form10k.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
T ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2009
OR
£ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from___________ to __________
Commission
file number 1-12830
BioTime,
Inc.
(Exact
name of registrant as specified in its charter)
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California
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94-3127919
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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1301
Harbor Bay Parkway, Suite 100
Alameda,
California 94502
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code (510) 521-3390
| Securities
registered pursuant to Section 12(b) of the Act |
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Title
of class
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Common
Shares, no par value
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Title
of class
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Common
Share Purchase Warrants
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes £ No T
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes £ No T
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes T No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer £
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Accelerated
filer £
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Non-accelerated
filer £ (Do not
check if a smaller reporting company)
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Smaller
reporting company S
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes £ No T
The
approximate aggregate market value of voting common shares held by
non-affiliates computed by reference to the price at which common shares were
last sold as of June 30, 2009 was $41,579,851. Shares held by each
executive officer and director and by each person who beneficially owns more
than 5% of the outstanding common shares have been excluded in that such persons
may under certain circumstances be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
The
number of common shares outstanding as of February 1, 2010 was
33,689,253
Documents
Incorporated by Reference
Portions
of Proxy Statement for 2010 Annual Meeting of Shareholders are incorporated by
reference in Part III
Table
of Contents
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Part
I.
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Financial
Information
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Item 1 -
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Item 2 -
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34
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Item 3 -
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34
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Item 4 -
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Part
II.
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Item 5 -
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37
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Item 6 -
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Item 7 -
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39
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Item 7A -
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Item 8 -
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48
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Item 9 -
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72
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Item 9A(T) -
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72
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Part
III.
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Item 10 -
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75
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Item 11 -
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75
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Item 12 -
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75
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Item 13 -
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76
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Item 14 -
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76
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Item 15 -
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77
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81
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PART
I
Statements
made in this Form 10-K that are not historical facts may constitute
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those
discussed. Words such as “expects,” “may,” “will,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions
identify forward-looking statements. See Note 1 to Financial
Statements.
Overview
We are a
biotechnology company engaged in two areas of biomedical research and product
development. Our first business segment is blood plasma volume
expanders and related technology for use in surgery, emergency trauma treatment,
and other applications. Our lead blood plasma expander product,
Hextend®, is a
physiologically balanced intravenous solution used in the treatment of
hypovolemia. Hypovolemia is a condition caused by low blood volume,
often from blood loss during surgery or from injury. Hextend
maintains circulatory system fluid volume and blood pressure and keeps vital
organs perfused during surgery and trauma care.
Our
second business segment is regenerative medicine. Regenerative
medicine refers to therapies based on human embryonic stem (“hES”) cell
technology designed to rebuild cell and tissue function lost due to degenerative
disease or injury. These novel stem cells provide a means of
manufacturing every cell type in the human body and therefore show considerable
promise for the development of a number of new therapeutic
products.
The
initial focus of our efforts in the regenerative medicine field has been the
development and sale of advanced human stem cell products and technology that
can be used by researchers at universities and other institutions, at companies
in the bioscience and biopharmaceutical industries, and at other companies that
provide research products to companies in those
industries. Research-only products generally can be marketed without
regulatory (FDA) approval, and are therefore relatively near-term business
opportunities when compared to therapeutic products. These products
are currently being marketed through our wholly owned subsidiary, Embryome
Sciences, Inc.
During
October 2009 we initiated development programs for human therapeutic
applications of hES cells, focused primarily on the treatment of cancer,
ophthalmologic, skin, musculo-skeletal system, and hematologic
diseases. Cancer research and development programs will be conducted
in the United States by our subsidiary OncoCyte Corporation, while BioTime Asia,
Limited, a subsidiary formed as a Hong Kong corporation, will conduct research
and development programs in the People’s Republic of China for the treatment of
cancer and other diseases.
During
2009, we were awarded a $4,721,706 grant from the California Institute of
Regenerative Medicine (“CIRM”) for a stem cell research project related to our
ACTCellerate™ embryonic stem cell technology that will address the need for
industrial scale production of purified therapeutic cells for human therapeutic
uses.
Human
embryonic stem cell technology is approximately 10 years old and evolving
rapidly. As a result, we cannot accurately forecast the amount of revenue that
the new products we offer might generate.
Hextend® and
PentaLyte® are
registered trademarks of BioTime, Inc., and ESpan™, ReCyte™, and
Espy™ are trademarks of Embryome Sciences, Inc. ACTCellerate™ is a
trademark licensed to Embryome Sciences, Inc. by Advanced Cell Technology,
Inc.
Stem
Cells and Products for Regenerative Medicine Research
We are
developing products and technology for use in the emerging field of regenerative
medicine. Regenerative medicine refers to therapies based on hES cell
and induced pluripotent stem (“iPS”) cell technology. Because these
cells have the ability to transform into all of the cells of the human body (a
property called pluripotency), they may
provide a means of producing a host of new products of interest to medical
researchers. For example, it may be possible to use hES and iPS cells
to develop new cell lines designed to rebuild cell and tissue function lost due
to degenerative disease or injury, and new cell lines for basic research and
discovery of new drugs. Since embryonic stem cells can now be derived
in a noncontroversial manner, including through the use of iPS technology, they
are increasingly likely to be utilized in a wide array of future research
programs in the attempt to restore the function of organs and tissues damaged by
degenerative diseases such as heart failure, stroke, Parkinson’s disease,
macular degeneration, and diabetes, as well as many others.
The
initial focus of our efforts in the regenerative medicine field has been the
development and sale of advanced human stem cell products and technologies that
can be used by researchers at universities and other institutions, at companies
in the bioscience and biopharmaceutical industries, and at other companies that
provide research products to companies in those industries. By
initially focusing our resources on products and technologies that will be used
by researchers and drug developers at larger institutions and corporations, we
believe that we will be able to commercialize products more quickly, and using
less capital, than if we were developing therapeutic products
ourselves.
Embryome
Database
The
future challenge for regenerative medicine is to navigate the complexity of
human development, to identify the many hundreds of cell types originating from
embryonic stem cells, and to manufacture purified populations of desired cell
types. To assist researchers in attaining these goals, we are
creating a detailed “map” of the human and mouse embryome that will take the
form of a relational database intended to permit researchers to chart the cell
lineages of human development, the genes expressed in those cell types, and
antigens present on the cell surface of those cells that can be used in
purification. Our embryome map database is now available at our
website www.embryome.com.
Progenitor
and hES Cell Lines
When
Embryome Sciences acquired a license to use ACTCellerate™ technology, it also
acquired the rights to market more than 140 novel human cell types made using
ACTCellerate™ technology. ACTCellerate™ technology allows the rapid
isolation of novel, highly-purified embryonic progenitor cells
(“hEPCs”). These hEPCs are cells that are intermediate in the
developmental process between embryonic stem cells and fully differentiated
cells. The hEPCs may possess the ability to become a wide array of
cell types with potential applications in research, drug discovery, and human
regenerative stem cell therapy. The hEPCs are relatively easy to
manufacture on a large scale and in a purified state, which may make it
advantageous to work with these cells compared to the direct use of hES or iPS
cells.
Embryome
Sciences has entered into an agreement under which Millipore Corporation is a
worldwide distributor of ACTCellerate™ human progenitor cell
lines. Millipore’s initial offering of Embryome Sciences’ products
consists of six novel progenitor cell lines and optimized ESpan™ growth media
for the in vitro
propagation of each progenitor cell line, which are being marketed and
distributed on a worldwide basis. The companies anticipate jointly
launching 29 additional cell lines and associated ESpan™ growth media within the
coming 12 months. The Embryome Sciences products distributed by
Millipore may also be purchased directly from Embryome Sciences at Embryome.com.
On April
29, 2009, CIRM awarded us a $4,721,706 grant for a stem cell research project
related to our ACTCellerate™ technology. Our grant project is titled
“Addressing the Cell Purity and Identity Bottleneck through Generation and
Expansion of Clonal Human Embryonic Progenitor Cell Lines.”
Our
CIRM-funded research project will address the need for industrial scale
production of purified therapeutic cells. hES and iPS cells are
difficult and costly to manufacture in large quantities, especially with the
purity required for therapeutic use. Purity and precise
identification of the desired therapeutic cells are essential for cell therapy
because, unlike a drug which may persist in the body for a matter of hours or
days, a cell can persist in the body for a lifetime. The pluripotency
that allows hES cells to differentiate into all types of cells also poses the
problem of assuring that all hES cells in a cultured batch differentiate into
the desired type of body cell. Contamination of hES- or iPS-derived
cells with the wrong cells could lead to toxicities resulting from normal but
inappropriate tissue growth or tumor formation. For this reason, our
funded research will use ACTCellerate™ technology to manufacture hEPCs rather
than hES or iPS cells.
Because
our hEPCs are clonal, meaning that they are derived from a single cell, they
have the potential to grow as a highly purified cell line. However,
the production of hEPCs for human therapeutic use will require a means of
ascertaining that the cells being used are in fact the correct
cells. Our research program proposes to map the surface markers on
hEPC lines so that we can identify a molecular signature specific to a given
hEPC line. The molecular signature will be the key to verifying the
correct identity of cells intended to be used in therapy, and will facilitate
purification of hEPCs from any hES or iPS cell line. We will seek to
identify antibodies and other cell purification reagents that will reveal the
molecular signature of the desired hEPCs.
The
overall objective of the research project is to generate tools useful in
applying ACTCellerate™ technology to the manufacture of patient-specific
therapeutic products. We already have isolated and expanded a number
of hEPCs that may be used in the funded research program. The
successful completion of our proposed project will provide well-characterized
hEPCs that are precursors of therapeutic cells such as nerve, blood vessel,
heart muscle, cartilage, and skin, as well as other cell types.
The CIRM
funding for this research project will be paid over a period of three years,
with $1.6 million of the $4.7 million grant expected to be available during the
first 12 months. We received the first two quarterly payments from
CIRM, totaling $790,192, during the second half of 2009.
hES
Cells Carrying Genetic Diseases
Embryome
Sciences has acquired an array of hES cell lines carrying inherited genetic
diseases such as cystic fibrosis and muscular dystrophy. Study of
these cell lines will enable researchers to better understand the mechanisms
involved in causing the disease states, which may in turn expedite the search
for potential treatments. We intend to offer these hES cell lines for
sale online at Embryome.com
during 2010.
ESpan™ Cell Growth
Media
We and
Millipore are marketing a line of cell growth media products called
ESpan™. These growth media are optimized for the growth of hEPC
types. Cells need to be propagated in liquid media, in both the
laboratory setting where basic research on stem cells is performed, and in the
commercial sector where stem cells will be scaled up for the manufacture of
cell-based therapies or for the identification of new drugs. We
expect that rather than propagating hES cells in large quantities, many end
users will instead propagate cells using media optimized for the propagation of
hEPCs created from hES cells.
ESpy™
Cell Lines
Additional
new products that we have targeted for development are ESpy™ cell lines, which
will be derivatives of hES cells and will emit beacons of light. The
ability of the ESpy cells to emit light will allow researchers to track the
location and distribution of the cells in both in vitro and in vivo studies.
Other
New Research Products Planned
We also
plan to bring to market other new growth and differentiation factors and kits
that will permit researchers to manufacture specific cell types from embryonic
stem cells, and purification tools useful to researchers in the quality control
of products for regenerative medicine. As new products are developed,
they will become available for purchase on Embryome.com.
Cell-Based
Cancer Therapies and Other Therapeutic Products
We have
organized OncoCyte Corporation and BioTime Asia, Limited for the purpose of
developing novel therapies for the treatment of human diseases based on stem
cell technology.
OncoCyte
will seek to develop novel therapeutics for the treatment of cancer based on
stem cell technology. We and Embryome Sciences will license certain
technology to OncoCyte, including early patent filings on targeting stem cells
to malignant tumors, for use in the field of cell-based cancer
therapies. OncoCyte’s new therapeutic strategy and goal will be to
utilize human embryonic stem cell technology to create genetically modified stem
cells capable of homing to specific malignant tumors while carrying genes that
can cause the destruction of the cancer cells.
We
presently own a 74% equity interest in OncoCyte, which has received $4,000,000
of equity capital from two investors who now own 26% of the outstanding shares
of OncoCyte. We plan to provide additional equity capital to OncoCyte
as funding for that purpose becomes available to us.
BioTime
Asia will initially seek to develop the therapeutic products for the treatment
of ophthalmologic, skin, musculo-skeletal system, and hematologic diseases,
including the targeting of genetically modified stem cells to tumors as a novel
means of treating currently incurable forms of cancer.
We have
engaged the services of Dr. Daopei Lu to aid BioTime Asia in arranging and
managing clinical trials of therapeutic stem cell products. Dr. Lu is
a world-renowned hematologist and expert in the field of hematopoietic stem cell
transplants who pioneered the first successful syngeneic bone marrow stem cell
transplant in the People’s Republic of China to treat aplastic anemia and the
first allogeneic peripheral blood stem cell transplant to treat acute
leukemia. Nanshan Memorial Medical Institute Limited (“NMMI”), a
private Hong Kong company, has entered into an agreement with us under which
NMMI has become a minority shareholder in BioTime Asia and will provide BioTime
Asia with its initial laboratory facilities and an agreed number of research
personnel, and will arrange financing for clinical trials.
BioTime
and Embryome Sciences will license to BioTime Asia the rights to use certain
stem cell technology, and will sell to BioTime Asia stem cell products for
therapeutic use and for resale as research products. To the extent
permitted by law, BioTime Asia will license back to us for use outside of the
People’s Republic of China any new technology that BioTime Asia might develop or
acquire.
Our
obligations are subject to certain conditions and contingencies, including the
completion of feasibility studies for the venture. Either we or NMMI
may terminate the agreement if certain clinical trial milestones are not met,
including the commencement of the first clinical trial of a therapeutic stem
cell product within two years.
There is
no assurance that either OncoCyte or BioTime Asia will be successful in
developing any new technology or stem cell products, or that any technology or
products that they may develop will be proven safe and effective in treating
cancer or other diseases in humans, or will be successfully
commercialized. Our potential therapeutic products are at a very
early stage of preclinical development. Before any clinical trials
can be conducted by OncoCyte or BioTime Asia, those subsidiaries would have to
compile sufficient laboratory test data substantiating the characteristics and
purity of the stem cells, conduct animal studies, and then obtain all necessary
regulatory and clinical trial site approvals, and assemble a team of physicians
and statisticians for the trials.
Licensed
Stem Cell Technology and Stem Cell Product Development Agreements
We have
obtained the right to use stem cell technology that we believe has great
potential in our product development efforts, and that may be useful to other
companies that are engaged in the research and development of stem cell products
for human therapeutic and diagnostic use.
Wisconsin
Alumni Research Foundation
We have
entered into a Commercial License and Option Agreement with Wisconsin Alumni
Research Foundation (“WARF”). The WARF license permits us to use
certain patented and patent pending technology belonging to WARF, as well as
certain stem cell materials, for research and development purposes, and for the
production and marketing of “research products” and “related
products.” “Research products” are products used as research tools,
including in drug discovery and development. “Related products” are
products other than research products, diagnostic products, or therapeutic
products. “Diagnostic products” are products or services used in the
diagnosis, prognosis, screening, or detection of disease in
humans. “Therapeutic products” are products or services used in the
treatment of disease in humans.
Under the
WARF license agreement, we will pay WARF a license fee of $225,000 in cash and
$70,000 worth of our common shares. The first installment of cash in
the amount of $10,000 was paid during February 2008, the common shares were
issued during March 2009, and the remaining $215,000 is due on the earlier of
(i) thirty (30) days after we raise $5,000,000 or more of new equity financing,
or (ii) March 2, 2010. A maintenance fee of $25,000 will be due
annually on March 2 of each year during the term of the WARF License beginning
March 2, 2010.
We will
pay WARF royalties on the sale of products and services under the WARF
license. The royalty will be 4% on the sale of research products and
2% on the sale of related products. The royalty is payable on sales
by us or by any sublicensee. The royalty rate is subject to certain
reductions if we also become obligated to pay royalties to a third party in
order to sell a product.
We will
also pay WARF $25,000 toward reimbursement of the costs associated with
preparing, filing, and maintaining the licensed WARF patents. That
fee is payable in two installments. The first installment of $5,000
was paid during February 2008, and the remaining $20,000 is due on the earlier
of (i) thirty (30) days after we raise $5,000,000 or more of new equity
financing, or (ii) March 2, 2010.
We have
an option to negotiate with WARF to obtain a license to manufacture and market
therapeutic products, excluding products in certain fields of
use. The issuance of a license for therapeutic products would depend
upon our submission and WARF’s acceptance of a product development plan, and our
reaching agreement with WARF on the commercial terms of the license such as a
license fee, royalties, patent reimbursement fees, and other contractual
matters.
The WARF
license shall remain in effect until the expiration of the latest expiration
date of the licensed patents. However, we may terminate the WARF
license prior to the expiration date by giving WARF at least ninety days written
notice, and WARF may terminate the WARF license if we (a) fail to make any
payment to WARF, (b) fail to submit any required report to WARF, (c) commit any
breach of any other covenant in the WARF license that is not remedied within
ninety days after written notice from WARF, or (d) commit any act of bankruptcy,
become insolvent, are unable to pay our debts as they become due, file a
petition under any bankruptcy or insolvency act, or have any such petition filed
against us which is not dismissed within sixty days, or offers its creditors any
component of the patents or materials covered by the WARF license.
ACTCellerate™
Technology
We have
entered into a license agreement with Advanced Cell Technology, Inc. (“ACT”)
under which we acquired exclusive world-wide rights to use ACT’s “ACTCellerate”
technology for methods to accelerate the isolation of novel cell strains from
pluripotent stem cells. The licensed rights include pending patent
applications, know-how, and existing cells and cell lines developed using the
technology.
The
licensed technology is designed to provide a large-scale and reproducible method
of isolating clonally purified hEPC lines, many of which may be capable of
extended propagation in
vitro. Initial testing suggests that the technology may be
used to isolate at least 140 distinct clones that contain many previously
uncharacterized cell types derived from all germ layers that display diverse
embryo- and site-specific homeobox gene expression. Despite the
expression of many oncofetal genes, none of the human embryonic progenitor cell
lines tested led to tumor formation when transplanted into immunocompromised
mice. The cell lines studied appear to have a finite replicative
lifespan but have longer telomeres than most fetal- or adult-derived cells,
which may facilitate their use in the manufacture of purified lineages for
research and human therapy. Information concerning the technology was
published in the May 2008 edition of the journal Regenerative
Medicine.
We may
use the licensed technology and cell lines for research purposes and for the
development of therapeutic and diagnostic products for human and veterinary
use. We also have the right to grant sublicenses.
We paid
ACT a $250,000 license fee and will pay an 8% royalty on sales of products,
services, and processes that utilize the licensed technology. Once a
total of $1,000,000 of royalties has been paid, no further royalties will be
due.
ACT may
reacquire royalty free, worldwide licenses to use the technology for retinal
pigment epithelial cells, hemangioblasts, and myocardial cells, on an exclusive
basis, and for hepatocytes, on a non-exclusive basis, for human therapeutic
use. ACT will pay us $5,000 for each license that it elects to
reacquire.
iPS
Technology
We have
entered into a license agreement and a sublicense agreement with ACT under which
we acquired world-wide rights to use an array of ACT technology and technology
licensed by ACT from affiliates of Kirin Pharma Company, Limited
(“Kirin”). The ACT license and Kirin sublicense permit the
commercialization of products in human therapeutic and diagnostic product
markets.
The
licensed technology covers methods to transform cells of the human body, such as
skin cells, into an embryonic state in which the cells will be
pluripotent. This new technology is sometimes referred to as induced
pluripotent stem cell (“iPS”) technology. Because iPS technology does
not involve human embryos or egg cells, and classical cloning techniques are not
employed, the use of iPS technology may eliminate some ethical concerns that
have been raised in connection with the procurement and use of human embryonic
stem cells in scientific research and product development.
The
portfolio of licensed patents and patent applications covers methods to produce
iPS cells that do not carry viral vectors or added genes. Other iPS
technology currently being practiced by other researchers utilizes viruses and
genes that are likely incompatible with human therapeutic uses. We
believe that technologies that facilitate the reprogramming of human cells to
iPS cells without using viruses could be advantageous in the development of
human stem cell products for use in medicine.
The Kirin
sublicense covers patent application for methods for cloning mammals using
reprogrammed donor chromatin or donor cells and methods for altering cell
fate. These patent applications relate to technology to alter the
state of a cell, such as a human skin cell, by exposing the cell’s DNA to the
cytoplasm of another reprogramming cell with differing properties. We
may use this licensed technology for all human therapeutic and diagnostic
applications.
A second
series of patent applications licensed nonexclusively from ACT includes
technologies for:
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the
use of reprogramming cells that over-express RNAs for the genes OCT4,
SOX2, Nanog, cMYC, and other factors known to be useful in iPS
technology
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methods
of resetting cell lifespan by extending the length of
telomeres
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the
use of the cytoplasm of undifferentiated cells to reprogram human
cells
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the
use of a cell bank of hemizygous O-
cells
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methods
of screening for differentiation
agents
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stem
cell-derived endothelial cells modified to disrupt tumor
angiogenesis.
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We may
use this technology in commercializing the patents licensed under the Kirin
Sublicense.
The ACT
license also includes patent applications for other uses. One
licensed patent application covers a method of differentiation of morula or
inner cell mass cells and a method of making lineage-defective embryonic stem
cells. That technology can be used in producing hEPCs without the
utilization of hES cell lines. Another licensed patent application
covers novel culture systems for ex vivo development that
contains technology for utilizing avian cells in the production of stem cell
products free of viruses and bacteria.
ACT
iPS License Provisions
Under the
ACT license for iPS technology, we paid ACT a $200,000 license fee and we will
pay a 5% royalty on sales of products, services, and processes that utilize the
licensed technology. Once a total of $600,000 of royalties has been
paid, no further royalties will be due. We will also pay 20% of any
fees or other payments, other than equity investments, research and development
costs, loans and royalties, received by us from sublicensing the ACT technology
to third parties.
We may
use the licensed technology and cell lines for research purposes and for the
development of therapeutic and diagnostic products for human and veterinary use,
excluding (a) human and non-human animal cells for commercial research use,
including small molecule and other drug testing and basic research, and (b)
human cells for therapeutic and diagnostic use in the treatment of human
diabetes, liver diseases, retinal diseases and retinal degenerative diseases,
other than applications involving the use of cells in the treatment of tumors
where the primary use of the cells is the destruction or reduction of tumors and
does not involve regeneration of tissue or organ function. The
exclusions from the scope of permitted uses under the ACT license will lapse if
ACT’s license with a third party terminates or if the third party no longer has
an exclusive license from ACT for those uses.
Our
license to use some of the ACT iPS technology is non-exclusive, and is limited
to use in conjunction with the technology sublicensed from ACT under the Kirin
sublicense, and may not be sublicensed to third parties other than subsidiaries
and other affiliated entities. We do have the right to grant
sublicenses to the other licensed ACT technology.
We will
have the right to prosecute the patent applications and to enforce all patents,
at our own expense, except that ACT is responsible for prosecuting patent
applications for the non-exclusively licensed technology at its own
expense. We will have the right to patent any new inventions arising
from the use of the licensed patents and technology.
We will
indemnify ACT for any products liability claims arising from products made by us
and our sublicensees.
The
licenses will expire in twenty years or upon the expiration of the last to
expire of the licensed patents, whichever is later.
Kirin
Sublicense Provisions
Under the
Kirin sublicense, we paid ACT a $50,000 license fee and will pay a 3.5% royalty
on sales of products, services, and processes that utilize the licensed ACT
technology, and 20% of any fees or other payments, other than equity
investments, research and development costs, and loans and royalties we may
receive from sublicensing the Kirin technology to third parties. We will also
pay to ACT or to an affiliate of Kirin, annually, the amount, if any, by which
royalties payable by ACT under its license agreement with Kirin are less than
the $50,000 annual minimum royalty due. Those payments will be
credited against other royalties payable to ACT under the Kirin
sublicense.
We may
use the sublicensed technology for the development of therapeutic and diagnostic
human cell products, including both products made, in whole or in part, of human
cells, and products made from human cells. We have the right to grant
further sublicenses.
We will
indemnify ACT for any products liability claims arising from products made by us
and our sublicensees. The
licenses will expire upon the expiration of the last to expire of the licensed
patents, or May 9, 2016 if no patents are issued.
Lifeline
We have
entered into a Product Production and Distribution Agreement with Lifeline for
the production and marketing of hEPCs or hEPC lines, and products derived from
those hEPCs. The products developed under the agreement with Lifeline
will be produced and sold for research purposes, such as drug discovery and drug
development uses.
The
proceeds from the sale of products to certain distributors with which Lifeline
has a pre-existing relationship will be shared equally by us and Lifeline, after
deducting royalties payable to licensors of the technology used, and certain
production and marketing costs. The proceeds from products produced
for distribution by both us and Lifeline, and products produced by one party at
the request of the other party, will be shared in the same
manner. Proceeds from the sale of other products, which are produced
for distribution by one party, generally will be shared 90% by the party that
produced the product for distribution, and 10% by the other party after
deducting royalties payable to licensors of technology used. In the
case of the sale of these products, the party that produces the product and
receives 90% of the sales proceeds will bear all of the production and marketing
costs of the product.
The
products will be produced using technology and stem cell lines licensed from
WARF, technology developed by us, technology developed by Lifeline, and
technology licensed from ACT. WARF and ACT will receive royalties
from the sale of the products developed using their licensed technology and stem
cells.
We paid
Lifeline $250,000 to facilitate their product production and marketing
efforts. We will be entitled to recover that amount from the share of
product sale proceeds that otherwise would have been allocated to
Lifeline.
Stem
Cell Agreement with Reproductive Genetics Institute
We have
entered into a Stem Cell Agreement with Reproductive Genetics Institute (“RGI”)
pursuant to which we obtained the non-exclusive right to acquire RGI’s
proprietary stem cell lines. The Stem Cell Agreement grants us rights
to market new hES lines selected by us from 294 hES lines derived by
RGI. We will initially select 10 RGI hES cell lines, and may add
additional cell lines at our option. We will receive starting
cultures of the cell lines we select, and will scale up those cell lines for
resale as research products. Because our rights are non-exclusive,
RGI will retain the right to market and use its stem cell lines for its own
account. RGI is a leading fertility center that screens embryos for
genetic disorders, such as cystic fibrosis and muscular dystrophy prior to
implantation. The RGI hES lines include both normal cells and 88 cell
lines identified as carrying a host of inherited genetic disease genes, some of
which we plan to sell as research products to universities and companies in the
bio-science and pharmaceutical industries.
We will
pay RGI a royalty in the amount of 7% of net sales on RGI derived cells sold for
research purposes, such as the use of cells to test potential new drugs or
diagnostic products. The Stem Cell Agreement requires us to sell the
RGI cells for a minimum price of $7,500 per ampule of cells. We also
agreed to sell to RGI any cells that we derive from RGI stem cells at a price
equal to 50% of the lowest price at which we sell those cells to third
parties.
We will
be marketing the acquired cells for research purposes only. However,
the Stem Cell Agreement allows us and RGI to develop therapeutic or diagnostic
uses of the cells, subject to approval by a joint steering committee composed of
Embryome Sciences and RGI officers. In the absence of an agreement by
the steering committee for a different revenue sharing arrangement, and provided
that we are successful in developing and commercializing one or more of those
products for therapeutic or diagnostic uses, we would pay RGI a royalty based on
net sales of each product. The royalty rate would be 50% of net sales
of the product, minus one-half of any other royalties required to be paid to
third parties. None of the RGI cells have been approved by the U.S.
Food and Drug Administration or any equivalent foreign regulatory agency for use
in the treatment of disease, and we do not have any specific plans for the
development of RGI stem cells for use in the treatment or diagnosis of disease
in humans.
We issued
to RGI 32,259 of our common shares, no par value, as a license fee for the use
of RGI’s proprietary technology related to the first 10 cell types acquired by
us under the Stem Cell Agreement. If we elect to acquire more than 10
cell types, we will issue to RGI an additional number of BioTime common shares
having a market value of $5,000 for each additional cell type that we choose to
acquire. The market value of our common shares will be based on the
closing price of the shares on the NYSE Amex on the date that we elect to
acquire the additional cell types.
Plasma
Volume Expanders and Related Products
Hextend
Our first
product, Hextend, is a physiologically balanced blood plasma volume expander,
used for the treatment of hypovolemia. Hypovolemia is a condition
caused by low blood volume, often from blood loss during surgery or from
injury. Hextend maintains circulatory system fluid volume and blood
pressure and helps sustain vital organs during surgery. Hextend,
approved for use in major surgery, is the only blood plasma volume expander that
contains lactate, multiple electrolytes, glucose, and a medically approved form
of starch called hetastarch. Hextend is sterile, so its use avoids
the risk of infection. Health insurance reimbursements and HMO
coverage now include the cost of Hextend used in surgical
procedures.
Hextend
is part of the U.S. Armed Forces Tactical Combat Casualty Care protocol and is
used to treat battlefield casualties. Hextend is also currently being
used by emergency room physicians to treat both hypovolemia subsequent to trauma
and low blood pressure due to shock. After appropriate clinical
testing and regulatory approval, it may be used by paramedics to treat acute
blood loss in trauma victims being transported to the hospital.
Hextend
is also being used in surgery with cardio-pulmonary bypass
circuits. In order to perform heart surgery, the patient’s heart must
be stopped, and a mechanical apparatus is used to oxygenate and circulate the
blood. The cardio-pulmonary bypass apparatus requires a blood
compatible fluid such as Hextend to commence and maintain the process of
diverting the patient’s blood from the heart and lungs to the mechanical
oxygenator and pump. In a clinical trial conducted, cardiac surgery
patients treated with Hextend maintained more normal kidney function,
experienced less pain and nausea, showed less deep venous thrombosis, avoided
dialysis, and had shorter delay times to first meal compared to those treated
with other fluids.
An
important goal of the Hextend development program was to produce a product that
can be used in multi-liter volumes. The safety related secondary
endpoints targeted in the U.S. Phase III clinical study included those involving
coagulation. We believe that the low incidence of adverse events
related to blood clotting in the Hextend patients demonstrates that Hextend may
be safely used in amounts exceeding 1.5 liters. An average of 1.6
liters of Hextend was used in the Phase III clinical trials, with an average of
two liters for patients who received transfused blood products.
A recent
independent study in hemodynamically unstable trauma patients conducted at the
University of Miami Ryder Trauma Center reported that initial resuscitation with
Hextend was associated with no obvious coagulopathy and reduced mortality
compared to fluid resuscitation without Hextend.
Hextend
is being distributed in the United States by Hospira, Inc. (“Hospira”) and in
South Korea by CJ CheilJedang Corp. (“CJ”) under exclusive licenses from
us.
We are
also developing another blood volume replacement product, PentaLyte®. It,
like Hextend, has been formulated to maintain the patient’s tissue and organ
function by sustaining the patient’s fluid volume and physiological
balance.
PentaLyte
PentaLyte
is our proprietary pentastarch-based synthetic plasma volume expander, designed
especially for use when a faster elimination of the starch component is desired
and acceptable. Although Hextend can be used in these cases, some
physicians appear to prefer a solution which can be metabolized faster and
excreted earlier when the longer term protection provided by Hextend is not
required. PentaLyte combines the physiologically balanced Hextend
formulation with pentastarch, which has a lower molecular weight and degree of
substitution than the hetastarch used in Hextend. Plasma volume
expanders containing pentastarch are currently widely used around the
world. Our present plan is to seek approval of PentaLyte for use in
the treatment of hypovolemia. We have conducted a Phase II clinical
study using PentaLyte in cardiac surgery for that purpose. Our
ability to complete clinical studies of PentaLyte will depend on our cash
resources and the costs involved, which are not presently
determinable.
Products
for Hypothermic Surgery and Tissue Preservation
We have
devoted a portion of our research and development efforts and funds on the
development of a plasma volume replacement solution for use in hypothermic
surgery, and a solution intended to permit the long term storage of tissues and
potentially entire organs at very cold temperatures.
During
open-heart surgery and surgical procedures for the treatment of certain
cardiovascular conditions such as large aneurysms, cardiovascular abnormalities,
and damaged blood vessels in the brain, surgeons must temporarily interrupt the
flow of blood through the body. Interruption of blood flow can be
maintained only for short periods of time at normal body temperatures because
many critical organs, particularly the brain, are quickly damaged by the
resultant loss of oxygen. Surgeons are already using Hextend and a
variety of other solutions to carry out certain limited procedures involving
shorter term (up to nearly one hour) arrest of brain and heart function at
temperatures between 15º and
25°
C. We had been developing HetaCool®, a
plasma volume expander based on Hextend, to facilitate the cooling of a
patient’s body and maintaining body temperatures closer to the ice point for
extended periods of time to facilitate complex, time consuming surgical
procedures. We were also developing HetaFreeze® and
other freeze-protective solutions to allow for the extension of time during
which organs and tissues can be stored for future transplant or surgical
grafting.
Due to
the considerable costs of subsequent product development for HetaCool and
HetaFreeze, and the relatively near-term opportunities we expect for our new
products in the field of regenerative medicine, we plan to expend additional
resources on research and development for HetaCool and HetaFreeze only if we are
able to obtain funding targeted for those research programs or if we are able to
enter into arrangements with co-developers able to finance additional product
development.
The
Market for Plasma Volume Expanders
Approximately
10,000,000 surgeries take place in the United States each year, and blood
transfusions are required in approximately 3,000,000 of those
cases. Transfusions are also required to treat patients suffering
severe blood loss due to traumatic injury. Many more surgical and
trauma cases do not require blood transfusions but do involve significant
bleeding that can place the patient at risk of suffering from shock caused by
the loss of fluid volume (hypovolemia) and physiological
balance. Whole blood and packed red cells generally cannot be
administered to a patient until the patient’s blood has been typed and
sufficient units of compatible blood or red cells can be
located. Periodic shortages of supply of donated human blood are not
uncommon, and rare blood types are often difficult to locate. The use
of human blood products also poses the risk of exposing the patient to
blood-borne diseases such as AIDS and hepatitis.
Due to
the risks and cost of using human blood products, even when a sufficient supply
of compatible blood is available, physicians treating patients suffering blood
loss are generally not permitted to transfuse red blood cells until the
patient’s level of red blood cells has fallen to a level known as the
“transfusion trigger.” During the course of surgery, while blood
volume is being lost, the patient is infused with plasma volume expanders to
maintain adequate blood circulation. During the surgical procedure,
red blood cells are not generally replaced until the patient has lost
approximately 45% to 50% of his or her red blood cells, thus reaching the
transfusion trigger at which point the transfusion of red blood cells may be
required. After the transfusion of red blood cells, the patient may
continue to experience blood volume loss, which will be replaced with plasma
volume expanders. Even in those patients who do not require a
transfusion, physicians routinely administer plasma volume expanders to maintain
sufficient fluid volume to permit the available red blood cells to circulate
throughout the body and to maintain the patient’s physiological
balance.
Several
units of fluid replacement products are often administered during
surgery. The number of units will vary depending upon the amount of
blood loss and the kind of plasma volume expander
administered. Crystalloid products must be used in larger volumes
than colloid products such as Hextend.
Uses
and Benefits of Hextend and PentaLyte
Hextend
and PentaLyte have been formulated to maintain the patient’s tissue and organ
function by sustaining the patient’s fluid volume and physiological
balance. Both products are composed of a hydroxyethyl starch,
electrolytes, sugar, and lactate in an aqueous base. Hextend uses a
high molecular weight hydroxyethyl starch (hetastarch), whereas PentaLyte uses a
lower molecular weight hydroxyethyl starch (pentastarch). The
hetastarch is retained in the blood longer than the pentastarch, which may make
Hextend the product of choice when a larger volume of plasma expander or blood
replacement solution for low temperature surgery is needed, or where the
patient’s ability to restore his own blood proteins after surgery is
compromised. PentaLyte, with pentastarch, would be eliminated from
the blood faster than Hextend and might be used when less plasma expander is
needed or where the patient is more capable of quickly restoring lost blood
proteins. We believe that by testing and bringing these products to
the market, we can increase our market share by providing the medical community
with solutions to match patients’ needs.
Certain
clinical test results indicate that Hextend is effective at maintaining blood
calcium levels when used to replace lost blood volume. Calcium can be
a significant factor in regulating blood clotting and cardiac
function. Clinical studies have also shown that Hextend maintains
acid-base better than saline-based surgical fluids. We expect that
PentaLyte will also be able to maintain blood calcium levels and acid-base
balance based upon the fact that the electrolyte formulation of PentaLyte is
identical to that of Hextend.
Albumin
produced from human plasma is also used as plasma volume expander, but it is
expensive and subject to supply shortages. Additionally, an FDA
warning has cautioned physicians about the risk of administering albumin to
seriously ill patients.
We have
not attempted to synthesize potentially toxic and costly oxygen-carrying
molecules such as hemoglobin because the loss of fluid volume and physiological
balance may contribute as much to shock as the loss of the oxygen-carrying
component of the blood. Surgical and trauma patients are routinely
given supplemental oxygen and retain a substantial portion of their own red
blood cells. Whole blood or packed red blood cells are generally not
transfused during surgery or in trauma care until several units of plasma volume
expanders have been administered and the patient’s blood cell count has fallen
to the transfusion trigger. Therefore, the lack of oxygen-carrying
molecules in BioTime solutions should not pose a significant contraindication to
use.
However,
our scientists have conducted laboratory animal experiments in which they have
shown that Hextend can be successfully used in conjunction with a
hemoglobin-based oxygen carrier solution approved for veterinary purposes to
completely replace the animal’s circulating blood volume without any subsequent
transfusion and without the use of supplemental oxygen. By diluting
these oxygen carrier solutions, Hextend may reduce the potential toxicity and
costs associated with the use of those products. Once such solutions
have received regulatory approval and become commercially available, this sort
of protocol may prove valuable in markets in parts of the developing world where
the blood supply is extremely unsafe. These applications may also be
useful in combat where logistics make blood use impracticable.
Research
and Development Strategy
A
significant part of our business activities are devoted to research and
development, focused primarily on the stem cell segment of our
business. During 2008 and 2009, we spent $1,725,187 and $2,968,987,
respectively, on research and development. While we utilize our own
proprietary technology in both our plasma volume expander and stem cell research
and development programs, we presently rely to a significant extent upon
technology licensed from others in our stem cell research and development
efforts. See “Licensed Stem Cell Technology and Stem Cell Product
Development Agreements.”
Human
embryonic stem cells are capable of becoming all of the thousands of different
cell types in the body. Because embryonic stem cells can now be
derived in a noncontroversial manner, including through the use of iPS
technology, they are
increasingly likely to be utilized in a wide array of future therapies to
restore the function of organs damaged by degenerative diseases such as heart
failure, stroke, and diabetes.
A portion
of our current efforts in the regenerative medicine field are focused on the
development and sale of advanced human stem cell products and technology that
can be used by researchers at universities and other institutions, at companies
in the bioscience and biopharmaceutical industries, and at other companies that
provide research products to companies in those industries. By
focusing a portion of our resources on products and technology that will be used
by researchers and drug developers at larger institutions and corporations, we
believe that we will be able to commercialize products in less time and using
less capital than will be required to develop therapeutic products.
In our
CIRM-funded research project, we will work with hEPCs generated using our
ACTCellerate™ embryonic stem cell technology. The hEPCs are
relatively easy to manufacture on a large scale and in a purified state, which
may make it advantageous to work with these cells compared to the direct use of
hES or iPS cells. We will work on identifying antibodies and other
cell purification reagents that may be useful in the production of hEPCs that
can be used to develop pure therapeutic cells such as nerve, blood vessel, heart
muscle, cartilage, and skin.
Through
our subsidiaries, OncoCyte and BioTime Asia, we will attempt to develop human
stem cell products for therapeutic uses. We and Embryome Sciences
will license certain technology to OncoCyte and BioTime Asia for their research
and development programs. OncoCyte will seek to utilize human
embryonic stem cell technology to create genetically modified stem cells capable
of homing to specific malignant tumors while carrying genes that can cause the
destruction of the cancer cells. BioTime Asia will initially seek to
develop the therapeutic products for the treatment of ophthalmologic, skin,
musculo-skeletal system, and hematologic diseases, including the targeting of
genetically modified stem cells to tumors to treat cancer.
We have
obtained the rights to use and market stem cell lines developed by other
companies. We believe that obtaining rights to these cell lines has
given us a “jump start” in assembling an array of products for stem cell
research. Our plan is to produce these cells in commercial quantities
and offer them for sale to researchers. We may also derive new stem
cell lines, and we are working on the development of new products derived from
human stem cells, such as ESpy™ cell lines, which will be derivatives of hES
cells and will emit beacons of light. The light emitting property of
the ESpy cells will allow researchers to track the location and distribution of
the cells in both in
vitro and in
vivo studies.
We are
also working to develop new growth and differentiation factors that will permit
researchers to manufacture specific cell types from embryonic stem cells, and
purification tools useful to researchers in quality control of products for
regenerative medicine.
Licensing
and Sale of Plasma Volume Expander Products
Hospira
Hospira
has the exclusive right to manufacture and sell Hextend in the United States and
Canada under a license agreement with us. Hospira is presently
marketing Hextend in the United States. Hospira’s license applies to
all therapeutic uses other than those involving hypothermic surgery where the
patient’s body temperature is lower than 12°C (“Hypothermic Use”), or
replacement of substantially all of a patient’s circulating blood volume (“Total
Body Washout”).
Hospira
pays us a royalty on total annual net sales of Hextend. The royalty
rate is 5% plus an additional .22% for each $1,000,000 of annual net sales, up
to a maximum royalty rate of 36%. The royalty rate for each year is
applied on a total net sales basis. Hospira’s obligation to pay
royalties on sales of Hextend will expire on a country by country basis when all
patents protecting Hextend in the applicable country expire and any third party
obtains certain regulatory approvals to market a generic equivalent product in
that country. The relevant composition patents begin to expire in
2014 and the relevant methods of use patents expire in 2019.
We have
the right to convert Hospira’s exclusive license to a non-exclusive license or
to terminate the license outright if certain minimum sales and royalty payments
are not met. In order to terminate the license outright, we would pay
a termination fee in an amount ranging from the milestone payments we received
to an amount equal to three times prior year net sales, depending upon when
termination occurs. Hospira has agreed to manufacture Hextend for
sale by us in the event that the exclusive license is terminated.
Hospira
has certain rights to acquire additional licenses to manufacture and sell our
other plasma expander products in their market territory. If Hospira
exercises these rights to acquire a license to sell such products for uses other
than Hypothermic Surgery or Total Body Washout, in addition to paying royalties,
Hospira will be obligated to pay a license fee based upon our direct and
indirect research, development, and other costs allocable to the new
product. If Hospira desires to acquire a license to sell any of our
products for use in Hypothermic Surgery or Total Body Washout, the license fees
and other terms of the license will be subject to negotiation between the
parties. For the purpose of determining the applicable royalty rates,
net sales of any such new products licensed by Hospira will be aggregated with
sales of Hextend. If Hospira does not exercise its right to acquire a
new product license, we may manufacture and sell the product ourselves or we may
license others to do so.
The
foregoing description of the Hospira license is a summary only and is qualified
in all respects by reference to the full text of the Hospira license
agreement.
CJ
CJ
markets Hextend in South Korea under an exclusive license from us. CJ
paid us a license fee to acquire their right to market Hextend. CJ
also pays us a royalty on sales of Hextend. The royalty will range
from $1.30 to $2.60 per 500 ml unit of product sold, depending upon the price
approved by Korea’s National Health Insurance. CJ is also responsible
for obtaining the regulatory approvals required to manufacture and market
PentaLyte, including conducting any clinical trials that may be required, and
will bear all related costs and expenses.
The
foregoing description of the CJ license is a summary only and is qualified in
all respects by reference to the full text of the CJ license
agreement.
Summit
We have
entered into agreements with Summit to develop Hextend and PentaLyte in Japan,
the People’s Republic of China, and Taiwan. Summit had sublicensed to
Maruishi Pharmaceutical Co., Ltd. (“Maruishi”) the right to manufacture and
market Hextend in Japan, and the right to manufacture and market Hextend and
PentaLyte in China and Taiwan. However, Maruishi has withdrawn from
the sublicense arrangement with Summit, and Summit has informed us that they
intend to seek a replacement sublicensee.
A Phase
III clinical trial using Hextend in surgery, funded by Maruishi, was conducted
in Japan, but work on the trial has not been completed. Due to the
withdrawal of Maruishi from its sublicense agreement, Summit will need to find a
replacement sublicensee or other source of funding in order to complete the
Phase III clinical study. Successful completion of the clinical study
is required in order to seek regulatory approval to market Hextend in
Japan.
The
revenues from licensing fees, royalties, and net sales, and any other payments
made for co-development, manufacturing, or marketing rights to Hextend and
PentaLyte in Japan will be shared between BioTime and Summit as follows: 40% to
us and 60% to Summit. Net sales means the gross revenues from the
sale of a product, less rebates, discounts, returns, transportation costs, sales
taxes and import/export duties. Summit paid us fees for the right to
co-develop Hextend and PentaLyte in Japan, and Summit has also paid us a share
of a sublicense fee payment from Maruishi.
We will
pay to Summit 8% of all net royalties that we receive from the sale of PentaLyte
in the United States, plus 8% of any license fees that we receive in
consideration of granting a license to develop, manufacture, and market
PentaLyte in the United States. Net royalties means royalty payments
received during a calendar year, minus the following costs and expenses incurred
during such calendar year: (a) all taxes assessed (other than taxes determined
with reference to our net income) and credits given or owed by us in connection
with the receipt of royalties on the sale of PentaLyte in the United States, and
(b) all fees and expenses payable by us to the United States Food and Drug
Administration (directly or as a reimbursement of any licensee) with respect to
PentaLyte.
Summit
paid us a fee to acquire the China and Taiwan license. We also will
be entitled to receive 50% of the royalties and milestone payments payable to
Summit by any third-party sublicensee.
The
foregoing description of the Summit agreement is a summary only and is qualified
in all respects by reference to the full text of the Summit
agreements.
Major
Customers
During
2008 and 2009, all of our royalty revenues were generated through sales of
Hextend by Hospira in the United States and by CJ in the Republic of
Korea. We also earned license fees from CJ and Summit. The
following table shows the relative portions of our Hextend and PentaLyte royalty
and license fee revenues paid by Hospira, CJ, and Summit that were recognized
during the past two fiscal years.
|
|
%
of Total Revenues for the Year ended December 31,
|
|
Licensee
|
2009
|
2008
|
|
Hospira
|
73%
|
81%
|
|
CJ
Corp.
|
17%
|
9%
|
|
Summit
|
10%
|
10%
|
Royalty
Revenues and License Fees by Geographic Area
The
following table shows the source of our 2008 and 2009 royalty and license fee
revenues by geographic areas, based on the country of domicile of the
licensee:
|
|
|
Revenues
for Year ending December 31,
|
|
|
Geographic
Area
|
|
2009
|
|
|
2008
|
|
|
Domestic
|
|
$ |
996,681 |
|
|
$ |
1,203,453 |
|
|
Asia
|
|
|
376,173 |
|
|
|
277,999 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
$ |
1,372,854 |
|
|
$ |
1,481,452 |
|
Manufacturing
Hospira
manufactures Hextend for use in the North American market, and CJ manufactures
Hextend for use in South Korea. Hospira and CJ have the facilities to
manufacture Hextend and other BioTime products in commercial
quantities. If Hospira and CJ choose not to manufacture and market
other BioTime products, other manufacturers will have to be found that would be
willing to manufacture products for us or any licensee of our
products.
Facilities
Required – Plasma Volume Expanders
Any
products that are used in clinical trials for regulatory approval in the United
States or abroad, or that are approved by the FDA or foreign regulatory
authorities for marketing, have to be manufactured according to “good
manufacturing practices” (“GMP”) at a facility that has passed regulatory
inspection. In addition, products that are approved for sale will
have to be manufactured in commercial quantities, and with sufficient stability
to withstand the distribution process, and in compliance with such domestic and
foreign regulatory requirements as may be applicable. The active
ingredients and component parts of the products must be medical grade or
themselves manufactured according to FDA-acceptable “good manufacturing
practices.”
We do not
have facilities to manufacture our plasma volume expander products in commercial
quantities, or under GMP. Acquiring a manufacturing facility would
involve significant expenditure of time and money for design and construction of
the facility, purchasing equipment, hiring and training a production staff,
purchasing raw material, and attaining an efficient level of
production. Although we have not determined the cost of constructing
production facilities that meet FDA requirements, we expect that the cost would
be substantial, and that we would need to raise additional capital in the future
for that purpose. To avoid the incurrence of those expenses and
delays, we are relying on Hospira and CJ for the production of Hextend, but
there can be no assurance that satisfactory arrangements will be made for any
new products that we may develop.
Facilities
Required—Stem Cell Products
We lease
an 11,000 square foot tissue culture facility in Alameda,
California. The facility is GMP capable and has previously been
certified as Class 1000 and Class 10,000 laboratory space, and includes cell
culture and manufacturing equipment previously validated for use in GMP
manufacture of cell-based products. Our subsidiary, Embryome
Sciences, will use the facility for the production of hEPCs, progenitor cell
lines, and products derived from those hEPC lines. OncoCyte will also
conduct its research and development activities at this facility.
Raw
Materials
Although
most ingredients in the products we are developing are readily obtainable from
multiple sources, we know of only a few manufacturers of the hydroxyethyl
starches that serve as the primary drug substance in Hextend and
PentaLyte. Hospira and CJ presently have a source of supply of the
hydroxyethyl starch used in Hextend and PentaLyte and have agreed to maintain a
supply sufficient to meet market demand for Hextend in the countries in which
they market the product. We believe that we will be able to obtain a
sufficient supply of starch for our needs in the foreseeable future, although we
do not have supply agreements in place. If for any reason a
sufficient supply of hydroxyethyl starch could not be obtained, we or a licensee
would have to acquire a manufacturing facility and the technology to produce the
hydroxyethyl starch according to good manufacturing practices. We
would have to raise additional capital to participate in the development and
acquisition of the necessary production technology and facilities, which may not
be feasible. The use of a different hydroxyethyl starch could require
us or a licensee to conduct additional clinical trials for FDA or foreign
regulatory approval to market Hextend with the new starch.
If
arrangements cannot be made for a source of supply of hydroxyethyl starch, we
would have to reformulate our solutions to use one or more other starches that
are more readily available. In order to reformulate our products, we
would have to perform new laboratory and clinical testing to determine whether
the alternative starches could be used in a safe and effective synthetic plasma
volume expander, low temperature blood substitute, or organ preservation
solution. We or our licensees would also have to obtain new
regulatory approvals from the FDA and foreign regulatory agencies to market the
reformulated product. If needed, such testing and regulatory
approvals would require the incurrence of substantial cost and delay, and there
is no certainty that any such testing would demonstrate that an alternative
ingredient, even if chemically similar to the one currently used, would be safe
or effective.
Marketing
Stem
Cell Research Products
Our
products for use in stem cell research are being offered to researchers at
universities and other institutions, at companies in the bioscience and
biopharmaceutical industries, and at other companies that provide research
products to companies in those industries. By initially focusing our
resources on products and technologies that will be used by researchers and drug
developers at larger institutions and corporations, we believe that we will be
able to commercialize products more quickly, and using less capital, than we
would by developing therapeutic products ourselves.
On July
7, 2009, Embryome Sciences entered into an agreement under which Millipore
Corporation is now a worldwide distributor of ACTCellerate™ human progenitor
cell lines. Millipore’s initial offering of Embryome Sciences’
products began during January 2010, with six novel progenitor cell lines, which
are being marketed and distributed on a worldwide basis. We
anticipate that Embryome Sciences will jointly launch with Millipore, within the
coming 12 months, an additional 29 cell lines, and associated ESpan™ growth
media for the in vitro
propagation of each progenitor cell line.
Millipore
will be Embryome Sciences’ exclusive third party distributor of the products
covered by the agreement, although Embryome Sciences retains the right to sell
the products to its own customers and is presently marketing the initial
products online at Embryome.com. Embryome
Sciences’ products may also be offered in the People’s Republic of China and
other countries in Asia through BioTime Asia. Embryome Sciences will
provide the products to Millipore on consignment and will be paid on a quarterly
basis for products sold. Embryome Sciences will receive additional
annual payments from Millipore based on a percentage of annual sales, if annual
sales exceed certain milestone amounts.
The
Millipore agreement will have a term of five years, subject to annual renewal if
the parties so elect, and subject to Millipore’s right to terminate the
agreement at any time upon 60 days notice. Either party may also
terminate the agreement in the case of an uncured breach or default by the other
party.
The
market for our stem cell products may be impacted by the amount of government
funding available for research in the development of stem cell
therapies.
Plasma
Volume Expanders
Hextend
is being distributed in the United States by Hospira and in South Korea by CJ
under exclusive licenses from us. Hospira also has the right to
obtain licenses to manufacture and sell other BioTime products. We
have granted CJ the right to market PentaLyte in South Korea, and we have
licensed to Summit the right to market Hextend and PentaLyte in Japan, China,
and Taiwan, but our licensees will have to first obtain the foreign regulatory
approvals required to sell our product in those countries.
Because
Hextend is a surgical product, sales efforts must be directed to physicians and
hospitals. The Hextend marketing strategy is designed to reach its
target customer base through sales calls, and through an advertising campaign
focused on the use of a plasma-like substance to replace lost blood volume and
on the ability of Hextend to support vital physiological processes.
Hextend
competes with other products used to treat or prevent hypovolemia, including
albumin, generic 6% hetastarch solutions, and crystalloid
solutions. The competing products have been commonly used in surgery
and trauma care for many years, and in order to sell Hextend, physicians must be
convinced to change their product loyalties. Although albumin is
expensive, crystalloid solutions and generic 6% hetastarch solutions sell at low
prices. In order to compete with other products, particularly those
that sell at lower prices, Hextend will have to be recognized as providing
medically significant advantages.
The FDA
has required the manufacturers of 6% hetastarch in saline solutions to change
their product labeling by adding a warning stating that those products are not
recommended for use as a cardiac bypass prime solution, or while the patient is
on cardiopulmonary bypass, or in the immediate period after the pump has been
disconnected. We have not been required to add that warning to the
labeling of Hextend. An article discussing this issue entitled “6%
Hetastarch in Saline Linked to Excessive Bleeding in Bypass Surgery” appeared in
the December 2002 edition of Anesthesiology
News. We understand that a number of hospitals have switched
from 6% hetastarch in saline to Hextend due to these concerns.
As part
of the marketing program, a number of studies have been conducted that show the
advantages of receiving Hextend and other BioTime products during
surgery. As these studies are completed, the results are presented at
medical conferences and articles written for publication in medical
journals. We are also aware of independent studies using Hextend that
are being conducted by physicians and hospitals who may publish their findings
in medical journals or report their findings at medical conferences. For
example, a recent
independent study in hemodynamically unstable trauma patients conducted at the
University of Miami Ryder Trauma Center reported that initial resuscitation with
Hextend was associated with no obvious coagulopathy and reduced mortality
compared to fluid resuscitation without Hextend. The outcome of
future medical studies and timing of the publication or presentation of the
results could have an effect on Hextend sales.
Patents
and Trade Secrets
We
currently hold 26 issued United States patents having composition and methods of
use claims covering our proprietary solutions, including Hextend and
PentaLyte. The most recent U.S. patents were issued during March
2009. Some of our allowed claims in the United States, which include
the composition and methods of use of Hextend and PentaLyte, are expected to
remain in force until 2014 in the case of the composition patents, and 2019 in
the case of the methods of use patents. Patents covering certain of
our solutions have also been issued in several countries of the European Union,
Australia, Israel, Russia, South Africa, South Korea, Japan, China, Hong Kong,
Taiwan and Singapore, and we have filed patent applications in other foreign
countries for certain products, including Hextend, HetaCool, and
PentaLyte. Certain device patents describing our hyperbaric (high
pressure oxygen) chamber, and proprietary microcannula (a surgical tool) have
also been issued in the United States and overseas, both of which - although
only used in research so far - have possible indications in clinical
medicine. There is no assurance that any additional patents will be
issued. Further, the enforcement of patent rights often requires
litigation against third party infringers, and such litigation can be costly to
pursue.
In
addition to patenting our own technology, we have licensed patents and patent
applications for certain stem cell technology, hEPC lines, and hES cell lines
from other companies. See “Our Business--Licensed Stem Cell
Technologies and Stem Cell Product Development Agreements.”
In
Europe, the European Patent Convention prohibits the granting of European
patents for inventions that concern "uses of human embryos for industrial or
commercial purposes." The European Patent Office is presently
interpreting this prohibition broadly, and is applying it to reject patent
claims that pertain to human embryonic stem cells. However, this
broad interpretation is being challenged through the European Patent Office
appeals system. As a result, we do not yet know whether or to what
extent we will be able to obtain patent protection for our human embryonic stem
cell technologies in Europe.
There is
a risk that any patent applications that we file and any patents that we hold or
later obtain could be challenged by third parties and declared invalid or
infringing of third party claims. A patent interference proceeding
may be instituted with the U.S. Patent and Trademark Office (the “PTO”) when
more than one person files a patent application covering the same technology, or
if someone wishes to challenge the validity of an issued patent. At
the completion of the interference proceeding, the PTO will determine which
competing applicant is entitled to the patent, or whether an issued patent is
valid. Patent interference proceedings are complex, highly contested
legal proceedings, and the PTO’s decision is subject to appeal. This
means that if an interference proceeding arises with respect to any of our
patent applications, we may experience significant expenses and delay in
obtaining a patent, and if the outcome of the proceeding is unfavorable to us,
the patent could be issued to a competitor rather than to us. In
addition to interference proceedings, the PTO can reexamine issued patents at
the request of a third party seeking to have the patent
invalidated. This means that patents owned or licensed by us may be
subject to reexamination and may be lost if the outcome of the reexamination is
unfavorable to us.
Oppositions
to the issuance of patents may be filed under European patent law and the patent
laws of certain other countries. Like US PTO interference
proceedings, these foreign proceedings can be very expensive to contest and can
result in significant delays in obtaining a patent or can result in a denial of
a patent application.
The
enforcement of patent rights often requires litigation against third party
infringers, and such litigation can be costly to pursue. Even if we
succeed in having new patents issued or in defending any challenge to issued
patents, there is no assurance that our patents will be comprehensive enough to
provide us with meaningful patent protection against our
competitors.
In
addition to patents, we rely on trade secrets, know-how, and continuing
technological advancement to maintain our competitive position. We
have entered into intellectual property, invention, and non-disclosure
agreements with our employees, and it is our practice to enter into
confidentiality agreements with our consultants. There can be no
assurance, however, that these measures will prevent the unauthorized disclosure
or use of our trade secrets and know-how, or that others may not independently
develop similar trade secrets and know-how or obtain access to our trade
secrets, know-how, or proprietary technology.
Competition
Plasma
Volume Expanders
Our
plasma volume expander solutions will compete with products currently used to
treat or prevent hypovolemia, including albumin, other colloid solutions, and
crystalloid solutions presently manufactured by established pharmaceutical
companies, and with human blood products. Some of these products –
crystalloid solutions in particular – are commonly used in surgery and trauma
care, and sell at low prices. In order to compete with other
products, particularly those that sell at lower prices, our products will have
to be recognized as providing medically significant advantages. Like
Hextend, the competing products are being manufactured and marketed by
established pharmaceutical companies that have large research facilities,
technical staffs, and financial and marketing resources. B.Braun
presently markets Hespan, an artificial plasma volume expander containing 6%
hetastarch in saline solution. Hospira and Baxter International
manufacture and sell a generic equivalent of Hespan. As a result of
the introduction of generic plasma expanders and new proprietary products,
competition in the plasma expander market has intensified, and wholesale prices
have declined. Hospira, which markets Hextend in the United States,
is also the leading seller of generic 6% hetastarch in saline solution, and
recently obtained the right to sell Voluven®, a
plasma volume expander containing a 6% low molecular weight hydroxyethyl starch
in saline solution. Sanofi-Aventis, Baxter International, and Alpha Therapeutics
sell albumin, and Hospira, Baxter International, and B.Braun sell crystalloid
solutions.
To
compete with new and existing plasma expanders, we have developed products that
contain constituents that may prevent or reduce the physiological imbalances,
bleeding, fluid overload, edema, poor oxygenation, and organ failure that can
occur when competing products are used. To compete with existing
organ preservation solutions, we have developed solutions that can be used to
preserve all organs simultaneously and for long periods of
time.
A number
of other companies are known to be developing hemoglobin and synthetic red blood
cell substitutes and technologies. Our products have been developed
for use either before red blood cells are needed or in conjunction with the use
of red blood cells. In contrast, hemoglobin and other red blood cell
substitute products are designed to remedy hypoxia and similar conditions that
may result from the loss of oxygen-carrying red blood cells. Those
products would not necessarily compete with our products unless the oxygenating
molecules were included in solutions that could replace fluid volume and prevent
or reduce the physiological imbalances as effectively as our
products. Generally, red blood cell substitutes are more expensive to
produce and potentially more toxic than Hextend and PentaLyte.
The
competition we face is likely to intensify further as new products and
technologies reach the market. Superior new products are likely to
sell for higher prices and generate higher profit margins once acceptance by the
medical community is achieved. Those companies that are successful in
introducing new products and technologies to the market first may gain
significant economic advantages over their competitors in the establishment of a
customer base and track record for the performance of their products and
technologies. Such companies will also benefit from revenues from
sales that could be used to strengthen their research and development,
production, and marketing resources. All companies engaged in the
medical products industry face the risk of obsolescence of their products and
technologies as more advanced or cost effective products and technologies are
developed by their competitors. As the industry matures, companies
will compete based upon the performance and cost effectiveness of their
products.
Products
for Stem Cell Research
The stem
cell industry is characterized by rapidly evolving technology and intense
competition. Our competitors include major multinational
pharmaceutical companies, specialty biotechnology companies, and chemical and
medical products companies operating in the fields of regenerative medicine,
cell therapy, tissue engineering, and tissue regeneration. Many of
these companies are well-established and possess technical, research and
development, financial, and sales and marketing resources significantly greater
than ours. In addition, certain smaller biotech companies have formed
strategic collaborations, partnerships, and other types of joint ventures with
larger, well established industry competitors that afford these companies’
potential research and development and commercialization
advantages. Academic institutions, governmental agencies, and other
public and private research organizations are also conducting and financing
research activities which may produce products directly competitive to those we
are developing.
We
believe that some of our competitors are trying to develop hES cell, iPS cell,
and hEPC based technologies and products that may compete with our potential
stem cell products based on efficacy, safety, cost, and intellectual property
positions.
We may
also face competition from companies that have filed patent applications
relating to the cloning or differentiation of stem cells. We may be
required to seek licenses from these competitors in order to commercialize
certain of our proposed products, and such licenses may not be
granted.
Government
Regulation
FDA
and Foreign Regulation
The
United States Food and Drug Administration (“FDA”) and foreign regulatory
authorities will regulate our proposed products as drugs, biologicals, or
medical devices, depending upon such factors as the use to which the product
will be put, the chemical composition, and the interaction of the product on the
human body. In the United States, products that are intended to be
introduced into the body, such as plasma volume expanders, will be regulated as
drugs, while tissues and cells intended for transplant into the human body will
be regulated as biologicals, and both plasma volume expanders and tissue and
cell therapeutic products will be reviewed by the FDA staff responsible for
evaluating biologicals.
Our
domestic human drug and biological products will be subject to rigorous FDA
review and approval procedures. After testing in animals, an
Investigational New Drug Application (“IND”) must be filed with the FDA to
obtain authorization for human testing. Extensive clinical testing,
which is generally done in three phases, must then be undertaken at a hospital
or medical center to demonstrate optimal use, safety, and efficacy of each
product in humans. Each clinical study is conducted under the
auspices of an independent Institutional Review Board (“IRB”). The
IRB will consider, among other things, ethical factors, the safety of human
subjects, and the possible liability of the institution. The time and
expense required to perform this clinical testing can far exceed the time and
expense of the research and development initially required to create the
product. No action can be taken to market any therapeutic product in
the United States until an appropriate New Drug Application (“NDA”) has been
approved by the FDA. FDA regulations also restrict the export of
therapeutic products for clinical use prior to NDA approval.
Even
after initial FDA approval has been obtained, further studies may be required to
provide additional data on safety or to gain approval for the use of a product
as a treatment for clinical indications other than those initially
targeted. In addition, use of these products during testing and after
marketing could reveal side effects that could delay, impede, or prevent FDA
marketing approval, resulting in FDA-ordered product recall, or in FDA-imposed
limitations on permissible uses.
The FDA
regulates the manufacturing process of pharmaceutical products, and human tissue
and cell products, requiring that they be produced in compliance with “good
manufacturing practices.” See “Manufacturing.” The FDA
also regulates the content of advertisements used to market pharmaceutical
products. Generally, claims made in advertisements concerning the
safety and efficacy of a product, or any advantages of a product over another
product, must be supported by clinical data filed as part of an NDA or an
amendment to an NDA, and statements regarding the use of a product must be
consistent with the FDA approved labeling and dosage information for that
product.
Sales of
pharmaceutical products outside the United States are subject to foreign
regulatory requirements that vary widely from country to
country. Even if FDA approval has been obtained, approval of a
product by comparable regulatory authorities of foreign countries must be
obtained prior to the commencement of marketing the product in those
countries. The time required to obtain such approval may be longer or
shorter than that required for FDA approval.
The
United States government and its agencies have until recently refused to fund
research which involves the use of human embryonic tissue. President
Bush issued Executive Orders on August 9, 2001 and June 20, 2007 that permitting
federal funding of research on hES cells using only the limited number of hES
cell lines that had already been created as of August 9, 2001. On
March 9, 2009, President Obama issued an Executive Order rescinding President
Bush’s August 9, 2001 and June 20, 2007 Executive Orders. President
Obama’s Executive Order also instructed the National Institutes of Health to
review existing guidance on human stem cell research and to issue new guidance
on the use of hES cells in federally funded research, consistent with
President’s new Executive Order and existing law. The NIH has adopted
new guidelines that went into effect July 7, 2009. The central focus
of the new guidelines is to assure that hES cells used in federally funded
research were derived from human embryos that were created for reproductive
purposes, were no longer needed for this purpose, and were voluntarily donated
for research purposes with the informed written consent of the
donors. Those hES cells that were derived from embryos created for
research purposes rather than reproductive purposes, and other hES cells that
were not derived in compliance with the guidelines, are not eligible for use in
federally funded research.
In
addition to President Obama’s Executive Order, a bipartisan bill has been
introduced in the United States Senate that would allow Federal funding of hES
research. The Senate bill is identical to one that was previously
approved by both Houses of Congress but vetoed by President Bush. The
Senate Bill provides that hES cells will be eligible for use in research
conducted or supported by federal funding if the cells meet each of the
following guidelines: (1) the stem cells were derived from human embryos that
have been donated from in
vitro fertilization clinics, were created for the purposes of fertility
treatment, and were in excess of the clinical need of the individuals seeking
such treatment; (2) prior to the consideration of embryo donation and through
consultation with the individuals seeking fertility treatment, it was determined
that the embryos would never be implanted in a woman and would otherwise be
discarded, and (3) the individuals seeking fertility treatment donated the
embryos with written informed consent and without receiving any financial or
other inducements to make the donation. The Senate Bill authorizes
the NIH to adopt further guidelines consistent with the
legislation.
California
State Regulations
The state
of California has adopted legislation and regulations that require institutions
that conduct stem cell research to notify, and in certain cases obtain approval
from, a Stem Cell Research Oversight Committee (“SCRO Committee”) before
conducting the research. Advance notice, but not approval by the SCRO
Committee, is required in the case of in vitro research that does
not derive new stem cell lines. Research that derives new stem cell
lines, or that involves fertilized human oocytes or blastocysts, or that
involves clinical trials or the introduction of stem cells into humans, or that
involves introducing stem cells into animals, requires advanced approval by the
SCRO Committee. Clinical trials may also entail approvals from an
institutional review board (“IRB”) at the medical center at which the study is
conducted, and animal studies may require approval by an Institutional Animal
Care and Use Committee.
All human
pluripotent stem cell lines that will be used in Embryome Sciences research must
be acceptably derived. To be acceptably derived, the pluripotent stem
cell line must have either:
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Been
listed on the National Institutes of Health Human Embryonic Stem Cell
Registry, or
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Been
deposited in the United Kingdom Stem Cell Bank,
or
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Been
derived by, or approved for use by, a licensee of the United Kingdom Human
Fertilisation and Embryology Authority,
or
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Been
derived in accordance with the Canadian Institutes of
Health Research Guidelines for Human Stem Cell Research under
an application approved by the National Stem Cell Oversight Committee,
or
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Been
derived under the following
conditions:
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(a) Donors
of gametes, embryos, somatic cells, or human tissue gave voluntary and informed
consent.
(b) Donors
of gametes, embryos, somatic cells, or human tissue did not receive valuable
consideration. This provision does not prohibit reimbursement for permissible
expenses as determined by an IRB.
(c) A
person may not knowingly, for valuable consideration, purchase or sell gametes,
embryos, somatic cells, or human tissue for research purposes. This provision
does not prohibit reimbursement for permissible expenditures as determined by an
IRB or Committee. “Permissible expenditures” means necessary and
reasonable costs directly incurred as a result of persons, not including human
subjects or donors, providing gametes, embryos, somatic cells, or human tissue
for research purposes. Permissible expenditures may include but are not limited
to costs associated with processing, quality control, storage, or transportation
of materials.
(d) Donation
of gametes, embryos, somatic cells, or human tissue was overseen by an IRB (or,
in the case of foreign sources, an IRB-equivalent).
(e) Individuals
who consented to donate stored gametes, embryos, somatic cells, or human tissue
were not reimbursed for the cost of storage prior to the decision to
donate.
California
regulations also require that certain records be maintained with respect to stem
cell research and the materials used, including:
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A
registry of all human stem cell research conducted, and the source(s) of
funding for this research.
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A
registry of human pluripotent stem cell lines derived or imported, to
include, but not necessarily limited
to:
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(a) The
methods utilized to characterize and screen the materials for
safety;
(b) The
conditions under which the materials have been maintained and
stored;
(c) A
record of every gamete donation, somatic cell donation, embryo donation, or
product of somatic cell nuclear transfer that has been donated,
created, or used.
(d)
A record of each review and approval conducted by the SCRO
Committee.
California
Proposition 71
During
November 2004, California State Proposition 71 (“Prop. 71”), the California Stem
Cell Research and Cures Initiative, was adopted by state-wide
referendum. Prop. 71 provides for a state-sponsored program designed
to encourage stem cell research in the State of California, and to finance such
research with State funds totaling approximately $295 million annually for 10
years beginning in 2005. This initiative created CIRM, which will
provide grants, primarily but not exclusively, to academic institutions to
advance both hES cell research and adult stem cell research. During
April 2009, we were awarded a $4,721,706 research grant from CIRM. We
believe that Prop. 71 funding for research in the use of hES cells for various
diseases and conditions will contribute to the demand for stem cell research
products.
Employees
As of
December 31, 2009, we employed seventeen persons on a full-time basis and three
persons on a part-time basis. Six full-time employees hold Ph.D.
Degrees in one or more fields of science.
Our
offices and laboratory facilities are located at 1301 Harbor Bay Parkway, in
Alameda, California where we occupy approximately 11,000 square feet of office
and research laboratory space. The facility is GMP capable and has
previously been certified as Class 1000 and Class 10,000 laboratory space, and
includes cell culture and manufacturing equipment previously validated for use
in GMP manufacture of cell-based products. We will use the facility
for the production of hEPCs and hEPC lines, and products derived from those hEPC
lines.
Base
monthly rent for this facility was $22,600 during 2009, and will be $23,340
during 2010. In addition to base rent, we pay a pro rata share of
real property taxes and certain costs related to the operation and maintenance
of the building in which the leased premises are located.
We also
currently pay $5,050 per month for the use of approximately 900 square feet of
office space in New York City, which is made available to us by one of our
directors at his cost for use in conducting meetings. This cost will
be reduced to $4,100 per month beginning March 1, 2010.
Item 3. Legal Proceedings
We are
not presently involved in any material litigation or proceedings, and to our
knowledge no such litigation or proceedings are contemplated.
Item 4. Submission of Matters to a
Vote of Security Holders
Our
annual meeting of shareholders was held on October 15, 2009. At the
meeting our shareholders elected nine directors to serve until the next annual
meeting and until their successors are duly elected and
qualified. Our shareholders also approved an amendment to our
articles of incorporation that increased the number of authorized common shares
from 50,000,000 to 75,000,000, and two amendments of our 2002 Employee Stock
Option Plan that made an additional 4,000,000 shares available for the grant of
stock options or the sale of restricted stock to our key employees, directors,
and consultants. The shareholders also ratified the Board of
Directors’ selection of Rothstein Kass & Company, P.C. as our independent
public accountants to audit our financial statements for the current fiscal
year. The following tables show the votes cast by our shareholders
and any abstentions and broker non-votes with respect to the matters presented
to shareholders for a vote at the meeting:
Election
of Directors
|
Nominee
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Votes For
|
Percent of Vote
|
Votes Withheld
|
|
|
|
|
|
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Neal
C. Bradsher
|
27,492,709
|
99.31%
|
190,802
|
|
Arnold
I. Burns
|
27,437,588
|
99.11%
|
245,923
|
|
Robert
N. Butler
|
27,487,411
|
99.29%
|
196,100
|
|
Abraham
E. Cohen
|
27,436,048
|
99.11%
|
247,463
|
|
Valeta
A. Gregg
|
27,516,693
|
99.40%
|
166,818
|
|
Alfred
D. Kingsley
|
27,514,388
|
99.39%
|
169,123
|
|
Pedro
Lichtinger
|
27,476,494
|
99.25%
|
207,017
|
|
Judith
Segall
|
27,517,747
|
99.40%
|
165,764
|
|
Michael
D. West
|
27,514,809
|
99.39%
|
168,702
|
Amendment
of Articles of Incorporation
|
|
Shares Voted
|
Percent of Quorum
|
|
|
|
|
|
For
|
27,289,482
|
98.58%
|
|
Against
|
315,238
|
|
|
Abstain
|
78,791
|
|
|
Broker
Non-Votes
|
-
|
|
Amendments
of 2002 Stock Option Plan
|
|
Shares Voted
|
Percent of Quorum
|
|
|
|
|
|
For
|
18,306,538
|
66.13%
|
|
Against
|
621,140
|
|
|
Abstain
|
41,252
|
|
|
Broker
Non-Votes
|
8,714,581
|
|
Ratification
of Appointment of Independent Accountants
|
|
Shares Voted
|
Percent of Quorum
|
|
|
|
|
|
For
|
27,555,842
|
99.54%
|
|
Against
|
68,694
|
|
|
Abstain
|
58,975
|
|
|
Broker
Non-Votes
|
-
|
|
Part
II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters, and Issuer Purchases of Equity Securities
BioTime
common shares were traded on the American Stock Exchange from August 31, 1999
until July 14, 2005, were quoted on the OTC Bulletin Board (“OTCBB”) under the
symbol BTIM from July 15, 2005 until October 29, 2009, and were relisted on the
NYSE Amex on October 30, 2009, where they now continue to trade.
The
following table sets forth the range of high and low closing prices for the
common shares for the fiscal years ended December 31, 2008 and 2009 based on
transaction data as reported by the OTCBB:
|
Quarter
Ended
|
|
High
|
|
|
Low
|
|
|
March
31, 2008
|
|
|
0.40 |
|
|
|
0.27 |
|
|
June
30, 2008
|
|
|
0.60 |
|
|
|
0.29 |
|
|
September
30, 2008
|
|
|
1.80 |
|
|
|
0.55 |
|
|
December
31, 2008
|
|
|
2.30 |
|
|
|
0.95 |
|
|
March
31, 2009
|
|
|
2.55 |
|
|
|
1.25 |
|
|
June
30, 2009
|
|
|
3.00 |
|
|
|
1.57 |
|
|
September
30, 2009
|
|
|
6.40 |
|
|
|
2.30 |
|
|
December
31, 2009
|
|
|
6.35 |
|
|
|
3.59 |
|
Over-the-counter
market quotations may reflect inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual
transactions.
As of
February 3, 2010, there were 9,690 holders of the common shares based on the
share position listing.
BioTime
has paid no dividends on its common shares since its inception and does not plan
to pay dividends on its common shares in the foreseeable future.
The
following table shows certain information concerning the options and warrants
outstanding and available for issuance under all of our compensation plans and
agreements as of December 31, 2009:
|
Plan
Category
|
|
Number
of Shares to be Issued Upon Exercise of Outstanding Options, Warrants, and
Rights
|
|
|
Weighted
Average Exercise Price of the Outstanding Options, Warrants, and
Rights
|
|
|
Number
of Shares Remaining Available for Future Issuance Under Equity
Compensation Plans
|
|
|
Equity
Compensation Plans Approved by Shareholders
|
|
|
3,477,000 |
|
|
$ |
1.12 |
|
|
|
2,087,168 |
|
|
Equity
Compensation Plans Not Approved By Shareholders*
|
|
|
849,167 |
|
|
$ |
1.82 |
|
|
|
- |
|
*We have
granted 321,667 warrants to certain consultants for providing services to us,
and we have granted 402,500 warrants to an investment banker for arranging a
portion of the loans under our Revolving Line of Credit Agreement. We
have also granted 125,000 options to a consultant for providing services to
us. These warrants and options were issued without registration under
the Securities Act of 1933, as amended, in reliance upon the exemption provided
by Section 4(2) thereunder.
Item 6. Selected Financial Data
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Plasma
Volume Expander Products
Our
operating revenues have been derived almost exclusively from royalties and
licensing fees related to our plasma volume expander products, primarily
Hextend. Hextend has become the standard plasma volume expander at a
number of prominent teaching hospitals and leading medical centers and is part
of the Tactical Combat Casualty Care protocol. We believe that as the
decision to use Hextend proliferates within leading U.S. hospitals, other
smaller hospitals will follow this trend, contributing to sales
growth.
Under our
license agreements, Hospira and CJ will report sales of Hextend and pay us the
royalties and license fees due on account of such sales after the end of each
calendar quarter. We recognize such revenues in the quarter in which
the sales report is received, rather than the quarter in which the sales took
place.
Royalties
on sales of Hextend that occurred during the fourth quarter of 2008 through the
third quarter of 2009 are reflected in our financial statements for the year
ended December 31, 2009. We received $996,681 in royalties from
Hextend sales by Hospira during 2009. Royalties for 2009 decreased
12% from $1,132,460 in royalties from Hospira on Hextend sales in
2008. The decrease is primarily due to a decrease in sales to the
U.S. Armed Forces. Purchases by the Armed Forces generally take the
form of intermittent, large volume orders, and cannot be predicted with
certainty. In addition, we received royalties from CJ in the amount
of $83,197 for the period ended December 31, 2009, representing a 17% increase
from $70,993 in royalties received for the period ended December 31,
2008. Royalties from sales of Hextend by CJ were included in license
fees during accounting periods ended prior to January 1, 2009.
Based on
sales of Hextend that occurred during the fourth quarter of 2009, we received
royalties of $268,700 from Hospira during the first quarter of 2010, and we
expect to receive royalties of $24,673 from CJ during the same quarter.
Total
royalties of $293,373 for the quarter increased 33% from royalties of
$219,895 received during the same period last year. The increase is
generally due to an increase in sales to the military by Hospira and to an
increase in overall sales by CJ, offset somewhat by a decrease in sales to
hospitals by Hospira. These royalties will be reflected in our
financial statements for the first quarter of 2010.
During
the year ended December 31, 2006, we received $500,000 from Summit for the right
to co-develop Hextend and PentaLyte in Japan, China, and Taiwan. A
portion of the cash payment is a partial reimbursement of BioTime’s development
costs of Hextend and a portion is a partial reimbursement of BioTime’s
development costs of PentaLyte. This payment is reflected on our
balance sheet as deferred revenue. See Note 5 to financial statements
for further discussion of the appropriate accounting.
Stem
Cells and Products for Regenerative Medicine Research
We are
marketing our stem cell products for research through our wholly-owned
subsidiary, Embryome Sciences. Embryome Sciences has entered into an
agreement under which Millipore Corporation is a worldwide distributor of
ACTCellerate™ human progenitor cell lines. Embryome Sciences began
its initial delivery of six novel progenitor cell lines to Millipore during
January 2010, which are being marketed and distributed on a worldwide
basis. The companies anticipate jointly launching an additional 29
cell lines and associated optimized ESpan™ growth media for the in vitro propagation of each
progenitor cell line within the coming 12 months. The Embryome
Sciences products distributed by Millipore may also be purchased directly from
Embryome Sciences at Embryome.com. We
also plan to offer these research products in Asia through BioTime
Asia.
Embryome
Sciences has acquired an array of hES cell lines carrying inherited genetic
diseases such as cystic fibrosis and muscular dystrophy. Study of
these cell lines will enable researchers to better understand the mechanisms
involved in causing the disease states, which may in turn expedite the search
for potential treatments. We intend to offer these hES cell lines for
sale online at Embryome.com
during 2010.
Because
we are in the process of launching our first products for stem cell research,
and we cannot predict the amount of revenue that the new products we offer might
generate. We did not receive significant revenues from stem cell
product sales during 2009.
Embryome
Sciences also plans to bring to market new growth and differentiation factors
that will permit researchers to manufacture specific cell types from hES cells,
and purification tools useful to researchers in quality control of products for
regenerative medicine. Embryome Sciences also targeted for
development ESpy™ cell lines, which will be derivatives of hES cells that will
emit beacons of light. These light emitting cells will allow
researchers to track the location and distribution of the cells in both in vitro and in vivo
studies. As new products are developed, they will become available
for purchase on Embryome.com.
Results
of Operations
Under our
license agreements with Hospira and CJ, our licensees report sales of Hextend
and pay us the royalties and license fees due on account of such sales within 90
days after the end of each calendar quarter. We recognize such
revenues in the quarter in which the sales report is received, rather than the
quarter in which the sales took place, as we do not have sufficient sales
history to accurately predict quarterly sales. For example, royalties
on sales made during the fourth quarter of 2008 were not recognized until the
first quarter of fiscal year 2009.
Year
Ended December 31, 2009 and Year Ended December 31, 2008
Our
royalty revenues for the year ended December 31, 2009 consist of royalties on
sales of Hextend made by Hospira and CJ during the period beginning October 1,
2008 and ending September 30, 2009. Royalty revenues recognized for
that period were $1,079,951, compared with $1,203,453 recognized for the year
ended December 31, 2008. This 10% decrease in royalties is
attributable to a decrease in Hextend sales in the United States, which was
slightly offset by an increase in sales in the Republic of Korea. The
decrease in sales in the U.S. market is primarily due to a decrease in sales to
the U.S. Armed Forces. Purchases by the Armed Forces generally take
the form of intermittent, large volume orders, and cannot be predicted with
certainty. Royalties from sales of Hextend by CJ were included in
license fees during 2008.
We
received the first two quarterly payments, totaling $790,192, from our research
grant from CIRM in the second half of 2009. Because grant income is
recognized as revenue when earned, and these amounts received covered the period
of September 1, 2009 through February 28, 2010, only the amount earned through
December 31, 2009, which equaled $546,794, was recognized in our consolidated
financial statements.
We
recognized as revenue $292,832 and $277,999 of license fees from CJ and Summit
during 2009 and 2008, respectively. The license fees were received
from CJ during April 2003 and July 2004, and from Summit during December 2004
and April and October of 2005, but full recognition of the license fees has been
deferred, and is being recognized over the life of the contract, which has been
estimated to last until approximately 2019 based on the current expected life of
the governing patent covering our products in Korea and
Japan. Royalties of $70,993 from Hextend sales by CJ were included in
license fees during 2008. Beginning January 1, 2009, royalties from
Hextend sales by CJ are included in royalties from product sales. See
Notes 2 and 5 to the condensed interim financial statements.
Research
and development expenses increased to $2,968,987 for the year ended December 31,
2009, from $1,725,187 for the year ended December 31, 2008. The
increase is primarily attributable to our entry into the stem cell field, and
includes increases of approximately $337,000 in salaries and other payroll
related expenses charged to research and development, $62,000 in employee bonus
amounts allocated to research and development, $120,000 in rent charged to
research and development, $264,000 in laboratory expense and laboratory
supplies, $189,000 in outside research expenses, $123,000 in expense associated
with stock-based compensation allocated to research and development, $63,000 in
scientific consulting fees, and $81,000 in fringe benefit costs allocated to
research and development expense. Research and development expenses
include laboratory study expenses, salaries, rent, insurance, and
science-related consultants’ fees.
General
and administrative expenses decreased to $2,476,447 for the year ended December
31, 2009 from $2,601,237 for the year ended December 31, 2008. This
change reflects decreases of approximately $158,000 in general and
administrative consulting expenses, $96,000 in stock based compensation expenses
charged to general and administrative expense, and $954,000 in stock
appreciation rights compensation expenses. These decreases were
offset to some extent by increases of approximately $228,000 in stock-based
compensation paid to our independent directors, $129,000 in cash compensation
paid to our independent directors, $82,000 in stock-related expenses,
$50,000 in annual report and meeting expenses, $81,000 in investor/public
relations expenses, $30,000 in rent allocated to general and administration
expenses, $64,000 in travel and entertainment expenses, $91,000 in legal
expenses, $77,000 in outside services expenses, $41,000 in salaries and other
payroll related expenses, $48,000 in employee bonus amounts allocated to general
and administrative expense, $36,000 in accounting expenses, $35,000 in taxes
allocated to general and administrative expense, and $48,000 in patent
expenses. General and administrative expenses include salaries
allocated to general and administrative accounts, consulting fees other than
those paid for science-related consulting, expenditures for patent costs,
trademark expenses, insurance costs allocated to general and administrative
expenses, stock exchange-related costs, depreciation expense, shipping expenses,
marketing costs, and other miscellaneous expenses. Stock-based
compensation increased during 2009 in large part due to our common shares
trading at prices higher than the prices that prevailed during
2008.
Interest
and Other Income (Expense)
Our
interest expense increased by approximately $688,000 during 2009 primarily due
to interest incurred on our lines of credit (See Note 4) and approximately
$304,000 relating to the conversion of the line of credit debt and accrued
interest into common shares.
For the
year ended December 31, 2009, other income increased to $30,112 from $7,518 for
the year ended December 31, 2008. The difference is chiefly
attributable to an increase of approximately $25,000 in interest income due to
higher cash balances.
Taxes
At
December 31, 2009 we had a cumulative net operating loss carryforward of
approximately $53,000,000 for federal
income tax purposes and $23,800,000 for state income tax
purposes. Our effective tax rate differs from the statutory rate
because we have recorded a 100% valuation allowance against our deferred tax
assets, as we do not consider realization to be more likely than
not.
Liquidity
and Capital Resources
At
December 31, 2009, we had $12,189,081 of cash and cash equivalents on
hand. We may need to obtain additional debt or equity capital in
order to finance our operations. Since inception, we have primarily
financed our operations through the sale of equity securities, licensing fees,
royalties on product sales by our licensees, and borrowings. The
amount of license fees and royalties that may be earned through the licensing
and sale of our products and technology, the timing of the receipt of license
fee payments, and the future availability and terms of equity financing, are
uncertain. Although we have recently been awarded a research grant
from CIRM for a particular project, we must finance our other research and
operations with funding from other sources.
We
presently have issued and outstanding 12,264,345 common share purchase warrants,
most of which are exercisable at a price of $2.00 per share, and all of which
expire in the fourth quarter of 2010. Of those warrants, 7,060,488
warrants have been registered under the Securities Act and are publicly traded
on the NYSE Amex, and 5,124,649 warrants were issued without registration under
the Securities Act of 1933, as amended, and are not yet listed for trading on
the NYSE Amex. We plan to register for sale under the Securities Act
and to list on the NYSE Amex the 5,124,649 additional outstanding warrants that
were issued without registration under the Securities Act. We plan to
use proceeds from the exercise of those warrants to fund our operations and a
planned additional investment of $2,250,000 in OncoCyte. In order to
provide warrant holders with an incentive to exercise their warrants prior to
the October 31, 2010 warrant expiration date, we plan to offer the warrant
holders the opportunity to exercise up to 3,000,000 warrants, in the aggregate,
at a price of $1.70 per share, representing a discount of $0.30 per share from
the regular warrant exercise price of $2.00 per share. The
commencement and expiration dates of the warrant discount offer have not yet
been determined. The warrant discount offer will not commence until a
registration statement pertaining to the warrant discount offer becomes
effective.
The
unavailability or inadequacy of financing or revenues to meet future capital
needs could force us to modify, curtail, delay, or suspend some or all aspects
of our planned operations. Sales of additional equity securities
could result in the dilution of the interests of present
shareholders.
Cash
generated by operations
During
2009 we received approximately $1,632,300 of cash in our
operations. Our sources of that cash were approximately $996,700 of
royalty revenues from Hospira and approximately $83,200 from CJ. We
also received research grant installments totaling $790,192 from the California
Institute of Regenerative Medicine, of which we recognized $526,795 in revenues
as of December 31, 2009.
Cash
used in operations
During
2009 our total research and development expenditures were approximately
$2,969,000 and our administrative expenditures were approximately
$2,476,400. Net loss for the year ended December 31, 2009 amounted to
$5,144,499. Net cash used in operating activities during this period
amounted to $4,259,938. The difference between the net loss and net
cash used in operating activities during the year ended December 31, 2009 was
primarily attributable to increase of $1,637,400 in stock appreciation rights
compensation liability, $782,543 in amortization of deferred finance costs on
line of credit, an imputed cost of $304,399 arising from the right of Revolving
Line of Credit Agreement lenders to exchange promissory notes for common shares,
$263,397 in deferred grant income, $260,840 in stock-based compensation expense,
$227,724 in stock options to outside directors, $190,845 in warrants issued in
connection with the debt exchange offer, and $102,059 in amortization of
deferred consulting fees; all of these were offset to some extent by a reversal
of stock appreciation rights compensation liability in the amount of $2,121,088,
a $419,456 decrease in accounts payable, $292,904 in amortization of deferred
license revenues and $131,481 in prepaid expenses and other current
assets. Net loss for the year ended December 31, 2008 amounted to
$3,780,895. Net cash used in operating activities during this period
amounted to $1,604,245. The difference between the net loss and net
cash used in operating activities during the year ended December 31, 2008 was
primarily attributable to increase of $470,537 in stock appreciation rights
compensation liability, $330,394 arising from the right of Revolving Line of
Credit Agreement lenders to exchange promissory notes for common shares,
$321,514 in amortization of deferred finance costs on line of credit, $699,539
increase in accounts payable, $137,250 in common stock issued for services,
increase of $114,938 in accrued interest expense on lines of credit, and
$105,840 increase in deferred revenues; all of these were offset to some extent
by $277,999 decrease in amortization of deferred license revenues.
Cash
generated by financing activities
During
the year ended December 31, 2009, $16,482,966 in net cash was provided from our
financing activities. During May and July, 2009, we raised $8,000,000
of equity capital through the sale of 4,400,000 common shares and 4,400,000
stock purchase warrants to two private investors. The warrants
entitle the investors to purchase additional common shares at an exercise price
of $2.00 per share. The warrants will expire on October 31, 2010 and
may not be exercised after that date. During October and December,
2009, our subsidiary, OncoCyte Corporation raised $4,000,000 through the sale of
6,000,000 shares of its common stock, no par value, to two investors who now
hold 26% of the outstanding shares of OncoCyte.
We had a
Revolving Line of Credit Agreement (the “Credit Agreement”) with certain private
lenders that permitted us to borrow up to $3,500,000. The Credit
Agreement was first implemented during 2006 and was amended from time to time
since then, including amendments that extended the term of the Credit Agreement
and increased the amount of credit available to us. The most recent
loans made under the Credit Agreement bore interest at the rate of 12% per annum
and matured on December 1, 2009. Loans under the Credit Agreement
were collateralized by a security interest in our right to receive royalty and
other payments under our license agreement with Hospira. During 2009,
we borrowed $2,310,000 under the Credit Agreement, and we paid off $210,718 of
principal and accrued interest on Credit Agreement loans that were made in prior
years. The entire $3,499,259 principal balance of the Credit
Agreement loans was retired through the exchange of BioTime common shares and
warrants for Credit Agreement promissory notes during 2009. The
Credit Agreement has now expired and no further loans may be made under
it. See Note 4 of Notes to Financial Statements.
During
2009, we received $848,449 in cash in connection with the exercises of 535,832
options. During the same period, we also received $1,616,342 in cash
in connection with the exercises of 808,171 warrants.
In
November 2008, Embryome Sciences borrowed $275,000 from certain private
lenders. As consideration for arranging the loans, we issued warrants
to purchase up to 277,919 common shares. The warrants will be
exercisable at a price of $2.00 per share, and will expire on October 31, 2010
if not exercised prior to that date. The Embryome Sciences lenders
subsequently joined as lenders under our Credit Agreement and accepted a
promissory note from us in satisfaction of Embryome Sciences’ loan
obligation. The loan debt to these lenders was completely paid off as
part of the August 2009 line of credit exchange offer.
We also
obtained a line of credit from American Express in August 2004, which allows for
borrowings up to $25,300. On June 11, 2009, we paid American Express
$20,413, which paid off this line of credit in full. We no longer
have any borrowings under this line of credit.
We also secured a line of credit from
Advanta in November 2006, which allows for borrowings up to
$35,000. As of December 31, 2008, we had drawn the entire line of
credit. On June 9, 2009, we paid Advanta $32,495, which paid off this
line of credit in full. We no longer have any borrowings under this
line of credit.
Contractual
obligations
We had no
contractual obligations as of December 31, 2009, with the exception of a fixed,
non-cancelable operating lease on our office and laboratory facility in Alameda,
California. The lease expires on November 30, 2010. Base
monthly rent was $22,600 during 2009, and will be $23,340 during
2010. In addition to base rent, we pay a pro rata share of real
property taxes and certain costs related to the operation and maintenance of the
building in which the leased premises are located.
Future
capital needs
We will
depend upon royalties from the sale of Hextend by Hospira and CJ and upon our
research grant from CIRM as our principal sources of revenues for the near
future. Our royalty revenues from Hospira and CJ will be supplemented by
any revenues that we may receive from our stem cell research products, and by
license fees if we enter into new commercial license agreements for our
products. Also, Millipore began marketing six hEPC lines for Embryome
Sciences during January 2010, but it is too early to predict future revenues
from the sale of our stem cell research products by Millipore.
The
amount and pace of research and development work that we can do or sponsor, and
our ability to commence and complete the clinical trials that are required in
order for us to obtain FDA and foreign regulatory approval of products, depend
upon the amount of money we have. We curtailed the pace and scope of
our plasma volume expander development efforts due to the limited amount of
funds available. Future research and clinical study costs are not
presently determinable due to many factors, including the inherent uncertainty
of these costs and the uncertainty as to timing, source, and amount of capital
that will become available for these projects.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk
We did
not hold any market risk sensitive instruments as of December 31, 2009 or
December 31, 2008.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
BioTime,
Inc.
We have
audited the accompanying consolidated balance sheets of BioTime, Inc. and
Subsidiaries (collectively, the “Company”) as of December 31, 2009 and 2008, and
the related consolidated statements of operations, changes in equity (deficit),
and cash flows of the years then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of BioTime, Inc. and
Subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Roseland,
New Jersey
February
11, 2010
Item 8. Financial Statements and Supplementary
Data.
BIOTIME,
INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
12,189,081 |
|
|
$ |
12,279 |
|
|
Inventory
|
|
|
38,384 |
|
|
|
- |
|
|
Prepaid
expenses and other current assets
|
|
|
138,547 |
|
|
|
96,595 |
|
|
Total
current assets
|
|
|
12,366,012 |
|
|
|
108,874 |
|
|
Equipment,
net of accumulated depreciation of $54,291 and $602,510 in 2009 and
2008, respectively
|
|
|
131,133 |
|
|
|
105,607 |
|
|
Deferred
license fees
|
|
|
880,000 |
|
|
|
750,000 |
|
|
Deposits
|
|
|
55,926 |
|
|
|
70,976 |
|
|
TOTAL
ASSETS
|
|
$ |
13,433,071 |
|
|
$ |
1,035,457 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY/(DEFICIT)
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$ |
530,958 |
|
|
$ |
1,179,914 |
|
|
Lines
of credit payable, net
|
|
|
- |
|
|
|
1,885,699- |
|
|
Deferred
grant income
|
|
|
263,397 |
|
|
|
- |
|
|
Deferred
license revenue, current portion
|
|
|
367,904 |
|
|
|
312,904 |
|
|
Total
current liabilities
|
|
|
1,162,259 |
|
|
|
3,378,517 |
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Stock
appreciation rights compensation liability
|
|
|
- |
|
|
|
483,688 |
|
|
Deferred
rent, net of current portion
|
|
|
- |
|
|
|
3,339 |
|
|
Deferred
license revenue, net of current portion
|
|
|
1,223,823 |
|
|
|
1,516,727 |
|
|
Total
long-term liabilities
|
|
|
1,223,823 |
|
|
|
2,003,754 |
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
EQUITY/(DEFICIT):
|
|
|
|
|
|
|
|
|
|
Preferred
Shares, no par value, authorized 1,000,000 shares; none
issued
|
|
|
- |
|
|
|
- |
|
|
Common
Shares, no par value, authorized 75,000,000 shares; issued and outstanding
shares; 33,667,659 and 25,076,798 in 2009 and 2008,
respectively
|
|
|
59,722,318 |
|
|
|
43,184,606 |
|
|
Contributed
capital
|
|
|
93,972 |
|
|
|
93,972 |
|
|
Accumulated
deficit
|
|
|
(52,769,891 |
) |
|
|
(47,625,392 |
) |
|
Total
shareholders' equity/(deficit)
|
|
|
7,046,399 |
|
|
|
(4,346,814 |
) |
|
Noncontrolling
interest
|
|
|
4,000,590 |
|
|
|
- |
|
|
Total
equity/(deficit)
|
|
|
11,046,989 |
|
|
|
(4,346,814 |
) |
|
TOTAL
LIABILITIES AND EQUITY/(DEFICIT)
|
|
$ |
13,433,071 |
|
|
$ |
1,035,457 |
|
See notes
to consolidated financial statements.
BIOTIME,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
|
Year
Ended |
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
License
fees
|
|
$ |
292,832 |
|
|
$ |
277,999 |
|
|
Royalty
from product sales
|
|
|
1,079,951 |
|
|
|
1,203,453 |
|
|
Grant
income and other revenues
|
|
|
552,385 |
|
|
|
22,340 |
|
|
Total
revenues
|
|
|
1,925,168 |
|
|
|
1,503,792 |
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
(2,968,987 |
) |
|
|
(1,725,187 |
) |
|
General
and administrative
|
|
|
(2,476,447 |
) |
|
|
(2,601,237 |
) |
|
Total
expenses
|
|
|
(5,445,434 |
) |
|
|
(4,326,424 |
) |
|
Loss
from operations
|
|
|
(3,520,266 |
) |
|
|
(2,822,632 |
) |
|
OTHER
INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(1,653,755 |
) |
|
|
(965,781 |
) |
|
Other
income
|
|
|
30,112 |
|
|
|
7,518 |
|
|
Total
net other income (expenses)
|
|
|
(1,623,643 |
) |
|
|
(958,263 |
) |
|
NET
LOSS
|
|
|
(5,143,909 |
) |
|
|
(3,780,895 |
) |
|
Net
income attributable to the noncontrolling interest
|
|
|
(590 |
) |
|
|
- |
|
|
Net
loss attributable to BioTime, Inc.
|
|
$ |
(5,144,499 |
) |
|
$ |
(3,780,895 |
) |
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER COMMON SHARE
|
|
$ |
(0.18 |
) |
|
$ |
(0.16 |
) |
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:BASIC AND
DILUTED
|
|
|
29,295,608 |
|
|
|
23,749,933 |
|
See notes
to consolidated financial statements.
BIOTIME,
INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
BioTime,
Inc. Shareholders
|
|
|
|
|
|
|
|
|
|
|
Common
Shares
|
|
|
Contributed
Capital
|
|
|
Accumulated
Deficit
|
|
|
Noncontrolling
Interest
|
|
|
Total
Equity/(Deficit)
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT JANUARY 1, 2008
|
|
|
23,034,374 |
|
|
$ |
40,704,136 |
|
|
$ |
93,972 |
|
|
$ |
(43,844,497 |
) |
|
$ |
- |
|
|
|
(3,046,389 |
) |
|
Common
shares issued for new loans and extension of line of
credit
|
|
|
580,410 |
|
|
|
273,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
273,200 |
|
|
Common
shares issued for conversion of line of credit and accrued
interest
|
|
|
1,112,014 |
|
|
|
1,442,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,442,409 |
|
|
Shares
granted for services
|
|
|
225,000 |
|
|
|
137,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,250 |
|
|
Common
shares issued for cash
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
Exercise
of options
|
|
|
25,000 |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
Stock
options granted for compensation
|
|
|
|
|
|
|
134,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,518 |
|
|
Warrants
issued for services
|
|
|
|
|
|
|
159,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
159,142 |
|
|
NET
LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,780,895 |
) |
|
|
|
|
|
|
(3,780,895 |
) |
|
BALANCE
AT DECEMBER 31, 2008
|
|
|
25,076,798 |
|
|
$ |
43,184,606 |
|
|
$ |
93,972 |
|
|
$ |
(47,625,392 |
) |
|
$ |
- |
|
|
$ |
(4,346,814 |
) |
|
Sale
of OncoCyte subsidiary shares to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000,000 |
|
|
|
4,000,000 |
|
|
Common
shares issued for new loans and extension of line of
credit
|
|
|
153,206 |
|
|
|
304,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,181 |
|
|
Common
shares issued for conversion of line of credit and accrued
interest
|
|
|
2,493,374 |
|
|
|
4,134,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,134,424 |
|
|
Shares
granted for services
|
|
|
135,000 |
|
|
|
229,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,500 |
|
|
Shares
granted for licensing fees
|
|
|
65,278 |
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
|
|
Common
shares issued for cash
|
|
|
4,400,000 |
|
|
|
8,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000 |
|
|
Exercise
of options
|
|
|
535,832 |
|
|
|
848,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
848,449 |
|
|
Warrants
exercised
|
|
|
808,171 |
|
|
|
1,616,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,616,342 |
|
|
Warrants
issued for line of credit
|
|
|
|
|
|
|
398,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398,548 |
|
|
Warrants
issued for services
|
|
|
|
|
|
|
93,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,304 |
|
|
Stock
options granted for compensation
|
|
|
|
|
|
|
488,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
488,564 |
|
|
Beneficial
conversion feature
|
|
|
|
|
|
|
304,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,400 |
|
|
NET
LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,144,499 |
) |
|
|
590 |
|
|
|
(5,143,909 |
) |
|
BALANCE
AT DECEMBER 31, 2009
|
|
|
33,667,659 |
|
|
$ |
59,722,318 |
|
|
$ |
93,972 |
|
|
$ |
(52,769,891 |
) |
|
$ |
4,000,590 |
|
|
$ |
11,046,989 |
|
See notes
to consolidated financial statements.
BIOTIME,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
Year
Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss attributable to BioTime, Inc.
|
|
$ |
(5,144,499 |
) |
|
$ |
(3,780,895 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of capital leased assets
|
|
|
34,591 |
|
|
|
16,745 |
|
|
Loss
on write-off of equipment
|
|
|
1,159 |
|
|
|
- |
|
|
Bad
debt expense
|
|
|
2,538 |
|
|
|
- |
|
|
Reclassification
of licensing fees expensed in prior year
|
|
|
(10,000 |
) |
|
|
- |
|
|
Amortization
of deferred license revenues
|
|
|
(292,904 |
) |
|
|
(277,999 |
) |
|
Amortization
of deferred finance cost on lines of credit
|
|
|
782,542 |
|
|
|
321,514 |
|
|
Amortization
of deferred consulting fees
|
|
|
102,059 |
|
|
|
19,409 |
|
|
Amortization
of deferred grant revenues
|
|
|
(20,000 |
) |
|
|
- |
|
|
Amortization
of deferred rent
|
|
|
(3,339 |
) |
|
|
- |
|
|
Beneficial
conversion feature on notes and interest
|
|
|
304,400 |
|
|
|
330,394 |
|
|
Common
shares issued for services
|
|
|
- |
|
|
|
137,250 |
|
|
Stock
appreciation rights compensation liability
|
|
|
(483,688 |
) |
|
|
470,537 |
|
|
Stock-based
compensation
|
|
|
488,564 |
|
|
|
134,518 |
|
|
Warrants
issued for outside services
|
|
|
93,304 |
|
|
|
52,393 |
|
|
Warrants
issued for exchange offer interest expense
|
|
|
190,845 |
|
|
|
- |
|
|
Net
income allocable to noncontrolling interest
|
|
|
590 |
|
|
|
- |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(349 |
) |
|
|
754 |
|
|
Inventory
|
|
|
(38,384 |
) |
|
|
- |
|
|
Prepaid
expenses and other current assets
|
|
|
(146,200 |
) |
|
|
57,115 |
|
|
Accounts
payable and accrued liabilities
|
|
|
(419,456 |
) |
|
|
699,539 |
|
|
Interest
on lines of credit
|
|
|
(40,108 |
) |
|
|
114,938 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenues
|
|
|
75,000 |
|
|
|
105,840 |
|
|
Deferred
rent
|
|
|
- |
|
|
|
(6,297 |
) |
|
Deferred
grant income
|
|
|
263,397 |
|
|
|
- |
|
|
Net
cash used in operating activities
|
|
|
(4,259,938 |
) |
|
|
(1,604,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Payments
of license fees
|
|
|
- |
|
|
|
(750,000 |
) |
|
Purchase
of equipment
|
|
|
(61,276 |
) |
|
|
(109,872 |
) |
|
Security
deposit
|
|
|
15,050 |
|
|
|
(50,000 |
) |
|
Net
cash used in investing activities
|
|
|
(46,226 |
) |
|
|
(909,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Repayments
of lines of credit
|
|
|
(263,825 |
) |
|
|
(16,085 |
) |
|
Borrowings
under lines of credit
|
|
|
2,310,000 |
|
|
|
2,424,980 |
|
|
Deferred
debt cost
|
|
|
(28,000 |
) |
|
|
- |
|
|
Proceeds
from exercises of stock options
|
|
|
848,449 |
|
|
|
- |
|
|
Proceeds
from exercises of warrants
|
|
|
1,616,342 |
|
|
|
- |
|
|
Proceeds
from issuance of common shares
|
|
|
8,000,000 |
|
|
|
108,000 |
|
|
Proceeds
from sale of common shares of subsidiary
|
|
|
4,000,000 |
|
|
|
- |
|
|
Net
cash provided by financing activities
|
|
|
16,482,966 |
|
|
|
2,516,895 |
|
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
12,176,802 |
|
|
|
2,778 |
|
|
CASH
AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
12,279 |
|
|
|
9,501 |
|
|
At
end of year
|
|
$ |
12,189,081 |
|
|
$ |
12,279 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash
paid during year for interest
|
|
$ |
415,330 |
|
|
$ |
157,620 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES :
|
|
|
|
|
|
|
|
|
|
Common
shares issued for conversion of line of credit and accrued
interest
|
|
$ |
4,134,424 |
|
|
$ |
1,442,409 |
|
|
Common
shares issued for new loans and extension of line of
credit
|
|
$ |
304,181 |
|
|
$ |
273,200 |
|
|
Common
shares issued for accounts payable
|
|
$ |
229,500 |
|
|
|
- |
|
|
Common
shares issued for deferred license fees
|
|
$ |
120,000 |
|
|
|
- |
|
|
Warrants
issued for line of credit
|
|
$ |
398,548 |
|
|
$ |
225,951 |
|
|
Value
of rights to exchange promissory notes for stock
|
|
$ |
304,400 |
|
|
|
- |
|
See notes
to consolidated financial statements.
BIOTIME,
INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
and Basis of Presentation
General - BioTime is a
biotechnology company engaged in two areas of biomedical research and product
development. BioTime has historically developed blood plasma volume
expanders, and related technology for use in surgery, emergency trauma treatment
and other applications. Beginning in 2007, BioTime entered the
regenerative medicine business, focused on human embryonic stem (“hES”) cell and
induced pluripotent stem (“iPS”) cell technology. Products for the
research market are being developed and marketed through BioTime's wholly owned
subsidiary, Embryome Sciences, Inc. BioTime plans to develop stem
cell products for therapeutic use to treat cancer through its new subsidiary
OncoCyte Corporation, and to therapies to treat cancer and other diseases
through BioTime Asia, Limited, a subsidiary formed as a Hong Kong
corporation.
Regenerative
medicine refers to therapies based on stem cell technology that are designed to
rebuild cell and tissue function lost due to degenerative disease or
injury. These novel stem cells provide a means of manufacturing every
cell type in the human body and therefore show considerable promise for the
development of a number of new therapeutic products. Embryome
Sciences is focusing its current efforts in the regenerative medicine field on
the development and sale of advanced human stem cell products and technology
that can be used by researchers at universities and other institutions, at
companies in the bioscience and biopharmaceutical industries, and at other
companies that provide research products to companies in those
industries. These research-only markets generally can be marketed
without regulatory (FDA) approval, and are therefore relatively near-term
business opportunities when compared to therapeutic products. In July
2009, Embryome Sciences, Inc. entered into an agreement under which Millipore
Corporation is a worldwide distributor of ACTCellerate™ human progenitor cell
lines. Millipore’s initial offering of Embryome Sciences’ products
will include six novel progenitor cell lines and optimized ESpan™ growth media
for the in vitro
propagation of each progenitor cell line, which are being marketed and
distributed on a worldwide basis. The companies anticipate jointly
launching 29 additional cell lines and associated ESpan™ growth media within the
coming 12 months.
BioTime’s
operating revenues have been derived almost exclusively from royalties and
licensing fees related to the sale of its plasma volume expander products,
primarily Hextend®. BioTime
began to make its first stem cell research products available during 2008 but
has not yet generated significant revenues in that business
segment. BioTime’s ability to generate substantial operating revenue
depends upon its success in developing and marketing or licensing its plasma
volume expanders and stem cell products and technology for medical and research
use. On April 29, 2009, the California Institute of Regenerative
Medicine (“CIRM”) awarded BioTime a $4,721,706 grant for a stem cell research
project related to its ACTCellerate™
technology. The CIRM grant covers the period of September 1, 2009
through August 31, 2012, and to date BioTime has received the first two
quarterly payments from CIRM in the amount of $395,096 each, on October 12, 2009
and on December 15, 2009, respectively.
The
consolidated balance sheets as of December 31, 2009 and 2008, the consolidated
statements of operations for the years ended December 31, 2009 and 2008, the
Consolidated Statements of Changes in Equity for the years ended December 31,
2009 and 2008, and the consolidated statements of cash flows for the years ended
December 30, 2009 and 2008 have been prepared by BioTime’s management in
accordance with the instructions from the Form 10-K and Article 8-03 of
Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position, results of operations, and cash flows at December 31,
2009 have been made.
Principles of Consolidation –
The accompanying consolidated financial statements include the accounts of
Embryome Sciences, Inc., a wholly-owned subsidiary of BioTime, and OncoCyte
Corporation, a subsidiary of which BioTime owned approximately 74% of the
outstanding shares of common stock as of December 31, 2009. All
material intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements are presented in
accordance with accounting principles generally accepted in the United States
and with the accounting and reporting requirements of Regulation S-X of the
SEC.
Certain Significant Risks and
Uncertainties - BioTime’s operations are subject to a number of factors
that can affect its operating results and financial condition. Such
factors include but are not limited to the following: the results of clinical
trials of BioTime’s pharmaceutical products; BioTime’s ability to obtain United
States Food and Drug Administration and foreign regulatory approval to market
its pharmaceutical products; BioTime’s ability to develop new stem cell research
products and technologies; competition from products manufactured and sold or
being developed by other companies; the price and demand for BioTime products;
BioTime’s ability to obtain additional financing and the terms of any such
financing that may be obtained; BioTime’s ability to negotiate favorable
licensing or other manufacturing and marketing agreements for its products; the
availability of ingredients used in BioTime’s products; and the availability of
reimbursement for the cost of BioTime’s pharmaceutical products (and related
treatment) from government health administration authorities, private health
coverage insurers and other organizations.
2. Summary
of Significant Accounting Policies
Use of Estimates - The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Revenue recognition – BioTime
complies with the Securities and Exchange Commission’s (“SEC”) Staff Accounting
Bulletin guidance on revenue recognition. Royalty and license fee revenues
consist of product royalty payments and fees under license agreements and are
recognized when earned and reasonably estimable. BioTime recognizes
revenue in the quarter in which the royalty report is received rather than the
quarter in which the sales took place. When BioTime is entitled to
receive up-front nonrefundable licensing or similar fees pursuant to agreements
under which BioTime has no continuing performance obligations, the fees are
recognized as revenues when collection is reasonably assured. When
BioTime receives up-front nonrefundable licensing or similar fees pursuant to
agreements under which BioTime does have continuing performance obligations, the
fees are deferred and amortized ratably over the performance
period. If the performance period cannot be reasonably estimated,
BioTime amortizes nonrefundable fees over the life of the contract until such
time that the performance period can be more reasonably
estimated. Milestones payments, if any, related to scientific or
technical achievements are recognized in income when the milestone is
accomplished if (a) substantive effort was required to achieve the milestone,
(b) the amount of the milestone payment appears reasonably commensurate with the
effort expended, and (c) collection of the payment is reasonably
assured.
Grant
income is recognized as revenue when earned over the period of the
grant. BioTime received two quarterly grant income payments for a
total of $790,192 from CIRM during the second half of 2009, but as these amounts
covered the period of September 1, 2009 through February 28, 2010, only the
amount earned through December 31, 2009 was recognized in the consolidated
financial statements.
Cash and cash equivalents –
BioTime considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Concentrations of credit risk
- Financial instruments that potentially subject BioTime to significant
concentrations of credit risk consist primarily of cash and cash
equivalents. BioTime limits the amount of credit exposure of cash
balances by maintaining its accounts in high credit quality financial
institutions. Cash equivalent deposits with financial institutions
may, at times, exceed federally issued limits; however, BioTime has not
experienced any losses on such accounts.
Equipment - Equipment is
stated at cost. Equipment is being depreciated using the straight-line method
over a period of thirty-six to eighty-four months.
Inventory – Inventories are
stated at the lower of cost or market. Cost, which includes amounts
related to materials, labor, and overhead, is determined in a manner which
approximates the first-in, first-out (“FIFO”) method.
Deferred costs – Certain
costs incurred in obtaining the line of credit were deferred and have been
completely amortized as of December 31, 2009.
Patent costs - Costs
associated with obtaining patents on products or technology developed are
expensed as general and administrative expenses when incurred. These costs
totaled $168,131 and $120,054, for the years ended December 31, 2009 and 2008,
respectively. This accounting is in compliance with guidance
promulgated by the Financial Accounting Standards Board (the “FASB”) regarding
goodwill and other intangible assets.
Research and development –
BioTime complies with FASB requirements governing accounting for research and
development costs. Research and development costs are expensed when incurred,
and consist principally of salaries, payroll taxes, research and laboratory
fees, and hospital and consultant fees related to clinical trials.
Income taxes - BioTime
accounts for income taxes in accordance with FASB requirements, which prescribe
the use of the asset and liability method whereby deferred tax asset or
liability account balances are calculated at the balance sheet date using
current tax laws and rates in effect. Valuation allowances are
established when necessary to reduce deferred tax assets when it is more likely
than not that a portion or all of the deferred tax assets will not be
realized. Effective January 1, 2007, BioTime adopted the
provisions of a FASB Interpretation on accounting for uncertainty in income
taxes. The FASB guidance also prescribes a recognition threshold and
a measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to be taken in a tax return. For
those benefits to be recognized, a tax position must be more-likely-than-not
sustainable upon examination by taxing authorities. BioTime
recognizes accrued interest and penalties related to unrecognized tax benefits
as income tax expense. No amounts were accrued for the payment of
interest and penalties for the years ended December 31, 2008 and
2009. Management is currently unaware of any issues under review that
could result in significant payments or accruals.
Stock-based Compensation -
BioTime adopted accounting standards governing share-based payment, which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to directors and employees including employee
stock options based on estimated fair values. In March 2005, the SEC
issued additional guidelines which provide supplemental implementation guidance
for valuation of share-based payments. BioTime has applied the provisions of
this guidance in such valuations as well. Upon adoption of these
guidelines, BioTime has continued to utilize the Black-Scholes Merton option
pricing model which was previously used for BioTime's pro
forma. BioTime's determination of fair value of share-based
payment awards on the date of grant using an option-pricing model is affected by
BioTime's stock price as well as assumptions regarding a number of highly
complex and subjective variables. These variables include, but are
not limited to, BioTime's expected stock price volatility over the term of the
awards, and the actual and the projected employee stock options exercise
behaviors. The expected term of options granted is derived from
historical data on employee exercises and post-vesting employment termination
behavior. The risk-free rate is based on the U.S Treasury rates in
effect during the corresponding period of grant. Although the fair
value of employee stock options is determined in accordance with recent FASB
guidance, changes in the subjective assumptions can materially affect the
estimated value. In management's opinion, the existing valuation
models may not provide an accurate measure of the fair value of BioTime's
employee stock options because the option-pricing model value may not be
indicative of the fair value that would be established in a willing
buyer/willing seller market transaction.
Impairment of Long-Lived Assets
–BioTime’s long-lived assets, including intangible assets, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. If an impairment
indicator is present, BioTime evaluates recoverability by a comparison of the
carrying amount of the assets to future undiscounted net cash flows expected to
be generated by the assets. If the assets are impaired, the impairment
recognized is measured by the amount by which the carrying amount exceeds the
estimated fair value of the assets.
Loss per share – Basic net
loss per share is computed by dividing net loss available to common shareholders
by the weighted-average common shares outstanding for the
period. Diluted net loss per share reflects the weighted-average
common shares outstanding plus the potential effect of dilutive securities or
contracts which are convertible to common shares, such as options, warrants,
convertible debt, and preferred stock (using the treasury stock method) and
shares issuable in future periods, except in cases where the effect would be
anti-dilutive. Diluted loss per share for the years ended December
31, 2009 and 2008 excludes any effect from 3,602,000 options and 12,264,345
warrants, and 3,538,332 options and 8,344,534 warrants, respectively, as the
inclusion of those options and warrants would be antidilutive.
Fair value of financial
instruments - The fair value of BioTime’s assets and liabilities, which
qualify as financial instruments under FASB guidance regarding disclosures about
fair value of financial instruments, approximate the carrying amounts presented
in the accompanying Consolidated Balance Sheets.
Reclassification – Certain
prior year amounts have been reclassified to conform to the current year
presentation.
Recently issued and recently adopted
accounting pronouncements –In June 2009, the FASB approved the “FASB
Accounting Standards Codification” (“Codification”) as the single source of
authoritative, nongovernmental, U.S. Generally Accepted Accounting Principles
(“GAAP”) to be launched on July 1, 2009. The Codification does not
change current U.S. GAAP or how BioTime accounts for its transactions or the
nature of related disclosures made; instead it is intended to simplify user
access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. All existing
accounting standard documents will be superseded, and all other accounting
literature not included in the Codification will be considered
non-authoritative. The Codification is effective for interim and
annual periods ending after September 15, 2009. The Codification
became effective for BioTime beginning with the quarter ending September 30,
2009 and did not have an impact on BioTime’s balance sheet or results of
operations for the year ended December 31, 2009.
In
December 2007, the FASB issued an accounting pronouncement dealing with
non-controlling interests in consolidated financial statements. This
pronouncement requires that ownership interests in subsidiaries held by parties
other than the parent, and the amount of consolidated net income, be clearly
identified, labeled, and presented in the consolidated financial
statements. It also requires that once a subsidiary is
deconsolidated, any retained non-controlling equity investment in the former
subsidiary must be initially measured at fair value. Sufficient
disclosures are required to clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling
owners. The pronouncement is effective for fiscal years beginning
after December 15, 2008, and requires retroactive adoption of the presentation
and disclosure requirements for existing minority interests. All
other requirements are applied prospectively. This accounting
pronouncement did not have a material impact upon BioTime’s financial statements
for the year ended December 31, 2009.
In
January 2009, the FASB issued an accounting staff position on the subject of
impairment guidance which amended earlier guidance on the
subject. The goal of this new staff position is to achieve a more
consistent determination of whether an other-than-temporary impairment has
occurred. This new guidance also retains and emphasizes the objective
of an other-than-temporary impairment assessment provided in other related FASB
guidance. This staff position became effective for interim and annual
reporting periods ending after December 15, 2009, and will be applied
prospectively. This staff position did not have a material impact
upon BioTime’s financial statements for the year ended December 31,
2009.
On April
1, 2009, the FASB issued an accounting staff position on the subject of business
combinations to address application issues raised by preparers, auditors, and
members of the legal profession on initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. This staff
position applies to assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. This staff position did not have a material impact upon
BioTime’s financial statements for the years ended December 31, 2009 and
2008.
On April
9, 2009, the FASB issued an accounting staff position providing additional
guidance for estimating fair value of an asset or liability when the volume and
level of activity for the asset or liability have significantly
decreased. This staff position also includes guidance on identifying
circumstances that indicate a transaction is not orderly. This staff
position applies to interim and annual reporting periods ending after June 15,
2009, and will be applied prospectively. This staff position did not
have a material impact upon BioTime’s financial statements for the years ended
December 31, 2009.
On April
9, 2009, the FASB issued an accounting staff position amending the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and equity securities in
the financial statements. This staff position does not amend existing
recognition and measurement guidance related to other-than-temporary equity
securities. This staff position applies to interim and annual
reporting periods ending after June 15, 2009. This staff position did
not have a material impact upon BioTime’s financial statements for the years
ended December 31, 2009.
On April
9, 2009, the FASB issued an accounting staff position to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial
statements. This staff position also amends earlier published FASB
guidance to require those disclosures in summarized financial information at
interim reporting periods. This staff position applies to interim
reporting periods ending after June 15, 2009. This staff position did
not have a material impact upon BioTime’s financial statements for the years
ended December 31, 2009.
In June
2009, the FASB issued an accounting pronouncement which modifies how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be
consolidated. This pronouncement clarifies that the determination of
whether a company is required to consolidate an entity shall be based on, among
other things, an entity’s purpose and design and a company’s ability to direct
the activities of the entity that most significantly impact the entity’s
economic performance. This pronouncement requires an ongoing
reassessment of whether a company is the primary beneficiary of a variable
interest entity. This pronouncement also requires additional
disclosures about a company’s involvement in variable interest entities and any
significant changes in risk exposure due to that involvement. This
pronouncement applies to fiscal years beginning after November 15, 2009 and will
become effective for BioTime on January 1, 2010. BioTime is currently
evaluating the impact that the adoption of this pronouncement could have on its
financial condition, results of operations, and disclosures.
3. Inventory
At
December 31, 2009, BioTime’s wholly owned subsidiary, Embryome Sciences, held
$23,030 of inventory of all finished products on-site at its corporate
headquarters in Alameda, California. At that same date, $15,353 of
inventory of all finished products was held by a third party on
consignment. At December 31, 2008, no inventory was held at either
Embryome Sciences’ corporate headquarters or by any third parties on
consignment.
4. Lines
of Credit
BioTime
had a Revolving Line of Credit Agreement (the “Credit Agreement”) with certain
private lenders that was collateralized by a security interest in BioTime’s
right to receive royalty and other payments under its license agreement with
Hospira, Inc. BioTime was permitted to borrow up to $3,500,000 under
the Credit Agreement. Following an amendment to the Credit Agreement
in April 2009, the maturity date of this Revolving Line of Credit was extended
to December 1, 2009 with respect to $2,669,282 in principal amount of
loans. BioTime also received a total of $2,310,000 of new loans under
the amended Credit Agreement during the period January 1 through May 19,
2009. Lenders who agreed to extend the maturity date of their
outstanding loans to December 1, 2009 and lenders who made new loans received
from BioTime a total of 112,310 common shares having an aggregate market value
(based on closing price of the shares on the OTC Bulletin Board) equal to six
percent (6%) of the lender’s loan commitment, as consideration for the extension
of the term of their loans or for making new loans. BioTime also
repaid $210,718 of principal and accrued interest on loans that matured on April
15, 2009 and were not extended. In addition, from January 1 through
April 15, 2009, certain lenders exercised their right to exchange loans totaling
$624,415 of principal, plus accrued interest, for an aggregate of 423,936
BioTime common shares.
On August
20, 2009, BioTime completed an exchange offer with the holders of its revolving
credit notes through which BioTime issued 1,989,515 common shares and warrants
to purchase 100,482 common shares in exchange for notes in the aggregate
principal amount of $3,349,259. BioTime also paid interest in the
aggregate amount of $294,351 on the revolving credit notes tendered in the
exchange offer. The warrants issued in the exchange offer are
exercisable at a price of $2.00 per share, subject to adjustment under the terms
of a Warrant Agreement governing the warrants, and will expire at on October 31,
2010.
A
revolving credit note in the principal amount of $150,000 and associated accrued
interest of $9,850 was converted into equity by the note holder upon maturity at
December 1, 2009. Per the terms of the Credit Agreement, BioTime
issued 79,925 common shares on that date to pay off both the principal loan
amount and accrued interest. As of December 31, 2009, all loans,
including both principal and accrued interest, made to BioTime under the Credit
Agreement had been paid in full, the Credit Agreement has expired, and no
further loans may be made under its terms.
5.
Royalty Obligation and Deferred License Fees
In
December 2004, BioTime entered into an agreement with Summit Pharmaceuticals
International Corporation (“Summit”) to co-develop Hextend and PentaLyte for the
Japanese market. Under the agreement, BioTime received $300,000 in
December 2004, $450,000 in April 2005, and $150,000 in October
2005. The payments represent a partial reimbursement of BioTime’s
development cost of Hextend and PentaLyte. In June 2005, following
BioTime’s approval of Summit’s business plan for Hextend, BioTime paid to Summit
a one-time fee of $130,000 for their services in preparing the
plan. The agreement states that revenues from Hextend and PentaLyte
in Japan will be shared between BioTime and Summit as follows: BioTime 40% and
Summit 60%. Additionally, BioTime will pay Summit 8% of all net
royalties received from the sale of PentaLyte in the United
States.
To comply
with an accounting pronouncement, BioTime initially recorded $770,000 of the net
proceeds from Summit as “long-term debt, or royalty obligation” even though
BioTime is not legally indebted to Summit for that amount. In 2007,
BioTime completed its Phase II trials of PentaLyte, but was unable to enter into
a suitable licensing agreement for the product. BioTime has deemed
the continuation of the clinical trials necessary to bring PentaLyte to market
to be a significantly lower priority than it had been in the
past. Therefore, it is less likely that proceeds from the 8% of
PentaLyte US sales will be sufficient to pay down the Summit royalty obligation
prior to the expiration of the patents applicable to the product. As
a result of this change in accounting estimates, BioTime reevaluated treatment
of this transaction and determined that the transaction no longer meets any of
the factors of the applicable accounting pronouncement. Consequently,
BioTime has reclassified the royalty obligation to deferred revenue and is
amortizing it over the remaining life of the underlying patents.
On
January 3, 2008, BioTime entered into a Commercial License and Option Agreement
with Wisconsin Alumni Research Foundation (“WARF”). The WARF license
permits BioTime to use certain patented and patent pending technology belonging
to WARF, as well as certain stem cell materials, for research and development
purposes, and for the production and marketing of products used as research
tools, including in drug discovery and development. BioTime or
Embryome Sciences will pay WARF royalties on the sale of products and services
using the technology or stem cells licensed from WARF. The royalty
will range from 2% to 4%, depending on the kind of products sold. The
royalty rate is subject to certain reductions if BioTime also becomes obligated
to pay royalties to a third party in order to sell a product. In
March 2009, BioTime amended its license agreement with WARF. The
amendment increased the license fee from the original $225,000 to $295,000, of
which $225,000 is payable in cash and $70,000 was paid by delivering BioTime
common shares having a market value of $70,000 as of March 2,
2009. This $70,000 payment was included in deferred license fees in
BioTime’s consolidated balance sheet as of December 31, 2009. The
amendment extends until March 2, 2010 the dates for payment of the $215,000
balance of the cash license fee and $20,000 in remaining reimbursement of costs
associated with preparing, filing, and maintaining the licensed
patents. The commencement date for payment of an annual $25,000
license maintenance fee has also been extended to March 2,
2010.
On June
24, 2008, BioTime, along with its subsidiary, Embryome Sciences, entered into a
Product Production and Distribution Agreement with Lifeline Cell Technology, LLC
for the production and marketing of human embryonic progenitor cells (“hEPC”) or
hEPC lines, and products derived from those hEPCs. The products
developed under the agreement with Lifeline will be produced and sold for
research purposes, such as drug discovery and drug development
uses. Embryome Sciences paid Lifeline $250,000, included in advanced
license fee and others, to facilitate their product production and marketing
efforts. Embryome Sciences will be entitled to recover that amount
from the share of product sale proceeds that otherwise would have been allocated
to Lifeline.
On July
10, 2008, Embryome Sciences entered into a License Agreement with Advanced Cell
Technology, Inc. (“ACT”) under which Embryome Sciences acquired exclusive
world-wide rights to use ACT’s “ACTCellerate” technology for methods to
accelerate the isolation of novel cell strains from pluripotent stem
cells. Embryome Sciences paid ACT a $250,000 license fee and will pay
an 8% royalty on sales of products, services, and processes that utilize the
licensed technology. Once a total of $1,000,000 of royalties has been
paid, no further royalties will be due. The license will expire in
twenty years or upon the expiration of the last to expire of the licensed
patents, whichever is later. The $250,000 license fee was included in
deferred license fees in BioTime’s consolidated balance sheet as of December 31,
2009.
On August
15, 2008, Embryome Sciences entered into a License Agreement and a Sublicense
Agreement with ACT under which Embryome Sciences acquired world-wide rights to
use an array of ACT technology (the “ACT License”) and technology licensed by
ACT from affiliates of Kirin Pharma Company, Limited (the “Kirin
Sublicense”). The ACT License and Kirin Sublicense permit the
commercialization of products in human therapeutic and diagnostic product
markets.
The
technology licensed by Embryome Sciences covers methods to transform cells of
the human body, such as skin cells, into an embryonic state in which the cells
will be pluripotent. Under the ACT License, Embryome Sciences paid
ACT a $200,000 license fee and will pay a 5% royalty on sales of products,
services, and processes that utilize the licensed ACT technology, and 20% of any
fees or other payments (other than equity investments, research and development
costs, loans and royalties) received by Embryome Sciences from sublicensing the
ACT technology to third parties. Once a total of $600,000 of
royalties has been paid, no further royalties will be due. The
license will expire in twenty years or upon the expiration of the last to expire
of the licensed patents, whichever is later. The $200,000 license fee
payment was included in deferred license fees in BioTime’s consolidated balance
sheet as of December 31, 2009.
Under the
Kirin Sublicense, Embryome Sciences has paid ACT a $50,000 license fee and will
pay a 3.5% royalty on sales of products, services, and processes that utilize
the licensed ACT technology, and 20% of any fees or other payments (other than
equity investments, research and development costs, loans and royalties)
received by Embryome Sciences from sublicensing the Kirin Technology to third
parties. Embryome Sciences will also pay to ACT or to an affiliate of
Kirin Pharma Company, Limited (“Kirin”), annually, the amount, if any, by which
royalties payable by ACT under its license agreement with Kirin are less than
the $50,000 annual minimum royalty due. Those payments by Embryome
Sciences will be credited against other royalties payable to ACT under the Kirin
Sublicense. The license will expire upon the expiration of the last
to expire of the licensed patents, or May 9, 2016 if no patents are
issued. The $50,000 license fee payment has been included in deferred
license fees in BioTime’s consolidated balance sheet as of December 31,
2009.
In
February 2009, Embryome Sciences entered into a Stem Cell Agreement with
Reproductive Genetics Institute (“RGI”). In partial consideration of
the rights and licenses granted to Embryome Sciences by RGI, BioTime issued to
RGI 32,259 common shares, having a market value of $50,000 on the effective date
of the Stem Cell Agreement. This $50,000 payment was included in
deferred license fees in BioTime’s consolidated balance sheet as of December 31,
2009.
6. Related
Party Transactions
During
April 1998, BioTime initially entered into a financial advisory services
agreement with Greenbelt, Corp., a corporation controlled by Alfred D. Kingsley
and Gary K. Duberstein, who are also shareholders of BioTime. Until
2007, the agreement was renewed annually in March and covered the 12 months
ending March 31. The renewed agreement for 2008 covered services
provided from January 1 through December 31, 2008. Under the 2008
agreement, BioTime agreed to pay $135,000 in cash and to issue 300,000 common
shares for the twelve months ending December 31, 2008. Greenbelt
permitted BioTime to defer paying the entire $135,000 until January
2009. In return for Greenbelt allowing the deferral, 60,000 common
shares became issuable by BioTime to Greenbelt in January 2009, the value of
which was accrued for in BioTime’s financial statements as of December 31,
2008. Greenbelt and BioTime agreed to terminate their agreement
effective June 30, 2009, in connection with Alfred D. Kingsley joining the
BioTime Board of Directors, and BioTime agreed to pay Greenbelt $90,000 for
services rendered from January 1 through June 30, 2009. BioTime
agreed to indemnify Greenbelt and its officers, affiliates, employees, agents,
assignees, and controlling person from any liabilities arising out of or in
connection with actions taken on BioTime's behalf under the
agreement.
Activity
related to the Greenbelt agreement is presented in the table below:
| |
|
Balance
included in Accounts Payable at January 1,
|
|
|
Add:
Cash-based
expense accrued
|
|
|
Add:
Stock-based
expense accrued
|
|
|
Less:
Cash
payments
|
|
|
Less:
Value
of stock-based payments
|
|
|
Balance
included in Accounts Payable at December 31,
|
|
|
2009
|
|
$ |
454,500 |
|
|
$ |
90,000 |
|
|
|
- |
|
|
$ |
(225,000 |
) |
|
$ |
(229,500 |
) |
|
$ |
90,000 |
|
|
2008
|
|
$ |
90,000 |
|
|
$ |
135,000 |
|
|
$ |
366,750 |
|
|
|
- |
|
|
$ |
(137,250 |
) |
|
$ |
454,500 |
|
BioTime
also currently pays $5,050 per month for the use of approximately 900 square
feet of office space in New York City, which is made available to BioTime on a
month by month basis by one of its directors at his cost for use in conducting
meetings. This cost will be reduced to $4,100 per month beginning
March 1, 2010.
7. Total
Equity (Deficit)
BioTime,
as part of rights offerings and other agreements, has issued warrants to
purchase its common shares. Activity related to warrants in 2009 and
2008 is presented in the table below:
|
|
|
Number
of Shares
|
|
|
Per
share exercise price
|
|
|
Weighted
Average Exercise Price
|
|
|
Outstanding,
January 1, 2008
|
|
|
7,847,867 |
|
|
$ |
2.00 |
|
|
$ |
2.00 |
|
|
Granted
in 2008
|
|
|
496,667 |
|
|
$ |
.68-2.00 |
|
|
|
1.73 |
|
|
Outstanding,
December 31, 2008
|
|
|
8,344,534 |
|
|
$ |
2.00 |
|
|
$ |
1.98 |
|
|
Granted
in 2009
|
|
|
4,727,982 |
|
|
$ |
2.00 |
|
|
$ |
2.00 |
|
|
Exercised
in 2009
|
|
|
(808,171 |
) |
|
$ |
2.00 |
|
|
$ |
2.00 |
|
|
Outstanding,
December 31, 2009
|
|
|
12,264,345 |
|
|
$ |
2.00 |
|
|
$ |
1.99 |
|
At
December 31, 2009, 12,264,345 warrants to purchase common shares with a weighted
average exercise price of $1.99 and a weighted average remaining contractual
life of 0.86 years were outstanding.
In
October 2009, the board of directors and shareholders approved an increase in
the authorized number of common shares to 75,000,000 shares.
Preferred
Shares
BioTime
is authorized to issue 1,000,000 preferred shares of stock. The
preferred shares may be issued in one or more series as the board of directors
may by resolution determine. The board of directors is authorized to
fix the number of shares of any series of preferred shares and to determine or
alter the rights, references, privileges, and restrictions granted to or imposed
on the preferred shares as a class, or upon any wholly unissued series of any
preferred shares. The board of directors may, by resolution, increase
or decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series of preferred shares subsequent to the issue
of shares of that series.
As of
December 31, 2009 and 2008, BioTime has no issued and outstanding preferred
shares.
Common
shares
BioTime
is authorized to issue 75,000,000 common shares of stock with no par
value. As of December 31, 2009 and 2008, BioTime has issued and
outstanding 33,667,659 and 25,076,798 common shares of stock,
respectively.
Significant
common share transactions during the year ended December 31, 2008 are as
follows:
|
|
|
BioTime issued 1,112,014 common shares of stock upon conversion of line of
credit and accrued interest of
$1,442,409.
|
|
|
|
BioTime issued 580,410 common shares of stock to the line of credit
holders as inducement to extend loans to BioTime or to extend the maturity
of the line of credit. These shares were valued at $273,200
based on the fair value of shares granted on the date of the
transactions.
|
|
|
|
BioTime issued 100,000 common shares of stock for cash proceeds of
$100,000. No funding cost was
incurred.
|
Significant
common share transactions during the year ended December 31, 2009 are as
follows:
|
|
|
BioTime issued 2,493,374 common shares of stock upon conversion of its
line of credit and associated accrued interest of
$4,134,424.
|
|
|
|
BioTime issued 153,206 common shares of stock to the line of credit
holders as inducement to extend loans to BioTime or to extend the maturity
of the line of credit. These shares were valued at $304,181
based on the fair value of shares granted on the date of the
transactions.
|
|
|
|
BioTime issued 4,400,000 common shares of stock and 4,400,000
warrants for BioTime’s common shares for cash proceeds of
$8,000,000. No funding cost was
incurred.
|
|
|
|
BioTime
received total cash of $848,449 and $1,616,342 for the exercise of 535,832
options and 808,171 warrants, respectively. Average cash
receipts were $1.583 for options and $2.00 for
warrants.
|
|
|
|
OncoCyte Corporation (a newly formed subsidiary) sold approximately 26%
of its common shares for $4,000,000 to a principal shareholder of
BioTime. This amount is included as noncontrolling interest in
the consolidated financial
statements.
|
8. Stock
Option Plans
During
1992, BioTime adopted the 1992 Stock Option Plan (the "1992
Plan"). Options granted under the 1992 Plan expire five to ten years
from the date of grant and may be fully exercisable immediately, or may be
exercisable according to a schedule or conditions specified by the Board of
Directors or the Option Committee. As of December 31, 2008, options
to purchase 59,500 shares were outstanding at an exercise price of $11.75 under
the 1992 Plan. At December 31, 2008, no options were available for
future grants under the 1992 Plan.
During
2002, BioTime adopted the 2002 Plan, which was amended during December 2004 to
reserve 2,000,000 common shares for issuance under options granted to eligible
persons. During October 2007 and August 2009, the Board of Directors
approved amendments to the 2002 Plan to make an additional 4,000,000 common
shares available under the 2002 Plan. The 2007 and 2009 amendments
were approved by BioTime’s shareholders in October 2009. No options
may be granted under the 2002 Plan more than ten years after the date upon which
the 2002 Plan was adopted by the Board of Directors, and no options granted
under the 2002 Plan may be exercised after the expiration of ten years from the
date of grant. Under the 2002 Plan, options to purchase common shares
may be granted to employees, directors and certain consultants at prices not
less than the fair market value at date of grant for incentive stock options and
not less than 85% of fair market value for other stock
options. Options may be fully exercisable immediately, or may be
exercisable according to a schedule or conditions specified by the Board of
Directors or the Compensation Committee. The 2002 Plan also permits
BioTime to sell common shares to employees subject to vesting provisions under
restricted stock agreements that entitle BioTime to repurchase unvested shares
at the employee’s cost upon the occurrence of specified events, such as
termination of employment. BioTime may permit employees or
consultants, but not executive officers or directors, who purchase stock under
restricted stock purchase agreements to pay for their shares by delivering a
promissory note that is secured by a pledge of their shares. Under
the 2002 Plan, as of December 31, 2009, BioTime had granted to certain
employees, consultants, and directors, options to purchase a total of 3,602,000
common shares at exercise prices ranging from $0.32 to $4.97 per
share.
In
October 2007, BioTime granted certain executives options to purchase 2,000,000
common shares (the “Executive Options”) under BioTime’s 2002 Employee Stock
Option Plan, as amended (the “2002 Plan”). The exercise price of the
Executive Options is $0.50 per share. The Executive Options will vest
at the rate of 1/60th of the number of Executive Options granted at the end of
each full month of employment.
The
vested portion of each executive’s Executive Options shall expire on the
earliest of (A) seven (7) years from the date of grant, (B) three months after
the executive ceases to be an employee of BioTime for any reason other than his
death or disability, or (C) one year after he ceases to be an employee of
BioTime due to his death or disability; provided that if he dies during the
three month period described in clause (B), the expiration date of the vested
portion of this Option shall be one year after the date of his
death.
The
Executive Options were originally paired with stock appreciation rights ("SARs")
with respect to 1,302,030 shares. The SARs expired during October
2009, under their terms, when BioTime’s shareholders approved an amendment to
the 2002 Plan increasing the number of common shares available under the 2002
Plan from 2,000,000 to 4,000,000 shares.
On
January 1, 2006, BioTime adopted a new accounting pronouncement, which requires
the measurement and recognition for all share-based payment awards made to
BioTime’s employees and directors including employee stock
options. The following table summarizes stock-based compensation
expense related to employee and director stock options awards for the years
ended December 31, 2009 and 2008, which was allocated as follows:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
All
stock-based compensation expense:
|
|
|
|
|
|
|
|
Research
and Development
|
|
$ |
150,899 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
337,665 |
|
|
|
206,321 |
|
|
Stock
appreciation rights/(reversal)
|
|
|
(483,688 |
) |
|
|
470,537 |
|
| |
|
|
|
|
|
|
|
|
|
All
stock-based compensation expense included in expenses
|
|
$ |
4,876 |
|
|
$ |
676,858 |
|
BioTime
adopted a new accounting pronouncement using the modified prospective transition
method of accounting for options granted on or after January 1,
2006. As of December 31, 2009, total unrecognized compensation costs
related to unvested stock options was $2,360,829, which is expected to be
recognized as expense over a weighted average period of approximately 5.09
years.
For all
applicable periods, the value of each employee or director stock option was
estimated on the date of grant using the Black-Scholes Merton model for the
purpose of the pro forma financial disclosures in accordance with a new
accounting pronouncement.
The
weighted-average estimated fair value of stock options granted during the years
ended December 31, 2009 and 2008 was $3.28 and $0.71 per share, respectively,
using the Black-Scholes Merton model with the following weighted-average
assumptions:
|
|
Year
Ended
|
Year
Ended
|
|
|
December 31, 2009
|
December 31, 2008
|
|
Expected
life (in years)
|
6.24
|
5
|
|
Risk
free interest rates
|
5.71%
|
3.22%
|
|
Volatility
|
115.49%
|
104%
|
|
Dividend
yield
|
0%
|
0%
|
For
options granted prior to 2006 and valued in accordance with GAAP, the expected
life and the expected volatility of the stock options were based upon historical
data. Forfeitures of employee stock options were accounted for on an
as-incurred basis.
General
Option Information
A summary
of all option activity under the 1992 Plan and 2002 Plan for the years ended
December 31, 2009 and 2008 is as follows:
|
|
|
Options
Available for Grant
|
|
Number
of Options Outstanding
|
|
Weighted
Average Exercise Price
|
|
|
January
1, 2008
|
|
|
726,168
|
|
3,333,332
|
|
$
|
1.72
|
|
|
Granted1
|
|
|
(60,000)
|
|
60,000
|
|
|
0.55
|
|
|
Exercised
|
|
|
-
|
|
(25,000)
|
|
|
0.32
|
|
|
Forfeited/expired
|
|
|
80,000
|
|
(80,000)
|
|
|
1.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
746,168
|
|
3,288,332
|
|
$
|
0.97
|
|
|
Added
via Amendment to 2002 Plan2
|
|
|
2,000,000
|
|
-
|
|
|
-
|
|
|
Granted
|
|
|
(699,000)
|
|
699,000
|
|
|
3.28
|
|
|
Exercised1
|
|
|
-
|
|
(410,832)
|
|
|
1.73
|
|
|
Forfeited/Expired
|
|
|
40,000
|
|
(99,500)
|
|
|
7.90
|
|
|
December
31, 2009
|
|
|
2,087,168
|
|
3,477,000
|
|
$
|
1.13
|
|
1This
table excludes 250,000 options which were granted in 2008 outside the 1992
Plan and 2002 Plan, of which 125,000 were exercised in 2009.
2During
October 2009, the 2002 Plan was amended to make 2,000,000 additional common
shares available for the grant of options.
Additional
information regarding options outstanding as of December 31, 2009 is as
follows:
| |
|
|
|
|
|
Options
Outstanding
|
|
|
|
|
|
Options
Exercisable
|
|
|
Range
of Exercise
Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Avg. Remaining Contractual
Life
|
|
|
Weighted
Avg. Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted Avg. Exercise
Price
|
|
| |
|
|
|
|
|
(yrs)
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $.32-$.47 |
|
|
|
467,000 |
|
|
|
2.84 |
|
|
$ |
0.33 |
|
|
|
467,000 |
|
|
$ |
0.33 |
|
| .50 |
|
|
|
2,000,000 |
|
|
|
4.78 |
|
|
|
.50 |
|
|
|
866,667 |
|
|
|
0.50 |
|
| .68-1.26 |
|
|
|
65,000 |
|
|
|
2.81 |
|
|
|
0.88 |
|
|
|
65,000 |
|
|
|
0.88 |
|
| 2.00-4.97 |
|
|
|
945,000 |
|
|
|
4.45 |
|
|
|
2.95 |
|
|
|
399,292 |
|
|
|
2.34 |
|
| $0.32-$4.97 |
|
|
|
3,477,000 |
|
|
|
4.39 |
|
|
$ |
1.13 |
|
|
|
1,797,958 |
|
|
$ |
0.88 |
|
9. Commitments
and Contingencies
During
April 2008, BioTime relocated its principal office and laboratory to a facility
located at Harbor Bay Parkway in Alameda, California, under a three year
sublease, which has since been converted to a direct lease between BioTime and
the building owner. The lease includes approximately 11,000 square
feet of office and laboratory space and will expire on November 30,
2010. Base monthly rent was $22,600 during 2009, increasing to
$23,340 during 2010. In addition to base rent, BioTime pays a pro
rata share of real property taxes and certain costs related to the operation and
maintenance of the building in which the leased premises are
located.
BioTime
executed an early termination of its lease of office and laboratory space at
Heritage Square in Emeryville, California. The lease would have
expired on May 31, 2010, but BioTime was able to negotiate an early release by
paying base rent and other lease expenses through October 2009, plus two
additional months of base rent.
Rent
expenses totaled $682,982 and $527,682 for the years ended December 31, 2009 and
2008, respectively. Remaining minimum annual lease payments under the
Alameda lease for the year ending after December 31, 2009 is as
follows:
|
Year
Ending December 31,
|
Minimum
lease payments
|
|
2010
|
$256,729
|
Indemnification – Under
BioTime’s bylaws, BioTime has agreed to indemnify its officers and directors for
certain events or occurrences arising as a result of the officer or director
serving in such capacity. The term of the indemnification period is for the
officer’s or director’s lifetime. The maximum potential amount of future
payments that BioTime could be required to make under the indemnification
provisions contained in BioTime’s bylaws is unlimited. However,
BioTime has a directors and officers liability insurance policy that limits its
exposure and enables it to recover a portion of any future amounts
paid. As a result of the insurance policy coverage, BioTime believes
the estimated fair value of these indemnification agreements is minimal and no
liabilities were recorded for these agreements as of December 31,
2009.
Under the
license agreements with Hospira and CJ, BioTime will indemnify Abbott
Laboratories (Hospira’s predecessor), Hospira, and/or CJ for any cost or expense
resulting from any third party claim or lawsuit arising from alleged patent
infringement, as defined, by Abbott, Hospira, or CJ relating to actions covered
by the applicable license agreement. Management believes that the
possibility of payments under the indemnification clauses is
remote. Therefore, BioTime has not recorded a provision for potential
claims as of December 31, 2009. BioTime enters into indemnification provisions
under (i) agreements with other companies in the ordinary course of business,
typically with business partners, licensees, licensors, contractors, hospitals
at which clinical studies are conducted, and landlords, and (ii) agreements with
investors, underwriters, investment bankers, and financial
advisers. Under these provisions, BioTime generally agrees to
indemnify and hold harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of BioTime’s activities or, in
some cases, as a result of the indemnified party’s activities under the
agreement. These indemnification provisions often include
indemnifications relating to representations made by BioTime with regard to
intellectual property rights. These indemnification provisions
generally survive termination of the underlying agreement. In some
cases, BioTime has obtained liability insurance providing coverage that limits
its exposure for indemnified matters. The maximum potential amount of
future payments that BioTime could be required to make under these
indemnification provisions is unlimited. BioTime has not incurred
material costs to defend lawsuits or settle claims related to these
indemnification agreements. As a result, BioTime believes the
estimated fair value of these agreements is minimal. Accordingly,
BioTime has no liabilities recorded for these agreements as of December 31,
2009.
10. Income
Taxes
The
primary components of the net deferred tax assets at December 31, 2009 and 2008
were as follows:
|
|
|
2009
|
|
|
2008
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$ |
19,418,000 |
|
|
$ |
16,760,000 |
|
|
Research
& development and other credits
|
|
|
1,951,000 |
|
|
|
1,935,000 |
|
|
Other,
net
|
|
|
363,000 |
|
|
|
1,276,000 |
|
|
Total
|
|
|
21,732,000 |
|
|
|
19,971,000 |
|
|
Valuation
allowance
|
|
|
(21,732,000 |
) |
|
|
(19,971,000 |
) |
|
Net
deferred tax assets
|
|
$ |
-0- |
|
|
$ |
-0- |
|
Income
taxes differed from the amounts computed by applying the U.S. federal income tax
of 34% to pretax losses from operations as a result of the
following:
|
Year Ended December 31,
|
2009
|
2008
|
|
|
|
|
|
Computed
tax benefit at federal statutory rate
|
(34%)
|
(34%)
|
|
Permanent
differences
|
0%
|
8%
|
|
Losses
for which no benefit has been recognized
|
41%
|
34%
|
|
State
tax benefit, net of effect on federal income taxes
|
(6%)
|
(6%)
|
|
Research
and development and other credits
|
(1%)
|
(2%)
|
|
|
0%
|
0%
|
As of
December 31, 2009, BioTime has net operating loss carryforwards of approximately
$53,000,000 for federal and $23,800,000 for state tax purposes, which expire
through 2028. In addition, BioTime has tax credit carryforwards for
federal and state tax purposes of $1,028,000 and $923,000, respectively, which
expire through 2029.
No tax
benefit has been recorded through December 31, 2009 because of the net operating
losses incurred and a full valuation allowance has been provided. A valuation
allowance is provided when it is more likely than not that some portion of the
deferred tax assets will not be realized. BioTime established a 100% valuation
allowance for all periods presented due to the uncertainty of realizing future
tax benefits from its net operating loss carryforwards and other deferred tax
assets.
Internal
Revenue Code Section 382 places a limitation (the “Section 382 Limitation”) on
the amount of taxable income that can be offset by net operating loss (“NOL”)
carryforwards after a change in control (generally greater than 50% change in
ownership within a three-year period) of a loss corporation. California has
similar rules. Generally, after a control change, a loss corporation cannot
deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these
“change in ownership” provisions, utilization of the NOL and tax credit
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods.
11. Enterprise-wide
Disclosures
Geographic
Area Information
Revenues,
including license fees, royalties, grant income, and other revenues by
geographic area are based on the country of domicile of the licensee or
grantor.
|
Geographic
Area
|
|
Revenues
for the Year ending December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
1,548,995 |
|
|
$ |
1,225,793 |
|
|
Asia
|
|
|
376,173 |
|
|
|
277,999 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$ |
1,925,168 |
|
|
$ |
1,503,792 |
|
All of
BioTime’s assets are located at its Alameda, California facility.
Major
Sources of Revenues
BioTime
has three major customers and one major grant comprising significant amounts of
total revenues.
All of
BioTime’s royalty revenues were generated through sales of Hextend by Hospira in
the United States and by CJ in the Republic of Korea. BioTime also
earned license fees from CJ and Summit.
BioTime
was also awarded a $4,721,706 grant for a stem cell research project related to
its ACTCellerate™
technology by CIRM in April 2009. The CIRM grant covers the period of
September 1, 2009 through August 31, 2012, and as of December 31, 2009, BioTime
had received the first two quarterly payments from CIRM in the amount of
$395,096 each.
The
following table shows the relative portions of BioTime’s Hextend and PentaLyte
royalty and license fee revenues paid by Hospira, CJ, and Summit that were
recognized during the years ended December 31, 2009 and 2008, and the CIRM grant
payments recognized during the same periods:
|
Sources
of Revenues
|
%
of Total Revenues for Year ended December 31,
|
|
|
2009
|
2008
|
|
Hospira
|
51.9%
|
81.2%
|
|
CJ
Corp.
|
12%
|
8.9%
|
|
Summit
|
7.6%
|
9.9%
|
|
CIRM
|
28.5%
|
-
|
12.
Subsequent Events
In
February 2010, BioTime received royalties in the amount of $268,700 from Hospira
based on sales of Hextend made by Hospira in the fourth quarter of
2009. This revenue will be reflected in BioTime’s consolidated
financial statements for the first quarter of 2010.
BioTime
expects to receive royalties in the amount of $24,673 from CJ in February 2010
based on sales of Hextend made by CJ in the fourth quarter of
2009. This revenue will be reflected in BioTime’s consolidated
financial statements for the first quarter of 2010.
Subsequent Events – These
consolidated financial statements were approved by management and the Board of
Directors, and were issued on February 11, 2010. Subsequent events
have been evaluated through this date.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Item 9A(T). Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
It is
management’s responsibility to establish and maintain adequate internal control
over all financial reporting pursuant to Rule 13a-15 under the Securities
Exchange Act of 1934 (the “Exchange Act”). Our management, including
our principal executive officer, our principal operations officer, and our
principal financial officer, have reviewed and evaluated the effectiveness of
our disclosure controls and procedures as of a date within ninety (90) days of
the filing date of this Form 10-K annual report. Following this
review and evaluation,
management collectively determined that our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act (i) is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms, and (ii) is accumulated and communicated to management,
including our chief executive officer, our chief operations officer, and our
chief financial officer, as appropriate to allow timely decisions regarding
required disclosure.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Annual Report on Form 10-K that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial
reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by,
or under the supervision of, our principal executive officer, our principal
operations officer, and our principal financial officer, and effected by our
Board of Directors, management, and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures
that:
|
|
●
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
|
●
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and
directors; and
|
|
|
●
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. The scope of management’s assessment of
the effectiveness of internal control over financial reporting includes our
consolidated subsidiary.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009. Based on this assessment,
management believes that, as of that date, our internal control over financial
reporting was effective.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management's report in
this annual report.
PART
III
Item 10. Directors, Executive Officers, and Corporate
Governance
The name,
age, and background of each of our directors are contained under the caption
“Election of Directors” in our Proxy Statement for our 2010 Annual Meeting of
Shareholders, and are incorporated herein by reference. Information
about our executive officers, Committees of the Board, and compensation of
directors is reported under the caption “Corporate Governance” in our Proxy
Statement for our 2010 Annual Meeting of Shareholders, and is incorporated
herein by reference.
We have a
written Code of Ethics that applies to our principal executive officer, our
principal financial officer and accounting officer, our other executive
officers, and our directors. The purpose of the Code of Ethics is to
promote (i) honest and ethical conduct, including the ethical handling of actual
or apparent conflicts of interest between personal and professional
relationships; (ii) full, fair, accurate, timely, and understandable disclosure
in reports and documents that we file with or submit to the Securities and
Exchange Commission and in our other public communications; (iii) compliance
with applicable governmental rules and regulations, (iv) prompt internal
reporting of violations of the Code to an appropriate person or persons
identified in the Code; and (v) accountability for adherence to the
Code. A copy of our Code of Ethics has been posted on our internet
website and can be found at www.biotimeinc.com.
Information
about our compliance with Section 16(a) of the Securities Exchange Act of 1934
is reported under the caption “Compliance with Section 16(a) of the Securities
Exchange Act of 1934” in our Proxy Statement for our 2010 Annual Meeting of
Shareholders, and is incorporated herein by reference.
Item 11. Executive Compensation
Information
on compensation of our executive officers is reported under the caption
“Executive Compensation” in our Proxy Statement for our 2010 Annual Meeting of
Shareholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial
Owners and Management, and Related Stockholder Matters
Information
on the number of common shares of BioTime stock beneficially owned by each
shareholder known by us to be the beneficial owner of 5% or more of our common
shares, and by each director and named executive officer, and by all directors
and named executive officers as a group is contained under the caption
“Principal Shareholders” in our Proxy Statement for our 2010 Annual Meeting of
Shareholders, and is incorporated herein by reference.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
Information
about transactions with related persons; review, and approval or ratification of
transactions with related persons; and director independence is reported under
the caption “Election of Directors” in our Proxy Statement for our 2010 Annual
Meeting of Shareholders, and is incorporated herein by
reference.
Item 14. Principal Accounting Fees and
Services
Information
about our Audit Committee’s pre-approval policy for audit services, and
information on our principal accounting fees and services is reported under the
caption “Ratification of the Selection of Our Independent Auditors” in our Proxy
Statement for our 2010 Annual Meeting of Shareholders, and is incorporated
herein by reference.
Item 15. Exhibits, Financial Statement
Schedules
(a-1)
Financial Statements.
The
following financial statements of BioTime, Inc. are filed in the Form
10-K:
Consolidated balance
sheets
Consolidated
statements of operations
Consolidated
statements of shareholders' deficit
Consolidated
statements of cash flows
Notes to
Financial Statements
(a-2)
Financial Statement Schedules
All
schedules are omitted because the required information is inapplicable or the
information is presented in the financial statements or the notes
thereto.
|
Exhibit
Numbers
|
|
Description
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation with all amendments.24
|
|
|
|
|
|
3.2
|
|
By-Laws,
As Amended.2
|
|
|
|
|
|
4.1
|
|
Specimen
of Common Share Certificate.1
|
|
|
|
|
|
4.2
|
|
Form
of Warrant Agreement between BioTime, Inc. and American Stock Transfer
& Trust Company3
|
|
|
|
|
|
4.3
|
|
Form
of Amendment to Warrant Agreement between BioTime, Inc. and American Stock
Transfer & Trust Company. 4
|
|
|
|
|
|
4.4
|
|
Form
of Warrant4
|
|
|
|
|
|
4.5
|
|
Warrant
Agreement between BioTime, Inc., Broadwood Partners, L.P., and George
Karfunkel 22
|
|
|
|
|
|
4.6
|
|
Form
of Warrant 22
|
|
|
|
|
|
10.1
|
|
Intellectual
Property Agreement between BioTime, Inc. and Hal Sternberg.1
|
|
|
|
|
|
10.2
|
|
Intellectual
Property Agreement between BioTime, Inc. and Harold Waitz.1
|
|
|
|
|
|
10.3
|
|
Intellectual
Property Agreement between BioTime, Inc. and Judith Segall.1
|
|
|
|
|
|
10.4
|
|
Intellectual
Property Agreement between BioTime, Inc. and Steven Seinberg.7
|
|
10.5
|
|
Agreement
between CMSI and BioTime Officers Releasing Employment Agreements, Selling
Shares, and Transferring Non-Exclusive License.1
|
|
|
|
|
|
10.6
|
|
Agreement
for Trans Time, Inc. to Exchange CMSI Common Stock for BioTime, Inc.
Common Shares.1
|
|
|
|
|
|
10.7
|
|
2002
Stock Option Plan, as amended. 24
|
|
|
|
|
|
10.8
|
|
Exclusive
License Agreement between Abbott Laboratories and BioTime,
Inc. (Portions of this exhibit have been omitted pursuant to a
request for confidential treatment).5
|
|
|
|
|
|
10.9
|
|
Modification
of Exclusive License Agreement between Abbott Laboratories and BioTime,
Inc. (Portions of this exhibit have been omitted pursuant to a request for
confidential treatment).6
|
|
|
|
|
|
10.10
|
|
Exclusive
License Agreement between BioTime, Inc. and CJ Corp.8
|
|
|
|
|
|
10.11
|
|
Hextend
and PentaLyte Collaboration Agreement between BioTime, Inc. and Summit
Pharmaceuticals International Corporation.9
|
|
|
|
|
|
10.12
|
|
Lease
dated as of May 4, 2005 between BioTime, Inc. and Hollis R& D
Associates 10
|
|
|
|
|
|
10.13
|
|
Addendum
to Hextend and PentaLyte Collaboration Agreement Between BioTime Inc. and
Summit Pharmaceuticals International Corporation11
|
|
|
|
|
|
10.14
|
|
Amendment
to Exclusive License Agreement Between BioTime, Inc. and Hospira,
Inc.12
|
|
|
|
|
|
10.15
|
|
Hextend
and PentaLyte China License Agreement Between BioTime, Inc. and Summit
Pharmaceuticals International Corporation.13
|
|
|
|
|
|
10.16
|
|
Employment
Agreement, dated October 10, 2007, between BioTime, Inc. and Michael D.
West.17
|
|
|
|
|
|
10.17
|
|
Commercial
License and Option Agreement between BioTime and Wisconsin Alumni Research
Foundation.14
|
|
|
|
|
|
10.18
|
|
Form
of Amended and Restated Revolving Credit Note.15
|
|
|
|
|
|
10.19
|
|
Third
Amended and Restated Revolving Line of Credit Agreement, March 31,
2008.16
|
|
|
|
|
|
10.20
|
|
Third
Amended and Restated Security Agreement, dated March 31, 2008.16
|
|
|
|
|
|
10.21
|
|
Sublease
Agreement between BioTime, Inc. and Avigen, Inc.17
|
|
|
|
|
|
10.22
|
|
License,
Product Production, and Distribution Agreement, dated June 19, 2008, among
Lifeline Cell Technology, LLC, BioTime, Inc., and Embryome Sciences, Inc.
18
|
|
|
|
|
|
10.23
|
|
License
Agreement, dated July 10, 2008, between Embryome Sciences, Inc. and
Advanced Cell Technology, Inc. 18
|
|
|
|
|
|
10.24
|
|
License
Agreement, dated August 15, between Embryome Sciences, Inc. and Advanced
Cell Technology, Inc. 19
|
|
|
|
|
|
10.25
|
|
Sublicense
Agreement, dated August 15, between Embryome Sciences, Inc. and Advanced
Cell Technology, Inc. 19
|
|
10.26
|
|
Fourth
Amendment of Revolving Line of Credit Agreement.19
|
|
|
|
|
|
10.27
|
|
Fourth
Amendment of Security Agreement.19
|
|
|
|
|
|
10.28
|
|
Stem
Cell Agreement, dated February 23, 2009, between Embryome Sciences, Inc.
and Reproductive Genetics Institute. 20
|
|
|
|
|
|
10.29
|
|
First
Amendment of Commercial License and Option Agreement, dated March 11,
2009, between BioTime and Wisconsin Alumni Research Foundation. 20
|
|
|
|
|
|
10.30
|
|
Employment
Agreement, dated October 10, 2007, between BioTime, Inc. and Robert
Peabody. 20
|
|
|
|
|
|
10.31
|
|
Fifth
Amendment of Revolving Line of Credit Agreement, dated April 15,
2009.21
|
|
|
|
|
|
10.32
|
|
Form
of Amendment of Revolving Credit Note. 21
|
|
|
|
|
|
10.33
|
|
Fifth
Amendment of Security Agreement, dated April 15, 2009. 21
|
|
|
|
|
|
10.34
|
|
Stock
and Warrant Purchase Agreement between BioTime, Inc. and George Karfunkel.
22
|
|
|
|
|
|
10.35
|
|
Stock
and Warrant Purchase Agreement between BioTime, Inc. and Broadwood
Partners, L.P. 22
|
|
|
|
|
|
10.36
|
|
Registration
Rights Agreement between BioTime, Inc., Broadwood Partners, L.P. and
George Karfunkel. 22
|
|
|
|
|
|
10.37
|
|
Co-Exclusive
OEM Supply Agreement, date July 7, 2009, between Embryome Sciences, Inc.
and Millipore Corporation (Portions of this exhibit have been omitted
pursuant to a request for confidential treatment). 23
|
|
|
|
|
|
10.38
|
|
Stock
Purchase Agreement between OncoCyte Corporation and George Karfunkel.24
|
|
|
|
|
|
10.39
|
|
Registration
Rights Agreement between OncoCyte Corporation and George Karfunkel.24
|
|
|
|
|
|
23.1
|
|
Consent
of Rothstein, Kass & Company, P.C. 25
|
|
|
|
|
|
31
|
|
Rule
13a-14(a)/15d-14(a) Certification. 25
|
|
|
|
|
|
32
|
|
Section
1350 Certification. 25
|
|
|
|
|
|
1
|
|
Incorporated
by reference to Registration Statement on Form S-1, File Number 33-44549
filed with the Securities and Exchange Commission on December 18, 1991,
and Amendment No. 1 and Amendment No. 2 thereto filed with the Securities
and Exchange Commission on February 6, 1992 and March 7, 1992,
respectively.
|
|
|
|
|
|
2
|
|
Incorporated
by reference to Registration Statement on Form S-1, File Number 33-48717
and Post-Effective Amendment No. 1 thereto filed with the Securities and
Exchange Commission on June 22, 1992, and August 27, 1992,
respectively.
|
|
|
|
|
|
3
|
|
Incorporated
by reference to Registration Statement on Form S-2, File Number
333-109442, filed with the Securities and Exchange Commission on October
3, 2003, and Amendment No.1 thereto filed with the Securities and Exchange
Commission on November 13,
2003.
|
|
4
|
|
Incorporated
by reference to Registration Statement on Form S-2, File Number
333-128083, filed with the Securities and Exchange Commission on September
2, 2005.
|
|
|
|
|
|
5
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed April 24,
1997.
|
|
|
|
|
|
6
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended June 30,
1999.
|
|
|
|
|
|
7
|
|
Incorporated
by reference to BioTime’s Form 10-K for the year ended December 31,
2001.
|
|
|
|
|
|
8
|
|
Incorporated
by reference to BioTime’s Form 10-K/A-1 for the year ended December 31,
2002.
|
|
|
|
|
|
9
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed December 30,
2004.
|
|
|
|
|
|
10
|
|
Incorporated
by reference to Post-Effective Amendment No. 3 to Registration Statement
on Form S-2 File Number 333-109442, filed with the Securities and Exchange
Commission on May 24, 2005.
|
|
|
|
|
|
11
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed December 20,
2005.
|
|
|
|
|
|
12
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed January 13,
2006.
|
|
|
|
|
|
13
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed March 30,
2006.
|
|
|
|
|
|
14
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed January 9,
2008.
|
|
|
|
|
|
15
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed March 10,
2008.
|
|
|
|
|
|
16
|
|
Incorporated
by reference to BioTime’s Form 8-K filed April 4, 2008.
|
|
|
|
|
|
17
|
|
Incorporated
by reference to BioTime’s Form 10-KSB for the year ended December 31,
2007.
|
|
|
|
|
|
18
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended June 30,
2008.
|
|
|
|
|
|
19
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended September 30,
2008.
|
|
|
|
|
|
20
|
|
Incorporated
by reference to BioTime’s Form 10-K for the year ended December 31,
2008.
|
|
|
|
|
|
21
|
|
Incorporated
by reference to BioTime’s Form 8-K filed April 17,
2009.
|
|
|
|
|
|
22
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended March 31,
2009.
|
|
|
|
|
|
23
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended June 30,
2009.
|
|
|
|
|
|
24
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended September30,
2009.
|
|
|
|
|
|
25
|
|
Filed
herewith.
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on the
12th day of February, 2010.
| |
BIOTIME,
INC.
|
| |
By:
|
/s/Michael D. West
|
|
|
|
Michael D. West, Ph.D.
|
|
|
|
Chief Executive Officer
|
|
Signature
|
|
Title
|
Date
|
|
|
|
|
|
| |
|
|
|
|
/s/Michael D. West
|
|
Chief
Executive Officer and
|
February 12, 2010
|
|
MICHAEL
D. WEST, PH.D.
|
|
Director
(Principal Executive Officer)
|
|
| |
|
|
|
|
/s/Steven A. Seinberg
|
|
Chief
Financial Officer (Principal
|
February 12, 2010
|
|
STEVEN
A. SEINBERG
|
|
Financial
and Accounting Officer)
|
|
| |
|
|
|
|
/s/Neal C. Bradsher
|
|
Director
|
February 12, 2010
|
|
NEAL
C. BRADSHER
|
|
|
|
| |
|
|
|
|
|
|
Director
|
February __, 2010
|
|
ARNOLD
I. BURNS
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
February __, 2010
|
|
ROBERT
N. BUTLER, MD
|
|
|
|
|
|
|
|
|
|
/s/Abraham E. Cohen
|
|
Director
|
February 12, 2010
|
|
ABRAHAM
E. COHEN
|
|
|
|
| |
|
|
|
|
/s/Valeta Gregg
|
|
Director
|
February 12, 2010
|
|
VALETA
GREGG, PH.D.
|
|
|
|
| |
|
|
|
|
|
|
Director
|
February __, 2010
|
|
ALFRED
D. KINGSLEY
|
|
|
|
| |
|
|
|
|
|
|
Director
|
February __, 2010
|
|
PEDRO
LICHTINGER
|
|
|
|
| |
|
|
|
|
/s/Judith Segall
|
|
Director
|
February 12, 2010
|
|
JUDITH
SEGALL
|
|
|
|
|
Exhibit
Numbers
|
|
Description
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation with all amendments.24
|
|
|
|
|
|
3.2
|
|
By-Laws,
As Amended.2
|
|
|
|
|
|
4.1
|
|
Specimen
of Common Share Certificate.1
|
|
|
|
|
|
4.2
|
|
Form
of Warrant Agreement between BioTime, Inc. and American Stock Transfer
& Trust Company3
|
|
|
|
|
|
4.3
|
|
Form
of Amendment to Warrant Agreement between BioTime, Inc. and American Stock
Transfer & Trust Company. 4
|
|
|
|
|
|
4.4
|
|
Form
of Warrant4
|
|
|
|
|
|
4.5
|
|
Warrant
Agreement between BioTime, Inc., Broadwood Partners, L.P., and George
Karfunkel 22
|
|
|
|
|
|
4.6
|
|
Form
of Warrant 22
|
|
|
|
|
|
10.1
|
|
Intellectual
Property Agreement between BioTime, Inc. and Hal Sternberg.1
|
|
|
|
|
|
10.2
|
|
Intellectual
Property Agreement between BioTime, Inc. and Harold Waitz.1
|
|
|
|
|
|
10.3
|
|
Intellectual
Property Agreement between BioTime, Inc. and Judith Segall.1
|
|
|
|
|
|
10.4
|
|
Intellectual
Property Agreement between BioTime, Inc. and Steven Seinberg.7
|
|
|
|
|
|
10.5
|
|
Agreement
between CMSI and BioTime Officers Releasing Employment Agreements, Selling
Shares, and Transferring Non-Exclusive License.1
|
|
|
|
|
|
10.6
|
|
Agreement
for Trans Time, Inc. to Exchange CMSI Common Stock for BioTime, Inc.
Common Shares.1
|
|
|
|
|
|
10.7
|
|
2002
Stock Option Plan, as amended. 24
|
|
|
|
|
|
10.8
|
|
Exclusive
License Agreement between Abbott Laboratories and BioTime,
Inc. (Portions of this exhibit have been omitted pursuant to a
request for confidential treatment).5
|
|
|
|
|
|
10.9
|
|
Modification
of Exclusive License Agreement between Abbott Laboratories and BioTime,
Inc. (Portions of this exhibit have been omitted pursuant to a request for
confidential treatment).6
|
|
|
|
|
|
10.10
|
|
Exclusive
License Agreement between BioTime, Inc. and CJ Corp.8
|
|
|
|
|
|
10.11
|
|
Hextend
and PentaLyte Collaboration Agreement between BioTime, Inc. and Summit
Pharmaceuticals International Corporation.9
|
|
|
|
|
|
10.12
|
|
Lease
dated as of May 4, 2005 between BioTime, Inc. and Hollis R& D
Associates 10
|
|
|
|
|
|
10.13
|
|
Addendum
to Hextend and PentaLyte Collaboration Agreement Between BioTime Inc. and
Summit Pharmaceuticals International Corporation11
|
|
10.14
|
|
Amendment
to Exclusive License Agreement Between BioTime, Inc. and Hospira,
Inc.12
|
|
|
|
|
|
10.15
|
|
Hextend
and PentaLyte China License Agreement Between BioTime, Inc. and Summit
Pharmaceuticals International Corporation.13
|
|
|
|
|
|
10.16
|
|
Employment
Agreement, dated October 10, 2007, between BioTime, Inc. and Michael D.
West.17
|
|
|
|
|
|
10.17
|
|
Commercial
License and Option Agreement between BioTime and Wisconsin Alumni Research
Foundation.14
|
|
|
|
|
|
10.18
|
|
Form
of Amended and Restated Revolving Credit Note.15
|
|
|
|
|
|
10.19
|
|
Third
Amended and Restated Revolving Line of Credit Agreement, March 31,
2008.16
|
|
|
|
|
|
10.20
|
|
Third
Amended and Restated Security Agreement, dated March 31, 2008.16
|
|
|
|
|
|
10.21
|
|
Sublease
Agreement between BioTime, Inc. and Avigen, Inc.17
|
|
|
|
|
|
10.22
|
|
License,
Product Production, and Distribution Agreement, dated June 19, 2008, among
Lifeline Cell Technology, LLC, BioTime, Inc., and Embryome Sciences, Inc.
18
|
|
|
|
|
|
10.23
|
|
License
Agreement, dated July 10, 2008, between Embryome Sciences, Inc. and
Advanced Cell Technology, Inc. 18
|
|
|
|
|
|
10.24
|
|
License
Agreement, dated August 15, between Embryome Sciences, Inc. and Advanced
Cell Technology, Inc. 19
|
|
|
|
|
|
10.25
|
|
Sublicense
Agreement, dated August 15, between Embryome Sciences, Inc. and Advanced
Cell Technology, Inc. 19
|
|
|
|
|
|
10.26
|
|
Fourth
Amendment of Revolving Line of Credit Agreement.19
|
|
|
|
|
|
10.27
|
|
Fourth
Amendment of Security Agreement.19
|
|
|
|
|
|
10.28
|
|
Stem
Cell Agreement, dated February 23, 2009, between Embryome Sciences, Inc.
and Reproductive Genetics Institute. 20
|
|
|
|
|
|
10.29
|
|
First
Amendment of Commercial License and Option Agreement, dated March 11,
2009, between BioTime and Wisconsin Alumni Research Foundation. 20
|
|
|
|
|
|
10.30
|
|
Employment
Agreement, dated October 10, 2007, between BioTime, Inc. and Robert
Peabody. 20
|
|
|
|
|
|
10.31
|
|
Fifth
Amendment of Revolving Line of Credit Agreement, dated April 15,
2009.21
|
|
|
|
|
|
10.32
|
|
Form
of Amendment of Revolving Credit Note. 21
|
|
|
|
|
|
10.33
|
|
Fifth
Amendment of Security Agreement, dated April 15, 2009. 21
|
|
|
|
|
|
10.34
|
|
Stock
and Warrant Purchase Agreement between BioTime, Inc. and George Karfunkel.
22
|
|
|
|
|
|
10.35
|
|
Stock
and Warrant Purchase Agreement between BioTime, Inc. and Broadwood
Partners, L.P. 22
|
|
10.36
|
|
Registration
Rights Agreement between BioTime, Inc., Broadwood Partners, L.P. and
George Karfunkel. 22
|
|
|
|
|
|
10.37
|
|
Co-Exclusive
OEM Supply Agreement, date July 7, 2009, between Embryome Sciences, Inc.
and Millipore Corporation (Portions of this exhibit have been omitted
pursuant to a request for confidential treatment). 23
|
|
|
|
|
|
10.38
|
|
Stock
Purchase Agreement between OncoCyte Corporation and George Karfunkel.24
|
|
|
|
|
|
10.39
|
|
Registration
Rights Agreement between OncoCyte Corporation and George Karfunkel. 24
|
|
|
|
|
|
|
|
Consent
of Rothstein, Kass & Company, P.C. 25
|
|
|
|
|
|
|
|
Rule
13a-14(a)/15d-14(a) Certification. 25
|
|
|
|
|
|
|
|
Section
1350 Certification. 25
|
|
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|
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|
1
|
|
Incorporated
by reference to Registration Statement on Form S-1, File Number 33-44549
filed with the Securities and Exchange Commission on December 18, 1991,
and Amendment No. 1 and Amendment No. 2 thereto filed with the Securities
and Exchange Commission on February 6, 1992 and March 7, 1992,
respectively.
|
|
|
|
|
|
2
|
|
Incorporated
by reference to Registration Statement on Form S-1, File Number 33-48717
and Post-Effective Amendment No. 1 thereto filed with the Securities and
Exchange Commission on June 22, 1992, and August 27, 1992,
respectively.
|
|
|
|
|
|
3
|
|
Incorporated
by reference to Registration Statement on Form S-2, File Number
333-109442, filed with the Securities and Exchange Commission on October
3, 2003, and Amendment No.1 thereto filed with the Securities and Exchange
Commission on November 13, 2003.
|
|
|
|
|
|
4
|
|
Incorporated
by reference to Registration Statement on Form S-2, File Number
333-128083, filed with the Securities and Exchange Commission on September
2, 2005.
|
|
|
|
|
|
5
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed April 24,
1997.
|
|
|
|
|
|
6
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended June 30,
1999.
|
|
|
|
|
|
7
|
|
Incorporated
by reference to BioTime’s Form 10-K for the year ended December 31,
2001.
|
|
|
|
|
|
8
|
|
Incorporated
by reference to BioTime’s Form 10-K/A-1 for the year ended December 31,
2002.
|
|
|
|
|
|
9
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed December 30,
2004.
|
|
|
|
|
|
10
|
|
Incorporated
by reference to Post-Effective Amendment No. 3 to Registration Statement
on Form S-2 File Number 333-109442, filed with the Securities and Exchange
Commission on May 24, 2005.
|
|
|
|
|
|
11
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed December 20,
2005.
|
|
|
|
|
|
12
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed January 13,
2006.
|
|
13
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed March 30,
2006.
|
|
|
|
|
|
14
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed January 9,
2008.
|
|
|
|
|
|
15
|
|
Incorporated
by reference to BioTime’s Form 8-K, filed March 10,
2008.
|
|
|
|
|
|
16
|
|
Incorporated
by reference to BioTime’s Form 8-K filed April 4, 2008.
|
|
|
|
|
|
17
|
|
Incorporated
by reference to BioTime’s Form 10-KSB for the year ended December 31,
2007.
|
|
|
|
|
|
18
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended June 30,
2008.
|
|
|
|
|
|
19
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended September 30,
2008.
|
|
|
|
|
|
20
|
|
Incorporated
by reference to BioTime’s Form 10-K for the year ended December 31,
2008.
|
|
|
|
|
|
21
|
|
Incorporated
by reference to BioTime’s Form 8-K filed April 17,
2009.
|
|
|
|
|
|
22
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended March 31,
2009.
|
|
|
|
|
|
23
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended June 30,
2009.
|
|
|
|
|
|
24
|
|
Incorporated
by reference to BioTime’s Form 10-Q for the quarter ended September 30,
2009.
|
|
|
|
|
|
25
|
|
Filed
herewith.
|