Item 1A. Risk Factors
Our business is subject to numerous risks. You should carefully consider the risks described below, as well as the other information in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and “Management’s discussion and analysis of financial condition and results of operations,” and in our other filings with the Securities and Exchange Commission. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations .
Risks related to our recently announced Dissolution
We cannot predict the timing of distributions, if any, to our stockholders.
Our current intention is that, if approved by our stockholders, a Certificate of Dissolution would be filed promptly after such approval however, the decision of whether or not to proceed with the Dissolution will be made by our Board of Directors, or the Board, in its sole discretion. No further stockholder approval would be required to effect the Dissolution. However, if the Board determines that the Dissolution is not in our best interest or the best interest of our stockholders, the Board may, in its sole discretion, abandon the Dissolution or may amend or modify the Plan of Dissolution to the extent permitted by Delaware law without the necessity of further stockholder approval. After the Certificate of Dissolution has been filed, revocation of the Dissolution would require stockholder approval under Delaware law.
Under Delaware law, before a dissolved corporation may make any distribution to its stockholders, it must pay or make reasonable provision to pay all of its claims and obligations, including all contingent, conditional or unmatured contractual claims known to the corporation. Furthermore, we may be subject to potential liabilities relating to indemnification obligations, if any, to third parties or to our current and former officers and directors. It might take significant time to resolve these matters, and as a result we are unable to predict the timing of distributions, if any are made, to our stockholders.
If our stockholders do not approve the Dissolution proposal, we would not be able to continue our business operations.
On November 2, 2022, we announced that, in light of our financial condition and the early stage of our programs, our Board had approved a plan to review strategic alternatives, including a sale or merger of the Company or one or more sales of our assets, and to significantly and immediately reduce our operations (which we refer to herein as the “strategic plan”). In connection with the strategic plan, we terminated all but a core team of individuals to lead the strategic review process, and most individuals that remain are doing so on a part-time and consulting basis. While the strategic plan resulted in the sale of our Smithfield, Rhode Island manufacturing facility and certain related fixtures and personal property, for an aggregate purchase price of $18.5 million, we have been unable to identify a merger partner or purchaser of our Company or most of our other assets. If our stockholders do not approve the Dissolution proposal, the Board will continue to explore what, if any, alternatives are available for the future of the Company in light of its discontinued business activities; however, those alternatives are likely limited to seeking voluntary dissolution at a later time with potentially diminished assets, seeking bankruptcy protection (should our net assets decline to levels that would require such action) or investing our cash in another operating business. It is unlikely that these alternatives would result in greater stockholder value than the proposed Plan of Dissolution and the Dissolution.
The Board may determine not to proceed with the Dissolution.
Even if the Dissolution proposal is approved by our stockholders, the Board may determine in its sole discretion not to proceed with the Dissolution. If our Board elects to pursue any alternative to the Plan of Dissolution, our stockholders may not receive any of the funds that might otherwise be available for distribution to our stockholders. After the Certificate of Dissolution has been filed, revocation of the Dissolution would require stockholder approval under Delaware law.
Risks related to our financial condition and capital requirements
We do not currently have sufficient working capital to fund our planned operations for the next twelve months and may not be able to continue as a going concern, and our cash has been significantly depleted by our payoff of the SLR loan and other obligations. Further, we have recently announced that the Board unanimously approved the Dissolution of the Company pursuant to a Plan of Dissolution.
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As of February 27, 2023, the issuance date of the consolidated financial statements, there is substantial doubt about our ability to continue as a going concern, as we currently do not have adequate financial resources to fund our forecasted operating costs for at least twelve months from the filing of this Annual Report on Form 10-K. As of December 31, 2022, we have incurred a cumulative deficit of $856.7 million. For the years ended December 31, 2022, 2021, and 2020, we reported net losses of $179.7 million, $196.5 million, and $167.7 million, respectively. In addition, during the years ended December 31, 2022, 2021, and 2020, we used $137.2 million, $63.8 million and $27.2 million in operating and investing activities, respectively, resulting in a cash and cash equivalents balance of $14.9 million, $225.8 million, and $176.3 million as of December 31, 2022, 2021, and 2020, respectively. As a result, our existing cash resources are not sufficient to meet our anticipated needs over the next twelve months from the date hereof, even after taking into account our significantly reduced operations, and we would need to raise additional capital to continue our operations, which capital is unlikely to be available on favorable terms or at all.
Our operating history and near-term forecast of incurring net losses and negative operating cash flows raise substantial doubt about our ability to continue as a going concern. Our cash position has required us to significantly reduce our operations and liquidate certain assets to remain afloat.
As previously announced, on February 20, 2023, following the conclusion of our review of strategic alternatives, our Board unanimously approved the dissolution and liquidation of Rubius, pursuant to a Plan of Dissolution, which plan is subject to stockholder approval. We intend to call a special meeting of the stockholders to seek approval of the Plan of Dissolution. We plan to file a preliminary proxy statement relating to the special meeting with the SEC, and to subsequently file and provide stockholders with a definitive proxy statement, as soon as practicable.
The Company cautions that trading in the Company’s securities is highly speculative and poses substantial risks. Trading prices for the Company’s securities may bear little or no relationship to the actual value realized, if any, by holders of the Company’s securities. Accordingly, the Company urges extreme caution with respect to existing and future investments in its securities.
We have significantly reduced our employee base and operations.
In September 2022, we announced a corporate restructuring that resulted in a 75% reduction in workforce and refocused our efforts on preclinical research and platform development. In November 2022, we announced the strategic plan, significantly further reducing our operations and personnel and shifting our focus to a review of strategic alternatives. Following these restructurings and further headcount downsizing in January 2023, as of January 31, 2023, we had only six full-time employees, each focused on reviewing and, if appropriate, pursuing strategic alternatives.
As discussed more fully elsewhere in this Annual Report, our Board of Directors recently approved the Dissolution of the Company pursuant to the Plan of Dissolution. In connection therewith, our employee base has been further reduced. Going forward, any remaining employees will be engaged to facilitate the wind-down of the Company.
We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future .
Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in 2013. For the years ended December 31, 2022, 2021, and 2020, we reported net losses of $179.7 million, $196.5 million, and $167.7 million, respectively. As of December 31, 2022, we had an accumulated deficit of $856.7 million. Further, our cash resources have been significantly depleted, including $75.7 million used to extinguish our long-term debt and satisfy our obligations under the loan and security agreement with SLR Investment Corp. As noted elsewhere in this report, there is substantial doubt as to our ability to fund our planned operations for the next twelve months and to continue to operate as a going concern. As previously announced, on February 20, 2023, following the conclusion of our review of strategic alternatives, our Board of Directors unanimously approved the Dissolution pursuant to the Plan of Dissolution, which plan is subject to stockholder approval.
Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital and may result in holders of our common stock and other securities suffering a total loss of their investment.
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Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
Our results of operations and general business strategy could be adversely affected by general conditions in the global economy and in the global financial markets. In the past several years, global credit and financial markets have experienced volatility, instability and disruptions, including as a result of the ongoing COVID-19 pandemic. From time to time, this volatility, instability and disruption has caused, and may cause in the future, severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. For example, since early 2020, the coronavirus, or COVID-19, pandemic has caused disruption in the financial markets both globally and in the United States. While certain negative effects of the ongoing COVID-19 pandemic have lessened as vaccines are distributed and administered and prevention and treatment methods improve, there have been and may continue to be resurgences of cases, including as a result of the emergence of variants that may be more contagious or more resistant to the vaccine and treatment options available, placing renewed and prolonged strain on both health care facilities and our workforce. Given the inter-connectivity of the global economy, pandemic disease and health events have the potential to continue to negatively impact economic activities in many countries, including the United States. The ongoing spread of the coronavirus, including variants thereof and resurgences in geographies experiencing some relief, could have a negative material impact on our business, prospects, financial condition and results of operations of the Company.
In addition, our results of operations and financial condition may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions.
As of December 31, 2022, we had cash and cash equivalents of $14.9 million. While we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents since December 31, 2022, no assurance can be given that further deterioration of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.
Changes in tax law could adversely affect our business and financial condition.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect our business. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. We urge investors to consult with their legal and tax advisers regarding the implications of potential changes in tax laws on an investment in our common stock.
The amount of and our ability to use net operating losses and research and development credits to offset future taxable income may be subject to certain limitations and uncertainty .
As of December 31, 2022, we had federal and state net operating loss, or NOL, carryforwards of $584.8 million and $583.6 million, respectively, which may be available to offset future taxable income. The federal NOLs include $37.2 million which expire at various dates through 2037 and $547.6 million which carryforward indefinitely. The state NOLs expire at various dates through 2041. As of December 31, 2022, we also had federal and state research and development tax credit carryforwards of $29.5 million and $19.9 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2034 and 2026, respectively.
Federal NOLs generated in taxable years after December 31, 2017 generally may not be carried back to prior taxable years, and while such federal NOLs generated in taxable years beginning after December 31, 2017 will not be subject to expiration, the deduction for such NOL in any taxable year will be limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. However, the Coronavirus Aid, Relief and Economic Security Act repeals the 80% limitation on the utilization of such federal NOLs generated in taxable years beginning after December 31, 2017 and beginning before January 1, 2021 and allows for federal NOLs generated in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried back to each of the five taxable years preceding the taxable year in which the loss arises. It is uncertain whether this change in law temporarily allowing for the carryback of federal NOLs will produce any material benefit for our business.
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In addition, in general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs or tax credits, or NOLs or credits (including federal research and development tax credits), to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Our existing NOLs or credits may be subject to limitations arising from previous ownership changes, including in connection with our earlier private placements, IPO, our previous underwritten offering and other transactions. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code and limit our ability to utilize our NOLs and our credits. Our NOLs or credits may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or credits. Furthermore, our ability to utilize our NOLs or credits is conditioned upon our attaining profitability and generating U. S. federal and state taxable income. As described above under this section captioned “Risk factors—Risks related to our financial condition and capital requirements,” we have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; and therefore, we do not know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our NOLs or credits that are subject to limitation by Sections 382 and 383 of the Code.
Risks related to our intellectual property
If we are unable to obtain and maintain patent protection for any intellectual property we have developed, third parties could develop and commercialize products or technology similar or identical to our inventions, and our ability to successfully monetize any product candidates or technologies we have developed may be adversely affected.
The value of our intellectual property portfolio depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our product discoveries, RED PLATFORM and other technologies we have developed. We have sought to protect our proprietary position by in-licensing intellectual property and filing patent applications in the United States and abroad relating to our product discoveries, RED PLATFORM and other technologies. Given that the development of our technology and product discoveries is at an early stage, our intellectual property portfolio with respect to certain aspects of our technology and product discoveries is also at an early stage.
With respect to our patent portfolio, as of January 31, 2023, most of the patent rights that we own or in-license are currently pending patent applications, except that we own 15 issued U.S. patents and we have five in-licensed U.S. patents. With respect to both in-licensed and owned intellectual property, we cannot predict whether the patent applications we and our licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from third parties.
We have filed patent applications directed to the composition of matter of our product discoveries and various processes of our RED PLATFORM; however, there can be no assurance that any such patent applications will issue as granted patents. Furthermore, in some cases, we have only filed provisional patent applications on certain aspects of our technology and product discoveries and each of these provisional patent applications is not eligible to become an issued patent until, among other things, we file a non-provisional patent application within 12 months of the filing date of the applicable provisional patent application. Any failure to file a non-provisional patent application within this timeline could cause us to lose the ability to obtain patent protection for the inventions disclosed in the associated provisional patent applications.
Composition of matter patents for biological and pharmaceutical products are generally considered to be the strongest form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. Although we have secured issued United States composition of matter patents related to our former product candidates RTX-240, RTX-321 and RTX-224, we cannot be certain that the claims in our pending patent applications covering the composition of matter of all of our product discoveries will be considered patentable by the United States Patent and Trademark Office, or the USPTO, or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered valid and enforceable by courts in the United States or foreign countries. Furthermore, in some cases, we may not be able to obtain issued claims covering compositions of matter relating to our product discoveries, RED PLATFORM and other technologies, and instead may need to rely on patent applications with claims covering a method of use and/or method of manufacture. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a third party from making and marketing a product that is identical to our invention for an indication that is outside the scope of the patented method. Moreover, even if third parties do not actively promote their products for our targeted indications, physicians may prescribe these products “off-label” for those uses that are covered by our method of use patents. Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.
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There can be no assurance that any such patent applications will issue as granted patents, and even if they do issue, such patent claims may be insufficient to prevent third parties from utilizing our technology. Any failure to obtain or maintain patent protection with respect to our product discoveries and RED PLATFORM could have a material adverse effect on the value of our intellectual property portfolio and on our financial condition, results of operations, and prospects.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved. There is no assurance that all potentially relevant prior art relating to our patents and patents applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents successfully issue, and even if such patents cover our inventions, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product discoveries, or prevent others from designing around our claims. Additionally, the patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patents and patent applications at a reasonable cost or in a timely manner. Any of these outcomes could have an adverse impact on the value of our intellectual property portfolio.
Our rights relating to our product discoveries and RED PLATFORM are subject, in part, to the terms and conditions of licenses granted to us by others.
We have relied upon licenses to certain patent rights and proprietary technology from third parties that have been important or necessary to the development of our product discoveries and RED PLATFORM. For example, under our license agreement with the Whitehead Institute for Biomedical Research, or WIBR, as amended (the "WIBR License"), WIBR grants us an exclusive, worldwide, sublicensable license under four patent families to research, develop, make, and commercialize products and processes covered by such patent rights for all uses. The portfolio of patent rights licensed to us under the WIBR License is directed, in part, to the in vitro production of red blood cells, including the use of the enzyme sortase to conjugate a protein of interest to the cell surface. Patent rights that we in-license may be subject to a reservation of rights by one or more third parties. For example, our in-licensed patent rights from WIBR under the WIBR License were funded in part by the U.S. government. As a result, the U.S. government may have certain rights to such intellectual property. Furthermore, pursuant to a Defense Advanced Research Projects Agency Agreement between WIBR and a global biopharmaceutical company, the biopharmaceutical company funded research resulting in one of the patent families licensed to us under the WIBR License and retained a worldwide, irrevocable, non-exclusive, royalty-free right to use the inventions and technologies covered by this patent family for research and development purposes.
WIBR also retains the right with respect to all four patent families licensed to us to (i) to practice the patent rights licensed under the agreement for research, teaching and educational purposes, including sponsored research and collaboration, and (ii) to grant non-exclusive licenses to academic and not-for-profit research institutes to practice under the patent rights for research, teaching and educational purposes (excluding sponsored research), while Tufts University, or Tufts, which co-owns certain of our in-licensed patent rights with WIBR, retains such rights only with respect to the patent family that it co-owns.
Further, our licensors may co-own the patent rights we in-license with other third parties with whom we do not have a direct relationship. Our exclusive rights to certain of these patent rights are dependent, in part, on inter-institutional or other operating agreements between the joint owners of such patent rights, who are not parties to our license agreements. For example, under the WIBR License, we license certain patents rights co-owned by WIBR and Tufts. Our rights to Tufts’ interest in such patent rights depends on an inter-institutional agreement between WIBR and Tufts, pursuant to which WIBR controls the licensing of such patent rights. If our licensors do not have exclusive control of the grant of licenses under any such third-party co-owners’ interest in such patent rights or we are otherwise unable to secure such exclusive rights, such co-owners may be able to license their rights to other third parties, who could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patent rights in order to enforce such patent rights against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on the value of our intellectual property portfolio, and on our financial conditions, results of operations, and prospects.
In addition, subject to the terms of any such license agreements, we may not have the right to control the preparation, filing, prosecution and maintenance, and we may not have the right to control the enforcement, and defense of patents and patent applications covering the technology that we license from third parties. For example, under the WIBR License, WIBR controls prosecution of the patent rights licensed to us, and we control enforcement of the patent rights. We cannot be certain that our in-licensed patent applications (and any patents issuing therefrom) that are controlled by our licensors will be prepared, filed, prosecuted, maintained, enforced, and defended in a manner consistent with our best interests. If our
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licensors fail to prosecute, maintain, enforce, and defend such patents rights, or lose rights to those patent applications (or any patents issuing therefrom), the rights we have licensed may be reduced or eliminated, the right to exploit any of our product discoveries and RED PLATFORM technologies that are the subject of such licensed rights could be adversely affected, and it may not be possible to prevent third parties from making, using and selling competing inventions. Moreover, we cannot be certain that such activities by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. In addition, even where we have the right to control patent prosecution of patents and patent applications we have licensed from third parties, we may still be adversely affected or prejudiced by actions or inactions of our licensors and their counsel that took place prior to the date upon which we assumed control over patent prosecution. Finally, subject to the terms of any such license agreements, the licensor may be able to terminate the license without our consent, as further described below.
If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose important license rights.
The WIBR License imposes various development, diligence, commercialization, and other obligations on us in order to maintain the licenses. WIBR may terminate the WIBR License upon written notice to us if we, along with our affiliates and sublicensees, cease to carry on business related to the WIBR License for more than six months. WIBR may also terminate the WIBR License for our material breach that remains uncured for sixty days after receiving notice thereof, if we fail to pay amounts due under the agreement within thirty days after receiving notice of such failure, or if we challenge the validity or enforceability of any of the licensed patent rights. In spite of our efforts, WIBR or a future licensor might conclude that we have materially breached our obligations under such license agreements and seek to terminate the license agreements, thereby removing or limiting the ability to exploit the intellectual property covered by these license agreements. If these in-licenses are terminated, or if the underlying patent rights licensed thereunder fail to provide the intended exclusivity, third parties would have the freedom to seek regulatory approval of, and to market, products and technologies identical to our product discoveries and/or RED PLATFORM technologies. Any of the foregoing could have a material adverse effect on the value of our intellectual property portfolio and on our financial conditions, results of operations, and prospects.
Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including:
• the scope of rights granted under the license agreement and other interpretation-related issues;
• the extent to which a licensee’s technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
• the sublicensing of patent and other rights that are the subject of the licensing agreement;
• the licensee’s diligence obligations under the license agreement and what activities satisfy those diligence obligations;
• the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property;
• whether and the extent to which inventors are able to contest the assignment of their rights to the licensors; and
• the priority of invention of patented technology.
The agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to exploit such
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intellectual property, which could have a material adverse effect on our financial conditions, results of operations, and prospects.
If we are unable to protect the confidentiality of our trade secrets, the value of our intellectual property portfolio would be adversely affected.
In addition to seeking patents for our product discoveries, RED PLATFORM and other technologies, we have also relied on trade secrets and confidentiality agreements to protect our unpatented know-how, technology, and other proprietary information. Trade secrets and know-how can be difficult to protect. We expect our trade secrets and know-how to over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology, and the movement of personnel from academic to industry scientific positions.
We have sought to protect our know-how, trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements, and including in our vendor and service agreements terms protecting our confidential information, know-how and trade secrets, with parties who have access to such information. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes. We have also sought to preserve the integrity and confidentiality of our data and other confidential information by maintaining physical security of our premises and physical and electronic security of our information technology systems.
Despite our efforts, any of the aforementioned parties may breach the agreements and disclose our proprietary information, including our trade secrets, or there may be a lapses or failures in our physical and electronic security systems which lead to our proprietary information being disclosed, and we may not be able to obtain adequate remedies in the event of any such breaches. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Moreover, if confidential information that has been licensed or disclosed to us by our partners, collaborators, or others is inadvertently disclosed or subject to a breach or violation, we may be exposed to liability to the owner of that confidential information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a third party, we would have no right to prevent them from using that technology or information. If any of our trade secrets were to be disclosed to or independently developed by a third party, the value of our intellectual property portfolio would be materially and adversely affected.
Third-party claims of intellectual property infringement, misappropriation or other violation against us or our licensors may adversely affect our intellectual property portfolio.
The field of cellular therapeutics is competitive and dynamic. Due to the focused research and development that is taking place by several companies in this field, the intellectual property landscape is in flux, and it may remain uncertain in the future. As such, there may be significant intellectual property related litigation and proceedings relating to our owned and in-licensed, and other third-party, intellectual property and proprietary rights in the future.
The value of our intellectual property portfolio depends in part on our and our licensors’ ability to avoid infringing, misappropriating and otherwise violating the patents and other intellectual property rights of third parties. There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. This reform adds uncertainty to the possibility of challenge to our patents in the future.
Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist relating to red blood cell technologies and therapeutic proteins, and in the fields in which we have developed our pipeline products. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product discoveries, RED PLATFORM technologies and other technologies may give rise to claims of infringement of the patent rights of others. We cannot assure you that our product discoveries, RED PLATFORM technologies and other technologies that we have developed will not infringe patents owned by third parties. We may not be aware of patents that have already been issued and that a third party might assert are infringed by our product discoveries, RED PLATFORM or other
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technologies, including claims to compositions, formulations, methods of manufacture or methods of use or treatment that cover our product discoveries, RED PLATFORM or other technologies.
It is also possible that patents owned by third parties of which we are aware, but which we do not believe are relevant to our product discoveries, RED PLATFORM or other technologies, could be found to be infringed by our product discoveries, RED PLATFORM or other technologies. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product discoveries, RED PLATFORM or other technologies may infringe. We cannot provide any assurances that third-party patents do not exist which might be enforced against our technology, including our RED PLATFORM technologies, manufacturing methods, product discoveries.
Third parties may have patents or obtain patents in the future and claim that the manufacture, use or sale of our product discoveries, RED PLATFORM or other technologies infringes upon these patents. We are aware of an issued patent outside the United States that is directed to erythrocytes that comprise exogeneous polypeptides. While we believe that we have reasonable defenses against a claim of infringement should such a claim be brought, including that certain claims in this patent are invalid, there can be no assurance that we will prevail in any such action by the holder of the patent. In the event that any third party claims that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us, even if we believe such claims are without merit, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by our product discoveries, RED PLATFORM or other technologies. In this case, the holders of such patents may be able to block the ability to exploit the applicable intellectual property unless a license under the applicable patents is obtained, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all.
Defense of infringement claims, regardless of their merit, would involve substantial litigation expense. In addition, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement.
Engaging in litigation to defend against third parties alleging that we have infringed, misappropriated or otherwise violated their patents or other intellectual property rights is very expensive and time-consuming.
We or our licensors may also be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patent rights, trade secrets, or other intellectual property as an inventor or co-inventor. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our intellectual property portfolio. Even if we are successful in defending against such claims, litigation could result in substantial costs.
The occurrence of any of the foregoing could have a material adverse effect on the value of our intellectual property portfolio and on our financial condition, results of operations and prospects.
We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time-consuming, and unsuccessful.
Third parties may infringe our patents or the patents of our licensing partners and, if litigated in an infringement proceeding, a court may decide that a patent owned or in-licensed by us is invalid or unenforceable or that the other party’s use of our patented technology falls under the safe harbor to patent infringement under 35 U.S.C. §271(e)(1), or may refuse to stop the other party from using the technology at issue on the grounds that our owned and in-licensed patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our owned or in-licensed patents at risk of being invalidated or interpreted narrowly. Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for operations. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately.
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Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations. For example:
• others may be able to make products that are similar to our product discoveries or utilize similar technology but that are not covered by the claims of the patents that we license or own;
• we or our licensors might not have been the first to make the inventions covered by the issued patent or pending patent application that we license or own;
• we or our licensors, might not have been the first to file patent applications covering certain of our or their inventions;
• others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or licensed intellectual property rights;
• it is possible that our pending owned or licensed patent applications will not lead to issued patents;
• coverage claimed in a patent application can be significantly reduced before the patent is issued resulting in an issued patent that fails to provide any meaningful protection, or a patent’s scope can be reinterpreted after issuance;
• issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by third parties, which could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer cover our product discoveries, RED PLATFORM technologies, or other technologies;
• changes in U.S. and international patent law could impair our ability to protect our intellectual property;
• laws of foreign countries may not protect our rights to the same extent as the laws of the United States;
• we may have failed to identify patentable aspects of our research and development output in time to obtain patent protection;
• although we have entered into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection;
• third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competing inventions;
• the patents of others may harm our business (for example, third parties may have blocking patents that could be used to prevent the exploitation of our proprietary inventions); and
• we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could have a material adverse effect on the value of our intellectual property portfolio and on our financial condition, results of operations and prospects.
Risks related to our common stock
The price of our stock has been and may continue to be volatile, and our stockholders could lose all or part of their investment .
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The trading price of our common stock has been highly volatile and could continue to be subject to large fluctuations in response to the risk factors discussed in this section and elsewhere in this Annual Report on Form 10-K, and other risk factors beyond our control, including:
• the recent announcement that our Board of Directors unanimously approved the dissolution and liquidation of the Company, subject to stockholder approval;
• actual or anticipated variations in quarterly operating results;
• our cash position;
• our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;
• publication of research reports about us or our industry, or cellular therapies in particular, or positive or negative recommendations or withdrawal of research coverage by securities analysts;
• changes in the market valuations of similar companies;
• overall performance of the equity markets;
• sales of our common stock by us or our stockholders in the future;
• trading volume of our common stock;
• adoption of new accounting standards;
• ineffectiveness of our internal controls;
• disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
• significant lawsuits, including patent or stockholder litigation; and
• general political and economic conditions.
In recent years, the stock market in general, and the market for biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Since our common stock began trading on The Nasdaq Global Select Market on July 18, 2018, our stock price has traded at prices as low as $0.14 per share and as high as $38.71 per share through January 31, 2023.
Additionally, technical factors in the public trading market for our stock may produce price movements that may or may not comport with macro, industry or company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), speculation in the press, in the investment community, or on the internet, including on online forums and social media, about us, our industry or our securities, the amount and status of short interest in our securities (including a “short squeeze”), access to margin debt, trading in options and other derivatives on our common stock and other technical trading factors. We may incur rapid and substantial decreases in our stock price in the foreseeable future that are unrelated to our operating performance or prospects. There can be no guarantee that our stock price will remain at current prices or that future sales of our common stock will not be at prices lower than the sales price in previous offerings. If the market price of our common stock does not exceed their purchase price, our stockholders may not realize any return on their investment in us and may lose some or all of their investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs, which would harm our business, operating results or financial condition.
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If we fail to maintain the listing of our common stock with a United States national securities exchange, the liquidity of our common stock could be adversely affected.
As previously disclosed, on July 27, 2022, we received written notice from the Listing Qualifications Department, or the Staff, of The Nasdaq Stock Market LLC, or Nasdaq, indicating that, based upon the closing bid price for our common stock for the previous 30 consecutive business days, we no longer satisfied the minimum bid price requirement for continued listing on The Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5450(a)(1) (which we refer to as the "Minimum Bid Price Requirement"). In accordance with the Nasdaq Listing Rules, we were afforded a 180-calendar day grace period, through January 23, 2023, to regain compliance with the Minimum Bid Price Requirement.
On February 6, 2023, we were notified by the Staff that, based upon our non-compliance with the Minimum Bid Price Requirement as of January 23, 2023, and the Staff’s determination that we are a “public shell” as that term is defined in Nasdaq Listing Rule 5101, we would be delisted at the opening of business on February 15, 2023 unless we were to timely request a hearing before a Nasdaq Hearings Panel, or the Panel, to address the deficiencies and present a plan to regain compliance.
On February 13, 2023, we timely requested a hearing before the Panel, which request will stay any further delisting action by the Staff pending the ultimate outcome of the hearing and the expiration of any extension that may be granted by the Panel, unless we determine to withdraw our hearing request in connection with the Dissolution. Unless we determine to withdraw our hearing request, our common stock will remain listed and eligible for trading on Nasdaq pending the ultimate conclusion of the hearing process. However, there can be no assurance that we will successfully appeal the delisting determination, or that, if successful, we will be able to maintain compliance with any of the other Nasdaq continued listing requirements. Further, in connection with our planned Dissolution, we may determine not to move forward with the hearing.
If our common stock is ultimately delisted by Nasdaq, our common stock may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for us to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, our common stock. In addition, there can be no assurance that our common stock would be eligible for trading on any such alternative exchange or markets.
We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock .
We currently anticipate that we will retain future earnings for the operation of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited in the foreseeable future to the appreciation of their stock.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval .
Our executive officers, directors and their affiliates beneficially hold, in the aggregate, over 43% of our outstanding voting stock. These stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that our stockholders may feel are in their best interest as one of our stockholders.
We incur significant increased costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives .
As a public company, even with our reduced operations, we incur significant legal, accounting and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The Nasdaq Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive
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compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas, such as “say on pay” and proxy access.
As of December 31, 2021, we ceased to be eligible for the emerging growth company provisions of the Jumpstart Our Business Startups Act, or the JOBS Act, as of such date and are no longer able to avail ourselves of exemptions from various reporting requirements applicable to non-emerging growth companies. Accordingly, we will no longer have the option to delay the adoption of new or revised accounting standards until such time as those standards apply to private companies. As a result, we may incur additional expenses or challenges relating to our loss of emerging growth company status. Further, stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
The rules and regulations applicable to public companies substantially increase our legal and financial compliance costs and make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will increase our net loss and may require us to reduce costs in other areas of our business. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline .
The trading market for our common stock is influenced by research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
We have broad discretion in the use of our existing cash, cash equivalents and investments and may not use them effectively .
Our management has broad discretion in the application of our cash, cash equivalents and investments, including as we wind down our operations in connection with our planned Dissolution. Because of the number and variability of factors that will determine our use of our cash, cash equivalents and investments, their ultimate use may vary substantially from their currently intended use. Our management might not apply our cash, cash equivalents and investments in ways that ultimately increase the value of our stockholders’ investment. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest our cash in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not use our resources in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
Risks related to corporate governance
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management .
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:
• a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;
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• a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;
• a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, or by a majority of the total number of authorized directors;
• advance notice requirements for stockholder proposals and nominations for election to our board of directors;
• a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds of all outstanding shares of our voting stock then entitled to vote in the election of directors;
• a requirement of approval of not less than two-thirds of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and
• the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for our stockholders and other stockholders to elect directors of their choosing or cause us to take other corporate actions they desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
Our amended and restated bylaws designate specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for any state law claim for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders; (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or (5) any action asserting a claim against us governed by the internal affairs doctrine, or the Delaware Forum Provision. The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our amended and restated bylaws further provide that, unless we consent in writing to the selection of an alternative forum, the United States District Court for the District of Massachusetts is the sole and exclusive forum (1) for resolving any complaint asserting a cause of action arising under the Securities Act or the rules and regulations promulgated thereunder, and (2) of all suits in equity and actions at law brought to enforce any liability or duty created by the Securities Act or the rules and regulations thereunder, or the Federal Forum Provision, as our principal executive offices are located in Cambridge, Massachusetts. In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing Delaware Forum Provision and Federal Forum Provision; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.
We recognize that the Delaware Forum Provision and the Federal Forum Provision may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not reside in or near the State of Delaware or the Commonwealth of Massachusetts. Additionally, the forum selection clauses in our amended and restated by-laws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage the filing of lawsuits against us and our directors, officers and
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employees even though an action, if successful, might benefit our stockholders. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. The Federal Forum Provision may also impose additional litigation costs on us and/or our stockholders who assert that the provision is invalid or unenforceable, and if the Federal Forum Provision is found to be unenforceable, we may incur additional costs with resolving such matters. The Court of Chancery of the State of Delaware or the United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.
