Item 1. Business
Item
1. Business.
NovelStem
International Corp. (“NovelStem” or the “Company”) is a holding company whose principal assets are a 50% equity
interest in NetCo Partners (“NetCo”) and an approximately 31% interest in NewStem Ltd, an Israeli biotech company (“NewStem”).
NovelStem was formerly known as Hollywood Media Corp. The Company was incorporated in the State of Florida on January 22, 1993 and changed
its name to NovelStem International Corp. in September 2018.
With
the purchase of NewStem, the Company expanded its business focus from media to cutting edge biotech. 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.
Through
the second quarter of 2024, the Company was a development stage biotechnology holding company focused on the stem cell-based technology
developed by Hebrew University under exclusive license to NewStem. The Company signed an agreement (the “Purchase Agreement”) on June 20, 2024 to acquire the remainder
of NewStem in exchange for Company stock as well as funding for NewStem. The Company was unable to obtain funding to proceed and the
Purchase Agreement was not fully consummated. As such, no Company shares were issued to NewStem shareholders in exchange for NewStem
shares.
During
the third quarter of 2024, it became evident that NewStem would not be able to raise funds to continue operations consisting of research
and development and further development of the technology. In October 2024, NewStem ceased operations and began the process of liquidation
under which the current state of the technology reverts back to the original licensor with the Company retaining a financial interest
in any future licensing.
NovelStem
depends entirely on earnings and cash from its investments in NewStem and the NewStem technology and our 50% equity interest in the NetCo
joint venture. The Company’s principal operations coincided with those of NewStem. We have not received any dividend payments or
other distributions from NewStem in the fiscal years ended December 31, 2024 and 2023. We received distributions of earnings from NetCo
of $6,875 during the fiscal year ended December 31, 2023. No such distributions of earnings were received during the fiscal year ended
December 31, 2024.
NewStem
NewStem
is a development stage Israeli biotech limited liability company that performed research 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.
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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.
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 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 provided 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 was obligated to pay royalties of up to 3% of net sales and up to 12% of “Sublicense Consideration”
(as defined in the License Agreement). As part of the ongoing liquidation of NewStem, the License reverts to the original holders and
NovelStem retains a significant financial interest in any future monetization of the License.
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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.
Competition
The
technologies underlying future monetization of the License 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 can be developed through the License.
Any such occurrence could have a material and adverse effect on our business, results of operations and financial condition.
Yissum
plans to find new users for the technology based on the License. The success of a future licensee to enhance and broaden its product
offerings in response to changing customer demands and competitive pressure and technologies 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 were 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.
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The
testing and approval process requires substantial time, effort and financial resources, and any future licensee’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
any licensee to obtain, or any delay in obtaining, regulatory approvals or in complying with requirements could adversely affect the
commercialization of product candidates and the Company’s ability to receive licensing revenues.
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 a licensee 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, a licensee’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.
At
the time of this filing, the Company is in final negotiations to sell our interest in NetCo to our joint venture partner in exchange
for the settlement of related debt in the form of a litigation funding agreement.
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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