According to BLOOD TRANSFUSIONS: KNOWING YOUR OPTIONS, a publication of the Pall Corporation, more than 43% of all blood products are used for people 65 and older. This older segment of the population is expected to grow 14% in the next 10 years, almost twice as fast as the rest of the population. Thus, the shortage of red blood cells is expected to increase dramatically as more baby boomers age and the number of cardiac surgeries, cancer treatments, hip and knee replacements, head injury treatments, organ transplants and other surgeries also increase. While blood donations have generally increased by 1-2% annually, the American Red Cross estimates that blood transfusion demand is on pace to increase by 6-8% annually. Worldwide, the shortage is even greater. The World Health Organization estimated a worldwide shortage of 25 million units of blood in 2002.
Increasing Cost
According to Tissue Link Medical, Technical Brief No. 305, the actual cost of a red blood cell transfusion has increased dramatically in recent years and currently ranges between $500-1,000 per unit of blood. The major factors contributing to this increase include additional costs related to testing, screening, processing, type matching and overhead. In light of recent stricter guidelines to ensure the safety of blood, such as more stringent screening for transmittable diseases and standard leukoreduction (eliminating the white blood cells that can carry infections), the cost of blood is expected to continue to rise.
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
Blood Supply Safety
Sensitive screening tests in the United States have greatly reduced the risk of infectious disease transmission in the domestic population, but unacceptable risks still remain. Based on a 2001 report of the American Association of Blood Banks, the risk of infection from, or adverse reaction to, a single blood transfusion is:
| · |
1:100
for minor allergic reactions
|
| · |
1:2,500
for bacterial infections
|
| · |
1:50,000
for human T cell Leukemia virus
|
| · |
1:250,000
for Hepatitis B
|
| · |
1:543,000
for Hepatitis C
|
| · |
1:600,000
for fatal hemolytic reaction
|
| · |
1:1,930,000
for HIV
|
These probabilities compound quickly, however, for major procedures, such as organ transplants and trauma, which require fifty units of blood on average. Even in minor surgeries, which require six to eight units of blood, the probabilities of contracting infections or experiencing adverse reactions are not insignificant.
We believe that our product's initial foreign clinical testing produced data that supported HemoTech's biological activity and non-toxicity in humans. Additionally, the product demonstrated anti-inflammatory and vasodilatory activity, as well as erythropoietic activity. No negative side effects have been seen to date, prompting more than 80 abstracts and papers, and an official European New Drug Application supporting the preclinical non-toxicity results in cell and animal studies. Subsequent to HemoTech's clinical studies, HemoBioTech's researchers delineated the molecular mechanisms of HemoTech. These data confirm the properties of HemoTech observed during clinical studies and constitute positive support for potential future FDA regulatory filings by HemoBioTech as well as valuable information for future product research and development.
Production and Material Supply
The Company's proprietary production method consists of reacting pure bovine hemoglobin with three chemicals--o-adenosine 5'-triphosphate (o-ATP), o-adenosine, and reduced glutathione (GSH)--chemically modifying the hemoglobin to create beneficial activities and effect changes that control oxygen affinity and other biological activities. A benefit of o-adenosine is that it counteracts the hemoglobin properties that cause the narrowing of blood vessels. It also reduces the potential of hemoglobin to cause inflammation.
The preference for bovine hemoglobin as an erythrocyte substitute, first proposed by the TTUHSC researchers, was based on indications that bovine hemoglobin was more effective than isolated human hemoglobin at transporting oxygen; that bovine erythrocytes were widely available; and that human and bovine diseases transmissible by blood could be avoided by collecting erythrocytes exclusively from select healthy cattle. Bovine blood isolated and utilized for production of HemoTech is taken only from healthy cows, from a controlled herd.
HemoBioTech has the exclusive worldwide license from TTUHSC covering all intellectual property associated with HemoTech. The Company further has access to TTUHSC staff and equipment necessary to produce, test, and certify HemoTech, with access to University laboratory facilities and a blood substitute production facility TTUHSC has constructed on its campus specifically for the production of HemoTech. HemoBioTech has the right to assist in recruiting personnel, including student interns, and obtaining state and federal grants for its research, development, and manufacturing programs.
Business Strategies
We believe the most likely path to commercialization of HemoTech, if ever developed and approved for sale, will involve a partnership with a major pharmaceutical company. Because commercialization of a major pharmaceutical product requires a significant amount of capital, HemoBioTech will seek to identify and enter into partnership agreements with one or more pharmaceutical companies to partner in the late stages of clinical trials.
HemoBioTech's ability to research, develop, and successfully commercialize HemoTech is dependent upon its collaborative relationships with TTUHSC as well as outside consultants. Our outside consultants will collaborate on key projects and are assisting HemoBioTech in their creation and submission of the U.S. IND (Investigational New Drug) application, clinical trials and conducting additional research activities.
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
In order to achieve its goal, HemoBioTech has determined that it must meet the following objectives:
| · |
Upgrade
its Current Production Facilities. To produce HemoTech for Phase
I U. S.
clinical trials, HemoBioTech must complete upgrades to its current
production facilities at TTUHSC. The initial phase of this plan was
completed at the end of the second quarter of 2005. The second phase
was
completed during 2006. Financing the initial phase was included in
HemoBioTech's Stage II Sponsored Research Agreement payment to TTUHSC
in
December 2004 and the additional upgrade is part of the Stage III
sponsor
agreement signed in 2006 as well as additional expenditures if necessary.
Our Stage IV SRA includes upgrades to our production facilities based
on
FDA recommendations.
|
| · |
Preparation
and Submission of U.S. IND Application. Under terms of their Stage
II
sponsored research agreement, TTUHSC provided HemoBioTech support
services
for preparation of its U.S. IND application. This included conversion
of
data from European IND application into electronic format, summarization
and analysis of its pre-clinical CMC ("Chemistry Manufacturing and
Controls") data and analysis of its proposed Phase I U.S. clinical
trial
testing procedures. The Company expects to complete preparation of
its
U.S. IND application and submit it to the FDA during 2007. The estimated
cost of submitting the application is approximately $2,000,000 or
greater.
|
| · |
Phase
I of our U.S. Clinical Trials. A Phase I U.S. clinical trial for
HemoTech
will commence subsequent to the acceptance of the IND application.
We
estimate that our Phase I clinical trials (including costs of doing
additional research and development of HemoTech during our Phase
I U.S.
clinical trials and the operational and overhead costs that we will
incur
during our Phase I U.S. clinical trials) could cost approximately
$10.0
million, although the final cost could be more or less than this
estimate.
|
Competition
If approved for commercial manufacture and marketing, we believe HemoTech will have a unique competitive advantage over other products under testing or under development since we believe HemoTech is the only product that addresses all aspects of the intrinsic toxicity (vasoconstriction, oxidative stress and inflammatory reactions) of hemoglobin. We believe the lack of toxicity in HemoTech, based on studies to date, is due to the chemical modification of the hemoglobin in our product. Furthermore, we believe our bovine-derived red blood cell product provides HemoTech with an additional competitive edge over products developed from outdated human red blood cells or from perfluorochemicals (which are synthetic chemical blood substitutes), because bovine blood is safer, more readily available, more convenient and more cost effective.
Our key competitors include:
| · |
Northfield
Laboratories has been developing PolyHeme®, which is based on hemoglobin
from what we believe to be outdated human blood. Although Northfield
completed its Phase III U.S. clinical trials, in 2002 Northfield's
product
was rejected by the FDA for use in elective surgery due to results
concerning safety and efficacy. Northfield has completed the PolyHeme(R)
Phase III U.S. clinical trial for use in ambulatory trauma cases.
Since
Northfield's product has completed the Phase III U.S. clinical trial,
it
could be deemed to be at a more advanced trial stage than HemoTech,
although their product was previously rejected by the FDA for use
in
elective surgery.
|
| · |
Biopure
Corporation has been developing Hemopure®, a bovine hemoglobin-based blood
substitute. Although Biopure completed its Phase III U. S. clinical
trials, Biopure's product failed to receive a biologic license application
clearance from the FDA in 2003. The FDA has asked Biopure to perform
additional safety testing on its
product.
|
| · |
Sangart,
Inc. has created a hemoglobin-based blood substitute, Hemospan. The
product is in clinical testing in both the U.S. and Europe.
|
| · |
SynZyme
is developing HemoZyme, a hemoglobin-based blood. Since HemoZyme
has only
been tested in animals, the Company believes it is not at a more
advanced
trial stage than HemoTech.
|
| · |
Alliance
Pharmaceutical has been developing Oxygent™, which is based on
flurocarbon-based blood substitute. Alliance Pharmaceutical discontinued
its U.S. clinical trials.
|
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
| · |
Synthetic
Blood International, Inc. is a development stage company, developing
biotechnology products. It specializes in creating pharmaceuticals
and
medical devices in the fields of liquid ventilation, oxygen therapeutics,
implanted glucose sensing, and blood substitutes using flurocarbon-based
technology. Prior flurocarbon-based technologies have suffered from
toxicity.
|
Government Regulation
HemoBioTech, Inc.'s product, manufacturing activities, and proposed clinical trial of that product are subject to regulation by the United States Food and Drug Administration ("FDA") and by other federal, state, local and foreign authorities. Pursuant to the Food, Drug, and Cosmetic Act of 1938, as amended ("FD&C Act"), the Public Health Service Act ("PHS Act"), and the regulations promulgated thereunder, the FDA regulates the development, clinical testing, manufacture, packaging, labeling, storage, distribution and promotion of drugs and biologics, including blood and blood substitutes.
The FDA has expansive regulatory authority which may be enforced through product recalls, seizures and other civil and criminal sanctions. The FDA is considering changes to its approach to "follow-on biological" products (which are the biological product equivalent to generic pharmaceutical products). Changes that would facilitate the approval of such products could have an adverse impact on the Company's long term strategy to the extent that its product is deemed to be a biological product.
FDA APPROVAL PROCESS--PRECLINICAL AND CLINICAL TRIALS. A new drug or biologic cannot be distributed in the United States unless approved by the FDA; FDA approval of new drugs and biologics comes at end of a lengthy process and only after the FDA determines that the article at issue is safe and effective for its intended use or uses. Whether FDA approves a product is a function of the agency's discretion.
In order to gather sufficient data to demonstrate the safety and efficacy of a new drug or biologic, the manufacturer is usually required to sponsor clinical trials, i.e., trials in humans, under the jurisdiction of the FDA. In order to conduct or sponsor a clinical trial of a new drug or biologic, the manufacturer must submit an Investigational New Drug ("IND") application. The IND application must contain sufficient and specific animal test data, toxicological, pharmacological and other data to assure FDA that the initial clinical trial will not endanger the health of the patients or subjects involved. The Company has not submitted an IND to clinically test HemoTech in the United States, but anticipates submitting its IND during 2007. The Company will include in its IND application for HemoTech the results of the use of HemoTech in other countries. A Company may not begin clinically testing until its IND has been approved by the FDA or 30 days have elapsed since the filing and the FDA has not objected. However, as a practical matter, few manufacturers will begin clinical testing if the FDA has expressed concern about the proposed study.
The FDA recognizes three clinical trial phases. A Phase I study is typically closely monitored and may be conducted in patients or volunteer subjects. These studies are designed, in part, to determine the metabolic and pharmacologic actions of the drug or biologic, the side effects associated with increasing doses, to gain early evidence, if possible, of its effectiveness, and gather sufficient information to permit the design of well-controlled, scientifically valid Phase II study. Usually, a Phase I study involves between 20 and 80 subjects or patients, as the case may be.
Phase II studies include controlled clinical studies to evaluate the effectiveness of the drug or biologic for a particular indication in patients with a given condition under study to determine the common short-term side effects and risks associated with the drug or biologic. Phase II studies are well controlled, closely monitored, and conducted on a relatively small cohort usually involving no more than several hundred patients.
Phase III studies are expanded, well controlled and closely monitored studies designed to provide sufficient data so that FDA can determine the product's effectiveness and safety and to provide adequate basis for physician labeling. Phase III studies usually include from several hundred to several thousand patients.
Research and development activities are costly, time-consuming, and may not be successful, and there can be no assurance that our product candidate, HemoTech, even if it is approved to enter Phase I clinical trials, will be approved to enter subsequent phases or will be approved for marketing by the FDA. Moreover, even after completion of a Phase III study, FDA may decline to approve the New Drug Application or Biologics License Application, as the case may be.
FDA REGULATION. The FDA closely regulates companies that sponsor clinical trials, that manufacture drugs or biologics that are being clinically tested or that manufacture approved products. The FDA may conduct an inspection of any Company facility and may take regulatory action if it believes that Company has violated the FD&C Act or PHS Act, including by way of example, issuing observational findings (FDA 483), issuing a Warning Letter, seizing products, placing a "hold" on an IND, revoking INDs, revoking approved NDAs or BLAs,
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
or criminally prosecuting the Company or its employees. During clinical testing phases, FDA may inspect to ensure, among other things, that the health and welfare of the patients enrolled in clinical studies are being appropriately protected, that all subjects have executed informed consent forms approved by an Institutional Review Board, and that the product is being manufactured in a way that ensures that it is not adulterated. Post approval surveillance by the FDA is equally rigorous.
FDA GOOD MANUFACTURING PRACTICES AND REPORTING. The FDA requires drug and biologics manufacturers to comply with Good Manufacturing Practices regulations. The regulations require that manufacturers comply with various quality control requirements pertaining to design controls, purchasing contracts, organization and personnel, including manufacturing process design, buildings, environmental control, cleaning and sanitation; equipment and calibration of equipment; drug or biologics components or raw materials; manufacturing specifications and processes; labeling and packaging; in-process and finished product inspection and acceptance; and record keeping requirements.
Employees
As of December 31, 2006, the Company has five full-time employees and four employees through a contract with TTUHSC. Outside consultants are employed as needed to provide various services. We rely heavily on personnel employed by TTUHSC who provide services to us under the Sponsored Research Agreement. In addition, we also employ outside consultants from time to time to provide various services. We have experienced good employee relations and are not and never have been a party to a collective bargaining agreement.
The Company’s Executive Officers are as follows:
|
NAME
|
AGE
|
POSITION
WITH COMPANY
|
|
Arthur
P. Bollon, Ph.D.
|
64
|
Chairman
of the Board of Directors, President and Chief Executive
Officer
|
|
Mark
J. Rosenblum, C.P.A.
|
53
|
Chief
Financial Officer and Secretary
|
|
Jan
Simoni, Ph.D., D.V.M.
|
56
|
Acting
Vice President and Principal Investigator of Research and Development
and
Advisor
|
|
Mario
Feola, M.D.
|
80
|
Chief
Medical Officer
|
ARTHUR BOLLON, PH.D., Since April 8, 2003, Dr. Bollon has served on a full-time basis as our Chairman, President and Chief Executive Officer. In 1991, Dr. Bollon was a founder of Cytoclonal Pharmaceutics, Inc., a publicly traded biopharmaceutical company, and served as Chairman, President and Chief Executive between 1991 and 2002. In 1987 Dr. Bollon was a founder of Wadley Biosciences Inc. / LPL, a joint venture between Wadley Institute and Phillips Petroleum, and served as Chairman, President and Chief Executive Officer from 1987 to 1991.
MARK J. ROSENBLUM, C.P.A., Mr. Rosenblum joined us as our Chief Financial Officer on April 1, 2005. From August 1985 through June 2003, Mr. Rosenblum was employed by Wellman, Inc., a public chemical manufacturer. Between 1996 and 2003, Mr. Rosenblum was the Chief Accounting Officer, Vice President and Controller at Wellman, Inc. Mr. Rosenblum is a certified public accountant.
JAN SIMONI, Ph.D., DVM, Dr. Simoni has served as our Acting Vice President and Principal Investigator of Research and Development since 2002, through a Sponsored Research Agreement with Texas Tech University, where he is employed. Dr. Simoni has also served as an Advisor since July, 2005. Since 1993, Dr. Simoni has served as the Blood Substitute Group Leader at TTUHSC and is an Associate Professor of Research in the Department of Surgery at TTUHSC, where Dr. Simoni co-invented HemoTech.
MARIO FEOLA, M.D., Dr. Feola has been our full-time Chief Medical Officer since November 1, 2004. From December 14, 2003 through October 31, 2004, Dr. Feola served as our Chief Medical Officer on a part-time basis. Dr. Feola has served as a Professor of Surgery at TTUHSC, where Dr. Feola co-invented HemoTech.
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
Risk Factors
You should consider the following matters when reviewing the information contained in this document. You also should consider the other information incorporated by reference in this document.
We are a development stage company with no revenues or profits.
We are in the development stage and, through December 31, 2006, have generated no sales revenue and have no prospects for revenue in the foreseeable future. We currently have no source of operating revenue and there can be no assurance that we will be able to develop any revenue source or that our operations will become profitable, even if we are able to commercialize any products. Further, as a development stage company, we have a limited relevant operating history on which an evaluation of our prospects can be made. Such prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a new business in the evolving, heavily regulated biotechnology industry, which is characterized by an increasing number of market entrants, intense competition and a high failure rate. In addition, significant challenges are often encountered by businesses shifting from developmental to commercial activities.
We have a history of losses and our future profitability is uncertain.
We have earned no revenue since our inception and have incurred a net loss of $8,136,000 from inception through December 31, 2006. We expect to continue to incur substantial losses and may not generate significant revenue, if any, for the foreseeable future. Our ability to generate revenue is dependent on obtaining additional financing for our planned operations. Our immediate planned operations for the next eight to ten months include the payment of our general and administrative expenses (including salaries, legal and other professional fees, consulting and advisory fees, the costs associated with making certain upgrades to the HemoTech production facility, to begin the production of HemoTech, including preparation of our U.S. IND application. We believe our available cash, cash equivalents and short-term investments of approximately $4,193,000 at December 31, 2006, will be sufficient to complete our immediate planned operations through the next twelve months, and possibly longer, based on a current monthly normalized cash burn rate of approximately $150,000).
Following completion of our U.S. IND application, the next stage of our planned operations will include submission of our U.S. IND application to the FDA, and upon approval, commencement and completion of our Phase I U.S. clinical trials. Additional operations will include further research and development of HemoTech and payment of operational and overhead expenses that we will incur during our Phase I U.S. clinical trials as well as preparation for Phase II clinical trials, assuming Phase I clinical trials are successful. In order to complete these additional planned operations, we will need to raise additional capital. If we fail to generate enough cash resources, either from future equity or debt sales, exercise of our remaining warrants or revenue, our ability to implement our business plan and complete these planned operations will be materially affected, and you may lose all or substantially all of your investment.
We are reliant on the success of a single product, which is in an early stage of product development and may never be successfully developed or, if successfully developed, may never become a viable marketable product.
We are a one product company, and if we fail to successfully develop this product we have no other products on which our business can be developed. There can be no assurance that our research and development activities will result in any commercially viable human blood substitute product. The development of our blood substitute product will be subject to the risks of failure inherent in the development of products based on innovative technologies and the expense and difficulty of obtaining regulatory approvals. Our human blood substitute product currently under development will require significant additional research and development and pre-clinical testing and clinical testing prior to submission of any regulatory application for commercial use. There can be no assurance that our research or product development efforts will be successfully completed, that our human blood substitute product currently under development will be successfully transformed into a marketable product, that required regulatory approvals can be obtained, that the product can be manufactured at acceptable cost in accordance with regulatory requirements or that any approved products can be successfully marketed or achieve customer acceptance. Additional risks include the possibility that:
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
| · |
our
proposed product will be found to be ineffective or toxic, or that,
if
safe and effective, will be difficult to manufacture on a large scale
or
uneconomical to market;
|
| · |
that
the proprietary rights of third parties will preclude our marketing
of our
proposed human blood substitute product;
and
|
| · |
third
parties will market superior or equivalent
products.
|
We depend on key personnel, and the loss of such personnel could significantly impair our ability to further develop HemoTech, implement our business plan or continue operations.
Our success depends on the continued contributions of our executive officers and scientific and technical personnel and consultants. We are particularly dependent on Arthur P. Bollon, Ph.D., our Chairman, President and Chief Executive Officer, Dr. Mario Feola, our Chief Medical Officer, and Dr. Jan Simoni, our Acting Vice President and Principal Investigator or Research and Development and Advisor. Drs. Feola and Simoni are the two principal TTUHSC researchers who developed HemoTech. Drs. Feola and Simoni continue to be the two main developers of HemoTech. Dr. Simoni is an employee of TTUHSC and his services are made available to us under our Sponsored Research Agreement with TTUHSC. Dr. Simoni's activities related to research and development, production, regulatory and clinical testing of HemoTech are covered under the Sponsored Research Agreement with TTUHSC, which may be terminated at any time by either party on 90 days' prior written notice.
We currently have five full-time employees including Drs. Bollon and Feola and Mr. Mark Rosenblum, our Chief Financial Officer. We have entered into an employment agreement with Dr. Bollon which expires in October 2009, and we have entered into an employment agreement with Dr. Feola, in which Dr. Feola agreed to serve as our Chief Medical Officer until such time as either party terminates Dr. Feola's employment agreement. We have also entered into an employment agreement with Mr. Rosenblum, which expires in April 2008. We do not maintain "key person" life insurance on the lives of any executive officer and their death or incapacity would have a material adverse effect on us. During our limited operating history, many of our key responsibilities have been assigned to a relatively small number of individuals. The competition for qualified personnel is intense, and the loss of services of certain key personnel could adversely affect our business, although we have not experienced problems attracting or retaining key personnel to date.
If our human blood substitute product offerings are not commercially successful, we will be unable to successfully generate revenue.
We expect a significant amount of our revenue to come from the production and distribution of human blood substitute products. The success of these offerings depends primarily on their acceptance by the public, the medical community, and other third-party consumers and payers, which is difficult to predict. The commercial success of a medical product depends on the availability of alternative forms of technology and general economic conditions and other tangible and intangible factors, all of which can change quickly. If we fail to produce human blood substitute products with broad medical industry appeal, we will be unable to successfully generate revenue.
The market for human blood substitute products is competitive and we may not be able to compete successfully against competitors that may have substantially more development, marketing and sales resources than we do.
The market for human blood substitute products is competitive, and there can be no assurance that we will be able to compete successfully in this market. We cannot be assured that some other competitive technology has not been, or will not be, developed by either government, academic or private entities. Any competing technology could make our technology either obsolete or of lesser value. Many of our competitors have greater financial, personnel and other resources than we have, which may limit our ability to compete effectively. See "Competition" above.
Although the proposed products of our main competitors have been rejected by the FDA, have been abandoned and are not yet ready to submit their applications to the FDA for approval of their products, many of these competitors are continuing to develop and test their respective products. There can be no assurance that one or all of these products may be approved by the FDA before HemoTech, to the extent HemoTech ever receives FDA approval.
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
In addition, our competitors also may generally be able to respond more quickly to new or emerging technologies or changes in regulatory requirements. These competitors may also:
| · |
benefit
from greater economies of scale;
|
| · |
offer
more aggressive pricing;
|
| · |
devote
greater resources to the promotion of their products;
and
|
| · |
be
better positioned to develop future
technologies.
|
We depend on, and will continue to depend on, collaboration with and licenses from third parties, and if we are not able to enter into such collaborations or licenses, or if these collaborations or licenses expire, terminate or fail, we may not be able to further develop HemoTech or implement our business plan without substantial additional expenditures and delays, if at all.
In addition to maintaining our collaborative relationship with TTUHSC, our strategy for the development, clinical testing, manufacturing and commercialization of our proposed human blood substitute product includes entering into various collaborations with corporate partners, licensors, licensees and other third parties in the future, and is dependent on the subsequent success of these third parties in performing their responsibilities. We intend to seek to enter into additional arrangements with other collaborators, although there can be no assurance that we will be able to enter into such collaborations and licenses, or, to the extent that we do, that such collaborations will be successful. Further, there can be no assurance that any future arrangements we may enter into will lead to the development of a human blood substitute product with commercial potential, that we will be able to obtain proprietary rights or licenses for proprietary rights with respect to any technology developed in connection with these arrangements or that we will be able to insure the confidentiality of any proprietary rights and information developed in such collaborative arrangements or prevent the public disclosure thereof.
In general, collaborative agreements provide that they may be terminated under certain circumstances. There can be no assurance that we will be able to extend any of our HemoTech collaborative agreements on their termination or expiration, or that we will be able to enter into new collaborative agreements with existing or new partners in the future. To the extent we choose not to or are unable to establish any additional collaborative arrangements, it would require substantially greater capital to undertake research, development and marketing of our proposed products into certain markets or find that the development, manufacture or sale of our proposed products in such markets is adversely affected by the absence of such collaborative agreements.
The FDA regulatory process is costly, lengthy and requires specific expertise, and even if we invest the time, money and other resources required to advance through the FDA approval process, we may never receive FDA approval of our only product, HemoTech.
We will rely initially on consultants with prior experience working with the FDA. We expect to hire experienced employees and consultants to analyze, prepare and present an IND application to the FDA. The process of obtaining regulatory approvals can be extremely costly and time-consuming and there is no guarantee of success. If we do not receive approval of our IND application, we will not be able to proceed with Phase I U.S. clinical testing. In addition, clinical testing is not predictable. Even if the FDA approves the IND application, we cannot guarantee that the FDA will approve our Phase I U.S. clinical results. Our failure to obtain required regulatory approvals would have a material adverse effect on our business, financial condition and results of operations and could require us to curtail or cease our operations.
The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic and diagnostic pharmaceutical and biological products through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these requirements typically takes several years or more and varies substantially based on the type, complexity and novelty of the product. The regulatory review may result in extensive delay in the regulatory approval process. Regulatory requirements ultimately imposed could adversely affect our ability to clinically test, manufacture or market potential products. Government regulation also applies to the manufacture and marketing of pharmaceutical and biological products.
The effect of government regulation may be to delay marketing of new products for a considerable period of time, to impose costly procedures on our activities and to furnish a competitive advantage to larger companies that compete with us. There can be no assurance that FDA or other regulatory approval for any products developed by us will be granted on a timely basis or at all. Any such delay in obtaining, or failure to obtain, such approvals would adversely affect the marketing of any contemplated products and the ability to earn
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
product revenue. Further, regulation of manufacturing facilities by state, local and other authorities is subject to change. Any additional regulation could result in limitations or restrictions on our ability to utilize any of our technologies, thereby adversely affecting our operations.
We may in the future need to raise additional capital to continue our business.
The Company estimates that it has sufficient funds to meet the costs of its immediate planned operations, including preparation and submission of its U.S. IND application, upgrades to the HemoTech production facility and covering expected general and administrative costs. To meet the costs of the next stage of its planned operations, including the cost of additional upgrades to the HemoTech production facility, commencing and completing Phase I U.S. clinical trials, conducting additional research and development of HemoTech as Phase I U. S. clinical trials progress, and paying for operational and overhead costs that will be incurred during Phase I U.S. trials, the Company will need to raise additional capital. It is likely that the Company will seek to meet these liquidity requirements through public or private equity offerings or debt financings. There can be no assurance that the Company will be able to secure additional financing or obtain favorable terms on such financing if it is available.
We plan to raise additional funds in the future by issuing additional shares of common stock or securities such as convertible notes, options, warrants or preferred stock that are convertible into common stock. Any such sale of common stock or other securities will lead to further dilution of the equity ownership of existing holders of our common stock.
We have no marketing experience, are dependent on third parties for marketing services, and we may never be able to successfully market HemoTech, even if it receives FDA approval.
We have no marketing and sales personnel and no experience with respect to marketing biochemical or pharmaceutical products. Significant additional expenditures and management resources would be required to develop an internal sales force, and there can be no assurance that such funds would be available. Further, there can be no assurance that, with such a sales force, we would be successful in penetrating the markets for any products developed. We will seek to enter a partnership to develop and market our product. Under certain of these agreements, our marketing partner may have the responsibility for all or a significant portion of the development and regulatory approval. In the event that the marketing and development partner fails to develop a marketable product or fails to market a product successfully, our business may be adversely affected. The sale of certain products outside the United States will also be dependent on the successful completion of arrangements with future partners, licensees or distributors in each territory. There can be no assurance that we will be successful in establishing any additional collaborative arrangements, or that, if established, such future partners will be successful in commercializing products.
We may be sued for product liability in the future, and since we currently maintain no product liability insurance, in the event of a successful suit against us, we may not be able to pay any awarded damages or, if we are able to do so, payment of any such awarded damages could significantly deplete our financial resources.
The use of our proposed HemoTech blood substitute product in clinical trials and the marketing of any product may expose us to product liability claims. We currently have no product liability insurance, but will, however, attempt to obtain such insurance prior to commencement of such trials, if any. We are required by our license agreement with TTUHSC to obtain such insurance. There can be no assurance that we will be able to obtain such insurance or, if obtainable, that such insurance can be acquired at a reasonable cost or will be sufficient to cover all possible liabilities. In the event of a successful suit against us, lack or insufficiency of insurance coverage could have a material adverse effect on us. Furthermore, certain distributors of pharmaceutical and biological products require minimum product liability insurance coverage as a condition precedent to purchasing or accepting products for distribution. Failure to satisfy such insurance requirements could impede our ability to achieve broad distribution of our proposed product, which would have a material adverse effect on our business and financial condition.
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
We currently use labs, equipment, personnel, research and development facilities and production facilities located at TTUHSC, and if we ever seek to or need to find or build alternate facilities, we may not be able to do so at all or, if we are, it will be costly and may cause significant delays in the development and commercialization of HemoTech, which could materially impair our operations.
We do not currently own, lease or operate any laboratory, research and development or manufacturing facilities. Our current plans include using labs, equipment, personnel and an upgraded blood substitute production facility located at TTUHSC for the production of HemoTech under our Sponsored Research Sgreement. After the completion of Phase II U.S. clinical trials for HemoTech, if any, our Sponsored Research Agreement with TTUHSC contemplates that we may establish independent manufacturing facilities either alone or through partnering. Establishing our own facilities would result in significant additional expenses and may result in potential delays in testing and production. Building and operating our own production facilities would require substantial additional funds and other resources of which there can be no assurance that we will be able to secure nor can there be any assurance that we would be able to enter into any arrangement with third parties to manufacture our product, if any, on acceptable terms or at all. Certain products outside the United States will also be dependent on the successful completion of arrangements with future partners, licensees or distributors in each territory. There can be no assurance that we will be successful in establishing any additional collaborative arrangements, or that, if established, such future partners will be successful in commercializing products.
Uncertainty over proposed health care reforms and whether the costs of using our proposed product will be reimbursed to consumer health insurance companies could cause our product to become unmarketable, which would result in our inability to generate revenue.
Our success in generating revenue from sales of our proposed HemoTech blood substitute product may depend, in part, on the extent to which reimbursements for the costs of such a product and related treatments will be available from government health administration authorities, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly-approved health care products. There can be no assurance that adequate third-party insurance coverage will be available for us to establish and maintain price levels sufficient for realization of an appropriate return on our investment in developing new products. Government and other third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new therapeutic and diagnostic products approved for marketing by the FDA and by refusing, in some cases, to provide any coverage of uses of approved products for disease indications for which the FDA has not granted marketing approval. If adequate coverage and reimbursement levels are not provided by government and third-party payors for uses of our product, then market acceptance of these products would be adversely affected.
Risks Related to Our Intellectual Property
Our success depends on our ability to protect our intellectual property.
We intend to protect our intellectual property through patents and trademarks. The patent positions of biotechnology companies generally are highly uncertain and involve complex legal and factual questions that will determine who has the right to develop a particular product or process. As a result, we cannot predict which of our patent applications will result in the granting of patents or the timing of the granting of the patents. Additionally, many of our competitors have significantly greater capital with which to pursue patent litigation. As of December 31, 2006, we have no threatened or pending intellectual property-related litigations, legal actions, investigations, court challenges, negotiations or similar activities. There can be no assurance that we would have the resources to defend our patents in the face of a lawsuit. Further, we rely on trade secrets, know-how and other proprietary information. We seek to protect this information, in part, through the use of confidentiality agreements with employees, consultants, advisors and others. Nonetheless, there can be no assurance that those agreements will provide adequate protection for our trade secrets, know-how or other proprietary information and prevent their unauthorized use or disclosure. There is also the risk that our employees, consultants, advisors or others will not maintain confidentiality of our trade secrets or proprietary information, or that this information may become known in some other way or be independently developed by our competitors. We may also be exposed to future litigation by third parties based on claims that our patents, products or activities infringe on the intellectual property rights of others or that we have misappropriated the trade secrets of others. Any litigation or claims against us, whether or not valid, could result in substantial costs, could place a significant strain on our financial and managerial resources, and could harm our reputation. In addition, intellectual property litigation or claims could force us to do one or more of the following, any of which could have a material adverse effect on us or cause us to curtail or cease our operations:
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
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cease
testing, developing, using and commercializing
HemoTech;
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| · |
obtain
a license from the holder of the infringed intellectual property
right,
which could also be costly or may not be available on reasonable
terms;
or
|
| · |
reformulate
HemoTech, which may be impossible or too
costly.
|
The patents underlying our sole product, HemoTech, may expire prior to our receipt, if ever, of FDA or foreign approval, to the extent such approval is granted at all.
We have obtained from TTUHSC exclusive worldwide rights to HemoTech under a U.S. patent issued in August 1995 as well as various foreign patents. The patent, U.S. Patent No. 5,439,882, entitled "Blood Substitute" and its foregoing counterparts claims various alternative compositions of the novel blood substitute based on hemoglobin of both bovine and human origin as well as methods for its production and use.
Protection under the U.S. patent expires on August 8, 2012, which may coincide with or even precede our receipt of FDA approval of HemoTech; to the extent FDA approval is granted at all. The Japanese patent and certain of the European patents may also expire on or after August 8, 2012. If the U.S. patent expires before we are able to commercialize our proposed HemoTech product, then we could utilize new potential patents related to HemoTech, such as the proposed pending erythropoiesis patent, seek commercial exclusivity for a defined time with the FDA and utilize our trade secrets for manufacturing and use of HemoTech. If we are unable to obtain additional patent coverage in advance of the time the existing patent expires or at all, and we fail to receive additional patents, then our competitive position and our ability to successfully commercialize or generate revenues from sales of HemoTech would be materially and adversely affected.
Risks related to Our Common Stock
The market price of our common stock has shown significant fluctuations which are attributed to a number of factors including:
| · |
variations
in our quarterly operating results;
|
| · |
changes
in general economic conditions and in the healthcare
industry;
|
| · |
changes
in market valuations of similar companies;
and
|
| · |
announcements
by us or our competitors of significant new contracts, acquisitions,
strategic partnerships or joint ventures, or capital
commitments .
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The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and that have often been unrelated to the operating performance of these companies. Any such fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. As a result, stockholders may be unable to sell their shares, or may be forced to sell them at a loss.
Anti-takeover, limited liability and indemnification provisions
Certificate of Incorporation and By-Laws
Under our certificate of incorporation, our Board of Directors may issue additional shares of common or preferred stock. Any additional issuance of common stock could have the effect of impeding or discouraging the acquisition of control of us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders would receive a premium over the market price for their shares, and thereby protects the continuity of our management. Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal was not in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover by:
| · |
diluting
the voting or other rights of the proposed acquirer or insurgent
stockholder group,
|
| · |
putting
a substantial voting block in institutional or other hands that might
undertake to support the incumbent Board of Directors,
or
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effecting
an acquisition that might complicate or preclude the
takeover.
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HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
Our certificate of incorporation also allows our Board of Directors to fix the number of directors in the By-laws. Cumulative voting in the election of directors is specifically denied in our certificate of incorporation. The effect of these provisions may be to delay or prevent a tender offer or takeover attempt that a stockholder may determine to be in his or its best interest, including attempts that might result in a premium over the market price for the shares held by the stockholders.
Delaware Anti-Takeover Law
We are subject to the provisions of Section 203 of the Delaware General Corporation Law concerning corporate takeovers. This section prevents many Delaware corporations from engaging in a business combination with any interested stockholder, under specified circumstances. For these purposes, a business combination includes a merger or sale of more than 10% of our assets, and an interested stockholder includes a stockholder who owns 15% or more of our outstanding voting stock, as well as affiliates and associates of these persons. Under these provisions, this type of business combination is prohibited for three years following the date that the stockholder became an interested stockholder unless:
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the
transaction in which the stockholder became an interested stockholder
is
approved by the Board of Directors prior to the date the interested
stockholder attained that status;
|
| · |
on
consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned
at
least 85% of the voting stock of the corporation outstanding at the
time
the transaction was commenced, excluding those shares owned by persons
who
are directors and also officers; or
|
| · |
on
or subsequent to that date, the business combination is approved
by the
Board of Directors and authorized at an annual or special meeting
of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder.
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This statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
HemoBioTech, Inc. Form 10-KSB for the Year Ended December 31, 2006
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