Item 1A. Risk Factors
ITEM
1A: Risk
Factors
The
following cautionary statements identify important factors that could cause our actual results to differ materially from those projected
in the forward-looking statements made in this Form 10-K. Please see “Special Note Regarding Forward Looking Statements and Summary
Risk Factors” above.
Risks
Associated with Our Business
The
COVID-19 coronavirus or other global pandemics could adversely impact our business, including our clinical trials. We cannot predict
the ultimate effects of the Covid-19 pandemic on our business.
The
COVID-19 pandemic had and continues to have a major disruptive effect in the US and worldwide, including in countries in which there
are planned or active clinical trial sites studying Ampligen. The COVID-19 pandemic or a future major pandemic could severely impact
our business and clinical trials, including:
●
delays
or difficulties in enrolling patients in our clinical trials;
●
delays
or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
●
diversion
of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial
sites and hospital staff supporting the conduct of our clinical trials;
●
interruption
of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by
federal or state governments, employers and others;
●
limitations
in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees
or their families or the desire of employees to avoid contact with large groups of people;
●
delays
in issuing reports, results and publishing papers;
●
delays
in receiving approval from local regulatory authorities to initiate our planned clinical trials;
●
delays
in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
●
interruption
in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical
trials;
●
changes
in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the ways in which
our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
●
delays
in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations
in employee resources or forced furlough of government employees; and
●
refusal
of the FDA to accept data from clinical trials in affected geographies outside the United States.
As
noted elsewhere in this Report, progress of our commercial launch in Argentina has been delayed due to pandemic factors. The ongoing
impact of COVID-19 in Argentina is taxing the nation’s health care system and is, understandably, a main priority of its regulators.
While
we are not able to estimate the effects of the COVID-19 outbreak or future pandemics, they may have a material adverse effect on our
results of future operations, financial position and liquidity.
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We
may require additional financing which may not be available.
The
development of our products requires the commitment of substantial resources to conduct the time-consuming research, preclinical development,
and clinical trials that are necessary to bring pharmaceutical products to market. As of December 31, 2022 we had approximately $34,190,000
in cash and cash equivalents. We believe, based on our current financial condition, that we have adequate funds to meet our anticipated
operational cash needs and fund current clinical trials over approximately the next sixteen months. At present we do not generate any
material revenues from our operations and we do not anticipate doing so in the near future. We may need to obtain additional funding
in the future for new studies and/or if current studies do not yield positive results, require unanticipated changes and/or additional
studies. In February 2022, the SEC declared our universal shelf registration statement on Form S-3 effective. Pursuant to that registration
statement, we can sell up to $100 million of our securities and raise additional capital as needed in the future. No assurance can be
given as to the amount of funds that could be raised pursuant to this registration statement or the potential dilution to current stockholders.
We
will need to allocate capital to eventually commercialize and sell Ampligen and/or recommence sales of Alferon N Injection.
We
believe, based on our current financial condition, that we have adequate funds to meet our anticipated operational cash needs and fund
current clinical trials over approximately the next sixteen months. If our funds are not adequate, and we are subsequently unable to
obtain additional funding, through joint venturing, sales of securities and/or otherwise, our ability to develop our products, commercially
produce inventory or continue our operations may be materially adversely affected.
We
may continue to incur substantial losses and our future profitability is uncertain.
As
of December 31, 2022, our accumulated deficit was approximately $380,308. As with many biotechnology companies, we have not yet generated
significant revenues from our products and may incur substantial and increased losses in the future. We cannot assure that we will ever
achieve significant revenues from product sales or become profitable. We require, and will continue to require, the commitment of substantial
resources to develop our products. We cannot assure that our product development efforts will be successfully completed or that required
regulatory approvals will be obtained or that any products will be manufactured and marketed successfully, or be profitable.
Our
drug and related technologies are investigational and subject to regulatory approval. If we are unable to obtain regulatory approval
in a timely manner, or at all, our operations will be materially harmed and our stock adversely affected.
While
we have received regulatory approval for the commercialization of Ampligen in Argentina (pending additional release testing and subsequent
steps), all of our drugs and associated technologies, other than Alferon N Injection, are investigational in the U.S. and must receive
prior regulatory approval by appropriate regulatory authorities for commercial distribution and sale and are currently legally available
only through clinical trials in the U.S. with specified disorders. At present, Alferon N Injection is approved for the intralesional
treatment of refractory or recurring external genital warts in patients 18 years of age or older. However, it is not at present available
for purchase on the market. Use of Alferon N Injection for other indications will require regulatory approval in the United States and
abroad.
Our
products, including Ampligen, are subject to extensive regulation by numerous governmental authorities in the U.S. and other countries,
including, but not limited to, the U.S. FDA, the Health Protection Branch (“HPB”) of Canada, the Agency for the European
Medicines Agency (“EMA”) in Europe; and the Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (“ANMAT”)
in Argentina. Obtaining regulatory approvals is a rigorous and lengthy process and requires the expenditure of substantial resources.
In order to obtain final regulatory approval of a new drug, we must demonstrate to the satisfaction of the regulatory agency that the
product is safe and effective for its intended uses and that we are capable of manufacturing the product to the applicable regulatory
standards. We require regulatory approval in order to market Ampligen or any other proposed product and receive product revenues or royalties.
We cannot assure you that Ampligen will ultimately be demonstrated to be safe and efficacious. While Ampligen is authorized for use in
clinical trials in the U.S., we cannot assure you that additional clinical trial approvals will be authorized in the United States or
in other countries, in a timely fashion or at all, or that we will complete these clinical trials. In addition, although Ampligen has
been authorized by the FDA for treatment use under certain conditions, including provision for cost recovery, there can be no assurance
that such authorization will continue in effect.
While
we received approval of our Argentinian NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen) in the Argentine
Republic for the treatment of severe ME/CFS, ANMAT approval is only an initial, but important, step in the overall successful commercialization
of our product. In September 2019, we received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent
sales. However, there are a number of additional actions that must occur before we would be able to commence commercial sales in Argentina.
For example, Ampligen is still in the process of release testing the product that has already been sent.
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The
FDA’s regulatory review and approval process is extensive, lengthy, expensive and inherently uncertain. To receive approval for
a product candidate, we must, among other things, demonstrate to the FDA’s satisfaction with substantial evidence from well-controlled
pre-clinical and clinical trials that the product candidate is both safe and effective for each indication for which approval is sought.
Before we can sell Ampligen for any use or promote Alferon N Injection for any use other than as Alferon N Injection for treatment of
refractory or recurring genital warts, we will need to file the appropriate NDA with the FDA in the U.S. and the appropriate regulatory
agency outside of the U.S. where we intend to market and sell such products. At present the only NDA we have filed with the FDA is the
NDA for the use of Ampligen to treat CFS. The FDA issued a Complete Response Letter (“CRL”) in February 2013 for this NDA
and provided recommendations to address certain outstanding issues before they could approve Ampligen for Commercial Sales. The Agency
stated that the submitted data do not provide substantial evidence of efficacy of Ampligen for the treatment of CFS and that the data
do not provide sufficient information to determine whether the product is safe for use in CFS due to the limited size of the safety database
and multiple discrepancies within the submitted data. The FDA indicated that we needed to conduct additional work. Therefore, ultimate
FDA approval, if any, may be delayed indefinitely and may require us to expend more resources than we have available. It is also possible
that additional studies, if performed and completed, may not be successful or considered sufficient by the FDA for approval or even to
make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or more of our future applications
for approval, which might significantly harm our business and prospects. As a result, we cannot predict if or when we might receive regulatory
approval for the use of Ampligen to treat CFS or for the use of any other products. Even if regulatory approval from the FDA is received
for the use of Ampligen to treat CFS or eventually, for the use of any other product, any approvals that we obtain could contain significant
limitations in the form of narrow indications, patient populations, warnings, precautions or contra-indications or other conditions of
use, or the requirement that we implement a risk evaluation and mitigation strategy. In such an event, our ability to generate revenues
from such products could be greatly reduced and our business could be harmed.
If
we are unable to gain necessary FDA approvals related to Ampligen and Alferon N Injection on a timely basis, or we are unable to generate
the additional data, successfully complete inspections or obtain approvals as required by the FDA on a timely manner, or at all, or determine
that any of our clinical studies are not cost/justified to undertake or if, for that or any other reason, Ampligen, Alferon N Injection
or one of our other products or production processes do not receive necessary regulatory approval in the U.S. or elsewhere, our operations
most likely will be materially and/or adversely affected.
Generally,
obtaining approval of an NDA by the FDA, or a comparable foreign regulatory authority, is inherently uncertain. Even after completing
clinical trials and other studies, a product candidate could fail to receive regulatory approval for many reasons, including the following:
● not
be able to demonstrate to the satisfaction of the FDA that our product candidate is safe
and effective for any indication;
● the
FDA may disagree with the design or implementation of our clinical trials or other studies;
● the
results of the clinical trials or other studies may not demonstrate that a product candidate’s
clinical and other benefits outweigh its safety risks;
● the
FDA may disagree with our interpretation of data from clinical trials or other studies;
● the
data collected from clinical trials and other studies of a product candidate may not be sufficient
to support the submission of an NDA;
● the
approval policies or regulations of the FDA may significantly change in a manner rendering
our clinical and other study data insufficient for approval; and
● the
FDA may not approve the proposed manufacturing processes and facilities for a product candidate.
We
may be subject to product liability claims from the use of Ampligen, Alferon N Injection, or other of our products which could negatively
affect our future operations. We have limited product liability and clinical trial insurance.
We
maintain a limited amount of Products Liability and Clinical Trial insurance coverage worldwide for Ampligen and Alferon N Injection
due to the minimal amount of historical loss claims regarding these products in the marketplace. Any claims against our products, Ampligen
and Alferon N Injection, could have a materially adverse effect on our business and financial condition.
We
face an inherent business risk of exposure to product liability claims in the event that the use of Ampligen, Alferon N Injection or
other of our products results in adverse effects. This liability might result from claims made directly by patients, hospitals, clinics
or other consumers, or by pharmaceutical companies or others manufacturing these products on our behalf. Our future operations may be
negatively affected from the litigation costs, settlement expenses and lost product sales inherent to these claims. While we will continue
to attempt to take appropriate precautions, we cannot assure that we will avoid significant product liability exposure.
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Uncertainty
of health care reimbursement for our products.
Our
ability to successfully commercialize our products will depend, in part, on the extent to which reimbursement for the cost of such products
and related treatment will be available from government health administration authorities, private health coverage insurers and other
organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and from time to
time legislation is proposed, which, if adopted, could further restrict the prices charged by and/or amounts reimbursable to manufacturers
of pharmaceutical products. We cannot predict what, if any, legislation will ultimately be adopted or the impact of such legislation
on us. There can be no assurance that third party insurance companies will allow us to charge and receive payments for products sufficient
to realize an appropriate return on our investment in product development.
There
are risks of liabilities associated with handling and disposing of hazardous materials.
Our
business involves the controlled use of hazardous materials, carcinogenic chemicals, and flammable solvents. Although we believe that
our safety procedures for handling and disposing of such materials comply in all material respects with the standards prescribed by applicable
regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such
an accident or the failure to comply with applicable regulations, we could be held liable for any damages that result. However, we have
obtained insurance coverage to mitigate any potential significant loss in this area.
We
rely upon information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber
security incidents, could harm our ability to operate our business effectively.
Our
operations could be disrupted if our information systems fail, if we are unsuccessful in implementing necessary upgrades or if we are
subject to cyber-attacks. Our business depends on the efficient and uninterrupted operation of our computer and communications systems
and networks, hardware and software systems and our other information technology. We collect and maintain information, which includes
confidential and proprietary information, as well as personal information regarding our customers and employees, in digital form. Data
maintained in digital form is subject to risk of cyber-attacks, which are increasing in frequency and sophistication. Cyber-attacks could
include the deployment of harmful malware, viruses, worms, and other means to affect service reliability and threaten data confidentiality,
integrity and availability. Despite our efforts to monitor and safeguard our systems to prevent data compromise, the possibility of a
future data compromise cannot be eliminated entirely, and risks associated with intrusion, tampering, and theft remain. In addition,
we do not have insurance coverage with respect to system failures or cyber- attacks. A failure of our systems, or an inability to successfully
expand the capacity of these systems, or an inability to successfully integrate new technologies into our existing systems could have
a material adverse effect on our business, results of operations, financial condition, and cash flows.
The
Company and its vendors’ sophisticated information technology operations are spread across multiple, sometimes inconsistent, platforms,
which pose difficulties in maintaining data integrity across systems. The ever-increasing use and evolution of technology, including
cloud-based computing, creates opportunities for the unintentional or improper dissemination or destruction of confidential information
stored in the Company’s systems.
Any
breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse
of trade secrets, proprietary information or other confidential information, whether as a result of theft, hacking, fraud, trickery or
other forms of deception, or for any other cause, could enable others to produce competing products, use our proprietary technology or
information and/or adversely affect our business position. Further, any such interruption, security breach, loss or disclosure of confidential
information could result in financial, legal, business and reputational harm to our company and could have a material adverse effect
on our business, financial condition, results of operations, cash flows and stock price.
The
loss of services of key personnel could hurt our chances for success.
Our
success is dependent on the continued efforts of our staff, especially certain doctors and researchers. The loss of the services of personnel
key to our operations could have a material adverse effect on our operations and chances for success. The loss of key personnel or the
failure to recruit additional personnel as needed could have a materially adverse effect on our ability to achieve our objectives.
GAAP
requires estimates, judgements and assumptions which inherently contain uncertainties.
There
are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance
with GAAP. Any future changes in estimates, judgments and assumptions used or necessary revisions to prior estimates, judgments or assumptions
could lead to a restatement of our results.
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The
financial statements included in this Annual Report on Form 10-K are prepared in accordance with GAAP. This involves making estimates,
judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities, mezzanine equity, stockholders’
equity, operating revenues, costs of sales, operating expenses, other income, and other expenses. Estimates, judgments, and assumptions
are inherently subject to change in the future and any necessary revisions to prior estimates, judgments or assumptions could lead to
a restatement. Any such changes could result in corresponding changes to the amounts of assets (including goodwill and other intangible
assets), liabilities, mezzanine equity, stockholders’ equity, operating revenues, costs of sales, operating expenses, other income
and other expenses.
We
currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal
Deposit Insurance Corporation (“FDIC”), and the loss of such assets would have a severe negative affect on our operations
and liquidity.
On
March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation,
which appointed the FDIC as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into
receivership. A statement by the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would
have access to all of their money after only one business day of closure, including funds held in uninsured deposit accounts. Although
we do not have any funds deposited with SVB and Signature Bank, We currently have deposits with Bank of America and Truist Bank, each
exceeding $250,000. In the future, we may maintain our cash assets at these and other financial institutions in the United States in
amounts that may be in excess of the FDIC insurance limit of $250,000. In the event of a failure of any of these financial institutions
where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which
could have a material adverse effect upon our liquidity, financial condition and our results of operations.
Risks
Associated with Our Products
In
addition to the risks disclosed above, the development of Ampligen is subject to a number of significant risks. Ampligen may be found
to be ineffective or to have adverse side effects, fail to receive necessary regulatory clearances, be difficult to manufacture on a
commercial scale, be uneconomical to market or be precluded from commercialization by proprietary right of third parties. Our investigational
products are in various stages of clinical and pre-clinical development and require further clinical studies and appropriate regulatory
approval processes before any such products can be marketed. We do not know when, if ever, Ampligen or our other products will be generally
available for commercial sale for any indication. Generally, only a small percentage of potential therapeutic products are eventually
approved by the FDA for commercial sale.
To
the extent that we are required by the FDA, pursuant to the Ampligen NDA, to conduct additional studies and take additional actions,
approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have
available. It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient by
the FDA for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or
more of our future applications for approval, which might significantly harm our business and prospects. As a result, we cannot predict
when or whether regulatory approval will be obtained for any product candidate we develop.
If
approved, one or more of the potential side effects of the drug might deter usage of Ampligen in certain clinical situations and, therefore,
could adversely affect potential revenues and physician/patient acceptability of our product.
Although
Alferon N Injection is approved for marketing in the United States for intralesional treatment of refractory or recurring external genital
warts in patients 18 years of age or older, to date it has not been approved for other indications.
Possible
side effects from the use of Ampligen or Alferon N Injection could adversely affect potential revenues and physician/patient acceptability
of our product.
Ampligen.
We believe that Ampligen has been generally well tolerated with a low incidence of clinical toxicity, particularly given the severely
debilitating or life-threatening diseases that have been treated. A mild flushing reaction has been observed in approximately 15-20%
of patients treated in our various studies. This reaction is occasionally accompanied by a rapid heartbeat, a tightness of the chest,
urticaria (swelling of the skin), anxiety, shortness of breath, subjective reports of “feeling hot”, sweating and nausea.
The reaction is usually infusion-rate related and can generally be controlled by reducing the rate of infusion. Other adverse side effects
include liver enzyme level elevations, diarrhea, itching, asthma, low blood pressure, photophobia, rash, visual disturbances, slow or
irregular heart rate, decreases in platelets and white blood cell counts, anemia, dizziness, confusion, elevation of kidney function
tests, occasional temporary hair loss and various flu-like symptoms, including fever, chills, fatigue, muscular aches, joint pains, headaches,
nausea and vomiting. These flu-like side effects typically subside within several months.
The
FDA in its February 1, 2013, CRL, provided recommendations to address certain outstanding issues before they could approve Ampligen for
Commercial Sales. The Agency stated that the submitted data do not provide sufficient information to determine whether the product is
safe for use in CFS due to the limited size of the safety database and multiple discrepancies within the submitted data.
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If
approved, one or more of the potential side effects of the drug might deter usage of Ampligen in certain clinical situations and therefore,
could adversely affect potential revenues and physician/patient acceptability of our product.
Alferon
N Injection. At present, Alferon N Injection is approved for the intralesional (within the lesion) treatment of refractory or recurring
external genital warts in adults. In clinical trials conducted for the treatment of genital warts with Alferon N Injection, patients
did not experience serious side effects; however, there can be no assurance that unexpected or unacceptable side effects will not be
found in the future for this use or other potential uses of Alferon N Injection which could threaten or limit such product’s usefulness.
Risks
Related to our activities associated with Ampligen’s potential effectiveness as a treatment for COVID-19
It
is not possible to predict the future of the ongoing SARS-CoV-2 global pandemic or the development of potential treatments. No assurance
can be given that Ampligen will aid in or be applied to the treatment of this virus.
Significant
additional testing and trials will be required to determine whether Ampligen will be effective in the treatment of COVID-19 and no assurance
can be given that it will be the case. We base our belief that Ampligen may be effective in the treatment of COVID-19 on the result of
studies that we reviewed and referenced. No assurance can be given that future studies will not result in findings that are different
from those in the studies that we have relied upon. We are one of many companies working to develop a treatment for this virus, most
of whom have far greater resources than us. This includes research into a range of COVID-19-related circumstances, from prophylactic
and early-onset treatments to therapies for Post-COVID conditions. If one of these companies develops an effective treatment along the
same lines as a therapy being developed by AIM, the development of Ampligen for this virus most likely will be adversely affected. Moreover,
there already are available treatments.
Operating
in foreign countries carries with it many risks.
Some
of our studies are being conducted in the Netherlands and we may conduct other studies and or we may enter into agreements such as supply
agreements. Operating in foreign countries carries with it a number of risks, including potential difficulties in enforcing intellectual
property rights. We cannot assure that our potential foreign operations will not be adversely affected by these risks.
Risks
Associated with Our Intellectual Property
We
may not be profitable unless we can protect our patents and/or receive approval for additional pending patents.
We
need to preserve and acquire enforceable patents covering the use of Ampligen for a particular disease in order to obtain exclusive rights
for the commercial sale of Ampligen for such disease. We obtained all rights to Alferon N Injection, and we plan to preserve and acquire
enforceable patents covering its use for existing and potentially new diseases once we have had a successful FDA Pre Approval Inspection.
Our success depends, in large part, on our ability to preserve and obtain patent protection for our products and to obtain and preserve
our trade secrets and expertise. Certain of our know-how and technology is not patentable, particularly the procedures for the manufacture
of our experimental drug, Ampligen. We also have been issued a patent which affords protection on the use of Ampligen in patients with
Chronic Fatigue Syndrome. We have not yet been issued any patents in the United States for the use of Ampligen as a sole treatment for
any of the cancers which we have sought to target. For more information on Patents, please see PART I, Item 1 “Business; Patents”.
We
cannot assure that our competitors will not seek and obtain patents regarding the use of similar products in combination with various
other agents, for a particular target indication prior to our doing so. If we cannot protect our patents covering the use of our products
for a particular disease, or obtain additional patents, we may not be able to successfully market our products.
The
patent position of biotechnology and pharmaceutical firms is highly uncertain and involves complex legal and factual questions.
To
date, no consistent policy has emerged regarding the breadth of protection afforded by pharmaceutical and biotechnology patents. There
can be no assurance that new patent applications relating to our products, process or technology will result in patents being issued
or that, if issued, such patents will afford meaningful protection against competitors with similar technology. It is generally anticipated
that there may be significant litigation in the industry regarding patent and intellectual property rights. Such litigation could require
substantial resources from us and we may not have the financial resources necessary to enforce the patent rights that we hold. No assurance
can be made that our patents will provide competitive advantages for our products, process and technology or will not be successfully
challenged by competitors. No assurance can be given that patents do not exist or could not be filed which would have a materially adverse
effect on our ability to develop or market our products or to obtain or maintain any competitive position that we may achieve with respect
to our products. Our patents also may not prevent others from developing competitive products or processes using related technology.
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There
can be no assurance that we will be able to obtain necessary licenses if we cannot enforce patent rights we may hold. In addition, the
failure of third parties from whom we currently license certain proprietary information or from whom we may be required to obtain such
licenses in the future, to adequately enforce their rights to such proprietary information, could adversely affect the value of such
licenses to us.
If
we cannot enforce the patent rights we currently hold we may be required to obtain licenses from others to develop, manufacture or market
our products. There can be no assurance that we would be able to obtain any such licenses on commercially reasonable terms, if at all.
We currently license certain proprietary information from third parties, some of which may have been developed with government grants
under circumstances where the government maintained certain rights with respect to the proprietary information developed. No assurances
can be given that such third parties will adequately enforce any rights they may have or that the rights, if any, retained by the government
will not adversely affect the value of our license.
There
is no guarantee that our trade secrets will not be disclosed or known by our competitors.
To
protect our rights, we require all employees and certain consultants to enter into confidentiality agreements with us. There can be no
assurance that these agreements will not be breached, that we would have adequate and enforceable remedies for any breach, or that any
trade secrets of ours will not otherwise become known or be independently developed by competitors.
Risks
Associated with Our R&D
Due
to the inherent uncertainty involved in the design and conduct of clinical trials and the applicable regulatory requirements, including
the factors discussed above in “Our Products”, we cannot predict what additional studies and/or additional testing or information
may be required by the FDA. In addition, most of our studies to date have involved only a small group of participants and positive results
in such a small group does not mean that such results will prove true in studies with a much larger group of participants. Accordingly,
we are unable to estimate the nature, timing, costs and necessary efforts to complete these projects nor the anticipated completion dates.
In addition, we have no basis for estimating when material net cash inflows may commence. We have yet to generate significant revenues
from the sale of these developmental products. As of December 31, 2022, we had approximately $34,190,000 in Cash, Cash Equivalents. Please
see “ We may require additional financing which may not be available ” above.
Risks
Associated with Our Manufacturing
Our
Alferon N. Injection commercial sales were halted due to lack of finished goods inventory. If we are unable to gain the necessary FDA
approvals related to Alferon N Injection, our operations most likely will be materially and/or adversely affected.
We
are exploring engaging a Contract Manufacturing Organization (“CMO”) to produce Alferon API. At present, we do not have a
supply of Alferon N Injection or the requisite API. Additionally, although our old New Brunswick facility was FDA approval under the
BLA for Alferon N Injection and we intend to maintain a certain amount of space at that facility, this status will need to be reapproved
when a CMO or a new facility is identified for the production of the drug. We cannot provide any guarantee that a CMO or other future
facility will pass an FDA pre-approval inspection for Ampligen or Alferon N Injection manufacture.
If
we are unable to gain the necessary FDA approvals related to the manufacturing process and/or final product of new Alferon N Injection
inventory or contract with a CMO, our operations most likely will be materially adversely affected. For more information on Alferon N
Injection regarding potential commercial sales, please see PART I, Item 1 - “Business; Manufacturing”.
There
are no long-term agreements with suppliers of required materials and services for Ampligen and there are a limited number of raw material
suppliers. If we are unable to obtain the required raw materials and/or services, we may not be able to manufacture Ampligen.
A
number of essential raw materials are used in the production of Ampligen as well as packaging materials utilized in the fill and finish
process. We do not have, but continue to work toward having, long-term agreements for the supply of such materials, when possible. There
can be no assurance we can enter into long-term supply agreements covering essential materials on commercially reasonable terms, if at
all.
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There
are a limited number of suppliers in the United States and abroad available to provide the raw and packaging materials/reagents for use
in manufacturing Ampligen and Alferon N Injection. At present, we do not have any agreements with third parties for the supply of any
of these materials or we are relying on a limited source of reagent suppliers necessary for the manufacture of Alferon N Injection. Jubilant
HollisterStier LLC has manufactured batches of Ampligen for us pursuant to purchase orders. We anticipate, but cannot assure, that additional
orders will be placed upon approved quotes and purchase orders provided by us to Jubilant. On December 22, 2020, we added Pharmaceutics
International Inc. (“Pii”) as a “Fill & Finish” provider to enhance our capacity to produce the drug Ampligen.
This addition amplifies our manufacturing capability by providing redundancy and cost savings. The contracts augment our existing fill
and finish capacity. If we are unable to place adequate acceptable purchase orders with Jubilant or Pii in the future at acceptable prices
upon acceptable terms, we will need to find another manufacturer. If we need to find another contract manufacturer to produce Ampligen,
it would create a significant delay and expense to get the manufacturer up and running. The costs and availability of products and materials
we would need for the production of Ampligen are subject to fluctuation depending on a variety of factors beyond our control, including
competitive factors, changes in technology, ownership of intellectual property, FDA and other governmental regulations. There can be
no assurance that we will be able to obtain such products and materials on terms acceptable to us or at all.
While
we have produced limited quantities of active pharmaceutical ingredients (“API”) for our products in our old New Brunswick,
NJ facility, the sale of this facility necessitates our exploring the engagement of a CMO to produce API for both Ampligen and Alferon.
While we believe we have sufficient API to meet our current Ampligen needs, we are also continually exploring new efficiencies so as
to maximize our ability to fulfill future obligations. Currently, the Alferon N Injection manufacturing process is on hold and there
is no definitive timetable for its restart. Please see “ Our Alferon N. Injection commercial sales were halted due to lack of
finished goods inventory. If we are unable to gain the necessary FDA approvals related to Alferon N Injection, our operations most likely
will be materially and/or adversely affected ” above.
If
we are unable to obtain or manufacture the required materials/reagents, and/or procure services needed in the final steps in the manufacturing
process, we may be unable to manufacture Ampligen. The costs and availability of products and materials we need for the production of
Ampligen are subject to fluctuation depending on a variety of factors beyond our control, including competitive factors, changes in technology,
ownership of intellectual property, FDA and other governmental regulations. There can be no assurance that we will be able to obtain
such products and materials on terms acceptable to us or at all. For more information on Ampligen manufacturing, please see PART I, Item
1 - “Business; Our Products; Manufacturing” above.
There
are a limited number of organizations in the United States available to provide the final manufacturing steps of formulation, fill, finish
and packing sets for Alferon N Injection and Ampligen.
There
are a limited number of organizations in the United States available to provide the final steps in the manufacturing for Alferon N Injection
and Ampligen. To formulate, fill, finish and package our products (“fill and finish”), we require an FDA approved third party
CMO.
In
January 2017, we approved a quote and provided a purchase order with Jubilant HollisterStier LLC pursuant to which Jubilant manufactured
batches of Ampligen for us. We anticipate, but cannot assure, that additional orders will be placed upon approved quotes and purchase
orders provided by us to Jubilant. If we are unable to place adequate acceptable purchase orders with Jubilant in the future at acceptable
prices upon acceptable terms our business would be materially and adversely affected. Please see the prior risk factor.
In
December 2020, we added Pii as a “Fill & Finish” provider to enhance our capacity to produce the drug Ampligen. This
addition amplifies our manufacturing capability by providing redundancy and cost savings. The contracts augment our existing fill and
finish capacity.
Should
there be an unanticipated delay in receiving new product or should we experience an unexpected demand for Ampligen, our ability to supply
Ampligen most likely will be adversely affected. If we are unable to procure services needed in the final steps in the manufacturing
process, we may be unable to manufacture Alferon N Injection and/or Ampligen. The costs and availability of products and materials we
need for the production of Ampligen and the commercial production of Alferon N Injection and other products which we may commercially
produce are subject to fluctuation depending on a variety of factors beyond our control, including competitive factors, changes in technology,
and FDA and other governmental regulations and there can be no assurance that we will be able to obtain such products and materials on
terms acceptable to us or at all. For more information on Ampligen and Alferon N Injection manufacturing, please see PART I, Item 1 -
“Business; Our Products; Manufacturing” above.
There
is no assurance that, upon successful, manufacture of a drug on a limited-scale basis for investigational use will lead to a successful
transition to commercial, large-scale production.
Changes
in methods of manufacturing, including commercial scale-up, may affect the chemical structure of Ampligen and other RNA drugs, as well
as their safety and efficacy. The transition from limited production of pre-clinical and clinical research quantities to production of
commercial quantities of our products will involve distinct management and technical challenges, and may require additional management,
technical personnel and capital. While we intend to identify a CMO (or CMOs) with a state-of-the-art facility capable of meeting potential
increased demand for Ampligen, there can be no assurance that our manufacturing will be successful or that any given product will be
determined to be safe and effective, or capable of being manufactured under applicable quality standards, economically, and in commercial
quantities, or successfully marketed.
29
We
have limited manufacturing experience for Ampligen and Alferon N Injection. We may not be profitable unless we can produce Ampligen,
Alferon N Injection or other products in commercial quantities at costs acceptable to us .
Ampligen
has been produced to date in limited quantities for use in our clinical trials, Early Access Program and Expanded Access Program. In
addition, in Argentina, Ampligen is still in the process of release testing the product that has already been sent. To be successful,
our products must be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs. We believe,
but cannot assure, that it will not be necessary to increase our current product plans to meet our production obligations. We intend
to utilize third-party facilities if and when the need arises. We will need to comply with regulatory requirements for such facilities,
including those of the FDA pertaining to cGMP requirements or maintaining our BLA status. There can be no assurance that such facilities
can be used, built, or acquired on commercially acceptable terms, or that such facilities, if used, built, or acquired, will be adequate
for the production of our proposed products for large-scale commercialization or our long-term needs.
We
have never produced Ampligen, Alferon N Injection or any other products in large commercial quantities. We must manufacture our products
in compliance with regulatory requirements in large commercial quantities and at acceptable costs in order for us to be profitable. We
intend to utilize third-party manufacturers and/or facilities if and when the need arises or, if we are unable to do so, to build or
acquire commercial-scale manufacturing facilities. If we cannot manufacture commercial quantities of Ampligen and/or Alferon N Injection,
or continue to maintain third party agreements for its manufacture at costs acceptable to us, our operations will be significantly affected.
If and when the Ampligen NDA is approved, we may need to find an additional vendor to manufacture the product for commercial sales. Also,
each production lot of Alferon N Injection is subject to FDA review and approval prior to releasing the lots to be sold. This review
and approval process could take considerable time, which would delay our having product in inventory to sell, nor can we provide any
assurance as to the receipt of FDA approval of our finished inventory product. There can be no assurances that the Ampligen and/or Alferon
N Injection can be commercially produced at costs acceptable to us.
Risks
Associated with Our Licensing/Collaborations/Joint Ventures
If
we are unable to achieve licensing, collaboration and/or joint ventures, our marketing strategy for Ampligen will be part of the differing
health care systems around the world along with the different marketing and distribution systems that are used to supply pharmaceutical
products to those systems.
We
have received approval of our NDA from ANMAT for commercial sale of rintatolimod (U.S. tradename: Ampligen) in the Argentine Republic
for the treatment of severe CFS. The product will be marketed by GP Pharm, our commercial partner in Latin America. In September 2019,
we received clearance from the FDA to ship Ampligen to Argentina for the commercial launch and subsequent sales. We are currently working
with GP Pharma on the commercial launch of Ampligen in Argentina. Commercialization in Argentina will require, among other things, GP
Pharm to establish disease awareness, medical education, creation of an appropriate reimbursement level, design of marketing strategies
and completion of manufacturing preparations for launch.
The
next steps in the commercial launch of Ampligen include ANMAT conducting a final inspection of the product and release tests before granting
final approval to begin commercial sales. This testing and approval process is currently delayed due to the COVID-19 pandemic and ANMAT’s
internal processes. Once final approval by ANMAT is obtained, GP Pharm will begin distributing Ampligen in Argentina. We continue to
pursue our Ampligen NDA, for the treatment of CFS with the FDA.
Risks
Associated with Our Marketing and Distribution
We
have limited marketing and sales capability. If we are unable to obtain additional distributors and our current and future distributors
do not market our products successfully, we may not generate significant revenues or become profitable.
We
have limited marketing and sales capability. We are dependent upon existing, and possibly future, marketing agreements and third-party
distribution agreements for our products in order to generate significant revenues and become profitable. As a result, any revenues received
by us will be dependent in large part on the efforts of third parties, and there is no assurance that these efforts will be successful.
Our
commercialization strategy for Ampligen, if and when it is approved for marketing and sale by the FDA, may include licensing/co-marketing
agreements utilizing the resources and capacities of a strategic partner(s). We continue to seek a world-wide marketing partner with
the goal of having a relationship in place before approval is obtained. In parallel to partnering discussions, appropriate pre-marketing
activities will be undertaken. It is our current intention to control manufacturing of Ampligen on a world-wide basis.
Our
commercialization strategy for Alferon N Injection may include the utilization of internal functions and/or licensing/co-marketing agreements
that would utilize the resources and capacities of one or more strategic partners.
30
We
cannot assure that our U.S. or foreign marketing strategy will be successful or that we will be able to establish future marketing or
third-party distribution agreements on terms acceptable to us, or that the cost of establishing these arrangements will not exceed any
product revenues. Our inability to establish viable marketing and sales capabilities would most likely have a materially adverse effect
on us. There can be no assurances that the approved Alferon N Injection product will be returned to prior sales levels.
Risks
Associated with Our Competition
Rapid
technological change may render our products obsolete or non-competitive.
The
pharmaceutical and biotechnology industries are subject to rapid and substantial technological change. Technological competition from
pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and
is expected to increase. Most of these entities have significantly greater research and development capabilities than us, as well as
substantial marketing, financial and managerial resources, and represent significant competition for us. There can be no assurance that
developments by others will not render our products or technologies obsolete or noncompetitive, or that we will be able to keep pace
with technological developments.
Our
products may be subject to substantial competition.
Ampligen.
Our flagship product, Ampligen is being evaluated as a potential treatment for COVID-19, myalgic encephalomyelitis/chronic fatigue
syndrome (ME/CFS) and COVID-induced CFS symptoms (“Long Haulers”); as well as multiple types of cancers. With regard to COVID-19,
multiple global companies are actively working to develop therapies for COVID-19, including several companies which have successfully
developed vaccines and treatments. It is possible that these or other companies may be developing therapies that are similar to that
which we are attempting to develop, and could therefore develop them first. Some of these potential products may have an entirely different
approach or means of accomplishing similar therapeutic effects to products being developed by us. These competing products may be more
effective and less costly than our products. In addition, conventional drug therapy, surgery and other more familiar treatments may offer
competition to our products. Furthermore, many of our competitors have significantly greater experience than we do in preclinical testing
and human clinical trials of pharmaceutical products and in obtaining FDA, The Health Protection Branch of the Canada Department of National
Health and Welfare (HPB) and other regulatory approvals of products. Accordingly, our competitors may succeed in obtaining FDA, HPB or
other regulatory product approvals more rapidly than us. There are no drugs approved for commercial sale with respect to treating CFS
in the United States, and standard of care is to focus on symptom relief, such as addressing pain specifically or depression specifically
The dominant competitors with drugs to treat disease indications which we plan to address include Pfizer, GlaxoSmithKline, Merck &
Co., Novartis and AstraZeneca. Biotech competitors include Baxter International, Fletcher/CSI, AVANT Immunotherapeutics, AVI BioPharma
and Genta. These potential competitors are among the largest pharmaceutical companies in the world, are well known to the public and
the medical community, and have substantially greater financial resources, product development, and manufacturing and marketing capabilities
than we have. Although we believe our principal advantage is the unique mechanism of action of Ampligen on the immune system, we cannot
assure that we will be able to compete.
Alferon
N Injection. Our competitors are among the largest pharmaceutical companies in the world, are well known to the public and the medical
community, and have substantially greater financial resources, product development, and manufacturing and marketing capabilities than
we have. Alferon N Injection currently competes with Merck’s injectable recombinant alpha interferon product (Intron® A) for
the treatment of genital warts. In addition, other pharmaceutical firms offer self-administered topical cream, for the treatment of external
genital and perianal warts such as Graceway Pharmaceuticals (Aldara®), Perrigo Company (Imiquimod
Cream - Generic Equivalent to Aldara®), Watson Pharma (Condylox®) and MediGene (Veregen®). Alferon N Injection also
competes with surgical, chemical, and other methods of treating genital warts. We cannot assess the impact products developed by our
competitors, or advances in other methods of the treatment of genital warts, will have on the commercial viability of Alferon N Injection.
If and when we obtain additional approvals of uses of this product, we expect to compete primarily on the basis of product performance.
Our competitors have developed or may develop products (containing either alpha or beta interferon or other therapeutic compounds) or
other treatment modalities for those uses. There can be no assurance that, if we are able to obtain regulatory approval of Alferon N
Injection for the treatment of new indications, we will be able to achieve any significant penetration into those markets. In addition,
because certain competitive products are not dependent on a source of human blood cells, such products may be able to be produced in
greater volume and at a lower cost than Alferon N Injection. Currently, our wholesale price on a per unit basis of Alferon N Injection
is higher than that of the competitive recombinant alpha and beta interferon products. Please see risk factor “We may not be profitable
unless we can protect our patents and/or receive approval for additional pending patents” above for additional information.
31
Other
companies may succeed in developing products earlier than we do, obtaining approvals for such products from the FDA more rapidly than
we do, or developing products that are more effective than those we may develop. While we will attempt to expand our technological capabilities
in order to remain competitive, there can be no assurance that research and development by others or other medical advances will not
render our technology or products obsolete or non-competitive or result in treatments or cures superior to any therapy we develop.
Risks
Associated with an Investment in Our Common Stock:
The
market price of our stock may be adversely affected by market volatility
The
market price of our common stock has been and is likely to be volatile. This is especially true given the current significant instability
in the financial markets, in part caused by the COVID-19 coronavirus and the major adverse effects it has had and will continue to have
on U.S. and worldwide economies and markets as well as the adverse effects and disruptions caused by the war in the Ukraine. Should our
progress slow or results of testing or activities by others negatively impact our efforts, it is just as likely that our stock price
will be significantly adversely affected, and in such case, investors could sustain substantial losses. In addition to the foregoing
and, general economic, political and market conditions, the price and trading volume of our stock could fluctuate widely in response
to many factors, including:
●
announcements
of the results of clinical trials by us or our competitors;
●
announcements
of availability or projections of our products for commercial sale;
●
announcements
of legal actions against us and/or settlements or verdicts adverse to us;
●
adverse
reactions to products;
●
governmental
approvals, delays in expected governmental approvals or withdrawals of any prior governmental approvals or public or regulatory agency
comments regarding the safety or effectiveness of our products, or the adequacy of the procedures, facilities or controls employed
in the manufacture of our products;
●
changes
in U.S. or foreign regulatory policy during the period of product development;
●
developments
in patent or other proprietary rights, including any third-party challenges of our intellectual property rights;
●
announcements
of technological innovations by us or our competitors;
●
announcements
of new products or new contracts by us or our competitors;
●
actual
or anticipated variations in our operating results due to the level of development expenses and other factors;
●
changes
in financial estimates by securities analysts and whether our earnings meet or exceed the estimates;
●
conditions
and trends in the pharmaceutical and other industries;
●
new
accounting standards;
●
overall
investment market fluctuation;
●
restatement
of prior financial results;
●
notice
of NYSE American non-compliance with requirements; and
●
occurrence
of any of the risks described in these risk factors and the risk factors incorporated by reference herein.
Our
common stock is listed for quotation on the NYSE American. For the year ended December 31, 2022, the trading price of our common stock
has ranged from $0.31 to $1.03 per share. We expect the price of our common stock to remain volatile. The average daily trading volume
of our common stock varies significantly.
32
Sales
of a significant number of shares of our common stock in the public markets, or the perception that such sales could occur, could depress
the market price of our common stock.
We
may issue shares to be used to meet our capital requirements or use shares to compensate employees, consultants and/or Directors. We
have registered securities for public sale pursuant to a universal shelf registration statement which will allow us to raise additional
capital as needed in the future from the sale of our securities.
We
are unable to estimate the amount, timing or nature of future sales of outstanding common stock or instruments convertible into or exercisable
for our common stock. Sales of a significant number of shares of our common stock in the public markets, or the perception that such
sales could occur as a result of our utilization of our shelf registration statement or otherwise could depress the market price of our
common stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that
future sales of our common stock or the market perception that we are permitted to sell a significant number of our securities would
have on the market price of our common stock. Please see Item 7- “Management’s Discussion and Analysis of Financial Condition
and Result of Operations; Liquidity and Capital Resources” in PART II.
Provisions
of our Certificate of Incorporation and Delaware law could defer a change of our Management which could discourage or delay offers to
acquire us.
Provisions
of our Certificate of Incorporation and Delaware law may make it more difficult for someone to acquire control of us or for our stockholders
to remove existing management, and might discourage a third party from offering to acquire us, even if a change in control or in Management
would be beneficial to our stockholders. For example, our Certificate of Incorporation allows us to issue shares of preferred stock without
any vote or further action by our stockholders. Our Board of Directors has the authority to fix and determine the relative rights and
preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further stockholder approval.
As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred
right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common
stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. On November
14, 2017, at the direction of the Board, we amended and restated the Rights Agreement between us and, American Stock Transfer & Trust
Company, LLC, its current Rights Agent. Pursuant to the original Rights Agreement, our Board of Directors declared a dividend distribution
of one Right for each outstanding share of common stock to stockholders of record at the close of business on November 29, 2002. Each
Right entitles the registered holder to purchase from us a unit consisting of one one-hundredth of a share (a “Unit”) of
Series A Junior Participating Preferred Stock, par value $0.01 per share at a Purchase Price of $21.00 per Unit, subject to adjustment.
While our Rights Agreement was scheduled to expire in late 2022, we have extended it for a short period of time and expect to again extend
it for a longer period of time.
Risks
associated with Stockholder activism.
Our
business, financial condition and operating results could be negatively affected as a result of actions by activist investors.
An
activist stockholder (the “Activist”) submitted a notice to our Board, purporting to nominate two nominees to our three-member
Board at the 2022 Annual Meeting of Stockholders. We informed the Activist that our Board determined its purported notice of nomination
was invalid, as it did not comply with our Amended and Restated Bylaws. We initiated a lawsuit against the Activist, the Activist’s
two nominees, and four additional individuals–all of whom we believe to be acting as a group, orchestrated and funded by two convicted
securities law felons, to attempt to effectuate a takeover of our Board without registering as a group pursuant to U.S. securities laws
and some of whom we believe have committed other unlawful actions. The Activist subsequently sued AIM and each of our board members in
the Court of Chancery of the State of Delaware, seeking a declaratory judgment that the purported notice of nominations was valid and
certain injunctive relief. The Delaware Chancery Court denied the Activist’s motion on October 28, 2022, and the Activist announced
on November 2, 2022, that it did not intend to appeal the decision. Had the Activist prevailed in its lawsuit, we most likely would have
been involved in a proxy contest for control of our Board, despite the deficiencies in the Activist’s purported notice of nominations.
Certain members of this group also persistently disparaged the stock using alias names on message boards. Even though we prevailed in
the Delaware litigation, the litigation and the campaign by the Activist and those with whom the Activist is acting in concert against
us (which includes two convicted securities law felons) has, and will have, likely diverted the time and energies of management and required
us to incur substantial expense, possibly causing a decrease in stockholder value.
A
proxy contest and related litigation, along the lines discussed above, could have a material adverse effect on us for the following reasons:
● Activist
investors may attempt to effect changes in our governance and strategic direction or to acquire
control over the Board or AIM. In particular, if the Activist is successful in its litigation
and subsequent proxy contest, it may gain control of the Board.
● While
we welcome the opinions of all stockholders, responding to proxy contests and related litigation
by activist investors is likely to be costly and time-consuming, disrupt our operations,
and potentially divert the attention of our Board, management team and other employees away
from their regular duties and the pursuit of business opportunities to enhance stockholder
value.
33
● Perceived
uncertainties as to our future direction as a result of potential changes to the composition
of the Board may lead to the perception of a change in the strategic direction of the business,
instability or lack of continuity, which may cause concern to our existing or potential strategic
partners, customers, employees and stockholders; may be exploited by our competitors; may
result in the loss of potential business opportunities or limit our ability to timely initiate
or advance clinical trials; and may make it more difficult to attract and retain qualified
personnel and business partners.
● Proxy
contests and related litigation by activist investors could cause significant fluctuations
in our stock price based on temporary or speculative market perceptions or other factors
that do not necessarily reflect the underlying fundamentals and prospects of our business.
ITEM
1B. Unresolved
Staff Comments.
None.