Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
You should carefully consider the following
material risk factors as well as all other information set forth or referred to in this report before purchasing shares of our common
stock. Investing in our common stock involves a high degree of risk. We may not be successful in preventing the material adverse effects
that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the
risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider
immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion
of your investment due to any of these risks and uncertainties.
Summary of Risk Factors
Our business is subject to numerous risks and
uncertainties that you should consider before investing in our company, as fully described below. The principal factors and uncertainties
that make investing in our company risky include, among others:
General Operating and Business Risks
●
Our limited operating history makes it difficult for us to evaluate our future business prospects and make decisions based on those estimates of our future performance.
●
Our results of operations have not resulted in profitability and we may not be able to achieve profitability going forward.
●
There is substantial doubt about our ability to continue as a going concern, which will affect our ability to obtain future financing and may require us to curtail our operations.
●
Our cash will only fund our operations for a limited time and we will need to raise additional capital in order to support our development.
●
Joint ventures, joint ownership arrangements and other projects
pose unique challenges and we may not be able to fully implement or realize synergies, expected returns or other anticipated benefits associated
with such projects.
12
●
We must effectively manage the growth of our operations, or our company will suffer.
●
Our prospects will suffer if we are not able to hire, train, motivate, manage, and retain a significant number of highly skilled employees.
●
Potential liability claims may adversely affect our business.
●
In accordance with our strategic development policy, we may invest in companies for strategic reasons and may not realize a return on our investments.
●
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and any patent protection we may obtain in the future could be reduced or eliminated for non-compliance with these requirements.
●
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If we fail to protect or enforce our intellectual property rights adequately or secure rights to patents of others, the value of our intellectual property rights would diminish.
●
If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.
Risk Factors Related to our Laboratory Services
Business
●
Continued changes in healthcare reimbursement models and products, changes in government payment and reimbursement systems, or changes in payer mix could have a material adverse effect on our revenues, profitability and cash flow.
●
The Laboratory Services MSO Acquisition will result in organizational changes that could create significant growth for our business. If we fail to effectively manage this growth and adapt our business structure in a manner that preserves our reputation, then our business, financial condition and results of operations could be harmed.
●
The clinical testing business is highly competitive, and if we fail to provide an appropriately priced level of service or otherwise fail to compete effectively it could have a material adverse effect on our revenues and profitability.
●
Failure to obtain and retain new customers, the loss of existing customers or material contracts, or a reduction in services or tests ordered or specimens submitted by existing customers, or the inability to retain existing and/or create new relationships with health systems could impact our ability to successfully grow our business.
●
Discontinuation or recalls of existing testing products; failure to develop or acquire licenses for new or improved testing technologies; or our customers using new technologies to perform their own tests could adversely affect our business.
●
Continued and increased consolidation of pharmaceutical, biotechnology and medical device companies, health systems, physicians and other customers could adversely affect our business.
Risk Factors Related to Clinical and Commercialization
Activity
●
We may not be able to file investigational new drug applications (INDs) to commence additional clinical trials on the timelines we expect, and even if we are able to do so, the FDA may not permit us to proceed.
●
We have limited experience in conducting clinical trials.
●
Delays in the commencement, enrollment, and completion of clinical testing could result in increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates.
13
●
As the results of earlier pre-clinical studies or clinical trials are not necessarily predictive of future results, any product candidate we advance into clinical trials may not have favorable results in later clinical trials or receive regulatory approval.
●
Even if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties.
●
Any cell based therapies we develop may become subject to unfavorable pricing regulations, third party coverage and reimbursement practices or healthcare reform initiatives, thereby harming our business.
Risks Related to Our Securities
●
Our officers, directors and principal stockholders own a significant percentage of our capital stock and will be able to exert significant control over matters that are subject to stockholder approval.
●
If we are unable to maintain listing of our securities on The Nasdaq Capital Market or another reputable stock exchange, it may be more difficult for our stockholders to sell their securities.
●
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for our stockholders.
●
You may experience dilution of your ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
General Operating and Business Risks
Our limited operating history makes it difficult
for us to evaluate our future business prospects and make decisions based on those estimates of our future performance .
We did not begin operations of our business through
AHS until May 2015. We have a limited operating history and limited revenue. As a consequence, it is difficult, if not impossible, to
forecast our future results based upon our historical data. Reliance on the historical results may not be representative of the results
we will achieve, particularly in our combined form. Because of the uncertainties related to our lack of historical operations, we may
be hindered in our ability to anticipate and timely adapt to increases or decreases in revenues or expenses. If we make poor budgetary
decisions as a result of unreliable historical data, we could be less profitable or incur losses, which may result in a decline in our
stock price.
Our results of operations have not resulted
in profitability and we may not be able to achieve profitability going forward.
We incurred net losses amounting to
approximately $16.7 million and $11.9 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023,
we had an accumulated deficit of approximately $79.8 million. If we incur additional significant losses, our stock price may
decline, perhaps significantly. Our management is developing plans to achieve profitability. Our business plan is speculative and
unproven. There is no assurance that we will be successful in executing our business plan or that even if we successfully implement
our business plan, that we will be able to curtail our losses now or in the future. Further, as we are a new enterprise, we expect
that net losses will continue.
There is substantial doubt about our ability
to continue as a going concern, which will affect our ability to obtain future financing and may require us to curtail our operations.
Our financial statements as of December 31, 2023
were prepared under the assumption that we will continue as a going concern. The independent registered public accounting firm that audited
our 2023 financial statements, in their report, included an explanatory paragraph referring to our recurring losses since inception and
expressing management’s assessment and conclusion that there is substantial doubt in our ability to continue as a going concern.
Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue
as a going concern depends on our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce
expenditures, and, ultimately, to generate revenue. We cannot assure you, however, that we will be able to achieve any of the foregoing.
See Note 2 to our Consolidated Financial Statements for further details.
14
Our cash will only fund our operations for
a limited time and we will need to raise additional capital in order to support our development.
We are currently operating at a loss and expect
our operating costs will increase significantly as we continue to grow our operations. The independent registered public accounting firm
that audited our 2023 financial statements, in their report, included an explanatory paragraph referring to our recurring losses since
inception and expressing management’s assessment and conclusion that there is substantial doubt in our ability to continue as a
going concern. At December 31, 2023, we had cash of approximately $285,000. We will need to raise additional capital or generate substantial
revenue in order to support our development and commercialization efforts.
If our available cash balances are insufficient
to satisfy our liquidity requirements, including due to risks described herein, we may seek to raise additional capital through equity
offerings, debt financings, collaborations or licensing arrangements. We will need to raise additional capital, and we may also consider
raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities,
or for other reasons, including to:
●
fund development and expansion of our operations;
●
acquire, license or invest in technologies and additional laboratories;
●
acquire or invest in complementary businesses or assets; and
●
finance capital expenditures and general and administrative expenses.
Our present and future funding requirements will
depend on many factors, including:
●
our revenue growth rate and ability to generate cash flows from operating activities;
●
our sales and marketing and research and development activities; and
●
changes in regulatory oversight applicable to our products and services.
Other than our debt facility with our chairman,
we have no arrangements or credit facilities in place as a source of funds, and there can be no assurance that we will be able to raise
sufficient additional capital on acceptable terms, or at all, and if we are not successful in raising additional capital, we may not be
able to continue as a going concern. We may seek additional capital through a combination of private and public equity offerings, debt
financings and strategic collaborations. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting
our ability to take specific actions, such as incurring additional debt, that could increase our expenses and require that our assets
secure such debt. Equity financing, if obtained, could result in dilution to our then existing stockholders and/or require such stockholders
to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, we may
be required to delay, scale back or eliminate the development of business opportunities and our operations and financial condition may
be materially adversely affected. We can provide no assurances that any additional sources of financing will be available to us on favorable
terms, if at all. Future capital raises may dilute our existing stockholders’ ownership and/or have other adverse effects on our
operations.
If we raise additional capital by issuing equity
securities, our existing stockholders’ percentage ownership will be reduced and these stockholders may experience substantial dilution.
If we raise additional funds by issuing debt securities,
these debt securities would have rights senior to those of our common stock and the terms of the debt securities issued could impose significant
restrictions on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements,
we may be required to relinquish some rights to our technologies or products, or to grant licenses on terms that are not favorable to
us.
15
We have significant outstanding debt obligations
and servicing these debt obligations will require a significant amount of capital, and our business may not be able to pay our substantial
debt.
As of December 31, 2023, we had approximately
$9.1 million of outstanding indebtedness. In order to service this indebtedness and any additional indebtedness we may incur in the future,
we will need to generate cash from our operating activities. Our ability to generate cash is subject, in part, to our ability to successfully
execute our business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond our control. If
we are unable to generate sufficient cash to repay our debt obligations when they become due and payable, either when they mature, or
in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively
impact our business operations and financial condition.
If we breach any of the undertakings or default
on any of our obligations under our agreements with our lenders, our outstanding indebtedness could become immediately due and payable,
which would harm our business, financial condition and results of operations and could require us to reduce or cease operations. If our
indebtedness were to be accelerated, there can be no assurance that our assets would be sufficient to repay in full that indebtedness.
Our business and
operations may be further impacted by epidemics, outbreaks and other public health events.
Epidemics, outbreaks
or other public health events that are outside of our control could significantly disrupt our operations and adversely affect our financial
condition. The global or national outbreak of an illness or other communicable disease, or any other public health crisis, such as COVID-19,
may cause disruptions to our business and operations, which may include (i) shortages of employees, (ii) unavailability of contractors
or subcontractors, (iii) interruption of supplies from third parties upon which we rely, (iv) recommendations of, or restrictions imposed
by government and health authorities, including quarantines, to address an outbreak and (v) restrictions that we and our contractors,
subcontractors and our customers impose, including facility shutdowns, to ensure the safety of employees.
We depend upon key personnel and need additional
personnel.
Our success depends on the continuing services
of Wenzhao Lu, our Chairman of the Board, and David Jin, Meng Li and Luisa Ingargiola, our executive officers. The loss of Mr. Lu, Dr.
Jin, Ms. Li or Ms. Ingargiola could have a material and adverse effect on our business operations. Additionally, the success of our operations
will largely depend upon our ability to successfully attract and maintain competent and qualified key management personnel. As with any
company with limited resources, there can be no guaranty that we will be able to attract such individuals or that the presence of such
individuals will necessarily translate into profitability for us. Our inability to attract and retain key personnel may materially and
adversely affect our business operations. The supply of qualified technical, professional, managerial and other personnel, including lab
medical directors and lab operations managers, is currently constrained; competition for qualified employees, even across different industries,
is intense, including as individuals leave the job market. We may lose, or fail to attract and retain, key management personnel, or qualified
skilled technical, professional or other employees. The same is true for patient-facing staff with specialized training required to perform
activities related to specimen collection. In the future, if competition for the services of these professionals increases, we may not
be able to continue to attract and retain individuals in its markets. Changes in key management, or the ability to attract and retain
qualified personnel, as a result of increased competition for talent, wage growth, or other market factors, could lead to strategic and
operational challenges and uncertainties, distractions of management from other key initiatives, and inefficiencies and increased costs,
any of which could adversely affect our business, financial condition, results of operations, and cash flows.
16
Joint ventures, joint ownership arrangements and other projects
pose unique challenges and we may not be able to fully implement or realize synergies, expected returns or other anticipated benefits associated
with such projects.
We are, and may be in the future, involved in
strategic joint ventures and other joint ownership arrangements. We may not always be in complete alignment with our joint venture or
joint owner counterparties; we may have differing strategic or commercial objectives and may be outvoted by our joint venture partners
or we may disagree on governance matters with respect to the joint venture entity or the jointly owned assets. As a result,
when we enter into joint ventures or joint ownership arrangements, we may be subject to a number of risks. In some joint ventures and
joint ownership arrangements we may not be responsible for the operation of projects and will rely on our joint venture or
joint owner counterparties for such services. Joint ventures and joint ownership arrangements may also require us to expend additional
internal resources that could otherwise be directed to other projects. If we are unable to successfully execute and manage our existing
and any proposed joint venture and joint owner arrangements, it could adversely impact our financial and operating results.
We may be undertaking, or participating with various
counterparties in, a number of projects that involve forming joint ventures and acquiring laboratories that are accretive to our commercial
strategy. Many of these projects could involve numerous regulatory, environmental, commercial, economic, political and legal uncertainties
that are beyond our control, including the following:
● We may be unable to realize our forecasted commercial, operational or administrative synergies in
connection with our joint venture and joint ownership arrangements, including the Laboratory Services MSO Acquisition; and
● Joint ventures and other joint ownership arrangements may demand substantial internal resources and may
divert resources and attention from other areas of our business.
As a result of these uncertainties, the anticipated benefits associated
with our joint ventures and joint ownership arrangements may not be achieved or could be delayed. In turn, this could negatively impact
our cash flow and our ability to make or increase cash distributions to our partners.
We must effectively manage the growth of our
operations, or our company will suffer.
To manage our growth, we believe we must continue
to implement and improve our services and products. We may not have adequately evaluated the costs and risks associated with our planned
expansion, and our systems, procedures, and controls may not be adequate to support our operations. In addition, our management may not
be able to achieve the rapid execution necessary to successfully offer our products and services and implement our business plan on a
profitable basis. The success of our future operating activities will also depend upon our ability to expand our support system to meet
the demands of our growing business. Any failure by our management to effectively anticipate, implement, and manage changes required to
sustain our growth would have a material adverse effect on our business, financial condition, and results of operations.
17
Our revenue and results of operations may
suffer if we are unable to attract new tenants.
We presently derive our revenue from rental revenue from our income-producing
real estate property in New Jersey. Our growth therefore depends on our ability to attract new tenants. This depends on our ability to
understand and anticipate market and pricing trends and our tenants’ needs. Our failure to attract new tenants could materially
and adversely affect our operating results.
Our prospects will suffer if we are not able
to hire, train, motivate, manage, and retain a significant number of highly skilled employees.
We only recently commenced business and we presently
generate medical related consulting services from related parties and generate rental revenue from our income-producing real estate property
in New Jersey. On the consulting side, Wenzhao Lu, our Chairman and significant shareholder, is the Chairman of each of the clients in
which we have provided consulting services. Our future success depends upon our ability to hire, train, motivate, manage, and retain a
significant number of highly skilled employees, particularly research analysts, technical experts, and sales and marketing staff. We will
experience competition for professional personnel in each of our business lines. Hiring, training, motivating, managing, and retaining
employees with the skills we need is time consuming and expensive. Any failure by us to address our staffing needs in an effective manner
could hinder our ability to continue to provide high-quality products and services and to grow our business.
Potential liability claims may adversely affect
our business.
Our services, which may include recommendations
and advice to organizations regarding complex business and operational processes and regulatory and compliance issues may give rise to
liability claims by our clients or by third parties who bring claims against our clients. Healthcare organizations often are the subject
of regulatory scrutiny and litigation, and we also may become the subject of such litigation based on our advice and services. Any such
litigation, whether or not resulting in a judgment against us, may adversely affect our reputation and could have a material adverse effect
on our financial condition and results of operations. We may not have adequate insurance coverage for claims against us.
In accordance with our strategic development
policy, we may invest in companies for strategic reasons and may not realize a return on our investments.
From time to time, we may make investments in companies. These investments
may be for strategic objectives to support our key business initiatives but may also be standalone investments or acquisitions. Such investments
or acquisitions could include equity or debt instruments in private companies, many of which may not be marketable at the time of our
initial investment. These companies may range from early-stage companies that are often still defining their strategic direction to more
mature companies with established revenue streams and business models. The success of these companies may depend on product development,
market acceptance, operational efficiency, and other key business factors. The companies in which we invest may fail because they may
not be able to secure additional funding, obtain favorable investment terms for future financings, or take advantage of liquidity events
such as public offerings, mergers, and private sales. If any of these private companies fails, we could lose all or part of our investment
in that company. If we determine that impairment indicators exist and that there are other-than-temporary declines in the fair value of
the investments, we may be required to write down the investments to their fair value and recognize the related write-down as an investment
loss. For the year ended December 31, 2023, we had an impairment of goodwill acquired from Lab Services MSO acquisition of approximately
$9.2 million. In the future, we could have additional impairment charges related to investments that we may make.
We face intense competition which could cause us to lose market
share.
In the healthcare markets in which we operate,
we will compete with large healthcare providers who have more significant financial resources, established market positions, long-standing
relationships, and who have more significant name recognition, technical, marketing, sales, distribution, financial and other resources
than we do. The resources available to our competitors to develop new services and products and introduce them into the marketplace exceed
the resources currently available to us. This intense competitive environment may require us to make changes in our services, products,
pricing, licensing, distribution, or marketing to develop a market position.
18
If we fail to comply with our obligations in
the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business
relationships with our licensors, we could lose intellectual property rights that are important to our business.
We are party to a research agreement with the
Massachusetts Institute of Technology (“MIT”) for development of chimeric antigen receptor (CAR) technology. MIT has granted
us options to non-exclusively or exclusively license MIT inventions arising under this research agreement. We may need to negotiate commercially
reasonable terms and conditions with MIT to advance our research and development activities or allow the commercialization of CAR technology
or any other product candidates we may identify and pursue.
Moreover, disputes may arise regarding intellectual
property subject to a licensing agreement, including:
● the scope of rights granted
under the license agreement and other interpretation-related issues;
● the extent to which our product
candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
● the sublicensing of patent
and other rights under our collaborative development relationships;
● our diligence obligations under
the license agreement and what activities satisfy those diligence obligations;
● the inventorship and ownership
of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners;
and
● the priority of invention of
patented technology.
In addition, the agreements under which we currently
license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible
to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to
be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other
obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results
of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to
maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize
the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations,
and prospects.
We may face uncertainty and difficulty in obtaining
and enforcing our patents and other proprietary rights.
There can be no assurance that any patent applications
we file or license will be approved, or that challenges will not be instituted against the validity or enforceability of any patent licensed-in
or owned by us. Our pending and future patent applications may not result in patents being issued that protect our product candidates,
in whole or in part, or which effectively prevent others from commercializing competitive product candidates. Even if our patent applications
issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing
with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar
or alternative product candidates in a non-infringing manner. The cost of litigation to uphold the validity and prevent infringement of
a patent is substantial. Furthermore, there can be no assurance that others will not independently develop substantially equivalent technologies
not covered by patents to which we have rights or obtain access to our know-how. In addition, the laws of certain countries may not adequately
protect our intellectual property. Our competitors may possess or obtain patents on products or processes that are necessary or useful
to the development, use, or manufacture of our product candidates. There can also be no assurance that our proposed technology will not
infringe upon patents or proprietary rights owned by others, with the result that others may bring infringement claims against us and
require us to license such proprietary rights, which may not be available on commercially reasonable terms, if at all. Any such litigation,
if instituted, could have a material adverse effect, potentially including monetary penalties, diversion of management resources, and
injunction against continued manufacture, use, or sale of certain products or processes.
19
We rely upon non-patented proprietary know-how.
There can be no assurance that we can adequately protect our rights in such non-patented proprietary know-how, or that others will not
independently develop substantially equivalent proprietary information or techniques or gain access to our proprietary know-how. Any of
the foregoing events could have a material adverse effect on us. In addition, if any of our trade secrets, know-how or other proprietary
information were to be disclosed, or misappropriated, the value of our trade secrets, know-how and other proprietary rights would be significantly
impaired and our business and competitive position would suffer.
In September 2011, the Leahy-Smith America Invents
Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These
include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under
the Leahy-Smith Act, the United States transitioned in March 2013 to a “first to file” system in which the first inventor
to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent
by the U.S. Patent and Trademark Office, or USPTO, and may become involved in opposition, derivation, post-grant and inter partes review,
or interference proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could
reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position.
The USPTO has developed new and untested regulations
and procedures to govern the full implementation of the Leahy-Smith Act, and many of the substantive changes to patent law associated
with the Leahy-Smith Act, and in particular, the “first-to-file” provisions, only became effective in March 2013. The Leahy-Smith
Act has also introduced procedures that may make it easier for third parties to challenge issued patents, as well as to intervene in the
prosecution of patent applications. Finally, the Leahy-Smith Act contains new statutory provisions that still require the USPTO to issue
new regulations for their implementation, and it may take the courts years to interpret the provisions of the new statute. Accordingly,
it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. The Leahy-Smith Act and its implementation
could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our
issued patents.
We may not be able to protect our intellectual
property rights throughout the world.
Filing, prosecuting and defending patents on our
product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some
countries outside the United States may be less extensive than those in the United States. In addition, the laws of some foreign countries
do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not
be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing
products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions
where we do not obtain patent protection to develop their own products and may also export infringing products to territories where we
have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and
our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems
in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly
certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly
those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of
competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions,
whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business,
could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could
provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies
awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world
may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
20
Patent terms may be inadequate to protect our
competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United
States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional
filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents
covering our product candidates are obtained, once the patent life has expired, we may be open to competition from competitive products,
including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new product
candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, any
patents we may obtain may not provide us with sufficient rights to exclude others from commercializing products similar or identical to
ours.
Obtaining and maintaining patent protection
depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent
agencies, and any patent protection we may obtain in the future could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity
fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent
agencies outside of the United States in several stages over the lifetime of the patents and/or applications. The USPTO and various non-U.S.
governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during
the patent application process. There are situations in which non-compliance can result in abandonment or lapse of the patent or patent
application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might
be able to enter the market and this circumstance would have a material adverse effect on our business.
It is difficult and costly to protect our proprietary
rights, and we may not be able to ensure their protection. If we fail to protect or enforce our intellectual property rights adequately
or secure rights to patents of others, the value of our intellectual property rights would diminish.
Our commercial viability will depend in part on
obtaining and maintaining patent protection and trade secret protection of our product candidates, and the methods used to manufacture
them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using,
selling, offering to sell, or importing our products is dependent upon the extent to which we obtain rights under valid and enforceable
patents or trade secrets that cover these activities.
The patent positions of pharmaceutical and biopharmaceutical
companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved.
No consistent policy regarding the breadth of claims allowed in biopharmaceutical patents has emerged to date in the United States. The
biopharmaceutical patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations
of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict
the breadth of claims that may be allowed or enforced in the patents we own. Further, if any of our patents are deemed invalid and unenforceable,
it could impact our ability to commercialize or license our technology.
The degree of future protection for our proprietary
rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain
or keep our competitive advantage. For example:
● others may be able to make
products that are similar to our product candidates but that are not covered by the claims of any patents;
● we might not have been the
first to make the inventions covered by any issued patents or patent applications;
● we might not have been the
first to file patent applications for these inventions;
21
● it is possible that any patent
applications we own or license will not result in issued patents;
● any issued patents may not
provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties;
● we may not develop additional
proprietary technologies that are patentable or protectable under trade secrets law; or
● the patents of others may have
an adverse effect on our business.
We also may rely on trade secrets to protect our
technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to
protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific
collaborators, and other advisors may unintentionally or willfully disclose our information to competitors. In addition, courts outside
the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent
knowledge, methods, and know-how.
We may be subject to claims challenging the
inventorship of patents and other intellectual property.
We or our licensors may be subject to claims that
former employees, collaborators or other third parties have an interest as an inventor or co-inventor in intellectual property we own
or license. For example, we or our licensors may have inventorship disputes arise from conflicting obligations of employees, consultants
or others who are involved in developing our product candidates. We may be subject to claims by third parties asserting that our licensors,
employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Litigation may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership
of our owned or in-licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims,
in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to
use, intellectual property that is important to our product candidates. Even if we are successful in defending against such claims, litigation
could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse
effect on our business, financial condition, results of operations and prospects.
If any of our trade secrets, know-how or other
proprietary information is disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired
and our business and competitive position would suffer.
Our viability also depends upon the skills, knowledge
and experience of our scientific and technical personnel, and our consultants and advisors. To help protect our proprietary know-how and
our inventions for which patents may be unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements.
To this end, we require all of our employees, consultants, advisors and contractors to enter into agreements which prohibit unauthorized
disclosure and use of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments,
discoveries and inventions important to our business. These agreements are often limited in duration and may not provide adequate protection
for our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development
by others of such information. There is no assurance that such agreements will be honored by such parties or enforced in whole or part
by the courts. We cannot be certain that others will not gain access to these trade secrets or that our patents will provide adequate
protection. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access
to our trade secrets. In addition, enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive
and time consuming, and the outcome is unpredictable. If any of our trade secrets, know-how or other proprietary information is improperly
disclosed, the value of our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and
competitive position would suffer.
22
We may incur substantial costs as a result
of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights
to, or use of, our technology.
If we choose to go to court to stop a third party
from using the inventions claimed in our patents, that individual or company has the right to ask the court to rule that such patents
are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources,
even if we were successful in discontinuing the infringement of our patents. In addition, there is a risk that the court will decide that
these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk
that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other party’s
activities do not infringe our rights to these patents. In addition, the U.S. Supreme Court has in the past invalidated tests used by
the USPTO in granting patents over the past 20 years. As a consequence, issued patents may be found to contain invalid claims according
to the newly revised standards. Some of our own patents may be subject to challenge and subsequent invalidation in a variety of post-grant
proceedings, particularly inter partes review, before the USPTO or during litigation under the revised criteria, which make it
more difficult to defend the validity of claims in already issued patents.
Furthermore, a third party may claim that we or
our manufacturing or commercialization partners are using inventions covered by the third party’s patent rights and may go to court
to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are
costly and could affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that
a court could decide that we or our commercialization partners are infringing the third party’s patents and order us or our partners
to stop the activities covered by the patents. In addition, there is a risk that a court could order us or our partners to pay the other
party damages for having violated the other party’s patents. The biotechnology industry has produced a proliferation of patents,
and it is not always clear to industry participants, including us, which patents cover various types of products, manufacturing processes
or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If
we are sued for patent infringement, we would need to demonstrate that our products, manufacturing processes or methods of use either
do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this.
Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption
of validity enjoyed by issued patents.
As some patent applications in the United States
may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions
are typically not published until eighteen months after filing, and because publications in the scientific literature often lag behind
actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or
our pending applications, or that we were the first to invent the technology. Our competitors may have filed, and may in the future file,
patent applications covering technology similar to ours. Any such patent applications may have priority over our patent applications or
patents, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a United
States patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the USPTO
to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that
such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior
to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions.
Some of our competitors may be able to sustain
the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any
uncertainties resulting from the initiation and continuation of any litigation or inter partes review proceedings could have a
material adverse effect on our ability to raise the funds necessary to continue our operations.
Some jurisdictions in which we operate have enacted
legislation which allows members of the public to access information under statutes similar to the U.S. Freedom of Information Act. Even
though we believe our information would be excluded from the scope of such statutes, there are no assurances that we can protect our confidential
information from being disclosed under the provisions of such laws. If any confidential or proprietary information is released to the
public, such disclosures may negatively impact our ability to protect our intellectual property rights.
23
Breaches or compromises of our information
security systems or our information technology systems or infrastructure could result in exposure of private information, disruption of
our business and damage to our reputation, which could harm our business, results of operation and financial condition.
We utilize information security and information
technology systems and websites that allow for the secure storage and transmission of proprietary or private information regarding our
clients, patients, employees, vendors and others, including individually identifiable health information. A security breach of our network,
hosted service providers, or vendor systems, may expose us to a risk of loss or misuse of this information, litigation and potential liability.
Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks, including on companies
within the healthcare industry. Although we believe that we take appropriate measures to safeguard sensitive information within our possession,
we may not have the resources or technical sophistication to anticipate or prevent rapidly-evolving types of cyber-attacks targeted at
us, our clients, our patients, or others who have entrusted us with information. Actual or anticipated attacks may cause us to incur costs,
including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants.
We invest in industry standard security technology to protect personal information. Advances in computer capabilities, new technological
discoveries, or other developments may result in the technology used by us to protect personal information or other data being breached
or compromised. To our knowledge, we have not experienced any material breach of our cybersecurity systems. If our or our third-party
service provider systems fail to operate effectively or are damaged, destroyed, or shut down, or there are problems with transitioning
to upgraded or replacement systems, or there are security breaches in these systems, any of the aforementioned could occur as a result
of natural disasters, software or equipment failures, telecommunications failures, loss or theft of equipment, acts of terrorism, circumvention
of security systems, or other cyber-attacks, we could experience delays or decreases in revenue, and reduced efficiency of our operations.
Additionally, any of these events could lead to violations of privacy laws, loss of customers, or loss, misappropriation or corruption
of confidential information, trade secrets or data, which could expose us to potential litigation, regulatory actions, sanctions or other
statutory penalties, any or all of which could adversely affect our business, and cause us to incur significant losses and remediation
costs.
We may be exposed to liabilities under the
Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act or Chinese anti-corruption law
could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice
Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political
parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations
and agreements with third parties where corruption may occur. It is our policy to implement safeguards to prevent these practices by our
employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants,
sales agents or distributors of our company may engage in conduct for which we might be held responsible.
Violations of the FCPA or other anti-corruption
laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business,
operating results and financial condition. In addition, the United States government may seek to hold our company liable for successor
liability FCPA violations committed by companies in which we invest or that we acquire.
Risk Factors Related to our Lab Services MSO
Business
Continued changes in healthcare reimbursement
models and products (e.g., health insurance exchanges), changes in government payment and reimbursement systems, or changes in payer mix,
including an increase in third-party benefits management and value-based payment models, could have a material adverse effect on our revenues,
profitability and cash flow.
Diagnostic testing services are billed to managed
care organizations (MCOs), Medicare, Medicaid, physicians and physician groups, hospitals, patients and employer groups. Most testing
services are billed to a party other than the physician or other authorized person who ordered the test. Increases in the percentage of
services billed to government and MCOs could have an adverse effect on our revenues. Although we currently do not provide any “in
network” laboratory services, our plan is to begin providing such services in the near future.
24
These organizations have different contracting
philosophies, which are influenced by the design of their products. Some MCOs contract with a limited number of clinical laboratories
and engage in direct negotiation of rates. Other MCOs adopt broader networks with generally uniform fee structures for participating clinical
laboratories. In some cases, those fee structures are specific to independent clinical laboratories, while the fees paid to hospital-based
and physician-office laboratories may be different, and are typically higher. MCOs may also offer Managed Medicare or Managed Medicaid
plans. In addition, an increasing number of MCOs are implementing, directly or through third parties, various types of laboratory benefit
management programs that may include laboratory networks, utilization management tools (such as prior authorization and/or prior notification),
and claims edits, which may impact coverage or reimbursement for commercial laboratory tests. Some of these programs address commercial
laboratory testing broadly, while others are focused on certain types of testing such as molecular, genetic and toxicology testing. An
increase in the use of such programs could lead to increased denial of claims, extended appeals, and reduced revenue.
Our ability to attract and retain MCOs is critical
given the impact of healthcare reform, related products and expanded coverage (e.g. health insurance exchanges and Medicaid expansion)
and evolving value-based care and risk-based reimbursement delivery models (e.g., accountable care organizations (ACOs) and Independent
Physician Associations (IPAs)).
A portion of the managed care fee-for-service
revenues is collectible from patients in the form of deductibles, coinsurance and copayments. As patient cost-sharing has been increasing,
our collections may be adversely impacted.
In addition, Medicare and Medicaid and private
insurers have increased their efforts to control the cost, utilization and delivery of healthcare services, including commercial laboratory
services. Measures to regulate healthcare delivery in general, and clinical laboratories in particular, have resulted in reduced prices,
added costs and decreased test utilization for the commercial laboratory industry by increasing complexity and adding new regulatory and
administrative requirements. Pursuant to legislation passed in late 2003, the percentage of Medicare beneficiaries enrolled in Managed
Medicare plans has increased. The percentage of Medicaid beneficiaries enrolled in Managed Medicaid plans has also increased; however,
changes to, or repeal of, the Patient Protection and Affordable Care Act (ACA) may continue to affect coverage, reimbursement, and utilization
of laboratory services, as well as administrative requirements, in ways that are currently unpredictable. Further healthcare reform could
adversely affect laboratory reimbursement from Medicare, Medicaid or commercial carriers.
We expect the efforts to impose reduced reimbursement,
more stringent payment policies, and utilization and cost controls by government and other payers to continue. If our laboratory services
business cannot offset additional reductions in the payments it receives for its services by reducing costs, increasing test volume, and/or
introducing new services and procedures, it could have a material adverse effect on our revenues, profitability and cash flows. In 2014,
Congress passed the Protecting Access to Medicare Act (PAMA), requiring Medicare to change the way payment rates are calculated for tests
paid under the Clinical Laboratory Fee Schedule (CLFS), and to base the payment on the weighted median of rates paid by private payers.
On June 23, 2016, CMS issued a final rule to implement PAMA that required applicable laboratories, including our laboratory services business,
to begin reporting their test-specific private payer payment amounts to CMS during the first quarter of 2017. CMS exercised enforcement
discretion to permit reporting for an additional 60 days, through May 30, 2017. CMS used that private market data to calculate weighted
median prices for each test (based on applicable current procedural technology (CPT) codes) to represent the new CLFS rates beginning
in 2018, subject to certain phase-in limits. For 2018-2020, a test price could not be reduced by more than 10% per year. As a result of
provisions included within the CARES Act, PAMA rate reductions for 2021 were suspended. As a result of the Protecting Medicare and American
Farmers from Sequester Cuts Act that became law in December 2021, the data reporting requirements and Medicare reimbursement cuts that
would have occurred under PAMA in 2022 were delayed by one additional year. As a result of the Consolidated Appropriations Act, 2023,
which became law in December 2022, the data reporting requirements and Medicare reimbursement cuts that would have occurred under PAMA
in 2023 were delayed by one additional year.
For 2024-2026, a test price cannot be reduced
by more than 15.0% per year. The process of data reporting and repricing will be repeated every three years for Clinical Diagnostic Laboratory
Tests (CDLTs) beginning in 2024. CFLS rates for 2027 and subsequent periods will not be subject to phase-in limits. The phase-in of rates
for CDLTs established in 2018 will resume in 2024. New CLFS rates will be established in 2025 based on data from 2019 to be reported in
2024. New CLFS rates will be established in 2028 based on data from 2026 to be reported in 2027 CLFS rates for Advanced Diagnostic Laboratory
Tests (ADLTs) will be updated annually.
25
CMS published its initial proposed CLFS rates
under PAMA for 2018-2020 on September 22, 2017. Following a public comment period, CMS made adjustments and published final CLFS rates
for 2018-2020 on November 17, 2017, with additional adjustments published on December 1, 2017. 2021, 2022 and 2023 PAMA rates were frozen
as described above.
Healthcare reform legislation also contains numerous
regulations that will require us, as an employer, to implement significant process and record-keeping changes to be in compliance. These
changes increase the cost of providing healthcare coverage to employees and their families. Given the limited release of regulations to
guide compliance, as well as potential changes to the ACA, the exact impact to employers, including us, is uncertain.
Government payers, such as Medicare and Medicaid,
have taken steps to reduce the utilization and reimbursement of healthcare services, including clinical testing services.
Although we currently do not provide any laboratory
services that are billed through Medicare or Medicaid, we plan to do so in the near future. At that time, we will face efforts by government
payers to reduce utilization of and reimbursement for diagnostic information services. One example of this is increased use of prior authorization
requirements. We expect efforts to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical
test services will continue.
Pursuant to PAMA, reimbursement rates for many
clinical laboratory tests provided under Medicare were reduced from 2018 - 2020. PAMA calls for further revision of the Medicare CLFS
for years after 2020, based on future surveys of market rates; reimbursement rate reduction from 2024-26 is capped by PAMA at 15% annually.
PAMA’s next data collection and reporting period have been delayed, most recently by federal legislation adopted in December 2022,
which further delayed the reimbursement rate reductions and reporting requirements until January 1, 2024.
In addition, CMS has adopted policies limiting
or excluding coverage for clinical tests that we perform. We also expect in the future to provide physician services that are reimbursed
by Medicare under a physician fee schedule, which is subject to adjustment on an annual basis. Medicaid reimbursement varies by state
and is subject to administrative and billing requirements and budget pressures.
In addition, over the last several years, the
federal government has expanded its contracts with private health insurance plans for Medicare beneficiaries, called “Medicare Advantage”
programs, and has encouraged such beneficiaries to switch from the traditional programs to the private programs. There has been growth
of health insurance plans offering Medicare Advantage programs, and of beneficiary enrollment in these programs. States have mandated
that Medicaid beneficiaries enroll in private managed care arrangements. In addition, state budget pressures have encouraged states to
consider several courses of action that may impact our business, such as delaying payments, reducing reimbursement, restricting coverage
eligibility, denying claims and service coverage restrictions. Further, CMS has set goals for value-based reimbursement to be achieved
by 2030.
Reimbursement for Medicare services also is subject
to annual reduction under the Budget Control Act of 2011, and the Statutory Pay-As-You-Go Act of 2010.
From time to time, the federal government has
considered whether competitive bidding could be used to provide clinical testing services for Medicare beneficiaries while maintaining
quality and access to care. Congress periodically considers cost-saving initiatives. These initiatives have included coinsurance for clinical
testing services, co-payments for clinical testing and further laboratory physician fee schedule reductions.
Other steps taken to reduce utilization and reimbursement
include requirements to obtain diagnosis codes to obtain payment, increased documentation requirements, limiting the allowable number
of tests or ordering frequency, expanded prior authorization programs and otherwise increasing payment denials.
Steps to reduce utilization and reimbursement
also discourage innovation and access to innovative solutions that we may offer.
Health plans and other third parties have taken
steps to reduce the utilization and reimbursement of health services, including clinical testing services.
We face efforts by non-governmental third-party
payers, including health plans, to reduce utilization of and reimbursement for clinical testing services. Examples include increased use
of prior authorization requirements and increased denial of coverage for services. There is increased market activity regarding alternative
payment models, including bundled payment models. We expect continuing efforts by third-party payers, including in their rules, practices
and policies, to reduce reimbursements, to impose more stringent cost controls and to reduce utilization of clinical testing services.
ACOs and Independent Delivery Networks (IDNs), including hospitals and hospital health systems, also may undertake efforts to reduce utilization
of, or reimbursement for, diagnostic information services.
26
The healthcare industry has experienced a trend
of consolidation among health insurance plans, resulting in fewer but larger insurance plans with significant bargaining power to negotiate
fee arrangements with clinical testing providers. The increased consolidation among health plans also has increased pricing transparency,
insurer bargaining power and the potential adverse impact of ceasing to be a contracted provider with an insurer. Health plans, and independent
physician associations, may demand that clinical testing providers accept discounted fee structures or assume all or a portion of the
financial risk associated with providing testing services to their members through capitated payment arrangements. Some health plans also
are reviewing test coding, evaluating coverage decisions and requiring preauthorization of certain testing. There are also an increasing
number of patients enrolling in consumer driven products and high deductible plans that involve greater patient cost-sharing.
Other steps taken to reduce utilization and reimbursement
include requirements to obtain diagnosis codes to obtain payment, increased documentation requirements, limiting the allowable number
of tests or ordering frequency, expanded prior authorization programs and otherwise increasing payment denials.
Steps to reduce utilization and reimbursement
also discourage innovation and access to innovative solutions that we may offer.
The Laboratory Services MSO Acquisition will
result in organizational changes that could create significant growth for our business. If we fail to effectively manage this growth and
adapt our business structure in a manner that preserves our reputation, then our business, financial condition and results of operations
could be harmed.
On February 9, 2023, we acquired 40% of all the
issued and outstanding equity interests of Lab Services MSO. The Laboratory Services MSO Acquisition has resulted in significant growth
in our operations. We have incurred and will continue to incur significant expenditures and the allocation of management time to assimilate
Lab Services MSO in a manner that preserves the key aspects of our business, but there can be no assurance that we will be successful
in our efforts. If we do not effectively integrate Lab Services MSO, the effectiveness of our business growth could suffer, and our reputation
could be harmed, each of which could adversely impact our business, financial condition and results of operations.
The success of our business will depend, in part,
on our ability to realize our anticipated benefits and opportunities from the acquisition. We can provide no assurance that the anticipated
benefits of the Laboratory Services MSO Acquisition will be fully realized in the time frame anticipated or at all. The failure to meet
the challenges involved in integrating the two businesses could cause an interruption of business activities, an increase in operating
costs or lower anticipated financial performance. Our failure to achieve the anticipated and the potential benefits underlying our reasons
for the Laboratory Services MSO Acquisition could have a material adverse impact on our business, financial condition and results of operations.
The clinical testing business is highly competitive,
and if we fail to provide an appropriately priced level of service or otherwise fail to compete effectively it could have a material adverse
effect on our revenues and profitability.
The laboratory testing industry is fragmented
and highly competitive. We primarily compete with three types of clinical testing providers: commercial clinical laboratories IDN-affiliated
laboratories and physician-office laboratories. Our largest commercial clinical laboratory competitors are Quest Diagnostic Laboratories
and Laboratory Corporation of America. In addition, we compete with many smaller regional and local commercial clinical laboratories,
specialized advanced laboratories and providers of consumer-initiated testing. There also has been a trend among physician practices to
establish their own histology laboratory capabilities and/or bring pathologists into their practices, thereby reducing referrals from
these practices and increasing the competitive position of these practices.
The commercial laboratory business is intensely
competitive both in terms of price and service. Pricing of laboratory testing services is often one of the most significant factors used
by physicians, third-party payers and consumers in selecting a laboratory. As a result of significant consolidation in the commercial
laboratory industry, larger commercial laboratory providers are able to increase cost efficiencies afforded by large-scale automated testing.
This consolidation results in greater price competition. Our laboratory services business may be unable to increase cost efficiencies
sufficiently, if at all, and as a result, its net earnings and cash flows could be negatively impacted by such price competition. We may
face increased competition from health system laboratories, due to physicians within those systems directing their testing to the health
system laboratory and away from us, and as those laboratories seek to expand their testing volume from unaffiliated physicians in their
service areas. We may also face competition from companies that do not comply with existing laws or regulations or otherwise disregard
compliance standards in the industry. Additionally, we may also face changes in fee schedules, competitive bidding for laboratory services,
or other actions or pressures reducing payment schedules as a result of increased or additional competition. These competitive pressures
may affect the attractiveness or profitability of our laboratory services business, and could adversely affect our financial results.
The diagnostic information services industry also
is faced with changing technology and new product introductions. Competitors may compete using advanced technology, including technology
that enables more convenient or cost-effective testing. Digital pathology, still in an emerging state, is an example of this. Competitors
also may compete on the basis of new service offerings. Competitors also may offer testing to be performed outside of a commercial clinical
laboratory, such as (1) point-of-care testing that can be performed by physicians in their offices; (2) advanced testing that can be performed
by IDNs in their own laboratories; and (3) home testing that can be carried out without requiring the services of outside providers.
27
Failure to obtain and retain new customers,
the loss of existing customers or material contracts, or a reduction in services or tests ordered or specimens submitted by existing customers,
or the inability to retain existing and/or create new relationships with health systems could impact our ability to successfully grow
our business.
To maintain and grow its business, we need to
obtain and retain new customers and business partners. In addition, a reduction in tests ordered or specimens submitted by existing customers,
a decrease in demand for our services from existing customers, or the loss of existing contracts, without offsetting growth in its customer
base, could impact our ability to successfully grow its business and could have a material adverse effect on our revenues and profitability.
We compete primarily on the basis of the quality of services, reporting and information systems, reputation in the medical community,
the pricing of services and ability to employ qualified personnel. Our failure to successfully compete on any of these factors could result
in the loss of existing customers, an inability to gain new customers and a reduction in our business.
Discontinuation or recalls of existing testing
products; failure to develop or acquire licenses for new or improved testing technologies; or our customers using new technologies to
perform their own tests could adversely affect our business.
From time to time, manufacturers discontinue or
recall reagents, test kits or instruments used by us to perform laboratory testing. Such discontinuations or recalls could adversely affect
our costs, testing volume and revenue.
The commercial laboratory industry is subject
to changing technology and new product introductions. If we are unable to license new or improved technologies to expand its esoteric
testing operations, its testing methods may become outdated when compared with our competition, and testing volume and revenue may be
materially and adversely affected.
In addition, advances in technology may lead to
the development of more cost-effective technologies such as point-of-care testing equipment that can be operated by physicians or other
healthcare providers (including physician assistants, nurse practitioners and certified nurse midwives, generally referred to herein as
physicians) in their offices or by patients themselves without requiring the services of freestanding clinical laboratories. Development
of such technology and its use by our customers could reduce the demand for its laboratory testing services and the utilization of certain
tests offered by us and negatively impact its revenues.
Currently, most commercial laboratory testing
is categorized as high or moderate complexity, and thereby is subject to extensive and costly regulation under the Clinical Laboratory
Improvement Act (CLIA). The cost of compliance with CLIA makes it impractical for most physicians to operate clinical laboratories in
their offices, and other laws limit the ability of physicians to have ownership in a laboratory and to refer tests to such a laboratory.
Manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care laboratory equipment
to physicians and by selling test kits approved for home or physician office use to both physicians and patients. Diagnostic tests approved
for home use are automatically deemed to be “waived” tests under CLIA and may be performed in physician office laboratories
as well as by patients in their homes with minimal regulatory oversight. Other tests meeting certain FDA criteria also may be classified
as “waived” for CLIA purposes. The FDA has regulatory responsibility over instruments, test kits, reagents and other devices
used by clinical laboratories, and it has taken responsibility from the U.S. Centers for Disease Control and Prevention for classifying
the complexity of tests for CLIA purposes. Increased approval of “waived” test kits could lead to increased testing by physicians
in their offices or by patients at home, which could affect our market for laboratory testing services and negatively impact its revenues.
Changes or disruption in services supplies,
or transportation provided by third parties have impacted and could continue to impact or adversely affect our business.
We depend on third parties to provide supplies
and services critical to our laboratory services business. We are heavily reliant on third-party ground and air travel for transport of
clinical trial and diagnostic testing supplies and specimens, research products, and people. A significant disruption to these travel
systems, or our access to them, could have a material adverse effect on our business. We are also reliant on an extensive network of third-party
suppliers and vendors of certain services and products, including for certain animal populations. Disruptions to the continued supply,
or increases in costs, of these services, products, or animal populations may arise from export/import restrictions or embargoes, political
or economic instability, pressure from animal rights activists, adverse weather, natural disasters, public health crises, transportation
disruptions, cyber-attacks, or other causes, as well as from termination of relationships with suppliers or vendors for their failure
to follow our performance standards and requirements. Disruption of supply and services has impacted and could continue to impact or have
a material adverse effect on our business.
28
Continued and increased consolidation of pharmaceutical,
biotechnology and medical device companies, health systems, physicians and other customers could adversely affect our business.
Many healthcare companies and providers, including
pharmaceutical, biotechnology and medical device companies, health systems and physician practices are consolidating through mergers,
acquisitions, joint ventures and other types of transactions and collaborations. In addition to these more traditional horizontal mergers
that involve entities that previously competed against each other, the healthcare industry is experiencing an increase in vertical mergers,
which involve entities that previously did not offer competing goods or services. As the healthcare industry consolidates, competition
to provide goods and services may become more intense, and vertical mergers may give those combined companies greater control over more
aspects of healthcare, including increased bargaining power. This competition and increased customer bargaining power may adversely affect
the price and volume of our services.
In addition, as the broader healthcare industry
trend of consolidation continues, including the acquisition of physician practices by health systems, relationships with hospital-based
health systems and integrated delivery networks are becoming more important. Our laboratory services business’ inability to retain
its existing relationships with physicians if they become part of healthcare systems and networks and/or to create new relationships could
impact its ability to successfully grow.
Changes, including changes in interpretation,
in payer regulations, policies or approvals, or changes in laws, regulations or policies in the U.S. or globally, may adversely affect
us.
U.S. and state government payers, such as Medicare
and Medicaid, as well as insurers, including MCOs, have increased their efforts to control the cost, utilization and delivery of healthcare
services. From time to time, Congress has considered and implemented changes in Medicare fee schedules in conjunction with budgetary legislation.
The first phase of reductions pursuant to PAMA came into effect on January 1, 2018, and will continue annually subject to certain delays
in implementation and phase-in limits through 2026, and without limitations for subsequent periods. Further reductions due to changes
in policy regarding coverage of tests or other requirements for payment, such as prior authorization, diagnosis code and other claims
edits, may be implemented from time to time. Reimbursement for pathology services performed by us is also subject to statutory and regulatory
reduction. Reductions in the reimbursement rates and changes in payment policies of other third-party payers may occur as well. Such changes
in the past have resulted in reduced payments as well as added costs and have decreased test utilization for the commercial laboratory
industry by adding more complex new regulatory and administrative requirements. Further changes in third-party payer regulations, policies,
or laboratory benefit or utilization management programs may have a material adverse effect on our business. Actions by federal and state
agencies regulating insurance, including healthcare exchanges, or changes in other laws, regulations, or policies may also have a material
adverse effect upon our business.
Our business could be harmed from the loss
or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of, the law or regulations
of CLIA, Medicare, Medicaid or other national, state or local agencies in the U.S. and other countries where we operate laboratories currently
and in the future.
The commercial laboratory testing industry is
subject to extensive U.S. regulation, and many of these statutes and regulations have not been interpreted by the courts. CLIA extends
federal oversight to virtually all clinical laboratories operating in the U.S. by requiring that they be certified by the federal government
or by a federally approved accreditation agency. The sanction for failure to comply with CLIA requirements may be suspension, revocation
or limitation of a laboratory’s CLIA certificate, which is necessary to conduct business, as well as significant fines and/or criminal
penalties. In addition, we are subject to regulation under state law. State laws may require that laboratories and/or laboratory personnel
meet certain qualifications, specify certain quality controls or require maintenance of certain records. In the future, we may also operate
laboratories outside of the U.S. and become subject to laws governing its laboratory operations in the other countries where it operates.
29
Applicable statutes and regulations could be interpreted
or applied by a prosecutorial, regulatory or judicial authority in a manner that would adversely affect our business. Potential sanctions
for violation of these statutes and regulations include significant fines and the suspension or loss of various licenses, certificates
and authorizations, which could have a material adverse effect on our business. In addition, compliance with future legislation could
impose additional requirements on us, which may be costly.
Failure of us or our third-party service providers
to comply with privacy and security laws and regulations could result in fines, penalties and damage to our reputation with customers
and have a material adverse effect upon our business.
If we and our third-party service providers do
not comply with existing or new laws and regulations related to protecting the privacy and security of personal or health information,
we could be subject to monetary fines, civil penalties or criminal sanctions.
In the U.S., HIPAA privacy and security regulations,
including the expanded requirements under HITECH, establish comprehensive standards with respect to the use and disclosure of protected
health information (PHI), by covered entities, in addition to setting standards to protect the confidentiality, integrity and security
of PHI.
HIPAA restricts our ability to use or disclose
PHI, without patient authorization, for purposes other than payment, treatment or healthcare operations (as defined by HIPAA), except
for disclosures for various public policy purposes and other permitted purposes outlined in the privacy regulations. HIPAA and HITECH
provide for significant fines and other penalties for wrongful use or disclosure of PHI in violation of the privacy and security regulations,
including potential civil and criminal fines and penalties. The regulations establish a complex regulatory framework on a variety of subjects,
including:
● the circumstances under which
the use and disclosure of PHI are permitted or required without a specific authorization by the patient, including, but not limited to,
treatment purposes, activities to obtain payments for our services, and its healthcare operations activities;
● a patient’s rights to
access, amend and receive an accounting of certain disclosures of PHI;
● the content of notices of privacy
practices for PHI;
● administrative, technical and
physical safeguards required of entities that use or receive PHI; and
● the protection of computing
systems maintaining electronic PHI.
We have implemented policies and procedures designed
to comply with the HIPAA privacy and security requirements as applicable. The privacy and security regulations establish a “floor”
and do not supersede state laws that are more stringent. Therefore, we are required to comply with both additional federal privacy and
security regulations and varying state privacy and security laws. In addition, federal and state laws that protect the privacy and security
of patient information may be subject to enforcement and interpretations by various governmental authorities and courts, resulting in
complex compliance issues. For example, we could incur damages under state laws, including pursuant to an action brought by a private
party for the wrongful use or disclosure of health information or other personal information.
30
Failure to comply with U.S., state or local
environmental, health and safety laws and regulations could result in fines, penalties and loss of licensure, and have a material adverse
effect upon us.
We are subject to licensing and regulation under
laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating
to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as
regulations relating to the safety and health of laboratory employees. Failure to comply with these laws and regulations could subject
us to denial of the right to conduct business, fines, criminal penalties and/or other enforcement actions that would have a material adverse
effect on its business. In addition, compliance with future legislation could impose additional requirements on us that may be costly.
The U.S. healthcare system is evolving and
medical laboratory testing market fundamentals are changing, and our business could be adversely impacted if we fail to adapt.
The U.S. healthcare system continues to evolve.
Significant change is taking place in the healthcare system. For example, value-based reimbursement is increasing; CMS has set goals for
value-based reimbursement to be achieved by 2030. Patients are encouraged to take increased interest in and responsibility for, and often
are bearing increased responsibility for payment for, their healthcare. Healthcare industry participants are evolving and consolidating.
Healthcare services increasingly are being provided by non-traditional providers ( e.g ., physician assistants), in non-traditional
venues ( e.g ., retail medical clinics, urgent care centers) and using new technologies ( e.g ., telemedicine, digital pathology).
Utilization of the healthcare system is being influenced by several factors and may result in a decline in the demand for diagnostic information
services.
In addition, we believe that clinical testing
market fundamentals are changing. We believe that PAMA-driven reimbursement pressure remains a catalyst for structural change in the market.
We also believe that health plans and consumers increasingly are focusing on driving better value in laboratory testing services. We expect
that the evolution of the healthcare industry will continue, and that industry change is likely to be extensive.
Failure to establish and perform to appropriate
quality standards, or to assure that the appropriate standard of quality is observed in the performance of our diagnostic information
services, could adversely affect the results of our operations and adversely impact our reputation.
The provision of diagnostic information services
involves certain inherent risks. The services that we provide are intended to provide information in providing patient care. Therefore,
users of our services may have a greater sensitivity to errors than the users of services or products that are intended for other purposes.
Negligence in performing our services can lead
to injury or other adverse events. We may be sued under physician liability or other liability law for acts or omissions by our pathologists,
laboratory personnel and IDN employees who are under our supervision. We are subject to the attendant risk of substantial damages awards
in excess of our insurance coverage and risk to our reputation.
We are subject to numerous legal and regulatory
requirements governing our activities, and we may face substantial fines and penalties, and our business activities may be impacted, if
we fail to comply.
Our business is subject to or impacted by extensive
and frequently changing laws and regulations in the United States (including at both the federal and state levels) and the other jurisdictions
in which we engage in business. While we seek to conduct our business in compliance with all applicable laws, many of the laws and regulations
applicable to us are vague or indefinite and have not been extensively interpreted by the courts, including many of those relating to:
● billing and reimbursement of
clinical testing;
● certification or licensure
of clinical laboratories;
● the anti-self-referral and
anti-kickback laws and regulations;
● the laws and regulations administered
by the FDA;
● the corporate practice of medicine;
31
● operational, personnel and
quality requirements intended to ensure that clinical testing services are accurate, reliable and timely;
● physician fee splitting;
● relationships with physicians
and IDNs;
● marketing to consumers;
● privacy of patient data and
other personal information;
● safety and health of laboratory
employees; and
● handling, transportation and
disposal of medical specimens, infectious and hazardous waste and radioactive materials.
These laws and regulations may be interpreted
or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations, including
our pricing and/or billing practices. We may not be able to maintain, renew or secure required permits, licenses or any other regulatory
approvals needed to operate our business or commercialize our services. If we fail to comply with applicable laws and regulations, or
if we fail to maintain, renew or obtain necessary permits, licenses and approvals, we could suffer civil and criminal penalties, fines,
exclusion from participation in governmental healthcare programs and the loss of various licenses, certificates and authorizations necessary
to operate our business, as well as incur additional liabilities from third-party claims. If any of the foregoing were to occur, our reputation
could be damaged and important business relationships with third parties could be adversely affected.
We also are subject from time to time to qui tam
claims brought by former employees or other “whistleblowers.” The federal and state governments continue aggressive enforcement
efforts against perceived healthcare fraud. Legislative provisions relating to healthcare fraud and abuse provide government enforcement
personnel substantial funding, powers, penalties and remedies to pursue suspected cases of fraud and abuse. In addition, the government
has substantial leverage in negotiating settlements since the amount of potential damages far exceeds the rates at which we are reimbursed
for our services, and the government has the remedy of excluding a non-compliant provider from participation in the Medicare and Medicaid
programs. Regardless of merit or eventual outcome, these types of investigations and related litigation can result in:
● diversion of management time
and attention;
● expenditure of large amounts
of cash on legal fees, costs and payment of damages;
● increases to our administrative,
billing or other operating costs;
● limitations on our ability
to continue some of our operations;
● enforcement actions, fines
and penalties or the assertion of private litigation claims and damages;
● decreases to the amount of
reimbursement related to diagnostic information services performed;
● adverse affects to important
business relationships with third parties;
● decreased demand for our services;
and/or
● injury to our reputation.
Changes in applicable laws and regulations may
result in existing practices becoming more restricted, or subject our existing or proposed services to additional costs, delay, modification
or withdrawal. Such changes also could require us to modify our business objectives.
32
Failure to accurately bill for our services,
or to comply with applicable laws relating to government healthcare programs, could have a material adverse effect on our business .
Billing for diagnostic information services is
complex and subject to extensive and non-uniform rules and administrative requirements. Depending on the billing arrangement and applicable
law, we bill various payers, such as patients, insurance companies, Medicare, Medicaid, clinicians, IDNs and employer groups. The majority
of billing and related operations for our Company are being provided by a third party under our oversight. Failure to accurately bill
for our services could have a material adverse effect on our business. In addition, failure to comply with applicable laws relating to
billing government healthcare programs may result in various consequences, including: civil and criminal fines and penalties, exclusion
from participation in governmental healthcare programs and the loss of various licenses, certificates and authorizations necessary to
operate our business, as well as incur additional liabilities from third-party claims. Certain violations of these laws may also provide
the basis for a civil remedy under the federal False Claims Act, including fines and damages of up to three times the amount claimed.
The qui tam provisions of the federal False Claims Act and similar provisions in certain state false claims acts allow private individuals
to bring lawsuits against healthcare companies on behalf of government payers, private payers and/or patients alleging inappropriate billing
practices.
Although we believe that we are in compliance,
in all material respects, with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not
reach a different conclusion. The federal or state government may bring claims based on our current practices, which we believe are lawful.
The federal and state governments have substantial leverage in negotiating settlements since the amount of potential damages and fines
far exceeds the rates at which we are reimbursed, and the government has the remedy of excluding a non-compliant provider from participation
in the Medicare and Medicaid programs. We believe that federal and state governments continue aggressive enforcement efforts against perceived
healthcare fraud. Legislative provisions relating to healthcare fraud and abuse provide government enforcement personnel with substantial
funding, powers, penalties and remedies to pursue suspected cases of fraud and abuse.
Inflationary pressures could adversely impact
us because of increases in the costs of materials, supplies and services, and increased labor and people-related expenses.
Inflationary pressures have resulted in increases
in the costs of the testing equipment, supplies and other goods and services that we purchase from manufacturers, suppliers and others.
Inflationary pressures, along with the competition for labor, have also resulted in a rise of our labor costs, which include the costs
of compensation, benefits, and recruiting and training new hires. Our ability to raise the prices and fees we charge for the services
we provide is limited. Continuation of the current inflationary environment may adversely impact us.
Risk Factors Related to Clinical and Commercialization Activity
Our business faces significant government regulation,
and there is no guarantee that our product candidates will receive regulatory approval.
Our research and development activities, pre-clinical
studies, anticipated human clinical trials, and anticipated manufacturing and marketing of our potential products are subject to extensive
regulation by the FDA and other regulatory authorities in the United States, as well as by regulatory authorities in other countries.
In the United States, our product candidates are subject to regulation as biological products or as combination biological products/medical
devices under the Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other statutes, as outlined in the Code of Federal
Regulations. Different regulatory requirements may apply to our products depending on how they are categorized by the FDA under these
laws. These regulations can be subject to substantial and significant interpretation, addition, amendment or revision by the FDA and by
the legislative process. The FDA may determine that we will need to undertake clinical trials beyond those currently planned. Furthermore,
the FDA may determine that results of clinical trials do not support approval for the product. Similar determinations may be encountered
in foreign countries. The FDA will continue to monitor products in the market after approval, if any, and may determine to withdraw its
approval or otherwise seriously affect the marketing efforts for any such product. The same possibilities exist for trials to be conducted
outside of the United States that are subject to regulations established by local authorities and local law. Any such determinations would
delay or deny the introduction of our product candidates to the market and have a material adverse effect on our business, financial condition,
and results of operations.
33
Cell based therapeutics are subject to ongoing
periodic unannounced inspection by the FDA, the Drug Enforcement Agency, other federal agencies and corresponding state agencies to ensure
strict compliance with good manufacturing practices, and other government regulations and corresponding foreign standards. We do not have
control over third-party manufacturers’ compliance with these regulations and standards, nor can we guarantee that we will maintain
compliance with such regulations in regards to our own manufacturing processes. Other risks include:
● regulatory authorities may
require the addition of labeling statements, specific warnings, a contraindication, or field alerts to physicians and pharmacies;
● regulatory authorities may
withdraw their approval of the IND or the product or require us to take our approved products off the market;
● we may be required to change
the way the product is manufactured or administered and we may be required to conduct additional clinical trials or change the labeling
of our products;
● we may have limitations on
how we promote our products; and
● we may be subject to litigation
or product liability claims.
Even if our product candidates receive regulatory
approval in the United States, we may never receive approval or commercialize our product candidates outside of the United States. In
order to market and commercialize any product candidate outside of the United States, we must establish and comply with numerous and varying
regulatory requirements of other countries regarding manufacturing, safety and efficacy. Approval procedures vary among countries and
can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries
might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks
detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval in one country does not ensure
regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the
regulatory approval process in others. Failure to obtain regulatory approval in other countries, or any delay or setback in obtaining
such approval, could have the same adverse effects detailed above regarding FDA approval in the United States. Such effects include the
risks that our product candidates may not be approved for all indications requested, which could limit the uses of our product candidates
and have an adverse effect on product sales and potential royalties, and that such approval may be subject to limitations on the indicated
uses for which the product may be marketed or require costly, post-marketing follow-up studies.
Even if our product candidates receive regulatory
approval, we may still face future development and regulatory difficulties.
Even if U.S. regulatory approval is obtained,
the FDA may still impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for
potentially costly post-approval studies. If any of our products were granted accelerated approval, FDA could require post-marketing confirmatory
trials to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. FDA may withdraw
approval of a drug or indication approved under the accelerated approval pathway if a trial required to verify the predicted clinical
benefit of the product fails to verify such benefit; other evidence demonstrates that the product is not shown to be safe or effective
under the conditions of use; the applicant fails to conduct any required post-approval trial of the drug with due diligence; or the applicant
disseminates false or misleading promotional materials relating to the product. In addition, the FDA currently requires as a condition
for accelerated approval the pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of
the product.
34
Given the number of recent high-profile adverse
safety events with certain drug and cell related products, the FDA may require, as a condition of approval, costly risk management programs,
which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling,
expedited reporting of certain adverse events, pre-approval of promotional materials, and restrictions on direct-to-consumer advertising.
Furthermore, heightened Congressional scrutiny on the adequacy of the FDA’s drug approval process and the FDA’s efforts to
assure the safety of marketed cell based therapy has resulted in the proposal of new legislation addressing drug safety issues. If enacted,
any new legislation could result in delays or increased costs during the period of product development, clinical trials, and regulatory
review and approval, as well as increased costs to assure compliance with any new post-approval regulatory requirements. Any of these
restrictions or requirements could force us to conduct costly studies or increase the time for us to become profitable. For example, any
labeling approved for any of our product candidates may include a restriction on the term of its use, or it may not include one or more
of our intended indications.
Our product candidates will also be subject to
ongoing FDA requirements for the labeling, packaging, storage, advertising, promotion, record-keeping, and submission of safety and other
post-market information on the cell based therapy. New issues may arise during a product lifecycle that did not exist, or were unknown,
at the time of product approval, such as adverse events of unanticipated severity or frequency, or problems with the facility where the
product is manufactured. Since approved products, manufacturers, and manufacturers’ facilities are subject to continuous review
and periodic inspections, these new issues post-approval may result in voluntary actions by us or may result in a regulatory agency imposing
restrictions on that product or us, including requiring withdrawal of the product from the market or for use in a clinical study. If our
product candidates fail to comply with applicable regulatory requirements, such as good manufacturing practices, a regulatory agency may:
● issue warning letters;
● require us to enter into a
consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions,
and penalties for noncompliance;
● impose other civil or criminal
penalties;
● suspend regulatory approval;
● suspend any ongoing clinical
trials;
● refuse to approve pending applications
or supplements to approved applications filed by us;
● impose restrictions on operations,
including costly new manufacturing requirements; or
● seize or detain products or
require a product recall.
If we or current or future collaborators, manufacturers,
or service providers fail to comply with healthcare laws and regulations, we or they could be subject to enforcement actions and substantial
penalties, which could affect our ability to develop, market and sell our products and may harm our reputation.
Although we do not currently have any products
on the market, once our therapeutic candidates or clinical trials are covered by federal health care programs, we will be subject to additional
healthcare statutory and regulatory requirements and enforcement by the federal, state and foreign governments of the jurisdictions in
which we conduct our business. Healthcare providers, physicians and third party payors play a primary role in the recommendation and prescription
of any therapeutic candidates for which we obtain marketing approval. Our future arrangements with third party payors and customers may
expose us to broadly applicable fraud and abuse, transparency, and other healthcare laws and regulations that may constrain the business
or financial arrangements and relationships through which we market, sell and distribute our therapeutic candidates for which we obtain
marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include, but are not limited to, the
following:
● the U.S. federal Anti-Kickback
Statute, which prohibits, among other things, persons from soliciting, receiving, offering or providing remuneration, directly or indirectly,
to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service,
for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare or Medicaid;
35
● federal civil and criminal
false claims laws and civil monetary penalty laws, such as the U.S. federal FCA, which imposes criminal and civil penalties, including
through civil whistleblower or qui tam actions, against, individuals or entities for knowingly presenting or causing to be presented,
to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal
an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services
resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA;
● HIPAA includes a fraud and
abuse provision referred to as the HIPAA All-Payor Fraud Law, which imposes criminal and civil liability for executing a scheme to defraud
any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially
false statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed
a violation;
● HIPAA, as amended by HITECH,
and its implementing regulations, which impose obligations on certain covered entity healthcare providers, health plans, and healthcare
clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable
health information, including mandatory contractual terms, with respect to safeguarding, the privacy, security, and transmission of individually
identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security
of individually identifiable health information;
● federal and state consumer
protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;
● the federal Physician Payment
Sunshine Act and the implementing regulations, also referred to as “Open Payments,” issued under the ACA, which require that
manufacturers of pharmaceutical and biological drugs reimbursable under Medicare, Medicaid, and Children’s Health Insurance Programs
report to the Department of Health and Human Services all consulting fees, travel reimbursements, research grants, and other payments,
transfers of value or gifts made to physicians and teaching hospitals with limited exceptions; and
● analogous state laws and regulations,
such as, state anti-kickback and false claims laws potentially applicable to sales or marketing arrangements and claims involving healthcare
items or services reimbursed by nongovernmental third party payors, including private insurers; and some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated
by the federal government in addition to requiring drug and cell based therapy manufacturers to report information related to payments
to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information
in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating
compliance efforts.
The scope and enforcement of each of these laws
is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable
precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare
companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare
industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business.
Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
Ensuring that our business arrangements with third-parties
comply with applicable healthcare laws and regulations could involve substantial costs. If our operations are found to be in violation
of any such requirements, we may be subject to penalties, including civil or criminal penalties, monetary damages, the curtailment or
restructuring of our operations, or exclusion from participation in government contracting, healthcare reimbursement or other government
programs, including Medicare and Medicaid, any of which could adversely affect our financial results. Although effective compliance programs
can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action
against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s
attention from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with
applicable laws and regulations may be costly to us in terms of money, time and resources.
36
Any cell based therapies we develop may become
subject to unfavorable pricing regulations, third party coverage and reimbursement practices or healthcare reform initiatives, thereby
harming our business.
The regulations that govern marketing approvals,
pricing, coverage and reimbursement for new drugs and cell based therapies vary widely from country to country. Some countries require
approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or
product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental
control even after initial approval is granted. Although we intend to monitor these regulations, our programs are currently in earlier
stages of development and we will not be able to assess the impact of price regulations for a number of years. As a result, we might obtain
regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of
the product and negatively impact the revenues we are able to generate from the sale of the product in that country.
Our ability to commercialize any products successfully
also will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available
from government health administration authorities, private health insurers and other organizations. However, there may be significant
delays in obtaining coverage for newly-approved cell based therapies. Moreover, eligibility for coverage does not necessarily signify
that a cell based therapy will be reimbursed in all cases or at a rate that covers our costs, including research, development, manufacture,
sale and distribution costs. Also, interim payments for new cell based therapy if applicable, may be insufficient to cover our costs and
may not be made permanent. Thus, even if we succeed in bringing one or more products to the market, these products may not be considered
medically necessary or cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell our products
on a competitive basis. Because our programs are in earlier stages of development, we are unable at this time to determine their cost
effectiveness, or the likely level or method of reimbursement. In addition, obtaining coverage and reimbursement approval of a product
from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting
scientific, clinical and cost-effectiveness data for the use of our product on a payor-by-payor basis, with no assurance that coverage
and adequate reimbursement will be obtained. A payor’s decision to provide coverage for a product does not imply that an adequate
reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other
payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price
levels sufficient to realize an appropriate return on our investment in product development. If reimbursement is not available or is available
only at limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.
Increasingly, the third party payors who reimburse
patients or healthcare providers, such as government and private insurance plans, are seeking greater upfront discounts, additional rebates
and other concessions to reduce the prices for pharmaceutical products. If the price we are able to charge for any products we develop,
or the reimbursement provided for such products, is inadequate in light of our development and other costs, our return on investment could
be adversely affected.
We currently expect that certain drugs we develop
may need to be administered under the supervision of a physician on an outpatient basis. Under currently applicable U.S. law, certain
drugs that are not usually self-administered (including injectable cell based therapies) may be eligible for coverage under Medicare through
Medicare Part B. Specifically, Medicare Part B coverage may be available for eligible beneficiaries when the following, among other requirements
have been satisfied:
● the product is reasonable and
necessary for the diagnosis or treatment of the illness or injury for which the product is administered according to accepted standards
of medical practice;
37
● the product is typically furnished
incident to a physician’s services;
● the indication for which the
product will be used is included or approved for inclusion in certain Medicare-designated pharmaceutical compendia (when used for an
off-label use); and
● the product has been approved
by the FDA.
Average prices for cell therapies may be reduced
by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that
presently restrict imports of drugs and cell based therapy from countries where they may be sold at lower prices than in the U.S. Reimbursement
rates under Medicare Part B would depend in part on whether the newly approved product would be eligible for a unique billing code. Self-administered,
outpatient drugs and cell based therapies are typically reimbursed under Medicare Part D, and cell based therapies that are administered
in an inpatient hospital setting are typically reimbursed under Medicare Part A under a bundled payment. It is difficult for us to predict
how Medicare coverage and reimbursement policies will be applied to our products in the future and coverage and reimbursement under different
federal healthcare programs are not always consistent. Medicare reimbursement rates may also reflect budgetary constraints placed on the
Medicare program.
Third party payors often rely upon Medicare coverage
policies and payment limitations in setting their own reimbursement rates. These coverage policies and limitations may rely, in part,
on compendia listings for approved therapeutics. Our inability to promptly obtain relevant compendia listings, coverage, and adequate
reimbursement from both government-funded and private payors for new cell based therapies that we develop and for which we obtain regulatory
approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products
and our financial condition.
We expect that these and other healthcare reform
measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward
pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded
programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare
reforms may prevent us from being able to generate revenue, attain profitability or commercialize our cell based therapies, once marketing
approval is obtained.
We believe that the efforts of governments and
third party payors to contain or reduce the cost of healthcare and legislative and regulatory proposals to broaden the availability of
healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number of
legislative and regulatory changes in the healthcare system in the U.S. and other major healthcare markets have been proposed, and such
efforts have expanded substantially in recent years. These developments could, directly or indirectly, affect our ability to sell our
products, if approved, at a favorable price. For example, in the United States, in 2010, the U.S. Congress passed the ACA, a sweeping
law intended to broaden access to health insurance, reduce or constrain the growth of health spending, enhance remedies against fraud
and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health
industry and impose additional policy reforms. Among the provisions of the ACA addressing coverage and reimbursement of pharmaceutical
products, of importance to our potential therapeutic candidates are the following:
● increases to pharmaceutical
manufacturer rebate liability under the Medicaid Drug Rebate Program due to an increase in the minimum basic Medicaid rebate on most
branded prescription drugs and the application of Medicaid rebate liability to drugs used in risk-based Medicaid managed care plans;
● the expansion of the 340B Drug
Pricing Program to require discounts for “covered outpatient drugs” sold to certain children’s hospitals, critical
access hospitals, freestanding cancer hospitals, rural referral centers, and sole community hospitals;
● requirements imposed on pharmaceutical
companies are required to offer discounts on brand-name cell based therapy to patients who fall within the Medicare Part D coverage gap,
commonly referred to as the “Donut Hole”;
38
● requirements imposed on pharmaceutical
companies to pay an annual non-tax-deductible fee to the federal government based on each company’s market share of prior year
total sales of branded drugs to certain federal healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs and Department
of Defense; and
● for products classified as
biologics, marketing approval for a follow-on biologic product may not become effective until 12 years after the date on which the reference
innovator biologic product was first licensed by the FDA, with a possible six-month extension for pediatric products. After this exclusivity
ends, it may be possible for biosimilar manufacturers to enter the market, which is likely to reduce the pricing for the innovator product
and could affect our profitability if our products are classified as biologics.
Separately, pursuant to the health reform legislation
and related initiatives, the Centers for Medicare and Medicaid Services, or CMS, is working with various healthcare providers to develop,
refine, and implement Accountable Care Organizations, or ACOs, and other innovative models of care for Medicare and Medicaid beneficiaries,
including the Bundled Payments for Care Improvement Initiative, the Comprehensive Primary Care Initiative, the Duals Demonstration, and
other models. The continued development and expansion of ACOs and other innovative models of care will have an uncertain impact on any
future reimbursement we may receive for approved therapeutics administered by these organizations.
The healthcare industry is heavily regulated
in the U.S. at the federal, state, and local levels, and our failure to comply with applicable requirements may subject us to penalties
and negatively affect our financial condition.
As a healthcare company, our operations, clinical
trial activities and interactions with healthcare providers may be subject to extensive regulation in the U.S., particularly if we receive
FDA approval for any of its products in the future. For example, if we receive FDA approval for a product for which reimbursement is available
under a federal healthcare program (e.g., Medicare, Medicaid), it would be subject to a variety of federal laws and regulations, including
those that prohibit the filing of false or improper claims for payment by federal healthcare programs (e.g. the federal False Claims Act),
prohibit unlawful inducements for the referral of business reimbursable by federal healthcare programs (e.g. the federal Anti-Kickback
Statute), and require disclosure of certain payments or other transfers of value made to U.S.-licensed physicians and teaching hospitals
or Open Payments. We are not able to predict how third parties will interpret these laws and apply applicable governmental guidance and
may challenge our practices and activities under one or more of these laws. If our past or present operations are found to be in violation
of any of these laws, we could be subject to civil and criminal penalties, which could hurt our business, our operations and financial
condition.
The federal Anti-Kickback Statute prohibits, among
other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly
or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the
purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration
has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between
pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory
exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly
and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject
to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable
statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality
of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices
may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.
Additionally, the intent standard under the Anti-Kickback
Statute was amended by the ACA, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute
or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a claim including
items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes
of the federal FCA.
39
The civil monetary penalties statute imposes penalties
against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal
healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
Federal false claims and false statement laws,
including the federal FCA, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a
false or fraudulent claim for payment to, or approval by, the federal healthcare programs, including Medicare and Medicaid, or knowingly
making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government.
A claim includes “any request or demand” for money or property presented to the U.S. government. For instance, historically,
pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers
with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing
false claims to be submitted because of the companies’ marketing of the product for unapproved, off-label, and thus generally non-reimbursable,
uses.
HIPAA prohibits, among other offenses, knowingly
and willfully executing a scheme to defraud any health care benefit program, including private payors, or falsifying, concealing or covering
up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for
items or services under a health care benefit program. To the extent that we act as a business associate to a healthcare provider engaging
in electronic transactions, we may also be subject to the privacy and security provisions of HIPAA, as amended by HITECH, which restricts
the use and disclosure of patient-identifiable health information, mandates the adoption of standards relating to the privacy and security
of patient-identifiable health information, and requires the reporting of certain security breaches to healthcare provider customers with
respect to such information. Additionally, many states have enacted similar laws that may impose more stringent requirements on entities
like ours. Failure to comply with applicable laws and regulations could result in substantial penalties and adversely affect our financial
condition and results of operations.
Many states also have similar fraud and abuse
statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply
regardless of the payor. Additionally, to the extent that our product is sold in a foreign country, we may be subject to similar foreign
laws.
Our products, once approved, may be eligible for
coverage under Medicare and Medicaid, among other government healthcare programs. Accordingly, we may be subject to a number of obligations
based on their participation in these programs, such as a requirement to calculate and report certain price reporting metrics to the government,
such as average sales price (ASP) and best price. Penalties may apply in some cases when such metrics are not submitted accurately and
timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or
private payors and by any future relaxation of laws that presently restrict imports of drugs and biological products from countries where
they may be sold at lower prices than in the United States. It is difficult to predict how Medicare coverage and reimbursement policies
will be applied to our products in the future and coverage and reimbursement under different federal healthcare programs are not always
consistent. Medicare reimbursement rates may also reflect budgetary constraints placed on the Medicare program.
In order to distribute products commercially,
we must comply with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products
in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or
distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish
the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology
capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring
pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic
public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as
well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology
companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially
subject to federal and state consumer protection and unfair competition laws.
If our operations are found to be in violation
of any of the federal and state healthcare laws described above or any other governmental regulations that apply to us, we may be subject
to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from
participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual
whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational
harm, administrative burdens, diminished profits and future earnings, 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.
40
Our ability to obtain reimbursement or funding
from the federal government may be impacted by possible reductions in federal spending.
U.S. federal government agencies currently face
potentially significant spending reductions. The Budget Control Act of 2011, or the BCA, established a Joint Select Committee on Deficit
Reduction, which was tasked with achieving a reduction in the federal debt level of at least $1.2 trillion. That committee did not draft
a proposal by the BCA’s deadline. As a result, automatic cuts, referred to as sequestration, in various federal programs were scheduled
to take place, beginning in January 2013, although the American Taxpayer Relief Act of 2012 delayed the BCA’s automatic cuts until
March 1, 2013. While the Medicare program’s eligibility and scope of benefits are generally exempt from these cuts, Medicare payments
to providers and Part D health plans are not exempt. The BCA did, however, provide that the Medicare cuts to providers and Part D health
plans would not exceed two percent. President Obama issued the sequestration order on March 1, 2013, and cuts went into effect on April
1, 2013. Additionally, the Bipartisan Budget Act of 2015 extended sequestration for Medicare through fiscal year 2027.
The U.S. federal budget remains in flux, which
could, among other things, cut Medicare payments to providers. The Medicare program is frequently mentioned as a target for spending cuts.
The full impact on our business of any future cuts in Medicare or other programs is uncertain. In addition, we cannot predict any impact
President Trump’s administration and the U.S. Congress may have on the federal budget. If federal spending is reduced, anticipated
budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health, to continue
to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also
impact the ability of relevant agencies to timely review and approve drug research and development, manufacturing, and marketing activities,
which may delay our ability to develop, market and sell any products we may develop.
Risks Related to Our Securities
Our officers, directors and principal stockholders
own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Our officers, directors and 5% stockholders and
their affiliates beneficially own a significant percentage of our outstanding common stock. As a result, these stockholders have significant
influence and may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control
elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate
transactions. This concentration of ownership could delay or prevent any acquisition of our company on terms that other stockholders may
desire, and may adversely affect the market price of our common stock.
If we are unable to maintain listing of our
securities on The Nasdaq Capital Market or another reputable stock exchange, it may be more difficult for our stockholders to sell their
securities.
Nasdaq requires listing issuers to comply with
certain standards in order to remain listed on its exchange. If, for any reason, Nasdaq should delist our securities from trading on its
exchange and we are unable to obtain listing on another reputable national securities exchange, a reduction in some or all of the following
may occur, each of which could materially adversely affect our stockholders. A delisting of our common stock is likely to reduce the liquidity
of our common stock and may inhibit or preclude our ability to raise additional financing.
On November 3, 2023, we received notice
from Nasdaq that the closing bid price for our common stock had been below $1.00 per share for the previous 30 consecutive
business days, and that we were therefore not in compliance with the minimum bid price requirement for continued inclusion on
The Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the “Rule”). Nasdaq’s notice had no immediate effect
on the listing or trading of our common stock on The Nasdaq Capital Market. The notice indicated that we will
have 180 calendar days, until May 1, 2024, to regain compliance with the Rule. We could regain compliance with the $1.00 minimum
bid listing requirement if the closing bid price of our common stock is at least $1.00 per share for a minimum of ten (10) consecutive
business days during the 180-day compliance period. If we do not regain compliance during the initial compliance period, we
may be eligible for additional time to regain compliance with the Rule. To qualify, we will be required to meet the continued
listing requirement for market value of our publicly held shares and all other Nasdaq initial listing standards, except the bid price
requirement, and provide written notice to Nasdaq of our intention to cure the deficiency during the second compliance period by effecting
a reverse stock split, if necessary. If we are not eligible or it appeared to Nasdaq that we will not be able to cure
the deficiency during the second compliance period, Nasdaq then provides written notice to us that our common
stock will be subject to delisting. In the event of such notification, we may appeal Nasdaq’s determination to delist our
securities, but there can be no assurance that Nasdaq will grant our request for continued listing.
41
The price of our common stock may be volatile and fluctuate substantially,
which could result in substantial losses for our stockholders.
Our common stock has been listed on the Nasdaq
Capital Market under the symbol “ALBT” since November 10, 2022. Our common stock was listed on the Nasdaq Capital Market under
the symbol “AVCO” since November 5, 2018 through the close of business on November 9, 2022. Our common shares were traded
previously on the OTC Market Group Inc.’s Venture Market (the “OTCQB”) since February 22, 2016, under the symbol “AVCO”
since October 18, 2016 and “GTHC” prior to October 18, 2016.
The price of our common stock has been, and we
expect it to continue to be, volatile. The stock market in general and the market for smaller healthcare companies in particular have
experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this
volatility, you may not be able to sell your shares of common stock at or above the price you paid for your shares of common stock. The
market price for our common stock may be influenced by many factors, including:
● the success of competitive
products or technologies;
● developments related to our
existing or any future collaborations;
● regulatory or legal developments
in the United States and other countries;
● developments or disputes concerning
patent applications, issued patents or other proprietary rights;
● the recruitment or departure
of key personnel;
● actual or anticipated changes
in estimates as to financial results or recommendations by securities analysts;
● variations in our financial
results or those of companies that are perceived to be similar to us;
● changes in the structure of
healthcare payment systems;
● market conditions in the healthcare,
pharmaceutical and biotechnology sectors;
● general economic, industry
and market conditions; and
● the other factors described
in this “Risk Factors” section.
Futu re
sales of our common stock or securities convertible or exchangeable for our common stock may cause our stock price to decline.
If
our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the price
of our common stock could decline. The perception in the market that these sales may occur could also cause the price of our common stock
to decline.
In
addition, as of December 31, 2023,
● 853,303
shares of our common stock were issuable upon exercise of outstanding stock options;
● 645,527
shares of our common stock were issuable upon exercise of outstanding stock warrants;
● 900,000
shares of our common stock were issuable upon the conversion of our outstanding Series A
Convertible Preferred Stock (the “Series A Preferred Stock”), which will become
eligible for sale in the public market to the extent permitted by the provisions of various
vesting schedules, lock-up agreements and Rule 144 under the Securities Act of 1933, as amended
(the “Securities Act”);
● 2,910,053
shares of our common stock issuable upon conversion of our outstanding Series B Preferred
Stock;
● 911,111
shares of our common stock issuable upon conversion of our outstanding convertible notes.
If
the shares we may issue from time to time upon the exercise of outstanding options and warrants and the conversion of our outstanding
Series A Preferred Stock and Series B Preferred Stock are sold and outstanding convertible notes are issues, or if it is perceived that
they will be sold, by the award recipients in the public market, the price of our common stock could decline.
42
You may experience dilution of your ownership
interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible
into or exercisable for our common or preferred stock.
As of the date of this filing, we have issued
an aggregate of (i) 9,000 shares of our newly designated Series A Preferred Stock and (ii) 11,000 shares of our newly designated Series
B Preferred Stock. In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of
the ownership interests of our stockholders. We are authorized to issue an aggregate of 490,000,000 shares of common stock and 10,000,000
shares of “blank check” preferred stock. We may issue additional shares of our common stock or other securities that are convertible
into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities
for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may
create downward pressure on the trading price of our common stock. We expect we will need to raise additional capital in the near future
to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or
other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise prices)
below the price you paid for your stock.
The ability of our Board to issue additional
stock may prevent or make more difficult certain transactions, including a sale or merger.
Our Board is authorized to issue up to 10,000,000
shares of preferred stock with powers, rights and preferences designated by it. Shares of voting or convertible preferred stock could
be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to effect a
takeover or otherwise gain control of us. The rights of holders of our common stock are subject to the rights of the holders of our preferred
stock, including our newly designated Series A Preferred Stock, Series B Preferred Stock, Series C Convertible Preferred Stock and any
preferred stock that may be issued. The ability of the Board to issue such additional shares of preferred stock, with rights and preferences
it deems advisable, could discourage an attempt by a party to acquire control of us by tender offer or other means. Such issuances could
therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market
price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance
of such additional shares of preferred stock to persons friendly to the Board could make it more difficult to remove incumbent managers
and directors from office even if such change were to be favorable to stockholders generally.
We are incorporated in Delaware. Certain anti-takeover
provisions of Delaware law and our charter documents as currently in effect may make a change in control of us more difficult, even if
a change in control would be beneficial to the stockholders. Delaware law also prohibits corporations from engaging in a business combination
with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other possibilities,
our Board approves the transaction. Our Board may use these provisions to prevent changes in the management and control of us. Also, under
applicable Delaware law, our Board may adopt additional anti-takeover measures in the future.
If securities or industry analysts do not publish
research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, 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. We do not currently have
and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage
of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if
any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or
our stock performance, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If
one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial
markets, which in turn could cause our stock price or trading volume to decline.
We do not anticipate paying dividends on our
common stock, and investors may lose the entire amount of their investment.
We have never declared or paid cash dividends
on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future.
We expect to use
future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares
of our common stock. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we
assure that stockholders will not lose the entire amount of their investment.
43
Applicable regulatory requirements, including
those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers
and directors, which could adversely affect the management of our business and our ability to obtain or retain listing of our common stock
on a national securities exchange.
We may be unable to attract and retain those qualified
officers, directors and members of board committees required to provide for effective management because of the rules and regulations
that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the
Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and
regulations by the SEC, as well as the adoption of new and more stringent rules by national securities exchanges. The perceived increased
personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.
Further, some of these changes heighten the requirements
for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience
in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we
are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain
listing of our shares of common stock on any national securities exchange could be adversely affected.
If we cannot satisfy, or continue to satisfy,
the initial listing requirements and other rules of The Nasdaq Capital Market, our securities may be delisted, which could negatively
impact the price of our securities and your ability to sell them.
Our common stock has been listed on The Nasdaq
Capital Market under the symbol “ALBT” since November 10, 2022 and under the symbol “AVCO” since November 5, 2018
through the close of business on November 9, 2022. In order to maintain our listing on The Nasdaq Capital Market, we are required to comply
with certain rules of the applicable trading market, including those regarding minimum stockholders’ equity, minimum share price
and certain corporate governance requirements. We may not be able to continue to satisfy the listing requirements and other applicable
rules of The Nasdaq Capital Market. If we are unable to satisfy the criteria for maintaining our listing, our securities could be subject
to delisting.
If our common stock is delisted from trading by
the applicable trading market we could face significant consequences, including.
● a limited availability for
market quotations for our securities;
● reduced liquidity with respect
to our securities;
● a determination that our common
stock is a “penny stock,” which will require brokers trading in our common stock to adhere to more stringent rules and possibly
result in a reduced level of trading activity in the secondary trading market for our common stock;
● limited amount of news and
analyst coverage; and
● a decreased ability to issue
additional securities or obtain additional financing in the future.
We could be subject to securities class action
litigation.
In the past, securities class action litigation
has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for
us because companies in our industry have experienced significant stock price volatility in recent years. If we face such litigation,
it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.