Item 1. Business
Item
1. Business.
NovelStem
International Corp. (“NovelStem” or the “Company”) is a development stage biotechnology holding company focused
on the stem cell-based technology developed by its affiliate, NewStem Ltd, an Israeli biotech company (“NewStem”), in which
the Company owns an approximate 31% equity interest. NovelStem was formed in January 1993 as Big Entertainment, Inc. Thereafter, the
Company changed its name to Hollywood.Com Inc. and, later to Hollywood Media Corp. (“Hollywood Media”).
In
2018, the Company shifted its business focus from media to cutting edge biotech when it acquired a substantial ownership interest in
NewStem and changed its name to NovelStem. As a significant shareholder in NewStem, and the substantial commitment of our management
and financial resources to NewStem, including the fact that our Executive Chairman, Jan Loeb, is also the Chairman of NewStem, we have
the ability to exert significant influence over the management and operations of NewStem resulting in NewStem functioning as a minority
operating subsidiary of the Company. Since his appointment in July 2018, Mr. Loeb has acted in an executive capacity on behalf of the
Company and has served in a de facto leadership role. In September 2022, the Board appointed Mr. Loeb as Executive Chairman of
NovelStem in order to ratify Mr. Loeb’s position and clarify his executive role. On January 13, 2023, the Board appointed Mr. Loeb
as President. With respect to NewStem, Mr. Loeb, as the Chairman, calls and presides over the meetings of NewStem’s Board of Directors.
Additionally, Mr. Loeb leverages his financial expertise by guiding NewStem’s financial and strategic planning, including the raising
and deployment of capital, developing and modifying NewStem’s business plan and budget and by participating in the negotiation
of NewStem’s material contracts as required. NewStem does not currently have an appointed Chief Financial Officer and, as such,
Mr. Loeb serves as the de facto Chief Financial Officer and Chief Strategic Officer of NewStem.
NovelStem
depends entirely on earnings and cash from its investments in NewStem and our 50% equity interest in a legacy joint venture named NetCo
Partners (“NetCo”). The Company’s principal operations coincide with those of NewStem. We have not received any dividend
payments or other distributions from NewStem in the fiscal years ended December 31, 2023 and 2022. We received distributions of earnings
from NetCo of $6,875 and $12,591, respectively, for the fiscal years ended December 31, 2023 and 2022.
NewStem
NewStem
is a development stage Israeli biotech limited liability company focused on human Pluripotent Stem Cells (hPSCs) in general, and
Haploid human Pluripotent Stem Cells (HhPSCs), in particular. These cells have the potential to change the face of medical research
as they play a pivotal role in cancer research, regenerative medicine and disease therapy. NewStem established a discovery
bio-platform based on haploid human embryonic stem cell technology for genome-wide screenings and is currently using this platform
for the discovery and development of oncology drugs based on synthetic lethal interaction and developing a personalized diagnostic
for early detection of chemotherapy resistance. NewStem has incurred losses since inception and has generated minimal revenues from
a licensing agreement to date. NewStem filed an FDA Pre-Submission and received a CE Mark from the European Medicines Agency (EMA)
for its in vitro diagnostic device (IVDD). NewStem does not have an FDA approved medical device. The NewStem Software Diagnostic
Device (NSDD) is CE marked under EU regulation as an “other” IVD under Directive 98/79/EC since March 2022.
NewStem
performs genome-wide genetic screening to identify synthetic lethal interactions with common cancer-related mutations. The first step
in the process is to create a model with relevant cancer-related mutations in HhPSCs, where, subsequently, a library targeting approximately
18,000 coding genes is induced. At the end of this step, each cell has two mutations, one in the cancer related gene and the other in
a coding gene. A genome-wide genetic screening is performed, both on normal HhPSCs and genomic modified HhPSCs to which a cancer-related
mutation was inserted. The goal of such screens is to identify mutations that in combination with a cancer-related mutation will kill
the cells. Following bioinformatic analysis of the genetic screening results, novel targets are identified and validated, first in HhPSCs
and then cancer models (tumor organoids and PDX). NewStem has validated several targets in HhPSCs and will move next to validation in
cancer models. To identify novel targets for drug development, NewStem performs genome-wide genetic screening. The validation process
requires additional experiments that corroborate the results in independent experiments
that are performed on haploid human embryonic stem cells and cancer models. For validated targets, artificial intelligence (AI) based
drug discovery will be performed following by hit to lead process and ADMET that will support the transition to clinical trials.
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In
reference to AI-based drug discovery, AI can assist in structure-based drug discovery by predicting the 3D protein structure and the
chemical environment of the target protein site, thus helping to predict the effect of a compound on the target along with safety considerations
before their synthesis or production and, accordingly, accelerates the drug development process.
In
reference to the hit to lead process- this is the iterative process of lead improvement. It is the stage where a hit, typically a small
molecule identified in a high throughput screen, is chemically modified into a lead molecule following improvements in activity against
the target.
In
reference to ADMET, this is the five-letter acronym for absorption, distribution, metabolism, excretion, and toxicity that describes
pharmacokinetics. ADMET plays key roles in drug discovery and development. A high-quality drug candidate should not only have sufficient
efficacy against the therapeutic target, but also show appropriate ADMET properties at a therapeutic dose.
NewStem
possesses pioneering intellectual property, reagents and experience related to the isolation and differentiation of HhPSCs and hPSCs,
their genetic manipulation, immunogenicity, tumorigenicity and their unique capacity in disease modeling.
We
believe that NewStem is currently the only company worldwide to develop products based on this innovative proprietary technology. These
products refer to the medical device platform that provides information to oncologists regarding the presence of mutations in the patient’s
tumor profile which may confer resistance to different anti-cancer drugs and to anticancer drugs that target tumors with specific mutations
based on a synthetic-lethal interaction approach.
NewStem’s
technology solutions are derived from an exclusive, worldwide license from Yissum Research Development Company, Hebrew University’s
technology transfer company (“Yissum”) and The New York Stem Cells Foundation, based on the findings and inventions of Prof.
Nissim Benvenisty, Director of the Azrieli Center for Stem Cells and Genetic Research, The Hebrew University of Jerusalem (the “License”).
The License provides NewStem an exclusive worldwide license to make commercial use of the License and to develop, manufacture, market,
distribute or sell a product in the field of therapeutics, diagnostics, screening, development and testing. In consideration for the
grant of the License, NewStem is obligated to pay royalties of up to 3% of net sales and up to 12% of “Sublicense Consideration”
(as defined in the License Agreement).
NovelStem
was the original seed investor in NewStem providing $2 million in July 2018 and another $2 million over the next two and a half years.
We currently own a 30.51% equity interest in NewStem. The remaining equity interests in NewStem are owned by Yissum and Professor Benvenisty,
each of whom owns a 30.51% equity interest, Illumina Cambridge LTD, which owns a 5.31% equity interest, and management and a number of
other shareholders who own collectively approximately 3.18%. Currently, our President and Executive Chairman, Jan Loeb, is also the Chairman
of the Board of NewStem. Professor Benvenisty and a representative of Yissum occupy the other two Board seats.
Pursuant
to NewStem’s Articles of Association, investors (including NovelStem) are granted certain rights and are subject to certain restrictions
with respect to their equity interests in NewStem. NovelStem has preemptive rights to purchase additional shares issued by NewStem up
to its pro-rata share of all outstanding shares of NewStem held by all shareholders of NewStem, until the consummation of either an initial
public offering or a liquidation event. Such pro-rata share may be increased into an over-allotment if other shareholders decline to
exercise their preemptive rights. The Board of Directors of NewStem may make capital calls on NovelStem and the other shareholders, in
respect of any sum unpaid in respect of shares held by such shareholder. All shareholders holding at least 10% of the outstanding shares,
including NovelStem, may exercise a right of first refusal on all sales of shares of NewStem other than transfers to certain permitted
transferees. NovelStem and other shareholders have a co-sale right to sell their shares in place of those that would be issued and sold
by NewStem’s founder. The shares of NewStem are subject to a drag-along right, compelling all shares to be sold in the event that
a transaction meant to sell all shares of NewStem is approved by shareholders holding at least 65% of the vote of all shares of NewStem.
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Competition
The
technologies underlying NewStem’s products are subject to rapid and profound technological change. Competition intensifies as technical
advances in each field are made and become more widely known. We can give no assurance that others will not develop services, products,
or processes with significant advantages over the products, services, and processes that NewStem offers or is seeking to develop. Any
such occurrence could have a material and adverse effect on NewStem’s and our business, results of operations and financial condition.
NewStem
plans to enhance and broaden its product offerings in response to changing customer demands and competitive pressure and technologies.
The success of any new product offering or enhancement to an existing product will depend on numerous factors, including the ability
to:
-
Properly
identify and anticipate physician and patient needs;
-
Develop
and introduce new products or product enhancements in a timely manner;
-
Adequately
protect intellectual property and avoid infringing upon the intellectual property rights of third parties;
-
Demonstrate
the safety and efficacy of new products; and
-
Obtain
the necessary regulatory clearances or approvals for new products or product enhancements.
Government
Regulation
In
the United States, pharmaceutical products are subject to extensive regulation by the Federal Food and Drug Administration and Cosmetic
Act or the FDA. The FDA and other federal and state statutes and regulations, govern, among other things, the research, development,
testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and
reporting, sampling, and import and export of pharmaceutical products. The FDA has very broad enforcement authority and failure to abide
by applicable regulatory requirements can result in administrative or judicial sanctions being imposed on NewStem, including warning
letters, refusals of government contracts, clinical holds, civil penalties, injunctions, restitution, disgorgement of profits, recall
or seizure of products, total or partial suspension of production or distribution, withdrawal of approval, refusal to approve pending
applications, and criminal prosecution.
FDA
Approval Process
NewStem’s
therapeutic product candidates are expected to be regulated by the FDA as drugs. No manufacturer may market a new drug until it has submitted
a New Drug Application, or NDA, to the FDA, and the FDA has approved it.
The
testing and approval process requires substantial time, effort and financial resources, and NewStem’s product candidates may not
be approved on a timely basis, if at all. The time and expense required to perform the clinical testing necessary to obtain FDA approval
for regulated products can frequently exceed the time and expense of the research and development initially required to create the product.
The results of preclinical studies and initial clinical trials of NewStem’s product candidates are not necessarily predictive of
the results from large-scale clinical trials, and clinical trials may be subject to additional costs, delays or modifications due to
a number of factors, including difficulty in obtaining enough patients, investigators or product candidate supply. Failure by NewStem
to obtain, or any delay in obtaining, regulatory approvals or in complying with requirements could adversely affect the commercialization
of product candidates and NewStem’s (and, therefore, the Company’s) ability to receive product or royalty revenues.
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The
diagnostic product (NSDD) will be considered a medical device. A Pre-Submission (Pre-Sub) regarding the NSDD was submitted to FDA in
March 2022, and the FDA’s written feedback was received in May 2022. The FDA requested that the presented intended use and pivotal
clinical testing design be modified. NewStem still needs to present to the FDA a Supplement to the Pre-Sub, presenting such modifications,
and asking it to confirm that the de novo route is indeed applicable to the device. Once an agreement is reached with the FDA, the device
will be subjected to a retrospective pivotal clinical testing that will be followed by the de novo submission to the FDA.
Other
Regulatory Requirements
After
approval, drug products are subject to extensive continuing regulation by the FDA, which include obligations to manufacture products
in accordance with Good Manufacturing Practice, or GMP, maintain and provide to the FDA updated safety and efficacy information, report
adverse experiences with the product, keep certain records and submit periodic reports, obtain FDA approval of certain manufacturing
or labeling changes, and comply with FDA promotion and advertising requirements and restrictions. Failure by NewStem to meet these obligations
can result in various adverse consequences, both voluntary and FDA-imposed, including product recalls, withdrawal of approval, restrictions
on marketing, and the imposition of civil fines and criminal penalties against the NDA holder. In addition, later discovery of previously
unknown safety or efficacy issues may result in restrictions on the product, manufacturer or NDA holder.
Outside
the United States, NewStem’s ability to market a product is contingent upon receiving marketing authorization from the appropriate
regulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from jurisdiction to
jurisdiction. At present, foreign marketing authorizations are applied for at a national level, although within the European Union registration
procedures are available to companies wishing to market a product in more than one European Union member state.
NewStem
is also subject to various environmental, health and safety regulations including those governing laboratory procedures and the handling,
use, storage, treatment, and disposal of hazardous materials. From time to time, and in the future, NewStem’s operations may involve
the use of hazardous materials.
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NetCo
In
June 1995, we and C.P. Group Inc. (“C.P. Group”), formed the joint venture, NetCo. NetCo owns the entertainment property,
“Net Force”, about a division of the FBI investigating crimes and adventures involving the internet and the digital world.
NovelStem
and C.P. Group each own 50% of the ownership interest in NetCo. NetCo owns all rights in all media to the Net Force property including
film, television, and video games.
In
1997, NetCo licensed to Putnam Berkley the rights to publish the first six Net Force books in North America, which books were written
and published. This agreement was subsequently renewed in December 2001 for four more books that were created and published. There was
also a series of books targeted to the young adult market, Net Force Explorer, also published by Putnam Berkley. Net Force books have
so far been published in mass market paperback format. The first book in the series was adapted as a four-hour mini-series on the ABC
television network.
In
2019, NetCo entered into a new publishing agreement with HarperCollins. Three novels and two Net Force novellas have been published under
that agreement. Through its interest in NetCo, NovelStem receives distributions of its 50% share of proceeds generated from the rights
to Net Force.
Competition
Competition
in the publishing and video game industries is intense. Many new products and services are regularly introduced in each major industry
segment (console, mobile and PC), but only a relatively small number of “hit” titles account for a significant portion of
total revenue in each segment. NetCo’s competitors range from established interactive entertainment companies and diversified media
companies to emerging start-ups, and we expect new competitors to continue to emerge throughout the world.
See
Item 3 – Legal Proceedings for information concerning proceedings related to NetCo.
Employees
We
do not currently have any employees; however, the Company relies on consultants to perform the duties that would be performed by employees.
Additional
Financial Information
For
additional financial information regarding our operations, see “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our Financial Statements included in this Annual Report.
Available
Information
We
file annual, quarterly and current reports and other information with the U.S. Securities and Exchange Commission (the “SEC”).
These filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. You may also read and copy
any document we file at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference room.
Our
website can be found at http://novelstem.com.
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