contract
manufacturers to produce any products we may eventually commercialize. If we
are not able to obtain contract manufacturing on commercially reasonable terms,
we may not be able to conduct or complete clinical trials or commercialize our
product candidates. We have identified multiple suppliers for most if not all
of the components of our drug product candidates, although we can provide no
assurance that these components will be available when needed on commercially
reasonable terms.
In
order to succeed, we ultimately will be required to either develop such manufacturing
capabilities or to outsource manufacturing on a long-term basis to third
parties. We can provide no assurance that third parties will be interested in
manufacturing our products on a timely basis, on commercially reasonable terms,
or at all. If we are unable to establish manufacturing capabilities either by
developing our own organization or by entering into agreements with others, we
may be unable to commercialize our products, which would have a material
adverse effect upon our business, prospects, financial condition, and results
of operations. Further, in the event that we are required to outsource these
functions on disadvantageous terms, we may be required to pay a relatively
large portion or our net revenue to these organizations, which would have a
material adverse effect upon our business, prospects, financial condition, and
results of operations.
We
have limited experience in conducting clinical trials.
Clinical
trials must meet FDA and foreign regulatory requirements. We have limited
experience in designing, conducting and managing the preclinical studies and
clinical trials necessary to obtain regulatory approval for our product
candidates in any country. We may encounter problems in clinical trials that
may cause us or the FDA or foreign regulatory agencies to delay, suspend or
terminate our clinical trials at any phase. These problems could include the
possibility that we may not be able to conduct clinical trials at our preferred
sites, enroll a sufficient number of patients for our clinical trials at one or
more sites or begin or successfully complete clinical trials in a timely
fashion, if at all. Furthermore, we, the FDA or foreign regulatory agencies may
suspend clinical trials at any time if we or they believe the subjects
participating in the trials are being exposed to unacceptable health risks or
if we or they find deficiencies in the clinical trial process or conduct of the
investigation. If clinical trials of any of the product candidates fail, we
will not be able to market the product candidate which is the subject of the
failed clinical trials. The FDA and foreign regulatory agencies could also
require additional clinical trials, which would result in increased costs and
significant development delays. Our failure to adequately demonstrate the
safety and effectiveness of a pharmaceutical product candidate under
development could delay or prevent regulatory approval of the product candidate
and could have a material adverse effect on our business, prospects, financial
condition, and results of operations.
We
are dependent upon third party suppliers of our raw materials.
We
are dependent on outside vendors for our entire supply of IgG. While we believe
that there are numerous sources of supply available, if the third party
suppliers were to cease production or otherwise fail to supply us with quality
IgG in sufficient quantities on a timely basis and we were unable to contract
on acceptable terms for these services with alternative suppliers, our ability
to produce our products and to conduct testing and clinical trials would be
materially adversely affected.
We
have limited senior management resources; we may be unable to effectively
manage growth with our limited resources.
We
expect the expansion of our business to place a significant strain on our
limited managerial, operational, and financial resources. We will be required
to expand our operational and financial systems significantly and to expand,
train, and manage our work force in order to manage the expansion of our
operations. Our failure to fully integrate our new employees into our
operations could have a material adverse effect on our business, prospects,
financial condition, and results of operations. Our ability to attract and
retain highly skilled personnel is critical to our operations and expansion.
We face competition for these types of personnel from other technology companies
and more established organizations, many of which have significantly larger
operations and greater financial, technical, human, and other resources than
we have. We may not be successful in attracting and retaining qualified personnel
on a timely basis, on competitive terms, or at all. If we are not successful
in attracting and retaining these personnel, our business, prospects, financial
condition, and results of operations will be materially adversely affected.
See
“
Management’s Discussion and Analysis of Financial Condition and Results of
Operations”, “Business – Strategy”, and “Business—Employees
”.
We
depend upon our senior management and skilled personnel and their loss or
unavailability could put us at a competitive disadvantage.
We
currently depend upon the efforts and abilities of our senior executives, as well
as the services of several key consultants and other key personnel. The loss or
unavailability of the services of any of these individuals for any significant
period of time could have a material adverse effect on our business, prospects,
financial condition, and results of operations. In addition, recruiting and
retaining qualified scientific personnel to perform future research and
development work will be critical to our success. There is currently a shortage
of employees with expertise in our areas of research and clinical and
regulatory affairs, and this shortage is likely to continue. Competition for
skilled personnel is intense and turnover rates are high. Our ability to
attract and retain qualified
11
personnel may
be limited. Our inability to attract and retain qualified skilled personnel
would have a material adverse effect on our business, prospects, financial
condition, and results of operations.
Fulfilling our obligations
incident to being a public company will be expensive and time consuming.
As
a public company, the Sarbanes-Oxley Act of 2002 and the related rules
and regulations of the SEC, requires us to implement additional corporate
governance practices and adhere to a variety of reporting requirements
and complex accounting rules. Compliance with these public company obligations
increases our legal and financial compliance costs and places significant
additional demands on our finance and accounting staff and on our financial,
accounting and information systems.
In
particular, as a public company, our management will be required to conduct
an annual evaluation of our internal controls over financial reporting
and include a report of management on our internal controls in our annual
reports on Form 10-KSB. Under current rules, we will be subject to this
requirement beginning with our annual report on Form 10-KSB for our fiscal
year ending September 30, 2008. In addition, we will be required to have
our independent public accounting firm attest to and report on management’s
assessment of the effectiveness of our internal controls over financial
reporting. Under current rules, we will be subject to this requirement
beginning with our annual report on Form 10-KSB for our fiscal year ending
September 30, 2009. If we are unable to conclude that we have effective
internal controls over financial reporting or, if our independent auditors
are unable to provide us with an attestation and an unqualified report
as to the effectiveness of our internal controls over financial reporting,
investors could lose confidence in the reliability of our financial statements,
which could result in a decrease in the value of our common stock.
Because
we will not pay cash dividends, investors may have to sell shares in order to realize
their investment.
We
have not paid any cash dividends on our common stock and do not intend to pay
cash dividends in the foreseeable future. We intend to retain future earnings,
if any, for reinvestment in the development and expansion of our business. Any
credit agreements which we may enter into with institutional lenders or
otherwise may restrict our ability to pay dividends. Whether we pay cash
dividends in the future will be at the discretion of our board of directors and
will be dependent upon our financial condition, results of operations, capital
requirements, and any other factors that the board of directors decides is
relevant. See “
Dividend Policy” and “Description of Securities — Common
Stock
”.
Risks
Related to Our Industry
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. We may be unable
to compete with more substantial enterprises.
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. As a result, our
actual or proposed products could become obsolete before we recoup any portion
of our related research and development and commercialization expenses. Our
industries are highly competitive, and this competition comes both from
biotechnology firms and from major pharmaceutical and chemical companies.
Many of these companies have substantially greater financial, marketing,
and human resources than we do (including, in some cases, substantially greater
experience in clinical testing, manufacturing, and marketing of pharmaceutical
products). We also experience competition in the development of our products
from universities and other research institutions and compete with others
in acquiring technology from such universities and institutions. In addition,
certain of our products may be subject to competition from products developed
using other technologies. See “
Business – Competition
”.
The
industry in which we operate is highly competitive.
Numerous
well-known companies, which have substantially greater capital, research and
development capabilities and experience than we have, are presently engaged in
the research and development efforts with respect to our target indications. By
virtue of having or introducing competitive products on the market before us,
these entities may gain a competitive advantage. Further future technological
developments may render some or all of our current or future products
noncompetitive or obsolete, and we may not be able to make the enhancements to
our products necessary to compete successfully with newly emerging
technologies. If we are unable to successfully compete in our chosen markets,
our business prospects, financial condition, and results of operations would be
materially adversely affected. See “
Business — Competition
”.
The
government regulatory approval process is time consuming and expensive.
To
date, we have not submitted a marketing application for any product candidate
to the FDA or any foreign regulatory agency, and none of our product candidates
have been approved for commercialization in any country. Prior to
commercialization, each product candidate will be subject to an extensive and
lengthy governmental regulatory approval process in the United States and in
other countries. We may not be able to obtain regulatory approval for any
product candidate we develop or, even if approval is obtained, the labeling for
such products may place restrictions on their use that could materially impact
the marketability and profitability of the product subject to such
restrictions. We have limited experience in designing, conducting and managing
the clinical testing necessary to obtain such regulatory approval. Satisfaction
of these regulatory requirements, which includes satisfying the FDA and foreign
regulatory authorities that the product is both safe and effective for its
intended therapeutic uses, typically takes several years depending upon the
type, complexity and novelty of the product and requires the expenditure of
substantial resources.
Any
manufacturer to produce our products will be required to comply with extensive
government regulation.
Before
we can begin to commercially manufacture any of our product candidates, we must
either secure manufacturing in an approved manufacturing facility or obtain
regulatory approval of our own manufacturing facility and processes. In
addition, the manufacturing of our product candidates must comply with cGMP
and/or other requirements of the FDA and requirements by regulatory agencies in
other countries. These requirements govern, among other things, quality control
and documentation procedures. We or any third-party manufacturer of our product
candidates, may not be able to comply with these requirements, which would
prevent us from selling such products. Material changes to the manufacturing
processes of our products after approvals have been granted are also subject to
review and approval by the FDA or other regulatory agencies.
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The commercial success of any newly-introduced pharmaceutical product
depends in part upon the ability of patients to obtain adequate
reimbursement.
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If
we succeed in bringing our product candidates to market, they may not be
considered cost-effective, and coverage and adequate payments may not be
available or may not be sufficient to allow us to sell our products on a
competitive basis. In both the United States and elsewhere, sales of medical
products, diagnostics, and therapeutics are dependent, in part, on the
availability of reimbursement from third party payors, such as health
maintenance organizations and other private insurance plans and governmental
programs such as Medicare. Third party payors are increasingly challenging the
prices charged for pharmaceutical products and services. We anticipate that our
business will be affected by the efforts of government and third party payors
to contain or reduce the cost of health care through various means. In the
United States, there have been and will continue to be a number of federal and
state proposals to implement government controls on pricing. Similar government
pricing controls exist in varying degrees in other countries. In addition, the
emphasis on managed care in the United States has increased and will continue
to increase the pressure on the pricing of pharmaceutical products. We cannot
predict whether any legislative or regulatory proposals will be adopted or the
effect these proposals or managed care efforts may have on our business.
Risks Related to this Offering
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In recent years, the stock market in general has experienced periodic
price and volume fluctuations. This volatility has had a significant effect
on the market price of securities issued by many companies for reasons often
unrelated to their operating performance. These broad market fluctuations may
adversely affect our stock price, regardless of our operating results. As the
market price of our common stock may fluctuate significantly, it may be
difficult for you to resell your shares of common stock when you want or at
prices you find attractive.
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The
price of the common stock is quoted on the OTCBB and constantly changes. We
expect that the market price of the common stock will continue to fluctuate.
These fluctuations may result from a variety of factors, many of which are
beyond our control. These factors include:
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quarterly
variations in our financial results;
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operating
results that vary from the expectations of management, securities analysts
and investors;
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changes in
expectations as to our business, prospects, financial condition, and results
of operations;
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announcements
by us, our partners or our competitors of material developments;
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the
operating and securities price performance of other companies that investors
believe are comparable to us;
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future sales
of our equity or equity-related securities;
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changes in
general conditions in our industry and in the economy, the financial markets
and the domestic or international political situation;
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departures
of key personnel; and
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regulatory
considerations.
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As a result of
these fluctuations, you may experience difficulty selling shares of our common
stock when desired or at acceptable prices.
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Future sales of common stock or the issuance of securities senior to
the common stock or convertible into, or exchangeable or exercisable for,
common stock could materially adversely affect the trading price of the
common stock, and our ability to raise funds in new equity offerings.
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Future
sales of substantial amounts of our common stock or other equity-related
securities in the public market or privately, or the perception that such sales
could occur, could adversely affect prevailing trading prices of our common
stock and could impair our ability to raise capital through future offerings of
equity or other equity-related securities. We can make no prediction as to the
effect, if any, that future sales of shares of common stock or equity-related
securities, or the availability of shares of common stock for future sale, will
have on the trading price of our common stock.
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If penny stock regulations impose restrictions on the marketability
of our common stock, the ability of our stockholders to sell shares of our
stock could be impaired.
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The
Commission has adopted regulations that generally define a “penny stock” to be
an equity security that has a market price of less than $5.00 per share or an
exercise price of less than $5.00 per share subject to certain exceptions.
Exceptions include equity securities issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for more than three years, or (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require that prior to
any transaction involving a penny stock, and a risk disclosure schedule must be
delivered to the buyer explaining the penny stock market and its risks. Our
common stock currently trades on a limited basis. Although we believe that we
currently fall under one of the exceptions, if at a later time we fail to meet
one of the exceptions, our common stock will be considered a penny stock. As
such the market liquidity for the common stock will be limited to the ability
of broker-dealers to sell it in compliance with the above-mentioned disclosure
requirements.
You
should be aware that, according to the Commission, the market for penny stocks
has suffered in recent years from patterns of fraud and abuse. Such patterns
include:
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Control of
the market for the security by one or a few broker-dealers;
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“Boiler
room” practices involving high-pressure sales tactics;
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Manipulation
of prices through prearranged matching of purchases and sales;
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The release
of misleading information;
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Excessive
and undisclosed bid-ask differentials and markups by selling broker-dealers;
and
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Dumping of
securities by broker-dealers after prices have been manipulated to a desired
level, which hurts the price of the stock and causes investors to suffer loss.
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We
are aware of the abuses that have occurred in the penny stock market. Although
we do not expect to be in a position to dictate the behavior of the market or
of broker-dealers who participate in the market, we will strive within the
confines of practical limitations to prevent such abuses with respect to our
common stock.
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The market for the common stock may suffer in the event of delisting
from OTCBB or if our common stock is “penny stock”.
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If
our common stock were delisted from the OTCBB or no exclusion from the
definition of a “penny stock” under the Securities Exchange Act of 1934, as
amended, were available, our common stock could be subject to the penny stock
rules that impose additional sales practice requirements on broker-dealers who
sell these securities to persons other than established customers and
accredited investors. Accredited investors are generally those investors with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 together with a spouse. For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase,
and must have received the purchaser’s written consent to the transaction prior
to sale. As a result, delisting, if it were to occur, could materially
adversely affect the ability of broker-dealers to sell our common stock and the
ability of purchasers to sell their shares in the secondary market.
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Future sales of common stock by our existing stockholders could
adversely affect our stock price.
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The
market price of our common stock could decline as a result of sales of a large
number of shares of our common stock in the market after this offering, or
the perception that these sales could occur. These sales also might make
it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate. Immediately after the effectiveness
under the Securities Act of the registration statement of which this prospectus
forms a part, we will have outstanding 44,958,917 shares of common stock.
Of these shares, 43,978,916 shares, including 5,000,000 of the shares being
offered in this offering, will be freely tradable (subject to the lock-up agreements). Giving effect to the exercise
in full of the Warrants, immediately after the commencement of this offering,
we would have outstanding 61,208,917 shares of common stock. This leaves
980,001 shares ineligible for sale in the public market. Without giving
effect to the exercise in full of the Warrants, the number of shares of common
stock and the dates when these shares will become freely tradable in the
market, subject to the lock-up agreements, is as follows:
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Number of
Shares
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Date
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43,978,916
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On the date
of this prospectus
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43,978,916
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Within six
months of the date of this prospectus
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43,978,916
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Between six
and twelve months from the date of this prospectus
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The
holders of the Warrants are entitled to the registration of the resale of the
shares of common stock issuable upon the exercise of the Warrants following the
effectiveness of the registration statement of which this prospectus forms a
part, subject to limitations established by the Securities and Exchange
Commission.
Some
of our stockholders, holding approximately 1,333,332 shares of common stock,
have the right, subject to a number of conditions and limitations, to include
their shares in registration statements relating to our securities. By
exercising their registration rights and causing a large number of shares to be
registered and sold in the public market, these holders may cause the market
price of the common stock to fall. In addition, any demand to include these
shares in our registration statements could have an adverse effect on our
ability to raise needed capital. In connection with the 2007 Private Placement,
directors, officers, employees, consultants and certain stockholders
beneficially owning in the aggregate 16,030,013 shares of common stock, agreed
to restrict their ability to dispose of their shares of common stock or common
stock equivalents until the first anniversary of the effective date under the
Securities Act of the registration statement of which this prospectus forms a
part. See “Principal and Management Stockholders”, and “Plan of Distribution”.
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Our issuance of warrants and options to investors, employees and
consultants and the registration rights for the underlying shares of common
stock may have a negative effect on the trading prices of our common stock as
well as a dilutive effect.
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We
have issued and may continue to issue warrants and options at or below the
current market price. As of September 30, 2007, we had 25,062,558
outstanding warrants and options (25,197,558 as of December 31,
2007) granted to investors employees and consultants. In addition to the
dilutive effect of a large number of shares and a low exercise price for
the warrants and options, there is a potential that a large number of underlying
shares may be sold in the open market at any given time, which could place
downward pressure on the trading of our common stock.
Risks Related to conducting Business in
Israel
We
are affected by the political, economic, and military risks of locating our
principal operations in Israel.
Our
operations are located in the State of Israel, and we are directly affected by
political, economic, and military conditions in that country. Since December
1987, the State of Israel has experienced severe civil unrest primarily in the
areas that have been under its control since 1967. No prediction can be made as
to whether these problems will be resolved. Our business, prospects, financial
condition, and results of operations could be materially adversely affected if
major hostilities involving Israel should occur or if trade between Israel and
its current trading partners is interrupted or curtailed.
All
adult male permanent residents of Israel under the age of 51, unless exempt,
may be required to perform between 14 and 40 days of military reserve duty
annually. Additionally, all such residents are subject to being called to
active duty at any time under emergency circumstances. Some of our officers,
directors, and employees currently are obligated to perform annual military
reserve duty. We can provide no assurance that such requirements will not have
a material adverse effect on our business, prospects, financial condition, and
results of operations in the future, particularly if emergency circumstances
occur.
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Because some of our officers and directors are located in non-U.S.
jurisdictions, you may have no effective recourse against the management for
misconduct and may not be able to enforce judgment and civil liabilities
against our officers, directors, experts and agents.
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Many
of our directors and officers are nationals and/or residents of countries other
than the United States, and all or a substantial portion of their assets are
located outside the United States. As a result, it may be difficult for
investors to enforce within the United States any judgments obtained against
our officers or directors, including judgments predicated upon the civil
liability provisions of the securities laws of the United States or any U.S.
state.
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