is also likely that we will
be required to issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants
in connection with their services, both in the form of stand-alone grants or under our stock plans.
Our officers and directors are entitled to indemnification from
us for liabilities under our articles of incorporation, which could be costly to us and may discourage the exercise of stockholder rights.
Our articles of incorporation
provide that we possess and may exercise all powers of indemnification of our officers, directors, employees, agents and other persons
and our bylaws also require us to indemnify our officers and directors as permitted under the provisions of the Nevada Revised Statutes,
or NRS. We may also have contractual indemnification obligations under our agreements with our directors, officers and employees. The
foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or
damage awards against directors and officers. These provisions and resultant costs may also discourage our company from bringing a lawsuit
against directors, officers and employees for breaches of their fiduciary duties, and may similarly discourage the filing of derivative
litigation by our stockholders against our directors, officers and employees even though such actions, if successful, might otherwise
benefit our company and stockholders.
Our bylaws and Nevada law may discourage,
delay or prevent a change of control of our company or changes in our management, would have the result of depressing the trading price
of our common stock.
Certain anti-takeover provisions
of Nevada law could have the effect of delaying or preventing a third-party from acquiring us, even if the acquisition arguably could
benefit our stockholders.
Nevada’s “combinations
with interested stockholders” statutes (NRS 78.411 through 78.444, inclusive) prohibit specified types of business “combinations”
between certain Nevada corporations and any person deemed to be an “interested stockholder” for two years after such person
first becomes an “interested stockholder” unless the corporation’s board of directors approves the combination (or the
transaction by which such person becomes an “interested stockholder”) in advance, or unless the combination is approved by
the board of directors and sixty percent of the corporation’s voting power not beneficially owned by the interested stockholder,
its affiliates and associates. Further, in the absence of prior approval certain restrictions may apply even after such two year period.
However, these statutes do not apply to any combination of a corporation and an interested stockholder after the expiration of four years
after the person first became an interested stockholder. For purposes of these statutes, an “interested stockholder” is any
person who is (1) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares
of the corporation, or (2) an affiliate or associate of the corporation and at any time within the two previous years was the beneficial
owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition
of the term “combination” is sufficiently broad to cover most significant transactions between a corporation and an “interested
stockholder.” A Nevada corporation may elect in its articles of incorporation not to be governed by these particular laws, but if
such election is not made in the corporation’s original articles of incorporation, the amendment (1) must be approved by the affirmative
vote of the holders of stock representing a majority of the outstanding voting power of the corporation not beneficially owned by interested
stockholders or their affiliates and associates, and (2) is not effective until 18 months after the vote approving the amendment and does
not apply to any combination with a person who first became an interested stockholder on or before the effective date of the amendment.
We did not make such an election in our original articles of incorporation and have not amended our articles of incorporation to so elect.
Nevada’s “acquisition
of controlling interest” statutes (NRS 78.378 through 78.3793, inclusive) contain provisions governing the acquisition of a controlling
interest in certain Nevada corporations. These “control share” laws provide generally that any person that acquires a “controlling
interest” in certain Nevada corporations may be denied voting rights, unless a majority of the disinterested stockholders of the
corporation elects to restore such voting rights. These laws would apply to us if we were to have 200 or more stockholders of record (at
least 100 of whom have addresses in Nevada appearing on our stock ledger) and do business in the State of Nevada directly or through an
affiliated corporation, unless our articles of incorporation or bylaws in effect on the tenth day after the acquisition of a controlling
interest provide otherwise. These laws provide that a person acquires a “controlling interest” whenever a person acquires
shares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1)
one fifth or more, but less than one third, (2) one third or more, but less than a majority or (3) a majority or more, of all of the voting
power of the corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares which it acquired in the
transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered
to acquire a controlling interest become “control shares” to which the voting restrictions described above apply. These laws
may have a chilling effect on certain transactions if our articles of incorporation or bylaws are not amended to provide that these provisions
do not apply to us or to an acquisition of a controlling interest, or if our disinterested stockholders do not confer voting rights in
the control shares.
Various provisions of our
bylaws may delay, defer or prevent a tender offer or takeover attempt of us that a stockholder might consider in his or her best interest.
Our bylaws may be adopted, amended or repealed by the affirmative vote of the holders of at least a majority of our outstanding shares
of capital stock entitled to vote for the election of directors, and except as provided by Nevada law, our Board of Directors shall have
the power to adopt, amend or repeal the bylaws by a vote of not less than a majority of our directors. The interests of these stockholders
and directors may not be consistent with your interests, and they may make changes to the bylaws that are not in line with your concerns.
Nevada law also provides that
directors may resist a change or potential change in control if the directors determine that the change is opposed to, or not in the best
interests of, the corporation. The existence of the foregoing provisions and other potential anti-takeover measures could limit the price
that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our
company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
We incur substantial costs as a result of
being a public company and our management expects to devote substantial time to public company compliance programs.
As a public company, we incur
significant legal, insurance, accounting and other expenses, including costs associated with public company reporting. We intend to invest
resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative
expenses and may divert management’s time and attention from product development and commercialization 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. These laws and
regulations could make it more difficult and costly for us to obtain director and officer liability insurance for our directors and officers,
and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make
it more difficult for us to attract and retain qualified executive officers and qualified members of our Board of Directors, particularly
to serve on our audit and compensation committees. In addition, if we are unable to continue to meet the legal, regulatory and other requirements
related to being a public company, we may not be able to maintain the quotation of our common stock on the Nasdaq Capital Market or on
any other senior market to which we may apply for listing, which would likely have a material adverse effect on the trading price of our
common stock.
If securities or industry analysts do not
publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price
and trading volume could decline.
The trading market for our
common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. Our
research coverage by industry and financial analysts is currently limited. Even if our analyst coverage increases, if one or more of the
analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our
company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock
price or trading volume to decline.